UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended: September 30, 2004

OR

For the transition period from                    to

Commission file number: 0-9827

Petroleum Helicopters, Inc.

Registrant’s telephone number, including area code (337) 235-2452

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15-(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes: þ No: o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes: þ No: o

APPLICABLE ONLY TO CORPORATE ISSUERS:

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

PART I — FINANCIAL INFORMATION

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financials statements.

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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financials statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. General

The accompanying unaudited condensed consolidated financial statements include the amounts of Petroleum Helicopters, Inc. and subsidiaries (“PHI” or the “Company”). In the opinion of management, these financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 and the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company’s financial results, particularly as they relate to the Company’s Domestic Oil and Gas operations, are influenced by seasonal fluctuations as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Therefore, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for a full fiscal year.

2. Segment Information

The Company has identified four principal segments: Domestic Oil and Gas, Air Medical, International and Technical Services. The Domestic Oil and Gas segment primarily provides helicopter services to oil and gas customers operating in the Gulf of Mexico. The Company, both directly and through its subsidiary, Air Evac Services, Inc. (“Air Evac”), provides air medical transportation services for hospitals and medical programs under the independent provider model in 11 states. The International segment, which primarily consists of operations off the West Coast of Africa, provides helicopter services in various foreign countries to oil and gas customers. The Technical Services segment provides helicopter repair and overhaul services, primarily to certain military aircraft, flight operations customers, and original equipment manufacturers.

Segment operating income is operating revenues less direct expenses and selling, general, and administrative costs allocated to the operating segment. Unallocated overhead consists primarily of corporate selling, general, and administrative costs that the Company does not allocate to the operating segments.

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Summarized financial information concerning the Company’s reportable operating segments for the quarter and nine months ended September 30, 2004 and 2003 is as follows (in thousands):

(1)

Including gains on disposition of property and equipment, and other income.

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3. Commitments and Contingencies

Environmental Matters — The Company has an aggregate estimated liability of $0.3 million as of September 30, 2004 for environmental remediation costs that are probable and estimable. During the quarter, the Company received either closure notifications or “No Further Action” notices from regulatory agencies with respect to three sites. The estimated environmental liability was reduced by $0.3 million as a result of these notices.

In addition, the Company has conducted environmental surveys of the Lafayette facility that it vacated in 2001, and has determined that contamination exists at that facility. Appropriate notices of the contamination have been provided to state regulatory authorities. To date, borings have been installed to determine the type and extent of contamination. Preliminary results indicate limited soil and groundwater impacts. Once the extent and type of contamination are fully defined, a risk evaluation in accordance with the Louisiana Risk Evaluation/Corrective Action Plan (“RECAP”) standard will be submitted and evaluated by the Louisiana Department of Environmental Quality (“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 the appropriate remediation plan and estimate the resulting cost of remediation. The Company has not recorded any estimated liability for remediation of contamination but, based on preliminary surveys and ongoing monitoring, the Company believes the ultimate remediation costs will not be material to the Company’s consolidated financial position and results of operations.

Legal Matters — The Company is named as a defendant in various legal actions that have arisen in the ordinary course of its business and have not been finally adjudicated. The amount, if any, of ultimate liability with respect to such matters cannot be determined. In the opinion of management, the Company’s ultimate liability with respect to these actions will not have a material adverse effect on the Company’s consolidated financial position and results of operations.

Long-term Debt — On April 23, 2002, the Company issued $200 million in principal amount of 9 3/8% Series A Senior Notes due 2009 in a private offering that was exempt from registration under Rule 144A under the Securities Act of 1933 (the “Securities Act”). All of the notes were subsequently exchanged for the Company’s 9 3/8% Series B Senior Notes due 2009 (the “Series B Senior Notes”), pursuant to an exchange offer that was registered under the Securities Act. The Series B Senior Notes bear annual interest at 9 3/8% payable semi-annually on May 1 and November 1 of each year and mature in May 2009. The Series B Senior 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. As of September 30, 2004, the Company was in compliance with these covenants.

Also, on April 23, 2002, the Company executed a credit agreement with a commercial bank for a $50 million revolving credit facility to be available through July 31, 2004. An amendment to this credit agreement was executed June 18, 2004. The amendment reduced the revolving credit facility from $50 million to $35 million, and extended the expiration date to July 31, 2006. As of September 30, 2004, the Company had $4.9 million in borrowings at an interest rate of 4.5% and a $1.4 million letter of credit outstanding under the revolving credit facility. The credit agreement permits borrowings based on both the prime rate and the London Interbank Offer Rate (“LIBOR”) plus a spread. The spread for LIBOR borrowings ranges from 2.0% to 3.0%. Any amounts outstanding under the revolving credit facility are due July 31, 2006. The Company may also obtain letters of credit issued under the credit facility up to $5.0 million with a 0.125% fee payable on the amount of letters of credit issued.

The Company is subject to financial covenants under the credit agreement. These covenants include maintaining certain levels of working capital and shareholders’ equity and contain other limitations including a restriction on purchases of the Company’s stock. The credit agreement also limits the creation, incurrence, or assumption of Funded Debt (as defined, which includes long-term debt) and the

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acquisition of investments in unconsolidated subsidiaries. As of September 30, 2004, the Company was in compliance with the covenants.

Also included in notes payable is $1.0 million related to the interim financing of a progress payment for the acquisition of one aircraft described below. This aircraft was delivered subsequent to the end of the quarter. An operating lease was executed and the associated note payable terminated.

Operating 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 and some leases contain renewal and purchase options. At September 30, 2004, the Company had approximately $34.3 million in aggregate commitments under operating leases of which approximately $3.8 million is payable during the next twelve months. Of this total, $13.8 million represents lease commitments for aircraft and $20.5 million represents facility lease commitments which is primarily the Company’s facilities in Lafayette, Louisiana.

During the year ended December 31, 2003, the Company entered into a purchase agreement for two transport category aircraft at a combined cost of $32.4 million to be delivered in the second half of 2004. The Company took delivery of one of these aircraft in the current quarter and executed an operating lease for this aircraft. The second aircraft is expected to be delivered in November 2004. The Company will also execute an operating lease for this aircraft.

During the first quarter of 2004, the Company also exercised its option to purchase two additional aircraft from the same manufacturer, and executed a purchase agreement with the same terms and pricing as the first two aircraft described above. The Company also intends to execute an operating lease with a commercial lender for these aircraft upon delivery on terms similar to the first two aircraft. Delivery is expected in the first quarter 2005.

Purchase Commitments — At September 30, 2004 and December 31, 2003, the Company had commitments of $2.2 million and $4.5 million, respectively, for the upgrade and purchase of aircraft, and the purchase of other equipment.

4. Valuation of Accounts

The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, current market conditions, and other information. The allowance for doubtful accounts was $0.2 million and $0.1 million at September 30, 2004 and December 31, 2003, respectively.

The Company also establishes valuation reserves related to obsolescent and excess inventory. The inventory valuation reserves were $6.7 million and $5.5 million at September 30, 2004 and December 31, 2003, respectively.

5. Employee Incentive Compensation

In 2002, the Company implemented an incentive compensation plan for non-executive and non-represented employees. The plan allows the Company to pay up to 7% of earnings before tax upon achieving a specified earnings threshold. Pursuant to the incentive plan for non-executives and non-represented employees, the Company did not record compensation expense for the quarter and nine months ended September 30, 2004 and 2003.

6. Recent Accounting Pronouncements

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires that companies that control another entity through interest other than voting

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interests should consolidate the controlled entity. In December 2003, the FASB issued modifications to FIN 46 (“FIN 46R”), resulting in multiple effective dates based on the nature as well as creation date of a variable interest entity. The Company does not believe that the Company has interests that would be considered variable interest entities under FIN 46.

7. Condensed Consolidated Financial Information

On April 23, 2002, the Company issued $200 million in principal amount of 9 3/8% Series A Senior Notes in a private offering. Shortly thereafter, the Series A Notes were exchanged for Series B Senior Notes, which are fully and unconditionally guaranteed on a senior basis, jointly and severally, by all of the Company’s existing 100% owned operating subsidiaries (“Guarantor Subsidiaries”).

The following supplemental condensed financial information sets forth, on a consolidating basis, the balance sheet, statement of operations, and statement of cash flows information for Petroleum Helicopters, Inc. (“Parent Company Only”) and the Guarantor Subsidiaries. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses.

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PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)

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PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)