PHI, Inc. (The Nasdaq Global Market: PHII (voting) PHIIK (non-voting)) today reported financial results for the quarter ended September 30, 2010.

During the quarter ended September 30, 2010, we issued $300 million of 8.625% Senior Notes (“8.625% Senior Notes”) due October 15, 2018, in private placements under the Securities Act of 1933. Proceeds were $295.5 million, net of underwriting fees and expenses, and were used to retire $189.5 million of our existing 7.125% Senior Notes (“7.125% Senior Notes”) 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 quarter, we recorded a $1.5 million charge to tax expense primarily related to an increase in our valuation allowance for foreign tax credits. 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 be able to use these tax credits before they expire.

After the repurchase and redemption of all of our 7.125% Senior Notes, we had remaining net proceeds of approximately $82.0 million. We intend to use these proceeds for general corporate purposes, including the purchase of aircraft.

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 which was 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. 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 14% of our total revenues in 2009.

As a result of these events, we experienced increased flight activity in the second and third quarters of 2010, which we estimate were approximately 6% of segment flight hours in the third quarter. Partially offsetting these increased flight hours were decreased flight hours resulting from the suspension of deepwater drilling activities in the Gulf of Mexico, which we estimate were approximately 5% of segment flight hours in the third quarter.

Oil and Gas segment revenues were $89.8 million for the three months ended September 30, 2010, compared to $79.2 million for the three months ended September 30, 2009, an increase of $10.6 million. Flight hours were 30,119 for the current quarter compared to 28,749 for the same quarter in the prior year. The increase in revenue is due to an increase in medium and heavy aircraft revenue, due primarily to increased activity related to the Deepwater Horizon incident. The net increase in revenue was partially offset by a decrease in deepwater drill rig support as some drilling rigs demobilized. On October 12, 2010, the Department of Interior lifted the moratorium on deepwater drilling. It is not possible to estimate when drilling operations will resume in the deepwater Gulf of Mexico, due to uncertainties surrounding the timing of issuance of drilling permits by the Department of Interior and new regulations related to drilling operations.

Net segment profit for the Oil and Gas segment was $14.0 million for the quarter ended September 30, 2010, compared to $13.2 million for the quarter ended September 30, 2009. The increase of $0.8 million was primarily due to increased revenue of $10.6 million primarily in medium and heavy aircraft revenue, partly offset by increases in direct expense of $9.8 million. Segment direct expense in the quarter ended September 30, 2009 included a $1.3 million credit related to termination of a manufacturer’s warranty program on certain aircraft.

Air Medical segment revenues were $44.2 million for the three months ended September 30, 2010, compared to $43.3 million for the three months ended September 30, 2009, an increase of $0.9 million. The increase was primarily due to increased revenue related to the independent provider programs, as a result of rate increases and a favorable payor mix as compared to the prior year quarter. Total patient transports were 5,149 for the three months ended September 30, 2010, compared to 5,226 for the three months ended September 30, 2009, a decrease of 77 transports.

Net segment profit for the Air Medical segment was $4.6 million for the quarter ended September 30, 2010, compared to $7.5 million for the quarter ended September 30, 2009. In the quarter ended September 30, 2009, there was a $3.6 million credit related to the termination of an aircraft warranty program for certain aircraft.

Operating revenues for the three months ended September 30, 2010 were $135.7 million, compared to $124.2 million for the three months ended September 30, 2009, an increase of $11.5 million. Flight hours for the quarter ended September 30, 2010 were 39,192 compared to 37,647 for the quarter ended September 30, 2009.

Net loss for the quarter ended September 30, 2010 was $2.4 million, or $0.16 per diluted share, compared to net earnings of $7.0 million for the quarter ended September 30, 2009, or $0.45 per diluted share. Pre-tax loss was $1.4 million for the quarter ended September 30, 2010, compared to pre-tax earnings of $11.6 million for the same period in 2009. As a result of the early redemption of our 7.125% Senior Notes, we recorded a pre-tax charge of $9.5 million in the quarter ended September 30, 2010. In addition, earnings for the quarter ended September 30, 2009, included a credit of $4.9 million in direct expense related to termination of a manufacturer’s warranty program on certain aircraft.

Oil and Gas segment revenues were $269.5 million for the nine months ended September 30, 2010, compared to $233.0 million for the nine months ended September 30, 2009, an increase of $36.5 million. Flight hours were 88,297 for the nine months ended September 30, 2010, compared to 85,470 for the same period in 2009. 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. Approximately 50% of the increase in Oil and Gas revenues for the period is a result of increased activity related to the Deepwater Horizon incident. Partially offsetting these increases were decreases in flight hours in the second and third quarters related to some deepwater drilling rigs demobilizing and reduced crews on others. Oil and Gas revenues for the nine months ended September 30, 2009 were adversely affected by approximately $3.1 million due to the grounding of certain aircraft due to an accident in January 2009.

Net segment profit for the Oil and Gas segment was $47.1 million for the nine months ended September 30, 2010, compared to $40.1 million for the nine months ended September 30, 2009.

Air Medical segment revenues were $120.9 million for the nine months ended September 30, 2010, compared to $125.0 million for the nine months ended September 30, 2009, a decrease of $4.1 million. The decrease was related to decreased patient transports in the independent provider programs and also due to the closure of six locations. Patient transports were 14,124 for the nine months ended September 30, 2010, compared to 15,529 for the nine months ended September 30, 2009, a decrease of 1,405 transports. Patient transports decreased by approximately 600 due to the base closures and approximately 250 due to unfavorable weather conditions in the current year as compared to the prior year. We believe the remaining decrease in transports was primarily attributable to the current economic environment. Flight hours were 25,250 for the nine months ended September 30, 2010, compared to 26,108 for the nine months ended September 30, 2009. This decrease was due to the decrease in independent provider transports.

Net segment profit for the Air Medical segment was $9.0 million for the nine months ended September 30, 2010, compared to $8.6 million for the nine months ended September 30, 2009. The $0.4 million increase in net segment profit was primarily due to a net $2.8 million decrease in direct expense. In the nine months ended September 30, 2009, there was a $3.6 million credit related to the termination of an aircraft warranty program for certain aircraft. The decrease in direct expense in the current nine month period was primarily related to termination in 2009 of a warranty program for certain aircraft, which reduced continuing warranty costs, cost savings related to the closing of six bases and reductions in selling, general and administrative costs. There was also a $3.1 million credit related to the termination of an aircraft warranty program for certain aircraft in the nine months ended September 30, 2010.

Operating revenues for the nine months ended September 30, 2010 were $396.9 million, compared to $364.5 million for the nine months ended September 30, 2009, an increase of $32.4 million. Flight hours for the nine months ended September 30, 2010 were 114,061 compared to 111,956 for the nine months ended September 30, 2009.

Net earnings for the nine months ended September 30, 2010 were $8.6 million, or $0.56 per diluted share, compared to $12.7 million for the nine months ended September 30, 2009, or $0.83 per diluted share. Pre-tax earnings were $17.0 million for the nine months ended September 30, 2010, compared to $21.2 million for the same period in 2009. The decrease was related to the early redemption of our 7.125% Senior Notes, resulting in a $9.5 million pre-tax charge recorded in the quarter ended September 30, 2010, and a $4.9 million credit to direct expense in the nine months ended September 30, 2009, due to termination of a manufacturer’s warranty program. There was also a $4.3 million credit to direct expense in the nine months ended September 30, 2010, due to termination of a manufacturer’s warranty program.

Certain statements in this release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “forecast,” “anticipate,” “estimate,” “project,” “intend,” “expect,” “should,” “believe,” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the Company’s actual results, performance (financial or operating) or achievements to differ materially from the results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. These factors include adverse weather, competition, the level of activity in the oil and gas industry (particularly in the Gulf of Mexico) and our ability to continue to grow patient transport volumes. These and other factors are more fully discussed in the Company’s SEC filings under “Risk Factors.”

PHI provides helicopter transportation and related services to a broad range of customers including the oil and gas industry, air medical industry and also provides third-party maintenance services to select customers. PHI Voting Common Stock and Non-Voting Common Stock are traded on The Nasdaq Global Market (symbols PHII and PHIIK).