Attached files

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EX-21 - EX-21 - PHI INCh80234exv21.htm
EX-31.1 - EX-31.1 - PHI INCh80234exv31w1.htm
EX-32.1 - EX-32.1 - PHI INCh80234exv32w1.htm
EX-31.2 - EX-31.2 - PHI INCh80234exv31w2.htm
EX-32.2 - EX-32.2 - PHI INCh80234exv32w2.htm
EX-23.1 - EX-23.1 - PHI INCh80234exv23w1.htm
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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.
(Exact name of registrant as specified in its charter)
     
Louisiana
(State or other jurisdiction of incorporation or organization)
  72-0395707
(I.R.S. Employer Identification No.)
     
2001 SE Evangeline Thruway
Lafayette, Louisiana

(Address of principal office)
  70508
(Zip Code)
Registrant’s telephone number including area code: (337) 235-2452
Securities registered pursuant to Section 12(b) of the Act:
     
Title of Each Class   Name of Each Exchange on Which Registered
Voting Common Stock   The NASDAQ Global Market
Non-Voting Common Stock   The NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes: o No: þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes: o No: þ
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes: o No: o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer: o   Accelerated filer: þ   Non-accelerated filer: o (Do not check if a smaller reporting company)   Smaller reporting company: o
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes: o No: þ
     The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2010 was $187,804,604 based upon the last sales prices of the voting and non-voting common stock on June 30, 2010, as reported on the NASDAQ Global Market.
     The number of shares outstanding of each of the registrant’s classes of common stock, as of February 25, 2011 was:
             
Voting Common Stock
  2,852,616 shares.   Non-Voting Common Stock   12,458,992 shares.
Documents Incorporated by Reference
     Portions of the registrant’s definitive Information Statement for the 2011 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.
 
 

 


 

PHI, INC.
INDEX — FORM 10-K
         
       
 
       
    1  
    5  
    13  
    14  
    15  
    16  
       
 
       
    17  
    19  
    20  
    33  
    34  
       
    34  
    35  
    36  
    37  
    38  
    39  
    61  
    61  
    64  
       
 
       
    64  
    64  
    64  
    64  
    64  
       
 
       
    65  
    68  
 EX-21
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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PART I
Forward-Looking Statements
All statements other than statements of historical fact contained in this Form 10-K (the “Annual Report”) and other periodic reports filed by PHI, Inc. (the “Company” or “PHI”) under the Securities Exchange Act of 1934 and other written or oral statements made by it or on its behalf, are forward-looking statements. When used herein, the words “anticipates”, “expects”, “believes”, “goals”, “intends”, “plans”, “projects” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements are based on a number of assumptions about future events and are subject to significant risks, uncertainties, and other factors that may cause the Company’s actual results to differ materially from the expectations, beliefs, and estimates expressed or implied in such forward-looking statements. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, no assurance can be given that such assumptions will prove correct or even approximately correct. Factors that could cause the Company’s results to differ materially from the expectations expressed in such forward-looking statements include but are not limited to the following: unexpected variances in flight hours, the effect on demand for our services caused by volatility of oil and gas prices and the level of exploration and production activity in the Gulf of Mexico, the potential effects of the Macondo incident on our business, our dependence on a small number of large oil and gas industry customers, any failure to maintain our strong safety record, the effect on our operating costs of volatile fuel prices, the availability of aircraft lease financing or capital required to acquire aircraft, environmental risks, hurricanes and other adverse weather conditions, the activities of our competitors, changes in government regulation, unionization, operating hazards, risks related to operating in foreign countries, the ability to obtain adequate insurance at an acceptable cost and the ability of the Company to develop and implement successful business strategies. For a more detailed description of risks, see the “Risk Factors” section in Item 1A below. All forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph and the Risk Factors section below. PHI undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
ITEM 1. BUSINESS
General
Since our incorporation in 1949, our primary business has been the safe and reliable transportation of personnel and, to a lesser extent, parts and equipment, to, from, and among offshore platforms for customers engaged in the oil and gas exploration, development, and production industry, principally in the Gulf of Mexico. We are a leading provider of helicopter transportation services in the Gulf of Mexico. We also provide helicopter services to the oil and gas industry internationally, and to non-oil and gas customers and U.S. governmental agencies such as the National Science Foundation. We also provide air medical transportation for hospitals and emergency service agencies where we operate as an independent provider of medical services. In addition, we perform helicopter maintenance and repair services for existing customers, primarily to those that own their own aircraft. At December 31, 2010, we owned or operated 256 aircraft domestically and internationally, 162 of which were dedicated to our Oil and Gas segment, 89 of which were dedicated to our Air Medical segment, and five of which were dedicated to other operations.
Description of Operations
We operate in three business segments: Oil and Gas, Air Medical, and Technical Services. For financial information regarding our operating segments and the geographic areas in which they operate, see Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-K.
Oil and Gas. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides helicopter services primarily for the major integrated and independent oil and gas production companies transporting personnel and/or equipment to offshore platforms in the Gulf of Mexico. Our customers include Shell Oil Company (“Shell”), BP America Production Company (“BP”) and ConocoPhillips Company, with whom we have worked for 30 or more years, and ExxonMobil Production Co. and ENI Petroleum, with whom we have worked for more than 15 years. We currently operate 162 aircraft in this segment.

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Oil and gas exploration and production companies and other offshore oil service companies use our services primarily for routine transportation of personnel and equipment, to transport personnel during medical and safety emergencies, and to evacuate personnel during the threat of hurricanes and other adverse weather conditions. Most of our customers have entered into contracts with us, although some hire us on an “ad hoc” or “spot” basis.
We generally classify our helicopters as light (generally up to six passengers), medium (generally up to 12 passengers) or heavy/transport (up to 19 passengers), each of which serves a different transportation need of the offshore energy industry. Medium and heavy helicopters, which can fly in a wider variety of operating conditions, travel over longer distances and carry larger payloads than light helicopters, are required for crew changes on the large offshore production facilities and drilling rigs in the deepwater region of the Gulf of Mexico. Most of our Oil and Gas aircraft are available for hire by any customer, but some are dedicated to individual customers. Our helicopters have flight ranges up to 495 miles with a 30-minute fuel reserve and thus are capable of servicing many of the deepwater oil and gas operations from 50 to 200 miles offshore. (See Item 2 — Properties, for specific information by aircraft model.)
In 2004, we made a strategic decision to focus more of our business on deepwater operations because we believed it would provide a stable and profitable source of revenue. Deepwater operations tend to have longer lead times and consequently, activity levels are less susceptible to short term volatility in commodity prices. The capital commitments are also substantially larger than shallow water operations and our client base is more heavily weighted to the major integrated and larger independent oil and gas companies as a result. Finally, the majority of our transportation activity services production facilities, which adds stability to our business as these are more permanent in nature.
Since we made the strategic decision to focus more of our business on deepwater activities, we have substantially increased the proportion of medium and heavy aircraft in our fleet. From 2004 to 2010, we added 30 medium aircraft and 20 large aircraft over that time, while selling 47 light aircraft and 15 older medium aircraft. As of December 31, 2010, of the 162 aircraft dedicated to our Oil and Gas segment, 73 aircraft were classified as medium or heavy/transport.
We continue to seek to expand selectively into international markets that we believe have attractive opportunities for growth. We currently operate one aircraft in the Democratic Republic of Congo. We also operate five aircraft in Antarctica for the National Science Foundation. We recently executed an agreement to provide one aircraft to Noble Energy in support of its operations in Israel and are involved in discussions with TAM Empreendimentos e Participacoes S/A regarding the formation of a joint venture that would provide helicopter transportation services to the Brazilian oil and gas offshore market.
Operating revenue from the Oil and Gas segment is derived mainly from contracts that include a fixed monthly rate for a particular model of aircraft, plus a variable rate for flight time. Operating costs for the Oil and Gas operations are primarily aircraft operation costs, including costs for pilots and maintenance personnel. We typically operate under fixed-term contracts with our customers, with terms generally of one to five years. These contracts provide for payment in U.S. dollars and for a fixed monthly payment per aircraft and additional variable payments based on the number of flight hours. In 2010, approximately 89% of our domestic oil and gas-related revenues was from customer contracts. Revenues from these contracts were approximately 50% from the fixed fee component and 50% from the variable fee component.
Our contracts generally limit our exposure to increases in fuel costs by passing through to our customers fuel costs in excess of pre-agreed levels. Most of our fixed-term contracts contain provisions permitting early termination by the customer, sometimes with as little as 30 days notice for any reason and generally without penalty, although customers have rarely exercised that right historically. In addition, many of our contracts permit our customers to increase or decrease the number of aircraft under contract with a corresponding increase or decrease in the fixed monthly payments, and without a significant penalty for a decrease. When our contracts expire, we believe that we have an advantage in renewing the contract based on the existing relationship with the customer, detailed knowledge of the specific operating environment and an established base of equipment and personnel on site.
Operating revenues from the Oil and Gas segment accounted for 67%, 65%, and 64% of consolidated operating revenues during the years ended December 31, 2010, 2009, and 2008, respectively.
Air Medical. We provide air medical transportation services for hospitals and emergency service agencies in 18 states using approximately 89 aircraft at 64 separate locations. Our Air Medical segment operates primarily under

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the independent provider model and, to a lesser extent, under the hospital-based model. Under the independent provider model, we have no contracts and no fixed revenue stream, and compete for transport referrals on a daily basis with other independent operators in the area. Under the hospital-based model, we contract directly with the hospital to provide their transportation services, with the contracts typically awarded on a competitive bid basis. Our Air Medical operations are headquartered in Phoenix, Arizona. The Air Medical segment’s operating revenues accounted for 31%, 33%, and 34% of consolidated operating revenues for the years ended December 31, 2010, 2009, and 2008, respectively.
As an independent provider, we bill for our services on the basis of a flat rate plus a variable charge per loaded mile, regardless of aircraft model. Revenues are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when the services are provided. Contractual allowances and uncompensated care are estimated based on historical collection experience by payor category. The main payor categories are Medicaid, Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors most subject to sensitivity and variability in calculating our allowances. We compute a historical payment analysis of accounts, by category. The allowance percentages calculated are applied to the payor categories, and the necessary adjustments are made to the revenue allowance. The allowance for contractual discounts was $34.7 million, $32.1 million, and $37.6 million as of December 31, 2010, 2009, and 2008, respectively. The allowance for uncompensated care was $39.3 million, $28.1 million, and $20.8 million as of December 31, 2010, 2009, and 2008, respectively.
Provisions for contractual discounts and estimated uncompensated care are as follows:
                                                 
    Revenue     Accounts Receivable  
    Year Ended December 31,     Year Ended December 31,  
    2010     2009     2008     2010     2009     2008  
Gross billings
    100 %     100 %     100 %     100 %     100 %     100 %
Provision for contractual discounts
    52 %     52 %     47 %     33 %     34 %     35 %
Provision for uncompensated care (1)
    11 %     11 %     11 %     37 %     30 %     20 %
 
1)   The increase in the provision for uncompensated care related to Accounts Receivable at December 31, 2010, is due to increased open accounts compared to the prior year end accounts receivable.
Amounts attributable to Medicaid, Medicare, Insurance, and Self Pay as a percentage of net Air Medical revenues are as follows:
                         
    Year Ended December 31,  
    2010     2009     2008  
Medicaid
    16 %     12 %     11 %
Medicare
    22 %     18 %     18 %
Insurance
    61 %     68 %     67 %
Self Pay
    1 %     2 %     4 %
We also have a limited number of contracts with hospitals under which we receive a fixed monthly rate for aircraft availability and an hourly rate for flight time. Those contracts generated approximately 16%, 15%, and 12% of the segment’s revenues for 2010, 2009, and 2008, respectively.
Technical Services. The Technical Services segment provides helicopter repair and overhaul services for flight operations customers that own their aircraft. Costs associated with these services are primarily labor, and customers are generally billed at a percentage above cost. We also operate five aircraft for the National Science Foundation in Antarctica under this segment.
Operating revenues from the Technical Services segment accounted for 2% of consolidated operating revenues for the years ended December 31, 2010, 2009, and 2008.
Seasonal Aspects
Seasonality affects our operations in three principal ways: weather conditions are generally poorer in December, January, and February; tropical storms and hurricanes are prevalent in the Gulf of Mexico in late summer and early fall; and reduced daylight hours restrict our operations in winter, which result in reduced flight hours. When a

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tropical storm or hurricane is about to enter or begins developing in the Gulf of Mexico, flight activity may temporarily increase because of evacuations of offshore workers, but during the storms, we are unable to operate in the area of the storm and can incur significant expense in moving our aircraft to safer locations. For a more detailed discussion of these events, see the “Adverse Weather Conditions” paragraph in the “Risk Factors” section of Item 1A. Our operating results vary from quarter to quarter, depending on seasonal factors and other factors outside of our control. As a result, full year results are not likely to be a direct multiple of any particular quarter or combination of quarters.
Inventories
We carry a significant inventory of aircraft parts to support the maintenance and repair of our helicopters. Many of these inventory items are parts that have been removed from aircraft, refurbished according to manufacturers and Federal Aviation Administration (“FAA”) specifications, and returned to inventory. The cost to refurbish these parts is expensed as incurred. We use systematic procedures to estimate the value of these used parts, which include consideration of their condition and continuing utility. The carrying values of inventory reported in our consolidated financial statements are affected by these estimates and may change from time to time if our estimated values change. See “Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies, Inventories of Spare Parts.”
Customers
Our principal customers are major integrated energy companies and independent exploration and production companies. We also serve oil and gas service companies, hospitals and medical programs under the independent provider model, government agencies, and other aircraft owners and operators. Our largest customer is in our Oil and Gas segment and accounted for 17%, 15%, and 13% of operating revenues for the years ended December 31, 2010, 2009, and 2008, respectively. Also, another customer in our Oil and Gas segment accounted for 14%, 13%, and 14% of operating revenues for the years ended December 31, 2010, 2009, and 2008 respectively. We have entered into contracts with most of our customers for terms of at least one year, although most contracts include provisions permitting earlier termination.
Competition
Our business is highly competitive in each of our markets, and many of our contracts are awarded after competitive bidding. Factors that impact competition include safety, reliability, price, availability of appropriate aircraft and quality of service. Some of our competitors recently have undertaken expansion and/or upgrades of their fleets.
We are a leading operator of helicopters in the Gulf of Mexico. There are two major and several small competitors operating in the Gulf of Mexico market. Although most oil companies traditionally contract for most specialty services associated with offshore operations, including helicopter services, certain of our customers and potential customers in the oil industry operate their own helicopter fleets, or have the capability to do so if they so elect.
In the air medical market, we compete against national and regional firms, and there is usually more than one competitor in each local market. In addition, we compete against hospitals that operate their own helicopters and, in some cases, against ground ambulances as well.
Employees
As of December 31, 2010, we employed approximately 2,222 full-time employees and 43 part-time employees, including approximately 705 pilots, 724 aircraft maintenance personnel, and 362 medical support staff.
Our domestic pilot workforce is represented by the Office and Professional Employees International Union (“OPEIU”), although we and the union do not have a current agreed upon collective bargaining agreement and are engaged in litigation. For additional information, see Item 3 — Legal Proceedings.
Governmental Regulation
We are subject to government regulation by a number of different federal and state agencies. Our flight operations are regulated by the FAA. Aircraft accidents are subject to the jurisdiction of the National Transportation Safety Board (“NTSB”). Standards relating to the workplace health and safety of our employees are created and monitored

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through the Occupational Safety and Health Administration (“OSHA”). There are a number of statutes and regulations that govern offshore operations. Our air medical operations are also subject to healthcare-related laws and regulations, including those related to Medicare and Medicaid compliance and the privacy and security rules of the Health Insurance Portability and Accountability Act of 1996, as amended. We are also subject to various federal and state environmental laws and regulations. For additional information, see Item 1A — Risk Factors — Risks Inherent in our Business — “Increased governmental regulations could increase our costs or reduce our ability to operate successfully.”
Environmental Matters
We are subject to federal, state and local environmental laws and regulations that impose limitations on the discharge of pollutants into the environment and establish standards for the treatment, storage, recycling, and disposal of toxic and hazardous wastes. Operating and maintaining helicopters requires that we use, store, and dispose of materials that are subject to federal and state environmental regulation. We periodically conduct environmental site surveys at our facilities, and determine whether there is a need for environmental remediation based on these surveys. For additional information, see Item 1A — Risk Factors — Risks Inherent in Our Business — “Our operations are subject to stringent and comprehensive environmental laws and regulations that may expose us to significant costs and liabilities,” and See Note 10 to our consolidated financial statements included in this report.
Corporate Information
In December 2005, we announced a corporate name change from “Petroleum Helicopters, Inc.” to “PHI, Inc.” In addition, the trading symbol for our voting common stock changed to “PHII,” and the symbol for our non-voting common stock changed to “PHIIK.”
In September 2001, Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, acquired approximately 52% of our outstanding voting common stock from our founder’s family. As of December 31, 2010, Mr. Gonsoulin owned 59.7% of our outstanding voting common stock and 4.3% of our outstanding non-voting common stock, representing 14.6% of our total outstanding equity. Mr. Gonsoulin has over 35 years of experience in the oil and gas service industry. In 1977, he founded Sea Mar, Inc., a provider of marine transportation and support services to the oil and gas industry in the Gulf of Mexico, and sold it to Pool Energy Services Co. in 1998. Pool Energy Services was acquired by Nabors Industries, Inc. in 1999, and Mr. Gonsoulin continued to serve as President of Sea Mar until December 31, 2001.
Our principal executive offices are located at 2001 SE Evangeline Thruway, Lafayette, Louisiana 70508, and our telephone number at that address is (337) 235-2452.
Availability of SEC filings and other information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to any of these reports are available free of charge through our web site: www.phihelico.com. These reports are available as soon as reasonably practicable after we file them with the Securities and Exchange Commission (“SEC”). You may also read and copy any of the materials that we file with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The SEC’s website address is www.sec.gov.
ITEM 1A. Risk Factors
All phases of our operations are subject to significant uncertainties, risks, and other influences. Known material risks and other important factors that could cause our actual results to differ materially from anticipated results or other expectations are discussed below:

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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.
A favorable safety record is one of the primary factors a customer reviews in selecting an aviation provider. If we fail to maintain our safety and reliability record, our ability to attract new customers and maintain our current customers will be materially adversely affected.
Helicopter operations involve risks that may not be covered by our insurance or may increase the cost of our insurance.
The operation of helicopters inherently involves a high degree of risk. Hazards such as aircraft accidents, collisions, fire and adverse weather are hazards that must be managed by providers of helicopter services and may result in loss of life, serious injury to employees and third parties, and losses of equipment and revenues.
We maintain hull and liability insurance on our aircraft, which insures us against physical loss of, or damage to, our aircraft and against certain legal liabilities to others. In addition, we carry war risk, expropriation, confiscation and nationalization insurance for our aircraft involved in international operations. In some instances, we are covered by indemnity agreements from our customers in lieu of, or in addition to, our insurance. Our aircraft are not insured for loss of use.
While we believe that our insurance and indemnification arrangements provide reasonable protection for most foreseeable losses, they do not cover all potential losses and are subject to deductibles, retentions, coverage limits and coverage exceptions such that severe casualty losses, or the expropriation or confiscation of significant assets could materially and adversely affect our financial condition or results of operations. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our financial condition, results of operations, and cash flows.
Our operations are affected by adverse weather conditions and seasonal factors.
We are subject to three types of weather-related or seasonal factors:
  poor weather conditions that often prevail during winter but can develop in any season;
 
  the tropical storm and hurricane season in the Gulf of Mexico; and
 
  reduced daylight hours during the winter months.
Poor visibility, high winds and heavy precipitation can affect the operation of helicopters and significantly reduce our flight hours. A significant portion of our operating revenue is dependent on actual flight hours and a substantial portion of our direct costs is fixed. Thus, prolonged periods of adverse weather can materially and adversely affect our operating revenues and net earnings.
In the Gulf of Mexico, the months of December, January and February generally have more days of adverse weather conditions than the other months of the year. Also, June through November is tropical storm and hurricane season in the Gulf of Mexico, with August and September typically being the most active months. During tropical storms, we are unable to operate in the area of the storm and can incur significant expense in moving our aircraft to safer locations. In addition, as most of our facilities are located along the Gulf of Mexico coast, tropical storms and hurricanes may cause substantial damage to our property, including helicopters that we are unable to relocate.
Because the fall and winter months have fewer hours of daylight, our flight hours are generally lower at those times, which typically results in a reduction in operating revenues during those months. Currently, only 79 of the 162 helicopters used in our oil and gas operations are equipped to fly under instrument flight rules (“IFR”), which enables these aircraft, when manned by IFR-rated pilots and co-pilots, to operate

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when poor visibility or darkness prevents flight by aircraft that can fly only under VFR. Not all of our pilots are IFR rated.
Our helicopters may not always be profitably deployed.
We are exposed to the risk that our helicopters may not always be profitably deployed. Customers often require a specific type of helicopter, which may be different from those in our fleet. Our contract terms generally are too short to recover our cost of purchasing a helicopter, subjecting us to the risk that we will be unable to recoup our investment in the helicopter. Helicopters we acquire may not be covered by customer contracts when they are placed into service. Once a new helicopter is delivered to us, we generally spend between two and three months installing mission-specific and/or customer-specific equipment before we place it into service. As a result, there can be a significant delay between the delivery date for a new helicopter and the time that it is able to generate revenues for us.
We may not be able to find alternative profitable uses for helicopters no longer under contract. For example, in the third quarter of 2010, we entered into a contract to purchase ten medium aircraft related to requirements under a new contract with a customer, which will replace aircraft being used with respect to the current contract over a two-year period. For additional information, see Note 10 to our financial statements included in this report. As a result, we must find alternative profitable uses for the helicopters that will be released under the current contract. If we cannot find an acceptably profitable use for a helicopter, or if a helicopter no longer meets our strategic objectives, including due to age, we may sell it. Prices in the used helicopter market have been volatile over time, and we may incur gains or losses from the sale of helicopters. Inability to profitably deploy helicopters in our fleet may have a material adverse effect on our financial condition, results of operation and cash flow.
Our contracts generally can be terminated or downsized by our customers without penalty.
Most of our fixed-term contracts contain provisions permitting early termination by the customer, sometimes with as little as 30 days’ notice for any reason and generally without penalty. In addition, many of our contracts permit our customers to decrease the number of aircraft under contract with a corresponding decrease in the fixed monthly payments without penalty. As a result, undue reliance should not be placed on our customer contracts or the terms of those contracts.
The helicopter services business is highly competitive.
All segments of our business are highly competitive. Many of our contracts are awarded after competitive bidding, and the competition for those contracts generally is intense. The principal aspects of competition are safety, price, reliability, availability and service.
We have two major competitors and several small competitors operating in the Gulf of Mexico, and most of our customers and potential customers could operate their own helicopter fleets if they chose to do so.
Our Air Medical segment competes for business primarily under the independent provider model and, to a lesser extent, under the hospital-based model. Under the independent provider model, we have no contracts and no fixed revenue stream, but must compete for transport referrals on a daily basis with other independent operators in the area. Under the hospital-based model, we contract directly with the hospital to provide their transportation services, with the contracts typically awarded on a competitive bid basis. Under both models, we compete against national and regional companies, and there is usually more than one competitor in each local market. In addition, we compete against hospitals that operate their own helicopters and, in some cases, against ground ambulances as well.
Our Air Medical operations expose us to numerous special risks, including collection risks and potential medical malpractice claims.
Our Air Medical operations are highly competitive and expose us to a number of risks that we do not encounter in our oil and gas operations. For instance, the fees for our air medical services generally are paid by individual patients, insurance companies, or government agencies such as Medicare and Medicaid. As a result, our profitability in this business depends not only on our ability to generate an

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acceptable volume of patient transports, but also on our ability to collect our transport fees. We are not permitted to refuse service to patients based on their inability to pay.
We employ paramedics, nurses, and other medical professionals for these operations, which can give rise to medical malpractice claims against us, which, if not fully covered by our medical malpractice insurance, could materially adversely affect our financial condition and results of operations.
Increased governmental regulations could increase our costs or reduce our ability to operate successfully.
Our operations are regulated by a number of federal and state agencies. All of our flight operations are regulated by the FAA. Aircraft accidents are subject to the jurisdiction of the National Transportation Safety Board. Standards relating to workplace health and safety are monitored by OSHA. We are also subject to various federal and state healthcare-related laws and regulations.
The FAA has jurisdiction over many aspects of our business, including personnel, aircraft and ground facilities. We are required to have an Air Taxi Certificate, granted by the FAA, to transport personnel and property in our helicopters. This certificate contains operating specifications that allow us to conduct our present operations, but it is potentially subject to amendment, suspension or revocation in accordance with procedures set forth in the Federal Aviation Act. The FAA conducts regular inspections regarding the safety, training and general regulatory compliance of our U.S. aviation operations. Additionally, the FAA requires us to file reports confirming our continued compliance.
FAA regulations require that at least 75% of our voting securities be owned or controlled by citizens of the U.S. or one of its possessions, and that our president and at least two-thirds of our directors be U.S. citizens. Our Chief Executive Officer and all of our directors are U.S. citizens, and our organizational documents provide for the automatic reduction in voting power of each share of voting common stock owned or controlled by a non-U.S. citizen if necessary to comply with these regulations.
We are subject to significant regulatory oversight by OSHA and similar state agencies. We are also subject to the Communications Act of 1934 because of our ownership and operation of a radio communications flight-following network throughout the Gulf of Mexico.
Numerous other federal statutes and rules regulate our offshore operations and those of our customers, pursuant to which the federal government has the ability to suspend, curtail or modify certain or all offshore operations. A suspension or substantial curtailment of offshore oil and gas operations for any prolonged period would have an immediate and materially adverse effect on us. A substantial modification of current offshore operations could adversely affect the economics of such operations and result in reduced demand for our services.
Our air medical operations are also subject to healthcare-related laws and regulations, including those related to Medicare and Medicaid compliance and the privacy and security rules of the Health Insurance Portability and Accountability Act of 1996, as amended.
Our operations are subject to stringent and comprehensive environmental laws and regulations that may expose us to significant costs and liabilities.
Our operations are subject to stringent laws and regulations relating to environmental protection. Inherent in our business is the risk of incurring significant environmental costs and liabilities due to our handling of petroleum products and generated wastes, because of air emissions and wastewater discharges related to our operations, and as a result of historical operations and waste disposal practices. Environmental laws and regulations generally require us to obtain permits such as air emissions and wastewater permits before regulated activities commence, require us to remain in compliance with the permits, restrict the types, quantities and concentration of materials that can be released into the environment in connection with regulated activities, and impose substantial liabilities for pollution resulting from operations. Failure to comply with these laws and regulations or the terms or conditions of required environmental permits may result in the assessment of administrative, civil and/or criminal penalties, the imposition of remedial obligations or corrective actions, and the issuance of injunctions limiting or prohibiting some or all of our operations.

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We currently own or lease, and have in the past owned or leased, properties that have been used for many years by persons, including us, for various aviation operational support and maintenance activities. Petroleum products and wastes may have been disposed or released on or under properties owned or leased by us or on or under other locations where we have arranged for such petroleum products or wastes to be taken for disposal or recycling. In addition, many of these properties have been operated by third parties whose treatment and disposal or release of petroleum products or wastes was not under our control. Because operating and maintaining helicopters causes us to generate, handle and dispose of materials that may be classified as “hazardous substances,” “hazardous wastes,” or other types of regulated materials, we may incur joint and several, strict liability under applicable federal laws, including the federal Comprehensive Environmental Response, Compensation, and Liability Act, also referred to as the Superfund law and the federal Resource Conservation and Recovery Act, as well as analogous state laws. Under such laws, we could be required to remove or remediate previously disposed wastes or property contamination, restore affected properties, or undertake measures to prevent future contamination. In addition, future spills or releases of regulated substances or the discovery of currently unknown contamination could expose us to material losses, expenditures and environmental liabilities, including liabilities resulting from lawsuits brought by private litigants or neighboring property owners or operators for personal injury or property damage related to our operations or the land on which our operations are conducted. We generally cannot recover these costs from insurance.
Changes in environmental laws, regulations or enforcement policies occur frequently, and any changes that result in more stringent or costly pollution control equipment, waste handling, storage, transport, disposal or cleanup requirements or other unforeseen liabilities could require us to make significant expenditures to attain and maintain compliance and may have a material adverse effect on our results of operations, competitive position or financial condition. For example, the U.S. Congress has considered, and almost one-half of the states have pursued regulatory initiatives designed to restrict the emission of carbon dioxide, methane and other greenhouse gases that may contribute to warming of the Earth’s atmosphere and other climatic changes, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse cap and trade programs. Any adoption of laws or regulations that limits emissions of greenhouse gases from equipment or operations could result in increased costs to reduce such emissions from our operations as well as those of our customers, and could adversely affect demand for our services.
New and proposed health care legislation and regulation could have a material impact on our business.
On March 23, 2010, the Patient Protection and Affordable Care Act became law, enacting comprehensive health care reform in the United States. Many provisions of the law that could impact our business will not become effective until 2014 or later, and require implementation through regulations that have not yet been promulgated. Accordingly, we are currently evaluating the new legislation and cannot predict with any certainty what the potential impact of the new law will be on our business. The legislation aims to expand health insurance coverage to uninsured Americans, and, among other things, expands Medicaid, requires U.S. citizens and legal residents to have health insurance coverage or pay a tax penalty, and assesses fees on employers who do not offer qualifying coverage to employees. The legislation also has provisions aimed at controlling health care costs. With respect to our Air Medical operations, we may see a decrease in reimbursement amounts from Medicaid, Medicare and commercial insurance payors, but may also see an increase in payments from individuals who were previously uninsured. Federal and state governments may propose and adopt other health care initiatives or changes to current laws and regulations, the impact of which cannot be predicted.
New and proposed health care legislation and regulation could increase the cost of providing medical benefits to employees, which could have an adverse impact on our results of operations.
Recently passed legislation, described above, and future proposed legislation and regulation, could increase the cost of providing medical insurance to our employees. The cost and other effects, which may include the cost of compliance and cost of insurance, cannot be determined with certainty. If our costs increase and we are unable to pass the costs to our customers, there may be a material adverse impact on our results of operations.

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Our international operations are subject to political, economic and regulatory uncertainty.
Our international operations represented approximately 2% of our total operating revenues for the year ended December 31, 2010; however, we often consider international opportunities, particularly in our Oil and Gas segment, and often in lesser developed countries, and we are currently negotiating a joint venture in Brazil. International operations, particularly in lesser developed countries, are subject to a number of risks, including:
  political, social and economic instability;
 
  terrorism, kidnapping and extortion;
 
  potential seizure or nationalization of assets;
 
  import-export quotas; and
 
  currency fluctuations or devaluation.
Additionally, our competitiveness in international markets may be adversely affected by government regulation, including regulations requiring:
  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.
Our ability to attract and retain qualified pilots, mechanics, nurses, paramedics and other highly trained personnel will be an important factor in determining our future success. Many of our customers require pilots of aircraft that service them to have inordinately high levels of flight experience. The market for these experienced and highly trained personnel is extremely competitive. Accordingly, we cannot assure that we will be successful in our efforts to attract and retain such persons. Some of our pilots and mechanics, and those of our competitors, are members of the U.S. military reserves and could be called to active duty. If significant numbers of such persons are called to active duty, it would reduce the supply of such workers, possibly curtailing our operations and likely increasing our labor costs.
RISKS SPECIFIC TO OUR COMPANY
The Macondo incident could have a material adverse effect on our business.
Our business is highly dependent on the offshore oil and gas industry, with approximately 67% of our total 2010 operating revenue attributable to helicopter support for offshore oil and gas exploration and production companies, substantially all of which was in the Gulf of Mexico. Of this revenue, approximately 65% was attributable to deepwater operations. Many of the helicopters we have purchased recently are larger aircraft intended to service deepwater activities, and the margins we earn on these aircraft are generally higher than on smaller aircraft. In addition, we derive a significant amount of our revenue from a small number of major and independent oil and gas companies.
In April 2010, the Deepwater Horizon rig, engaged in deepwater drilling operations at BP’s Macondo well in the Gulf of Mexico, sank after a blowout, resulting in the discharge of substantial amounts of oil until mid-July 2010, the flow of oil was stopped. On May 28, 2010, the Department of Interior imposed a six-month moratorium on offshore deepwater drilling operations, the enforcement of which was preliminarily enjoined, and on July 12, 2010, the Department of Interior imposed another similar moratorium set to expire November 30, 2010. As a result, deepwater drilling operations in the Gulf of Mexico were suspended. On October 12, 2010, The Department of Interior lifted the moratorium on

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deepwater drilling. However, since that date, as a result of regulatory actions by the Department of Interior, there has been a “de facto” moratorium on drilling in the deep waters of the Gulf of Mexico. It is not possible to estimate whether or when drilling operations in the Gulf of Mexico will return to normal activity levels, due to uncertainties surrounding the timing of issuance of drilling permits by the Department of Interior and new regulations related to drilling operations. BP incurred significant costs related to the clean up of and damages caused by the oil spill and stopping the flow of oil from the well. BP is one of our major customers and accounted for approximately 17% and 14% of our total revenues in 2010 and 2009, respectively.
As a result of these events, we experienced increased flight activity during the cleanup process. We estimate that the flight hours related to this increased activity were approximately 7% of total flight hours for the period May 2010 through July 2010. Offsetting these increased flight hours are decreased flight hours resulting from the suspension of deepwater drilling activities in the Gulf of Mexico. We estimate that the adverse affect to our flight hours related to deepwater drilling rigs that have already demobilized are approximately 500 to 600 flight hours per month, or approximately 5% of Oil and Gas segment flight hours per month. Many of the deepwater drilling rigs we have been servicing are still on location (although not drilling), and therefore we are still conducting crew changes to those rigs. It is not possible to estimate how long these rigs will remain in their current status, but if these drilling rigs are demobilized or leave the Gulf of Mexico, there will be a further adverse affect to our flight activity. The majority of our transportation activity services production facilities, which are not directly impacted by the moratorium. This adds stability to our business as these are more permanent in nature.
We believe the Macondo incident is likely to result in increased costs for our exploration and production company customers operating in the Gulf of Mexico. Increased costs may cause customers to decrease their activity in the Gulf of Mexico, may decrease demand for our services, and may increase pricing pressure for our services. We cannot predict whether or to what extent drilling activities will resume in the Gulf of Mexico. Further, the potential for, or the ultimate enactment of, laws and regulations that increase the costs of, or impose additional restrictions on, drilling or operating in the Gulf of Mexico, may cause customers and potential customers to substantially limit activities in or even exit the Gulf of Mexico. Accordingly, the Macondo incident could have a material adverse effect on our business.
We are highly dependent on the offshore oil and gas industry, particularly in the Gulf of Mexico.
Approximately 67% of our 2010 operating revenue was attributable to helicopter support for offshore oil and gas exploration and production companies, substantially all of which was in the Gulf of Mexico. Our business is highly dependent on the level of activity by oil and gas companies, particularly in the Gulf of Mexico. The level of activity by our customers operating in the Gulf of Mexico depends on factors that we cannot control, such as:
  the extent to which increased government regulation or other factors may impose increased costs, including as a result of the Macondo incident, as discussed above;
 
  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 the Organization of the Petroleum Exporting Countries, 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; and
 
  the price and availability of alternative fuels.
Any substantial or extended decline in the prices of oil and natural gas could depress the level of helicopter activity in support of exploration and production activity, and thus have a material adverse effect on our business, results of operations and financial condition.

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Additionally, the Gulf of Mexico is generally considered to be a mature area for oil and gas exploration, which may result in a continuing decrease in activity over time. This could materially adversely affect our business, results of operations and financial condition. In addition, the concentrated nature of our operations subjects us to the risk that a regional event could cause a significant interruption in our operations or otherwise have a material affect on our profitability.
Moreover, companies in the oil and gas exploration and production industry continually seek to implement cost-savings measures. As part of these measures, oil and gas companies have attempted to improve operating efficiencies with respect to helicopter support services. For example, certain oil and gas companies have pooled helicopter services among operators, reduced staffing levels by using technology to permit unmanned production installations and decreased the frequency of transportation of employees offshore by increasing the lengths of shifts offshore. The continued implementation of such measures could reduce demand for helicopter services and have a material adverse effect on our business, results of operations and our financial condition.
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.
We derive a significant amount of our revenue from a small number of major and independent oil and gas companies. For the year ended December 31, 2010, approximately 31% of our operating revenues were attributable to our two largest customers, Shell and BP, accounting for 14% and 17%, respectively. The loss of one of our significant customers, if not offset by revenues from new or other existing customers, would have a material adverse effect on our business and operations. In addition, this concentration of customers may impact our overall credit risk in that these entities may be similarly affected by changes in economic and other conditions.
Our domestic pilot workforce is represented by the OPEIU although the Company and the Union do not have a current agreed upon collective bargaining agreement and the Company, the Union and individual pilots are engaged in litigation.
We are involved in Federal Court litigation in the Western District of Louisiana and the Fifth Circuit Court of Appeals with the Office and Professional Employees International Union (“OPEIU”), the union representing our domestic pilots. For additional information, see Item 3 — Legal Proceedings.
Although credit markets have improved following the credit crisis in late 2008 and 2009, there remains a risk that these markets may have an adverse impact on our business and financial condition in ways that we currently cannot predict.
The credit markets and related turmoil in the global financial system may have an adverse impact on our business and our financial condition. We cannot predict our ability to obtain lease financing due to credit availability, and this could limit our ability to fund our future growth and operations. While we have been able to obtain proposals and lease financing, we cannot predict future availability nor the effects on pricing for lease financing.
General economic conditions and recent market events may expose us to new risks.
Recent events in the financial markets have contributed to severe volatility in the securities markets, a severe liquidity crisis in the global credit markets, and unprecedented government intervention. In such an environment, significant additional risks may exist for us. The recent instability in the financial markets has led the U.S. government to take a number of unprecedented actions designed to support certain financial and other institutions and segments of the financial market that have experienced extreme volatility, and in some cases, a lack of liquidity. There can be no assurance that this intervention will improve market conditions, that such conditions will not deteriorate, or that further government intervention will or will not occur.

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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.
Al A. Gonsoulin, our Chairman of the Board and Chief Executive Officer, beneficially owns stock representing approximately 59.7% 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.
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.
Although an attempted takeover of our company is unlikely by virtue of the ownership by our Chief Executive Officer of more than 50% of the total voting power of our capital stock, there are also provisions in our articles of incorporation and by-laws that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of our company’s securities at a premium to the market price or would otherwise be beneficial to you. For example, our articles of incorporation authorize our board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire us.
In addition, provisions of our by-laws, such as giving the board the exclusive right to fill all board vacancies, could make it more difficult for a third party to acquire control of us. In addition to the provisions contained in our articles of incorporation and by-laws, the Louisiana Business Corporation Law (“LBCL”), includes certain provisions applicable to Louisiana corporations, such as us, which may be deemed to have an anti-takeover effect. Such provisions give stockholders the right to receive the fair value of their shares of stock following a control transaction from a controlling person or group and set forth requirements relating to certain business combinations. Our descriptions of these provisions are only abbreviated summaries of detailed and complex statutes. For a complete understanding of the statutes, you should read them in their entirety.
The LBCL’s control share acquisition statute provides that any person who acquires “control shares” will be able to vote such shares only if the right to vote is approved by the affirmative vote of at least a majority of both (i) all the votes entitled to be cast by stockholders and (ii) all the votes entitled to be cast by stockholders excluding “interested shares.” The control share acquisition statute permits the articles of incorporation or by-laws of a company to exclude from the statute’s application acquisitions occurring after the adoption of the exclusion. Our by-laws do contain such an exclusion; however, our board of directors or stockholders, by an amendment to our by-laws, could reverse this exclusion.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
Aircraft
Information regarding our owned and leased aircraft fleet and 16 customer-owned aircraft that we operate as of December 31, 2010 is set forth in the following table:
                                     
Manufacturer   Type   Number in Fleet   Engine   Passengers   Cruise Speed (mph)   Appr. Range (miles)(2)
Light Aircraft
                                   
Bell
  206 / 407     99     Turbine     4 — 6       130 — 150     300 — 420
Eurocopter
  BK-117 / BO-105     7     Twin Turbine     4 — 6       135     255 — 270
Eurocopter
  EC-135 (1)     37     Twin Turbine     7       143     382
Eurocopter
  AS350 B2 / B3     23     Turbine     5       140     337 — 385
Medium Aircraft
                                   
Bell
  212 (1) / 222 (1)                                
 
  230 (1) / 412 (1) / 430 (1)     15     Twin Turbine     8 — 13       115 — 160     300 — 370
Sikorsky
  S-76 (1) A++, C+, C++     46     Twin Turbine     12       150     400
Agusta
                                   
Westland
  AW-139     2     Twin Turbine     15       160     573
Transport Aircraft
                                   
Sikorsky
  S-92A(1)     16     Twin Turbine     19       160     495
 
                                   
 
  Total Helicopters     245                          
 
                                   
Fixed Wing
                                   
Rockwell(3)
  Aero Commander     2     Turboprop     6       300-340     1,200-1,600
Lear Jet(4)
  31A(1)     2     Turbojet     8       527     1,437
Cessna(4)
  Conquest 441(1)     2     Turboprop     6       330     1,200
Cessna
  U206(1)     1     Single/Piston     6       174     900
Beech(4)
  King Air(1)     4     Turboprop     8       300     1,380
 
 
  Total Fixed Wing     11                          
 
                                   
 
 
  Total Aircraft     256                          
 
                                   
 
(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, along with 81 of the rotary wing aircraft listed above.
Of the 256 aircraft listed, we own 219 and lease 21. The leased aircraft consist of 9 medium and 12 heavy and are currently used in the Oil and Gas segment. Additionally, we operate 16 aircraft owned by customers also included in the table above (eight light aircraft, seven medium and one fixed-wing).
We sell aircraft whenever they become obsolete or do not fit into future fleet plans.
Facilities
Our principal facilities are located on property leased from the Lafayette Airport Commission at Lafayette Regional Airport in Lafayette, Louisiana. The lease covers approximately 28 acres and two buildings, with an aggregate of

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approximately 256,000 square feet, housing our main operational, executive, and administrative offices and the main repair and maintenance facility. The lease for this facility commenced in 2001, expires in 2021 and contains three five-year renewal options following the expiration date.
We own our Boothville, Louisiana operating facility. The property has a 23,000 square foot building, a 7,000 square foot hangar, and landing pads for 35 helicopters.
We also lease property for an Executive and Marketing office in Houston, Texas and 11 additional bases to service the oil and gas industry throughout the Gulf of Mexico. Those bases that represent a significant investment in leasehold improvements and are particularly important to our operations are:
                 
Facility   Lease Expiration   Area   Facilities   Comments
Morgan City
(Louisiana)
  June 30, 2013   53 acres   Operational and maintenance facilities, landing pads for 46 helicopters   Options to extend to June 30, 2018
 
Intracoastal City
(Louisiana)
  December 31, 2012   18 acres   Operational and maintenance facilities, landing pads for 45 helicopters   Options to extend to December 31, 2016
 
Houma-Terrebonne
Airport (Louisiana)
  July 31, 2017   95 acres   Operational and maintenance facilities, landing pads for 30 helicopters   Facility under five separate leases, of which two contain options to extend through 2027
 
Galveston (Texas)
  May 31, 2021   4 acres   Operational and maintenance facilities, landing pads for 30 helicopters   Lease period to May 31, 2021 with certain cancellation provisions
 
Fourchon
(Louisiana)
  February 28, 2013   8 acres   Operational and maintenance facilities, landing pads for ten helicopters   Facility under three separate leases, of which two contain options to extend through 2026 and 2028.
Our other operations-related facilities in the United States are located at New Orleans and Lake Charles, Louisiana; at Port O’Connor, Texas; and at Theodore, Alabama.
We also operate from offshore platforms that are provided without charge by the owners of the platforms, although in certain instances we are required to indemnify the owners against loss in connection with our use of their facilities.
We also lease office and hangar space for our Air Medical operations in Phoenix, Arizona. The two buildings are held under separate leases and collectively provide 5,000 square feet of hangar space and 26,000 square feet of office space. These leases have a term to May 31, 2012 and contain options to extend for an additional five years. As of December 31, 2010, we had 32 Air Medical bases located in California, Indiana, Kentucky, Maryland, New Jersey, New Mexico, Tennessee, Texas and Virginia, all of which are leased. Other bases for our International and approximately 18 other Air Medical operations are generally furnished by customers.
ITEM 3. LEGAL PROCEEDINGS
As previously reported, the Company has been involved in Federal Court litigation in the Western District of Louisiana and the Fifth Circuit Court of Appeals with the Office and Professional Employees International Union

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(“OPEIU”), the union representing the Company’s domestic pilots. This litigation involves claims of bad faith bargaining, compensation of striking pilots both at the time of the strike and upon their return to work under both the Railway Labor Act (“RLA”) and Louisiana state law, and the terms of employment for the Company’s pilots since the strike ended including non-payment of retention bonuses. After approximately two years of bargaining between the Company and OPEIU for a second collective bargaining agreement, including negotiations mediated by the National Mediation Board, both parties entered a self-help period as defined by the applicable labor law, the RLA. At that time the pilots commenced a strike in September 2006 and immediately prior to that strike the Company implemented its own terms and conditions of employment for the pilots. The strike ended in November 2006 and a court-approved return to work process began in January 2007 for those pilots who had not already returned to work or left the Company’s employment. This process was essentially completed in April 2007. The Company’s pilots continue to work under the terms and conditions of employment determined by the Company since the strike began. By Order dated July 9, 2010, the Court dismissed both the Company’s and OPEIU’s claims that the other had violated the RLA by bargaining in bad faith before exercising self-help. By Order dated July 30, 2010, the Court dismissed all claims that the Company violated the RLA in the manner in which it returned pilots to work following the strike. Also, the Court dismissed all but claims by 47 pilots under Louisiana state law. On August 27, 2010, the OPEIU and the individual pilot plaintiffs filed a notice of appeal with the Fifth Circuit Court of Appeals. Then, by Order entered September 27, 2010, the district court dismissed the Louisiana-law claims of the remaining 47 individual pilots. On October 22, 2010, the unions and the individual pilots filed a second notice of appeal to the Fifth Circuit Court of Appeals, by which they appeal the district court’s dismissal of all their RLA and Louisiana-law wage payment claims against PHI. On November 5, 2010, PHI filed a cross-appeal of the district court’s dismissal of PHI’s bad-faith bargaining claim against the unions. On December 31, 2009, the OPEIU filed another case against the Company in the Western District of Louisiana in which the OPEIU asserts that its acceptance in 2009 of the terms and conditions of employment for the Company’s pilots initially implemented by the Company prior to the strike has created a binding collective bargaining agreement and that the Company has inappropriately made unilateral revisions to those terms including failing to pay a retention bonus. That case has been stayed by the Court until approximately April 2011, when the parties will have completed the briefing of the cross-appeals in the other litigation. Management does not expect the outcome of this litigation to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor Holdings Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc., Civil Action No. 1:09-cv-00438 on the docket of the United States District Court for the District of Delaware. This purported class action was filed on June 12, 2009, on behalf of a class defined to include all direct purchasers of offshore helicopter services in the Gulf of Mexico from the defendants at any time from January 1, 2001 through December 31, 2005. The suit alleged that the defendants acted jointly to fix, maintain, or stabilize prices for offshore helicopter services during the above time frame in violation of the federal antitrust laws. The plaintiff sought unspecified treble damages, injunctive relief, costs, and attorneys’ fees. On September 14, 2010, the Court granted defendants’ motion to dismiss (filed on September 4, 2009) and dismissed the complaint. On November 30, 2010, the court granted plaintiff leave to amend the complaint, limited discovery to the new allegations, and established a schedule for briefing dispositive motions in February 2011. The permitted discovery is now complete, and defendants filed a motion for summary judgment on February 11, 2011. Management is unable to estimate a range of reasonably possible loss for the case because a dispositive motion is pending, and discovery relating to potential damages has not commenced.
We have been named as a defendant in various other legal actions that have arisen in the ordinary course of our 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 our consolidated statement of financial condition, results of operations or cash flows.
ITEM 4. (REMOVED AND RESERVED)

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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our voting and non-voting common stock trades on The NASDAQ Global Market, under the symbols PHII and PHIIK, respectively. The following table sets forth the range of high and low sales prices per share, as reported by NASDAQ, for our voting and non-voting common stock for the fiscal quarters indicated.
                                 
    Voting     Non-Voting  
Period   High     Low     High     Low  
January 1, 2010 to March 31, 2010
  $ 24.10     $ 17.33     $ 23.15     $ 17.32  
April 1, 2010 to June 30, 2010
    22.92       14.70       23.09       14.01  
July 1, 2010 to September 30, 2010
    17.55       13.15       16.38       12.65  
October 1, 2010 to December 31, 2010
    22.32       14.54       20.16       15.17  
 
                               
January 1, 2009 to March 31, 2009
  $ 18.88     $ 10.90     $ 16.28     $ 7.10  
April 1, 2009 to June 30, 2009
    21.43       10.99       19.95       9.12  
July 1, 2009 to September 30, 2009
    22.48       16.80       22.98       16.01  
October 1, 2009 to December 31, 2009
    21.57       17.17       22.63       16.31  
 
                       
We have not paid dividends on either class of our common stock since 1999 and do not expect to pay dividends in the foreseeable future.
In addition, the indenture governing our 8.625% Senior Notes due 2018 restricts the payment of dividends. See Note 4 to the Consolidated Financial Statements.
As of February 25, 2011, there were approximately 824 holders of record of our voting common stock and 51 holders of record of our non-voting common stock.

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Stock Performance Graph
The information included under the caption “Stock Performance Graph” in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specially incorporate it by reference into such a filing.
The following performance graph compares PHI’s cumulative total stockholder return on its voting common stock for the last five years with the cumulative total return on the Russell 2000 Index, the Oil Service Index, and a peer group, assuming the investment of $100 on January 1, 2006, at closing prices on December 31, 2005, and reinvestment of dividends. The Russell 2000 Index consists of a broad range of publicly-traded companies with small market capitalizations of $0.5 billion to $1.07 billion, and is published daily in the Wall Street Journal. The Oil Service Sector Index is a price-weighted index composed of the common stocks of 15 companies that provide oil drilling and production services, oil field equipment, support services, and geophysical/reservoir services. The peer group companies are Bristow Group, Inc.; Tidewater, Inc.; Gulfmark Offshore, Inc.; Seacor Holdings, Inc.; and Air Methods Corp.
(PERFORMANCE GRAPH LOGO)
Cumulative Total Returns as of December 31,
                                                 
Index   2005     2006     2007     2008     2009     2010  
PHI
    100.00       128.01       120.33       54.34       80.29       60.77  
Peer Group
    100.00       163.30       197.38       113.88       141.17       153.14  
OSX
    100.00       161.29       243.35       97.94       157.27       134.58  
Russell 2000
    100.00       120.89       117.57       76.65       95.98       116.40  

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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for each of the past five fiscal periods should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes to Consolidated Financial Statements included elsewhere in this Annual Report.
                                         
                    Year Ended          
    December 31,  
    2010     2009     2008     2007     2006  
            (Thousands, except per share amounts)          
Income Statement Data
                                       
Operating revenues
  $ 516,935     $ 487,175     $ 509,514     $ 446,406     $ 413,118  
Gain on disposition of assets, net
    239       111       4,468       34,953       1,910  
Net earnings (loss) (1) (2) (3) (4)
    7,117       12,968       23,515       28,218       (667 )
Net earnings (loss) per share
                                       
Basic
    0.46       0.85       1.54       1.85       (0.05 )
Diluted
    0.46       0.85       1.54       1.85       (0.05 )
Weighted average shares outstanding
                                       
Basic
    15,312       15,307       15,295       15,279       13,911  
Diluted
    15,312       15,307       15,301       15,288       13,911  
 
                                       
Cash Flow Data
                                       
Net cash provided by operating activities
  $ 76,857     $ 55,272     $ 43,798     $ 25,226     $ 30,324  
Net cash used in investing activities
    (175,510 )     (69,235 )     (47,292 )     (19,464 )     (178,928 )
Net cash provided by (used in) financing activities
    99,780       15,305       3,228       (5,157 )     146,388  
 
                                       
Balance Sheet Data (5)
                                       
Current assets
  $ 319,486     $ 245,301     $ 224,620     $ 230,029     $ 307,689  
Working capital
    268,763       207,024       173,978       176,633       254,099  
Property and equipment, net
    596,533       548,536       528,574       484,119       369,465  
Total assets
    945,139       805,506       777,182       741,296       700,970  
Total debt
    331,074       218,305       203,000       200,000       205,500  
Shareholders’ equity
    472,416       465,448       452,396       428,669       400,125  
 
                                       
Calculation of Ratio of Earnings to Fixed Charges
                                       
Earnings
                                       
Pre-tax income from continuing operations before adjustments for income or loss from equity investees
  $ 14,593     $ 21,841     $ 38,632     $ 45,689     $ (1,080 )
Fixed charges
    37,707       31,425       27,478       26,365       25,236  
 
                             
Earnings, as adjusted
  $ 52,300     $ 53,266     $ 66,110     $ 72,054     $ 24,156  
 
                             
 
                                       
Fixed Charges
                                       
Interest expensed and capitalized
  $ 18,583     $ 15,144     $ 14,630     $ 15,261     $ 16,276  
Amortized premiums, discounts and capitalized expenses related to indebtedness
    806       893       885       860       967  
Estimate of the interest within rental expense
    18,318       15,388       11,963       10,244       7,993  
 
                             
Fixed charges
  $ 37,707     $ 31,425     $ 27,478     $ 26,365     $ 24,156  
 
                             
 
                                       
Ratio of earnings to fixed charges (6)
    1.4 x     1.7 x     2.4 x     2.7 x     1.0 x
 
                             
 
(1)   Net earnings in 2010 includes an after tax charge of $5.7 million related to the refinancing of our 7.125% Senior Notes.
 
(2)   Net earnings in 2008 includes an after tax goodwill impairment charge of $1.6 million related to our Air Medical segment.
 
(3)   Net earnings in 2007 was impacted due to the pilots’ strike that commenced September 20, 2006.
 
(4)   Net loss in 2006 includes an after tax charge of $7.7 million related to the refinancing of our 9 3/8% Senior Notes.
 
(5)   As of the year ended December 31.
 
(6)   The term “fixed charges” means the sum of interest and the estimated interest component of our rent expense. For this calculation, fixed charges are added back to net earnings before income taxes. Ratio of earnings to fixed charges does not reflect the pro forma effect of the issuance of our $300 million 8.625% Senior Notes due 2018 or the redemption and repurchase of our $200 million 7.125% Senior Notes due 2013.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in this report.
Overview
On September 23, 2010, we issued $300 million of 8.625% Senior Notes due October 15, 2018. The 8.625% Senior Notes are described in Note 4 to our financial statements included in this report. Proceeds were $295.5 million, net of underwriting fees and expenses, and were used to retire $189.5 million of our $200 million 7.125% Senior Notes due 2013 pursuant to a tender offer, at a total cost of $199.0 million including the tender premium and accrued interest. We subsequently redeemed the remaining $10.5 million of 7.125% Senior Notes outstanding on October 25, 2010, at a redemption price of 103.563% of the face amount plus accrued interest. As a result of the early redemption of the 7.125% Senior Notes, we recorded a pretax charge of $9.5 million in the quarter ended September 30, 2010, which consisted of a $7.6 million premium and $1.9 million of unamortized issuance costs, resulting in a tax benefit of $3.8 million. During the third quarter 2010, we recorded a $1.5 million charge to tax expense primarily related to an increase in our valuation allowance for foreign tax credits. Anticipated exercise of aircraft lease purchase options and aircraft purchases that would occur using the net proceeds of the 8.625% Senior Notes would increase our tax depreciation and our net operating loss carryforwards, reducing the likelihood that we will be able to use these tax credits before they expire.
After the repurchase and redemption of all of our outstanding $200 million 7.125% Senior Notes as described above, we had remaining net proceeds of approximately $82.0 million. We intend to use these proceeds for general corporate purposes, including the exercise of purchase options for aircraft currently leased, and for the purchase of aircraft required to perform our new contract with Shell. For additional information regarding these anticipated aircraft acquisitions, see Note 10 to our financial statements included in this report. On October 1, 2010, we purchased two heavy aircraft pursuant to a purchase option in the lease, for $25.3 million using proceeds from the note offering. We have invested the remaining net proceeds in treasuries and investment grade securities as of December 31, 2010, reflected in short-term investments on our balance sheet.
In April 2010, the Deepwater Horizon rig, engaged in deepwater drilling operations at BP’s Macondo well in the Gulf of Mexico, sank after a blowout, resulting in the discharge of substantial amounts of oil until mid-July 2010, when the flow of oil was stopped. On May 28, 2010, the Department of Interior imposed a six-month moratorium on offshore deepwater drilling operations, the enforcement of which was preliminarily enjoined, and on July 12, 2010, the Department of Interior imposed another similar moratorium set to expire November 30, 2010. As a result, deepwater drilling operations in the Gulf of Mexico were suspended. On October 12, 2010, the Department of Interior lifted the moratorium on deepwater drilling. However, since that date, as a result of regulatory actions by the Department of Interior, there has been a “de facto” moratorium on drilling in the deep waters of the Gulf of Mexico. It is not possible to estimate whether or when drilling operations in the Gulf of Mexico will return to normal activity levels, due to uncertainties surrounding the timing of issuance of drilling permits by the Department of Interior and new regulations related to drilling operations. BP is one of our major customers and accounted for approximately 17% and 14% of our total revenues in 2010 and 2009, respectively.
As a result of these events, we experienced increased flight activity in the second and third quarters of 2010. We estimate that the flight hours related to this increased activity were approximately 5% of Oil and Gas segment flight hours for 2010. Partially offsetting these increased flight hours are decreased flight hours resulting from the suspension of deepwater drilling activities in the Gulf of Mexico. Many of the deepwater drilling rigs we have been servicing are still on location (although not drilling), and therefore we are still conducting crew changes to those rigs. It is not possible to estimate how long these rigs will remain in their current status, but if these drilling rigs are demobilized or leave the Gulf of Mexico, there will be a further adverse affect to our flight activity. We estimate that the adverse affect to our flight hours related to deepwater drilling rigs that have already demobilized and reduced flight activity to drill rigs remaining on site with reduced crews are approximately 500 to 600 flight hours per month, or approximately 5% of Oil and Gas segment flight hours per month. Accordingly, unless deepwater drilling resumes, we expect that our revenues and profits for fiscal year 2011 will be significantly lower than in 2010. See “Risk Factors” for further discussion of the potential future impacts of the Macondo incident on our business.

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While the Macondo incident presents risks to our business, we believe it also presents opportunities. Increased regulatory requirements that may result from the incident could give a competitive advantage to our customers, who tend to be larger operators and we believe better able to absorb related increased costs. We also believe that an increased focus on safety could benefit our company, as we have a strong record of safe operations.
We continue to seek to expand selectively into international markets that we believe have attractive opportunities for growth. We recently entered into an agreement to provide one aircraft to Noble Energy in support of its operations in Israel, which commenced in the fourth quarter 2010. We are also in discussions with TAM Empreendimentos e Participacoes S/A regarding the formation of a joint venture that would provide helicopter transportation services to the Brazilian oil and gas offshore market. We currently operate one aircraft in the Democratic Republic of Congo. We also operate five aircraft in Antarctica for the National Science Foundation.
Operating revenues for 2010 were $517.0 million compared to $487.2 million for 2009, an increase of $29.8 million, or 6%. Oil and Gas operating revenues increased $29.2 million compared to the prior year related primarily to increased medium and heavy aircraft revenue due to increased deepwater activity in the Gulf of Mexico. These aircraft operate at higher rates as compared to light aircraft. Approximately 50% of the increase in the Oil and Gas revenues is a result of the activity in the second and third quarters related to the Deepwater Horizon incident. There was also an increase in revenue related to fuel charges due to an increase in fuel per-gallon cost. Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. Oil and Gas revenues for 2009 were adversely affected by approximately $3.1 million due to a voluntary grounding of medium aircraft in the first quarter of that year related to an accident in January 2009. Operating revenues in the Air Medical segment increased $0.4 million in 2010 due to increased hospital-based contracts, partially offset by decreased revenues in the independent provider programs. These items are discussed in more detail in the Segment Discussion below.
Flight hours for 2010 were 149,020 compared to 146,314 for 2009, an increase of 2,706. Oil and Gas segment’s flight hours increased 2,595 hours due to an increase in deepwater activity in the Gulf of Mexico and additional activity related to the Deepwater Horizon incident, but were partially offset by a decline in flight hours due to some deepwater drilling rigs demobilizing and reduced crews on others. Air Medical segment flight hours decreased 261 hours for 2010, primarily due to decreased independent provider program transports. Transports in the independent provider programs were 18,480 for the year ended December 31, 2010, compared to 19,798 transports for the prior year. Contributing to this decrease was the closure of five bases during 2010. Of the decrease of 1,318 transports, approximately 942 transports were due to the base closures. We believe the remaining decrease in transports was primarily weather related.
Our Oil and Gas segment’s operating profit was $55.3 million for the year ended December 31, 2010, compared to $51.3 million for the year ended December 31, 2009. The increase of $4.0 million was due to the increase in operating revenues of $29.2 million related primarily to increased medium and heavy aircraft flight hours and revenue due to increased deepwater activity in the Gulf of Mexico, primarily during the first eight months of the year. Operating expenses increased $25.5 million as a result of the additional flight activity and also as a result of operating five heavy aircraft acquired in 2009 for the entire year in 2010. These items are discussed in more detail in the Segment Discussion below. Operating margins were 16% for the years ended December 31, 2010 and December 31, 2009 for the segment.
Our Air Medical segment’s operating profit was $10.2 million for the year ended December 31, 2010, compared to operating profit of $6.0 million for the year ended December 31, 2009. Operating margins were 6% in the year ended December 31, 2010, compared to 4% in the year ended December 31, 2009. Operating profit for the year ended December 31, 2010 includes a credit of $3.1 million related to the termination of a manufacturer’s warranty program. This credit along with decreased aircraft warranty costs contributed to the improved operating profit in the Air Medical segment. Operating profit for the year ended December 31, 2009 includes a credit of $3.6 million related to the termination of a manufacturer’s warranty program. These items are discussed in more detail in the Segment Discussion below.
Our net earnings for 2010 were $7.1 million, compared to net earnings of $13.0 million for 2009. Earnings before tax for 2010 were $14.6 million compared to earnings before tax of $21.8 million in 2009. Earnings per diluted share were $0.46 for 2010 as compared to earnings per diluted share of $0.85 for 2009. The decrease was due to the early redemption of our 7.125% Senior Notes, resulting in a $9.5 million pre-tax charge. Fiscal year 2010 and 2009 earnings include credits for termination of warranty programs of $4.3 million and $4.9 million pre-tax, respectively, and 2009 earnings include a $2.1 million pre-tax insurance provision. Additionally, as discussed above, during

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2010, we recorded a valuation charge in tax expense of $1.5 million related to foreign tax credits which will expire before we are able to utilize them.
On April 1, 2010, we purchased two heavy aircraft previously under lease pursuant to purchase options in the lease contract. This purchase was funded with our revolving line of credit and we drew $24.7 million for the acquisition. In addition, on April 15, 2010, we funded the payment of interest on the 7.125% Senior notes due 2013 with $7.0 million from the revolving credit facility. In September 2010, we drew $1.9 million from the revolving credit facility to fund the acquisition of one fixed-wing aircraft, and $3.6 million for deposit on three medium aircraft pursuant to our purchase agreement. On December 1, 2010, we purchased one Lear jet for $2.3 million, funded from the revolving credit facility. We also purchased two medium aircraft in December for a total of $17.1 million funded from the revolving credit facility. On December 28, 2010, we purchased one light aircraft for $2.4 million funded from the revolving credit facility. As of December 31, 2010, the principal amount outstanding under the revolving credit facility was $31.1 million. On January 3, 2011, we purchased an additional light aircraft for $2.4 million also funded from the revolving credit facility.
On October 1, 2010, we purchased two heavy aircraft pursuant to a purchase option in the lease contract. The total purchase price was $25.3 million for both aircraft and was funded with proceeds from the offering of the 8.625% Senior Notes due 2018.

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Results of Operations
The following table presents segment operating revenues, expenses and earnings before income taxes, along with certain non-financial operational statistics, for the years ended December 31, 2010, 2009 and 2008:
                         
            Year Ended  
    December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Segment operating revenues
                       
Oil and Gas
  $ 345,402     $ 316,198     $ 324,147  
Air Medical
    160,517       160,113       174,739  
Technical Services
    11,016       10,864       10,628  
 
                 
Total operating revenues
    516,935       487,175       509,514  
 
                 
 
                       
Segment direct expenses (1)
                       
Oil and Gas
    289,331       263,818       258,160  
Air Medical
    146,131       147,630       160,910  
Technical Services
    8,240       7,179       6,883  
 
                 
Total direct expenses
    443,702       418,627       425,953  
 
                       
Segment selling, general and administrative expenses
                       
Oil and Gas
    759       1,075       1,335  
Air Medical
    4,195       6,484       8,716  
Technical Services
    31       51       76  
 
                 
Total selling, general and administrative expenses
    4,985       7,610       10,127  
 
                 
Total segment direct and selling, general and administrative expenses
    448,687       426,237       436,080  
 
                 
 
                       
Net segment operating profit
                       
Oil and Gas
    55,312       51,305       64,652  
Air Medical
    10,191       5,999       5,113  
Technical Services
    2,745       3,634       3,669  
 
                 
Total
    68,248       60,938       73,434  
 
                       
Other, net (2)
    417       336       4,990  
Unallocated selling, general and administrative expenses (1)
    (25,162 )     (23,396 )     (21,530 )
Interest expense
    (19,389 )     (16,037 )     (15,515 )
Loss on debt restructuring
    (9,521 )            
Goodwill impairment charge
                (2,747 )
 
                 
Earnings before income taxes
  $ 14,593     $ 21,841     $ 38,632  
 
                 
 
                       
Flight hours
                       
Oil and Gas
    114,122       111,527       112,341  
Air Medical
    33,222       33,483       36,732  
Technical Services
    1,676       1,304       1,613  
 
                 
Total
    149,020       146,314       150,686  
 
                 
 
                       
Air Medical Transports
    18,480       19,798       22,647  
 
                 
Aircraft operated at period end
                       
Oil and Gas
    162       164       153  
Air Medical
    89       85       90  
Technical Services
    5       6       6  
 
                 
Total (3)
    256       255       249  
 
                 
 
(1)   Included in segment direct expense and unallocated selling, general, and administrative costs are the depreciation expense amounts below:
                         
    Year Ended December 31,  
    2010     2009     2008  
Oil & Gas
  $ 18,143     $ 16,853     $ 15,408  
Air Medical
    7,982       7,926       8,283  
Technical Services
    260       285       276  
 
                 
Total
    26,385       25,064       23,967  
 
                 
 
                       
 
                 
Unallocated SG&A
  $ 1,696     $ 2,700     $ 2,977  
 
                 
 
(2)   Includes gains on disposition of property and equipment, and other income.
 
(3)   Includes 16 aircraft as of December 31, 2010, December 31, 2009 and 2008 that are customer owned or leased by customers but operated by us.

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Year Ended December 31, 2010 compared with Year Ended December 31, 2009
Combined Operations
Operating Revenues — Operating revenues for 2010 were $517.0 million compared to $487.2 million for 2009, an increase of $29.8 million, or 6%. Oil and Gas operating revenues increased $29.2 million compared to the prior year related primarily to increased medium and heavy aircraft revenue due to increased deepwater activity in the Gulf of Mexico. These aircraft operate at higher rates as compared to light aircraft. Approximately 50% of the increase in the Oil and Gas revenues is a result of the activity in the second and third quarters related to the Deepwater Horizon incident. There was also an increase in revenue related to fuel charges due to an increase in fuel per-gallon cost. Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. Oil and Gas revenues for 2009 were adversely affected by approximately $3.1 million due to a voluntary grounding of medium aircraft in the first quarter of that year related to an accident in January 2009. Operating revenues in the Air Medical segment increased $0.4 million in 2010 due to increased hospital-based contracts, partially offset by decreased revenues in the independent provider programs. These items are discussed in more detail in the Segment Discussion below.
Other Income and Losses — Gains on equipment dispositions were $0.2 million for 2010 compared to $0.1 million for 2009. These amounts represent gains and losses on sales of aircraft and related parts inventory that no longer meet our strategic needs. Other income, which primarily represents interest income was $0.2 million for 2010 and 2009.
Direct Expenses — Direct expense was $443.7 million for 2010 compared to $418.6 million for 2009, an increase of $25.1 million, or 6%. Direct expense in the Air Medical segment decreased $1.5 million primarily due to the termination of the warranty program for certain aircraft, which reduced warranty costs in 2010. Oil and Gas segment direct expense increased $25.5 million as a result of additional flight activity of medium and heavy aircraft, and also due to additional heavy aircraft acquired in 2009 being operational for the full period in 2010. There was also a $1.1 million increase in the Technical Services segment direct expenses. These items are discussed in more detail in the Segment Discussion below.
Selling, General and Administrative Expenses — Selling, general and administrative expenses were $30.1 million for 2010 compared to $31.0 million for 2009, a decrease of $0.9 million, or 3%. This decrease resulted primarily from decreases in legal expenses ($0.5 million), and depreciation expense ($1.3 million), partially offset by increased employee costs ($0.9 million) due to severance costs. The decrease in legal fees, as compared to the prior year, was related to litigation associated with the pilots’ union.
Interest Expense — Interest expense was $19.4 million for 2010, compared to $16.0 million for 2009 due to refinancing our 7.125% Senior Notes and an increase in borrowings under our line of credit. The increase in borrowings under the line of credit was primarily related to aircraft purchases.
Loss on Debt Restructuring — A pre-tax charge of $9.5 million was recorded due to the early redemption of the 7.125% Senior Notes. This charge consists of a $7.6 million premium and $1.9 million of unamortized issuance costs.
Income Taxes — Income tax expense for 2010 was $7.5 million, compared to income tax expense of $8.9 million for 2009. The effective tax rate was 51% for 2010, compared to 41% for 2009. During the third quarter of 2010, we recorded a $1.5 million charge to tax expense primarily related to an increase in our valuation allowance for foreign tax credits and state net operating loss carryforwards. Anticipated aircraft purchases that would occur using the net proceeds of the 8.625% Senior Notes would increase our tax depreciation and our net operating loss carryforwards, reducing the likelihood that we will able to use these tax credits before they expire.
Net Earnings — Our net earnings for 2010 were $7.1 million, compared to net earnings of $13.0 million for 2009. Earnings before tax for 2010 were $14.6 million compared to earnings before tax of $21.8 million in 2009. Earnings per diluted share were $0.46 for 2010 as compared to earnings per diluted share of $0.85 for 2009. The decrease was due to the early redemption of our 7.125% Senior Notes, resulting in a $9.5 million pre-tax charge. Also included in 2010 earnings is a $4.3 million pre-tax credit related to termination of the warranty program for certain aircraft. We also recorded a $4.9 million pre-tax credit for termination of an aircraft warranty program in 2009. Earnings in 2009 include a $2.1 million pre-tax insurance provision. Additionally, during 2010, we recorded a valuation charge in tax expense of $1.5 million related to foreign tax credits which will expire before we are able to utilize them.

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Segment Discussion
Oil and Gas — Oil and Gas segment revenues for 2010 were $345.4 million compared to $316.2 million for 2009, an increase of $29.2 million or 9%. The increase in Oil and Gas revenues was related primarily to increased medium and heavy aircraft flight hours and revenue due to increased deepwater activity in the Gulf of Mexico. These aircraft operate at higher rates as compared to light aircraft. Approximately 50% of the increase in Oil and Gas revenues for the period is a result of increased activity during the second and third quarters related to the Deepwater Horizon incident. However, there was also a decrease in the second, third and fourth quarters related to some deepwater drilling rigs demobilizing and reduced crews on others. There was also a $4.1 million increase in revenue related to fuel charges due to an increase in fuel prices. Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. Oil and Gas revenues for 2009 were adversely affected by approximately $3.1 million due to the voluntary grounding of certain aircraft due to an accident in January 2009. Segment flight hours were 114,122 for 2010 compared to 111,527 for 2009, an increase of 2,595 hours.
The number of aircraft in the segment at December 31, 2010 was 162 compared to 164 aircraft at December 31, 2009. In 2010, we sold or disposed of two light aircraft in the Oil and Gas segment. We have added three new aircraft to the Oil and Gas segment during 2010, consisting of one light and two medium aircraft. In addition, we traded two medium aircraft to a manufacturer as deposits on a contract to purchase ten medium aircraft to support a contract with a customer discussed in Note 9 to our financial statements. Transfers between segments account for the remainder. For further information on our aircraft, see Item 2 — Properties contained in this Form 10-K.
Direct expense in our Oil and Gas segment was $289.3 million for the year ended December 31, 2010, compared to $263.8 million for the year ended December 31, 2009, an increase of $25.5 million. This increase was a result of additional flight activity of medium and heavy aircraft and also due to additional heavy aircraft acquired in 2009 being operational for the full period in 2010. The increased costs include aircraft depreciation ($1.3 million), aircraft rent ($4.3 million), aircraft parts usage ($4.2 million), and component repair costs ($2.4 million). Fuel expense increased ($4.6 million) compared to the prior year as a result of increased per-gallon fuel costs and also due to an increase in fuel usage related to medium and heavy aircraft activity. Total fuel cost is included in direct expense and reimbursement of a portion of fuel costs above a contracted per-gallon amount is included in revenue. Employee compensation expense increased ($6.7 million) primarily due to compensation rate increases and overtime incurred primarily as a result of additional work in the Gulf of Mexico due to the Deepwater Horizon incident. Pilot training costs increased ($1.7 million), and outside services expense increased ($1.1 million) primarily related to temporary staffing. Aircraft warranty costs increased ($0.2 million) compared to prior year due to increased flight hours for the heavy aircraft. Aircraft warranty costs include a credit of $1.2 million in 2010 and $1.3 million in 2009 related to the termination of warranty programs on certain aircraft. Aircraft insurance decreased ($1.3 million) as a result of a $2.1 million insurance provision amount recorded in January 2009 related to an accident. Other items increased ($0.3 million), net.
Selling, general and administrative expenses were $0.8 million for the year ended December 31, 2010, compared to $1.1 million for the prior year. The decrease was primarily related to decreased employee compensation expense.
Our Oil and Gas segment’s operating profit was $55.3 million for the year ended December 31, 2010, compared to $51.3 million for the year ended December 31, 2009. The increase of $4.0 million was due to the increase in operating revenues of $29.2 million, partially offset by the increase in operating expenses of $25.5 million, for the reasons described above. Operating margins were 16% for the years ended December 31, 2010 and December 31, 2009.
Air Medical — Air Medical segment revenues were $160.5 million for 2010 compared to $160.1 million for 2009, an increase of $0.4 million. The increase was primarily related to increased hospital-based contract revenues, partially offset by decreased revenues in the independent provider programs due to decreased patient transports. For 2010, patient transports totaled 18,480, compared to 19,798 transports for 2009. Of the total decrease in transports of 1,318, approximately 942 transports were related to the closure of five bases during the year. We believe the remaining decrease was primarily weather related. Flight hours were 33,222 for the year ended December 31, 2010, compared to 33,483 for the year ended December 31, 2009.

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The number of aircraft in the segment was 89 at December 31, 2010, compared to 85 at December 31, 2009. We added one new medium customer owned aircraft and two fixed wing aircraft, and transferred one aircraft from the Oil and Gas segment.
Direct expense in our Air Medical segment was $146.1 million for the year ended December 31, 2010, compared to $147.6 million for the year ended December 31, 2009. The $1.5 million decrease is primarily due to decreased aircraft warranty costs ($5.3 million) due primarily to terminations of warranty programs for certain aircraft in the first quarter of 2010, and in the third quarter of 2009 that reduced ongoing warranty costs. Included in the decrease is a $3.1 million credit recorded in 2010 and a $3.6 million credit recorded in 2009, due to terminations of a warranty programs. All new aircraft come with a manufacturer’s warranty that covers defective parts. The warranty we terminated was an additional warranty purchased from the manufacturer to cover replacement or refurbishment of aircraft parts on certain aircraft in accordance with manufacturer specifications. A monthly fee was paid to the manufacturer based on flight hours for the aircraft covered under this warranty. In return, the manufacturer provided replacement parts required for maintaining the aircraft. Employee compensation costs decreased ($1.8 million) primarily due to the base closures and reductions in support personnel. These decreases were offset by increases in aircraft parts usage ($0.8 million), component repair costs ($2.8 million), fuel expense ($0.7 million), and aircraft insurance ($0.3 million). Other items increased ($1.0 million), net.
Selling, general and administrative expenses were $4.2 million for the year ended December 31, 2010, compared to $6.5 million for the year ended December 31, 2009. The $2.3 million decrease was primarily due to decreased employee costs ($0.9 million) and decreased expenses for outside services ($0.5 million), and other items, net ($0.9 million). Air Medical operations are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and administrative staff dedicated to this segment. Those costs are charged directly to the Air Medical segment, resulting in higher selling, general and administrative expenses as compared to our other reportable segments.
Our Air Medical segment’s operating profit was $10.2 million for the year ended December 31, 2010, compared to operating profit of $6.0 million for the year ended December 31, 2009. Operating margins were 6% in the year ended December 31, 2010, compared to 4% in the year ended December 31, 2009.Operating profit for 2010 and 2009 includes a credit of $3.1 million and $3.6 million, respectively, related to the termination of manufacturer’s warranty programs. Decreased aircraft warranty costs and SG&A costs contributed to the improved operating profit in the Air Medical segment.
Technical Services — Technical Services revenues were $11.0 million for the year ended December 31, 2010, compared to $10.9 million for the year ended December 31, 2009. Direct expense was $8.2 million for the year ended December 31, 2010, compared to $7.2 million for the year ended December 31, 2009. The $1.0 million increase in direct expense was primarily due to increased employee costs ($0.2 million), aircraft parts usage ($0.2 million), component repair costs ($0.1 million), and other items, net ($0.5 million).
The Technical Services segment had operating profit of $2.7 million for 2010, compared to $3.6 for 2009. Operating margins in the Technical Services segment were 25% for 2010, compared to 33% for 2009. The decrease in operating profit and margin is due to the increase in direct expenses.
Technical Services provides maintenance and repairs performed primarily for our existing customers that own their aircraft. These services are generally labor intensive with higher operating margins as compared to other segments. In addition, the Technical Services segment also conducts flight operations for the National Science Foundation in Antarctica, typically in the first and fourth quarters each year.
Year Ended December 31, 2009 compared with Year Ended December 31, 2008
Combined Operations
Operating Revenues — Operating revenues for 2009 were $487.2 million compared to $509.5 million for 2008, a decrease of $22.3 million, or 4%. Operating revenues decreased in the Oil and Gas segment by $7.9 million primarily due to a decrease in medium aircraft revenues related primarily to a decrease in flight hour activity on the continental shelf, completion of a foreign contract in 2008, and decreases in revenue related to fuel charges. In addition, there was a decrease in medium aircraft revenue due to a voluntary grounding of medium aircraft in the first quarter of 2009. These amounts were offset in part by an increase in heavy aircraft revenue due to deepwater

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activity in the Gulf of Mexico and an increase in light aircraft revenue primarily related to one customer. Operating revenues in the Air Medical segment decreased $14.6 million in 2009 due to decreased patient transports in the independent provider programs. These items are discussed in more detail in the Segment Discussion below.
Other Income and Losses — Gains on equipment dispositions were $0.1 million for 2009 compared to $4.5 million for 2008. These amounts represent gains and losses on sales of aircraft and related parts inventory that no longer meet our strategic needs. Other income, which primarily represents interest income was $0.2 million for 2009, compared to $0.5 million for 2008.
Direct Expenses — Direct expense was $418.6 million for 2009 compared to $425.9 million for 2008, a decrease of $7.3 million, or 2%. Direct expense in the Air Medical segment decreased $13.3 million primarily due to the termination of the warranty program for certain aircraft and cost savings related to the closing of six bases, two in late 2008 and four in 2009. Oil and Gas segment direct expense increased $5.6 million primarily due to costs related to the aircraft additions in 2009 and late 2008. There was also a $0.3 million increase in the Technical Services segment direct expenses. These items are discussed in more detail in the Segment Discussion below.
Selling, General and Administrative Expenses — Selling, general and administrative expenses were $31.0 million for 2009 compared to $31.7 million for 2008, a decrease of $0.7 million, or 2%. This decrease resulted primarily from decreases in franchise taxes ($0.2 million), marketing and promotional expenses in the Air Medical segment ($0.3 million), outside services ($0.5 million), rent expense ($0.6 million) and other items, net ($0.2 million). These decreases were offset by increased legal expenses ($0.8 million) and employee costs ($0.3 million).
Interest Expense — Interest expense was $16.0 million for 2009, compared to $15.5 million for 2008 due to an increase in borrowings under our line of credit. The increase in borrowings under the line of credit was related to aircraft purchases.
Income Taxes — Income tax expense for 2009 was $8.9 million, compared to income tax expense of $15.1 million for 2008. The effective tax rate was 41% for 2009, compared to 39% for 2008.
Net Earnings — Our net earnings for 2009 were $13.0 million, compared to earnings of $23.5 million for 2008. Earnings before tax for 2009 were $21.8 million compared to earnings before tax of $38.6 million in 2008. Earnings per diluted share were $0.85 for 2009 as compared to earnings per diluted share of $1.54 for 2008. Included in earnings before tax for 2009 is a $4.9 million pre-tax credit related to termination of the warranty program for certain aircraft, and a $2.1 million pre-tax insurance provision related to the retention portion of our coverage, both included in direct expenses. Earnings for the year ended December 31, 2008 included a pre-tax gain on dispositions of assets, net, of $4.5 million, an aggregate pre-tax insurance charge of $2.1 million, a non-cash pre-tax charge for impairment of goodwill of $2.7 million, and a $1.6 million pre-tax credit due to termination of the warranty program for certain aircraft. The remaining decrease in earnings before tax is due to the decrease in Oil and Gas segment operating profit caused by a decrease in medium aircraft revenues and earnings related to decreased activity on the continental shelf, a decrease due to the voluntary grounding of certain medium aircraft due to an accident January 4, 2009, and completion of a foreign contract in 2008.
Segment Discussion
Oil and Gas — Oil and Gas segment revenues for 2009 were $316.2 million compared to $324.1 million for 2008, a decrease of $7.9 million or 2%. The decrease was due to a decrease in medium aircraft flight hours and revenue due to decreased flight hour activity on the continental shelf. In addition, there was also a decrease in medium aircraft revenues and flight hours due to a voluntary grounding of certain medium aircraft in the first quarter of 2009 related to an accident on January 4, 2009. There were also decreases in revenue as a result of completion of a foreign contract in 2008, and decreases in revenue related to fuel charges. Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. The above amounts were offset in part by an increase in heavy aircraft revenue due to deepwater activity, and an increase in light aircraft activity related primarily to one customer. Segment flight hours were 111,527 for 2009 compared to 112,341 for 2008, a decrease of 814 hours.
The number of aircraft in the segment at December 31, 2009 was 164 compared to 153 aircraft at December 31, 2008. In 2009, we sold or disposed of three aircraft in the Oil and Gas segment, consisting of two light and one medium aircraft. We have added nine new aircraft to the Oil and Gas segment during 2009, consisting of one light, two medium, five heavy aircraft and one fixed-wing. Transfers between segments account for the remainder.

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Direct expense in our Oil and Gas segment was $263.8 million for the year ended December 31, 2009, compared to $258.2 million for the year ended December 31, 2008, an increase of $5.6 million. Employee compensation expense increased ($4.4 million) primarily due to compensation rate increases. We also experienced increases in aircraft depreciation ($1.5 million), aircraft rent ($7.0 million), aircraft insurance ($2.9 million), and aircraft parts usage ($2.2 million) primarily due to additional aircraft added to the fleet. Fuel expense decreased ($11.6 million) as the cost of fuel has declined compared to the prior year. Total fuel cost is included in direct expense and reimbursement of a portion of fuel costs above a contracted per-gallon amount is included in revenue. Other items decreased ($0.8 million), net.
Selling, general and administrative expenses were $1.1 million for the year ended December 31, 2009, compared to $1.3 million for the prior year.
Our Oil and Gas segment’s operating profit was $51.3 million for the year ended December 31, 2009, compared to $64.7 million for the year ended December 31, 2008. The decrease of $13.4 million was due to the decrease in operating revenues of $7.9 million, and the increase in operating expenses of $5.6 million, for the reasons described above. Operating margins were 16% for the year ended December 31, 2009, compared to 20% for the year ended December 31, 2008. The decrease in operating margins was primarily due to the decrease in medium aircraft revenue primarily related to decreased flight hour activity on the continental shelf, a decrease related to the voluntary grounding of certain medium aircraft in the first quarter 2009, due to an accident on January 4, 2009, and decreased revenues due to completion of a foreign contract in 2008.
Air Medical — Air Medical segment revenues were $160.1 million for 2009 compared to $174.7 million for 2008, a decrease of $14.6 million. The decrease was primarily related to the decrease in patient transports, which totaled 19,798 for 2009 compared to 22,647 transports for 2008. Of the total decrease in transports of 2,849, approximately 977 transports were related to the closure of six bases. We believe the remaining decrease is primarily due to the economic environment. Flight hours were 33,483 for the year ended December 31, 2009, compared to 36,732 for the year ended December 31, 2008.
The number of aircraft in the segment was 85 at December 31, 2009, compared to 90 at December 31, 2008. We added one new light aircraft, and we sold or disposed of one fixed-wing aircraft. Transfers between segments account for the remainder.
Direct expense in our Air Medical segment was $147.6 million for the year ended December 31, 2009, compared to $160.9 million for the year ended December 31, 2008. The $13.3 million decrease was due to decreases in employee compensation costs ($4.5 million) primarily due to a decrease in personnel related to independent provider programs that were closed in 2009 and late 2008, and also due to a reduction in support personnel. Fuel expense decreased ($3.4 million) due to a decrease in fuel costs, aircraft warranty costs decreased ($4.3 million) due to the credit in 2008 related to the termination of the warranty program for certain aircraft, and aircraft depreciation decreased ($0.4 million) due to the reduction of aircraft in the segment. Other items decreased ($0.7 million), net.
Selling, general and administrative expenses were $6.5 million for the year ended December 31, 2009, compared to $8.7 million for the year ended December 31, 2008. The decrease is due to decreases in rent expense ($0.9 million), promotional expenses ($0.3 million), employee compensation costs ($0.2 million), and other items, net ($0.8 million).
Our Air Medical segment’s operating profit was $6.0 million for the year ended December 31, 2009, compared to operating profit of $5.1 million for the year ended December 31, 2008. Operating margins were 4% in the year ended December 31, 2009, compared to 3% in the year ended December 31, 2008. The margin increase is primarily due to decreases in expenses discussed above. Relative to our Air Medical segment in 2008 and 2009, we have experienced some adverse impact in certain regions due to economic conditions.
Technical Services — Technical Services revenues were $10.9 million for the year ended December 31, 2009, compared to $10.6 million for the year ended December 31, 2008. Direct expense was $7.2 million for the year ended December 31, 2009, compared to $6.9 million for the year ended December 31, 2008.
The Technical Services segment had operating profit of $3.6 million for the year ended December 31, 2009, compared to $3.7 for the year ended December 31, 2008. Operating margins in the Technical Services segment were 33% for the year ended December 31, 2009, compared to 35% for the same period in 2008. Technical Services

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includes maintenance and repairs performed primarily for our existing customers that own their aircraft. These services are generally labor intensive with higher operating margins as compared to other segments.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from the funding of working capital needs, the acquisition of aircraft, the maintenance and refurbishment of aircraft, improvement of facilities, and acquisition of equipment and inventory. Our principal sources of liquidity historically have been net cash provided by our operations, borrowings under our revolving credit facility, senior notes and the sale of non-voting common stock in 2005 and 2006. To the extent we do not use cash, short-term investments or borrowings to finance our aircraft acquisitions, we can typically enter into operating leases to fund these acquisitions.
Cash Flow
Our cash position was $3.6 million at December 31, 2010 compared to $2.5 million at December 31, 2009. Short-term investments were $150.1 million at December 31, 2010 compared to $75.1 million at December 31, 2009. Working capital was $268.8 million at December 31, 2010 compared to $207.0 million at December 31, 2009, an increase of $61.8 million. The increase in working capital was primarily due to an increase in cash and investments from the net proceeds received from the 8.625% Senior Notes issuance.
Net cash provided by operating activities in 2010 was $76.9 million compared to $55.3 million in 2009, an increase of $21.6 million. Net earnings adjusted for non-cash items and the loss on debt restructuring contributed $54.2 million of cash flow for 2010, compared to $50.2 million for 2009, an increase of $4.0 million which is related to increased cash from operating activities.
A decrease in accounts receivable during 2010 contributed $4.8 million to cash from operations, compared to a decrease of $17.0 million for 2009. Notwithstanding a lower decrease in accounts receivable in 2009 compared to 2010, days outstanding decreased from 67 in 2009 to 63 in 2010. An increase in accounts payable and accrued liabilities contributed $13.1 million in cash from operations during 2010, compared to a use of cash in 2009 of $11.4 million due to a reduction of payables. The $13.1 million increase for 2010 includes a $7.5 million increase in accounts payable due to an increase in days outstanding and a $5.0 million increase in accrued liabilities primarily due to increased accrued interest on our 8.625% Senior Notes. Changes in inventories of spare parts provided $2.2 million in cash from operations in 2010 compared to a use of cash of $3.3 million in 2009 due to an increase in spare parts inventory in 2009.
Net cash used in investing activities was $175.5 million for 2010, compared to $69.2 million for 2009. Purchases and sales of short-term investments used a net $74.7 million in cash during 2010, compared to a net use of $33.0 million in 2009. The increase in purchases of short-term investments results primarily from the investment of approximately $82.0 million of net proceeds of our 8.625% Senior Notes remaining after the repurchase of our 7.125% Senior Notes and payment of related fees and costs. Capital expenditures for 2010 were $98.2 million compared to $57.0 million for 2009. Capital expenditures for 2010 included $86.8 million for aircraft purchases, upgrades, and refurbishments. We purchased four heavy aircraft pursuant to purchase options in the lease contracts, one light aircraft, two medium aircraft for a customer contract, and two fixed wing aircraft.
Financing activities include the issuance of $300 million of 8.625% Senior Notes on September 23, 2010, that mature in 2018. Net proceeds of $295.5 million were used to repurchase $189.5 million of our $200 million outstanding 7.125% Senior Notes due 2013 pursuant to a tender offer that also settled on September 23, 2010. Our total cost to repurchase those notes was $9.5 million, including the premium of $7.6 million and $1.9 million of unamortized issuance costs. We called for redemption on October 25, 2010 the remaining $10.5 million of 7.125% Senior Notes outstanding, at a redemption price of 103.563% of their face amount plus accrued interest.
We have a net operating loss of $158.2 million for tax purposes as of December 31, 2010. This tax carryforward was generated by tax depreciation on aircraft purchases.

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Long Term Debt
As of December 31, 2010, our total long-term debt was $331.1 million, consisting of $300 million of our 8.625% Senior Notes due 2018, and $31.1 million borrowed under our revolving credit facility. The carrying value of the facility approximates its fair value as of December 31, 2010 and 2009.
Our senior secured credit facility provides a $75 million revolving credit facility maturing in September 2012. The interest rate is the prime rate plus 100 basis points. At December 31, 2010, we had $31.1 million in borrowings under the facility. During 2010, we had a net draw on the credit facility of $12.8 million to fund aircraft purchases. During 2010, $38.2 million was the highest loan balance, with a weighted average balance of $19.7 million. During 2009, $24.1 million was the highest loan balance, with a weighted average balance of $9.5 million.
On September 23, 2010, we issued $300 million of 8.625% Senior Notes that mature October 15, 2018. Net proceeds of $295.5 million were used to repurchase and redeem our $200 million outstanding 7.125% Senior Notes due 2013 pursuant to a tender offer followed by a call for redemption of remaining notes. As a result of the early redemption of the 7.125% Senior Notes, a pre-tax charge of $9.5 million was recorded as a charge for debt restructuring in the quarter ended September 30, 2010, which consists of $7.6 million for the premium and $1.9 million of unamortized issuance costs.
For a description of our 8.625% Senior Notes and our senior secured revolving credit facility, see Note 4 to our financial statements included in this report.
After the repurchase and redemption of all of our outstanding $200 million 7.125% Senior notes as described above, we had remaining net proceeds of approximately $82.0 million. We intend to use these proceeds for general corporate purposes, including the exercise of purchase options for aircraft currently leased, and for the purchase of aircraft required to perform our new contract with Shell. For additional information regarding these anticipated aircraft acquisitions, see Note 10 to our financial statements included in this report. On October 1, 2010 we purchased two heavy aircraft pursuant to a purchase option in the lease, for $25.3 million using proceeds from the note offering. We have invested the remaining net proceeds in treasuries and investment grade securities as of December 31, 2010, reflected in short-term investments on our balance sheet. As a result of the issuance of our 8.625% Senior Notes and repurchase of our 7.125% Senior Notes, our annualized interest cost will increase by $11.6 million. We anticipate that over time this increased interest cost will be offset by reductions in lease expense from the exercise of purchase options for aircraft currently leased.

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Contractual Obligations
The table below sets out our contractual obligations as of December 31, 2010 related to our revolving credit facility, operating lease obligations, and the 8.625% Senior Notes due 2018. The operating leases are not recorded as liabilities on our balance sheet. Each contractual obligation included in the table contains various terms, conditions, and covenants that, if violated, accelerate the payment of that obligation. We were in compliance with the covenants applicable to these contractual obligations as of December 31, 2010. As of December 31, 2010, we leased 21 aircraft included in the lease obligations below.
                                                         
            Payment Due by Year  
                                                    Beyond  
    Total     2011     2012     2013     2014     2015     2015  
                            (Thousands of dollars)                  
Aircraft purchase commitments (1)
  $ 97,628     $ 35,937     $ 61,691     $     $     $     $  
 
                                                       
Aircraft lease obligations
    168,126       27,157       27,824       28,190       28,190       27,912       28,853  
 
                                                       
Other lease obligations
    16,347       3,233       2,276       1,698       1,515       1,452       6,173  
 
                                                       
Long term debt (2)
    331,074             31,074                         300,000  
 
                                         
 
  $ 613,175     $ 66,327     $ 122,865     $ 29,888     $ 29,705     $ 29,364     $ 335,026  
 
                                         
 
(1)   In 2010, we executed a contract to acquire ten new medium aircraft for the aggregate acquisition costs of approximately $127.0 million, related to our new contract with Shell Offshore, Inc., a subsidiary of Shell, two of which were delivered in December 2010. The purchase price of these two aircraft was financed through our revolving credit facility. The remaining eight are scheduled for delivery in 2011 and through late 2012, with an aggregate acquisition cost aircraft of approximately $97.6 million. We have traded in two aircraft in exchange for a credit of approximately $20.3 million towards these acquisition costs, of which a credit of $17.6 million remained on deposit as of December 31, 2010. We may finance some of the remaining acquisition costs with net proceeds from our 8.625% Senior Notes, and expect to finance the balance through some combination of cash on hand or generated from operations, operating leases and borrowings under our revolving credit facility.
 
(2)   Long-term debt consists of borrowings under our revolving credit facility and the principal amount of our 8.625% Senior Notes. Estimated interest costs on the long-term debt obligations set forth above, assuming the amounts outstanding at December 31, 2010 stayed constant, are $25.9 million annually for the 8.625% Senior Notes and $1.3 million annually for our revolving credit facility, based on an effective rate of 4.25%. Theses amounts are not included in the table above.
As of December 31, 2010, we had options to purchase aircraft under lease becoming exercisable in 2011 through 2014 for the following aggregate purchase prices, respectively: $33.5 million, $44.9 million, $38.8 million and $114.4 million. Subject to market conditions, we intend to exercise these options as they become exercisable, and intend to finance some of these acquisition costs with the net proceeds of our 8.625% Senior Notes.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories of spare parts, long-lived assets, income taxes, and self-insurance liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates, and the differences may be material. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.

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Revenues related to Air Medical services are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when services are provided. We estimate contractual allowances and uncompensated care based on historical collection experience by payor category. The main payor categories are Medicaid, Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors most subject to sensitivity and variability in calculating our allowances. We compute a historical payment analysis of accounts paid in full, by category. The allowance percentages calculated are applied to the payor categories, and the necessary adjustments are made to the revenue allowance.
We maintain a significant parts inventory to service our own aircraft along with the aircraft and components of customers. Portions of that inventory are used parts that are often exchanged with parts removed from aircraft or components and reworked to a useable condition. We use systematic procedures to estimate the valuation of the used parts, which includes consideration of their condition and continuing utility. If our valuation of these parts should be significantly different from amounts ultimately realizable or if we discontinue using or servicing certain aircraft models, then we may have to record a write-down of our inventory. We also record provisions against inventory for obsolete and slow-moving parts, relying principally on specific identification of such inventory. If we fail to identify such parts, additional provisions may be necessary.
Our principal long-lived assets are aircraft. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We measure recoverability of assets to be held and used by comparing the carrying amount of an asset to the future undiscounted net cash flows that we expect the asset to generate. When an asset is determined to be impaired, we recognize the impairment amount, which is the amount by which the carrying value of the asset exceeds its estimated fair value. Similarly, we report assets that we expect to sell at the lower of the carrying amount or fair value less costs to sell. Future adverse market conditions or poor operating results could result in an inability to recover the current carrying value of certain long-lived assets, thereby possibly requiring an impairment charge in the future.
We must make estimates for certain of our liabilities and expenses, losses, and gains related to self-insured programs, insurance deductibles, and good-experience premium returns. Our group medical insurance program is largely self-insured, and we use estimates to record our periodic expenses related to that program. We also carry deductibles on our workers’ compensation program and aircraft hull and liability insurance, and poor experience or higher accidents rates could result in additional recorded losses.
We estimate what our effective tax rate will be for the full year and record a quarterly income tax expense in accordance with the anticipated effective annual tax rate. As the year progresses, we continually refine our estimate based upon actual events and income before income taxes by jurisdiction during the year. This process may result in a change to our expected effective tax rate for the year. When this occurs, we adjust the income tax expense during the quarter in which the change in estimate occurs so that the year-to-date expense equals the annual rate.
Goodwill
Goodwill 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 Accounting Standards Codification (“ASC”) 350, “Intangibles-Goodwill and Other,” 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.
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

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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 was primarily driven by adverse equity market conditions that caused a decrease in market multiples as of December 31, 2008, compared with the test performed as of December 31, 2007. The Company did not have any goodwill recorded at December 31, 2010, 2009 or 2008, after this charge described above.
New Accounting Pronouncements
For a discussion of new accounting pronouncements applicable to the Company, see Note 1 to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings are subject to change in short-term interest rates due to the variable interest rate on our revolving credit facility. Based on the $31.1 million in borrowings outstanding as of December 31, 2010, a ten percent increase (0.425%) in the interest rate to 4.675% would reduce our annual pre-tax earnings by $0.1 million.
Our $300 million outstanding 8.625% Senior Notes due 2018 bear interest at a fixed rate of 8.625% and therefore changes in market interest rates do not affect our interest payment obligations on the notes. The fair market value of our 8.625% Senior Notes will vary as changes occur to general market interest rates, the remaining maturity of the 8.625% Senior Notes, and our creditworthiness.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
PHI, Inc.
Lafayette, Louisiana
We have audited the accompanying consolidated balance sheets of PHI, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the consolidated financial statement schedule listed in the Index at Item 15. These consolidated financial statements and the consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and the consolidated financial statement schedule based on our audits.
We conducted our audits 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 the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of PHI, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
New Orleans, Louisiana
March 14, 2011

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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
                 
    December 31,     December 31,  
    2010     2009  
ASSETS
               
Current Assets:
               
Cash
  $ 3,628     $ 2,501  
Short-term investments
    150,072       75,138  
Accounts receivable — net
               
Trade
    84,768       90,518  
Other
    4,891       3,885  
Inventories of spare parts — net
    59,336       61,501  
Other current assets
    16,233       11,018  
Income taxes receivable
    558       740  
 
           
Total current assets
    319,486       245,301  
 
               
Other
    29,120       11,669  
Property and equipment — net
    596,533       548,536  
 
           
Total assets
  $ 945,139     $ 805,506  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current Liabilities:
               
Accounts payable
  $ 22,404     $ 14,935  
Accrued liabilities
    28,319       23,342  
 
           
Total current liabilities
    50,723       38,277  
 
               
Long-term debt
    331,074       218,305  
Deferred income taxes
    81,988       73,409  
Other long-term liabilities
    8,938       10,067  
Commitments and contingencies (Note 10)
               
 
               
Shareholders’ Equity:
               
Voting common stock — par value of $0.10; 12,500,000 shares authorized, 2,852,616 issued and outstanding
    285       285  
Non-voting common stock — par value of $0.10; 25,000,000 shares authorized, 12,458,992 issued and outstanding
    1,246       1,246  
Additional paid-in capital
    291,403       291,403  
Accumulated other comprehensive loss
    (162 )     (13 )
Retained earnings
    179,644       172,527  
 
           
Total shareholders’ equity
    472,416       465,448  
 
           
Total liabilities and shareholders’ equity
  $ 945,139     $ 805,506  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands of dollars and shares, except per share data)
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2010     2009     2008  
Operating revenues, net
  $ 516,935     $ 487,175     $ 509,514  
Gain on disposition of assets, net
    239       111       4,468  
Other, principally interest income
    178       225       522  
 
                 
 
    517,352       487,511       514,504  
 
                 
 
                       
Expenses:
                       
Direct expenses
    443,702       418,627       425,953  
Selling, general and administrative expenses
    30,147       31,006       31,657  
Interest expense
    19,389       16,037       15,515  
Loss on debt restructuring
    9,521              
Goodwill impairment charges
                2,747  
 
                 
 
    502,759       465,670       475,872  
 
                 
 
                       
Earnings before income taxes
    14,593       21,841       38,632  
Income tax expense
    7,476       8,873       15,117  
 
                 
Net earnings
  $ 7,117     $ 12,968     $ 23,515  
 
                 
 
                       
Earnings per share:
                       
Basic
  $ 0.46     $ 0.85     $ 1.54  
Diluted
  $ 0.46     $ 0.85     $ 1.54  
 
                       
Weighted average shares outstanding:
                       
Basic
    15,312       15,307       15,295  
Diluted
    15,312       15,307       15,301  
The accompanying notes are an integral part of these consolidated financial statements.

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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Thousands of dollars and shares)
                                                                 
                                            Accumulated             Total  
    Voting     Non-Voting     Additional     Other Com-             Share-  
    Common Stock     Common Stock     Paid-in     prehensive     Retained     Holders’  
    Shares     Amount     Shares     Amount     Capital     Income (Loss)     Earnings     Equity  
Balance at December 31, 2007
    2,853     $ 285       12,439     $ 1,244     $ 291,035     $ 61     $ 136,044     $ 428,669  
Net earnings
                                        23,515       23,515  
Changes in pension plan assets and benefit obligations
                                  (16 )           (16 )
 
                                                             
Total comprehensive income
                                                            23,499  
Stock options exercised
                10       1       227                   228  
 
                                               
Balance at December 31, 2008
    2,853       285       12,449       1,245       291,262       45       159,559       452,396  
 
                                                               
Net earnings
                                        12,968       12,968  
Changes in pension plan assets and benefit obligations
                                  (58 )           (58 )
 
                                                             
Total comprehensive income
                                                            12,910  
Stock options exercised
                10       1       141                   142  
 
                                               
Balance at December 31, 2009
    2,853       285       12,459       1,246       291,403       (13 )     172,527       465,448  
 
                                                               
Net earnings
                                        7,117       7,117  
Unrealized loss on short-term investments
                                  (142 )           (142 )
Changes in pension plan assets and benefit obligations
                                  (7 )           (7 )
 
                                                             
Total comprehensive income
                                                            6,968  
 
                                               
Balance at December 31, 2010
    2,853     $ 285       12,459     $ 1,246     $ 291,403     $ (162 )   $ 179,644     $ 472,416  
 
                                               
The accompanying notes are an integral part of these consolidated financial statements.

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PHI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2010     2009     2008  
Operating activities:
                       
Net earnings
  $ 7,117     $ 12,968     $ 23,515  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                       
Depreciation and amortization
    28,081       27,764       26,944  
Goodwill impairment
                2,747  
Deferred income taxes
    8,579       8,603       13,531  
Gain on asset dispositions
    (239 )     (111 )     (4,468 )
Loss on debt restructuring
    9,521              
Other
    1,124       930       922  
Changes in operating assets and liabilities:
                       
Accounts receivable
    4,744       17,019       (13,338 )
Inventories of spare parts
    2,165       (3,252 )     (2,418 )
Income taxes receivable
    182       242       (457 )
Other assets
    3,753       (1,714 )     1,208  
Accounts payable and accrued liabilities
    13,106       (11,360 )     (2,754 )
Other long-term liabilities
    (1,276 )     4,183       (1,634 )
 
                 
Net cash provided by operating activities
    76,857       55,272       43,798  
 
                 
 
                       
Investing activities:
                       
Purchase of property and equipment
    (98,230 )     (57,035 )     (77,590 )
Proceeds from asset dispositions
    1,171       9,217       18,394  
Purchase of short-term investments
    (450,188 )     (47,704 )     (43,976 )
Proceeds from sale of short-term investments
    375,517       14,687       64,826  
Payments of deposits on aircraft
    (3,780 )           (12,546 )
Refund of deposits on aircraft
          11,600       3,600  
 
                 
Net cash used in investing activities
    (175,510 )     (69,235 )     (47,292 )
 
                 
 
                       
Financing activities:
                       
Proceeds from issuance of Senior Notes due 2018
    300,000              
Premium and costs to retire debt early
    (7,667 )            
Repayment of Senior Notes due 2013
    (200,000 )            
Debt issuance costs
    (5,322 )            
Proceeds from line of credit
    59,287       37,750       15,800  
Payments on line of credit
    (46,518 )     (22,445 )     (12,800 )
Proceeds from exercise of stock options
                228  
 
                 
Net cash provided by financing activities
    99,780       15,305       3,228  
 
                 
 
                       
Increase (decrease) in cash
    1,127       1,342       (266 )
Cash, beginning of year
    2,501       1,159       1,425  
 
                 
Cash, end of year
  $ 3,628     $ 2,501     $ 1,159  
 
                 
Supplemental Disclosures Cash Flow Information
                       
 
                 
Accrued payables related to purchases of property and equipment
  $ 352     $ 312     $ 1,510  
 
                 
The accompanying notes are an integral part of these consolidated financial statements.

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PHI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations, Basis of Consolidation, and Other General Principles
Since 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 59.7% 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. 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.
Revenue Recognition
The 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 the Company’s Air Medical segment independent provider model services are recorded net of contractual allowances under agreements with third party payors when the services are provided. Revenues generated under the hospital based model consist of a fixed monthly rate for aircraft availability and an hourly rate for flight time. Revenues are recognized after the services are performed or the contractual obligations are met.
Use of Estimates
The 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:
Estimates of contractual allowances applicable to billings in the Air Medical segment,
Valuation reserve related to obsolete and excess inventory,
Depreciable lives and salvage values of property and equipment,
Valuation allowance for deferred tax assets,
Health care insurance claims and workers’ compensation liability, and
Impairment of long-lived assets.
Short-term Investments
Short-term investments consist of money market funds, commercial paper, U.S. government agencies, and corporate bonds and notes, which represent funds available for current operations. In accordance with ASC 320 “Investments-Debt and Equity Securities”, these short-term investments are classified as available for sale. The Company recorded net $0.2 million in unrealized losses in 2010. These losses are reflected as a separate component of stockholders’ equity.
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.

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Inventories of Spare Parts
The 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 $11.4 million and $9.2 million at December 31, 2010 and 2009, respectively.
Property and Equipment
The 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. We charge maintenance and repair costs to earnings as the costs are incurred. The cost of certain aircraft components are covered under a contractual arrangement with the manufacturer, commonly referred to as “power-by-the-hour” contracts. Under these agreements, we are charged an agreed amount per hour of flying time. The costs charged under these contractual arrangements are recognized in the period in which the flight hours occur. To the extent that we have not yet been billed for costs incurred under these arrangements, these costs are included in accrued expenses on our consolidated balance sheets. 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.
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-Insurance
The 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 was $250,000 per claim through December 31, 2010. As of December 31, 2010 and 2009, the Company had $1.9 million and $2.1 million, respectively, of accrued liabilities related to health care claims.
There is also a $0.5 million deductible per incident on our workers’ compensation program. We have accrued $1.6 million and $2.2 million for the years 2010 and 2009, respectively, related to workers’ compensation claims.
The Company has an offshore insurance captive to realize savings in reinsurance costs on its insurance premiums. Amounts paid to the captive in 2010 and 2009 totaled $4.4 million and $5.2 million, respectively. The financial position and operations of the insurance captive were not significant in 2010, 2009 or 2008. The captive is fully consolidated in the accompanying consolidated financial statements.

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Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company does not believe significant credit risk exists with respect to these trade accounts receivable at December 31, 2010.
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 U.S. 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, 2010 and 2009. The Company’s two largest oil and gas customers accounted for 31% of consolidated operating revenues for the year ended December 31, 2010, 28% for the year ended December 31, 2009 and 27% for the years ended December 31, 2008, respectively. The Company also carried accounts receivable from these same customers totaling 22% and 25% of net trade receivables on December 31, 2010 and 2009, respectively.
Trade receivables representing amounts due pursuant to air medical independent provider model 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. The allowance for contractual discounts was $34.7 million, $32.1 million, and $37.6 million as of December 31, 2010, 2009, and 2008, respectively. The allowance for uncompensated care was $39.3 million, $28.1 million, and $20.8 million as of December 31, 2010, 2009, and 2008, respectively.
Substantially all of the Company’s cash is 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.
Income Taxes
The 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 Company recognizes the effect of any tax rate changes in income of the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued ASC 740, “Income Taxes”, which clarifies the accounting and disclosure for uncertain tax positions, as defined. ASC 740 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 ASC 740. 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.
Earnings per Share
The 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.

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Deferred Financing Costs
Costs of obtaining long-term debt financing are deferred and amortized ratably over the term of the related debt agreement.
New Accounting Pronouncements
The FASB issued authoritative accounting guidance that became effective in the first quarter 2010 that revises the manner in which entities evaluate whether consolidation is required for variable interest entities (“VIE”). Under the revised guidance, the primary beneficiary of a VIE is the entity that has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance, and has the obligation to absorb losses or has the right to residual returns that would potentially be significant to the entity. In conjunction with the adoption of the new guidance, the Company has reviewed various lease arrangements and other agreements and has determined that these do not represent a variable interest. The entities through which leases are executed do not represent VIEs.
Comprehensive Income
Comprehensive 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, and therefore impact total shareholders’ equity, but are excluded from net earnings.
The following table summarizes the components of total comprehensive income (net of taxes):
                         
    Year Ended December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Net earnings
  $ 7,117     $ 12,968     $ 23,515  
Unrealized loss on short-term investments
    (142 )            
Changes in pension plan assets and benefit obligations
    (7 )     (58 )     (16 )
 
                 
Comprehensive income
  $ 6,968     $ 12,910     $ 23,499  
 
                 
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 was primarily driven by adverse equity market conditions that caused a decrease in market multiples as of December 31, 2008, compared with the test performed as of December 31, 2007. The Company did not have any goodwill recorded at December 31, 2010, 2009 or 2008, after this charge described above.

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(2) PROPERTY AND EQUIPMENT
The following table summarizes the Company’s property and equipment at December 31, 2010 and 2009.
                 
    December 31,     December 31,  
    2010     2009  
    (Thousands of dollars)  
Flight equipment
  $ 734,963     $ 674,920  
Facility & improvements
    42,993       36,788  
Operating equipment
    21,030       19,436  
Data processing equipment
    22,957       22,312  
Vehicles
    7,216       7,005  
Medical equipment
    6,506       3,933  
Other
    3,950       3,810  
 
           
 
    839,615       768,204  
Less accumulated depreciation and amortization
    (243,082 )     (219,668 )
 
           
Property and equipment, net
  $ 596,533     $ 548,536  
 
           
(3) ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
                 
    December 31,     December 31,  
    2010     2009  
    (Thousands of dollars)  
Salaries & wages
  $ 7,560     $ 6,501  
Vacation payable
    3,800       3,621  
Interest
    7,210       3,173  
Operating lease
    1,130       2,326  
Group medical
    1,895       2,059  
Transportations tax
    1,168       1,173  
Workers compensation
    631       1,510  
Other
    4,925       2,979  
 
           
Total accrued liabilities
  $ 28,319     $ 23,342  
 
           
(4) LONG-TERM DEBT
As of December 31, 2010, our total long-term indebtedness was $331.1 million, consisting of $300 million of our 8.625% Senior Notes due 2018 and $31.1 million borrowed under our revolving credit facility.
On September 23, 2010, we issued $300 million of 8.625% Senior Notes that mature October 15, 2018. Net proceeds of $295.5 million were used to repurchase $189.5 million of our $200 million outstanding 7.125% Senior Notes due 2013 pursuant to a tender offer that also settled on September 23, 2010. The tender offer for the 7.125% Senior Notes included a tender premium and interest totaling $7.6 million. The remaining $10.5 million of 7.125% Senior Notes outstanding were redeemed October 25, 2010, at a redemption price of 103.563% of their face amount plus accrued interest. As a result of the early redemption of the 7.125% Senior Notes, a pretax charge of $9.5 million was recorded as a charge for debt restructuring in the quarter ended September 30, 2010, which consists of $7.6 million for the premium and $1.9 million of unamortized issuance costs.
Mr. Al A. Gonsoulin, our Chairman and CEO and the Matzke Family Trust, of which Richard Matzke, one of our directors, is trustee, purchased $2 million and $1 million of the 8.625% Senior Notes, respectively.
The 8.625% Senior Notes are unconditionally guaranteed on a senior basis by our domestic subsidiaries, and are general, unsecured obligations of ours and the subsidiary guarantors. We have the option to redeem some or all of the notes at any time on or after October 15, 2014 at specified redemption prices, and prior to that time pursuant to certain make-whole provisions.

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The 8.625% Senior Notes contain restrictive covenants, including limitations on incurring indebtedness, creating liens, selling assets and entering into certain transactions with affiliates. The covenants limit our ability to pay cash dividends on common stock, repurchase or redeem common or preferred equity, prepay subordinated debt and make certain investments. There are no restrictions on dividends from a subsidiary to the parent company, nor any restrictions on dividends from the parent company to a subsidiary. Upon the occurrence of a “Change in Control” (as defined in the indenture governing the notes), each holder of the notes will have the right to require us purchase that holder’s notes for a cash price equal to 101% of their principal amount. Upon the occurrence of an “Event of Default” (as defined in the indenture), the trustee or the holders of the notes may declare all of the outstanding notes to be due and payable immediately. We were in compliance with the covenants applicable to the notes as of December 31, 2010.
Our Senior Notes bear interest at a fixed rate and therefore changes in market interest rates do not affect our interest payment obligations on the notes. The fair market value of our Senior Notes varies as changes occur to general market interest rates, the remaining maturity of the notes, and our credit worthiness. At December 31, 2010, the fair market value of our 8.625% Senior Notes was $305.3 million, and the carrying value was $300.0 million. At December 31, 2009, the fair market value of our 7.125% Senior Notes was $194.0 million and the carrying value was $200.0 million.
Our senior secured revolving credit facility permits borrowings up to $75 million, contains a borrowing base of 80% of eligible receivables and 50% of the value of parts, and is due September 1, 2012. The interest rate is the prime rate plus 100 basis points. We may prepay the revolving credit facility at any time in whole or in part without premium or penalty. All obligations under the revolving credit facility are secured by a perfected first priority security interest in all of our eligible receivables and inventory, and are guaranteed by certain of our domestic subsidiaries.
As of December 31, 2010 and December 31, 2009, we had $31.1 million and $18.3 million in borrowings under the facility, respectively. We maintain a separate letter of credit facility that had $5.5 million and $5.1 million in letters of credit outstanding at December 31, 2010 and 2009 respectively. During 2010 and 2009, the weighted average effective interest rate on amounts borrowed under the facility was 4.25% and 3.58%, respectively. We reviewed interest expense in 2010 and 2009 that could be capitalized for certain projects and any such amounts were immaterial.
The revolving credit facility includes financial covenants related to working capital, funded debt to consolidated net worth, and consolidated net worth, and other covenants including restrictions on additional debt, liens and a change of control. Events of default include a change of control, a default in any other material credit agreement, including the 8.625% Senior Notes, and customary events of default. As of December 31, 2010, we were in compliance with all of the covenants under the revolving credit facility.
Cash paid for interest was $14.5 million, $14.8 million, and $14.5 million, for the years ended December 31, 2010, 2009, and 2008, respectively.
(5) INCOME TAXES
Income tax expense (benefit) is composed of the following:
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Current
                       
Federal
  $     $     $  
State
    185       193       178  
Foreign
          77       808  
Deferred — principally Federal
    7,291       8,603       14,131  
 
                 
Total
  $ 7,476     $ 8,873     $ 15,117  
 
                 

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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 Ended  
    December 31, 2010     December 31, 2009     December 31, 2008  
            (Thousands of dollars, except percentage amounts)        
    Amount     %     Amount     %     Amount     %  
Income taxes at statutory rate
  $ 5,108       35     $ 7,644       35     $ 13,519       35  
Increase (decrease) in taxes resulting from:
                                               
Valuation allowance — foreign tax credit
    1,175       8                          
Hurricane relief credit
                            (172 )      
State income taxes, net of federal benefit
    987       7       844       4       1371       3  
Other items — net
    206       1       385       2       399       1  
 
                                   
Total
  $ 7,476       51     $ 8,873       41     $ 15,117       39  
 
                                   
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2010 and 2009 are presented below:
                 
    December 31,     December 31,  
    2010     2009  
    (Thousands of dollars)  
Deferred tax assets:
               
Deferred compensation
  $ 1,691     $ 1,990  
Foreign tax credits
    5,423       5,413  
Vacation accrual
    1,901       1,543  
Inventory valuation
    5,279       4,262  
Rental accrual
    1,773       2,230  
Allowance for uncollectible accounts
    19       19  
Hurricane relief credit
    1,255       1,255  
Goodwill impairment
          674  
Other
    741       671  
Net operating loss
    61,140       47,513  
 
           
Total deferred tax assets
    79,222       65,570  
Valuation allowance — state NOL
    (541 )     (138 )
Valuation allowance — tax credit carryforwards
    (1,876 )     (700 )
 
           
Total deferred tax assets, net
    76,805       64,732  
 
           
 
Deferred tax liabilities:
               
Tax depreciation in excess of book depreciation
    (151,544 )     (132,325 )
 
           
Total deferred tax liabilities
    (151,544 )     (132,325 )
 
           
 
Net deferred tax liabilities
  $ (74,739 )   $ (67,593 )
 
           
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. A tax credit of $0.2 million was realized in 2008 as a result of Hurricanes Katrina and Rita legislation. There were no similar credits generated in 2009 or 2010. At December 31, 2010 and 2009, other current assets include $7.2 million and $5.8 million, respectively, of deferred tax assets.
The Company has net operating loss carryforwards (“NOLs”), of approximately $158.2 million that, if not used will expire beginning in 2022 through 2030. Additionally, for state income tax purposes, the Company has NOLs of approximately $141.6 million available to reduce future state taxable income. These NOLs expire in varying amounts beginning in 2011 through 2030, the majority of which expires in 2017 through 2025. A valuation allowance was recorded in 2010 in the amount of $403,000 for certain state NOLs that

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are set to expire in 2013 through 2015. Most of these NOLs arose from accelerated tax depreciation deductions related to substantial aircraft additions since 2002.
The Company also has foreign tax credits of approximately $5.4 million which expire beginning in 2014 through 2019. In 2010, we recorded a $1.2 million valuation charge in tax expense related to foreign tax credits which will expire before we are able to utilize them.
Income taxes paid were approximately $0.2 million, $0.02 million, and $0.02 million for the years ended December 31, 2010, 2009, and 2008, respectively. The Company received net income tax refunds of approximately $0.4 million, $0.03 million, and $0.03 million during the years ended December 31, 2010, 2009, and 2008, respectively.
(6) EMPLOYEE BENEFIT PLANS
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 $3.5 million and $4.2 million for the years December 31, 2010 and 2009 respectively.
Stock Based Compensation
Under the Company’s Amended and Restated 1995 Incentive Plan (the “1995 Incentive 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 Incentive 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.
On November 5, 2010, the Compensation Committee of the Board of Directors of PHI granted retention awards in the form of restricted stock units under the 1995 Incentive Plan to certain officers and senior managers. The restricted stock units will vest and be payable in non-voting common stock of the Company on January 1, 2013 (or the third anniversary of employment if later), if the officer continues to be employed by the Company on that date. Vesting will be accelerated upon death, disability, retirement at age 65 or later or upon a change of control of the Company. A total of 162,732 restricted stock units were granted to twelve officers and senior managers.
At December 31, 2010, there were 116,520 voting shares and 183,802 non-voting shares available for issuance under the 1995 Incentive Plan. The Company recorded compensation expense related to the 1995 Incentive Plan for the year ended December 31, 2010 of $0.2 million. The Company did not record any compensation expense related to the 1995 Incentive Plan for the years ended December 31, 2009 and 2008.
As of December 31, 2010, there were 162,732 restricted stock units outstanding under the 1995 Incentive Plan, and no stock options or other awards outstanding under the 1995 Incentive Plan.
Incentive Compensation
In 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 incentive compensation expense for 2010 of $1.6 million. For 2009, the Company did not record incentive compensation expense, as certain established requirements under the plans were not met. For the year ended December 31, 2008, the Company accrued $1.0 million of incentive compensation expense related to the plans. We also have a Safety Incentive Plan related to

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Occupational Safety and Health Administration recordable incidents, for which we expensed and paid $0.6 million for 2010 and 2009, and $0.5 million for 2008.
(7) OTHER ASSETS
The following table summarizes the Company’s other assets at December 31, 2010 and 2009.
                 
    December 31,     December 31,  
    2010     2009  
    (Thousands of dollars)  
Deposits on future purchases of medium aircraft
  $ 17,553     $  
Deposits on operating leases for aircraft
    1,000       3,000  
Deferred financing cost
    5,400       2,903  
Investments (Officers’ Deferred Compensation Plan)
    3,547       4,242  
Other
    1,620       1,524  
 
           
Total
  $ 29,120     $ 11,669  
 
           
(8) FAIR VALUE
The Company adopted ASC 820, “Fair Value Measurements and Disclosures”, beginning in its 2008 fiscal year and there was no material impact to its consolidated financial statements. ASC 820 applies to all assets and liabilities that are being measured and reported on a fair value basis. ASC 820 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.
The following table summarizes the valuation of our short-term investments and financial instruments by the above ASC 820 pricing levels as of the valuation dates listed:
                                 
            December 31, 2010     December 31, 2009  
    Total     (Level 1)     (Level 2)     (Level 1)  
Short-term investments:
                               
Money Market Mutual Funds
  $ 33,968     $ 33,968     $     $ 75,138  
Commercial Paper
    42,455             42,455        
U.S. Government Agencies
    8,013             8,013        
Corporate bonds and notes
    65,636             65,636        
 
                       
 
    150,072       33,968       116,104       75,138  
 
                               
Investments in other assets
    3,547       3,547             4,239  
 
                       
Total
  $ 153,619     $ 37,515     $ 116,104     $ 79,377  
 
                       
The Company holds its short-term investments in an investment fund consisting of high quality money market instruments of governmental and private issuers, which is classified as a short-term investment. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. These items are traded with sufficient frequency and volume to provide pricing on an ongoing basis. The fair values of the shares of these funds are based on observable market prices, and therefore, have been categorized in Level 1 in the fair value hierarchy. Level 2 inputs reflect quoted prices for identical assets or liabilities that are not active. These items may not be traded daily; examples include corporate bonds and U.S. government agencies. Assets are valued based on prices derived by independent third parties that use inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Prices are

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    reviewed and can be challenged with the independent parties and/or overridden by the Company, if it is believed such would be more reflective of fair value. Investments included in other assets, which relate to the liability for the Officers’ Deferred Compensation Plan, consist mainly of multiple investment funds that are highly liquid and diversified.
 
    Cash, accounts receivable, accounts payable and accrued liabilities all had fair values approximating their carrying amounts at December 31, 2010 and 2009.
 
(9)   INVESTMENTS
 
    We classify all of our short term investments as available-for-sale. We carry these at fair value and report unrealized gains and losses, net of taxes, in other comprehensive income until realized. These gains and losses are reflected as a separate component of shareholders’ equity in our consolidated balance sheets and our consolidated statements of shareholders’ equity. Cost, gains, and losses are determined using the specific identification method.
 
    Investments consisted of the following as of December 31, 2010:
                                 
            Unrealized     Unrealized     Fair  
    Costs     Gains     Losses     Value  
            (Thousands of dollars)          
Short-term investments:
                               
Money Market Mutual Funds
    33,968                   33,968  
Commercial Paper
    42,471             (16 )     42,455  
U.S. Government Agencies
    8,022             (10 )     8,012  
Corporate bonds and notes
    65,847       4       (214 )     65,637  
 
                       
Subtotal
    150,308       4       (240 )     150,072  
 
                       
 
                               
Investments in other assets
    3,547                   3,547  
 
                       
Total
    153,855       4       (240 )     153,619  
 
                       
    Investments consisted of the following as of December 31, 2009:
                                 
    Amortized     Unrealized     Unrealized     Fair  
    Costs     Gains     Losses     Value  
            (Thousands of dollars)          
Short-term investments:
                               
Money Market Mutual Funds
    75,138                   75,138  
 
                       
Subtotal
    75,138                   75,138  
 
                       
 
                               
Investments in other assets
    4,239                   4,239  
 
                       
Total
    79,377                   79,377  
 
                       
    The following table presents the cost and fair value of our debt investments based on maturities as of December 31, 2010.
                 
    Amortized     Fair  
    Costs     Value  
    (Thousands of dollars)  
Due in one year or less
    58,740       58,704  
Due within two years
    57,600       57,400  
 
           
Total
    116,340       116,104  
 
           

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    The following table presents the average coupon rate percentage and the average days to maturity of our debt investments as of December 31, 2010.
                 
    Average     Average  
    Coupon     Days To  
    Rate%     Maturity  
Commercial Paper
    0.226       100  
U.S. Government Agencies
    0.956       555  
Corporate bonds and notes
    5.051       460  
    The following table presents the fair value and unrealized losses related to our investments that have been in a continuous unrealized loss position for less than twelve months as of December 31, 2010. There were no investments in a continuous unrealized loss position for less than twelve months as of December 31, 2009.
                 
            Unrealized  
    Fair Value     Losses  
    (Thousands of dollars)  
Commercial Paper
    42,471       (16 )
U.S. Government Agencies
    3,993       (10 )
Corporate bonds and notes
    60,501       (214 )
 
           
 
    106,965       (240 )
 
           
    As of December 31, 2010 and December 31, 2009, we had no investments in a continuous unrealized loss position for more than twelve months.
 
    We consider the decline in market value to be due to market conditions, and we do not plan to sell these investments prior to a recovery of cost. For these reasons, we do not consider any of our investments to be other than temporarily impaired at December 31, 2010. The assessment of whether an investment in a debt security has suffered an other-than-temporary impairment is based on whether the Company has the intent to sell or more likely than not will be required to sell the debt security before recovery of its amortized costs. Further, if the Company does not expect to recover the entire amortized cost basis of the debt security, an other-than-temporary impairment is considered to have occurred and it is measured by the present value of cash flows expected to be collected less the amortized cost basis (credit loss). The Company did not have any other-than-temporary impairments relating to credit losses on debt securities for the year ended December 31, 2010.
 
(10)   COMMITMENTS AND CONTINGENCIES
 
    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 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:
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Aircraft
  $ 30,219     $ 26,028     $ 20,424  
Other
    7,258       7,201       6,652  
 
                 
Total
  $ 37,477     $ 33,229     $ 27,076  
 
                 

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    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)  
2011
  $ 27,157     $ 3,233     $ 30,390  
2012
    27,824       2,276       30,100  
2013
    28,190       1,698       29,888  
2014
    28,190       1,515       29,705  
2015
    27,912       1,452       29,364  
Thereafter
    28,853       6,173       35,026  
 
                 
 
  $ 168,126     $ 16,347     $ 184,473  
 
                 
    On April 1, 2010, we purchased two heavy aircraft off lease pursuant to purchase options in the lease contract. This purchase was funded with our revolving line of credit and we drew $24.7 million for the acquisition. On October 1, 2010, we purchased two heavy aircraft pursuant to a purchase option in the lease contract. The total purchase price was $25.3 million for both aircraft and was funded with proceeds from the 8.625% Senior Notes. As of December 31, 2010 we had options to purchase aircraft under lease becoming exercisable in 2011 through 2014 for the following aggregate purchase prices, respectively: $33.5 million, $44.9 million, $38.8 million and $114.4 million. Subject to market conditions, we intend to exercise these options as they become exercisable, and intend to finance some of these acquisition costs with the net proceeds of our 8.625% Senior Notes.
 
    Purchase Commitments — In mid-2010, the Company executed a new contract with Shell Offshore, Inc., a subsidiary of Shell, to provide helicopter transportation services in the Gulf of Mexico through mid-2016. The contract covers 11 aircraft, and requires the Company to replace, between June 2011 and January 2013, certain of the aircraft currently on contract with ten new medium aircraft. In connection with this new contract, the Company executed a contract to acquire ten new medium aircraft with deliveries scheduled from late 2010 through late 2012, with an aggregate acquisition cost of approximately $127.0 million. The Company took delivery of two of the medium aircraft in December, 2010, financed with our revolving credit facility. During 2010, the Company traded in two aircraft in exchange for a credit of approximately $20.3 million towards the total acquisition costs, of which a credit of $17.6 remained as of December 31, 2010, recorded as a deposit against future deliveries. The Company may finance some of the remaining acquisition costs with net proceeds from the 8.625% Senior Notes, and expects to finance the balance through some combination of cash on hand or cash flows generated from operations, operating leases and borrowings under the revolving credit facility.
 
    In 2010, in addition to the two medium aircraft described above, the Company took delivery of one light aircraft in the Oil & Gas segment, and also took delivery of one medium customer owned aircraft and two fixed wing aircraft for service in the Air Medical segment.
 
    Environmental Matters — We have recorded an aggregate estimated probable liability of $0.2 million as of December 31, 2010 for environmental response costs. The Company has conducted environmental surveys of its former Lafayette facility located at the Lafayette Regional Airport, 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 to the Louisiana Department of Environmental Quality (“LDEQ”). The Company previously submitted a Risk Evaluation/Corrective Action Plan (“RECAP”) Standard Site Assessment Report to the LDEQ fully delineating the extent and type of contamination and updated the Report to include additional analytical data in April 2006. LDEQ reviewed the Assessment Report and requested an Action Plan from the Company. That Plan has been approved by LDEQ and the estimated resulting cost of remediation has been determined to be just over $0.1 million that will likely be incurred over the next two years. Based upon the May 2003 Site Assessment Report, the April 2006 update and ongoing monitoring,

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    the Company believes the ultimate remediation costs for the 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.
    Superior Offshore International Inc. v. Bristow Group Inc., ERA Helicopters, LLC, Seacor Holdings Inc., ERA Group Inc., ERA Aviation, Inc., and PHI, Inc., Civil Action No. 1:09-cv-00438 on the docket of the United States District Court for the District of Delaware. This purported class action was filed on June 12, 2009, on behalf of a class defined to include all direct purchasers of offshore helicopter services in the Gulf of Mexico from the defendants at any time from January 1, 2001 through December 31, 2005. The suit alleged that the defendants acted jointly to fix, maintain, or stabilize prices for offshore helicopter services during the above time frame in violation of the federal antitrust laws. The plaintiff sought unspecified treble damages, injunctive relief, costs, and attorneys’ fees. On September 14, 2010, the Court granted defendants’ motion to dismiss (filed on September 4, 2009) and dismissed the complaint. On November 30, 2010, the court granted plaintiff leave to amend the complaint, limited discovery to the new allegations, and established a schedule for briefing dispositive motions in February 2011. The permitted discovery is now complete, and defendants filed a motion for summary judgment on February 11, 2011. Management is unable to estimate a range of reasonably possible loss for the case because a dispositive motion is pending, and discovery relating to potential damages has not commenced.
 
    Employee Matters — As previously reported, the Company has been involved in Federal Court litigation in the Western District of Louisiana and the Fifth Circuit Court of Appeals with the Office and Professional Employees International Union (“OPEIU”), the union representing the Company’s domestic pilots. This litigation involves claims of bad faith bargaining, compensation of striking pilots both at the time of the strike and upon their return to work under both the Railway Labor Act (“RLA”) and Louisiana state law, and the terms of employment for the Company’s pilots since the strike ended including non-payment of retention bonuses. After approximately two years of bargaining between the Company and OPEIU for a second collective bargaining agreement, including negotiations mediated by the National Mediation Board, both parties entered a self-help period as defined by the applicable labor law, the RLA. At that time the pilots commenced a strike in September 2006 and immediately prior to that strike the Company implemented its own terms and conditions of employment for the pilots. The strike ended in November 2006 and a court-approved return to work process began in January 2007 for those pilots who had not already returned to work or left the Company’s employment. This process was essentially completed in April 2007. The Company’s pilots continue to work under the terms and conditions of employment determined by the Company since the strike began. By Order dated July 9, 2010, the Court dismissed both the Company’s and OPEIU’s claims that the other had violated the RLA by bargaining in bad faith before exercising self-help. By Order dated July 30, 2010, the Court dismissed all claims that the Company violated the RLA in the manner in which it returned pilots to work following the strike. Also, the Court dismissed all but claims by 47 pilots under Louisiana state law. On August 27, 2010, the OPEIU and the individual pilot plaintiffs filed a notice of appeal with the Fifth Circuit Court of Appeals. Then, by Order entered September 27, 2010, the district court dismissed the Louisiana-law claims of the remaining 47 individual pilots. On October 22, 2010, the unions and the individual pilots filed a second notice of appeal to the Fifth Circuit Court of Appeals, by which they appeal the district court’s dismissal of all their RLA and Louisiana-law wage payment claims against PHI. On November 5, 2010, PHI filed a cross-appeal of the district court’s dismissal of PHI’s bad-faith bargaining claim against the unions. On December 31, 2009, the OPEIU filed another case against the Company in the Western District of Louisiana in which the OPEIU asserts that its acceptance in 2009 of the terms and conditions of employment for the Company’s pilots initially implemented by the Company prior to the strike has created a binding collective bargaining agreement and that the Company has inappropriately made unilateral revisions to those terms including failing to pay a retention bonus. That case has been stayed by the Court until approximately April 2011, when the parties will have completed the briefing of the cross-appeals in the other litigation. Management does not expect the outcome of this litigation to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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(11)   BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
 
    PHI 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 ASC 280, “Segment Reporting”. The overriding determination of the Company’s segments is based on how the chief operating decision-maker of the Company, the Chairman of the Board and Chief Executive Officer, 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.
 
    The Oil and Gas segment provides helicopter services to oil and gas customers operating in the Gulf of Mexico, the Democratic Republic of Congo, and Israel. 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 five 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, Arizona, 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.
 
    Customers of the Company in the Oil and Gas segment 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 Revenues  
    December 31,     Years Ended December 31,  
    2010     2009     2010     2009     2008  
Customer A
    15 %     14 %     17 %     15 %     13 %
Customer B
    7 %     11 %     14 %     13 %     14 %
    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, 2010, 2009, and 2008. 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, income taxes, 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. Corporate assets are principally cash, short-term investments, other assets, and certain property, and equipment.

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            Year Ended          
    December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Segment operating revenues
                       
Oil and Gas
  $ 345,402     $ 316,198     $ 324,147  
Air Medical
    160,517       160,113       174,739  
Technical Services
    11,016       10,864       10,628  
 
                 
Total operating revenues
    516,935       487,175       509,514  
 
                 
 
                       
Segment direct expenses
                       
Oil and Gas
    289,331       263,818       258,160  
Air Medical
    146,131       147,630       160,910  
Technical Services
    8,240       7,179       6,883  
 
                 
Total direct expenses
    443,702       418,627       425,953  
 
                       
Segment selling, general and administrative expenses
                       
Oil and Gas
    759       1,075       1,335  
Air Medical
    4,195       6,484       8,716  
Technical Services
    31       51       76  
 
                 
Total selling, general and administrative expenses
    4,985       7,610       10,127  
 
                 
Total direct and selling, general and administrative expenses
    448,687       426,237       436,080  
 
                 
 
                       
Net segment profit
                       
Oil and Gas
    55,312       51,305       64,652  
Air Medical
    10,191       5,999       5,113  
Technical Services
    2,745       3,634       3,669  
 
                 
Total
    68,248       60,938       73,434  
 
                       
Other, net (1)
    417       336       4,990  
Unallocated selling, general and administrative expenses
    (25,162 )     (23,396 )     (21,530 )
Interest expense
    (19,389 )     (16,037 )     (15,515 )
Loss on debt restructuring
    (9,521 )            
Goodwill impairment charge
                (2,747 )
 
                 
Earnings before income taxes
  $ 14,593     $ 21,841     $ 38,632  
 
                 
 
(1)   Including gains on disposition of property and equipment and other income.
                         
    Year Ended  
    December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Expenditures for long-lived assets
                       
Oil and Gas
  $ 88,146     $ 36,674     $ 45,530  
Air Medical
    8,789       20,205       40,034  
Corporate
    1,522       1,301       793  
 
                 
Total
  $ 98,457     $ 58,180     $ 86,357  
 
                 

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            Year Ended          
    December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Depreciation and Amortization
                       
Oil and Gas
  $ 18,143     $ 15,926     $ 15,669  
Air Medical
    7,982       7,934       7,910  
Technical Services
    260       234       235  
Corporate
    1,696       3,670       3,130  
 
                 
Total
  $ 28,081     $ 27,764     $ 26,944  
 
                 
 
                       
Assets
                       
Oil and Gas
  $ 447,973     $ 408,802     $ 397,903  
Air Medical
    232,645       227,766       226,642  
Technical Services
    8,347       8,382       6,597  
Corporate
    256,174       160,556       146,040  
 
                 
Total
  $ 945,139     $ 805,506     $ 777,182  
 
                 
The following table presents the Company’s revenues from external customers attributed to operations in the United States and foreign areas and long-lived assets in the United States and foreign areas.
                         
            Year Ended          
    December 31,  
    2010     2009     2008  
    (Thousands of dollars)  
Operating revenues:
                       
United States
  $ 509,221     $ 480,128     $ 489,611  
International
    7,714       7,047       19,903  
 
                 
Total
  $ 516,935     $ 487,175     $ 509,514  
 
                 
 
                       
Long-Lived Assets:
                       
United States
  $ 592,333     $ 546,077     $ 523,626  
International
    4,200       2,459       4,948  
 
                 
Total
  $ 596,533     $ 548,536     $ 528,574  
 
                 
(12)   QUARTERLY FINANCIAL DATA (UNAUDITED)
 
    The condensed quarterly results of operations for the years ended December 31, 2010 and 2009 (in thousands of dollars, except per share data) are as follows:
                                 
    Quarter Ended  
    March 31,     June 30,     September 30,     December 31,  
    2010     2010     2010     2010  
            (Thousands of dollars, except per share data)  
Operating revenues, net
  $ 121,609     $ 139,597     $ 135,669     $ 120,260  
Gain on disposition of assets, net
          117       98       18  
Earnings (loss) before income taxes
    6,718       11,757       (1,440 )(1)     (2,442 )
Net earnings (loss)
    4,031       7,054       (2,443 )(1)     (1,525 )
Net earnings (loss) per share
                               
Basic
    0.26       0.46       (0.16 )(1)     (0.10 )
Diluted
    0.26       0.46       (0.16 )(1)     (0.10 )
 
(1)   Includes a $9.5 million charge ($5.7 million after tax) related to the refinancing of our 7.125% Senior Notes..

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    Quarter Ended  
    March 31,     June 30,     September 30,     December 31,  
    2009     2009     2009     2009  
    (Thousands of dollars, except per share data)  
Operating revenues
  $ 116,952     $ 123,321     $ 124,183     $ 122,719  
Gain (loss) on disposition of assets, net
    272       (107 )     7       (61 )
Earnings before income taxes
    3,457       6,110       11,589       685  
Net earnings
    2,075       3,666       6,953       274  
Net earnings per share
                               
Basic
    0.14       0.24       0.45       0.02  
Diluted
    0.14       0.24       0.45       0.02  
(13)   CONDENSED FINANCIAL INFORMATION — GUARANTOR SUBSIDIARIES
 
    Our 8.625% Senior Notes are fully and unconditionally guaranteed on a joint and several, senior basis by all of our domestic subsidiaries. All of our domestic subsidiaries are 100% owned.
 
    The following supplemental condensed financial information sets forth, on a consolidated basis, the balance sheet, statement of operations, and statement of cash flows information for PHI, Inc. (“Parent Company Only”) and the guarantor subsidiaries. The eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The condensed consolidating financial statements have been prepared on the same basis as the consolidated financial statements of PHI, Inc. The equity method is followed by the parent company within these financials.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
                                 
    December 31, 2010  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
ASSETS
                               
Current Assets:
                               
Cash
  $ 2,957     $ 671     $     $ 3,628  
Short-term investments
    150,072                   150,072  
Accounts receivable — net
    81,393       8,266             89,659  
Intercompany receivable
          79,810       (79,810 )      
Inventories of spare parts — net
    59,336                   59,336  
Other current assets
    16,224       9             16,233  
Income taxes receivable
    558                   558  
 
                       
Total current assets
    310,540       88,756       (79,810 )     319,486  
 
                               
Investment in subsidiaries and others
    75,114             (75,114 )      
Other assets
    29,099       21             29,120  
Property and equipment, net
    583,091       13,442             596,533  
 
                       
Total assets
  $ 997,844     $ 102,219     $ (154,924 )   $ 945,139  
 
                       
 
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
Current Liabilities:
                               
Accounts payable
  $ 22,191     $ 213     $     $ 22,404  
Accrued liabilities
    23,482       4,837             28,319  
Intercompany payable
    79,810             (79,810 )      
 
                       
Total current liabilities
    125,483       5,050       (79,810 )     50,723  
 
                               
Long-term debt
    331,074                   331,074  
Deferred income taxes and other long-term liabilities
    68,871       22,055             90,926  
Shareholders’ Equity:
                               
Common stock and paid-in capital
    292,934       2,674       (2,674 )     292,934  
Accumulated other comprehensive loss
    (162 )                 (162 )
Retained earnings
    179,644       72,440       (72,440 )     179,644  
 
                       
Total shareholders’ equity
    472,416       75,114       (75,114 )     472,416  
 
                       
Total liabilities and shareholders’ equity
  $ 997,844     $ 102,219     $ (154,924 )   $ 945,139  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
                                 
    December 31, 2009  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
ASSETS
                               
Current Assets:
                               
Cash
  $ 1,678     $ 823     $     $ 2,501  
Short-term investments
    75,138                   75,138  
Accounts receivable — net
    83,247       11,156             94,403  
Intercompany receivable
          71,484       (71,484 )      
Inventories of spare parts — net
    61,501                   61,501  
Other current assets
    11,001       17             11,018  
Income taxes receivable
    740                   740  
 
                       
Total current assets
    233,305       83,480       (71,484 )     245,301  
 
                               
Investment in subsidiaries and others
    71,291             (71,291 )      
Other assets
    11,549       120             11,669  
Property and equipment, net
    535,539       12,997             548,536  
 
                       
Total assets
  $ 851,684     $ 96,597     $ (142,775 )   $ 805,506  
 
                       
 
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY
                               
Current Liabilities:
                               
Accounts payable
  $ 13,746     $ 1,189     $     $ 14,935  
Accrued liabilities
    19,028       4,314             23,342  
Intercompany payable
    71,484             (71,484 )      
 
                       
Total current liabilities
    104,258       5,503       (71,484 )     38,277  
 
                               
Long-term debt
    218,305                   218,305  
Deferred income taxes and other long-term liabilities
    63,673       19,803             83,476  
Shareholders’ Equity:
                               
Common stock and paid-in capital
    292,934       2,674       (2,674 )     292,934  
Accumulated other comprehensive loss
    (13 )                 (13 )
Retained earnings
    172,527       68,617       (68,617 )     172,527  
 
                       
Total shareholders’ equity
    465,448       71,291       (71,291 )     465,448  
 
                       
Total liabilities and shareholders’ equity
  $ 851,684     $ 96,597     $ (142,775 )   $ 805,506  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
                                 
    For the year ended December 31, 2010  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Operating revenues, net
  $ 455,041     $ 61,894     $     $ 516,935  
Management fees
    2,476             (2,476 )      
Gain on disposition of assets, net
    239                   239  
Other, principally interest income
    178                   178  
 
                       
 
    457,934       61,894       (2,476 )     517,352  
 
                       
 
                               
Expenses:
                               
Direct expenses
    392,077       51,625             443,702  
Management fees
          2,476       (2,476 )      
Selling, general, and administrative
    28,725       1,422             30,147  
Equity in net earnings of consolidated subsidiaries
    (3,823 )           3,823        
Interest expense
    19,389                   19,389  
Loss on debt restructuring
    9,521                   9,521  
 
                       
 
    445,889       55,523       1,347       502,759  
 
                       
 
                               
Earnings before income taxes
    12,045       6,371       (3,823 )     14,593  
Income tax expense
    4,928       2,548             7,476  
 
                       
 
                               
Net earnings
  $ 7,117     $ 3,823     $ (3,823 )   $ 7,117  
 
                       
                                 
    For the year ended December 31, 2009  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Operating revenues, net
  $ 419,075     $ 68,100     $     $ 487,175  
Management fees
    2,724             (2,724 )      
Gain on disposition of assets, net
    111                   111  
Other, principally interest income
    225                   225  
 
                       
 
    422,135       68,100       (2,724 )     487,511  
 
                       
 
                               
Expenses:
                               
Direct expenses
    365,385       53,242             418,627  
Management fees
          2,724       (2,724 )      
Selling, general, and administrative
    28,979       2,027             31,006  
Equity in net earnings of consolidated subsidiaries
    (6,064 )           6,064        
Interest expense
    16,037                   16,037  
 
                       
 
    404,337       57,993       3,340       465,670  
 
                       
 
                               
Earnings before income taxes
    17,798       10,107       (6,064 )     21,841  
Income tax expense
    4,830       4,043             8,873  
 
                       
 
                               
Net earnings
  $ 12,968     $ 6,064     $ (6,064 )   $ 12,968  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
                                 
    For the year ended December 31, 2008  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Operating revenues, net
  $ 437,881     $ 71,633     $     $ 509,514  
Management fees
    2,865             (2,865 )      
Gain on disposition of assets, net
    4,468                   4,468  
Other, principally interest income
    522                   522  
 
                       
 
    445,736       71,633       (2,865 )     514,504  
 
                       
 
                               
Expenses:
                               
Direct expenses
    369,600       56,353             425,953  
Management fees
          2,865       (2,865 )      
Selling, general, and administrative
    27,842       3,815             31,657  
Equity in net earnings of consolidated subsidiaries
    (7,571 )           7,571        
Interest expense
    15,515                   15,515  
Goodwill impairment charge
    2,747                   2,747  
 
                       
 
    408,133       63,033       4,706       475,872  
 
                       
 
                               
Earnings before income taxes
    37,603       8,600       (7,571 )     38,632  
Income tax expense
    14,088       1,029             15,117  
 
                       
 
                               
Net earnings
  $ 23,515     $ 7,571     $ (7,571 )   $ 23,515  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
                                 
    For the year ended December 31, 2010  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Net cash provided by operating activities
  $ 74,648     $ 2,209     $     $ 76,857  
 
                               
Investing activities:
                               
Purchase of property and equipment
    (95,869 )     (2,361 )           (98,230 )
Proceeds from asset dispositions
    1,171                   1,171  
Purchase of short-term investments, net
    (74,671 )                 (74,671 )
Other
    (3,780 )                 (3,780 )
 
                       
Net cash used in investing activities
    (173,149 )     (2,361 )           (175,510 )
 
                       
 
                               
Financing activities:
                               
Proceeds from issuance of Senior Notes due 2018
    300,000                   300,000  
Premium and costs to retire debt early
    (7,667 )                 (7,667 )
Repayment of Senior Notes, due 2013
    (200,000 )                 (200,000 )
Debt issuance costs
    (5,322 )                 (5,322 )
Proceeds on line of credit
    59,287                   59,287  
Payments on line of credit
    (46,518 )                 (46,518 )
 
                       
Net cash provided by financing activities
    99,780                   99,780  
 
                       
 
                               
Increase (decrease) in cash
    1,279       (152 )           1,127  
Cash, beginning of year
    1,678       823             2,501  
 
                       
Cash, end of year
  $ 2,957     $ 671     $     $ 3,628  
 
                       
                                 
    For the year ended December 31, 2009  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Net cash provided by operating activities
  $ 53,442     $ 1,830     $     $ 55,272  
 
                               
Investing activities:
                               
Purchase of property and equipment
    (55,428 )     (1,607 )           (57,035 )
Proceeds from asset dispositions
    9,217                   9,217  
Purchase of short-term investments, net
    (33,017 )                 (33,017 )
Other
    11,600                   11,600  
 
                       
Net cash used in investing activities
    (67,628 )     (1,607 )           (69,235 )
 
                       
 
                               
Financing activities:
                               
Proceeds on line of credit
    37,750                   37,750  
Payments on line of credit
    (22,445 )                 (22,445 )
 
                       
Net cash provided by financing activities
    15,305                   15,305  
 
                       
 
                               
Increase in cash
    1,119       223             1,342  
Cash, beginning of year
    559       600             1,159  
 
                       
Cash, end of year
  $ 1,678     $ 823     $     $ 2,501  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
                                 
    For the year ended December 31, 2008  
    Parent                    
    Company     Guarantor              
    Only     Subsidiaries (1)     Eliminations     Consolidated  
Net cash provided by operating activities
  $ 41,171     $ 2,627     $     $ 43,798  
 
                               
Investing activities:
                               
Purchase of property and equipment
    (75,142 )     (2,448 )           (77,590 )
Proceeds from asset dispositions
    18,394                   18,394  
Proceeds from sale of short-term investments, net
    20,850                   20,850  
Other
    (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                   3,000  
Proceeds from exercise of stock options
    228                   228  
 
                       
Net cash provided by financing activities
    3,228                   3,228  
 
                       
 
                               
(Decrease) increase in cash
    (445 )     179             (266 )
Cash, beginning of year
    1,004       421             1,425  
 
                       
Cash, end of year
  $ 559     $ 600     $     $ 1,159  
 
                       
 
(1)   Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.   CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The 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 Reporting
During the last quarter, there have not been any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Management’s Annual Report on Internal Control over Financial Reporting
Our 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 accounting principles.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. 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, 2010, 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, 2010. 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, 2010, based on criteria established in Internal Control—Integrated Framework issued 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, 2010, based on the criteria established in Internal Control—Integrated Framework issued 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 the consolidated financial statement schedule as of and for the year ended December 31, 2010 of the Company and our report dated March 14, 2011, expressed an unqualified opinion on those consolidated financial statements and the consolidated financial statement schedule.
         
     
  /s/ DELOITTE & TOUCHE LLP
 
 
  New Orleans, Louisiana   
  March 14, 2011   

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ITEM 9B.   OTHER INFORMATION
Not Applicable.
PART III
ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
     Information concerning directors and executive officers required by this item will be included in our definitive information statement in connection with our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11.   EXECUTIVE COMPENSATION
     Information required by this item will be included in our definitive information statement in connection with our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
     Information required by this item will be included in our definitive information statement in connection with our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
     Information required by this item will be included in our definitive information statement in connection with our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES
     Information required by this item will be included in our definitive information statement in connection with our 2011 Annual Meeting of Shareholders and is incorporated herein by reference.

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PART IV
ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
         
    Page
1.      Financial Statements
       
 
       
     Included in Part II of this report:
       
    34  
    35  
    36  
    37  
    38  
    39  
 
       
2.      Financial Statement Schedules
       
    67  
 
       
3.      Exhibits
       
  3   Articles of Incorporation and By-laws
 
  3.1  
(i)   Composite 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, filed August 7, 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   Amended and Restated Loan Agreement dated as of March 31, 2008 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 4.1 to PHI’s Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 8, 2008).
 
  4.2   First Amendment dated as of August 5, 2009 to Amended and Restated Loan Agreement dated as of March 31, 2008 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 4.2 to PHI’s Report on Form 10-Q filed on August 10, 2009).
 
  4.3   Second Amendment dated September 13, 2010 to Amended and Restated Loan Agreement dated March 31, 2008 by and among PHI, Inc., Air Evac Services, Inc., PHI Tech Services, Inc. and International Helicopter Transport, Inc., and Whitney National Bank (incorporated by reference to Exhibit 4.3 to PHI’s Report on Form 10-Q filed on November 8, 2010).
 
  4.4   Indenture dated as of September 23, 2010 by and among PHI, Inc., the subsidiary guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to PHI’s Report on Form 8-K filed on September 23, 2010).
 
  4.5   Form of 8.625% Senior Note due 2018 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form 8-K filed on September 23, 2010).

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  10   Material Contracts
 
  10.1   Senior Management Bonus Plan (incorporated by reference to Exhibit 10.1 to PHI’s Report on Form 10-K filed March 16, 2009).
 
  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 PHI, Inc. Restricted Stock Unit Agreement under the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to PHI’s Report on Form 10-Q filed on November 8, 2010).
 
  10.4   Form of PHI, Inc. Restricted Stock Unit Agreement under the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to PHI’s Report on Form 10-Q filed on November 8, 2010).
 
  10.5   Amendment No. 1 to the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.4 to PHI’s Report on Form 10-Q filed on November 8, 2010).
 
  10.6   Amendment No. 2 to the Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan (incorporated by reference to Exhibit 10.5 to PHI’s Report on Form 10-Q filed on November 8, 2010).
 
  10.7   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).
 
  10.8   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 Registrant
 
  23.1   Consent of Deloitte & Touche LLP
 
  31.1   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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PHI, INC. AND SUBSIDIARIES
Schedule II — Valuation and Qualifying Accounts
(Thousands of dollars)
                                 
            Additions                
    Balance at     Charged to             Balance at  
    Beginning     Costs and             End  
Description   of Year     Expenses     Deductions (1)     of Year  
 
Year ended December 31, 2010:
                               
Allowance for doubtful accounts
  $ 50     $     $     $ 50  
Allowance for inventory
    9,182       2,227             11,409  
Allowance for contractual discounts
    32,124       183,877       181,284       34,717  
Allowance for uncompensated care
    28,114       38,311       27,144       39,281  
 
                               
Year ended December 31, 2009:
                               
Allowance for doubtful accounts
  $ 50     $     $     $ 50  
Allowance for inventory
    7,857       1,325             9,182  
Allowance for contractual discounts
    37,590       183,294       188,760       32,124  
Allowance for uncompensated care
    20,805       43,626       36,317       28,114  
 
                               
Year ended December 31, 2008:
                               
Allowance for doubtful accounts
  $ 50     $     $     $ 50  
Allowance for inventory
    7,460       397             7,857  
Allowance for contractual discounts
    31,858       173,964       168,232       37,590  
Allowance for uncompensated care
    19,130       38,224       36,549       20,805  
 
(1)   Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for contractual discounts and uncompensated care, such deductions are reduced by recoveries of amounts previously written off.

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 14, 2011.
         
  PHI, INC.
 
 
  By:   /s/ Michael J. McCann    
    Michael J. McCann   
    Chief Financial Officer
(Principal Financial and
Accounting Officer) 
 
 
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
         
Signature   Title   Date
 
       
/s/       Al A. Gonsoulin
  Chairman of the Board   March 14, 2011
 
           Al A. Gonsoulin
   Chief Executive Officer    
 
  and Director    
 
  (Principal Executive Officer)    
 
       
/s/       Lance F. Bospflug
 
           Lance F. Bospflug
  Director    March 14, 2011
 
       
/s/       Arthur J. Breault, Jr.
 
           Arthur J. Breault, Jr.
  Director    March 14, 2011
 
       
/s/       Thomas H. Murphy
 
           Thomas H. Murphy
  Director    March 14, 2011
 
       
/s/       Richard H. Matzke
 
           Richard H. Matzke
  Director    March 14, 2011
 
       
/s/       C. Russell Luigs
 
           C. Russell Luigs
  Director    March 14, 2011
 
       
/s/       Michael J. McCann
  Chief Financial Officer   March 14, 2011
 
           Michael J. McCann
   (Principal Financial and    
 
  Accounting Officer)    

68