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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year
ended December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition
period from 
to
 Commission file number 0-9827
 PHI, INC.
  Louisiana
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2001 SE Evangeline Thruway
Lafayette, Louisiana 70508
(337) 235-2452
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredVoting Common Stock
    
    The NASDAQ Global MarketNon-Voting Common Stock
    
    The NASDAQ Global Market
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
   Voting Common Stock
    
    2,852,616 shares.Non-Voting Common Stock
    
    12,448,992 shares.
 Documents Incorporated by Reference




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##### 



PHI, INC.
 INDEX  FORM 10-K
 PART IItem 1.
    
    Business
    
    1Item 1A.
    
    Risk Factors
    
    4Item 1B.
    
    Unresolved Staff Comments
    
    10Item 2.
    
    Properties
    
    11Item 3.
    
    Legal Proceedings
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    13PART IIItem 5.
    
    Market for Registrants Common Equity, Related
Shareholders Matters and Issuer Purchases of Equity Securities
    
    13Item 6.
    
    Selected Financial Data
    
    15Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    15Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    26Item 8.
    
    Financial Statements and Supplementary Data
    
    27PHI, Inc. and Consolidated Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    27Consolidated Balance Sheets
 Years ended December 31, 2008 and 2007
    
    28Consolidated Statements of Operations
 Years ended December 31, 2008, 2007 and 2006
    
    29Consolidated Statements of Shareholders Equity
 Years ended December 31, 2008, 2007, and 2006
    
    30Consolidated Statements of Cash Flows
 Years ended December 31, 2008, 2007, and 2006
    
    31Notes to Consolidated Financial Statements
    
    32Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    56Item 9A.
    
    Controls and Procedures
    
    56Report of Independent Registered Public Accounting Firm
    
    57Item 9B.
    
    Other Information
    
    58PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    58Item 11.
    
    Executive Compensation
    
    58Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    58Item 13.
    
    Certain Relationships, Related Transactions and Director Independence
    
    58Item 14.
    
    Principal Accounting Fees and Services
    
    58PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    59Signatures
    
    62EX-10.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
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PART I
 Forward-Looking Statements
  
 ITEM 1.
    
    BUSINESS
 General
  Description of Operations
  Oil and Gas.
  1




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Air Medical
   Revenue
    
    Accounts ReceivableYear Ended December 31,
    
    Year Ended December 31,2008
    
    2007
    
    2006
    
    2008
    
    2007
    
    2006Gross billings
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Provision for contractual discounts
    
    
    47
    %
    
    
    44
    %
    
    
    42
    %
    
    
    35
    %
    
    
    33
    %
    
    
    32
    %Provision for uncompensated care
    
    
    11
    %
    
    
    12
    %
    
    
    12
    %
    
    
    20
    %
    
    
    20
    %
    
    
    22
    %
  Year Ended December 31,2008
    
    2007
    
    2006Medicaid
    
    
    11
    %
    
    
    10
    %
    
    
    11
    %Medicare
    
    
    18
    %
    
    
    16
    %
    
    
    14
    %Insurance
    
    
    67
    %
    
    
    71
    %
    
    
    70
    %Self Pay
    
    
    4
    %
    
    
    3
    %
    
    
    5
    %
  Technical Services.
 2




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Seasonal Aspects
  Inventories
  Customers
  Competition
    Employees
   3




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Environmental Matters
  Availability of SEC filings and other information
 www.sec.gov
 
 ITEM 1A.
    
    Risk Factors
  RISKS INHERENT IN OUR BUSINESS
 The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
  Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
   4




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Our operations are affected by adverse weather conditions and seasonal factors.
  
    
    the tropical storm and hurricane season in the Gulf of Mexico;
    
    poor weather conditions that often prevail during winter and can develop in any season; and
    
    reduced daylight hours during the winter months.
    We may not be able to obtain acceptable customer contracts covering some of our new helicopters,
and there will be a delay between the time that a helicopter is delivered to us and the time that
it can begin generating revenues.
    Our contracts generally can be terminated or downsized by our customers without penalty.
  5




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Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
      The helicopter services business is highly competitive.
    Our air medical operations expose us to numerous special risks, including collection risks, high
start-up costs and potential medical malpractice claims.
  6




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Our international operations are subject to political, economic and regulatory uncertainty.
  
    
    political, social and economic instability;
    
    terrorism, kidnapping and extortion;
    
    potential seizure or nationalization of assets;
    
    import-export quotas; and
    
    currency fluctuations or devaluation.
  
    
    the awarding of contracts to local contractors;
    
    the employment of local citizens; and
    
    the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership.
 Our failure to attract and retain qualified personnel could adversely affect us.
  RISKS SPECIFIC TO OUR COMPANY
 We are highly dependent on the offshore oil and gas industry.
  
    
    the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand;
    
    weather-related or other natural causes;
    
    actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels;
    
    general economic conditions in the United States and worldwide;
    
    war, civil unrest or terrorist activities;
    
    governmental regulation; and
    
    the price and availability of alternative fuels.
 7




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Our pilot workforce is represented by the Office and Professional Employees International Union,
with which the Company is engaged in strike-related litigation.
  We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
  The current credit crisis may have an adverse impact on our business and financial condition in
ways that we currently cannot predict.
  General economic conditions and recent market events may expose our Company to new risks.
  8




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Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
  Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
    
    
    require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other
general corporate purposes, or to carry out other aspects of our business plan;
    
    increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand
competitive pressures;
    
    limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
    
    place us at a competitive disadvantage compared to our competitors that have less debt; and
    
    limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our
business plan.
  Our stock has a low trading volume.
  We do not pay dividends.
  9




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Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
    
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  10




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ITEM 2.
    
    PROPERTIES
 Aircraft
  Appr. RangeManufacturer
    
    Type
    
    Number in Fleet
    
    Engine
    
    Passengers
    
    Cruise Speed (mph)
    
    (miles)(2)Light AircraftBell
    
    206 / 407
    
    100
    
    Turbine
    
    
    4  6
    
    
    
    130  150
    
    
    
    300  420Eurocopter
    
    BK-117 / BO-105
    
    8
    
    Twin Turbine
    
    
    4  6
    
    
    
    135
    
    
    
    255  270Eurocopter
    
    EC-135 (1)
    
    35
    
    Twin Turbine
    
    
    7
    
    
    
    143
    
    
    
    382Aerospatiale
    
    AS350 B2 / B3
    
    23
    
    Turbine
    
    
    5
    
    
    
    140
    
    
    
    337  385Medium AircraftBell
    
    212 (1) / 222 (1)230 (1) / 412 (1)/ 430 (1)
    
    16
    
    Twin Turbine
    
    
    8  13
    
    
    
    115    160
    
    
    
    300  370Sikorsky
    
    S-76 (1) A++, C+, C++
    
    47
    
    Twin Turbine
    
    
    12
    
    
    
    150
    
    
    
    400Transport AircraftSikorsky
    
    S-92A(1)
    
    11
    
    Twin Turbine
    
    
    19
    
    
    
    160
    
    
    
    495Total Helicopters
    
    240Fixed WingRockwell(3)
    
    Aero Commander
    
    2
    
    Turboprop
    
    
    6
    
    
    
    300  340
    
    
    
    1,200  1,600Lear Jet(4)
    
    31A(1)
    
    1
    
    Turbojet
    
    
    8
    
    
    
    527
    
    
    
    1,437Cessna(4)
    
    Conquest 441 (1)
    
    3
    
    Turboprop
    
    
    6
    
    
    
    330
    
    
    
    1,200Beech(4)
    
    King Air(1)
    
    3
    
    Turboprop
    
    
    8
    
    
    
    300
    
    
    
    1,380Total Fixed Wing
    
    9Total Aircraft
    
    249
 
 (1)
    
    Equipped to fly under instrument flight rules (IFR). All other types listed
can only fly under visual flight rules (VFR). See Item 1A. Business  Risk
Factors, Risks Inherent In Our Business  Our operations are affected by adverse
weather conditions and seasonal factors.(2)
    
    Based on maintaining a 30-minute fuel reserve.(3)
    
    Aircraft used for corporate purposes.(4)
    
    Aircraft used in the Air Medical segment.   Facilities
  11




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Facility
    
    Lease Expiration
    
    Area
    
    Facilities
    
    CommentsMorgan City
(Louisiana)
    
    June 30, 2013
    
    53 acres
    
    Operational and
maintenance
facilities, landing
pads for 46
helicopters
    
    Options to extend
to June 30, 2018Intracoastal City
(Louisiana)
    
    December 31, 2010
    
    18 acres
    
    Operational and
maintenance
facilities, landing
pads for 45
helicopters
    
    Options to extend
to December 31,
2010Houma-Terrebonne 
Airport (Louisiana)
    
    July 31, 2017
    
    91 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Facility under four
separate leases, of
which two contain
options to extend
thru 2027Galveston (Texas)
    
    May 31, 2021
    
    4 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Lease period to May
31, 2021 with
certain
cancellation
provisionsFourchon
(Louisiana)
    
    February 28, 2013
    
    8 acres
    
    Operational and
maintenance
facilities, landing
pads for 10
helicopters
    
    Facility under
three separate
leases, of which
two contain options
to extend thru 2026
and 2028.
    
 ITEM 3.
    
    LEGAL PROCEEDINGS
  12




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ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  Voting
    
    Non-VotingPeriod
    
    High
    
    Low
    
    High
    
    LowJanuary 1, 2008 to March 31, 2008
    
    $
    33.38
    
    
    $
    26.08
    
    
    $
    33.18
    
    
    $
    28.06April 1, 2008 to June 30, 2008
    
    
    42.00
    
    
    
    30.50
    
    
    
    40.69
    
    
    
    32.14July 1, 2008 to September 30, 2008
    
    
    42.78
    
    
    
    33.65
    
    
    
    41.74
    
    
    
    35.17October 1, 2008 to December 31, 2008
    
    
    39.74
    
    
    
    12.20
    
    
    
    36.99
    
    
    
    8.82January 1, 2007 to March 31, 2007
    
    $
    34.10
    
    
    $
    23.45
    
    
    $
    33.30
    
    
    $
    25.03April 1, 2007 to June 30, 2007
    
    
    32.16
    
    
    
    26.04
    
    
    
    30.72
    
    
    
    25.02July 1, 2007 to September 30, 2007
    
    
    34.00
    
    
    
    19.94
    
    
    
    34.69
    
    
    
    27.02October 1, 2007 to December 31, 2007
    
    
    34.49
    
    
    
    28.85
    
    
    
    35.38
    
    
    
    28.39
    13




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Stock Performance Graph
   
 Cumulative Total Returns as of December 31,
 Index
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008PHI
    
    
    100.00
    
    
    
    105.22
    
    
    
    126.53
    
    
    
    134.69
    
    
    
    126.61
    
    
    
    57.18Peer Group
    
    
    100.00
    
    
    
    127.59
    
    
    
    158.01
    
    
    
    208.34
    
    
    
    251.83
    
    
    
    145.29OSX
    
    
    100.00
    
    
    
    131.92
    
    
    
    193.87
    
    
    
    212.77
    
    
    
    321.03
    
    
    
    129.21Russell 2000
    
    
    100.00
    
    
    
    135.25
    
    
    
    139.75
    
    
    
    163.50
    
    
    
    159.01
    
    
    
    89.68
 14




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Year EndedDecember 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(Thousands)Income Statement DataOperating revenues
    
    $
    509,514
    
    
    $
    446,406
    
    
    $
    413,118
    
    
    $
    363,610
    
    
    $
    291,308Gain on disposition of assets, net
    
    
    4,468
    
    
    
    34,953
    
    
    
    1,910
    
    
    
    1,173
    
    
    
    2,569Net earnings (loss) (1) (2) (3)
    
    
    23,515
    
    
    
    28,218
    
    
    
    (667
    )
    
    
    14,154
    
    
    
    3,972Net earnings (loss) per shareBasic
    
    
    1.54
    
    
    
    1.85
    
    
    
    (0.05
    )
    
    
    1.76
    
    
    
    0.74Diluted
    
    
    1.54
    
    
    
    1.85
    
    
    
    (0.05
    )
    
    
    1.76
    
    
    
    0.72Weighted average shares outstandingBasic
    
    
    15,295
    
    
    
    15,279
    
    
    
    13,911
    
    
    
    8,040
    
    
    
    5,383Diluted
    
    
    15,301
    
    
    
    15,288
    
    
    
    13,911
    
    
    
    8,063
    
    
    
    5,486Cash Flow DataNet cash provided by operating activities
    
    $
    43,798
    
    
    $
    25,226
    
    
    $
    30,324
    
    
    $
    28,020
    
    
    $
    10,905Net cash used in investing activities
    
    
    (47,292
    )
    
    
    (19,464
    )
    
    
    (178,928
    )
    
    
    (137,464
    )
    
    
    (18,594
    )Net cash provided by (used in) financing activities
    
    
    3,228
    
    
    
    (5,157
    )
    
    
    146,388
    
    
    
    108,947
    
    
    
    8,275Balance Sheet Data (4)Current assets
    
    $
    224,620
    
    
    $
    230,029
    
    
    $
    307,689
    
    
    $
    224,265
    
    
    $
    128,405Working capital
    
    
    173,978
    
    
    
    176,633
    
    
    
    254,099
    
    
    
    162,527
    
    
    
    88,716Property and equipment, net
    
    
    528,574
    
    
    
    484,119
    
    
    
    369,465
    
    
    
    311,678
    
    
    
    253,241Total assets
    
    
    777,182
    
    
    
    741,296
    
    
    
    700,970
    
    
    
    549,209
    
    
    
    394,173Total debt
    
    
    203,000
    
    
    
    200,000
    
    
    
    205,500
    
    
    
    204,300
    
    
    
    210,275Shareholders equity
    
    
    452,396
    
    
    
    428,669
    
    
    
    400,125
    
    
    
    239,051
    
    
    
    109,975
 
 (1)
    
    Net earnings in 2008 includes an after tax goodwill impairment charge of $1.6 million
related to our Air Medical segment.(2)
    
    Net earnings in 2007 was impacted due to the pilots strike that commenced September
20, 2006.(3)
    
    Net loss in 2006 includes an after tax charge of $7.7 million related to refinancing of
our 9 3/8% Senior Notes.(4)
    
    As of the end of the period. 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Overview
   15




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Results of Operations
  Year EndedDecember 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    324,147
    
    
    $
    286,118
    
    
    $
    270,707Air Medical
    
    
    174,739
    
    
    
    149,590
    
    
    
    133,397Technical Services
    
    
    10,628
    
    
    
    10,698
    
    
    
    9,014Total operating revenues
    
    
    509,514
    
    
    
    446,406
    
    
    
    413,118Segment
direct expenses(1)Oil and Gas
    
    
    258,160
    
    
    
    250,110
    
    
    
    228,797Air Medical
    
    
    160,910
    
    
    
    137,703
    
    
    
    130,412Technical Services
    
    
    6,883
    
    
    
    6,608
    
    
    
    7,063Total direct expenses
    
    
    425,953
    
    
    
    394,421
    
    
    
    366,272Segment selling, general and administrative expensesOil and Gas
    
    
    1,335
    
    
    
    1,531
    
    
    
    1,150Air Medical
    
    
    8,716
    
    
    
    7,883
    
    
    
    7,384Technical Services
    
    
    76
    
    
    
    59
    
    
    
    38Total selling, general and administrative expenses
    
    
    10,127
    
    
    
    9,473
    
    
    
    8,572Total segment direct and selling, general and administrative expenses
    
    
    436,080
    
    
    
    403,894
    
    
    
    374,844Net segment profit (loss)Oil and Gas
    
    
    64,652
    
    
    
    34,477
    
    
    
    40,760Air Medical
    
    
    5,113
    
    
    
    4,004
    
    
    
    (4,399
    )Technical Services
    
    
    3,669
    
    
    
    4,031
    
    
    
    1,913Total
    
    
    73,434
    
    
    
    42,512
    
    
    
    38,274Other, net (2)
    
    
    4,990
    
    
    
    40,051
    
    
    
    9,946Unallocated selling, general and administrative expenses
    
    
    (21,530
    )
    
    
    (20,753
    )
    
    
    (19,267
    )Interest expense
    
    
    (15,515
    )
    
    
    (16,121
    )
    
    
    (17,243
    )Goodwill impairment charge (3)
    
    
    (2,747
    )
    
    
    
    
    
    
    Loss on debt restructuring
    
    
    
    
    
    
    
    
    
    
    (12,790
    )Earnings (loss) before income taxes
    
    $
    38,632
    
    
    $
    45,689
    
    
    $
    (1,080
    )Flight hoursOil and Gas
    
    
    112,341
    
    
    
    107,812
    
    
    
    119,503Air Medical
    
    
    36,732
    
    
    
    31,341
    
    
    
    29,980Technical Services
    
    
    1,613
    
    
    
    1,216
    
    
    
    1,497Total
    
    
    150,686
    
    
    
    140,369
    
    
    
    150,980Air Medical Transports
    
    
    22,647
    
    
    
    21,710
    
    
    
    20,808Aircraft operated at period endOil and Gas
    
    
    153
    
    
    
    156
    
    
    
    164Air Medical
    
    
    90
    
    
    
    77
    
    
    
    68Technical Services
    
    
    6
    
    
    
    4
    
    
    
    4Total (4)
    
    
    249
    
    
    
    237
    
    
    
    236
 
 (1)
    
    Included in segment direct expense and unallocated selling, general, and administrative
costs are the depreciation expense amounts below: Year Ended December 31,2008
    
    
    2007
    
    
    2006O&G
    
    $
    15,408
    
    
    $
    16,860
    
    
    $
    17,332Air Medical
    
    
    8,283
    
    
    
    8,651
    
    
    
    8,937Tech Services
    
    
    276
    
    
    
    642
    
    
    
    162Total
    
    
    23,967
    
    
    
    26,153
    
    
    
    26,431Unallocated SG&A
    
    $
    2,977
    
    
    $
    3,861
    
    
    $
    3,800
 (2)
    
    Includes gains on disposition of property and equipment, and other income.(3)
    
    The $2.7 million goodwill impairment charge is discussed in Managements Discussion and
Analysis.(4)
    
    Includes 16 aircraft as of December 31, 2008, and 12 aircraft as of December 31, 2007
and 2006 that are customer owned or leased by customers but operated by us. 17




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Year Ended December 31, 2008 compared with Year Ended December 31, 2007
 Combined Operations
 Operating Revenues
 Other Income and Losses
 Direct Expenses
 Selling, General and Administrative Expenses
 Interest Expense
 Goodwill Impairment
 Income Taxes
 Net Earnings
 Segment Discussion
 Oil and Gas
 18




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Air Medical
   19




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##### Table of Contents



Technical Services
  Year Ended December 31, 2007 compared with Year Ended December 31, 2006
 Combined Operations
 Operating Revenues
 Other Income and Losses
 Direct Expenses
 Selling, General and Administrative Expenses
 20




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Interest Expense
 Income Taxes
 Net Earnings
 Segment Discussion
 Oil and Gas
    Air Medical
 21




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Technical Services
   Liquidity and Capital Resources
 General
  22




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##### Table of Contents



Cash Flow
     Financing Activities
  Credit Facility
  Contractual Obligations
  Payment Due by YearBeyondTotal
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2013(Thousands of dollars)Aircraft lease
obligations
    
    
    191,410
    
    
    
    22,823
    
    
    
    23,424
    
    
    
    24,692
    
    
    
    25,360
    
    
    
    25,725
    
    
    
    69,386Other lease
obligations
    
    
    20,186
    
    
    
    3,257
    
    
    
    2,891
    
    
    
    2,364
    
    
    
    1,761
    
    
    
    1,374
    
    
    
    8,539Long term debt
    
    
    203,000
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    $
    414,596
    
    
    $
    26,080
    
    
    $
    29,315
    
    
    $
    27,056
    
    
    $
    27,121
    
    
    $
    227,099
    
    
    $
    77,925
 23




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##### Table of Contents



Critical Accounting Policies and Estimates
     24




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##### Table of Contents



Goodwill
   New Accounting Pronouncements
  25




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   26




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
 
 
 27




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
 December 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,159
    
    
    $
    1,425Short-term investments
    
    
    42,121
    
    
    
    62,970Accounts receivable  netTrade
    
    
    104,912
    
    
    
    95,111Other
    
    
    6,510
    
    
    
    2,973Inventories of spare parts  net
    
    
    58,249
    
    
    
    55,831Other current assets
    
    
    10,687
    
    
    
    11,194Income taxes receivable
    
    
    982
    
    
    
    525Total current assets
    
    
    224,620
    
    
    
    230,029Other
    
    
    23,988
    
    
    
    27,148Property and equipment  net
    
    
    528,574
    
    
    
    484,119Total Assets
    
    $
    777,182
    
    
    $
    741,296LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    25,449
    
    
    $
    28,454Accrued liabilities
    
    
    25,193
    
    
    
    24,942Total current liabilities
    
    
    50,642
    
    
    
    53,396Long-term debt
    
    
    203,000
    
    
    
    200,000Deferred income taxes
    
    
    65,175
    
    
    
    51,644Other long-term liabilities
    
    
    5,969
    
    
    
    7,587Commitments and contingencies (Note 9)Shareholders Equity:Voting common stock  par value of $0.10;12,500,000 shares authorized, 2,852,616 issued and
outstanding
    
    
    285
    
    
    
    285Non-voting common stock  par value of $0.10;Shares authorized:2008  25,000,000; 2007  12,500,000;Issued and outstanding:2008  12,448,992; 2007  12,438,992
    
    
    1,245
    
    
    
    1,244Additional paid-in capital
    
    
    291,262
    
    
    
    291,035Accumulated other comprehensive income
    
    
    45
    
    
    
    61Retained earnings
    
    
    159,559
    
    
    
    136,044Total shareholders equity
    
    
    452,396
    
    
    
    428,669Total Liabilities and Shareholders Equity
    
    $
    777,182
    
    
    $
    741,296
  28




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Operating revenues
    
    $
    509,514
    
    
    $
    446,406
    
    
    $
    413,118Gain on disposition of assets, net
    
    
    4,468
    
    
    
    34,953
    
    
    
    1,910Other, principally interest income
    
    
    522
    
    
    
    5,098
    
    
    
    8,036514,504
    
    
    
    486,457
    
    
    
    423,064Expenses:Direct expenses
    
    
    425,953
    
    
    
    394,421
    
    
    
    366,272Selling, general and
administrative expenses
    
    
    31,657
    
    
    
    30,226
    
    
    
    27,839Interest expense
    
    
    15,515
    
    
    
    16,121
    
    
    
    17,243Goodwill impairment charges
    
    
    2,747
    
    
    
    
    
    
    
    Loss on debt restructuring
    
    
    
    
    
    
    
    
    
    
    12,790475,872
    
    
    
    440,768
    
    
    
    424,144Earnings (loss) before income taxes
    
    
    38,632
    
    
    
    45,689
    
    
    
    (1,080
    )Income tax expense (benefit)
    
    
    15,117
    
    
    
    17,471
    
    
    
    (413
    )Net earnings (loss)
    
    $
    23,515
    
    
    $
    28,218
    
    
    $
    (667
    )Earnings (loss) per share:Basic
    
    $
    1.54
    
    
    $
    1.85
    
    
    $
    (0.05
    )Diluted
    
    $
    1.54
    
    
    $
    1.85
    
    
    $
    (0.05
    )Weighted average shares outstanding:Basic
    
    
    15,295
    
    
    
    15,279
    
    
    
    13,911Diluted
    
    
    15,301
    
    
    
    15,288
    
    
    
    13,911
  29




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
 Accumulated
    
    
    
    
    
    
    TotalVoting
    
    
    Non-Voting
    
    
    Additional
    
    
    Other Com-
    
    
    
    
    
    
    Share-Common Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    prehensive
    
    
    Retained
    
    
    HoldersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at December 31, 2005
    
    
    2,853
    
    
    $
    285
    
    
    
    7,418
    
    
    $
    742
    
    
    $
    129,531
    
    
    $
    
    
    
    $
    108,493
    
    
    $
    239,051Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (667
    )
    
    
    (667
    )Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (590
    )Stock issuance, net
    
    
    
    
    
    
    
    
    
    
    4,867
    
    
    
    487
    
    
    
    160,235
    
    
    
    
    
    
    
    
    
    
    
    160,722Stock options exercised
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    13
    
    
    
    929
    
    
    
    
    
    
    
    
    
    
    
    942Balance at December 31, 2006
    
    
    2,853
    
    
    
    285
    
    
    
    12,424
    
    
    
    1,242
    
    
    
    290,695
    
    
    
    77
    
    
    
    107,826
    
    
    
    400,125Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,218
    
    
    
    28,218Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,202Stock options exercised
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    2
    
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    342Balance at December 31, 2007
    
    
    2,853
    
    
    
    285
    
    
    
    12,439
    
    
    
    1,244
    
    
    $
    291,035
    
    
    
    61
    
    
    
    136,044
    
    
    
    428,669Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,515
    
    
    
    23,515Changes in pension plan assets and
benefit obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,499Stock options exercised
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    228Balance at December 31, 2008
    
    
    2,853
    
    
    $
    285
    
    
    
    12,449
    
    
    $
    1,245
    
    
    $
    291,262
    
    
    $
    45
    
    
    $
    159,559
    
    
    $
    452,396
  30




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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net earnings (loss)
    
    $
    23,515
    
    
    $
    28,218
    
    
    $
    (667
    )Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    26,944
    
    
    
    30,047
    
    
    
    30,297Goodwill impairment
    
    
    2,747
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    13,531
    
    
    
    16,498
    
    
    
    (1,631
    )Gain on asset dispositions
    
    
    (4,468
    )
    
    
    (34,953
    )
    
    
    (1,910
    )Loss on debt restructuring
    
    
    
    
    
    
    
    
    
    
    12,790Other
    
    
    922
    
    
    
    868
    
    
    
    806Changes in operating assets and liabilities:Accounts receivable
    
    
    (13,338
    )
    
    
    (8,790
    )
    
    
    1,985Inventories
    
    
    (2,418
    )
    
    
    (1,492
    )
    
    
    (7,473
    )Income taxes receivable
    
    
    (457
    )
    
    
    110
    
    
    
    (213
    )Other assets
    
    
    1,208
    
    
    
    (1,824
    )
    
    
    177Accounts payable and accrued liabilities
    
    
    (2,754
    )
    
    
    (2,100
    )
    
    
    (6,679
    )Other long-term liabilities
    
    
    (1,634
    )
    
    
    (1,356
    )
    
    
    2,842Net cash provided by operating activities
    
    
    43,798
    
    
    
    25,226
    
    
    
    30,324Investing activities:Purchase of property and equipment
    
    
    (77,590
    )
    
    
    (159,715
    )
    
    
    (123,253
    )Proceeds from asset dispositions
    
    
    18,394
    
    
    
    58,105
    
    
    
    36,809Purchase of short-term investments
    
    
    (43,976
    )
    
    
    (134,241
    )
    
    
    (186,339
    )Proceeds from sale of short-term investments
    
    
    64,826
    
    
    
    224,685
    
    
    
    99,450Other
    
    
    (8,946
    )
    
    
    (8,298
    )
    
    
    (5,595
    )Net cash used in investing activities
    
    
    (47,292
    )
    
    
    (19,464
    )
    
    
    (178,928
    )Financing activities:Proceeds of debt issuance  Senior Notes
    
    
    
    
    
    
    
    
    
    
    200,000Premium and costs to retire debt early
    
    
    
    
    
    
    
    
    
    
    (10,208
    )Repayment of Senior Notes
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (4,857
    )Payments on long-term debt
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Proceeds from line of credit
    
    
    15,800
    
    
    
    37,200
    
    
    
    181,900Payments on line of credit
    
    
    (12,800
    )
    
    
    (42,700
    )
    
    
    (179,700
    )Proceeds from stock issuance
    
    
    
    
    
    
    
    
    
    
    161,155Less related fees and expenses
    
    
    
    
    
    
    
    
    
    
    (433
    )Proceeds from exercise of stock options
    
    
    228
    
    
    
    343
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (469
    )Net cash provided by (used in) financing activities
    
    
    3,228
    
    
    
    (5,157
    )
    
    
    146,388(Decrease) increase in cash and cash equivalents
    
    
    (266
    )
    
    
    605
    
    
    
    (2,216
    )Cash and cash equivalents, beginning of year
    
    
    1,425
    
    
    
    820
    
    
    
    3,036Cash and cash equivalents, end of year
    
    $
    1,159
    
    
    $
    1,425
    
    
    $
    820Supplemental Disclosures Cash Flow InformationAccrued payables related to purchases of property and equipment
    
    $
    1,510
    
    
    $
    1,906
    
    
    $
    
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PHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1)
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of Operations, Basis of Consolidation, and Other General PrinciplesSince its inception, PHI, Inc.s primary business has been to transport personnel and, to a
lesser extent, parts and equipment, to, from and among offshore facilities for customers
engaged in the oil and gas exploration, development, and production industry. The Company
also provides air medical transportation services for hospitals and medical programs, and
aircraft maintenance services to third parties.The consolidated financial statements include the accounts of PHI, Inc. and its subsidiaries
(PHI or the Company) after the elimination of all intercompany accounts and
transactions.A principal stockholder has substantial control. Al A. Gonsoulin, Chairman of the Board and
Chief Executive Officer, beneficially owns stock representing approximately 52% of the total
voting power. As a result, he exercises control over the election of PHIs directors and
the outcome of matters requiring a stockholder vote.Revenue RecognitionThe Company recognizes revenue related to aviation transportation services after the
services are performed or the contractual obligations are met. Aircraft maintenance
services revenues are recognized at the time the repair or services work is completed.
Revenues related to emergency flights generated by the Companys Air Medical segment are
recorded net of contractual allowances under agreements with third party payors when the
services are provided.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.Significant Estimates Include:
        Cash EquivalentsThe Company considers cash equivalents to include demand deposits. Substantially all of the
Companys cash and cash equivalents are maintained in one financial institution in amounts
that typically exceed federally insured limits. The Company has not experienced any losses
in such accounts and believes it is not exposed to significant credit risk.Short-term InvestmentsShort-term investments consist primarily of investment funds, which represent funds
available for current operations. In accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, these short-term investments are classified as
available for sale. The Company has not
 32




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##### Table of Contents



recorded any unrealized gains or losses associated with short-term investments as the
carrying value approximates fair value at December 31, 2008 and 2007.
 Investments included in Other Assets as detailed in Note 7 are comprised of mutual funds.
These investments are amounts related to the liability for the Officers Deferred
Compensation Plan.Inventories of Spare PartsThe Companys inventories are stated at the lower of average cost or market and consist
primarily of spare parts. Portions of the Companys inventories are used parts that are
often exchanged with parts removed from aircraft, reworked to a useable condition according
to manufacturers and FAA specifications, and returned to inventory. The Company uses
systematic procedures to estimate the valuation of the used parts, which includes
consideration of their condition and continuing utility. Reusable aircraft parts are
included in inventory at the average cost of comparable parts. The rework costs are
expensed as incurred. The Company also records an allowance for obsolete and slow-moving
parts, relying principally on specific identification of such inventory. Valuation reserves
related to obsolescence and slow-moving inventory were $7.9 million and $7.5 million at
December 31, 2008 and 2007, respectively.Property and EquipmentThe Company records its property and equipment at cost less accumulated depreciation. For
financial reporting purposes, the Company uses the straight-line method to compute
depreciation based upon estimated useful lives of five to fifteen years for flight equipment
and three to ten years for other equipment. Leasehold improvements are amortized over the
shorter of the life of the respective lease, or the asset, and range from six to ten years.
The salvage value used in calculating depreciation of aircraft ranges from 25% to 54%. The
Company uses accelerated depreciation methods for tax purposes. The cost of scheduled
inspections and modifications for flight equipment are charged to maintenance expense as
incurred. Modifications that enhance the operating performance or extend the useful lives
of the aircraft are capitalized and depreciated over the remaining life of the asset. Upon
selling or otherwise disposing of property and equipment, the Company removes the cost and
accumulated depreciation from the accounts and reflects any resulting gain or loss in
earnings at the time of sale or other disposition.Effective July 1, 2007, the Company changed the estimated residual value of certain aircraft
from 40% to 54%. The Company believes the revised amounts reflect its historical experience
and more appropriately match costs over the estimated useful lives and salvage values of
these assets. The change in residual values of certain aircraft was based on the Companys
experience in sales of such aircraft and industry data which indicated that these aircraft
were retaining on average a salvage value of at least 54% by model type. The effect of this
change for the year ended December 31, 2007 was a reduction in depreciation expense of $1.6
million ($1.0 million after tax or $0.07 per diluted share).The Company reviews its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company measures recoverability of assets to be held
and used by comparing the carrying amount of an asset to future undiscounted net cash flows
that it expects the asset to generate. When an asset is determined to be impaired, the
Company recognizes that impairment amount, which is measured by the amount that the carrying
value of the asset exceeds its fair value. Similarly, the Company reports assets that it
expects to sell at the lower of the carrying amount or fair value less costs to sell.Self-InsuranceThe Company maintains a self-insurance program for a portion of its health care costs.
Self-insurance costs are accrued based upon the aggregate of the liability for reported
claims and the estimated liability for claims incurred but not reported. The Companys
insurance retention is $250,000 per claim through December 31, 2008. As of December 31,
2008 and 2007, the Company had $1.7 million and $1.5 million, respectively, of accrued
liabilities related to health care claims.The Company has an offshore insurance captive to realize savings in reinsurance costs on its
insurance premiums. Amounts paid to the captive in 2008 and 2007 totaled $3.1 million and
$1.5 million,
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##### Table of Contents



respectively. The financial position and operations of the insurance captive were not
significant in 2008 nor 2007. The captive is fully consolidated in the accompanying
financial statements.
 Concentration of Credit RiskFinancial instruments that potentially expose the Company to concentrations of credit risk
consist primarily of short-term investments and trade accounts receivable. Short-term
investments at December 31, 2008 were invested in a U.S. government money market fund, which
invests primarily in treasury bills. The Company does not believe significant credit risk
exists with respect to these securities at December 31, 2008.PHI conducts a majority of its business with major and independent oil and gas exploration
and production companies with operations in the Gulf of Mexico. The Company also provides
services to major medical centers and US governmental agencies. The Company continually
evaluates the financial strength of its customers but generally does not require collateral
to support the customer receivables. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers, current
market conditions, and other information. Amounts are charged off as uncollectible when
collection efforts have been exhausted. The allowance for doubtful accounts in the Oil and
Gas and Technical Services segments was $0.1 million at December 31, 2008 and 2007. The
Companys two largest oil and gas customers accounted for 27% of consolidated operating
revenues for years ended December 31, 2008, 2007, and 2006, respectively. The Company also
carried accounts receivable from these same customers totaling 20% and 22% of net trade
receivables on December 31, 2008 and 2007, respectively.Trade receivables representing amounts due pursuant to air medical services are carried net
of an allowance for estimated contractual adjustments and uncompensated care on unsettled
invoices. The Company monitors its collection experience by payor category within the Air
Medical segment and updates its estimated collections to be realized as deemed necessary.Stock CompensationEffective January 1, 2006, the Company adopted the accounting policies described in SFAS No.
123 (R), Share Based Payment. The Company chose to use the modified prospective method of
transition, and accordingly, no adjustments to prior period financial statements were made.
SFAS No. 123 (R) superseded Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and amended SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123 (R) is similar to the approach described in SFAS No.
123. However, SFAS No. 123 (R) requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. Prior to January 1, 2006, the
Company accounted for share-based payments to employees using the intrinsic value method
and, as such, generally recognized no compensation expense for employee stock options. In
September 2001, the Company underwent a change of control and as a result, all awards issued
prior to the change of control became fully vested. The Company has not issued any shares,
options, or rights under its stock plan since 2001. As no employee stock options were
granted in 2008 and 2007, the adoption of SFAS No. 123 (R) had no impact on the Companys
results of operations for the years ended December 31, 2008 and 2007.Stock-based employee compensation expense relates to restricted stock grants and stock
options that were settled for cash. The employee compensation expense for stock grants and
options settled for cash was $0 for 2008, 2007, and 2006. There have been no stock awards
granted since 2001.Income TaxesThe Company provides for income taxes using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. The deferred tax assets and
liabilities measurement uses enacted tax rates that are expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The
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Company recognizes the effect of any tax rate changes in income of the period that included
the enactment date.
 In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement
No. 109 (FIN No. 48), which clarifies the accounting and disclosure for uncertain tax
positions, as defined. FIN No. 48 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for income taxes.
On January 1, 2007, the Company adopted the provisions of FIN No. 48. Based on the
Companys evaluation, the Company concluded that there are no material uncertain tax
positions, either individually or in the aggregate, requiring recognition in their financial
statements. The Companys evaluation was performed for the tax years ended December 31,
2001 to 2006, the tax years which remained subject to examination by major tax
jurisdictions.Based on a review and evaluation at December 31, 2008, it was determined that there are no
material tax positions requiring recognition for the current tax year. The Companys
evaluation was performed for the tax years ended December 31, 2004 to 2008, the tax years
which remain subject to examination by major tax jurisdictions as of December 31, 2008.Earnings per ShareThe Company computes basic earnings per share by dividing income available to common
stockholders by the weighted average number of common shares outstanding during the period.
The diluted earnings per share computation uses the weighted average number of shares
outstanding adjusted for incremental shares attributed to dilutive outstanding options to
purchase common stock.Deferred Financing CostsCosts of obtaining long term debt financing are deferred and amortized ratably over the term
of the related debt agreement.Derivative Financial InstrumentsThe Company has not engaged in activities involving financial derivatives during the years
2008, 2007, and 2006.New Accounting PronouncementsIn December 2007, the FASB issued SFAS No. 141(R), Business Combinations. The objective
of this statement is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial reports
about a business combination and its effects. SFAS No. 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. Management does not
anticipate that implementation of SFAS No. 141(R) will have a material impact on the
Companys consolidated financial statements.The Company adopted SFAS No. 157, Fair Value Measurements, beginning in its 2008 fiscal
year and there was no material impact to its consolidated financial statements. SFAS No.
157 applies to all assets and liabilities that are being measured and reported on a fair
value basis. SFAS No. 157 requires new disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value measurements. This statement
enables the reader of the financial statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires that assets and
liabilities carried at fair value will be classified and disclosed in one of the following
three categories:Level 1: Quoted market prices in active markets for identical assets or liabilities.Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3: Unobservable inputs that are not corroborated by market data.
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The following table summarizes the valuation of our short-term investments and financial
instruments by the above SFAS No. 157 pricing levels as of the valuation dates listed:
 December 31, 2008Quoted market
    
    
    Significant Otherprices in active
    
    
    Observable InputsTotal
    
    
    markets (Level 1)
    
    
    (Level 2)(Thousands of dollars)Short-term investments
    
    $
    42,121
    
    
    
    
    
    
    $
    42,121Investments included in other assets
    
    
    3,297
    
    
    
    
    
    
    
    3,297Total
    
    $
    45,418
    
    
    
    
    
    
    $
    45,418
 The Company holds its short-term investments in an investment fund consisting mainly of
government backed securities, which is classified as a short-term investment. Investments
included in other assets consist mainly of multiple investment funds that are highly liquid
and diversified.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS No. 159
permits entities to elect to measure at fair value eligible financial instruments that are
not currently measured at fair value. This election, which may be applied on an instrument
by instrument basis, is typically irrevocable once made. SFAS 159 is effective for us as of
January 1, 2008; however, we did not elect to measure any additional financial instruments
at fair value as a result of this statement. Therefore, the adoption of SFAS No. 159 did
not have an effect on our consolidated financial statements.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  An Amendment of ARB No. 51, which establishes new accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, SFAS No. 160 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated financial
statements and separate from the parents equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net income on the face of the
income statement. SFAS No. 160 also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. SFAS No. 160 is effective for
fiscal years, beginning on or after December 15, 2008 and interim periods within those
fiscal years and will be applied retrospectively to all noncontrolling interests including
any that arose before the effective date. Early adoption is prohibited. Management does not
currently expect that implementation of SFAS No. 160 will have any impact on the Companys
consolidated financial statements.In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, which delays the
effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). The delay is intended to allow the FASB and constituents
additional time to consider the effect of various implementation issues that have arisen, or
that may arise, from the application of SFAS No. 157. Management does not anticipate that
implementation of FSP No. 157-2 will have any impact on the Companys consolidated financial
statements.In March 2008 the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133, which requires enhanced
disclosures about an entitys derivative and hedging activities. SFAS No. 161 requires
qualitative disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161
is effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. Management does not anticipate that implementation of SFAS No. 161
will have any impact on the Companys consolidated financial statements.In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, which identifies the sources of accounting principles and the framework for
selecting the
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principles to be used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with accounting principles generally accepted in the United
States of America. Management does not anticipate that implementation of SFAS No. 162 will
have a material impact on the Companys consolidated financial statements.
 In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts. SFAS No. 163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. SFAS No.
163 requires that disclosures about the risk-management activities of the insurance
enterprise be effective for the first period (including interim periods) beginning after
issuance of this statement. Except for those disclosures, earlier application is not
permitted. Management does not currently expect that implementation of SFAS No. 163 will
have a material impact on the Companys consolidated financial statements.In December 2008, the FASB issued FSP No. 132(R)-1, which amends SFAS No. 132(R),
Employers Disclosures about Pensions and Other Postretirement Benefits, to provide
guidance on an employers disclosures about plan assets of a defined benefit pension or
other postretirement plan. The disclosures about plan assets required by this FSP No.
132(R)-1 shall be provided for fiscal years ending after December 15, 2009. Upon initial
application, the provisions of this FSP No. 132(R)-1 are not required for earlier periods
that are presented for comparative purposes. Management does not currently expect that
implementation of FSP No. 132(R)-1 will have a material impact on the Companys consolidated
financial statements.Comprehensive IncomeComprehensive income includes net earnings and other comprehensive income items such as
revenues, expenses, gains or losses that under generally accepted accounting principles are
included in comprehensive income, but excluded from net income.The following table summarizes the components of total comprehensive income (net of taxes):
 Year Ended December 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Net earnings (loss)
    
    $
    23,515
    
    
    $
    28,218
    
    
    $
    (667
    )Changes in
pension plan assets and benefit obligations
    
    
    (16
    )
    
    
    (16
    )
    
    
    77Comprehensive income (loss)
    
    $
    23,499
    
    
    $
    28,202
    
    
    $
    (590
    )
 GoodwillGoodwill represents the excess of the cost of net assets acquired in business combinations
over the fair value of the identifiable tangible and intangible assets acquired and
liabilities assumed in a business combination. In accordance with the provisions of SFAS
No. 142, goodwill is reviewed for impairment annually, as of
December 31 for the most recent
completed fiscal year, or more frequently whenever events or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying amount.
Goodwill is tested for impairment at the reporting unit level using a two-step process. The
first step of the impairment test identifies potential impairment by comparing the fair
value of a reporting unit to its carrying value, including goodwill. If the fair value of a
reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered
impaired and the second step of the impairment test is not required. If the carrying value
of a reporting unit exceeds its fair value, the second step of the impairment test is
performed to measure the amount of impairment loss, if any. The second step of the
impairment test compares the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill. If the carrying value of the reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination.
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In the fourth quarter of 2008, the Company recorded a non-cash charge for the impairment of
goodwill totaling $2.7 million related to a 2004 acquisition as part of planned expansion in
the Air Medical segment. The Company performed its required annual impairment test for
goodwill using a discounted cash flow analysis supported by comparative market multiples to
determine the fair values of the Air Medical segment compared to their book values. The
test, as of December 31, 2008, indicated that the book values for the Air Medical segment
exceeded the fair values of the segment on that basis. The impairment charge is primarily
driven by adverse equity market conditions, which caused a decrease in current market
multiples as of December 31, 2008, compared with the test performed as of December 31, 2007.
As a result of this charge, the Company does not have any goodwill recorded at December 31,
2008.(2)
    
    PROPERTY AND EQUIPMENTThe following table summarizes the Companys property and equipment at
December 31, 2008 and 2007.
 December 31,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Flight equipment
    
    $
    635,733
    
    
    $
    583,076Facility & improvements
    
    
    30,406
    
    
    
    27,610Operating equipment
    
    
    18,477
    
    
    
    16,843Data processing equipment
    
    
    24,153
    
    
    
    23,709Vehicles
    
    
    5,957
    
    
    
    5,253Medical equipment
    
    
    3,993
    
    
    
    3,556Other
    
    
    7,256
    
    
    
    4,858725,975
    
    
    
    664,905Less accumulated depreciation and
amortization
    
    
    (197,401
    )
    
    
    (180,786
    )Property and equipment, net
    
    $
    528,574
    
    
    $
    484,119
 Gain on equipment dispositions was $4.5 million for 2008 compared to $35.0 million for 2007.
These amounts represent gains on sales of aircraft and related parts inventory that no
longer meet the Companys strategic needs.(3)
    
    ACCRUED LIABILITIESAccrued liabilities consisted of the following:
 December 31,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Salaries & wages
    
    $
    7,076
    
    
    $
    9,654Vacation payable
    
    
    3,619
    
    
    
    3,103Interest
    
    
    3,009
    
    
    
    2,974Operating lease
    
    
    4,271
    
    
    
    2,821Group medical
    
    
    1,689
    
    
    
    1,480Transportations tax
    
    
    1,039
    
    
    
    1,195Workers compensation
    
    
    1,501
    
    
    
    1,332Other
    
    
    2,989
    
    
    
    2,383Total accrued liabilities
    
    $
    25,193
    
    
    $
    24,942
 (4)
    
    LONG-TERM DEBTOn April 12, 2006, the Company issued $200.0 million of 7.125% Senior Notes that mature in
2013. These Notes were offered and sold in a private placement under Rule 144A and
Regulation S under the Securities Act of 1933. Net proceeds of $196.0 million were used to
repurchase $184.8 million of the Companys outstanding 9 3/8% Senior Notes due 2009 pursuant
to a tender offer that also closed on April 12, 2006. The total cost to repurchase those
notes was $201.6 million, including the tender offer premium and accrued interest. The
Company called for redemption on May 1, 2006, the remaining $15.2 million of 9
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3/8% notes outstanding, at a redemption price of 104.688% of their face amount plus accrued
and unpaid interest. Interest on the 7.125% notes is payable semi-annually on April 15 and
October 15, and those notes mature April 15, 2013. The estimated annual interest cost of
the new notes is $14.3 million, excluding amortization of issuance costs, which represents a
reduction in annual interest cost on the notes of $4.5 million. As a result of the early
redemption of the 9 3/8% notes, a pretax charge of $12.8 million ($7.7 million, net of tax)
was recorded as a charge for debt restructuring in the quarter ended June 30, 2006, which
consisted of $9.8 million for the early call premium, $2.6 million of unamortized issuance
costs, and $0.4 million in related expenses for the tender of outstanding notes.The new notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of
asset sales, and mergers and consolidations or sales of assets. The Senior Notes are fully
and unconditionally guaranteed on a joint and several senior basis by all of the Companys
Guarantor Subsidiaries, which are all of the domestic subsidiaries. See Note 14 of the
Notes to Consolidated Financial Statements. The Company was in compliance with the
financial covenants applicable to these notes as of December 31, 2008 and 2007.The Company has a $50 million revolving credit facility with a commercial bank, which is
scheduled to expire on September 1, 2010. At December 31, 2008, the Company had $3.0
million in borrowings under the revolving credit facility, and the Company had no borrowings
under the credit facility at December 31, 2007. The Company had five letters of credit for
$5.1 million outstanding at December 31, 2008, and four letters of credit for $4.6 million
outstanding at December 31, 2007. The credit agreement permits both prime rate based
borrowings and LIBOR rate borrowings plus a spread. The spread for LIBOR borrowings is
from 1.25% to 3.0%. The Company will pay an annual 0.25% commitment fee on the unused
portion of the revolving credit facility. The credit agreement includes covenants related
to working capital, funded debt to net worth, and consolidated net worth. As of December
31, 2008 and 2007, the Company was in compliance with these covenants. The credit agreement
is collateralized by accounts receivable and inventory. We reviewed interest expense in
2008 that could be capitalized for certain projects and any such amounts were immaterial.Cash paid for interest was $14.5 million, $15.4 million, and $16.5 million, for the years
ended December 31, 2008, 2007, and 2006, respectively.(5)
    
    INCOME TAXESIncome tax expense (benefit) is composed of the following:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    178
    
    
    
    
    
    
    
    Foreign
    
    
    808
    
    
    
    973
    
    
    
    1,175Deferred  principally
Federal
    
    
    14,131
    
    
    
    16,498
    
    
    
    (1,588
    )Total
    
    $
    15,117
    
    
    $
    17,471
    
    
    $
    (413
    )
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Income tax expense (benefit) as a percentage of pre-tax earnings varies from the effective
Federal statutory rate of 35% as a result of the following:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006(Thousands of dollars, except percentage amounts)Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Income taxes at statutory rate
    
    $
    13,519
    
    
    
    35
    
    
    $
    15,991
    
    
    
    35
    
    
    $
    (367
    )
    
    
    (34
    )Increase (decrease) in taxes
resulting from:Hurricane relief credit
    
    
    (172
    )
    
    
    
    
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    Effect of state income taxes
    
    
    1371
    
    
    
    3
    
    
    
    1,479
    
    
    
    3
    
    
    
    (35
    )
    
    
    (3
    )Other items  net
    
    
    399
    
    
    
    1
    
    
    
    135
    
    
    
    
    
    
    
    (11
    )
    
    
    (1
    )Total
    
    $
    15,117
    
    
    
    39
    
    
    $
    17,471
    
    
    
    38
    
    
    $
    (413
    )
    
    
    (38
    )
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 are presented
below:
 December 31,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Deferred tax assets:Deferred compensation
    
    $
    1,654
    
    
    $
    1,889Foreign tax credits
    
    
    6,359
    
    
    
    6,466Vacation accrual
    
    
    2,010
    
    
    
    2,563Inventory valuation
    
    
    4,164
    
    
    
    4,065Rental accrual
    
    
    1,634
    
    
    
    Allowance for uncollectible accounts
    
    
    19
    
    
    
    19Hurricane relief credit
    
    
    1,255
    
    
    
    1,083Goodwill impairment
    
    
    1,051
    
    
    
    Other
    
    
    347
    
    
    
    770Net operating loss
    
    
    34,201
    
    
    
    28,464Total deferred tax assets
    
    
    52,694
    
    
    
    45,319Valuation allowance  tax credit carryforwards
    
    
    (1,320
    )
    
    
    (1,945
    )Total deferred tax assets, net
    
    
    51,374
    
    
    
    43,374Deferred tax liabilities:Tax depreciation in excess of book depreciation
    
    
    (110,242
    )
    
    
    (88,331
    )Other
    
    
    (84
    )
    
    
    Total deferred tax liabilities
    
    
    (110,326
    )
    
    
    (88,331
    )Net deferred tax liabilities
    
    $
    (58,952
    )
    
    $
    (44,957
    )
 A valuation allowance was recorded against certain foreign tax credits
as management believes it is more likely than not that the deferred tax asset related
to certain foreign tax credit carryforwards will not be realized during their carryforward
period. The estimated future U.S. taxable income, after utilization of the available net
operating loss carryforwards, will limit the ability of the Company to utilize the foreign
tax credit carryforwards during their carryforward period.
Approximately $625,000 of net foreign tax credits, that were
previously reserved for, expired during the current year. A tax credit of $0.2 million and $0.1 million was realized in
2008 and 2007 as a result of Hurricanes Katrina and Rita Legislation. At December 31, 2008
and 2007, other current assets include $6.2 million and $6.6 million, respectively, of
deferred tax assets.The Company has net operating loss carryforwards (NOLs), of approximately $87.0 million
that, if not used will expire beginning in 2022 through 2028. Additionally, for state income
tax purposes, the Company has NOLs of approximately $98.0 million available to reduce future
state taxable income. These NOLs expire in varying amounts beginning in 2012 through 2028,
the majority of which expires in 2017 through
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2020. Most of these NOLs arose from accelerated tax depreciation deductions related to
substantial aircraft additions since 2002.Income taxes paid were approximately $0.2 million, $0.02 million, and $0.1 million for the
years ended December 31, 2008, 2007, and 2006, respectively. The Company received net
income tax refunds of approximately $0.03 million, $0.9 million, and $0.3 million during the
years ended December 31, 2008, 2007 and 2006, respectively.(6)
    
    EMPLOYEE BENEFIT PLANSSavings and Retirement PlansThe Company maintains an Employee Savings Plan under Section 401(k) of
the Internal Revenue Code. The Company matches 2% for every 1% of an
employees salary deferral contribution, not to exceed 3% of the
employees compensation. The Company contributions were $7.9 million
for the year ended December 31, 2008, $7.0 million for the year ended
December 31, 2007 and $6.2 million for the year ended December 31,
2006.The Company maintains a Supplemental Executive Retirement Plan
(SERP). During January 2006, selected active employees were given a
substitute benefit in the Officer Deferred Compensation Plan based on
a calculated present value of the participants interest in the SERP,
except for the four remaining retired participants. As a result,
approximately $2.0 million of the SERP liability was transferred to
the Deferred Compensation Liability in 2006.As of December 31, 2006, the Company adopted SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
  An Amendment of FASB Statements No. 87, 88, 106 and 132(R), for
its SERP plan.The Company recorded the following plan costs for the years ended
December 31, 2008, 2007, and 2006.
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    Interest cost
    
    
    80
    
    
    
    56
    
    
    
    64Recognized actuarial (gain) loss
    
    
    (24
    )
    
    
    (4
    )
    
    
    62Net periodic plan cost
    
    $
    56
    
    
    $
    52
    
    
    $
    126
 The benefit obligation, funded status, and assumptions of the plan on December 31, 2008 and
2007 were as follows:
 December 31,2008
    
    
    2007(Thousands of dollars)Change in benefit obligation:Benefit obligation at the beginning of the year
    
    $
    1,012
    
    
    $
    1,063Service cost
    
    
    
    
    
    
    Interest cost
    
    
    80
    
    
    
    56Actuarial loss (gain)
    
    
    (8
    )
    
    
    24Benefits paid
    
    
    (131
    )
    
    
    (131
    )Transferred to deferred compensation
    
    
    
    
    
    
    Benefit obligation at the end of the year
    
    $
    953
    
    
    $
    1,012Weighted average assumptions
Discount rate
    
    
    5.7
    %
    
    
    5.4
    %
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The benefit obligation amounts recognized in the consolidated balance sheets as of December
31, 2008 and 2007 were as follows:
 December 31,2008
    
    
    2007(Thousands of dollars)Accrued liabilities
    
    $
    131
    
    
    $
    131Other long-term liabilities
    
    
    822
    
    
    
    881Total
    
    $
    953
    
    
    $
    1,012
 The other changes in plan assets and benefit obligations recognized in other comprehensive
income for the years ended December 31, 2008 and 2007 were as follows:
 December 31,2008
    
    
    2007(Thousands of dollars)Net loss (gain)
    
    $
    (8
    )
    
    $
    24Amortization of net loss (gain)
    
    
    24
    
    
    
    4Total recognized in other comprehensive income
    
    $
    16
    
    
    $
    28Total recognized in net periodic benefit cost and
other comprehensive income
    
    $
    72
    
    
    $
    80
 The estimated future benefit payments expected to be paid in each of the next five fiscal
years and in the aggregate for the following five fiscal years as of December 31, 2008 are
as follows (thousands of dollars):
 Years Ending December 31,2009
    
    $
    1312010
    
    
    1312011
    
    
    1312012
    
    
    1312013
    
    
    131Years 2014-2018
    
    
    554$
    1,209
 Amounts recognized in accumulated other comprehensive income consists of approximately
$84,000 and $101,000 pre-tax in unrecognized actuarial gain in 2008 and 2007, respectively.The SERP plan is an unfunded arrangement. However, the Company has purchased life insurance
contracts on the lives of the participants in anticipation of using the life insurances
cash values and death benefits to help fulfill the obligations of the plan. The Company, as
owner of such policies, may sell or redeem the contracts at any time without any obligation
to the plan participants. The Company recorded expenses of approximately $0.1 million for
2008, $0.1 million for 2007, and $0.2 million for 2006 related to the life insurance
contracts. Cash values of the life insurance contracts, recorded in other assets, are $0.3
million at December 31, 2008 and $0.5 million at December 31, 2007.The Company maintains an Officer Deferred Compensation Plan that permits key officers to
defer a portion of their compensation. The plan is nonqualified and funded. The Company
has established a separate account for each participant, which is invested and reinvested
from time to time in investments that the participant selects from a list of eligible
investment choices. Earnings and losses on the book reserve accounts accrue to the plan
participants. Liabilities for the plan are included in other long-term liabilities, and the
corresponding investment accounts are included in other assets. Aggregate amounts deferred
under the plans were $3.3 million and $3.8 million, respectively, for the years December 31,
2008 and 2007.
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##### Table of Contents



Stock Based CompensationUnder the PHI 1995 Incentive Plan (the 1995 Plan), the Company is authorized to issue up
to 175,000 shares of voting common stock and 575,000 shares of non-voting common stock. The
Compensation Committee of the Board of Directors is authorized under the 1995 Plan to grant
stock options, restricted stock, stock appreciation rights, performance shares, stock
awards, and cash awards. The exercise prices of the stock option grants are equal to the
fair market value of the underlying stock at the date of grant. The 1995 Plan also allows
awards under the plan to fully vest upon a change in control of the Company. In September
of 2001, the Company underwent a change of control as defined in the 1995 plan and as a
result, all awards issued prior to the change of control became fully vested.At December 31, 2008, there were 116,520 voting shares and 183,802 non-voting shares
available for issuance under the 1995 Plan. The Company did not record any compensation
expense related to the 1995 Plan for the years ended December 31, 2008, 2007, and 2006.
There was no unearned stock compensation expense at December 31, 2008 and 2007.The following table summarizes employee and director stock option activities for the years
ended December 31, 2008, 2007, and 2006. All of the options were issued with an exercise
price equal to or greater than the market price of the stock at the time of issue.
 1995PlanOptions
    
    WeightedNon-
    
    AverageVoting
    
    Exercise PriceBalance outstanding at
December 31, 2005
    
    
    46,750
    
    
    $
    13.87Options exercised
    
    
    (8,500
    )
    
    
    12.75Options cancelled
    
    
    (500
    )
    
    
    12.75Balance outstanding at
December 31, 2006
    
    
    37,750
    
    
    
    14.14Options exercised
    
    
    (15,000
    )
    
    
    16.25Balance outstanding at
December 31, 2007
    
    
    22,750
    
    
    
    12.75Options exercised
    
    
    (10,000
    )
    
    
    12.75Balance outstanding at
December 31, 2008
    
    
    12,750
    
    
    
    12.75Shares exercisable at
December 31, 2008
    
    
    12,750
    
    
    
    12.75December 31, 2007
    
    
    22,750
    
    
    
    12.75December 31, 2006
    
    
    37,750
    
    
    
    14.14
 The following table summarizes information about stock options outstanding as of December
31, 2008. All of the outstanding stock options are exercisable.
 Options Outstanding and ExercisableRemainingNumber
    
    Contractual
    
    ExerciseOutstanding
    
    Life (Years)
    
    Price12,750
    
    0.5
    
    $12.75
 43




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##### Table of Contents



Incentive CompensationIn 2002, the Company implemented an incentive compensation plan for non-executive and
non-represented employees. For calendar year 2007, the represented pilots were added to
this plan as part of the Companys implemented contract proposals. The plan allows the
Company to pay up to 8.25% of earnings before tax upon achieving a specified earnings
threshold. During 2004, the Company implemented an executive/senior management plan for
certain corporate and business unit management employees. Pursuant to these plans, the
Company accrued an estimated incentive compensation expense of $1.0 million for 2008. The
Company also accrued $0.5 million for the Safety Incentive Bonus for 2008. For the year
ended December 31, 2007, the Company accrued $4.0 million of incentive compensation expense
related to the plans. For 2006, the Company did not record incentive compensation expense
as certain established requirements under the plans were not met.(7)
    
    OTHER ASSETSThe following table summarizes the Companys other assets at December 31, 2008 and 2007.
 December 31,
    
    
    December 31,2008
    
    
    2007(Thousands of dollars)Goodwill
    
    $
    
    
    
    $
    2,747Nonrefundable deposits on aircraft
    
    
    15,183
    
    
    
    13,493Deferred financing cost
    
    
    3,701
    
    
    
    4,468Investments (Officers Deferred Compensation Plan)
    
    
    3,519
    
    
    
    4,089Other
    
    
    1,585
    
    
    
    2,351Total
    
    $
    23,988
    
    
    $
    27,148
 During 2008 and 2007, the Company placed security deposits on aircraft to be leased or
purchased. Upon delivery of the aircraft, the deposits will be applied to the lease or
purchase.(8)
    
    FINANCIAL INSTRUMENTSFair Value The following table presents the carrying amounts and
estimated fair values of financial instruments held by the Company at
December 31, 2008 and 2007. The table excludes cash and cash
equivalents, short-term investments, accounts receivable, accounts
payable and accrued liabilities, all of which had fair values
approximating carrying amounts.
 December 31, 2008
    
    December 31, 2007(Thousands of dollars)Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmounts
    
    Fair Value
    
    Amounts
    
    Fair ValueLong-term debt
    
    $
    203,000
    
    
    $
    118,000
    
    
    $
    200,000
    
    
    $
    191,000
 At December 31, 2008 and 2007, the fair value of long-term debt is based on Level 2 quoted
market indications.(9)
    
    COMMITMENTS AND CONTINGENCIESOperating Leases The Company leases certain aircraft, facilities,
and equipment used in its operations. The related lease agreements,
which include both non-cancelable and month-to-month terms, generally
provide for fixed monthly rentals and, for certain real estate leases,
renewal options. The Company generally pays all insurance, taxes, and
maintenance expenses associated with these aircraft leases and some of
these leases contain renewal and purchase options at fair market
values. Rental expense incurred under these leases consisted of the
following:
 44




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##### Table of Contents



Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Aircraft
    
    $
    20,424
    
    
    $
    19,110
    
    
    $
    15,663Other
    
    
    6,652
    
    
    
    6,715
    
    
    
    5,174Total
    
    $
    27,076
    
    
    $
    25,825
    
    
    $
    20,837
 In September 2001, the Company began leasing a principal operating facility at Lafayette,
Louisiana for twenty years. The lease expires in 2021 and has three five-year renewal
options.The following table presents the remaining aggregate lease commitments under operating
leases having initial non-cancelable terms in excess of one year. The table includes
renewal periods on the principal operating facility lease.
 Aircraft
    
    
    Other
    
    
    Total(Thousands of dollars)2009
    
    $
    22,823
    
    
    $
    3,257
    
    
    $
    26,0802010
    
    
    23,424
    
    
    
    2,891
    
    
    
    26,3152011
    
    
    24,692
    
    
    
    2,364
    
    
    
    27,0562012
    
    
    25,360
    
    
    
    1,761
    
    
    
    27,1212013
    
    
    25,725
    
    
    
    1,374
    
    
    
    27,099Thereafter
    
    
    69,386
    
    
    
    8,539
    
    
    
    77,925$
    191,410
    
    
    $
    20,186
    
    
    $
    211,596
 Purchase Commitments The Company expects to finance the acquisition of new aircraft,
discussed below, with existing cash and cash equivalents, short-term investments, operating
leases, or some combination thereof. There are no purchase commitments other than those
listed below.In 2008, the Company took delivery of one transport category aircraft,
 four medium aircraft and four light aircraft for service in the Oil
and Gas segment. The Company also took delivery of eight light aircraft for service in the
Air Medical segment.At December 31, 2008, the Company had an order for five additional transport category
aircraft, with scheduled delivery dates throughout 2009. The approximate cost for these
aircraft is $107.2 million.At December 31, 2008, the Company also had orders for two light aircraft with a total cost
of $7.8 million. These
aircraft were delivered in January 2009.Environmental Matters The Company has an aggregate estimated liability of $0.2 million as
of December 31, 2008 and 2007 for environmental remediation costs that are probable and
estimable. The Company has conducted environmental surveys of its former Lafayette
facility, which it vacated in 2001, and has determined that limited soil and groundwater
contamination exists at the facility. The Company has installed groundwater monitoring
wells at the facility and periodically monitors and reports on the contamination. The
Company previously submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP)
Standard Site Assessment Report to the Louisiana Department of Environmental Quality
(LDEQ) fully delineating the extent and type of contamination and updated the report to
include recent analytical data. LDEQ is reviewing the assessment report. Once LDEQ
completes its review and reports on whether all contamination has been fully defined, a risk
evaluation in accordance with
RECAP will be submitted and evaluated by LDEQ. At that point, LDEQ will establish what
cleanup standards must be met at the site. When the process is complete, the Company will
be in a position to develop an appropriate remediation plan and determine the resulting cost
of remediation. The Company has not recorded any estimated liability for remediation and
contamination and, based upon the May 2003 Site Assessment Report, the April 2006 update and
ongoing monitoring, it believes the ultimate remediation costs for the
 45




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##### Table of Contents



former Lafayette facility will not be material to its consolidated financial position, results of
operations, or cash flows.Legal Matters The Company is named as a defendant in various legal actions that have
arisen in the ordinary course of business and have not been finally adjudicated. In the
opinion of management, the amount of the ultimate liability with respect to these actions
will not have a material adverse effect on the Companys consolidated financial position,
results of operations or cash flows.Employee Matters As previously reported, the Company is involved in Federal Court
litigation in the Western District of Louisiana with the Office and Professional Employees
International Union (OPEIU), the union representing domestic pilots, over claims of bad
faith bargaining and issues relating to the return to work of striking pilots. The pilots
commenced a strike in September 2006, and a court approved return to work process began in
January 2007 for those pilots who had not already returned to work or terminated, and this
was essentially completed in April 2007. Pilots continue to work under the terms and
conditions of employment set forth in the final implementation proposals made by the Company
at the end of collective bargaining negotiations in August 2006. A trial date on
strike-related matters has been postponed from November 3, 2008 until June 29, 2009. It is
not possible to assess the outcome of that litigation, as these matters are still in the
discovery stage. However, management does not expect the outcome of
this litigation to have a material adverse effect on our financial
conditions, results of operations, or cash flows.(10)
    
    BUSINESS SEGMENTS AND GEOGRAPHIC AREASPHI is primarily a provider of helicopter services, including
helicopter maintenance and repair services. The Company has used a
combination of factors to identify its reportable segments as
required by Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). The overriding determination of the Companys segments
is based on how the chief operating decision-maker of the Company
evaluates the Companys results of operations. The underlying
factors include customer bases, types of service, operational
management, physical locations, and underlying economic
characteristics of the types of work the Company performs. Prior to
the change in the Companys reportable segments described below, the
Company had four segments that met the requirements of SFAS 131 for
disclosure. The reportable segments were Oil and Gas, Air Medical,
International, and Technical Services.During the quarter ended March 31, 2007, the Company combined the oil
and gas customers that were previously included in its International
segment into the Companys Domestic Oil and Gas segment, and
eliminated the term Domestic from that segment. Additionally, the
contract work previously included in the International segment for
the National Science Foundation is now included in the Technical
Services segment. Therefore, there are now three reportable
segments: Oil and Gas, Air Medical, and Technical Services. All
prior periods have been recast to conform to the 2007 presentation.The Oil and Gas segment provides helicopter services to oil and gas
customers operating in the Gulf of Mexico, Angola, and the Democratic
Republic of Congo. The Air Medical segment provides helicopter
services to hospitals and medical programs in several U.S. states,
and also to individuals under which the Company is paid by either a
commercial insurance company, federal or state agency, or the
patient. The Companys Air Evac subsidiary is included in the Air
Medical segment. The Technical Services segment provides helicopter
repair and overhaul services for existing flight operations
customers. The Company also operates six aircraft for the National
Science Foundation in Antarctica under the Technical Services
segment.Each segment has a portion of selling, general and administrative
expenses that is charged directly to the segment and a portion that
is allocated. Direct charges represent the vast majority of segment
selling, general and administrative expenses. Allocated selling,
general and administrative expenses is based primarily on total
segment costs as a percentage of total operating costs.Air Medical operations are headquartered in Phoenix, AZ, where the
Company maintains significant separate facilities and administrative
staff dedicated to this segment. Those costs are charged directly to
the Air Medical segment, resulting in a disproportionate share of
selling, general and administrative expenses compared to the
Companys other reportable segments.
 46




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##### Table of Contents



Customers of the Company consist principally of major integrated
energy companies and independent exploration and production
companies. The customers, individually or considered as a group
under common ownership, which accounted for greater than 10% of
accounts receivable or 10% of operating revenues during the periods
reflected were as follows:
 Accounts Receivable
    
    Operating RevenuesDecember 31,
    
    Years Ended December 31,2008
    
    2007
    
    2008
    
    2007
    
    2006Customer A 
Customer B
    
    10%
10%
    
    11%
11%
    
    14%
13%
    
    15%
12%
    
    17%
10%
 The following table shows information about the profit or loss and assets of each of the
Companys reportable segments for the years ended December 31, 2008, 2007, and 2006. The
information contains certain allocations, including allocations of depreciation, rents,
insurance, and overhead expenses that the Company deems reasonable and appropriate for the
evaluation of results of operations. The Company does not allocate gains on dispositions of
property and equipment, other income, interest expense, and corporate selling, general, and
administrative expenses to the segments. Where applicable, the tables present the
unallocated amounts to reconcile the totals to the Companys consolidated financial
statements. Segment assets are determined by where they are situated at period-end.
Corporate assets are principally cash and cash equivalents, short-term investments, other
assets, and certain property, and equipment.
 Year EndedDecember 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    324,147
    
    
    $
    286,118
    
    
    $
    270,707Air Medical
    
    
    174,739
    
    
    
    149,590
    
    
    
    133,397Technical Services
    
    
    10,628
    
    
    
    10,698
    
    
    
    9,014Total operating revenues
    
    
    509,514
    
    
    
    446,406
    
    
    
    413,118Segment direct expensesOil and Gas
    
    
    258,160
    
    
    
    250,110
    
    
    
    228,797Air Medical
    
    
    160,910
    
    
    
    137,703
    
    
    
    130,412Technical Services
    
    
    6,883
    
    
    
    6,608
    
    
    
    7,063Total direct expenses
    
    
    425,953
    
    
    
    394,421
    
    
    
    366,272Segment selling, general and administrative expensesOil and Gas
    
    
    1,335
    
    
    
    1,531
    
    
    
    1,150Air Medical
    
    
    8,716
    
    
    
    7,883
    
    
    
    7,384Technical Services
    
    
    76
    
    
    
    59
    
    
    
    38Total selling, general and administrative expenses
    
    
    10,127
    
    
    
    9,473
    
    
    
    8,572Total direct and selling, general and administrative
expenses
    
    
    436,080
    
    
    
    403,894
    
    
    
    374,844Net segment profit (loss)Oil and Gas
    
    
    64,652
    
    
    
    34,477
    
    
    
    40,760Air Medical
    
    
    5,113
    
    
    
    4,004
    
    
    
    (4,399
    )Technical Services
    
    
    3,669
    
    
    
    4,031
    
    
    
    1,913Total
    
    
    73,434
    
    
    
    42,512
    
    
    
    38,274Other, net (1)
    
    
    4,990
    
    
    
    40,051
    
    
    
    9,946Unallocated selling, general and administrative expenses
    
    
    (21,530
    )
    
    
    (20,753
    )
    
    
    (19,267
    )Interest expense
    
    
    (15,515
    )
    
    
    (16,121
    )
    
    
    (17,243
    )Goodwill impairment charge
    
    
    (2,747
    )
    
    
    
    
    
    
    Loss on debt restructuring
    
    
    
    
    
    
    
    
    
    
    (12,790
    )Earnings (loss) before income taxes
    
    $
    38,632
    
    
    $
    45,689
    
    
    $
    (1,080
    )
 
 (1)
    
    Including gains on disposition of property and equipment and other income. 47




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Year EndedDecember 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Expenditures for long
lived assetsOil and Gas
    
    $
    45,530
    
    
    $
    130,574
    
    
    $
    107,514Air Medical
    
    
    40,034
    
    
    
    35,053
    
    
    
    14,446Technical Services
    
    
    
    
    
    
    
    
    
    
    518Corporate
    
    
    793
    
    
    
    971
    
    
    
    775Total
    
    $
    86,357
    
    
    $
    166,598
    
    
    $
    123,253
 Year EndedDecember 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Depreciation and AmortizationOil and Gas
    
    $
    15,669
    
    
    $
    17,211
    
    
    $
    17,147Air Medical
    
    
    7,910
    
    
    
    8,303
    
    
    
    8,634Technical Services
    
    
    235
    
    
    
    252
    
    
    
    235Corporate
    
    
    3,130
    
    
    
    4,281
    
    
    
    4,281Total
    
    $
    26,944
    
    
    $
    30,047
    
    
    $
    30,297AssetsOil and Gas
    
    $
    397,903
    
    
    $
    392,154
    
    
    $
    284,981Air Medical
    
    
    226,642
    
    
    
    184,435
    
    
    
    164,234Technical Services
    
    
    6,597
    
    
    
    7,481
    
    
    
    9,984Corporate
    
    
    146,040
    
    
    
    157,226
    
    
    
    241,771Total
    
    $
    777,182
    
    
    $
    741,296
    
    
    $
    700,970
  Year EndedDecember 31,2008
    
    
    2007
    
    
    2006(Thousands of dollars)Operating revenues:United States
    
    $
    489,611
    
    
    $
    424,268
    
    
    $
    387,530International
    
    
    19,903
    
    
    
    22,138
    
    
    
    25,588Total
    
    $
    509,514
    
    
    $
    446,406
    
    
    $
    413,118Long-Lived Assets:United States
    
    $
    523,626
    
    
    $
    478,795
    
    
    $
    362,527International
    
    
    4,948
    
    
    
    5,324
    
    
    
    6,938Total
    
    $
    528,574
    
    
    $
    484,119
    
    
    $
    369,465
 (11)
    
    EFFECTS OF HURRICANESAt December 31, 2008, the Company incurred expense of $3.3 million
related to repair costs and costs to relocate operations from damaged
or destroyed bases resulting from Hurricane Gustav on September 1,
2008 and Hurricane Ike on September 13, 2008. In addition, there was
net book value of property and equipment written off totaling $0.7
million. These amounts were affected by expected insurance
recoveries
 48




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##### Table of Contents



of $3.9 million, which are reflected as a receivable from the insurance carriers in other
accounts receivable at December 31, 2008.
 (12)
    
    QUARTERLY FINANCIAL DATA (UNAUDITED)The condensed quarterly results of operations for the years ended
December 31, 2008 and December 31, 2007 (in thousands of dollars,
except per share data) are as follows:
 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2008
    
    2008
    
    2008
    
    2008(Thousands of dollars, except per share data)Operating revenues
    
    $
    117,145
    
    
    $
    130,111
    
    
    $
    135,460
    
    
    $
    126,798Gain (loss) on sale of aircraft
    
    
    2,949
    
    
    
    1,255
    
    
    
    249
    
    
    
    15Earnings before income taxes
    
    
    10,947
    
    
    
    10,422
    
    
    
    13,160
    
    
    
    4,103
    (1)Net earnings
    
    
    6,568
    
    
    
    6,253
    
    
    
    7,897
    
    
    
    2,797Net earnings per shareBasic
    
    
    0.43
    
    
    
    0.41
    
    
    
    0.52
    
    
    
    0.18Diluted
    
    
    0.43
    
    
    
    0.41
    
    
    
    0.52
    
    
    
    0.18
 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2007(2)
    
    2007
    
    2007
    
    2007(Thousands of dollars, except per share data)Operating revenues
    
    $
    101,753
    
    
    $
    112,975
    
    
    $
    118,401
    
    
    $
    113,277Gain (loss) on sale of aircraft
    
    
    2,534
    
    
    
    6,074
    
    
    
    6,988
    
    
    
    19,357Earnings before income taxes
    
    
    1,064
    
    
    
    11,765
    
    
    
    13,812
    
    
    
    19,048Net earnings
    
    
    663
    
    
    
    7,169
    
    
    
    8,629
    
    
    
    11,757Net earnings per shareBasic
    
    
    0.04
    
    
    
    0.47
    
    
    
    0.56
    
    
    
    0.77Diluted
    
    
    0.04
    
    
    
    0.47
    
    
    
    0.56
    
    
    
    0.77
 
 (1)
    
    Includes a $2.7 million goodwill impairment charge related to our Air Medical
segment.(2)
    
    Earnings in the quarter ended March 31, 2007 was impacted due to the pilots
strike that commenced September 20, 2006. (13)
    
    SHAREHOLDERS EQUITYOn April 12, 2006, the Company completed the sale of 4,287,920
non-voting common shares at $35.00 per share and on May 1, 2006, the
Company completed the sale of the over-allotment of 578,680 shares
also at $35.00 per share. Proceeds from the offering were $160.7
million, net of expenses.The Company had a weighted average of 15.3 million common shares
outstanding for the periods ended December 31, 2008 and December 31,
2007.Al A. Gonsoulin, our Chairman of the Board and Chief Executive
Officer, beneficially owns stock representing approximately 52% of
our total voting power. As a result, he exercises control over the
election of all of our directors and the outcome of all matters
requiring a stockholder vote. This ownership also may delay or
prevent a change in our management or a change in control of us, even
if such changes would benefit our other stockholders and were
supported by a majority of our stockholders.(14)
    
    CONDENSED FINANCIAL INFORMATION  GUARANTOR SUBSIDIARIESOn April 12, 2006, the Company issued $200 million of 7.125% Senior
Notes due 2013 and retired $184.8 million of 9 3/8% Series B Senior
Notes due 2009. On May 1, 2006, the Company redeemed the remaining
$15.2 million 9 3/8% Series B Senior Notes.The 7.125% Senior Notes are fully and unconditionally guaranteed on a
joint and several, senior basis by all of the Companys Guarantor
Subsidiaries.
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The following condensed financial information sets forth, on a
consolidating basis, the balance sheet, statement of operations, and
statement of cash flows information for PHI, Inc. (Parent Company
Only) and the Guarantor Subsidiaries. The principal eliminating
entries eliminate investments in subsidiaries, intercompany balances,
and intercompany revenues and expenses.
 PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    559
    
    
    $
    600
    
    
    $
    
    
    
    $
    1,159Short-term investments
    
    
    42,121
    
    
    
    
    
    
    
    
    
    
    
    42,121Accounts receivable  net
    
    
    98,797
    
    
    
    12,625
    
    
    
    
    
    
    
    111,422Inventories of spare parts and supplies
    
    
    58,249
    
    
    
    
    
    
    
    
    
    
    
    58,249Other current assets
    
    
    10,671
    
    
    
    16
    
    
    
    
    
    
    
    10,687Income taxes receivable
    
    
    982
    
    
    
    
    
    
    
    
    
    
    
    982Total current assets
    
    
    211,379
    
    
    
    13,241
    
    
    
    
    
    
    
    224,620Investment in subsidiaries and others
    
    
    69,820
    
    
    
    
    
    
    
    (69,820
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    63,494
    
    
    
    (63,494
    )
    
    
    Other assets
    
    
    23,761
    
    
    
    227
    
    
    
    
    
    
    
    23,988Property and equipment, net
    
    
    511,986
    
    
    
    16,588
    
    
    
    
    
    
    
    528,574Total assets
    
    $
    816,946
    
    
    $
    93,550
    
    
    $
    (133,314
    )
    
    $
    777,182LIABILITIES AND
SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    25,174
    
    
    $
    275
    
    
    $
    
    
    
    $
    25,449Accrued liabilities
    
    
    20,886
    
    
    
    4,307
    
    
    
    
    
    
    
    25,193Intercompany payable
    
    
    63,494
    
    
    
    
    
    
    
    (63,494
    )
    
    
    Total current liabilities
    
    
    109,554
    
    
    
    4,582
    
    
    
    (63,494
    )
    
    
    50,642Long-term debt
    
    
    203,000
    
    
    
    
    
    
    
    
    
    
    
    203,000Deferred income taxes and other long-term
liabilities
    
    
    51,996
    
    
    
    19,148
    
    
    
    
    
    
    
    71,144Shareholders Equity:Paid-in capital
    
    
    292,792
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,792Accumulated other comprehensive
income
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Retained earnings
    
    
    159,559
    
    
    
    65,418
    
    
    
    (65,418
    )
    
    
    159,559Total shareholders equity
    
    
    452,396
    
    
    
    69,820
    
    
    
    (69,820
    )
    
    
    452,396Total liabilities and
shareholders equity
    
    $
    816,946
    
    
    $
    93,550
    
    
    $
    (133,314
    )
    
    $
    777,182
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 50




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,004
    
    
    $
    421
    
    
    $
    
    
    
    $
    1,425Short-term investments
    
    
    62,970
    
    
    
    
    
    
    
    
    
    
    
    62,970Accounts receivable  net
    
    
    84,318
    
    
    
    13,766
    
    
    
    
    
    
    
    98,084Inventories of spare parts and supplies
    
    
    55,831
    
    
    
    
    
    
    
    
    
    
    
    55,831Other current assets
    
    
    11,184
    
    
    
    10
    
    
    
    
    
    
    
    11,194Income taxes receivable
    
    
    525
    
    
    
    
    
    
    
    
    
    
    
    525Total current assets
    
    
    215,832
    
    
    
    14,197
    
    
    
    
    
    
    
    230,029Investment in subsidiaries and others
    
    
    59,384
    
    
    
    
    
    
    
    (59,384
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    50,729
    
    
    
    (50,729
    )
    
    
    Other assets
    
    
    26,878
    
    
    
    270
    
    
    
    
    
    
    
    27,148Property and equipment, net
    
    
    468,070
    
    
    
    16,049
    
    
    
    
    
    
    
    484,119Total assets
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    24,696
    
    
    $
    3,758
    
    
    $
    
    
    
    $
    28,454Accrued liabilities
    
    
    24,942
    
    
    
    
    
    
    
    
    
    
    
    24,942Intercompany payable
    
    
    50,729
    
    
    
    
    
    
    
    (50,729
    )
    
    
    Total current liabilities
    
    
    100,367
    
    
    
    3,758
    
    
    
    (50,729
    )
    
    
    53,396Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    41,128
    
    
    
    18,103
    
    
    
    
    
    
    
    59,231Shareholders Equity:Paid-in capital
    
    
    292,564
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,564Accumulated other comprehensive
income
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Retained earnings
    
    
    136,044
    
    
    
    54,982
    
    
    
    (54,982
    )
    
    
    136,044Total shareholders equity
    
    
    428,669
    
    
    
    59,384
    
    
    
    (59,384
    )
    
    
    428,669Total liabilities and
shareholders equity
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 51




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the year ended December 31, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    437,881
    
    
    $
    71,633
    
    
    $
    
    
    
    $
    509,514Management fees
    
    
    2,865
    
    
    
    
    
    
    
    (2,865
    )
    
    
    Gain on disposition of assets, net
    
    
    4,468
    
    
    
    
    
    
    
    
    
    
    
    4,468Other, principally interest income
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    522445,736
    
    
    
    71,633
    
    
    
    (2,865
    )
    
    
    514,504Expenses:Direct expenses
    
    
    372,465
    
    
    
    53,488
    
    
    
    
    
    
    
    425,983Management fees
    
    
    
    
    
    
    2,865
    
    
    
    (2,865
    )
    
    
    Selling, general, and administrative
    
    
    27,842
    
    
    
    3,815
    
    
    
    
    
    
    
    31,657Equity in net income of consolidated
subsidiaries
    
    
    (10,436
    )
    
    
    
    
    
    
    10,436
    
    
    
    Interest expense
    
    
    15,515
    
    
    
    
    
    
    
    
    
    
    
    15,515Goodwill impairment charge
    
    
    2,747
    
    
    
    
    
    
    
    
    
    
    
    2,747408,133
    
    
    
    60,168
    
    
    
    7,571
    
    
    
    475,872Earnings before income taxes
    
    
    37,603
    
    
    
    11,465
    
    
    
    (10,436
    )
    
    
    38,632Income tax expense
    
    
    14,088
    
    
    
    1,029
    
    
    
    
    
    
    
    15,117Net earnings
    
    $
    23,515
    
    
    $
    10,436
    
    
    $
    (10,436
    )
    
    $
    23,515
 For the year ended December 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    378,092
    
    
    $
    68,314
    
    
    $
    
    
    
    $
    446,406Management fees
    
    
    2,733
    
    
    
    
    
    
    
    (2,733
    )
    
    
    Gain on disposition of assets, net
    
    
    34,953
    
    
    
    
    
    
    
    
    
    
    
    34,953Other, principally interest income
    
    
    5,090
    
    
    
    8
    
    
    
    
    
    
    
    5,098420,868
    
    
    
    68,322
    
    
    
    (2,733
    )
    
    
    486,457Expenses:Direct expenses
    
    
    347,397
    
    
    
    47,024
    
    
    
    
    
    
    
    394,421Management fees
    
    
    
    
    
    
    2,733
    
    
    
    (2,733
    )
    
    
    Selling, general, and administrative
    
    
    27,140
    
    
    
    3,086
    
    
    
    
    
    
    
    30,226Equity in net income of consolidated
subsidiaries
    
    
    (13,158
    )
    
    
    
    
    
    
    13,158
    
    
    
    Interest expense
    
    
    16,121
    
    
    
    
    
    
    
    
    
    
    
    16,121377,500
    
    
    
    52,843
    
    
    
    10,425
    
    
    
    440,768Earnings before income taxes
    
    
    43,368
    
    
    
    15,479
    
    
    
    (13,158
    )
    
    
    45,689Income tax expense
    
    
    15,150
    
    
    
    2,321
    
    
    
    
    
    
    
    17,471Net earnings
    
    $
    28,218
    
    
    $
    13,158
    
    
    $
    (13,158
    )
    
    $
    28,218
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 52




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the year ended December 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    357,355
    
    
    $
    55,763
    
    
    $
    
    
    
    $
    413,118Management fees
    
    
    2,231
    
    
    
    
    
    
    
    (2,231
    )
    
    
    Gain on disposition of assets, net
    
    
    1,910
    
    
    
    
    
    
    
    
    
    
    
    1,910Other, principally interest income
    
    
    8,016
    
    
    
    20
    
    
    
    
    
    
    
    8,036369,512
    
    
    
    55,783
    
    
    
    (2,231
    )
    
    
    423,064Expenses:Direct expenses
    
    
    325,115
    
    
    
    41,157
    
    
    
    
    
    
    
    366,272Management fees
    
    
    
    
    
    
    2,231
    
    
    
    (2,231
    )
    
    
    Selling, general, and administrative
    
    
    25,106
    
    
    
    2,733
    
    
    
    
    
    
    
    27,839Equity in net income of consolidated
subsidiaries
    
    
    (7,592
    )
    
    
    
    
    
    
    7,592
    
    
    
    Interest expense
    
    
    17,243
    
    
    
    
    
    
    
    
    
    
    
    17,243Loss on debt restructuring
    
    
    12,790
    
    
    
    
    
    
    
    
    
    
    
    12,790372,662
    
    
    
    46,121
    
    
    
    5,361
    
    
    
    424,144(Loss) earnings before income taxes
    
    
    (3,150
    )
    
    
    9,662
    
    
    
    (7,592
    )
    
    
    (1,080
    )Income tax (benefit) expense
    
    
    (2,483
    )
    
    
    2,070
    
    
    
    
    
    
    
    (413
    )Net (loss) earnings
    
    $
    (667
    )
    
    $
    7,592
    
    
    $
    (7,592
    )
    
    $
    (667
    )
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 53




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 For the year ended December 31, 2008ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)(2)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    41,171
    
    
    $
    2,627
    
    
    $
    
    
    
    $
    43,798Investing activities:Purchase of property and equipment
    
    
    (75,142
    )
    
    
    (2,448)
    
    
    
    
    
    
    
    (77,590
    )Proceeds from asset dispositions
    
    
    18,394
    
    
    
    
    
    
    
    
    
    
    
    18,394Proceeds from sale of short-term
investments, net
    
    
    20,850
    
    
    
    
    
    
    
    
    
    
    
    20,850Other
    
    
    (8,946
    )
    
    
    
    
    
    
    
    
    
    
    (8,946
    )Net cash used in investing activities
    
    
    (44,844
    )
    
    
    (2,448)
    
    
    
    
    
    
    
    (47,292
    )Financing activities:Proceeds on line of credit, net
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000Proceeds from exercise of stock options
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    228Net cash provided by financing activities
    
    
    3,228
    
    
    
    
    
    
    
    
    
    
    
    3,228Increase (decrease) in cash and cash
equivalents
    
    
    (445
    )
    
    
    179
    
    
    
    
    
    
    
    (266
    )Cash and cash equivalents, beginning of
year
    
    
    1,004
    
    
    
    421
    
    
    
    
    
    
    
    1,425Cash and cash equivalents, end of year
    
    $
    559
    
    
    $
    600
    
    
    $
    
    
    
    $
    1,159
 For the year ended December 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)(2)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    14,975
    
    
    $
    10,251
    
    
    $
    
    
    
    $
    25,226Investing activities:Purchase of property and equipment
    
    
    (149,450
    )
    
    
    (10,265
    )
    
    
    
    
    
    
    (159,715
    )Proceeds from asset dispositions
    
    
    58,105
    
    
    
    
    
    
    
    
    
    
    
    58,105Proceeds from sale of short-term
investments, net
    
    
    90,444
    
    
    
    
    
    
    
    
    
    
    
    90,444Other
    
    
    (8,298
    )
    
    
    
    
    
    
    
    
    
    
    (8,298
    )Net cash used in investing activities
    
    
    (9,199
    )
    
    
    (10,265
    )
    
    
    
    
    
    
    (19,464
    )Financing activities:Proceeds (payments) line of credit, net
    
    
    (5,500
    )
    
    
    
    
    
    
    
    
    
    
    (5,500
    )Proceeds from exercise of stock options
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    343Net cash used in financing activities
    
    
    (5,157
    )
    
    
    
    
    
    
    
    
    
    
    (5,157
    )Increase (decrease) in cash and cash
equivalents
    
    
    619
    
    
    
    (14
    )
    
    
    
    
    
    
    605Cash and cash equivalents, beginning of
year
    
    
    385
    
    
    
    435
    
    
    
    
    
    
    
    820Cash and cash equivalents, end of year
    
    $
    1,004
    
    
    $
    421
    
    
    $
    
    
    
    $
    1,425
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts.(2)
    
    Certain revisions were made to cash flows provided by (used in) operating and investing
activities to conform to the current years presentation. 54




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 For the year ended December 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)(2)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    28,443
    
    
    $
    1,881
    
    
    $
    
    
    
    $
    30,324Investing activities:Purchase of property and equipment
    
    
    (121,348
    )
    
    
    (1,905
    )
    
    
    
    
    
    
    (123,253
    )Proceeds from asset dispositions
    
    
    36,809
    
    
    
    
    
    
    
    
    
    
    
    36,809Proceeds from sale of short-term
investments, net
    
    
    (86,889
    )
    
    
    
    
    
    
    
    
    
    
    (86,889
    )Other
    
    
    (5,595
    )
    
    
    
    
    
    
    
    
    
    
    (5,595
    )Net cash used in investing activities
    
    
    (177,023
    )
    
    
    (1,905
    )
    
    
    
    
    
    
    (178,928
    )Financing activities:Proceeds of debt issuance  Senior Notes
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Premium and costs to retire debt early
    
    
    (10,208
    )
    
    
    
    
    
    
    
    
    
    
    (10,208
    )Repayment of Senior Notes
    
    
    (200,000
    )
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Debt issuance costs
    
    
    (4,857
    )
    
    
    
    
    
    
    
    
    
    
    (4,857
    )Payments on long-term debt
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Proceeds from line of credit, net
    
    
    2,200
    
    
    
    
    
    
    
    
    
    
    
    2,200Proceeds from stock issuance, net
    
    
    160,722
    
    
    
    
    
    
    
    
    
    
    
    160,722Other
    
    
    (469
    )
    
    
    
    
    
    
    
    
    
    
    (469
    )Net cash provided by financing activities
    
    
    146,388
    
    
    
    
    
    
    
    
    
    
    
    146,388Increase in cash and cash equivalents
    
    
    (2,192
    )
    
    
    (24
    )
    
    
    
    
    
    
    (2,216
    )Cash and cash equivalents, beginning of
year
    
    
    2,577
    
    
    
    459
    
    
    
    
    
    
    
    3,036Cash and cash equivalents, end of year
    
    $
    385
    
    
    $
    435
    
    
    $
    
    
    
    $
    820
 
 (1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts.(2)
    
    Certain revisions were made to cash flows provided by (used in) operating and investing
activities to conform to the current years presentation. 55




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
 None.
 
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and ProceduresThe Companys management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as
of the end of the period covered by this report. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that the design and operation
of our disclosure controls and procedures were effective as of such date to provide
assurance that information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding disclosure.Changes in Internal Control  over Financial ReportingDuring the last quarter, there have not been any changes in our internal control over
financial reporting that materially affected, or are reasonably likely to materially affect,
the Companys internal control over financial reporting.Managements Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control
over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934. Our internal control system was designed to provide reasonable
assurance regarding the reliability of financial reporting and preparation of financial
statements for external purposes in accordance with generally accepted accounted principles.Our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2008. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment our management concluded that, as of
December 31, 2008, our internal control over financial reporting
was effective under those
criteria.Deloitte & Touche LLP, our independent registered public accounting firm, has issued a
report on the Companys internal control over financial reporting as of December 31, 2008.
This report is included herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors and Shareholders of
PHI, Inc.
Lafayette, Louisiana
 We have audited the Internal Control over Financial Reporting of PHI, Inc. and subsidiaries
(the Company) maintained as of December 31, 2008, based on criteria established in
Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included, in the accompanying
Managements Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Companys internal control over financial reporting based on our
audit.We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or
persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the criteria established in
Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial
statement schedule as of and for the year ended December 31, 2008 of the Company and our
report dated March 16, 2009, expressed an unqualified opinion on those financial statements
and financial statement schedule.DELOITTE & TOUCHE LLPNew Orleans, Louisiana
March 16, 2009
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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  58




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 1.
    
    Financial Statements
    
    PageIncluded in Part II of this report:Report of Independent Registered Public Accounting Firm
    
    
    27Consolidated Balance Sheets  December 31, 2008 and December 31, 2007.
    
    
    28Consolidated Statements of Operations for the years ended December 31, 2008,
December 31, 2007, and December 31, 2006.
    
    
    29Consolidated Statements of Shareholders Equity for the years ended
December 31, 2008, December 31, 2007, and December 31, 2006.
    
    
    30Consolidated Statements of Cash Flows for the years ended December 31, 2008,
December 31 2007, and December 31, 2006.
    
    
    31Notes to Consolidated Financial Statements.
    
    
    322.
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying accounts for the years ended
December 31, 2008, December 31, 2007 and December 31, 2006.
    
    
    61
 3.
    
    Exhibits
 3
    
    Articles of Incorporation and By-laws
 3.1
    
    
    (i)
    
    Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 2008).(ii)
    
    Amended and Restated By-laws of the Company (incorporated
by reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18,
2007).
 4
    
    Instruments defining the rights of security holders, including indentures.4.1
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2002,
Commission File No. 0-9827).4.2
    
    First Amendment to Loan Agreement dated June 18, 2004 by and among PHI, Inc.
Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period ended
June 30, 2004).4.3
    
    Second Amendment to Loan Agreement dated September 30, 2005 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 4.7 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2007).4.4
    
    Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006).4.5
    
    Fourth Amendment to Loan Agreement dated September 30, 2006 by and among PHI,
Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive,
Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by
 59




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##### Table of Contents



reference to Exhibit 4.8 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2007).4.6
    
    Fifth Amendment to Loan Agreement dated August 1, 2007 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by reference to Exhibit 4.9 to PHIs Report on Form 10-Q for the
quarterly period ended September 30, 2007).Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI,
Inc., Air Evac Services, Inc., International Helicopter Transport, Inc. and Whitney
National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q
for the quarterly period ended March 31, 2008).4.7
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.8
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).10
    
    Material Contracts10.1
    
    Senior Management Bonus Plan.10.2
    
    Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by
PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on
September 22, 1995 (incorporated by reference to Exhibit 10.3 to PHIs Report on Form
10-K for the year ended December 31, 2006).10.3
    
    Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive
Compensation Plan between PHI and certain of its key employees (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 10-K for the year ended December 31,
2006).10.4
    
    Officer Deferred Compensation Plan II adopted by PHIs Board effective January
1, 2005 (incorporated by reference to Exhibit 10.5 to PHIs Report on Form 10-K for the
year ended December 31, 2006).10.5
    
    Articles of Agreement Between PHI, Inc. & Office & Professional Employees
International Union and its Local 108 dated June 13, 2001 (incorporated by reference to
Exhibit 10.6 to PHIs Report on Form 10-K for the year ended December 31, 2006).10.5
    
    Terms of employment of Lance Bospflug, August 6, 2008 (incorporated by
reference to Exhibit 10.1 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2008).21
    
    Subsidiaries of the Registrant23.1
    
    Consent of Deloitte & Touche LLP31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.
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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
Schedule II  Valuation and Qualifying Accounts
(Thousands of dollars)
 AdditionsBalance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    
    
    
    
    EndDescription
    
    of Year
    
    
    Expenses
    
    
    Deductions
    
    
    of YearYear ended December 31, 2008:Allowance for doubtful accounts
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50Allowance for inventory
    
    
    7,460
    
    
    
    397
    
    
    
    
    
    
    
    7,857Allowance for contractual discounts
    
    
    31,858
    
    
    
    173,964
    
    
    
    168,232
    
    
    
    37,590Allowance for uncompensated care
    
    
    19,130
    
    
    
    38,224
    
    
    
    36,549
    
    
    
    20,805Year ended December 31, 2007:Allowance for doubtful accounts
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50Allowance for inventory
    
    
    7,256
    
    
    
    843
    
    
    
    639
    
    
    
    7,460Allowance for contractual discounts
    
    
    29,930
    
    
    
    130,753
    
    
    
    128,825
    
    
    
    31,858Allowance for uncompensated care
    
    
    20,099
    
    
    
    42,190
    
    
    
    43,159
    
    
    
    19,130Year ended December 31, 2006:Allowance for doubtful accounts
    
    $
    163
    
    
    $
    
    
    
    $
    113
    
    
    $
    50Allowance for inventory
    
    
    6,268
    
    
    
    1,502
    
    
    
    514
    
    
    
    7,256Allowance for contractual discounts
    
    
    24,091
    
    
    
    97,226
    
    
    
    91,387
    
    
    
    29,930Allowance for uncompensated care
    
    
    11,597
    
    
    
    40,073
    
    
    
    31,571
    
    
    
    20,099
 61




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##### Table of Contents



PHI, INC.By:
    /s/  Michael J. McCannMichael J. McCannChief Financial Officer
(Principal Financial and
Accounting Officer)  Signature
    
    Title
    
    Date/s/ Al A. Gonsoulin

Al A. Gonsoulin
    
    Chairman of the Board Chief
Executive Officer
and Director
(Principal Executive Officer)
    
    March 16, 2009/s/ Lance F. Bospflug

Lance F. Bospflug
    
    Director
    
    March 16, 2009/s/ Arthur J. Breault, Jr.

Arthur J. Breault, Jr.
    
    Director
    
    March 16, 2009/s/ Thomas H. Murphy

Thomas H. Murphy
    
    Director
    
    March 16, 2009/s/ Richard H. Matzke

Richard H. Matzke
    
    Director
    
    March 16, 2009/s/ C. Russell Luigs

C. Russell Luigs
    
    Director
    
    March 16, 2009/s/ Michael J. McCann

Michael J. McCann
    
    Chief Financial Officer (Principal
Financial and
Accounting Officer)
    
    March 16, 2009
 62




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##### Table of Contents



Exhibit
Index
 ExhibitsNumber
    Description
 3
    
    Articles of Incorporation and By-laws
 3.1
    
    
    (i)
    
    Amended and Restated Articles of
Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs
Report on Form 10-Q for the quarterly period
ended June 30, 2008).(ii)
    
    Amended and Restated By-laws of the Company (incorporated
by reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18,
2007).
 4
    
    Instruments defining the rights of security holders, including indentures.4.1
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30, 2002,
Commission File No. 0-9827).4.2
    
    First Amendment to Loan Agreement dated June 18, 2004 by and among PHI, Inc.
Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period ended
June 30, 2004).4.3
    
    Second Amendment to Loan Agreement dated September 30, 2005 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 4.7 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2007).4.4
    
    Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006).4.5
    
    Fourth Amendment to Loan Agreement dated September 30, 2006 by and among PHI,
Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive,
Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by reference to Exhibit 4.8 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2007).4.6
    
    Fifth Amendment to Loan Agreement dated August 1, 2007 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by reference to Exhibit 4.9 to PHIs Report on Form 10-Q for the
quarterly period ended September 30, 2007).Amended and Restated Loan Agreement dated as of March 31, 2008 by and among PHI,
Inc., Air Evac Services, Inc., International Helicopter Transport, Inc. and Whitney
National Bank (incorporated by reference to Exhibit 4.1 to PHIs Report on Form 10-Q
for the quarterly period ended March 31, 2008).4.7
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.8
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).10
    
    Material Contracts10.1
    
    Senior Management Bonus Plan.10.2
    
    Amended and Restated PHI, Inc. 1995 Incentive Compensation Plan adopted by
PHIs Board effective July 11, 1995 and approved by the shareholders of PHI on
September 22, 1995 (incorporated by reference to Exhibit 10.3 to PHIs Report on Form
10-K for the year ended December 31, 2006).10.3
    
    Form of Non-Qualified Stock Option Agreement under the PHI, Inc. 1995 Incentive
Compensation Plan between PHI and certain of its key employees (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 10-K for the year ended December 31,
2006).10.4
    
    Officer Deferred Compensation Plan II adopted by PHIs Board effective January
1, 2005 (incorporated by reference to Exhibit 10.5 to PHIs Report on Form 10-K for the
year ended December 31, 2006).10.5
    
    Articles of Agreement Between PHI, Inc. & Office & Professional Employees
International Union and its Local 108 dated June 13, 2001 (incorporated by reference to
Exhibit 10.6 to PHIs Report on Form 10-K for the year ended December 31, 2006).10.5
    
    Terms of employment of Lance Bospflug, August 6, 2008 (incorporated by
reference to Exhibit 10.1 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2008).21
    
    Subsidiaries of the Registrant23.1
    
    Consent of Deloitte & Touche LLP31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, Chief Executive Officer.32.2
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.