UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

___________________________________________________________

FORM10-Q

☒	~~Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

___________________________________________________________

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March 31,~~September 30, 2017

☐	~~Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period fromto

Commission file number:0-9827

PHI, Inc.

(Exact name of registrant as specified in its charter)



Louisiana		72-0395707
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2001 SE Evangeline Thruway
Lafayette, Louisiana		70508
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ☒ No: ☐

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 RegulationsS-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: ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.



Large accelerated filer:	☐	Accelerated filer: ☒		Smaller reporting company:		☐

Non-accelerated filer:	☐ (Do not check if a smaller reporting company)		Emerging Growth Company:		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange

Act). Yes: ☐ No: ☒

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



Class		Outstanding at ~~April 28,~~October 31, 2017
Voting Common Stock		2,905,757 shares
Non-Voting Common Stock		~~12,797,442~~12,893,895 shares

PHI, INC.

Index – Form10-Q



Part I – Financial Information
Item 1.		Financial Statements – Unaudited
		Condensed Consolidated Balance Sheets – ~~March 31,~~September 30, 2017 and December 31, 2016	3
		3
		Condensed Consolidated Statements of Operations – Quarter and Nine Months ended ~~March 31,~~September 30, 2017 and 2016	4
		4
		Condensed Consolidated Statements of Comprehensive Income – Quarter and Nine Months ended ~~March 31,~~September 30, 2017 and 2016	5
		5
		Condensed Consolidated Statements of Shareholders’ Equity – Quarter and Nine Months ended ~~March 31,~~September 30, 2017 and 2016	6
		6
		Condensed Consolidated Statements of Cash Flows – Quarter and Nine Months ended ~~March 31,~~September 30, 2017 and 2016	7
		7
		Notes to Condensed Consolidated Financial Statements	8
			8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
			25

Item 3.		Quantitative and Qualitative Disclosures about Market Risk	43
			34

Item 4.		Controls and Procedures	43	35


Part II – Other Information


Item 1.		Legal Proceedings	44

36Item 1A.	Risk Factors	44


~~Item 1A.~~		~~Risk Factors~~		36

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	45
			36

Item 3.		Defaults Upon Senior Securities	45

36Item 4.	Mine Safety Disclosures	45

Item 5.	Other Information	45
~~Item 4.~~		~~Mine Safety Disclosures~~
36Item 6.	Exhibits	48


~~Item 5.~~		~~Other Information~~		36

~~Item 6.~~		~~Exhibits~~		37

		Signatures		39	50

PART I – FINANCIAL INFORMATION

~~Item 1.~~

~~FINANCIAL STATEMENTS~~

Item 1. FINANCIAL STATEMENTS

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except share data)

(Unaudited)

   March 31, December 31,
   2017 2016
ASSETS
Current Assets:

Cash
   $ 3,680 $ 2,596
Short-term investments
   276,818 289,806
Accounts receivable – net

Trade
   117,386 128,662
Other
   8,884 9,603
Inventories of spare parts – net
   73,033 70,402
Prepaid expenses
   10,330 9,259
Deferred income taxes
   10,798 10,798
Income taxes receivable
   323 540


Total current assets
   501,252 521,666
Property and equipment – net
   896,565 903,977
Restricted cash and investments
   13,038 13,038
Other assets
   8,873 9,759


Total assets
   $ 1,419,728 $ 1,448,440


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:

Accounts payable
   $ 22,054 $ 28,704
Accrued and other current liabilities
   27,500 28,346


Total current liabilities
   49,554 57,050
Long-term debt:

Revolving credit facility
   135,500 134,000
Senior Notes issued March 17, 2014, net of debt issuance costs of $2,441 and $2,753, respectively
   497,559 497,247
Deferred income taxes
   142,870 151,713
Other long-term liabilities
   8,131 8,652
Commitments and contingencies (Note 9)

Shareholders’ Equity:

Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding
   291 291
Non-voting common stock – par value of $0.10; 25,000,000 shares authorized, 12,797,442 and 12,779,646 issued and outstanding at March 31, 2017 and December 31, 2016, respectively
   1,279 1,278
Additionalpaid-in capital
   304,698 304,246
Accumulated other comprehensive loss
   (375 ) (478 )
Retained earnings
   280,221 294,441


Total shareholders’ equity
   586,114 599,778


Total liabilities and shareholders’ equity
   $ 1,419,728 $ 1,448,440



	September 30, 2017			December 31, 2016
ASSETS
Current Assets:
Cash	$	2,991		$	2,596
Short-term investments	204,036			289,806
Accounts receivable – net
Trade	140,434			128,662
Other	12,303			9,603
Inventories of spare parts – net	79,245			70,402
Prepaid expenses	12,006			9,259
Deferred income taxes	10,798			10,798
Income taxes receivable	509			540
Total current assets	462,322			521,666
Property and equipment – net	910,327			903,977
Restricted cash and investments	12,396			13,038
Other assets	9,032			9,759
Total assets	$	1,394,077		$	1,448,440
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	30,607		$	28,704
Accrued and other current liabilities	33,703			28,346
Total current liabilities	64,310			57,050
Long-term debt:
Revolving credit facility	100,000			134,000
Senior Notes issued March 17, 2014, net of debt issuance costs of $1,818 and $2,753, respectively	498,182			497,247
Deferred income taxes	141,420			151,713
Other long-term liabilities	8,104			8,652
Commitments and contingencies (Note 9)
Shareholders’ Equity:
Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding	291			291
Non-voting common stock – par value of $0.10; 37,500,000 shares authorized, 12,893,895 and 12,779,646 issued and outstanding at September 30, 2017 and December 31, 2016, respectively	1,289			1,278
Additional paid-in capital	307,054			304,246
Accumulated other comprehensive loss	(244		)	(478		)
Retained earnings	273,671			294,441
Total shareholders’ equity	582,061			599,778
Total liabilities and shareholders’ equity	$	1,394,077		$	1,448,440

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Thousands of dollars and shares, except per share data)

(Unaudited)

   Quarter Ended
March 31,
   2017 2016
Operating revenues, net
   $ 134,618 $ 164,016
Expenses:

Direct expenses
   136,513 152,554
Selling, general and administrative expenses
   13,044 11,673


Total operating expenses
   149,557 164,227
Loss on disposal of assets
   —   359
Equity in loss (income) of unconsolidated affiliate
   1,003 —


Operating loss
   (15,942 ) (570 )
Interest expense
   8,195 7,533
Other income – net
   (1,064 ) (615 )


   7,131 6,918


Loss before income taxes
   (23,073 ) (7,488 )
Income tax (benefit) expense
   (7,825 ) 1,444


Net loss
   $ (15,248 ) $ (8,932 )


Weighted average shares outstanding:

Basic
   15,689 15,600
Diluted
   15,689 15,600
Net loss per share:

Basic
   $ (0.97 ) $ (0.57 )
Diluted
   $ (0.97 ) $ (0.57 )



	Quarter Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Operating revenues, net	$	150,167		$	158,093		$	431,209		$	489,245
Expenses:
Direct expenses	136,786			144,938			400,250			449,909
Selling, general and administrative expenses	11,401			13,381			38,691			36,832
Total operating expenses	148,187			158,319			438,941			486,741
Gain (loss) on disposal of assets	(4		)	85			3			(3,854		)
Equity in (earnings) loss of unconsolidated affiliates, net	(438		)	198			1,556			274
Operating income (loss)	2,422			(509		)	(9,291		)	6,084
Interest expense	8,027			7,719			24,305			22,792
Other income – net	(706		)	(462		)	(2,474		)	(1,571		)
	7,321			7,257			21,831			21,221
Loss before income taxes	(4,899		)	(7,766		)	(31,122		)	(15,137		)
Income tax benefit	(1,622		)	(2,799		)	(9,324		)	(5,515		)
Net loss	$	(3,277	)	$	(4,967	)	$	(21,798	)	$	(9,622	)
Weighted average shares outstanding:
Basic	15,799			15,683			15,750			15,655
Diluted	15,799			15,683			15,750			15,655
Net loss per share:
Basic	$	(0.21	)	$	(0.32	)	$	(1.38	)	$	(0.61	)
Diluted	$	(0.21	)	$	(0.32	)	$	(1.38	)	$	(0.61	)

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

   Quarter Ended
March 31,
   2017 2016
Net loss
   $ (15,248 ) $ (8,932 )
Unrealized gain on short-term investments
   162 807
Changes in pension plan assets and benefit obligations
   (1 ) 1
Tax effect of the above-listed adjustments
   (58 ) (332 )


Total comprehensive loss
   $ (15,145 ) $ (8,456 )



	Quarter Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net (loss) earnings	$	(3,277	)	$	(4,967	)	$	(21,798	)	$	(9,622	)
Unrealized gain (loss) on short-term investments	41			(494		)	370			523
Changes in pension plan assets and benefit obligations	(24		)	1			(2		)	3
Tax effect of the above-listed adjustments	(8		)	178			(134		)	(229		)
Total comprehensive (loss) income	$	(3,268	)	$	(5,282	)	$	(21,564	)	$	(9,325	)

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Thousands of dollars and shares)

(Unaudited)

Voting Non-Voting Additional Accumulated Total
Common Stock Common Stock Paid-in Other Comprehensive Retained ShareHolders’
Shares Amount Shares Amount Capital (Loss)Income Earnings Equity
Balance at December 31, 2015
2,906 $ 291 12,685 $ 1,269 $ 304,884 $ (567 ) $ 321,121 $ 626,998
Net loss
—   —   —   —   —   —   (8,932 ) (8,932 )
Unrealized gain on short-term investments
—   —   —   —   —   476 —   476
Changes in pension plan assets and benefit obligations
—   —   —   —   —   1 —   1
Amortization of unearned stock-based compensation
—   —   —   —   1,485 —   —   1,485
Issuance ofnon-voting common stock (upon vesting of restricted stock units)
—   —   121 12 —   —   —   12
Cancellation of restrictednon-voting stock units for tax withholdings on vested shares
—   —   (27 ) (3 ) (500 ) —   —   (503 )
Retirement of treasury stock
—   —   (8 ) —   —   —   —   —

Balance at March 31, 2016
2,906 $ 291 12,771 $ 1,278 $ 305,869 $ (90 ) $ 312,189 $ 619,537

Voting Non-Voting Additional Accumulated Total
Common Stock Common Stock Paid-in Other Comprehensive Retained ShareHolders’
Shares Amount Shares Amount Capital (Loss)Income Earnings Equity
Balance at December 31, 2016
2,906 $ 291 12,779 $ 1,278 $ 304,246 $ (478 ) $ 294,441 $ 599,778
Net loss
—   —   —   —   —   —   (15,248 ) (15,248 )
Unrealized gain on short-term investments
—   —   —   —   —   104 —   104
Changes in pension plan assets and benefit obligations
—   —   —   —   —   (1 ) —   (1 )
Amortization of unearned stock-based compensation
—   —   —   —   552 —   —   552
Issuance ofnon-voting common stock (upon vesting of restricted stock units)
—   —   27 2 —   —   —   2
Cancellation of restrictednon-voting stock units for tax withholdings on vested shares
—   —   (9 ) (1 ) (100 ) —   —   (101 )
Cumulative effect adjustment of unrecognized tax benefits
—   —   —   —   —   —   1,028 1,028

Balance at March 31, 2017
2,906 $ 291 12,797 $ 1,279 $ 304,698 $ (375 ) $ 280,221 $ 586,114



	Voting Common Stock			Non-Voting Common Stock					Additional Paid-in Capital			Accumulated Other Com-prehensive (Loss) Income
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Other Com-prehensive (Loss) Income			Retained Earnings			ShareHolders' Equity
Balance at December 31, 2015	2,906	$	291	12,685		$	1,269		$	304,884		$	(567	)	$	321,121		$	626,998
Net loss	—	—		—		—			—			—			(9,622		)	(9,622		)
Unrealized gain on short-term investments	—	—		—		—			—			294			—			294
Changes in pension plan assets and benefit obligations	—	—		—		—			—			2			—			2
Amortization of unearned stock-based compensation	—	—		—		—			4,334			—			—			4,334
Issuance of non-voting common stock (upon vesting of restricted stock units)	—	—		128		12			—			—			—			12
Cancellation of restricted non-voting stock units for tax withholdings on vested shares	—	—		(28	)	(3		)	(528		)	—			—			(531		)
Retirement of treasury stock	—	—		(8	)	—			—			—			—			—
Balance at September 30, 2016	2,906	$	291	12,777		$	1,278		$	308,690		$	(271	)	$	311,499		$	621,487

	Voting Common Stock			Non-Voting Common Stock					Additional Paid-in Capital			Accumulated Other Com-prehensive (Loss) Income
	Shares	Amount		Shares		Amount			Additional Paid-in Capital			Accumulated Other Com-prehensive (Loss) Income			Retained Earnings			ShareHolders' Equity
Balance at December 31, 2016	2,906	$	291	12,779		$	1,278		$	304,246		$	(478	)	$	294,441		$	599,778
Net loss	—	—		—		—			—			—			(21,798		)	(21,798		)
Unrealized gain on short-term investments	—	—		—		—			—			235			—			235
Changes in pension plan assets and benefit obligations	—	—		—		—			—			(1		)	—			(1		)
Amortization of unearned stock-based compensation	—	—		—		—			3,074			—			—			3,074
Issuance of non-voting common stock (upon vesting of restricted stock units)	—	—		136		13			(10		)	—			—			3
Cancellation of restricted non-voting stock units for tax withholdings on vested shares	—	—		(22	)	(2		)	(256		)	—			—			(258		)
Cumulative effect adjustment of unrecognized tax benefits	—	—		—		—			—			—			1,028			1,028
Balance at September 30, 2017	2,906	$	291	12,893		$	1,289		$	307,054		$	(244	)	$	273,671		$	582,061

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

   Quarter Ended
   March 31,
   2017 2016
Operating activities:

Net loss
   $ (15,248 ) $ (8,932 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization
   16,845 16,973
Deferred income taxes
   (7,883 ) 955
Loss on asset dispositions
   —   359
Equity in loss of unconsolidated affiliate
   1,003 —
Inventory valuation reserves
   (1,293 ) 2,435
Changes in operating assets and liabilities
   (1,677 ) (28,133 )


Net cash used in operating activities
   (8,253 ) (16,343 )


Investing activities:

Purchase of property and equipment
   (4,789 ) (8,519 )
Proceeds from asset dispositions
   —   850
Purchase of short-term investments
   (54,867 ) (77,677 )
Proceeds from sale of short-term investments
   67,659 76,184
Payment of deposits on aircraft
   (66 ) (66 )


Net cash provided by (used in) investing activities
   7,937 (9,228 )


Financing activities:

Proceeds from line of credit
   37,300 83,500
Payments on line of credit
   (35,800 ) (53,300 )
Repurchase of common stock
   (100 ) (500 )


Net cash provided by financing activities
   1,400 29,700


Increase in cash
   1,084 4,129
Cash, beginning of period
   2,596 2,407


Cash, end of period
   $ 3,680 $ 6,536


Supplemental Disclosures Cash Flow Information

Cash paid during the period for:

Interest
   $ 14,114 $ 13,691


Income taxes
   $ —   $ —


Noncash investing activities:

Other current liabilities and accrued payables related to purchase of property and equipment
   $ 348 $ 29,302



	Nine Months Ended September 30,
	2017			2016
Operating activities:
Net loss	$	(21,798	)	$	(9,622	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	50,593			53,054
Deferred income taxes	(9,416		)	(6,775		)
Loss (gain) on asset dispositions	3			(3,854		)
Equity in loss of unconsolidated affiliate, net	1,556			274
Inventory valuation reserves	(3		)	3,766
Changes in operating assets and liabilities	(22,803		)	(43,991		)
Net cash (used in) provided by operating activities	(1,868		)	(7,148		)
Investing activities:
Purchase of property and equipment	(49,227		)	(74,950		)
Proceeds from asset dispositions	21			13,233
Purchase of short-term investments	(268,525		)	(263,204		)
Proceeds from sale of short-term investments	354,250			259,322
Payment of deposits on aircraft	—			(197		)
Loan to unconsolidated affiliate	—			(1,200		)
Net cash provided by (used in) investing activities	36,519			(66,996		)
Financing activities:
Proceeds from line of credit	99,150			213,900
Payments on line of credit	(133,150		)	(139,000		)
Repurchase of common stock	(256		)	(524		)
Net cash (used in) provided by financing activities	(34,256		)	74,376
Decrease in cash	395			232
Cash, beginning of period	2,596			2,407
Cash, end of period	$	2,991		$	2,639
Supplemental Disclosures Cash Flow Information
Cash paid during the period for:
Interest	$	29,536		$	28,258
Income taxes	$	1,213		$	2,856
Noncash investing activities:
Other current liabilities and accrued payables related to purchase of property and equipment	$	21		$	3,717

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of PHI, Inc. and its subsidiaries (“PHI” or the “Company” or “we” or “our”). In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the financial results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes contained in the Company’s Annual Report on Form10-K for the year ended December 31, ~~2016 and the accompanying notes.~~

2016.

Our financial results, particularly as they relate to our Oil and Gas segment, are influenced by seasonal fluctuations as discussed in the Company’s Annual Report on Form10-K for the year ended December 31, 2016. For this and other reasons, the results of operations for interim periods are not necessarily indicative of the operating results that may be expected for a full fiscal year.

Recently Adopted Accounting Pronouncements -Effective January 1, 2017, we adopted ~~ASU~~Accounting Standards Update (“ASU”) 2016-09, ~~2016-09,~~Compensation –- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment ~~Accounting.~~ ~~The~~Accounting, which was issued by the Financial Accounting Standards Board (“FASB”) in March 2016. This new standard requires that excess tax benefits and deficiencies resulting from stock-based compensation awards vesting and exercises be recognized in the income statement. Previously, these amounts were recognized in additionalpaid-in capital. As a result, during the first quarter of 2017 we recorded a cumulative-effect adjustment of $1.0 million increasing retained earnings and decreasing deferred tax liability on our balance sheet dated ~~March 31,~~September 30, 2017. Accordingly, we recorded income tax expense of ~~$0.5~~$1.6 million in our consolidated statement of income for the ~~three~~nine months ended ~~March 31,~~September 30, 2017, in recognition of excess tax deficiencies related to equity compensation. Under this new standard, the corresponding cash flows are now reflected in cash provided by operating activities instead of financing activities, as was previously required.

ASU2016-09 also allows an employer with a statutory income tax withholding obligation to withhold shares with a fair value up to the amount of tax owed using the maximum statutory tax rate in the employee’s applicable jurisdiction. We have elected to continue to withhold the minimum statutory withholding obligation for outstanding awards. We have also elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each ~~period~~

period.

New Accounting Pronouncements -In May 2014, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting Standards Update ~~(“ASU”)~~ASU 2014-09, ~~2014-09,~~Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The new standard iswill be effective for usthe Company beginning on January 1, ~~2018, with early adoption permitted as of January 1, 2017.~~2018. Revenues from our Oil and Gas segment and Air Medical segment hospital contracts are primarily comprised of a fixed monthly fee for a particular model of aircraft, plus a variable component based on flight time. Under the independent provider programs of our Air Medical segment, our revenues are based on a flat rate plus a variable charge per patient-loaded mile, and are recorded net of contractual allowances. We also generate revenue on a cost-plus basis in our Technical Services segment. Based on our initial assessment, we do not expect the adoption of this ASU to have a material impact on our condensed consolidated financial statements. Remaining implementation matters include establishing new policies, procedures, and controls and quantifying any adoption date adjustments. We ~~are continuing~~plan to ~~assess the effects of~~adopt this standard on each revenue stream of our business and the overall effect on our financial position, results of operations and cash flows and have not yet selected a method of adoption. We intend to adopt the standard beginning January 1, ~~2018.~~

2018 utilizing the modified retrospective method.

In February 2016, the FASB issued ASU 2016-02, ~~2016-02,~~Leases~~Leases~~, which replaces the existing guidance on leasing transactions in ASC 840 to require recognition of the assets and liabilities for the rights and obligations created by those leases on the balance sheet. ~~We plan to adopt this standard no later than January 1, 2019.~~ We are currently evaluating the effects of this standard, and expect the adoption of this standard will result in a material change to our consolidated assets and liabilities based on our lease portfolio as of ~~December 31, 2016.~~

September 30, 2017. We plan to adopt this standard beginning January 1, 2019.

In October 2016, the FASB issued ASU 2016-16, ~~2016-16,~~Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory, which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. ~~The~~ ASU 2016-16 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The effects of this standard on our financial position, results of operations, and cash flows are not yet known.

We plan to adopt this standard beginning January 1, 2018.

In January 2017, the FASB issued ASU 2017-01, ~~2017-01,~~Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU2017-01 clarifies the definition of a business and requires that an entity apply certain criteria in order to determine when a set of assets and activities qualifies as a business. The adoption of this standard is expected to result in fewer acquisitions of properties qualifying as acquisitions of businesses and, accordingly, acquisition costs for those acquisitions that do not qualify as businesses will be capitalized rather than expensed. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted. The effects of this standard on our financial position, results of operations, and cash flows are not yet known.

We plan to adopt this standard beginning January 1, 2018.

In January 2017, the FASB issued ASU 2017-04, ~~2017-04,~~Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU2017-04 simplifies the currenttwo-step goodwill impairment test by eliminating ~~Step 2~~the second step of the test. The new standard requires aone-step impairment test in which an entity compares the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, if any. This standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect this ASU to have a material impact on our consolidated financial statements.

2. INVESTMENTS

We classify all of our short-term investments asavailable-for-sale. We carry these at fair value and report unrealized gains and losses, net of taxes, in Accumulated other comprehensive ~~gain (loss),~~loss, which is a separate component of shareholders’ equity in our Condensed Consolidated Balance Sheets. These unrealized gains and losses are also reflected in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Shareholders’ Equity. We determine cost, gains, and losses using the specific identification method.

Investments consisted of the following as of ~~March 31,~~September 30, 2017:

Unrealized Unrealized Fair
Cost Basis Gains Losses Value
(Thousands of dollars)
Investments:

Money market mutual funds
$ 10,597 $ —   $ —   $ 10,597
Commercial paper
27,935 —   (26 ) 27,909
U.S. Government agencies
15,305 —   (20 ) 15,285
Corporate bonds and notes
236,525 4 (479 ) 236,050

Subtotal
290,362 4 (525 ) 289,841
Deferred compensation plan assets included in other assets
2,500 —   —   2,500

Total
$ 292,862 $ 4 $ (525 ) $ 292,341



	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
	(Thousands of dollars)
Investments:
Money market mutual funds	$	5,278	$	—	$	—		$	5,278
Commercial paper	9,423		—		(10		)	9,413
U.S. Government agencies	13,505		—		(14		)	13,491
Corporate bonds and notes	188,515		3		(283		)	188,235
Subtotal	216,721		3		(307		)	216,417
Deferred compensation plan assets included in other assets	2,630		—		—			2,630
Total	$	219,351	$	3	$	(307	)	$	219,047

Investments consisted of the following as of December 31, 2016:

Unrealized Unrealized Fair
Cost Basis Gains Losses Value
(Thousands of dollars)
Investments:

Money market mutual funds
$ 18,118 $ —   $ —   $ 18,118
Commercial paper
27,906 —   (39 ) 27,867
U.S. government agencies
13,295 —   (32 ) 13,263
Corporate bonds and notes
244,202 2 (622 ) 243,582

Subtotal
303,521 2 (693 ) 302,830
Deferred compensation plan assets included in other assets
2,394 —   —   2,394

Total
$ 305,915 $ 2 $ (693 ) $ 305,224



	Cost Basis		Unrealized Gains		Unrealized Losses			Fair Value
	(Thousands of dollars)
Investments:
Money market mutual funds	$	18,118	$	—	$	—		$	18,118
Commercial paper	27,906		—		(39		)	27,867
U.S. government agencies	13,295		—		(32		)	13,263
Corporate bonds and notes	244,202		2		(622		)	243,582
Subtotal	303,521		2		(693		)	302,830
Deferred compensation plan assets included in other assets	2,394		—		—			2,394
Total	$	305,915	$	2	$	(693	)	$	305,224

At ~~March 31,~~September 30, 2017 and December 31, 2016, we classified $12.4 million and $13.0 million respectively, of our aggregate investments as long-term investments and recorded them in our Condensed Consolidated Balance Sheets as Restricted cash and investments, as they are securing outstanding letters of credit with maturities beyond one year and a bond relating to foreign operations.

The following table presents the cost and fair value of our debt investments based on maturities as of:

   March 31, 2017    December 31, 2016
   Amortized    Fair    Amortized    Fair
   Costs    Value    Costs    Value
   (Thousands of dollars)
Due in one year or less
   $ 200,195    $ 199,906    $ 184,587    $ 184,334
Due within two years
   79,570    79,338    100,816    100,378








Total
   $ 279,765    $ 279,244    $ 285,403    $ 284,712



	September 30, 2017				December 31, 2016
	Amortized Costs		Fair Value		Amortized Costs		Fair Value
	(Thousands of dollars)
Due in one year or less	$	133,633	$	133,481	$	184,587	$	184,334
Due within two years	77,810		77,658		100,816		100,378
Total	$	211,443	$	211,139	$	285,403	$	284,712

The following table presents the average coupon rate percentage and the average days to maturity of our debt investments as of:

   March 31, 2017    December 31, 2016
   Average    Average    Average    Average
   Coupon    Days To    Coupon    Days To
   Rate (%)    Maturity    Rate (%)    Maturity
Commercial paper
   1.035    140    1.001    184
U.S. Government agencies
   1.056    355    0.970    400
Corporate bonds and notes
   1.731    287    1.745    318



	September 30, 2017		December 31, 2016
	Average Coupon Rate (%)	Average Days To Maturity	Average Coupon Rate (%)	Average Days To Maturity
Commercial paper	1.236	228	1.001	184
U.S. Government agencies	1.213	325	0.970	400
Corporate bonds and notes	1.715	295	1.745	318

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:

   March 31, 2017    December 31, 2016
      Unrealized       Unrealized
   Fair Value    Losses    Fair Value    Losses
   (Thousands of dollars)
Commercial paper
   $ 27,909    $ (26 )    $ 27,867    $ (39 )
U.S. Government agencies
   14,285    (20 )    13,263    (32 )
Corporate bonds and notes
   207,512    (460 )    210,836    (602 )








Total
   $ 249,706    $ (506 )    $ 251,966    $ (673 )



	September 30, 2017					December 31, 2016
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Thousands of dollars)
Commercial paper	$	9,413	$	(10	)	$	27,867	$	(39	)
U.S. Government agencies	9,495		(10		)	13,263		(32		)
Corporate bonds and notes	102,767		(173		)	210,836		(602		)
Total	$	121,675	$	(193	)	$	251,966	$	(673	)

The following table presents the fair value and unrealized losses related to our investments that have been in a continuous unrealized loss position for more than twelve months as of:

   March 31, 2017    December 31, 2016
      Unrealized       Unrealized
   Fair Value    Losses    Fair Value    Losses
   (Thousands of dollars)
Corporate bonds and notes
   $ 20,116    $ (19 )    $ 24,196    $ (20 )








Total
   $ 20,116    $ (19 )    $ 24,196    $ (20 )



	September 30, 2017					December 31, 2016
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Thousands of dollars)
U.S. Government agencies	$	3,996	$	(4	)	$	—	$	—
Corporate bonds and notes	77,187		(110		)	24,196		(20		)
Total	$	81,183	$	(114	)	$	24,196	$	(20	)

From time to time over the periods covered in our financial statements included herein (and as illustrated in the foregoing tables), our investments have experienced net unrealized losses. We consider these declines in market value to be due to customary market fluctuations, and we do not plan to sell these investments prior to maturity. For these reasons, we do not consider any of our investments to be other than temporarily impaired at ~~March 31,~~September 30, 2017 or December 31, 2016. We have also determined that we did not have any other than temporary impairments relating to credit losses on debt securities for the quarter ended ~~March 31,~~September 30, 2017. For additional information regarding our criteria for making these assessments, see Note 2 to the financial statements included in our Annual Report on Form10-K for the year ended December 31, 2016.

3. REVENUE RECOGNITION AND VALUATION ACCOUNTS

We establish the amount of our allowance for doubtful accounts based upon factors relating to the credit risk of specific customers, current market conditions, and other information. Our allowance for doubtful accounts was approximately $6.1 million ~~at March 31, 2017,~~ and $6.0 million at September 30, 2017, and December 31, ~~2016.~~

2016, respectively.

Revenues related to flights generated by our Air Medical segment are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when the services are provided. The allowance for contractual discounts was ~~$107.6~~$129.2 million and $111.9 million as of ~~March 31,~~September 30, 2017 and December 31, 2016, respectively. The allowance for uncompensated care was ~~$48.0~~$47.7 million and $46.3 million as of ~~March 31,~~September 30, 2017 and December 31, 2016, respectively.

Included in the allowance for uncompensated care listed above is the value of services to patients who are unable to pay when it is determined that they qualify for charity care. The value of these services was ~~$2.5~~$1.3 million and $2.2 million for the quarters ended ~~March 31,~~September 30, 2017 and 2016, respectively. The value of these services was $5.7 million and $6.9 million for the nine months ended September 30, 2017 and 2016, respectively. The estimated cost of providing charity services was $0.3 million for the quarter ended September 30, 2017 and $0.5 million for the quarter ended September 30, 2016. The estimated cost of providing charity services was ~~$0.6~~$1.3 million and $1.8 million for the ~~quarters~~nine months ended ~~March 31,~~September 30, 2017 and ~~2016.~~2016, respectively. The estimated costs of providing charity services are based on a calculation that applies a ratio of costs to the charges for uncompensated charity care. The ratio of costs to charges is based on our Air Medical segment’s total expenses divided by gross patient service revenue.

The allowance for contractual discounts and estimated uncompensated care (expressed as a percentage of gross segment accounts receivable) as of the dates listed below was as follows:

   As of
   March 31,
2017 December 31,
2016
Allowance for Contractual Discounts
   56 % 56 %
Allowance for Uncompensated Care
   25 % 23 %

Under a three-year contract that commenced on September 29, 2012, our Air Medical affiliate provided multiple services to a customer in the Middle East, including helicopter leasing, emergency medical helicopter flight services, aircraft maintenance, provision of spare parts, insurance coverage for the customer-owned aircraft, training services, and base construction. Each of the major services mentioned above qualified as separate units of accounting under the accounting guidance for such arrangements. The selling price for each specific service was determined based upon third-party evidence and estimates. As discussed in greater detail in our Form10-K for the year ended December 31, 2016 and elsewhere herein, this contract, after being extended one year, lapsed on September 30, 2016.

We have also established valuation reserves related to obsolete and slow-moving spare parts inventory. The inventory valuation reserves were ~~$17.7~~$18.4 million and $17.3 million at ~~March 31,~~September 30, 2017 and December 31, 2016, respectively.

4. FAIR VALUE MEASUREMENTS

Accounting standards require 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 investments and financial instruments by the above pricing levels as of the valuation dates listed:

      March 31, 2017
   Total    (Level 1)    (Level 2)
      (Thousands of dollars)
Investments:

Money market mutual funds
   $ 10,597    $ 10,597    $ —
Commercial paper
   27,909    —      27,909
U.S. Government agencies
   15,285    —      15,285
Corporate bonds and notes
   236,050    —      236,050






   289,841    10,597    279,244
Deferred compensation plan assets
   2,500    2,500    —






Total
   $ 292,341    $ 13,097    $ 279,244








   December 31, 2016
   Total    (Level 1)    (Level 2)
      (Thousands of dollars)
Investments:

Money market mutual funds
   $ 18,118    $ 18,118    $ —
Commercial paper
   27,867    —      27,867
U.S. government agencies
   13,263    —      13,263
Corporate bonds and notes
   243,582    —      243,582






   302,830    18,118    284,712
Deferred compensation plan assets
   2,394    2,394    —






Total
   $ 305,224    $ 20,512    $ 284,712



			September 30, 2017
	Total		(Level 1)		(Level 2)
	(Thousands of dollars)
Investments:
Money market mutual funds	$	5,278	$	5,278	$	—
Commercial paper	9,413		—		9,413
U.S. Government agencies	13,491		—		13,491
Corporate bonds and notes	188,235		—		188,235
	216,417		5,278		211,139
Deferred compensation plan assets	2,630		2,630		—
Total	$	219,047	$	7,908	$	211,139

			December 31, 2016
	Total		(Level 1)		(Level 2)
	(Thousands of dollars)
Investments:
Money market mutual funds	$	18,118	$	18,118	$	—
Commercial paper	27,867		—		27,867
U.S. government agencies	13,263		—		13,263
Corporate bonds and notes	243,582		—		243,582
	302,830		18,118		284,712
Deferred compensation plan assets	2,394		2,394		—
Total	$	305,224	$	20,512	$	284,712

We hold our 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~~investments in 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 actively traded. These items may not be traded daily; examples include commercial paper, corporate bonds and U.S. government agencies debt. There have been no reclassifications of assets between Level 1 and Level 2 investments during the periods covered by the financial statements included in this report. We hold no Level 3 investments. Investments reflected on our balance sheets as Other ~~assets,~~Assets, which we hold to fund liabilities under our Officers’ Deferred Compensation Plan, consist mainly of multiple investment funds that are highly liquid and diversified.

Cash, accounts receivable, accounts payable and accrued liabilities, and our revolving credit facility debt all had fair values approximating their carrying amounts at ~~March 31,~~September 30, 2017 and December 31, 2016. Our determination of the estimated fair value of our 5.25% Senior Notes due 2019 and our revolving credit facility debt is derived using Level 2 inputs, including quoted market indications of similar publicly-traded debt. The fair value of our 5.25% Senior Notes due 2019, based on quoted market prices, was ~~$473.8~~$489.2 million and $474.4 million at ~~March 31,~~September 30, 2017 and December 31, 2016, respectively.

5. LONG-TERM DEBT

The components of long-term debt as of the dates indicated below were as follows:

   March 31, 2017    December 31, 2016
      Unamortized       Unamortized
      Debt       Debt
      Issuance       Issuance
   Principal    Debt Cost    Principal    Debt Cost
   (Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, maturing March 15, 2019
   $ 500,000    $ 2,441    $ 500,000    $ 2,753
Revolving Credit Facility due October 1, 2018 with a group of commercial banks, interest payable at variable rates
   135,500    —      134,000    —








Total long-term debt
   $ 635,500    $ 2,441    $ 634,000    $ 2,753



	September 30, 2017				December 31, 2016
	Principal		Unamortized Debt Issuance Debt Cost		Principal		Unamortized Debt Issuance Debt Cost
	(Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, maturing March 15, 2019	$	500,000	$	1,818	$	500,000	$	2,753
Revolving Credit Facility due October 1, 2018 with a group of commercial banks, interest payable at variable rates	100,000		—		134,000		—
Total long-term debt	$	600,000	$	1,818	$	634,000	$	2,753

Our 5.25% Senior Notes (the “2019 Notes”) will mature on March 15, 2019, are unconditionally guaranteed on a senior basis by each of ~~PHI’s~~PHI, Inc.’s wholly-owned domestic subsidiaries, and are the general, unsecured obligations of PHI, Inc. and the guarantors. Interest is payable semi-annually on March 15 and September 15 of each year. PHI has the option to redeem some or all of the 2019 Notes at any time on or after March 15, 2016 at specified redemption prices. The indenture governing the 2019 Notes (the “2019 Indenture”) contains, among other things, certain restrictive covenants, including limitations on incurring indebtedness, creating liens, selling assets and entering into certain transactions with affiliates. The covenants also limit PHI’s ability to, among other things, pay cash dividends on common stock, repurchase or redeem common or preferred equity, prepay subordinated debt and make certain investments. Upon the occurrence of a “Change in Control Repurchase Event” (as defined in the 2019 Indenture), PHI will be required, unless it has previously elected to redeem the 2019 Notes as described above, to make an offer to purchase the 2019 Notes for a cash price equal to 101% of their principal amount.

Revolving Credit Facility –We have an amended and restated revolving credit facility (our “credit facility”) that matures on October 1, 2018. Under this facility, we can borrow up to $150.0 million at floating interest rates based on either the London Interbank Offered Rate plus 225 basis points or the prime rate (each as defined in our credit facility), at our option. Our credit facility includes usual and customary covenants and events of default for credit facilities of its type. Our ability to borrow under the credit facility is conditioned upon our continued compliance with such covenants, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in certain other transactions or activities and (ii) financial covenants that stipulate that PHI will maintain a consolidated working capital ratio of at least 2 to 1, a net funded debt to consolidated net worth ratio not greater than 1.5 to 1, a fixed charge coverage ratio of at least 1.1 to 1 if our short term investments fall below $150.0 million, and consolidated net worth of at least $450.0 million (with all such terms or amounts as defined in or determined under our credit facility). As of ~~March 31,~~September 30, 2017, we believe we were in compliance with these covenants.

~~Cash paid to fund interest expense was $14.1 million for the quarter ended March 31, 2017 and $13.7 million for the quarter ended March 31, 2016.~~

Letter of Credit Facility -We maintain a separate letter of credit facility that had $12.3 million and $13.0 million in letters of credit outstanding at ~~March 31,~~September 30, 2017 and December 31, ~~2016.~~2016 respectively. We have letters of credit securing our workers compensation policies, a traditional provider contract, and a bond relating to foreign operations.

We also have outstanding a letter of credit for ~~$7.6~~$7.8 million issued under our $150.0 million credit facility that reduces the amount we can borrow under that facility. The letter of credit was issued to guaranty our performance under an international contract that was awarded in late 2016.

Other - Cash paid to fund interest expense under our outstanding indebtedness was $14.3 million for the quarter ended September 30, 2017 and $13.9 million for the quarter ended September 30, 2016. Cash paid to fund interest expense under our outstanding indebtedness was $29.5 million for the nine months ended September 30, 2017 and $28.3 million for the nine months ended September 30, 2016.

PHI, Inc. has cash management arrangements with certain of its principal subsidiaries, in which substantial portions of the subsidiaries’ cash is regularly advanced to PHI, Inc. Although PHI, Inc. periodically repays these advances to fund the subsidiaries’ cash requirements throughout the year, at any given point in time PHI, Inc. may owe a substantial sum to its subsidiaries under these advances, which, in accordance with generally accepted accounting principles, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see Note 13.

6. EARNINGS PER SHARE

The components of basic and diluted earnings per share for the quarter and nine months ended ~~March 31,~~September 30, 2017 and 2016 are as follows:

   Quarter Ended
   March 31,
   2017    2016
   (Thousands of dollars)
Weighted average outstanding shares of common stock, basic
   15,689    15,600
Dilutive effect of unvested restricted stock units
   —      —




Weighted average outstanding shares of common stock, diluted
   15,689    15,600



	Quarter Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
	(Thousands of dollars)
Weighted average outstanding shares of common stock, basic	15,799	15,683	15,750	15,655
Dilutive effect of unvested restricted stock units	—	—	—	—
Weighted average outstanding shares of common stock, diluted ⁽¹⁾	15,799	15,683	15,750	15,655

⁽¹⁾

(1)

For the three months ended ~~March 31,~~September 30, 2017 ~~58,119~~and 2016, 0 and 52,126 unvested restricted stock units were excluded from the weighted average outstanding shares of common stock, diluted, respectively as they were anti-dilutive to earnings per share. For the nine months ended September 30, 2017 and 2016, 0 and 22,221 unvested restricted stock units were excluded from the weighted average outstanding shares of common stock, diluted, respectively as they were anti-dilutive to earnings per share.

7. STOCK-BASED COMPENSATION

We recognize the cost of employee compensation received in the form of equity instruments based on the grant date fair value of those awards. The table below sets forth the total amount of stock-based compensation expense for ~~quarters~~the nine months and quarter ended ~~March 31,~~September 30, 2017 and 2016.

   Quarter Ended
   March 31,
   2017    2016
   (Thousands of dollars)
Stock-based compensation expense:

Time-based restricted stock units
   $ 553    $ 619
Performance-based restricted stock units
   —      871




Total stock-based compensation expense
   $ 553    $ 1,490



	Quarter Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(Thousands of dollars)
Stock-based compensation expense:
Time-based restricted stock units	$	582	$	631	$	1,678	$	1,847
Performance-based restricted stock units	689		823		1,396		2,502
Total stock-based compensation expense	$	1,271	$	1,454	$	3,074	$	4,349

During the quarter and nine months ended ~~March 31,~~September 30, 2017, ~~we awarded 366,399~~26,296 and 472,913 time-based restricted units, respectively, and 4,646 and 371,045 performance-based restricted ~~stock~~ units ~~and 29,351 time-based restricted stock units, respectively,~~were awarded to managerial employees.

During the quarter and nine months ended ~~March 31,~~September 30, 2016, ~~we awarded 303,061~~10,992 and 25,280 time-based restricted units, respectively, and 2,318 and 310,481 performance-based restricted ~~stock~~ units were awarded to managerial ~~employees.~~

employees, respectively.

8. ASSET DISPOSALS

~~There were~~

During the third quarter of 2017, we disposed of one medium aircraft and related parts inventory utilized in the Oil and Gas segment. This aircraft no ~~sales or disposals of aircraft during~~longer met our strategic needs. During the first ~~quarter~~two quarters of ~~2017.~~ 2017, we disposed of five medium aircraft and related parts inventory in the Oil & Gas segment. These aircraft no longer met our strategic needs.

During the ~~first~~third quarter of 2016, we sold ~~one~~four light aircraft previously utilized in the Oil and Gas segment. Cash proceeds totaled ~~$0.9~~$2.2 million, resulting in a $0.1 million loss on the sale of ~~this asset~~these assets. In the first two quarters of ~~$0.4~~2016 we sold five light and three medium aircraft and related parts inventory utilized in the Oil and Gas segment. Cash proceeds totaled $11.0 million, resulting in a gain on the sale of these assets of $3.9 million. ~~This~~These aircraft no longer met our strategic needs.

9. COMMITMENTS AND CONTINGENCIES

Commitments – ~~In the fourth quarter of 2016, we entered into a contract to~~ We currently have no aircraft purchase ~~two medium aircraft for use in our Oil and Gas segment. We expect to take delivery of the aircraft in the second quarter of 2017. The total remaining purchase commitment is $17.9 million.~~

commitments.

Total aircraft deposits of ~~$4.9~~$0.5 million were included in Other Assets as of ~~March 31,~~September 30, 2017. This amount represents ~~deposits for aircraft purchase contracts and deposits~~a deposit on a future lease buyout ~~options.~~option. In the event we do not exercise the buyout ~~options are not exercised,~~option, the ~~deposits~~deposit will be applied asagainst lease payments.

As of ~~March 31,~~September 30, 2017, we had options to purchase aircraft under leases, with such purchase options becoming exercisable in ~~2017~~2018 through ~~2021.~~2020. The aggregate option purchase prices are ~~$37.1 million in 2017,~~ $127.0 million in 2018, $129.0 million in 2019, and $22.7 million

in 2020. ~~Subsequent to March 31, 2017, we purchased one heavy aircraft from a lessor for $17.0 million.~~ Under current conditions, we believe it is unlikely that we will exercise the ~~remaining 2017~~2018 purchase options, unless opportunistic conditions arise.

Environmental Matters –PHI has recorded an estimated liability of $0.15 million as of ~~March 31,~~September 30, 2017 for environmental response costs. Previously, PHI conducted environmental surveys of its former Lafayette Facility located at the Lafayette Regional Airport, which ~~former facility PHI~~we vacated in 2001, ~~and~~PHI has determined that limited soil and groundwater contamination exist at two parcels of land at the former facility. An Assessment

Report for both parcels was submitted in 2003 (and updated in 2006) to the Louisiana Department of Environmental Quality (LDEQ) and the Louisiana Department of Natural Resources (LDNR). Approvals for the Assessment Report were received from the LDEQ and LDNR in 2010 and 2011, respectively. Since that time, PHI has performed groundwater sampling of the required groundwater monitor well installations at both ~~former PHI facility~~ parcels and submitted these sampling reports to the LDEQ. Pursuant to an agreement with the LDEQ, PHI provided groundwater sample results semi-annually to the LDEQ for both ~~former PHI facility~~ parcels from 2005 to 2015. LDEQ approved a reduction in the sampling program from semi-annual to annual groundwater monitoring in 2015. Based on PHI’s working relationship and agreements with the LDEQ, and the results of ongoing former facility parcel monitoring, PHI believes that ultimate remediation costs for the subject parcels will not be material to PHI’s consolidated financial position, operations or cash flows.

Legal Matters – On September 25, 2017, we brought a suit in the U.S. District Court for the Western District of Louisiana against Office & Professional Employees International Union and Office & Professional Employees International Union, Local 108 (Civil Action No. 6:17 cv 01216), which collectively represent our domestic pilot workforce. In this suit, we seek declaratory relief and other remedies under federal law to confirm that we can increase the wages of most of our unionized pilots and provide enhanced benefits of employment without negotiating these proposed changes with the defendants. We are in the early stages of this proceeding.

From time to time, we are involved in various legal actions incidental to our business, including actions relating to employee claims, medical malpractice claims, ~~various~~ tax issues, grievance hearings before labor regulatory agencies, and miscellaneous third party tort actions. The outcome of these proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of our presently pending proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on our financial position, results of operations or cash flows.

Operating Leases – We lease certain aircraft, facilities, and equipment used in our operations. The related lease agreements, which include bothnon-cancelable andmonth-to-month terms, generally provide for fixed monthly rentals, and certain real estate leases also include renewal options. We generally pay all insurance, taxes, and maintenance expenses associated with these leases. All aircraft leases contain purchase options exercisable by us at certain dates in the lease agreements.

At ~~March 31,~~September 30, 2017, we had approximately ~~$219.6~~$194.9 million in aggregate commitments under operating leases of which approximately ~~$34.7~~$10.7 million is payable through ~~December 31,~~the fourth quarter of 2017. The total lease commitments include ~~$205.0~~$182.0 million for aircraft and ~~$14.6~~$12.9 million for facility lease commitments.

10. SEGMENT INFORMATION

PHI is primarily a provider of helicopter transport services, including helicopter maintenance and repair services. We report our financial results through the three reportable segments further described below.

A segment’s operating profit or loss is its operating revenues less its direct expenses and selling, general and administrative expenses. ~~Each segment has a~~A portion of our total selling, general and administrative expenses ~~that~~ is charged directly to ~~the~~each segment, and a small portion ~~that~~ is allocated to that segment. Direct charges represent the vast majority of segment selling, general and administrative expenses. Allocated selling, general and administrative expenses are based primarily on total segment costs as a percentage of total operating costs.

Oil and Gas ~~Segment.~~Segment - 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 or equipment to offshore platforms in the Gulf of Mexico. Our customers include Shell Oil Company, BP America Production Company, ExxonMobil Production Company, and ConocoPhillips Company, with whom we have worked for 30 or more years, and ENI Petroleum, with whom we have worked for more than 15 years. At ~~March 31,~~September 30, 2017, we had available for use ~~131~~126 aircraft in this segment.

Operating revenue from our Oil and Gas segment is derived mainly from contracts that include a fixed monthly rate for a particular model of aircraft, plus a variable payments based on the amount of flight time. A small portion of our Oil and Gas segment revenue is derived from providing services on an "ad-hoc" basis. Operating costs for the Oil and Gas segment are primarily aircraft operation costs, including costs for pilots and maintenance personnel. Total fuel cost is included in direct expense and any reimbursement

of a portion of these costs above a contracted amount is included in revenue. We typically operate under fixed-term contracts with our customers, a substantial portion of which are competitively bid.

Our fixed-term contracts have terms of one to seven years (subject to provisions permitting early termination by the customers), with payment in U.S. dollars. For the quarters ~~ended March 31,~~September 30, 2017 and 2016, respectively, approximately ~~53%~~50% and ~~54%~~49% of our total operating revenues were generated by our Oil and Gas segment, with approximately 89% and 92% of these revenues from fixed-term customer contracts. For the nine months ended September 30, 2017 and 2016, respectively, approximately 51% of our total operating revenues were generated by our Oil and Gas segment, with approximately 90% and ~~93%~~92% of these revenues from fixed-term customer contracts. The remaining 10% and 7%8% of these revenues were attributable to work in the spot market and ad hoc flights for contracted customers.

Air Medical ~~Segment.~~Segment -The operations of our Air Medical segment are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and administrative staff dedicated to this segment.

We provide Air Medical transportation services for hospitals and emergency service agencies throughout the U.S. As of ~~March 31,~~September 30, 2017, weour Air Medical segment operated approximately ~~104~~105 aircraft in 18 states at 72 separate locations.

Our Air Medical segment operates primarily under the independent provider model and, to a lesser extent, under the traditional provider model. Under the independent provider model, we have no fixed revenue stream and compete for transport referrals on a daily basis with other independent operators in the area. Under the traditional provider model, we contract directly with the customer to provide their transportation services, with the contracts typically awarded or renewed through competitive bidding. For the ~~quarters~~quarter ended ~~March 31,~~September 30, 2017 and 2016, approximately ~~41%~~47% and ~~43%~~47% of our total operating revenues were generated by our Air Medical segment, respectively.

For the nine months ended September 30, 2017 and 2016, approximately 45% of our total operating revenues were generated by our Air Medical segment.

As an independent provider, we bill for our services on the basis of a flat rate plus a variable charge per patient-loaded mile, regardless of aircraft model, and are typically compensated by private insurance, Medicaid or Medicare, or directly by transported patients whoself-pay. As further described in Note 3, revenues are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care at the time the services are provided. Contractual allowances and uncompensated care are estimated based on historical collection experience by payor category (consisting mainly of insurance, Medicaid, Medicare, andself-pay). Estimates regarding the 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 fully closed, by category.

Provisions for contractual discounts and estimated uncompensated care for our Air Medical segment (expressed as a percentage of gross segment billings) were as follows:

   Revenue
   Quarter Ended
   March 31,
   2017 2016
Gross Air Medical segment billings
   100 % 100 %
Provision for contractual discounts
   70 % 71 %
Provision for uncompensated care
   4 % 3 %



	Quarter Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Provision for contractual discounts	65	%	65	%	66	%	67	%
Provision for uncompensated care	6	%	9	%	7	%	6	%

These percentages are affected by various factors, including rate increases and changes in the number of transports by payor mix.

Net reimbursement per transport from commercial payors generally increases when a rate increase is implemented. Net reimbursement from certain commercial payors, as well as Medicare and Medicaid, generally does not increase proportionately with rate increases.

Net revenue attributable to Insurance, Medicare, Medicaid, andSelf-Pay (expressed as a percentage of net Air Medical revenues) were as follows:

   Quarter Ended
   March 31,
   2017 2016
Insurance
   70 % 66 %
Medicare
   20 % 19 %
Medicaid
   10 % 15 %
Self-Pay
   0 % 0 %



	Quarter Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Insurance	73	%	75	%	72	%	72	%
Medicare	17	%	17	%	18	%	18	%
Medicaid	9	%	8	%	9	%	9	%
Self-Pay	1	%	—	%	1	%	1	%

We also have a limited number of contracts with hospitals under which we receive a fixed fee component for aircraft availability and a variable fee component for flight time. Most of our contracts with hospitals contain provisions permitting early termination by the hospital, typically with 180 days’ notice for any reason and generally with penalty. ~~Several of these contracts are issued or renewed based on competitive bidding. These~~Those contracts generated approximately ~~19%~~15% and ~~31%~~27% of the segment’s revenues for the quarters ended ~~March 31,~~September 30, 2017 and 2016, respectively.

For the nine months ended September 30, 2017 and 2016, these contracts generated approximately 17% and 29% of the segment's revenues, respectively.

Technical Services ~~Segment.~~Segment -Our 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 our service costs. We also periodically provide flight services to governmental customers under this segment, including our agreement to operate six aircraft for the National Science Foundation in Antarctica, typically in the first and fourth quarters each year. Also included in this segment isare our proprietary Helipass operations, which ~~provides~~provide software as a service to certain of our Oil and Gas customers for the purpose of passengercheck-in and compliance verification.

For the ~~three month periods~~quarter ended ~~March 31,~~September 30, 2017 and 2016, approximately 6%3% and 3%4%, respectively, of our total operating revenues were generated by our Technical Services segment.

For the nine months ended September 30, 2017 and 2016, approximately 4%, respectively, of our total operating revenues were generated by our Technical Services segment.

Summarized financial information concerning our reportable operating segments for the ~~quarters~~three and nine months ended ~~March 31,~~September 30, 2017 and 2016 is as follows:

   Quarter Ended
   March 31,
   2017    2016
   (Thousands of dollars)
Segment operating revenues

Oil and Gas
   $ 71,731    $ 88,437
Air Medical
   55,338    70,060
Technical Services
   7,549    5,519




Total operating revenues
   134,618    164,016




Segment direct expenses⁽¹⁾

Oil and Gas⁽²⁾
   81,728    91,916
Air Medical
   50,842    57,044
Technical Services
   4,946    3,594




Total segment direct expenses
   137,516    152,554
Segment selling, general and administrative expenses

Oil and Gas
   1,720    1,528
Air Medical
   2,881    2,595
Technical Services
   338    224




Total selling, general and administrative expenses
   4,939    4,347




Total direct and selling, general and administrative expenses
   142,455    156,901




Net segment (loss) profit

Oil and Gas
   (11,717 )    (5,007 )
Air Medical
   1,615    10,421
Technical Services
   2,265    1,701




Total net segment (loss) profit
   (7,837 )    7,115
Other, net⁽³⁾
   1,064    256
Unallocated selling, general and administrative costs⁽¹⁾
   (8,105 )    (7,326 )
Interest expense
   (8,195 )    (7,533 )




Loss before income taxes
   $ (23,073 )    $ (7,488 )



	Quarter Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
	(Thousands of dollars)
Segment operating revenues, net
Oil and Gas	$	75,700		$	77,551		$	222,098		$	249,173
Air Medical	70,280			74,482			192,840			220,089
Technical Services	4,187			6,060			16,271			19,983
Total operating revenues, net	150,167			158,093			431,209			489,245
Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾	81,467			82,832			236,878			262,148
Air Medical	51,120			56,562			152,363			172,603
Technical Services	3,761			5,742			12,565			15,432
Total segment direct expenses	136,348			145,136			401,806			450,183
Segment selling, general and administrative expenses
Oil and Gas	1,148			1,705			4,501			4,838
Air Medical	3,136			3,056			9,280			8,293
Technical Services	338			266			1,032			763
Total segment selling, general and administrative expenses	4,622			5,027			14,813			13,894
Total segment expenses	140,970			150,163			416,619			464,077
Net segment (loss) profit
Oil and Gas	(6,915		)	(6,986		)	(19,281		)	(17,813		)
Air Medical	16,024			14,864			31,197			39,193
Technical Services	88			52			2,674			3,788
Total net segment profit	9,197			7,930			14,590			25,168

Other, net ⁽³⁾	710			377			2,471			5,425
Unallocated selling, general and administrative costs ⁽¹⁾	(6,779		)	(8,354		)	(23,878		)	(22,938		)
Interest expense	(8,027		)	(7,719		)	(24,305		)	(22,792		)
(Loss) earnings before income taxes	$	(4,899	)	$	(7,766	)	$	(31,122	)	$	(15,137	)


(1)	Included in ~~segment~~ direct expenses and unallocated selling, general, and administrative costs are the depreciation and amortization expense amounts below:

   Depreciation and
Amortization Expense
   Quarter Ended
   March 31,
   2017    2016
   (Thousands of dollars)
Segment Direct Expense:

Oil and Gas
   $ 9,862    $ 9,918
Air Medical
   5,477    4,256
Technical Services
   146    128




Total
   $ 15,485    $ 14,302




Unallocated SG&A
   $ 1,360    $ 2,671



	Depreciation and Amortization Expense
	Quarter Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	9,615	$	10,616	$	29,301	$	30,558
Air Medical	4,885		5,267		15,581		14,654
Technical Services	146		141		440		426
Total	$	14,646	$	16,024	$	45,322	$	45,638
Unallocated SG&A	$	1,936	$	2,269	$	5,271	$	7,416


(2)	Includes Equity in ~~loss~~(earnings) of unconsolidated ~~affiliate.~~affiliates, net.


(3)	Consists of ~~gains~~(gains) losses on disposition of property and equipment and other ~~income – net.~~income.

11. INVESTMENT IN VARIABLE INTEREST ENTITY

AND OTHER INVESTMENTS AND AFFILIATES

We account for our investment in ~~our West African~~certain international operations as a variable interest ~~entity,~~entities, which is defined as an entity that either (a) has insufficient equity to permit the entity to finance its operations without additional subordinated financial support or (b) has equity investors who lack the characteristics of a controlling financial interest.

PHI Century Limited - As of ~~March 31,~~September 30, 2017, we had a 49% investment in the common stock of PHI Century Limited (“PHIC”), a Ghanaian entity. We acquired our 49% interest on May 26, 2011, PHIC’s date of incorporation. The purpose of PHIC is to provide oil and gas flight services in Ghana and the West African region. For the quarter ended ~~March 31,~~September 30, 2017, we recorded income in equity of this unconsolidated affiliate of $0.1 million compared to a loss of $0.2 million for the quarter ended September 30, 2016 relative to our 49% equity ownership. For the nine months ended September 30, 2017 and 2016, we recorded a loss in equity of this unconsolidated affiliate of $1.0 million and $0.3 million relative to our 49% equity ~~ownership.~~ownership, respectively. We had ~~$3.3~~$3.6 million and $2.0 million of trade receivables as of ~~March~~September 30, 2017 and December 31, ~~2017~~2016, respectively, from PHIC. Our investment in the common stock of PHIC is included in Other ~~assets~~Assets on our Condensed Consolidated Balance Sheets and was ~~$0.3~~$0.4 million and $0.2 million at ~~March 31,~~September 30, 2017 and December 31, 2016, respectively.

PHI-HNZ Australia Ltd -In the fourth quarter of 2016, the Company and HNZ Group, Inc. ("HNZ") jointly formed PHI-HNZ Australia Pty Ltd. ("PHI-HNZ"), a legal entity held 50% by PHI, Inc. and 50% by HNZ, to provide helicopter transportation services in support of a gas development project offshore of western Australia. PHI-HNZ began operations in April, 2017. For the quarter ended September 30, 2017, we recorded $0.5 million of income in equity of this unconsolidated affiliate. For the nine months ended September 30, 2017, we recorded a loss in equity of unconsolidated affiliate of $0.5 million, primarily related to startup costs associated with the contract. We had $5.9 million of trade receivables as of September 30, 2017 from PHI-HNZ. Our investment in common stock of PHI-HNZ is included in other long-term liabilities on our Consolidated Balance Sheets and was $(0.5) million at September 30, 2017.

12. OTHER COMPREHENSIVE INCOME

Amounts reclassified from Accumulated other comprehensive income are not material and, therefore, not presented separately in the Condensed Consolidated Statements of Comprehensive Income.

13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed further in Note 5, on March 17, 2014, PHI, Inc. issued $500.0 million aggregate principal amount of 5.25% Senior Notes due 2019 that are fully and unconditionally guaranteed on a joint and several, senior basis by all of ~~our~~PHI, Inc.’s domestic subsidiaries. PHI, Inc. directly or indirectly owns 100% of all of its domestic subsidiaries.

The supplemental condensed financial information on the following pages sets forth, on a consolidated basis, the balance sheet, statement of operations, statement of comprehensive income, and statement of cash flows information for PHI, Inc. (“Parent Company”) ~~and~~ the guarantor subsidiaries and the non-guarantor subsidiaries, each under separate ~~headings.~~headings (except for periods ending on or before December 31, 2016, in which case such information for the guarantor and non-guarantor subsidiaries is presented together). 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~~Parent Company within the financial information presented below.

The transactions reflected in “Due to/from affiliates, net” in the following condensed consolidated statements of cash flows primarily consist of centralized cash management activities between PHI, Inc. and its subsidiaries, pursuant to which cash earned by the guarantor subsidiaries is regularly transferred to PHI, Inc. to be centrally managed. Because these balances are treated as short-term borrowings of the Parent Company, serve as a financing and cash management tool to meet our short-term operating needs, turn over quickly and are payable to the guarantor subsidiaries on demand, we present borrowings and repayments with our affiliates on a net basis within the condensed consolidating statement of cash flows. Net receivables from our affiliates are considered advances and net payables to our affiliates are considered borrowings, and both changes are presented as financing activities in the following condensed consolidating statements of cash flows.

Due to the growth of our international affiliates in Trinidad and Australia which no longer qualify as minor subsidiaries under regulation S-X 210.3-10(h)6, we began reporting all of our non-guarantors subs in a separate column beginning with the quarter ended June 30, 2017.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)

   March 31, 2017
   Parent
Company
Only (issuer) Guarantor
Subsidiaries⁽¹⁾ Eliminations Consolidated
ASSETS
Current Assets:

Cash
   $ 51 $ 3,629 $ —   $ 3,680
Short-term investments
   276,818 —   —   276,818
Accounts receivable – net
   65,044 61,226 —   126,270
Intercompany receivable
   —   69,862 (69,862 ) —
Inventories of spare parts – net
   64,698 8,335 —   73,033
Prepaid expenses
   8,144 2,186 —   10,330
Deferred income taxes
   10,798 —   —   10,798
Income taxes receivable
   341 (18 ) —   323


Total current assets
   425,894 145,220 (69,862 ) 501,252
Investment in subsidiaries
   361,420 —   (361,420 ) —
Property and equipment – net
   581,990 314,575 —   896,565
Restricted cash and investments
   13,023 15 —   13,038
Other assets
   7,819 1,054 —   8,873


Total assets
   $ 1,390,146 $ 460,864 $ (431,282 ) $ 1,419,728


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:

Accounts payable
   $ 18,007 $ 4,047 $ —   $ 22,054
Accrued and other current liabilities
   18,034 9,466 —   27,500
Intercompany payable
   69,862 —   (69,862 ) —


Total current liabilities
   105,903 13,513 (69,862 ) 49,554
Long-term debt
   633,059 —   —   633,059
Deferred income taxes and other long-term liabilities
   65,070 85,931 —   151,001
Shareholders’ Equity:

Common stock andpaid-in capital
   306,268 79,326 (79,326 ) 306,268
Accumulated other comprehensive loss
   (375 ) —   —   (375 )
Retained earnings
   280,221 282,094 (282,094 ) 280,221


Total shareholders’ equity
   586,114 361,420 (361,062 ) 586,114


Total liabilities and shareholders’ equity
   $ 1,390,146 $ 460,864 $ (431,282 ) $ 1,419,728



	September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	50		$	1,071	$	1,870		$	—		$	2,991
Short-term investments	204,036			—		—			—			204,036
Accounts receivable – net	77,061			71,727		14,721			(10,772		)	152,737
Intercompany receivable	—			120,376		—			(120,376		)	—
Inventories of spare parts – net	70,617			8,628		—			—			79,245
Prepaid expenses	9,916			1,948		142			—			12,006
Deferred income taxes	10,798			—		—			—			10,798
Income taxes receivable	500			9		—			—			509
Total current assets	372,978			203,759		16,733			(131,148		)	462,322

Investment in subsidiaries	390,840			—		—			(390,840		)	—
Property and equipment – net	621,885			287,841		601			—			910,327
Restricted cash and investments	12,381			—		15			—			12,396
Other assets	8,076			956		—			—			9,032
Total assets	$	1,406,160		$	492,556	$	17,349		$	(521,988	)	$	1,394,077

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	26,587		$	3,557	$	11,235		$	(10,772	)	$	30,607
Accrued and other current liabilities	22,198			9,961		1,544			—			33,703
Intercompany payable	112,015			—		8,361			(120,376		)	—
Total current liabilities	160,800			13,518		21,140			(131,148		)	64,310

Long-term debt	598,182			—		—			—			598,182
Deferred income taxes and other long-term liabilities	65,117			83,891		516			—			149,524
Shareholders’ Equity:
Common stock and paid-in capital	308,634			77,951		1,375			(79,326		)	308,634
Accumulated other comprehensive loss	(244		)	—		—			—			(244		)
Retained earnings	273,671			317,196		(5,682		)	(311,514		)	273,671
Total shareholders’ equity	582,061			395,147		(4,307		)	(390,840		)	582,061
Total liabilities and shareholders’ equity	$	1,406,160		$	492,556	$	17,349		$	(521,988	)	$	1,394,077

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)



	December 31, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	36		$	2,560		$	—		$	2,596
Short-term investments	289,806			—			—			289,806
Accounts receivable – net	71,458			66,807			—			138,265
Intercompany receivable	—			57,904			(57,904		)	—
Inventories of spare parts – net	61,834			8,568			—			70,402
Prepaid expenses	6,990			2,269			—			9,259
Deferred income taxes	10,798			—			—			10,798
Income taxes receivable	558			(18		)	—			540
Total current assets	441,480			138,090			(57,904		)	521,666

Investment in subsidiaries and others	353,160			—			(353,160		)	—
Property and equipment – net	589,104			314,873			—			903,977
Restricted investments	13,023			15			—			13,038
Other assets	8,660			1,099			—			9,759
Total assets	$	1,405,427		$	454,077		$	(411,064	)	$	1,448,440

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	22,744		$	5,960		$	—		$	28,704
Accrued and other current liabilities	18,725			9,621			—			28,346
Intercompany payable	57,904			—			(57,904		)	—
Total current liabilities	99,373			15,581			(57,904		)	57,050

Long-term debt	631,247			—			—			631,247
Deferred income taxes and other long-term liabilities	75,029			85,336			—			160,365
Shareholders’ Equity:
Common stock and paid-in capital	305,815			79,191			(79,191		)	305,815
Accumulated other comprehensive loss	(478		)	—			—			(478		)
Retained earnings	294,441			273,969			(273,969		)	294,441
Total shareholders’ equity	599,778			353,160			(353,160		)	599,778
Total liabilities and shareholders’ equity	$	1,405,427		$	454,077		$	(411,064	)	$	1,448,440


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the ~~guarantor subsidiaries’~~guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING ~~BALANCE SHEETS~~

STATEMENTS OF OPERATIONS

(Thousands of dollars)

   December 31, 2016
   Parent
Company
Only (issuer) Guarantor
Subsidiaries⁽¹⁾ Eliminations Consolidated
ASSETS
Current Assets:

Cash
   $ 36 $ 2,560 $ —   $ 2,596
Short-term investments
   289,806 —   —   289,806
Accounts receivable – net
   71,458 66,807 —   138,265
Intercompany receivable
   —   57,904 (57,904 ) —
Inventories of spare parts – net
   61,834 8,568 —   70,402
Prepaid expenses
   6,990 2,269 —   9,259
Deferred income taxes
   10,798 —   —   10,798
Income taxes receivable
   558 (18 ) —   540


Total current assets
   441,480 138,090 (57,904 ) 521,666
Investment in subsidiaries and others
   353,160 —   (353,160 ) —
Property and equipment – net
   589,104 314,873 —   903,977
Restricted investments
   13,023 15 —   13,038
Other assets
   8,660 1,099 —   9,759


Total assets
   $ 1,405,427 $ 454,077 $ (411,064 ) $ 1,448,440


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:

Accounts payable
   $ 22,744 $ 5,960 $ —   $ 28,704
Accrued and other current liabilities
   18,725 9,621 —   28,346
Intercompany payable
   57,904 —   (57,904 ) —


Total current liabilities
   99,373 15,581 (57,904 ) 57,050
Long-term debt
   631,247 —   —   631,247
Deferred income taxes and other long-term liabilities
   75,029 85,336 —   160,365
Shareholders’ Equity:

Common stock andpaid-in capital
   305,815 79,191 (79,191 ) 305,815
Accumulated other comprehensive loss
   (478 ) —   —   (478 )
Retained earnings
   294,441 273,969 (273,969 ) 294,441


Total shareholders’ equity
   599,778 353,160 (353,160 ) 599,778


Total liabilities and shareholders’ equity
   $ 1,405,427 $ 454,077 $ (411,064 ) $ 1,448,440

(Unaudited)



	For the Quarter Ended September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	79,644		$	70,692		$	7,784		$	(7,953	)	$	150,167
Expenses:
Direct expenses	83,727			51,247			9,765			(7,953		)	136,786
Selling, general and administrative expenses	8,240			3,141			24			(4		)	11,401
Total operating expenses	91,967			54,388			9,789			(7,957		)	148,187
(Gain) Loss on disposal of assets, net	(4		)	—			—			—			(4		)
Equity in (income) loss of unconsolidated affiliates, net	112			—			(550		)	—			(438		)
Operating (loss) income	(12,431		)	16,304			(1,455		)	4			2,422
Equity in net income of consolidated subsidiaries	(14,850		)	—			—			14,850			—
Interest expense	8,027			—			—			—			8,027
Other income, net	(709		)	(1		)	—			4			(706		)
	(7,532		)	(1		)	—			14,854			7,321
(Loss) earnings before income taxes	(4,899		)	16,305			(1,455		)	(14,850		)	(4,899		)
Income tax (benefit) expense	(1,622		)	—			—			—			(1,622		)
Net (loss) earnings	$	(3,277	)	$	16,305		$	(1,455	)	$	(14,850	)	$	(3,277	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)



	For the Quarter Ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Operating revenues, net	$	79,532		$	78,561	$	—		$	158,093
Expenses:
Direct expenses	83,188			61,750		—			144,938
Selling, general and administrative expenses	10,639			3,092		(350		)	13,381
Total operating expenses	93,827			64,842		(350		)	158,319
Loss on disposal of assets, net	85			—		—			85
Equity in loss of consolidated affiliate	198			—		—			198
Operating (loss) income	(14,578		)	13,719		350			(509		)
Equity in net income of consolidated subsidiaries	(8,372		)	—		8,372			—
Interest expense	7,716			3		—			7,719
Other income, net	(812		)	—		350			(462		)
	(1,468		)	3		8,722			7,257
(Loss) earnings before income taxes	(13,110		)	13,716		(8,372		)	(7,766		)
Income tax (benefit) expense	(8,143		)	5,344		—			(2,799		)
Net (loss) earnings	$	(4,967	)	$	8,372	$	(8,372	)	$	(4,967	)


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the ~~guarantor subsidiaries’~~guarantors’ subsidiaries amounts.

~~PHI, INC. AND SUBSIDIARIES~~

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)

   For the quarter ended March 31, 2017
   Parent
Company
Only (issuer) Guarantor
Subsidiaries⁽¹⁾ Eliminations Consolidated
Operating revenues, net
   $ 74,284 $ 60,334 $ —   $ 134,618
Expenses:

Direct expenses
   82,344 54,169 —   136,513
Selling, general and administrative expenses
   10,108 2,940 (4 ) 13,044


Total operating expenses
   92,452 57,109 (4 ) 149,557
Equity in loss of unconsolidated affiliate
   1,003 —   —   1,003


Operating (loss) income
   (19,171 ) 3,225 4 (15,942 )
Equity in net income of consolidated subsidiaries
   (2,631 ) —   2,631 —
Interest expense
   8,174 21 —   8,195
Other income, net
   (1,067 ) (1 ) 4 (1,064 )


   4,476 20 2,635 7,131


(Loss) earnings before income taxes
   (23,647 ) 3,205 (2,631 ) (23,073 )
Income tax (benefit) expense
   (8,399 ) 574 —   (7,825 )


Net (loss) earnings
   $ (15,248 ) $ 2,631 $ (2,631 ) $ (15,248 )


   For the quarter ended March 31, 2016
   Parent
Company
Only (issuer) Guarantor
Subsidiaries ⁽¹⁾ Eliminations Consolidated
Operating revenues, net
   $ 91,869 $ 72,147 $ —   $ 164,016
Expenses:

Direct expenses
   92,037 60,517 —   152,554
Selling, general and administrative expenses
   9,044 2,802 (173 ) 11,673


Total operating expenses
   101,081 63,319 (173 ) 164,227
Loss on disposal of assets, net
   359 —   —   359


Operating (loss) income
   (9,571 ) 8,828 173 (570 )
Equity in net income of consolidated subsidiaries
   (5,054 ) —   5,054 —
Interest expense
   7,513 20 —   7,533
Other income, net
   (786 ) (2 ) 173 (615 )


   1,673 18 5,227 6,918


(Loss) earnings before income taxes
   (11,244 ) 8,810 (5,054 ) (7,488 )
Income tax (benefit) expense
   (2,312 ) 3,756 —   1,444


Net (loss) earnings
   $ (8,932 ) $ 5,054 $ (5,054 ) $ (8,932 )



	For the Nine Months Ended September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	228,973		$	197,022		$	15,987		$	(10,773	)	$	431,209
Expenses:
Direct expenses	238,669			155,434			16,920			(10,773		)	400,250
Selling, general and administrative expenses	29,265			9,296			144			(14		)	38,691
Total operating expenses	267,934			164,730			17,064			(10,787		)	438,941
Loss (gain) on disposal of assets, net	4			(1		)	—			—			3
Equity in loss (income) of unconsolidated affiliates, net	1,040			—			516			—			1,556
Operating (loss) income	(40,005		)	32,293			(1,593		)	14			(9,291		)
Equity in net income of consolidated subsidiaries	(32,093		)	—			—			32,093			—
Interest expense	24,283			22			—			—			24,305
Other income, net	(2,486		)	(2		)	—			14			(2,474		)
	(10,296		)	20			—			32,107			21,831
(Loss) earnings before income taxes	(29,709		)	32,273			(1,593		)	(32,093		)	(31,122		)
Income tax (benefit) expense	(7,911		)	(1,413		)	—			—			(9,324		)
Net (loss) earnings	$	(21,798	)	$	33,686		$	(1,593	)	$	(32,093	)	$	(21,798	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)



	For the Nine Months Ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	260,766		$	228,479		$	—		$	489,245
Expenses:
Direct expenses	264,761			185,148			—			449,909
Selling, general and administrative expenses	28,914			8,766			(848		)	36,832
Total operating expenses	293,675			193,914			(848		)	486,741
Gain on disposal of assets, net	(3,854		)	—			—			(3,854		)
Equity in loss of unconsolidated affiliate	274			—			—			274
Operating (loss) income	(29,329		)	34,565			848			6,084
Equity in net income of consolidated subsidiaries	(20,462		)	—			20,462			—
Interest expense	22,762			30			—			22,792
Other income, net	(2,415		)	(4		)	848			(1,571		)
	(115		)	26			21,310			21,221
(Loss) earnings before income taxes	(29,214		)	34,539			(20,462		)	(15,137		)
Income tax (benefit) expense	(19,592		)	14,077			—			(5,515		)
Net (loss) earnings	$	(9,622	)	$	20,462		$	(20,462	)	$	(9,622	)


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the ~~guarantors subsidiaries’~~guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

   For the quarter ended March 31, 2017
   Parent
Company
Only (issuer) Guarantor
Subsidiaries⁽¹⁾    Eliminations Consolidated
Net (loss) earnings
   $ (15,248 ) $ 2,631    $ (2,631 ) $ (15,248 )
Unrealized gain on short-term investments
   162 —      —   162
Changes in pension plan asset and benefit obligation
   (1 ) —      —   (1 )
Tax effect of preceding gains, losses or changes
   (58 ) —      —   (58 )




Total Comprehensive (loss) income
   $ (15,145 ) $ 2,631    $ (2,631 ) $ (15,145 )




   For the quarter ended March 31, 2016
   Parent
Company
Only (issuer) Guarantor
Subsidiaries ⁽¹⁾    Eliminations Consolidated
Net (loss) earnings
   $ (8,932 ) $ 5,054    $ (5,054 ) $ (8,932 )
Unrealized gain on short-term investments
   807 —      —   807
Changes in pension plan asset and benefit obligations
   1 —      —   1
Tax effect of preceding gains, losses or changes
   (332 ) —      —   (332 )




Total Comprehensive (loss) income
   $ (8,456 ) $ 5,054    $ (5,054 ) $ (8,456 )



	For the Quarter Ended September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(3,277	)	$	16,305	$	(1,455	)	$	(14,850	)	$	(3,277	)
Unrealized gain on short-term investments	41			—		—			—			41
Changes in pension plan asset and benefit obligation	(24		)	—		—			—			(24		)
Tax effect of the above-listed adjustments	(8		)	—		—			—			(8		)
Total comprehensive (loss) income	$	(3,268	)	$	16,305	$	(1,455	)	$	(14,850	)	$	(3,268	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF ~~CASH FLOWS~~

COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

~~(Unaudited)~~

   For the three months ended March 31, 2017
   Parent
Company
Only (issuer) Guarantor
Subsidiaries⁽¹⁾ Eliminations    Consolidated
Net cash (used in) provided by operating activities
   $ (19,332 ) $ 11,079 $ —      $ (8,253 )
Investing activities:

Purchase of property and equipment
   (4,738 ) (51 ) —      (4,789 )
Purchase of short-term investments
   (54,867 ) —   —      (54,867 )
Proceeds from sale of short-term investments
   67,659 —   —      67,659
Payments of deposits on aircraft
   (66 ) —   —      (66 )




Net cash provided by (used in) investing activities
   7,988 (51 ) —      7,937




Financing activities:

Proceeds from line of credit
   37,300 —   —      37,300
Payments on line of credit
   (35,800 ) —   —      (35,800 )
Repurchase of common stock
   (100 )    (100 )
Due to/from affiliate, net
   9,959 (9,959 ) —      —




Net cash provided by (used in) financing activities
   11,359 (9,959 ) —      1,400




Increase in cash
   15 1,069 —      1,084
Cash, beginning of period
   36 2,560 —      2,596




Cash, end of period
   $ 51 $ 3,629 $ —      $ 3,680




   For the three months ended March 31, 2016
   Parent
Company
Only (issuer) Guarantor
Subsidiaries ⁽¹⁾ Eliminations    Consolidated
Net cash used in operating activities
   $ (13,795 ) $ (2,548 ) $ —      $ (16,343 )
Investing activities:

Purchase of property and equipment
   (8,519 ) —   —      (8,519 )
Proceeds from asset dispositions
   850 —   —      850
Purchase of short-term investments
   (77,677 ) —   —      (77,677 )
Proceeds from sale of short-term investments
   76,184 —   —      76,184
Payments of deposits on aircraft
   (66 ) —   —      (66 )




Net cash used in investing activities
   (9,228 ) —   —      (9,228 )




Financing activities:

Proceeds from line of credit
   83,500 —   —      83,500
Payments on line of credit
   (53,300 ) —   —      (53,300 )
Repurchase of common stock
   (500 ) —   —      (500 )
Due to/from affiliate, net
   (6,600 ) 6,600 —      —




Net cash provided by financing activities
   23,100 6,600 —      29,700




Increase in cash
   77 4,052 —      4,129
Cash, beginning of period
   46 2,361 —      2,407




Cash, end of period
   $ 123 $ 6,413 $ —      $ 6,536



	For the Quarter Ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(4,967	)	$	8,372	$	(8,372	)	$	(4,967	)
Unrealized gain on short-term investments	(494		)	—		—			(494		)
Changes in pension plan asset and benefit obligations	1			—		—			1
Tax effect of the above-listed adjustments	178			—		—			178
Total comprehensive (loss) income	$	(5,282	)	$	8,372	$	(8,372	)	$	(5,282	)


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the ~~guarantors subsidiaries’~~guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)



	For the Nine Months Ended September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(21,798	)	$	33,686	$	(1,593	)	$	(32,093	)	$	(21,798	)
Unrealized gain on short-term investments	370			—		—			—			370
Changes in pension plan asset and benefit obligation	(2		)	—		—			—			(2		)
Tax effect of the above-listed adjustments	(134		)	—		—			—			(134		)
Total comprehensive (loss) income	$	(21,564	)	$	33,686	$	(1,593	)	$	(32,093	)	$	(21,564	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)



	For the Quarter Ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(9,622	)	$	20,462	$	(20,462	)	$	(9,622	)
Unrealized gain on short-term investments	523			—		—			523
Changes in pension plan asset and benefit obligations	3			—		—			3
Tax effect of the above-listed adjustments	(229		)	—		—			(229		)
Total comprehensive (loss) income	$	(9,325	)	$	20,462	$	(20,462	)	$	(9,325	)


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)



	For the Nine Months Ended September 30, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(43,328	)	$	33,670		$	7,790		$	—	$	(1,868	)
Investing activities:
Purchase of property and equipment	(49,227		)	—			—			—		(49,227		)
Proceeds from asset dispositions	21			—			—			—		21
Purchase of short-term investments	(268,525		)	—			—			—		(268,525		)
Proceeds from sale of short-term investments	354,250			—			—			—		354,250
Net cash provided by (used in) investing activities	36,519			—			—			—		36,519
Financing activities:
Proceeds from line of credit	99,150			—			—			—		99,150
Payments on line of credit	(133,150		)	—			—			—		(133,150		)
Repurchase of common stock	(256		)	—			—			—		(256		)
Due to/from affiliate, net	41,079			(34,699		)	(6,380		)	—		—
Net cash provided by (used in) financing activities	6,823			(34,699		)	(6,380		)	—		(34,256		)
Increase (decrease) in cash	14			(1,029		)	1,410			—		395
Cash, beginning of period	36			2,100			460			—		2,596
Cash, end of period	$	50		$	1,071		$	1,870		$	—	$	2,991

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)



	For the Nine Months Ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(32,467	)	$	25,319		$	—	$	(7,148	)
Investing activities:
Purchase of property and equipment	(74,647		)	(303		)	—		(74,950		)
Proceeds from asset dispositions	13,233			—			—		13,233
Purchase of short-term investments	(263,204		)	—			—		(263,204		)
Proceeds from sale of short-term investments	259,322			—			—		259,322
Payments of deposits on aircraft	(197		)	—			—		(197		)
Loan to unconsolidated affiliate	(1,200		)	—			—		(1,200		)
Net cash used in investing activities	(66,693		)	(303		)	—		(66,996		)
Financing activities:
Proceeds from line of credit	213,900			—			—		213,900
Payments on line of credit	(139,000		)	—			—		(139,000		)
Repurchase of common stock	(524		)	—			—		(524		)
Due to/from affiliate, net	24,774			(24,774		)	—		—
Net cash provided by (used in) financing activities	99,150			(24,774		)	—		74,376
(Decrease) increase in cash	(10		)	242			—		232
Cash, beginning of period	46			2,361			—		2,407
Cash, end of period	$	36		$	2,603		$	—	$	2,639


(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

14.SUBSEQUENT EVENT

On October 30, 2017, we entered into an arrangement agreement with HNZ Group Inc. (“HNZ”), 2075568 Alberta ULC (the "Canadian Purchaser”), and Don E. Wall. Under this agreement, the Canadian Purchaser had agreed to (i) acquire 100% of the capital stock of HNZ, with a portion of the purchase price funded with the proceeds of CAN$167.5 million of term loans from us (collectively, the “PHI Loan”), and (ii) sell to us HNZ’s offshore aviation services business in New Zealand, Australia, the Philippines and Papua New Guinea (the “Offshore Business”) as payment of most of the amount owed under the PHI Loan. The balance of the PHI Loan is expected to be repaid on or prior to December 31, 2019 or at such other time as mutually agreed between us and the Canadian Purchaser.

Completion of the transactions contemplated under the arrangement agreement is subject to various closing conditions, including receipt of HNZ shareholder approval and certain court approvals. Subject to these conditions, we currently anticipate acquiring the Offshore Business by the end of January 2018.

If the arrangement agreement is terminated under certain circumstances, HNZ may be obligated to make certain termination payments, including a termination fee of CAN$6.5 million payable to us.

~~Item 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with (i) the accompanying unaudited condensed consolidated financial statements and the notes thereto (the “Notes”) and (ii) our Annual Report on Form10-K for the year ended December 31, 2016, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein.

Special Note Regarding Forward-Looking Statements

All statements other than statements of historical fact contained in this Form10-Q and other periodic reports filed by PHI, Inc. (“PHI” or the “Company” or “we,” “us” or “our”) under the Securities Exchange Act of 1934, and other written or oral statements made by it or on its behalf, are “forward-looking statements,” as defined by (and subject to the “safe harbor” protections under) the federal securities laws. 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 judgments and assumptions about future developments and events, many of which are beyond our control. These forward-looking statements, and the assumptions on which they are based, (i) are not guarantees of future events, (ii) are inherently speculative and (iii) are subject to significant risks, uncertainties, and other factors that may cause our actual results to differ materially from the expectations, beliefs, and estimates expressed or implied in such forward-looking statements. Factors that could cause our results to differ materially from the expectations expressed or implied in such forward-looking statements include but are not limited to the following: the ability of the parties to timely and successfully receive the approvals of shareholders and governmental entities required to consummate the transactions contemplated by our October 30, 2017 agreement with HNZ discussed elsewhere herein; reduction in demand for our services due to volatility of oil and gas prices and the level of domestic and overseas exploration and production activity, which depends on several factors outside of our control; our dependence on a small number of customers for a significant amount of our revenue and our significant credit exposure within the oil and gas industry; any failure to maintain our strong safety record; our ability to secure favorable customer contracts or otherwise remain able to profitably deploy our existing fleet of aircraft; our ability to receive timely delivery of ordered aircraft and parts from a limited number of suppliers, and the availability of working capital, loans or lease financing to acquire such assets; the availability of adequate insurance; adverse changes in the value of our aircraft or our ability to sell them in the secondary markets; weather conditions and seasonal factors, including tropical storms and hurricanes; the effects of competition and changes in technology; the adverse impact of customers electing to terminate or reduce our services; the risk of work stoppages and other labor problems, the impact of current or future governmental regulations, including but not limited to the impact of new and pending regulation of healthcare, aviation safety and export controls; the special risks of our air medical operations, including collections risks and potential medical malpractice claims; political, economic, payment, regulatory and other risks and uncertainties associated with our international operations; our substantial indebtedness and operating lease commitments; the hazards associated with operating in an inherently risky business, including the possibility that regulators could ground our aircraft for extended periods of time or indefinitely; our ability to develop and implement successful business strategies; changes in fuel prices; ~~the risk of work stoppages and other labor problems;~~changes in currency exchange rates; changes in our future cash requirements; environmental and litigation risks; the effects of more general factors, such as changes in interest rates, operating costs, tax rates, or general economic or geopolitical conditions; and other risks referenced in this and other annual, quarterly or current reports filed by us with the SEC. All of our above-described forward-looking statements are expressly qualified in their entirety by the cautionary statements in this paragraph and the Risk Factors disclosures in our SEC filings. Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned not to unduly rely upon our forward-looking statements. PHI undertakes no obligation to update publicly any forward-looking

statements, whether as a result of new information, future events, or otherwise. Further, we may ~~make changes to~~change our business strategies and plans (including our capital spending plans) at any time and without notice, based on any changes in the above-listed factors, our assumptions or otherwise, any of which could or will affect our results.

Overview

As described further in Note 10, we are primarily a provider of helicopter transport services and derive most of our revenue from providing ~~helicopter transport~~these services to the energy and medical industries. Our consolidated results of operations are principally driven by the following factors:

•

~~The level of offshore oil and gas exploration and production activities in the areas in which we operate, primarily in the Gulf of Mexico.~~ Operating revenues from our Oil and Gas segment relate substantially to operations in the Gulf of Mexico. 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. During periods when the level of offshore activity increases, demand for our offshore flight services typically increases, directly affecting our revenue and profitability. Also, during periods when deepwater offshore activity increases, the demand for our medium and heavy aircraft usually increases, creating a positive impact on revenue and earnings. Conversely, a reduction in offshore oil and gas activities generally, or deepwater offshore activity particularly, typically negatively impacts our aircraft utilization, flight volumes, and overall demand for our aircraft, thereby creating a negative impact on our revenue and earnings.

•

~~Patient transports and flight volume in our Air Medical segment.~~ In the independent provider programs under our Air Medical segment, our revenue is directly dependent upon the number and length of patient transports provided in a given period, which is impacted primarily by the number of bases operated by us, competitive factors and weather. The volume of flight utilization of our aircraft by our customers under our traditional provider Air Medical programs also has a direct impact on the amount of revenue earned in a given period, although to a lesser degree than under our independent provider programs. Independent provider programs generated approximately 79%, 74%, 65% and 61% of our Air Medical segment revenues for the three months ended March 31, 2017, and the years ended December 31, 2016, 2015 and 2014, respectively, with the balance of our Air Medical segment revenue attributable to our traditional provider programs.

•

~~Payor mix and reimbursement rates in our Air Medical segment.~~ Under our independent provider programs, our revenue recognition, net of allowances, during any particular period is dependent upon the rate at which our various types of customers reimburse us for our Air Medical services, which we refer to as our “payor mix.” Reimbursement rates vary among payor types and typically the reimbursement rate of commercial insurers is higher than Medicare, Medicaid, and~~self-pay~~ reimbursement rates. Moreover, Medicare and Medicaid reimbursement rates have decreased in recent years and our receipt of payments from these programs is subject to various regulatory and appropriations risks discussed in this and other of our periodic reports filed with the SEC. Changes during any particular period in our payor mix, reimbursement rates, or uncompensated care rates will have a direct impact on our revenues.

•

~~Direct expenses.~~ Our business is capital-intensive and highly competitive. Salaries and aircraft maintenance comprise a large portion of our operating expenses. Our aircraft must be maintained to a high standard of quality and undergo periodic and routine maintenance procedures. Higher utilization of our aircraft will result in more frequent maintenance, resulting in higher maintenance costs. In periods of low flight activity, we continue to maintain our aircraft, consequently reducing our margins. In addition, we are also dependent upon pilots, mechanics, and medical crew to operate our business. To attract and retain qualified personnel, we must maintain competitive wages, which places downward pressure on our margins.

The level of offshore oil and gas exploration and production activities in the areas in which we operate, primarily in the Gulf of Mexico. Operating revenues from our Oil and Gas segment relate substantially to operations in the Gulf of Mexico. 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. During periods when the level of offshore activity increases, demand for our offshore flight services typically increases, directly affecting our revenue and profitability. Also, during periods when deepwater offshore activity increases, the demand for our medium and heavy aircraft usually increases, creating a positive impact on revenue and earnings. Conversely, a reduction in offshore oil and gas activities generally, or deepwater offshore activity particularly, typically negatively impacts our aircraft utilization, flight volumes, and overall demand for our aircraft, thereby creating a negative impact on our revenue and earnings.

Patient transports and flight volume in our Air Medical segment. In the independent provider programs under our Air Medical segment, our revenue is directly dependent upon the number and length of patient transports provided in a given period, which is impacted primarily by the number of bases operated by us, competitive factors and weather. The volume of flight utilization of our aircraft by our customers under our traditional provider Air Medical programs also has a direct impact on the amount of revenue earned in a given period, although to a lesser degree than under our independent provider programs. Independent provider programs generated approximately 82%, 74%, 65% and 61% of our Air Medical segment revenues for the nine months ended September 30, 2017, and the years ended December 31, 2016, 2015 and 2014, respectively, with the balance of our Air Medical segment revenue attributable to our traditional provider programs.

Payor mix and reimbursement rates in our Air Medical segment. Under our independent provider programs, our revenue recognition, net of allowances, during any particular period is dependent upon the rate at which our various types of customers reimburse us for our Air Medical services, which we refer to as our “payor mix.” Reimbursement rates vary among payor types and typically the reimbursement rate of commercial insurers is higher than Medicare, Medicaid, and self-pay reimbursement rates. Moreover, Medicare and Medicaid reimbursement rates have decreased in recent years and our receipt of payments from these programs is subject to various regulatory and appropriations risks discussed in this and other of our periodic reports filed with the SEC. Changes during any particular period in our payor mix, reimbursement rates, or uncompensated care rates will have a direct impact on our revenues.

Direct expenses. Our business is capital-intensive and highly competitive. Salaries and aircraft maintenance comprise a large portion of our operating expenses. Our aircraft must be maintained to a high standard of quality and undergo periodic and routine maintenance procedures. Higher utilization of our aircraft will result in more frequent maintenance, resulting in higher maintenance costs. In periods of low flight activity, we continue to maintain our aircraft, consequently reducing our margins. In addition, we are also dependent upon pilots, mechanics, and medical crew to operate our business. To attract and retain qualified personnel, we must maintain competitive wages, which places downward pressure on our margins.

As noted above, the performance of our oil and gas operations is largely dependent upon the level of offshore oil and gas activities, which in turn is based largely on volatile commodity prices. See “Risk Factors” in Item 1A of our Annual Report on Form10-K for the year ended December 31, 2016. Sincemid-2014, prevailing oil prices have been substantially lower than prices for several years before then. Consequently, several of our oil and gas customers have curtailed their exploration or production levels, lowered their capital expenditures, reduced their staffs or requested arrangements with vendors designed to reduce their operating costs, including flight sharing arrangements and alternative platform staffing rotations. As explained further below, these changes have negatively impacted our oil and gas operations since the first quarter of 2015. Over the course of the downturn, several of our offshore customers have requested reductions in the volume or pricing of our flight services or havere-bid existing contracts, all of which has further reduced our aircraft utilization rates and intensified pricing pressures. We believe that we may receive additional such requests in the ~~future, notwithstanding a recent stabilization in commodity~~

prices. Although we can neither control nor predict with any reasonable degree of certainty the length or impact of current weak market conditions, we currently expect further reductions in the operating revenues and net profit of our Oil and Gas segment in 2017.future. These reductions could be quite substantial. For information on the impact of the market downturn on our liquidity, see “- Liquidity and Capital Resources –- Cash Flow –- Liquidity” below.

For several years our Air Medical affiliate received substantive benefits under its three-year service contract with a Middle East customer dated September 29, 2012. Pursuant to contact extensions, our Air Medical affiliate continued providing services at reduced levels for another year through September 30, 2016, when the contract expired. Consequently, since September 30, 2016, our overseas air medical revenues and operating costs have declined significantly as compared to prior periods. For additional information, see Note 3.

Results of Operations

The following tables present operating ~~revenue,~~revenues, expenses, and earnings, along with certainnon-financial operational statistics, for the quarter ended ~~March 31,~~September 30, 2017 and 2016.

   Quarter Ended    Favorable
   March 31,    (Unfavorable)
   2017    2016

(Thousands of dollars, except flight hours,
patient transports, and aircraft)

Segment operating revenues

Oil and Gas
   $ 71,731    $ 88,437    $ (16,706 )
Air Medical
   55,338    70,060    (14,722 )
Technical Services
   7,549    5,519    2,030






Total operating revenues
   134,618    164,016    (29,398 )
Segment direct expenses

Oil and Gas⁽¹⁾
   81,728    91,916    10,188
Air Medical
   50,842    57,044    6,202
Technical Services
   4,946    3,594    (1,352 )






Total segment direct expenses
   137,516    152,554    15,038
Segment selling, general and administrative expenses

Oil and Gas
   1,720    1,528    (192 )
Air Medical
   2,881    2,595    (286 )
Technical Services
   338    224    (114 )






Total segment selling, general and administrative expenses
   4,939    4,347    (592 )






Total segment expenses
   142,455    156,901    14,446
Net segment (loss) profit

Oil and Gas
   (11,717 )    (5,007 )    (6,710 )
Air Medical
   1,615    10,421    (8,806 )
Technical Services
   2,265    1,701    564






Total net segment (loss) profit⁽²⁾
   (7,837 )    7,115    (14,952 )
Other, net⁽³⁾
   1,064    256    808
Unallocated selling, general and administrative costs
   (8,105 )    (7,326 )    (779 )
Interest expense
   (8,195 )    (7,533 )    (662 )






Loss before income taxes
   (23,073 )    (7,488 )    (15,585 )
Income tax (benefit) expense
   (7,825 )    1,444    9,269






Net loss
   $ (15,248 )    $ (8,932 )    $ (6,316 )






Flight hours:

Oil and Gas
   17,474    20,737    (3,263 )
Air Medical⁽⁴⁾
   8,392    8,688    (296 )
Technical Services
   511    523    (12 )






Total
   26,377    29,948    (3,571 )






Air Medical Transports⁽⁵⁾
   4,297    4,503    (206 )






Aircraft operated at period end:⁽⁶⁾

Oil and Gas
   131    154
Air Medical⁽⁷⁾
   104    105
Technical Services
   6    6





Total
   241    265



	Quarter Ended September 30,						Favorable (Unfavorable)
	2017			2016
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues, net
Oil and Gas	$	75,700		$	77,551		$	(1,851	)
Air Medical	70,280			74,482			(4,202		)
Technical Services	4,187			6,060			(1,873		)
Total operating revenues, net	150,167			158,093			(7,926		)
Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾	81,467			82,832			1,365
Air Medical	51,120			56,562			5,442
Technical Services	3,761			5,742			1,981
Total segment direct expenses	136,348			145,136			8,788
Segment selling, general and administrative expenses
Oil and Gas	1,148			1,705			557
Air Medical	3,136			3,056			(80		)
Technical Services	338			266			(72		)
Total segment selling, general and administrative expenses	4,622			5,027			405
Total segment expenses	140,970			150,163			9,193
Net segment (loss) profit
Oil and Gas	(6,915		)	(6,986		)	71
Air Medical	16,024			14,864			1,160
Technical Services	88			52			36
Total net segment profit ⁽²⁾	9,197			7,930			1,267

Other, net ⁽³⁾	710			377			333
Unallocated selling, general and administrative costs ⁽⁴⁾	(6,779		)	(8,354		)	1,575
Interest expense	(8,027		)	(7,719		)	(308		)
(Loss) earnings before income taxes	(4,899		)	(7,766		)	2,867
Income tax benefit	(1,622		)	(2,799		)	(1,177		)
Net loss	$	(3,277	)	$	(4,967	)	$	1,690

Flight hours:
Oil and Gas	21,178			19,583			1,595
Air Medical ⁽⁵⁾	9,743			9,681			62
Technical Services	—			14			(14		)
Total	30,921			29,278			1,643

Air Medical Transports ⁽⁶⁾	5,162			5,156			6


(1)	Includes Equity in ~~loss~~(income) of unconsolidated ~~affiliate.~~affiliates, net.

(2) ~~Total net segment (loss) profit has~~These financial measures have not been prepared in accordance with generally accepted accounting principles (“GAAP”). and have not been audited or reviewed by our independent registered public accounting firm. These financial measures are therefore considered non-GAAP financial measures. Management believes ~~this~~these non-GAAP financial ~~measure provides~~measures provide meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of ~~total net segment profit~~these non-GAAP financial measures to the most comparable GAAP financial ~~measure~~measures is as follows:

   Quarter Ended
   March 31,
   2017    2016
Total net segment (loss) profit
   $ (7,837 )    $ 7,115
Other, net
   1,064    256
Unallocated selling, general and administrative costs
   (8,105 )    (7,326 )
Interest expense
   (8,195 )    (7,533 )




Loss before income taxes
   $ (23,073 )    $ (7,488 )



	Quarter Ended September 30,
	2017			2016
Total net segment profit	$	9,197		$	7,930
Other, net	710			377
Unallocated selling, general and administrative costs	(6,779		)	(8,354		)
Interest expense	(8,027		)	(7,719		)
(Loss) before income taxes	$	(4,899	)	$	(7,766	)


(3)	Consists of ~~gains~~net (gains) losses on disposition of property and equipment, and other ~~income – net.~~income.


(4)	Represents corporate overhead expenses not allocable to segments.


(5)	Flight hours include ~~2,297~~2,283 flight hours associated with traditional provider contracts during the ~~first~~third quarter of 2017, compared to ~~2,277~~2,550 flight hours in the prior year quarter.


(6)	Represents individual patient transports for the period.

The following tables present operating revenues, expenses, and earnings, along with certain non-financial operational statistics, for the nine months ended September 30, 2017 and 2016.



	Nine Months Ended September 30,						Favorable (Unfavorable)
	2017			2016
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues, net
Oil and Gas	$	222,098		$	249,173		$	(27,075	)
Air Medical	192,840			220,089			(27,249		)
Technical Services	16,271			19,983			(3,712		)
Total operating revenues, net	431,209			489,245			(58,036		)
Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾	236,878			262,148			25,270
Air Medical	152,363			172,603			20,240
Technical Services	12,565			15,432			2,867
Total segment direct expenses	401,806			450,183			48,377
Segment selling, general and administrative expenses
Oil and Gas	4,501			4,838			337
Air Medical	9,280			8,293			(987		)
Technical Services	1,032			763			(269		)
Total segment selling, general and administrative expenses	14,813			13,894			(919		)
Total segment expenses	416,619			464,077			47,458
Net segment (loss) profit
Oil and Gas	(19,281		)	(17,813		)	(1,468		)
Air Medical	31,197			39,193			(7,996		)
Technical Services	2,674			3,788			(1,114		)
Total net segment profit	14,590			25,168			(10,578		)

Other, net ⁽³⁾	2,471			5,425			(2,954		)
Unallocated selling, general and administrative costs ⁽⁴⁾	(23,878		)	(22,938		)	(940		)
Interest expense	(24,305		)	(22,792		)	(1,513		)
(Loss) earnings before income taxes	(31,122		)	(15,137		)	(15,985		)
Income tax benefit	(9,324		)	(5,515		)	3,809
Net loss	$	(21,798	)	$	(9,622	)	$	(12,176	)

Flight hours:
Oil and Gas	58,335			61,043			(2,708		)
Air Medical ⁽⁵⁾	27,787			27,889			(102		)
Technical Services	511			546			(35		)
Total	86,633			89,478			(2,845		)

Air Medical Transports ⁽⁶⁾	14,580			14,482			98

Aircraft operated at period end: ⁽⁷⁾
Oil and Gas	126			139
Air Medical ⁽⁸⁾	105			104
Technical Services	6			6
Total	237			249


(1)	Includes Equity in loss of unconsolidated affiliates, net.

(2)

These financial measures have not been prepared in accordance with generally accepted accounting principles (“GAAP”) and have not been audited or reviewed by our independent registered public accounting firm. These financial measures are therefore considered non-GAAP financial measures. Management believes these non-GAAP financial measures provide meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures is as follows:



	Nine Months Ended September 30,
	2017			2016
Total net segment profit	$	14,590		$	25,168
Other, net	2,471			5,425
Unallocated selling, general and administrative costs	(23,878		)	(22,938		)
Interest expense	(24,305		)	(22,792		)
Loss before income taxes	$	(31,122	)	$	(15,137	)


(3)	Consists of net (gains) losses on disposition of property and equipment, and other income.


(4)	Represents corporate overhead expenses not allocable to segments.


(5)	Flight hours include 6,877 flight hours associated with traditional provider contracts during the nine months ended September 30, 2017, compared to 7,279 flight hours during the ~~first quarter of 2016.~~prior period year.

~~(5)~~
(6)	Represents individual patient transports for the period.

~~(6)~~
(7)	Represents the total number of aircraft available for use, not all of which were deployed in service as of the ~~dates~~date indicated.

~~(7)~~
(8)	Includes ~~six and ten~~6 aircraft as of ~~March 31,~~September 30, 2017 ~~and March 31, 2016, respectively~~ that were owned or leased by customers but operated by us.

Quarter Ended ~~March 31,~~September 30, 2017 compared with Quarter Ended ~~March 31,~~September 30, 2016

Combined Operations

Operating Revenues -Operating revenues for the three months ended ~~March 31,~~September 30, 2017 were ~~$134.6~~$150.2 million, compared to ~~$164.0~~$158.1 million for the three months ended ~~March 31,~~September 30, 2016, a decrease of ~~$29.4~~$7.9 million. Oil and Gas segment operating revenues decreased ~~$16.7~~$1.9 million for the three months ended ~~March 31,~~September 30, 2017, related primarily to decreased aircraft flight revenues for ~~all model types resulting~~medium and heavy aircraft models. These decreases resulted predominately from fewer aircraft on contract, decreased flight hours for our medium aircraft models and decreased ~~flight hours.~~rates for our heavy aircraft models. Air Medical segment operating revenues decreased ~~$14.7~~$4.2 million due principally to decreased traditional provider program revenues resulting from the termination of our overseas operations in late 2016, ~~and decreased~~offset by an increase in revenue from our independent provider ~~program revenues.~~operations related to improve cash collections and lower allowances for doubtful accounts. Technical Services segment operating revenues ~~increased $2.0~~decreased $1.9 million due primarily to ~~an increase~~a decrease in technical services provided to a third party customer.

Total flight hours for the three months ended ~~March 31,~~September 30, 2017 were ~~26,377~~30,921 compared to ~~29,948~~29,278 for the three months ended ~~March 31,~~September 30, 2016. Oil and Gas segment flight hours ~~decreased 3,263~~increased 1,595 hours, due to ~~decreases~~an increase in flight hours for ~~all model types.~~light and heavy aircraft models, partially offset by a decrease in flight hours for our medium aircraft model. Air Medical segment flight hours ~~decreased 296~~increased 62 hours ~~from~~for the three months ended ~~March 31,~~September 30, 2017, due to ~~decreased~~increased flight hours in our ~~traditional~~independent provider ~~and independent provider~~operations, partially offset by the decrease in flight hours due to the termination of our overseas operations. As discussed further below, individual patient transports in the Air Medical segment were ~~4,297~~5,162 for the three months ended ~~March 31,~~September 30, 2017, compared to transports of ~~4,503~~5,156 for the three months ended ~~March 31,~~September 30, 2016.

Direct Expenses – -Direct operating expense was ~~$136.5~~$136.3 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$152.6~~$145.1 million for the three months ended ~~March 31,~~September 30, 2016, a decrease of ~~$16.1~~$8.8 million, or ~~11%~~6.0%. Employee compensation expense decreased ~~$9.0~~$5.8 million primarily due to a reduction in employees in our Oil and Gas segment ~~resulting from implementation of voluntary early retirement programs (“VERPs”) in the second half of 2015 and the first quarter of 2016,~~ and a reduction in the number of employees in our Air Medical segment’s Middle East operations. Employee compensation expense represented approximately ~~46%~~44% and ~~48%~~46% of total direct expense for the quarters ended ~~March 31,~~September 30, 2017 and 2016, respectively. We ~~also~~ experienced ~~decreases~~an increase in aircraft warranty costs of ~~$1.2~~$2.5 million ~~and aircraft insurance of $0.3 million (which expenses represent 7%, and 1% of total direct expense, respectively)~~ as a result of increased flight hours for our heavy aircraft in our international operations. Costs of goods sold decreased $4.9 million due to the termination of our above-referenced Middle East operations and due to a reduction in ~~flight hours.~~services for a third party technical services customer. Aircraft lease expense decreased $1.0 million, spare parts expense decreased ~~$1.7~~$1.4 million and aircraft ~~maintenance decreased $1.5 million, and~~ component repair expense ~~decreased $1.4~~increased $1.6 million. Other ~~decreases included aircraft rent expense of $1.2~~items increased $0.2 million, ~~and cost of goods sold of $2.1 million. Training costs increased $1.0 million. Other direct costs increased $0.7 million on a net basis.~~

net.

Selling, General and Administrative Expenses – -Selling, general and administrative expenses were ~~$13.0~~$11.4 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$11.7~~$13.4 million for the three months ended ~~March 31,~~September 30, 2016. The ~~$1.3~~$2.0 million ~~increase~~decrease was ~~primarily~~principally attributable to ~~severance costs~~a $1.5 million of savings related to ~~a reduction~~2016 charges for aircraft lease returns that did not recur in ~~force at our Lafayette headquarters facility in March, 2017 and $0.6 million of legal and consulting fees related~~2017. The $2.0 is further attributable to a ~~special project. Partially offsetting this increase are decreases~~$0.2 million decrease in bad debt reserves and a $0.2 million decrease in equity-based compensation ~~of $0.8 million.~~

expense. Other items decreased $0.1 million, net.

Loss/Gain on Disposal of Assets, ~~net~~ ~~– There were no gains or losses~~Net -The gain on asset dispositions for the three months ended ~~March 31, 2017.~~September 30, 2017 was less than $0.1 million. For the three months ended ~~March 31,~~September 30, 2016, we recorded a loss of ~~$0.4 million resulting from the sale of one light aircraft. See Note 8.~~

less than $0.1 million.

Equity in (Income) Loss of Unconsolidated ~~Affiliate~~ – Affiliates -Equity in the loss of our unconsolidated affiliate attributable to our~~mid-2011~~ investment in a Ghanaian entity was ~~$1.0~~$0.1 million and $0.2 million for the three months ended ~~March 31,~~September 30, 2017 ~~compared to $0~~and 2016, respectively. We also had equity in the income of our unconsolidated Australian affiliate of $0.5 million for the three months ended ~~March 31, 2016, resulting from increased expenses.~~

September 30, 2017. Our Australia affiliate commenced operations in April, 2017. See Note 11.

Interest Expense – -Interest expense was ~~$8.2~~$8.0 million for the three months ended ~~March 31,~~September 30, 2017 and ~~$7.5~~$7.7 million for the three months ended ~~March 31, 2016,~~September 30, 2016. The $0.3 million increase is principally due to higher average outstanding debt balances.

Other Income, ~~net~~ – Net -Other income was ~~$1.1~~$0.7 million for the three months ended ~~March 31,~~September 30, 2017 compared to ~~$0.6~~$0.5 million for the same period in 2016, and represents primarily interest income. ~~The $0.4 million increase is primarily attributable to an increase in the amount and rate of return of our short-term investments.~~

Income Taxes – - Income tax benefit for the three months ended ~~March 31,~~September 30, 2017 was ~~$7.8~~$1.6 million compared to income tax ~~expense~~benefit of ~~$1.4~~$2.8 million for the three months ended ~~March 31,~~September 30, 2016. Our ~~$7.8~~$1.6 million income tax benefit for the ~~three months~~quarter ended ~~March 31,~~September 30, 2017 is attributable to our net loss from operations of ~~$23.1~~$4.9 million. The $1.4 million income tax expense recorded in the three months ended March 31, 2016 is attributable to the negative impact of a valuation allowance on certain state tax benefits related to net operation loss carryforwards of $4.1 million, which was partially offset by a $2.7 million tax benefit on our loss before income taxes. Our effective tax rate was ~~34.0%~~33% and ~~36.2%~~36% for the quarter ended September 30, 2017 and September 30, 2016, respectively.

Net (Loss) Earnings -Net loss for three months ended ~~March 31, 2017 and March 31, 2016, respectively.~~

~~Net Loss~~~~– Net loss for the three months ended March 31,~~September 30, 2017 was ~~$15.2~~$3.3 million compared to net loss of ~~$8.9~~$5.0 million for the three months ended ~~March 31,~~September 30, 2016. Loss before income taxes for the three months ended ~~March 31,~~September 30, 2017 was ~~$23.1~~$4.9 million compared to loss before income taxes of ~~$7.5~~$7.8 million for the same period in 2016. ~~Losses~~Loss per diluted share ~~were $0.97~~was $0.21 for the current quarter compared to ~~losses~~loss per diluted share of ~~$0.57~~$0.32 for the prior year quarter. The ~~increase~~decrease in loss before taxes for the quarter ended ~~March 31,~~September 30, 2017 is attributable to a reduction in expenses in comparison to the ~~decreased profits in the Oil and Gas and Air Medical segments, each~~third quarter of ~~which are discussed further below.~~2016, mentioned above. We had ~~15.7~~15.8 million, and ~~15.6~~15.7 million weighted average diluted common shares outstanding ~~during~~for the quarter ended ~~March 31,~~September 30, 2017 and 2016, respectively.

Segment Discussion

Oil and Gas – -Oil and Gas segment revenues were ~~$71.7~~$75.7 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$88.4~~$77.6 million for the three months ended ~~March 31,~~September 30, 2016, a decrease of ~~$16.7~~$1.9 million. Our Oil and Gas segment revenues are primarily driven by the amount of contracted aircraft flight hours and ~~flight hours.~~prevailing rates. Costs are primarily fixed based on the number of aircraft operated, with a variable portion that is driven by flight hours.

Oil and Gas segment flight hours were ~~17,474~~21,178 for the most recent quarter compared to ~~20,737~~19,583 for the same quarter in the prior year, ~~a decrease~~an increase of ~~3,263~~1,595 flight hours. The decline in revenues ~~and flight hours~~ is attributable to fewer aircraft on contract, ~~and~~ lower utilization rates for ~~all model types~~medium aircraft models and a decrease in the number of heavy aircraft on contract, in each case due to reduced oil and gas exploration and production activities in response to lower prevailing commodity prices.

Partially offsetting the decrease in revenue from our heavy and medium model types were increased revenues and flight hours from our light model types due to increased activity in the shallow waters of the Gulf of Mexico.

The number of aircraft available for use in the segment was ~~131~~127 at ~~March 31,~~September 30, 2017, compared to ~~154~~139 at ~~March 31,~~September 30, 2016. We have ~~sold or~~ disposed of ~~eleven~~seven light and ~~seven~~nine medium aircraft in the Oil and Gas segment since ~~March 31,~~September 30, 2016. We also purchased two light aircraft in the Oil and Gas segment since September 30, 2016. Transfers between segments account for the remainder.

Direct expense in our Oil and Gas segment was ~~$81.7~~$81.5 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$91.9~~$82.8 million for the three months ended ~~March 31,~~September 30, 2016, a decrease of ~~$10.2~~$1.3 million. Employee compensation expense decreased ~~$6.3~~$3.0 million due to a reduction in ~~employees resulting from implementation~~employees. Aircraft lease expense decreased $.8 million due to fewer aircraft on lease. Gains or losses in the equity of our ~~VERPs. See Note 10. There were also decreases~~unconsolidated affiliates improved $0.6 million due to the April commencement of our Australian operations. We experienced an increase in aircraft warranty costs of ~~$1.2~~$2.2 million ~~and~~as a result of increased flight hours for our heavy aircraft insurance of $0.2 million, each due to the reduction in flight hours. Other decreases included aircraft rent expense of $0.9 million, aircraft parts expense of $2.0 million, and property taxes of $0.4for our international operations. Aircraft component repairs increased $1.1 million. Other items ~~increased, net $0.8 million.~~

decreased $0.2 million, net.

Selling, general and administrative segment expenses were $1.1 million for the three months ended September 30, 2017 and $1.7 million for the three months ended ~~March 31, 2017~~September 30, 2016.

Oil and ~~$1.5~~Gas segment loss was $6.9 million for the three months ended ~~March 31, 2016. The $0.2 million increase is primarily attributable~~September 30, 2017, compared to ~~increased legal fees.~~

~~Oil and Gas segment~~a loss ~~was $11.7~~of $7.0 million for the three months ended ~~March 31, 2017, compared~~September 30, 2016. The $0.1 million decrease in segment loss is attributable to a ~~loss of $5.0~~$2.0 million decrease in expenses, partially offset by the $1.9 million decrease in revenues.

Air Medical -Air Medical segment revenues were $70.2 million for the three months ended ~~March 31, 2016. The increase in segment loss was due~~September 30, 2017, compared to ~~decreased revenues, which were only partially offset by decreased expenses attributable to the above-described factors.~~

~~Air Medical~~ ~~– Air Medical segment revenues were $55.3~~$74.5 million for the three months ended ~~March 31, 2017, compared to $70.1 million for the three months ended March 31,~~September 30, 2016. This decrease of ~~$14.7~~$4.3 million is primarily attributable to decreased traditional provider program revenues resulting from the termination of our overseas operations (as discussed further below)~~. We also experienced decreased revenues~~, partially offset by an increase in revenue from our independent provider ~~programs primarily resulting from decreased patient transports due principally~~operations related to ~~adverse weather conditions in our operating markets.~~improved cash collections and lower allowances for doubtful accounts. Patient transports were ~~4,297~~5,162 for the three months ended ~~March 31,~~September 30, 2017, compared to ~~4,503~~5,156 for the same period in the prior year.

The number of aircraft available for use in the segment ~~at March 31, 2017~~ was 104 ~~compared to 105~~ at ~~March 31,~~September 30, 2017 and September 30, 2016. Since ~~March 31,~~September 30, 2016 ~~we added two light aircraft to~~ our Air Medical segment ~~which~~has received two light aircraft transferred from our Oil & Gas segment. These additions were offset by our sale or disposition of ~~four~~two medium aircraft in the Air Medical segment since such date. ~~Changes in customer-owned aircraft and transfers between segments account for the remainder.~~

Direct expense in our Air Medical segment was ~~$50.8~~$51.1 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$57.0~~$56.6 million for the three months ended ~~March 31,~~September 30, 2016, a decrease of ~~$6.2~~$5.5 million. Employee compensation costs decreased ~~$2.4~~$3.0 million due to a reduction in personnel primarily relating to the termination of our 2012 Middle East ~~operations. Component repair costs also decreased $1.0 million as a result of a reduction in scheduled maintenance for certain aircraft.~~contract. Cost of goods sold decreased ~~$3.3~~$1.4 million related to certain items that were previously billed on a cost plus basis under our former Middle East contract. ~~Other items increased, net $0.5~~Helicopter rent decreased $0.1 million due to fewer aircraft on lease, aircraft parts cost decreased $0.8 million, and aircraft warranty costs decreased $0.1 million.

Selling, general and administrative segment expenses were ~~$2.9~~$3.1 million for both the three months ended September 30, 2017 and the three months ended September 30, 2016.

Air Medical segment profit was $16.0 million for the three months ended March 31, 2017, compared to $2.6 million for the three months ended March 31, 2016. The $0.3 million increase is primarily due to increased promotional and rent expense, as well as employee compensation costs.

~~Air Medical segment profit was $1.6 million for the three months ended March 31,~~September 30, 2017, compared to a segment profit of ~~$10.4~~$14.9 million for the three months ended ~~March 31,~~September 30, 2016. The ~~$8.8~~$1.1 million ~~decrease~~increase in profit is primarily attributable to ~~the decreased operating~~increased revenues ~~described above,~~and profit from our independent provider programs, partially offset by decreased ~~expenses.~~

revenues and profits from our traditional provider programs.

For several years our Air Medical affiliate received substantial benefits under its three-year service contract with a Middle East customer dated September 29, 2012. Pursuant to contract extensions, our Air Medical affiliate continued providing services at reduced levels for another year through September 30, 2016, when the contract expired. Consequently, since September 30, 2016, the overseas revenues and operating results of our Air Medical segment have declined significantly as compared to prior periods. For additional information, see Note 3.

Technical Services – -Technical Services segment revenues were ~~$7.5~~$4.1 million for the three months ended ~~March 31,~~September 30, 2017, compared to ~~$5.5~~$6.1 million for the three months ended ~~March 31,~~September 30, 2016. The ~~increase~~decrease in revenue is due primarily to ~~an increase~~a decrease of technical services provided to a third party customer whose service requirements typically vary from period to period. Direct expenses ~~increased $1.4~~decreased $2.0 million compared to the prior year three months, principally due to the ~~increased~~decreased operations. Technical Services segment earnings ~~was $2.3~~were less than $0.1 million for the three months ended ~~March 31,~~September 30, 2017, ~~compared to segment profit of $1.7 million for the three months ended March 31, 2016.~~

and September 30, 2016, respectively.

For additional information on our segments, see Note 10.

Nine Months Ended September 30, 2017 compared with the Nine Months Ended September 30, 2016

Combined Operations

Operating Revenues -Operating revenues for the nine months ended September 30, 2017 were $431.2 million, compared to $489.2 million for the nine months ended September 30, 2016, a decrease of $58.0 million. Oil and Gas segment operating revenues decreased $27.1 million for the nine months ended September 30, 2017, related primarily to decreased aircraft flight revenues for all model types resulting predominately from fewer aircraft on contract, decreased flight hours for our medium and heavy aircraft, and decreased rates. Air Medical segment operating revenues decreased $27.2 million due principally to decreased traditional provider program revenues resulting from reduced overseas operations. This decrease was partially offset by increased revenues attributable to our independent provider programs and our U.S.-based traditional provider programs. Technical Services segment operating revenues decreased $3.7 million due to variations in the level of services provided to a third party customer under projects discussed further below.

Total flight hours for the nine months ended September 30, 2017 were 86,633 compared to 89,478 for the nine months ended September 30, 2016. Oil and Gas segment flight hours decreased 2,708 hours, due to decreases in flight hours for medium and heavy aircraft models. Air Medical segment flight hours decreased 102 hours compared to the same period in the prior year, primarily due to decreased flight hours in our overseas traditional provider program. Individual patient transports in the Air Medical segment were 14,580 for the nine months ended September 30, 2017, compared to 14,482 transports for the nine months ended September 30, 2016.

Direct Expenses -Direct operating expense was $401.8 million for the nine months ended September 30, 2017, compared to $450.2 million for the nine months ended September 30, 2016, a decrease of $48.4 million, or 10.8%. Employee compensation expense decreased $22.2 million due to a reduction in employees in our Oil and Gas and Air Medical segments. Employee compensation expense represented approximately 46% of total direct expense for the nine months ended September 30, 2017 and September 30, 2016. In addition, we experienced decreases in aircraft warranty costs of $9.3 million primarily due to a credit related to the cancellation of a warranty program on some of the medium aircraft fleet, and decreased flight hours. The cancellation of the warranty program resulted in a non-recurring credit of $9.8 million from the warranty provider, which is attributable to unused accumulated warranty payments for repair services that will not be utilized in the future. We also had decreases in component repair cost of $1.0 million and aircraft parts costs of $4.0 million (representing 6% and 4% of total direct expense, respectively), as a result of the reduction in flight hours. Costs of goods sold decreased $12.1 million due to fewer services provided to an external customer by our Technical Services segment, and a decrease in certain items that are billed on a cost plus basis in our Technical Services segment. Other items increased $0.2 million, net.

Selling, General and Administrative Expenses -Selling, general and administrative expenses were $38.7 million for the nine months ended September 30, 2017, compared to $36.8 million for the nine months ended September 30, 2016, an increase of $1.9

million. We incurred $3.2 million of severance costs related to reductions in force and $1.5 million of legal and consulting fees related to a special project. Partially offsetting these increases were decreases in equity-based compensation of $1.3 million and a decrease in bad debt reserve of $0.6 million, as well as a decrease of $1.5 million related to 2016 costs associated with aircraft lease returns. Other items increased $0.7 million, net.

Loss/Gain on Disposal of Assets, Net -Loss on asset dispositions was less than $0.1 million for the nine months ended September 30, 2017, compared to a gain of $3.9 million for the nine months ended September 30, 2016. In the nine months ended September 30, 2017, we disposed of six medium aircraft and related parts inventory utilized in the Oil and Gas segment that no longer met our strategic needs. In the nine months ended September 30, 2016, we sold nine light and three medium aircraft, along with spare parts inventory, that no longer met our strategic needs. See Note 8.

Equity in Loss of Unconsolidated Affiliates -Equity in the loss of our unconsolidated affiliate attributable to our investment in a Ghanaian entity was $1.0 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. See Note 11. We also had equity in the income of our unconsolidated Australian affiliate of $0.5 million for the nine months ended September 30, 2017 primarily related to the startup of operations on a contract which began in April 2017. See Note 11.

Interest Expense -Interest expense was $24.3 million for the nine months ended September 30, 2017, compared to $22.8 million for the nine months ended September 30, 2017, principally due to higher average outstanding debt balances.

Other Income, Net -Other income was $2.5 million for the nine months ended September 30, 2017 compared to $1.6 million for the nine months ended September 30, 2016 and represents primarily interest income. The $0.9 million is primarily attributable to an increase related to interest earned on our investments.

Income Taxes -Income tax benefit for the nine months ended September 30, 2017 was $9.3 million compared to income tax benefit of $5.5 million for the nine months ended September 30, 2016. Our effective tax rate was 29.9% and 36.4% for the nine months ended September 30, 2017 and 2016, respectively. The $9.3 million income tax benefit recorded for the nine months ended September 30, 2017 includes a non-cash $1.5 million income tax deficit related to the permanent difference resulting from the difference between the book and tax deductions for equity-based compensation. The $5.5 million tax benefit recorded during the nine months ended September 30, 2016 is comprised of a $4.2 million tax benefit related to the impact of a change in Louisiana tax law which amends the manner in which profits are apportioned to the state of Louisiana for income tax reporting purposes, and a $5.4 million tax benefit relating our loss before income taxes, which were partially offset by recording a $4.1 million valuation allowance on certain state tax benefits related to net operating loss carryforwards. Absent these discrete adjustments, our effective tax rate was 34.9% and 35.6% for the nine months ended September 30, 2017 and 2016, respectively.

Net Loss -Net loss for the nine months ended September 30, 2017 was $21.8 million compared to net loss of $9.6 million for the nine months ended September 30, 2016. Loss before income taxes for the nine months ended September 30, 2017 was $31.1 million compared to a loss before income taxes of $15.1 million for the same period in 2016. Loss per diluted share was $1.38 for the nine months ended September 30, 2017 compared to a loss per diluted share of $0.61 for the prior year nine months. The decrease in earnings before taxes for the nine months ended September 30, 2017 is principally attributable to the decreased profits in all of our segments. We had 15.8 million and 15.7 million weighted average diluted common shares outstanding during the nine months ended September 30, 2017 and 2016, respectively.

Segment Discussion

Oil and Gas -Oil and Gas segment revenues were $222.1 million for the nine months ended September 30, 2017, compared to $249.2 million for the nine months ended September 30, 2016, a decrease of $27.1 million. Our Oil and Gas segment revenues are primarily driven by the amount of contracted aircraft, flight hours and prevailing rates. Costs are primarily fixed based on the number of aircraft operated, with a variable portion that is driven by flight hours.

Oil and Gas segment flight hours were 58,335 for the past nine months compared to 61,043 for the same nine months in the prior year, a decrease of 2,708 flight hours. The decline in flight hours is attributable to fewer aircraft on contract, lower utilization rates for all model types and decreased rates for our heavy aircraft models, in each case due to reduced oil and gas exploration and production activities in response to lower prevailing oil prices.

The number of aircraft available for use in the segment was 127 at September 30, 2017, compared to 139 at September 30, 2016. We have sold or disposed of three light and ten medium aircraft in the Oil and Gas segment since September 30, 2016. We also purchased two medium aircraft in the Oil and Gas segment since September 30, 2016. Transfers between segments accounted for the remainder.

Direct expense in our Oil and Gas segment was $236.9 million for the nine months ended September 30, 2017, compared to $262.1 million for the nine months ended September 30, 2016, a decrease of $25.2 million. Employee compensation expenses decreased $9.3 million due to a reduction in employees. There were also decreases in aircraft warranty costs of $8.5 million related to a credit due to the cancellation of a warranty program on some our medium aircraft fleet and a reduction in flight hours. The cancellation of this warranty program resulted in a non-recurring credit of $8.9 million from the warranty provider, which is attributable to unused accumulated warranty payments for repair services that will not be utilized in the future. Aircraft lease expense decreased $3.0 million due to fewer leased aircraft, insurance expense decreased $0.5 million, and spare parts decreased $3.7 million. Partially offsetting these decreased were increases in the losses from our unconsolidated affiliates of $1.3 million. Other items decreased $1.5 million, net.

Selling, general and administrative segment expenses were $4.5 million for the nine months ended September 30, 2017 and $4.8 million for the nine months ended September 30, 2016. The $0.3 million increase was primarily due to increased due to a $0.6 million decrease in bad debt reserves. Other items increased $0.3 million, net.

Oil and Gas segment loss was $19.3 million for the nine months ended September 30, 2017, compared to segment loss of $17.8 million for the nine months ended September 30, 2016. The decrease in segment profit was due to the decreased revenues detailed above, which were only partially offset by decreased warranty and other costs discussed above.

Air Medical -Air Medical segment revenues were $192.8 million for the nine months ended September 30, 2017, compared to $220.1 million for the nine months ended September 30, 2016, a decrease of $27.3 million. Operating revenues in our traditional provider programs decreased $30.8 million due to a $34.1 million reduction in revenue from our overseas operations, partially offset by a $3.3 million increase in revenues from our U.S.-based traditional provider programs. Revenues from our independent provider programs increased $4.0 million due to increases in cash collections. Patient transports were 14,580 for the nine months ended September 30, 2017, compared to 14,482 for the same period in the prior year. Other revenues decreased $0.4 million, net.

The number of aircraft available for use in the segment at September 30, 2017 and 2016 was 104. Since September 30, 2016, our Air Medical segment received two light aircraft transferred from our Oil and Gas segment, which were offset by our sale or disposition of two medium aircraft in the Air Medial segment since such date.

Direct expense in our Air Medical segment was $152.4 million for the nine months ended September 30, 2017, compared to $172.6 million for the nine months ended September 30, 2016, a decrease of $20.2 million. Employee compensation expenses decreased $8.8 million due to a reduction in personnel. There were also decreases in component repair costs of $1.7 million due to a decrease in scheduled maintenance for certain model types, and a decrease of $7.2 million in cost of goods sold related to certain items that were previously billed on a cost plus basis under our former Middle East contract. There was a decrease in aircraft warranty costs of $1.2 million, primarily due to a credit related to the cancellation of the above-described warranty program on some of our medium aircraft fleet. The cancellation of this warranty program resulted in a non-recurring credit of $1.0 million from the warranty provider, which is attributable to unused accumulated warranty payments for repair services that will not be utilized in the future. Helicopter rent decreased $0.7 million. Other items decreased $0.6 million, net.

Selling, general and administrative segment expenses were $9.2 million for the nine months ended September 30, 2017 and $8.3 million for the nine months ended September 30, 2016. The $0.9 million increase is primarily related to higher employee incentive compensation costs and increased legal fees.

Air Medical segment profit was $31.2 million for the nine months ended September 30, 2017, compared to a segment profit of $39.2 million for the nine months ended September 30, 2016. The decrease in profit is primarily attributable to the decreased revenues described above, partially offset by the decreased aircraft operating expenses described above.

Technical Services -Technical Services segment revenues were $16.3 million for the nine months ended September 30, 2017, compared to $20.0 million for the nine months ended September 30, 2016, a decrease of $3.7 million. The decrease in revenue is due primarily to a decrease of technical services provided to a third party customer whose service requirements typically vary from period to period. Direct expense decreased $2.9 million compared to the prior year nine months, principally due to the decreased operations. Technical Services segment profit was $2.7 million for the nine months ended September 30, 2017, compared to $3.8 million for the nine months ended September 30, 2016.

For additional information on our segments, see Note 10.

Liquidity and Capital Resources

General

Our ongoing liquidity requirements arise primarily from the purchase or leasing of aircraft, the maintenance and refurbishment of aircraft, the opening of new aircraft bases, the expansion or improvement of facilities, the acquisition of equipment and inventory, and other working capital needs. Our principal sources of liquidity historically have been net cash provided by our operations, borrowings under our revolving credit facility, and proceeds from periodic senior note offerings. To the extent we do not use cash, short-term investments or borrowings to finance our aircraft acquisitions, we frequently enter into sale-leaseback transactions to fund these acquisitions.

Historical Cash and Cash Flow Information

Liquidity-Our cash position was ~~$3.7~~$3.0 million at ~~March 31,~~September 30, 2017, compared to $2.6 million at December 31, 2016. Short-term investments were ~~$276.8~~$204.0 million at ~~March 31,~~September 30, 2017, compared to $289.8 million at December 31, 2016. We also had $12.4 million and $13.0 million in restricted investments at ~~March 31,~~September 30, 2017 and December 31, 2016, respectively, securing outstanding letters of credit and a bond for foreign operations.

As noted in greater detail above, current weakness in the oil and gas industry has negatively impacted our offshore operations since the first quarter of ~~2015, and we expect further~~2015. These reductions ~~in the operating revenues and net profit~~have caused us to use a portion of our ~~Oil~~cash and ~~Gas segment in future periods. Through March 31, 2017, these negative variances did not materially impact our financial position reported~~cash equivalents (collectively, “cash assets”) to fund operations, including a 30% decrease in our ~~consolidated balance sheets, as described in further detail below. Nonetheless, if~~short-term investments over the ~~current weakness~~first nine months of 2017. Moreover, we intend to use some of our cash assets to finance our obligations under the HNZ acquisition transaction summarized below under the heading “- Impact of Pending HNZ Acquisition.” After accounting for the recent and anticipated depletion of our cash assets, we nonetheless believe we will continue to hold sufficient cash assets to support operations, especially since we continue to hold no debt coming due within one year of the ~~energy industry persists,~~date of this report. For these reasons, while we expect that itour liquidity will ~~ultimately have a negative impact~~be negatively impacted if the oil and gas industry further deteriorates, we expect based on ~~our consolidated operating cash flow and liquidity.~~

~~Despite our year over year cumulative losses and negative operating cash flows, we expect~~current conditions to be able to fund operations ~~beyond~~over the next ~~year due~~four quarters, although we can provide no assurances to ~~having significant short-term investments, and we have no debt coming due within one year.~~

this effect.

Operating ~~activities~~Activities -Net cash used in operating activities was ~~$8.3~~$1.9 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017, compared to net cash used of ~~$16.3~~$7.1 million for the same period in 2016, ~~a decrease~~an improvement of ~~$8.0~~$5.2 million. Cash receipts from customers were down ~~$16.7~~$73.0 million when compared to ~~same quarter~~the first nine months of ~~the prior year, primarily~~last year. This decrease in cash receipts was due to a ~~$16.7~~$27.1 million decrease in revenues from our Oil and Gas segment ~~revenues, related~~due to the downturn in the ~~industry. Although~~industry, and a $27.2 million decrease in revenues from our Air Medical segment ~~revenue decreased $14.7 million compared to prior year, cash receipts decreased by only $3.7 million~~ due ~~to timing of payments. The decrease in revenue is primarily related~~ to the termination of the Middle East contract in late ~~2016.~~2016, with the remaining variance attributable to timing of payments received for accounts receivable. The decrease in cash receipts was partially offset by a ~~$21.0 million decrease~~reduction in cash required for ~~payroll. This decrease is~~net payroll of $18.8 million due ~~to having one less payroll period~~ in ~~2017 due~~part to ~~the timing of ourbi-weekly~~ ~~payroll system,~~ a reduction in ~~bonuses paid, a reduction in payments for retirement packages, and reduction in staff levels.~~staff. The remaining offset ~~was due~~of $54.2 million is attributable to a decrease in payments to vendors ~~due~~related to the decreased scope of ~~our~~ operations.

Investing ~~activities~~Activities -Net cash provided by investing activities was ~~$7.9~~$36.5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017, compared to cash used by investing activities of ~~$9.2~~$67.0 million for the same period in 2016. Net sales of short-term investments provided ~~$12.8~~$85.7 million of cash during the ~~three~~nine months ended ~~March 31,~~September 30, 2017, compared to ~~$1.5~~$3.9 million used in the comparable prior year period. ~~There were no gross~~Gross proceeds from asset dispositions were less than $0.1 million during the ~~three~~nine months of 2017, compared to ~~$0.9~~$13.2 million for the same period in 2016. Capital expenditures were ~~$4.8~~$49.2 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2017, compared to ~~$8.5~~$75.0 million for the same period in 2016. Capital expenditures for aircraft and aircraft improvements accounted for ~~$3.4~~$45.1 million and ~~$8.0~~$72.4 million of these totals for the ~~three~~nine months ended 2017 and 2016, respectively. During the ~~first~~second quarter of 2017, we ~~did not add any~~purchased a heavy aircraft ~~to the fleet.~~from a lessor and two medium aircraft. During the ~~same period~~second quarter of 2016, we purchased a heavy aircraft that we took delivery of ~~one~~in the first quarter of 2016. During the third quarter of 2016, we purchased a heavy aircraft ~~for which payment was funded~~pursuant to a lease purchase option, purchased one light aircraft, and took delivery of one light aircraft that we purchased in the ~~second quarter of 2016.~~

fourth quarter.

Financing ~~activities~~ – Activities -Financing activities during the ~~three~~nine months of 2017 included net ~~borrowings~~payments of ~~$1.5~~$34.0 million on our revolving credit facility and ~~$0.1~~$0.3 million used to repurchase shares of ournon-voting common stock to satisfy withholding tax obligations of employees. Financing activities during the first ~~quarter~~nine months of 2016 included net borrowings of ~~$30.2~~$74.9 million on our revolving credit facility and $0.5 million used to repurchase shares of ournon-voting common stock to satisfy withholding tax obligations of employees.

For additional information on our cash flows, see our condensed consolidated statements of cash flows included in Item 1 of Part I of this report.

Long-Term Debt

As of ~~March 31,~~September 30, 2017, we owed ~~$635.5~~$600.0 million under our total long-term debt, consisting of $500.0 million principal amount of 5.25% Senior Notes due 2019 (excluding debt issuance costs) and ~~$135.5~~$100.0 million borrowed under our revolving credit facility.

Revolving Credit Facility – -We have an amended and restated revolving credit facility (our “credit facility”) that matures on October 1, 2018. Under our credit facility, we can borrow up to $150.0 million at floating interest rates based on either the London Interbank Offered Rate plus 225 basis points or the prime rate (each as defined in our credit facility), at our option. Our credit facility includes usual and customary covenants and events of default for credit facilities of its type. Our ability to borrow under the credit facility is conditioned upon our continued compliance with such covenants, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in certain other transactions or activities and (ii) financial covenants that stipulate that PHI will maintain a consolidated working capital ratio of at least 2 to 1, a net funded debt to consolidated net worth ratio not greater than 1.5 to 1, a fixed charge coverage ratio of at least 1.1 to 1 if our short-term investments fall below $150.0 million, and consolidated net worth of at least $450.0 million (with all such terms or amounts as defined in or determined under our credit facility).

At ~~March 31,~~September 30, 2017, we had ~~$135.5~~$100.0 million in borrowings under our credit facility. At the same date in 2016, we had ~~$87.7~~$132.4 million in borrowings under our credit facility. We also have outstanding ~~a letter~~letters of credit for ~~$7.6~~$7.8 million issued under our ~~$150.0 million~~ credit facility that reduces the amount we can borrow under that facility. ~~This letter of credit was issued to guaranty the performance under an international contract awarded in late 2016.~~

Other – -We maintain a separate letter of credit facility described in Note 5 that had $12.3 million and $13.0 million letters of credit outstanding at ~~March~~September 30, 2017 and December 31, ~~2017.~~

2016, respectively.

For additional information on our long-term debt and letters of credit, see Note 5.

Contractual Obligations

The table below sets out our contractual obligations as of ~~March 31,~~September 30, 2017, related to our ~~aircraft purchase commitments,~~ aircraft and other operating lease obligations, revolving credit facility, and 5.25% Senior Notes due 2019. Our obligations under the operating leases are not recorded as liabilities on our balance sheets included in this report. Each contractual obligation included in the table contains various terms, conditions, and covenants that, if violated, accelerate the payment of that obligation under certain specified circumstances. We believe we were in compliance with the covenants applicable to these contractual obligations as of ~~March 31,~~September 30, 2017. As of ~~March 31,~~September 30, 2017, we leased 2019 aircraft included in the lease obligations data below.

      Payment Due by Year
                     Beyond
   Total    2017⁽¹⁾    2018    2019    2020    2021    2021
      (Thousands of dollars)
Aircraft purchase obligations
   $ 17,876    $ 17,876    $ —      $ —      $ —      $ —      $ —
Aircraft lease obligations
   205,028    29,952    36,879    30,226    26,387    26,253    55,331
Other lease obligations
   14,649    4,769    3,850    2,897    2,045    1,063    25
Long-term debt⁽²⁾
   635,500    —      135,500    500,000    —      —      —
Senior notes interest⁽²⁾
   52,500    13,125    26,250    13,125    —      —      —














   $ 925,553    $ 65,722    $ 202,479    $ 546,248    $ 28,432    $ 27,316    $ 55,356



			Payment Due by Year
	Total		2017⁽¹⁾		2018		2019		2020		2021		Beyond 2021
			(Thousands of dollars)
Aircraft lease obligations	$	182,062	$	9,161	$	34,705	$	30,226	$	26,387	$	26,253	$	55,330
Other lease obligations	$	12,866	1,509		4,452		3,240		2,324		1,284		57
Long-term debt ⁽²⁾	$	600,000	—		$	100,000	$	500,000	—		—		—
Senior notes interest ⁽²⁾	39,375		—		26,250		13,125		—		—		—
	$	834,303	$	10,670	$	165,407	$	546,591	$	28,711	$	27,537	$	55,387


(1)	Payments due during the last ~~nine~~three months of 2017 only.

(2)

“Long-term debt” reflects the principal amount of debt due under our outstanding senior notes and our revolving credit facility, whereas “senior notes interest” reflects interest accrued under our senior notes only. The actual amount of principal and interest paid in all years may differ from the amounts presented above due to the possible future payment or refinancing of outstanding debt or the issuance of new debt.

The table above reflects only contractual obligations as of ~~March 31,~~September 30, 2017 and excludes, among other things, (i) commitments made thereafter, (including those discussed in Note 14), (ii) options to purchase assets, including those described in the next paragraph, (iii) contingent liabilities, (iv) capital expenditures that we plan, but are not committed, to make, (v) open purchase orders and (vi) other long-term liabilities, such as accruals for litigation or taxes, that are not contractual in nature.

As of ~~March 31,~~September 30, 2017, we had options to purchase aircraft under leases becoming exercisable in ~~2017~~2018 through ~~2021.~~2020. The aggregate option purchase prices are ~~$37.1 million in 2017,~~ $127.0 million in 2018, $129.0 million in 2019, and $22.7 million in 2020. ~~Subsequent to March 31, 2017, we purchased one heavy aircraft from a lessor for $17.0 million.~~ Under current conditions, we believe it is unlikely that we will exercise the ~~remaining 2017~~2018 purchase options, unless opportunistic conditions arise.

We intend to fund the above-described contractual obligations and any exercised purchase options through a combination of cash on hand, cash flow from operations, borrowings under our credit facility, refinancing transactions or sale-leaseback transactions.

For additional information on our contemplated capital expenditures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations –- Liquidity and Capital Resources –- Capital Expenditures” in Item 7 of our Annual Report on Form10-K for the year ended December 31, 2016.

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.

Impact of Pending HNZ Acquisition.

We have entered into an agreement that commits us, subject to certain conditions, to loan CAN$167.5 million to Don E. Wall or an entity controlled by him in connection with the acquisition transactions summarized in Note 14. Based on current currency exchange rates, we currently have sufficient cash and short-term investments to fund this loan. Nonetheless, we are considering the possibility of raising additional funds through a financing transaction, subject to market conditions. For additional information on our pending acquisition, see Note 14 and Item 5 of Part II of this report.

~~Item 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of changes in the value of financial instruments, or in future net income or cash flows, in response to changing market conditions.

Our earnings are subject to changes in short-term interest rates due to the variable interest rate payable under our credit facility debt. Based on the ~~$135.3~~$134.1 million weighted average loan balance during the ~~three~~nine months ended ~~March 31,~~September 30, 2017, a 10% increase ~~(0.3061%~~(0.3481%) in interest rates would have reduced our annualpre-tax earnings approximately ~~$0.4~~$0.5 million, but would not have changed the fair market value of this debt.

Our $500.0 million principal amount of outstanding 5.25% Senior Notes due 2019 bear interest at a fixed rate of 5.25% and therefore changes in market interest rates do not affect our interest payment obligations on the notes. The fair market value of our 5.25% Senior Notes will vary as changes occur to general market interest rates, the remaining maturity of the notes, and our creditworthiness. At ~~March 31,~~September 30, 2017, the market value of the notes was approximately ~~$473.8~~$489.2 million, based on quoted market prices.

See Note 4.

The interest and other payments we earn and recognize on our investments in money market funds, U.S. Government agencies debt, commercial paper, and corporate bonds and notes are subject to the risk of declines in general market interest rates.

See Note 4 for additional information.

~~Item 4.~~

~~CONTROLS AND PROCEDURES~~

Item 4. 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 Rule13a-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 ensure that information required to be disclosed by us in the reports that we file or furnish 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, including to ensure 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 required disclosure.

There have been no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events and the inability to eliminate misconduct completely. As a result, we cannot assure you that our disclosure controls and procedures will detect all errors or fraud.

PART II – OTHER INFORMATION

~~Item 1.~~

~~LEGAL PROCEEDINGS~~

Item 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see “Legal Matters” in Note 9 to our financial statements included in this report, incorporated herein by reference.

~~Item 1A.~~

~~RISK FACTORS~~

Item 1A. RISK FACTORS

For information regarding certain risks relating to our operations, any of which could negatively affect our business, financial condition, operating results or prospects, see (i) Item 1A. “Risk Factors” of our Annual Report on Form10-K for the year ended December 31, ~~2016.~~

2016 and (ii) the supplemental disclosures appearing below:

Risks Relating to Our Pending Acquisition of HNZ’s Offshore Business

Our ability to complete our pending acquisition of HNZ’s offshore aviation services business is subject to the receipt of various approvals from shareholders and governmental entities.

We are unable to complete the acquisition of HNZ’s offshore aviation services business until we receive approvals from HNZ’s shareholders and from the superior court of Quebec (Commercial Division). We can provide no assurance that we will obtain the necessary approvals or that any required conditions imposed in correction therewith will not materially adversely affect us following the acquisition. For additional information, see Item 5 of Part II of this report.

Failure to complete the acquisition of HNZ’s offshore business could negatively impact us.

If the acquisition of HNZ’s offshore aviation services business is not completed, our ongoing business may be adversely affected and we will be subject to several risks, including the following:

having to pay certain costs relating to the proposed acquisition, such as legal, accounting and financial advisory fees; and

diverting the focus of management from pursuing other opportunities that could be beneficial to us, in each case, without realizing any of the benefits of having the acquisition completed.

The pendency of the acquisition of HNZ’s offshore business could adversely affect our business and operations.

During the pendency of our acquisition of HNZ's offshore aviation services business, we may be unable to pursue other strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other similar actions, even if such actions would prove beneficial. In addition, our current and prospective employees may experience uncertainty about their future roles following the acquisition, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the acquisition.

We expect to incur substantial expenses related to the acquisition of HNZ’s offshore business.

We expect to incur substantial expenses in connection with completing the acquisition of HNZ’s offshore aviation services business and integrating certain of HNZ’s offshore operations, networks, systems, technologies, policies and procedures with ours. While we have assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. Due to these factors, the expenses associated with the acquisition of HNZ’s offshore business could potentially exceed the savings that we hope to achieve following the completion of the acquisition. As a result of these expenses, we expect to take charges against our earnings before and after the completion of the acquisition, although the aggregate amount and timing of such charges are uncertain at present.

Following the acquisition of HNZ’s offshore business, we may be unable to realize the anticipated benefits of the acquisition.

Following the acquisition of HNZ’s offshore aviation services business, we will be required to devote management attention and resources to integrating certain of our business practices and operations with those of HNZ’s offshore business. We may encounter difficulties in the integration process, including the following:

the complexities associated with managing the combined businesses out of several different locations and integrating personnel from the two companies, while at the same time attempting to provide consistent, high quality services under a unified culture;

the additional complexities of combining businesses with different markets, customer bases, histories and regulatory restrictions;

the failure to retain key employees of either of the two companies;

the inability to successfully integrate HNZ’s offshore business in a manner that permits the us to achieve anticipated cost savings, which would result in the anticipated benefits of the acquisition not being realized partly or wholly in the time frame currently anticipated or at all;

potential unknown liabilities and unforeseen increased expenses or regulatory conditions associated with the acquisition; and

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the acquisition and integrating the companies’ operations.

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the our management, the disruption of the our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of the acquisition, or could otherwise adversely affect our business and financial results.

Following the acquisition of HNZ’s offshore business, we may be unable to retain key employees.

Our success after the acquisition of HNZ’s offshore aviation services business will depend in part upon our ability to retain key PHI and HNZ offshore employees. Key employees may depart either before or after the acquisition because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us following the acquisition. Accordingly, no assurance can be given that we will be able to retain key employees to the same extent that we or HNZ have been able to in the past.

~~Item 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~During the first quarter of 2017, we withheld from employees and canceled 7,016 shares of ournon-voting~~ common stock in connection with the vesting of their stock-based awards to satisfy the related minimum tax withholding obligation. The following table provides additional information about these transactions.

Period
   Total Number of
Shares Purchased    Average Price
Paid per Share
March 1, 2017 – March 31, 2017
   7,016    $ 14.27

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

~~Item 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~Item 4.~~

~~MINE SAFETY DISCLOSURES~~

Item 4. MINE SAFETY DISCLOSURES

None.

~~Item 5.~~

~~OTHER INFORMATION~~

~~Results~~

Item 5. OTHER INFORMATION

On October 30, 2017, PHI, Inc. (the “Company”) entered into an Arrangement Agreement (the “Arrangement Agreement”), by and among the Company, HNZ Group Inc. (“HNZ”), Don E. Wall (“Don Wall”), who is the Chief Executive Officer and a Director of ~~Annual Meeting~~

~~At PHI’s annual~~HNZ, and 2075568 Alberta ULC, which is a beneficially wholly-owned by Don Wall (the “Canadian Purchaser” and, together with the Company, the “Purchasers”), pursuant to which (i) the Canadian Purchaser has agreed to acquire all of the common shares and variable voting shares of HNZ (the “HNZ Acquisition”), and (ii) the Company (or a designated subsidiary thereof) has agreed to acquire the offshore helicopter services business conducted by HNZ and/or its subsidiaries in New Zealand, Australia, the Philippines and Papua New Guinea (the “International Business”) from the Canadian Purchaser immediately after the HNZ Acquisition is complete, in each case in accordance with a court-approved plan of arrangement (the “Arrangement”) under the Canada Business Corporations Act. The Boards of Directors of each of the Company and HNZ have unanimously approved the Arrangement (in the case of HNZ, with Don Wall abstaining).

Under the Arrangement Agreement, at the effective time of the Arrangement, (i) each outstanding common share and variable voting share of HNZ (other than shares held by holders who properly exercise dissent rights and shares held by Don Wall or the Canadian Purchaser), will be transferred to the Canadian Purchaser in exchange for a cash payment equal to CAD$18.70 (the “Consideration”), and (ii) each unit issued under the cash settled long-term incentive plan of HNZ and each deferred share unit of HNZ outstanding immediately prior to the effective time of the Arrangement will be deemed to be vested and transferred to HNZ in exchange for a cash payment equal to the Consideration.

Also on October 30, 2017, in conjunction with the Arrangement Agreement and to partially fund the Consideration, the Company entered into a debt commitment letter with the Canadian Purchaser (the “PHI Commitment Letter”) with respect to a senior unsecured credit facility to be extended by the Company to the Canadian Purchaser in connection with the completion of the Arrangement, pursuant to which the Company has committed to fund term loans in an aggregate principal amount of approximately CAD $167.5 million (collectively, the “PHI Loan”) on the terms and subject to the conditions specified therein. It is expected that the PHI Loan will be principally repaid in connection with the sale of the International Business to the Company on the effective date of the Arrangement. The balance of the PHI Loan is expected to be repaid on or prior to December 31, 2019, or at such other time as mutually agreed between the Company and the Canadian Purchaser. The Canadian Purchaser has committed senior and subordinated debt financing to finance the remainder of the aggregate Consideration.

The Arrangement is subject to the approval of the shareholders of HNZ and the Superior Court of Quebec (Commercial Division) and other customary closing conditions, including among other things:

no law being in effect that makes the consummation of the Arrangement illegal or otherwise prohibits or enjoins HNZ or either Purchaser from consummating the Arrangement;

the accuracy of representations and warranties of, and compliance with covenants by, each party, subject to specified materiality limitations;

the absence of pending or threatened actions or proceedings that would be reasonably likely to prohibit or restrict the Arrangement, prevent or materially delay the consummation of the Arrangement or result in a material adverse effect on either the International Business or the remainder of HNZ’s business (the “Canadian Business”), measured separately; and

HNZ’s shareholders not having exercised their dissent rights in connection with the Arrangement with respect to more than 10% of the outstanding Company shares.

Subject to the satisfaction or waiver of these closing conditions, the parties plan to complete the Arrangement by the end of January 2018.

The Arrangement Agreement prohibits HNZ from soliciting, or participating in discussions or negotiations or providing information with respect to, alternative acquisition proposals, subject to certain exceptions.

The Arrangement Agreement provides that the parties may mutually agree to terminate the Arrangement Agreement before completing the Arrangement. In addition, the Arrangement Agreement may be terminated by:

any party if (i) HNZ shareholder approval is not obtained at the HNZ shareholder meeting, (ii) a final and non-appealable law, judgment, order or similar award is enacted or made that prohibits the consummation of ~~shareholders~~the Arrangement, or (iii) the effective time of the Arrangement does not occur on ~~May 4, 2017, for~~or before February 28, 2018 (the “Outside Date”);

HNZ if (i) either Purchaser has breached a representation, warranty or covenant which ~~proxies were~~would result in failure of a closing condition that cannot be cured prior to the Outside Date or is not ~~solicited, the~~cured within a specified cure period, or (ii) prior to receipt of HNZ shareholder approval, HNZ’s board ~~of directors that was nominated, as described in the Company’s Information Statement filed April 12, 2017 (the “Information Statement”), was elected in~~changes its ~~entirety, with 2,060,905 votes~~recommendation in favor of the Arrangement or HNZ (or any subsidiary thereof) enters into a contract with respect to a superior acquisition proposal, in each ~~director, and zero votes withheld or abstaining. The ratification~~case in compliance with the terms of the ~~appointment~~Arrangement Agreement; or

either Purchaser if prior to receipt of ~~Deloitte & Touche as PHI’s independent registered public accounting firm for the fiscal year ending December 31, 2017 was approved with 2,060,905 votes~~HNZ shareholder approval, (i) HNZ’s board changes its recommendation in favor of the Arrangement, (ii) HNZ’s board approves an alternative takeover proposal, (iii) HNZ materially breaches its non-solicitation covenants, (iv) HNZ or the other Purchaser has breached a representation, warranty or covenant which would result in failure of a closing condition that cannot be cured prior to the Outside Date or is not cured within a specified cure period, or (v) there has occurred a material adverse effect with respect to the International Business (in the case of the Company) or the Canadian Business (in the case of the Canadian Purchaser).

If the Arrangement Agreement is terminated under certain specified circumstances, including in connection with HNZ accepting a superior acquisition proposal from a third party prior to the HNZ shareholder meeting, HNZ will be obligated to pay a termination fee of CAD$6.5 million to the Company and ~~zero votes against~~an expense reimbursement fee of up to CAD$1 million to the Canadian Purchaser. Further, if either Purchaser terminates the Arrangement Agreement due to a breach by HNZ of its representations, warranties or ~~abstaining.~~ covenants, HNZ will be required to reimburse each Purchaser for all of its fees and expenses, up to a maximum of CAD$1.75 million to the Company and CAD$1 million to the Canadian Purchaser.

The ~~amendment~~parties have agreed to customary representations, warranties and covenants in the Arrangement Agreement, including, among others, covenants of ~~our articles~~HNZ with respect to the conduct of ~~incorporation described in our Information Statement was approved with 2,060,905 votes~~its business during the period between the execution of the Arrangement Agreement and consummation of the Arrangement.

Holders of approximately 19.24% of HNZ’s outstanding common and variable voting shares, including Sentry Investments Inc. and all of HNZ’s directors and executive officers that hold shares, but excluding Don Wall, have signed voting support agreements pursuant to which they have agreed, among other things, to vote their shares in favor ~~and zero votes against or abstaining. The amendment and restatement~~ of the ~~PHI, Inc. Long-Term Incentive Plan described in our Information Statement was approved with 2,060,905 votes~~Arrangement subject to the terms and conditions of such voting support agreements. Including Don Wall, holders of approximately 23.26% of HNZ's outstanding common and variable voting shares have agreed to vote their shares in favor ~~and zero votes against or abstaining.~~

of the Arrangement.

Item 6. EXHIBITS

(a)Exhibits

~~Item 6.~~

~~EXHIBITS~~

~~(a)~~

~~Exhibits~~


2.1*	Arrangement Agreement dated as of October 30, 2017 by and among HNZ Group Inc., the Company, 2075568 Alberta ULC and Don E. Wall.

3.1	(i)*		Amended and Restated Articles of Incorporation of the ~~Company.~~Company (incorporated by reference to Exhibit 3(i) to PHI’s Report on Form 10-Q for the quarterly period ended March 31, 2017, filed May 9, 2017).

		~~(ii)~~
	(ii)		Amended and RestatedBy-laws of the Company (incorporated by reference to Exhibit 3(ii) to PHI’s Report on Form10-Q for the quarterly period ended September 30, 2015, filed November 6, 2015).


4.1	Second Amended and Restated Loan Agreement dated as of September 18, 2013, by and among PHI, Inc., PHI Air Medical, L.L.C, successor to Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.), International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHI’s Report on Form10-Q for the quarterly period ended September 30, 2013, filed on November 8, 2013).


4.2	First Amendment to Second Amended and Restated Loan Agreement, dated as of March 5, 2014, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.1 to PHI’s Report on Form8-K filed March 6, 2014).


4.3	Second Amendment to Second Amended and Restated Loan Agreement, dated as of September 26, 2014, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.3 to PHI’s Report on Form10-Q for the quarterly period ended September 30, 2014, filed November 7, 2014).


4.4	Third Amendment to Second Amended and Restated Loan Agreement, dated as of September 25, 2015, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to Exhibit 4.4 to PHI’s Report on Form10-Q for the quarterly period ended September 30, 2015, filed November 6, 2015).


4.5	Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of September 30, 2016, by and among PHI, Inc., PHI Air Medical, L.L.C., PHI Tech Services, Inc., International Helicopter Transport, Inc. and Whitney National Bank. (incorporated by reference to Exhibit 4.5 to PHI’s Report on Form10-Q for the quarterly period ended September 30, 2016, filed November 7, 2016).


4.6	Indenture, dated as of March 17, 2014, by and among PHI, Inc., the subsidiary guarantors and U.S. Bank National Association, relating to the issuance by PHI, Inc. of its 5.25% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form8-K filed March 17, 2014).


4.7	Form of 5.25% Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form8-K filed on March 6,17, 2014).


10.1†	Second Amended and Restated PHI Inc. Long-Term Incentive Plan (incorporated by reference to Appendix A to PHI’s Information Statement on Schedule 14C filed April 12, 2017).

10.2*	PHI Commitment Letter by and between the Company and Alberta ULC 2075568




31.1*		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chairman and Chief Executive Officer.

31.2*		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Trudy P. McConnaughhay, Chief Financial Officer.

32.1*		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Al A. Gonsoulin, Chairman and Chief Executive Officer.

32.2*		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Trudy P. McConnaughhay, Chief Financial Officer.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Label Linkbase

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

*	~~Filed herewith~~

†	~~Indicates management contract or compensatory plan or arrangement~~

* Filed herewith

† Indicates management contract or compensatory plan or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	PHI, Inc.

~~May 9, 2017~~
November 3, 2017	By:	/s/ Al A. Gonsoulin
			Al A. Gonsoulin
			Chairman and Chief Executive Officer

~~May 9, 2017~~
November 3, 2017	By:	/s/ Trudy P. McConnaughhay
			Trudy P. McConnaughhay
			Chief Financial Officer


	March 31,			December 31,
	2017			2016
ASSETS
Current Assets:
Cash	$	3,680		$	2,596
Short-term investments		276,818			289,806
Accounts receivable – net
Trade		117,386			128,662
Other		8,884			9,603
Inventories of spare parts – net		73,033			70,402
Prepaid expenses		10,330			9,259
Deferred income taxes		10,798			10,798
Income taxes receivable		323			540

Total current assets		501,252			521,666

Property and equipment – net		896,565			903,977
Restricted cash and investments		13,038			13,038
Other assets		8,873			9,759

Total assets	$	1,419,728		$	1,448,440

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	22,054		$	28,704
Accrued and other current liabilities		27,500			28,346

Total current liabilities		49,554			57,050

Long-term debt:
Revolving credit facility		135,500			134,000
Senior Notes issued March 17, 2014, net of debt issuance costs of $2,441 and $2,753, respectively		497,559			497,247

Deferred income taxes		142,870			151,713
Other long-term liabilities		8,131			8,652

Commitments and contingencies (Note 9)
Shareholders’ Equity:
Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding		291			291
Non-voting common stock – par value of $0.10; 25,000,000 shares authorized, 12,797,442 and 12,779,646 issued and outstanding at March 31, 2017 and December 31, 2016, respectively		1,279			1,278
Additionalpaid-in capital		304,698			304,246
Accumulated other comprehensive loss		(375	)		(478	)
Retained earnings		280,221			294,441

Total shareholders’ equity		586,114			599,778

Total liabilities and shareholders’ equity	$	1,419,728		$	1,448,440


	Quarter Ended March 31,
	2017			2016
Operating revenues, net	$	134,618		$	164,016

Expenses:
Direct expenses		136,513			152,554
Selling, general and administrative expenses		13,044			11,673

Total operating expenses		149,557			164,227

Loss on disposal of assets		—			359
Equity in loss (income) of unconsolidated affiliate		1,003			—

Operating loss		(15,942	)		(570	)

Interest expense		8,195			7,533
Other income – net		(1,064	)		(615	)

		7,131			6,918

Loss before income taxes		(23,073	)		(7,488	)
Income tax (benefit) expense		(7,825	)		1,444

Net loss	$	(15,248	)	$	(8,932	)

Weighted average shares outstanding:
Basic		15,689			15,600
Diluted		15,689			15,600

Net loss per share:
Basic	$	(0.97	)	$	(0.57	)
Diluted	$	(0.97	)	$	(0.57	)


	Voting				Non-Voting						Additional			Accumulated						Total
	Common Stock				Common Stock						Paid-in			Other Comprehensive			Retained			ShareHolders’
	Shares		Amount		Shares			Amount			Capital			(Loss)Income			Earnings			Equity
Balance at December 31, 2015		2,906	$	291		12,685		$	1,269		$	304,884		$	(567	)	$	321,121		$	626,998

Net loss		—		—		—			—			—			—			(8,932	)		(8,932	)
Unrealized gain on short-term investments		—		—		—			—			—			476			—			476
Changes in pension plan assets and benefit obligations		—		—		—			—			—			1			—			1
Amortization of unearned stock-based compensation		—		—		—			—			1,485			—			—			1,485
Issuance ofnon-voting common stock (upon vesting of restricted stock units)		—		—		121			12			—			—			—			12
Cancellation of restrictednon-voting stock units for tax withholdings on vested shares		—		—		(27	)		(3	)		(500	)		—			—			(503	)
Retirement of treasury stock		—		—		(8	)		—			—			—			—			—

Balance at March 31, 2016		2,906	$	291		12,771		$	1,278		$	305,869		$	(90	)	$	312,189		$	619,537


	Voting				Non-Voting						Additional			Accumulated						Total
	Common Stock				Common Stock						Paid-in			Other Comprehensive			Retained			ShareHolders’
	Shares		Amount		Shares			Amount			Capital			(Loss)Income			Earnings			Equity
Balance at December 31, 2016		2,906	$	291		12,779		$	1,278		$	304,246		$	(478	)	$	294,441		$	599,778

Net loss		—		—		—			—			—			—			(15,248	)		(15,248	)
Unrealized gain on short-term investments		—		—		—			—			—			104			—			104
Changes in pension plan assets and benefit obligations		—		—		—			—			—			(1	)		—			(1	)
Amortization of unearned stock-based compensation		—		—		—			—			552			—			—			552
Issuance ofnon-voting common stock (upon vesting of restricted stock units)		—		—		27			2			—			—			—			2
Cancellation of restrictednon-voting stock units for tax withholdings on vested shares		—		—		(9	)		(1	)		(100	)		—			—			(101	)
Cumulative effect adjustment of unrecognized tax benefits		—		—		—			—			—			—			1,028			1,028

Balance at March 31, 2017		2,906	$	291		12,797		$	1,279		$	304,698		$	(375	)	$	280,221		$	586,114


	Quarter Ended
	March 31,
	2017			2016
Operating activities:
Net loss	$	(15,248	)	$	(8,932	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		16,845			16,973
Deferred income taxes		(7,883	)		955
Loss on asset dispositions		—			359
Equity in loss of unconsolidated affiliate		1,003			—
Inventory valuation reserves		(1,293	)		2,435
Changes in operating assets and liabilities		(1,677	)		(28,133	)

Net cash used in operating activities		(8,253	)		(16,343	)

Investing activities:
Purchase of property and equipment		(4,789	)		(8,519	)
Proceeds from asset dispositions		—			850
Purchase of short-term investments		(54,867	)		(77,677	)
Proceeds from sale of short-term investments		67,659			76,184
Payment of deposits on aircraft		(66	)		(66	)

Net cash provided by (used in) investing activities		7,937			(9,228	)

Financing activities:
Proceeds from line of credit		37,300			83,500
Payments on line of credit		(35,800	)		(53,300	)
Repurchase of common stock		(100	)		(500	)

Net cash provided by financing activities		1,400			29,700

Increase in cash		1,084			4,129
Cash, beginning of period		2,596			2,407

Cash, end of period	$	3,680		$	6,536

Supplemental Disclosures Cash Flow Information
Cash paid during the period for:
Interest	$	14,114		$	13,691

Income taxes	$	—		$	—

Noncash investing activities:
Other current liabilities and accrued payables related to purchase of property and equipment	$	348		$	29,302


			Unrealized		Unrealized			Fair
	Cost Basis		Gains		Losses			Value
	(Thousands of dollars)
Investments:
Money market mutual funds	$	10,597	$	—	$	—		$	10,597
Commercial paper		27,935		—		(26	)		27,909
U.S. Government agencies		15,305		—		(20	)		15,285
Corporate bonds and notes		236,525		4		(479	)		236,050

Subtotal		290,362		4		(525	)		289,841
Deferred compensation plan assets included in other assets		2,500		—		—			2,500

Total	$	292,862	$	4	$	(525	)	$	292,341


	March 31, 2017				December 31, 2016
	Amortized		Fair		Amortized		Fair
	Costs		Value		Costs		Value
	(Thousands of dollars)
Due in one year or less	$	200,195	$	199,906	$	184,587	$	184,334
Due within two years		79,570		79,338		100,816		100,378

Total	$	279,765	$	279,244	$	285,403	$	284,712


	March 31, 2017				December 31, 2016
	Average		Average		Average		Average
	Coupon		Days To		Coupon		Days To
	Rate (%)		Maturity		Rate (%)		Maturity
Commercial paper		1.035		140		1.001		184
U.S. Government agencies		1.056		355		0.970		400
Corporate bonds and notes		1.731		287		1.745		318


	As of
	March 31, 2017			December 31, 2016
Allowance for Contractual Discounts		56	%		56	%
Allowance for Uncompensated Care		25	%		23	%


	March 31, 2017				December 31, 2016
			Unamortized				Unamortized
			Debt				Debt
			Issuance				Issuance
	Principal		Debt Cost		Principal		Debt Cost
	(Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, maturing March 15, 2019	$	500,000	$	2,441	$	500,000	$	2,753

Revolving Credit Facility due October 1, 2018 with a group of commercial banks, interest payable at variable rates		135,500		—		134,000		—

Total long-term debt	$	635,500	$	2,441	$	634,000	$	2,753


	Revenue
	Quarter Ended
	March 31,
	2017			2016
Gross Air Medical segment billings		100	%		100	%
Provision for contractual discounts		70	%		71	%
Provision for uncompensated care		4	%		3	%


	Depreciation and Amortization Expense
	Quarter Ended
	March 31,
	2017		2016
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	9,862	$	9,918
Air Medical		5,477		4,256
Technical Services		146		128

Total	$	15,485	$	14,302

Unallocated SG&A	$	1,360	$	2,671


	March 31, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	51		$	3,629		$	—		$	3,680
Short-term investments		276,818			—			—			276,818
Accounts receivable – net		65,044			61,226			—			126,270
Intercompany receivable		—			69,862			(69,862	)		—
Inventories of spare parts – net		64,698			8,335			—			73,033
Prepaid expenses		8,144			2,186			—			10,330
Deferred income taxes		10,798			—			—			10,798
Income taxes receivable		341			(18	)		—			323

Total current assets		425,894			145,220			(69,862	)		501,252

Investment in subsidiaries		361,420			—			(361,420	)		—
Property and equipment – net		581,990			314,575			—			896,565
Restricted cash and investments		13,023			15			—			13,038
Other assets		7,819			1,054			—			8,873

Total assets	$	1,390,146		$	460,864		$	(431,282	)	$	1,419,728

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	18,007		$	4,047		$	—		$	22,054
Accrued and other current liabilities		18,034			9,466			—			27,500
Intercompany payable		69,862			—			(69,862	)		—

Total current liabilities		105,903			13,513			(69,862	)		49,554

Long-term debt		633,059			—			—			633,059
Deferred income taxes and other long-term liabilities		65,070			85,931			—			151,001
Shareholders’ Equity:
Common stock andpaid-in capital		306,268			79,326			(79,326	)		306,268
Accumulated other comprehensive loss		(375	)		—			—			(375	)
Retained earnings		280,221			282,094			(282,094	)		280,221

Total shareholders’ equity		586,114			361,420			(361,062	)		586,114

Total liabilities and shareholders’ equity	$	1,390,146		$	460,864		$	(431,282	)	$	1,419,728


	For the quarter ended March 31, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	74,284		$	60,334		$	—		$	134,618

Expenses:
Direct expenses		82,344			54,169			—			136,513
Selling, general and administrative expenses		10,108			2,940			(4	)		13,044

Total operating expenses		92,452			57,109			(4	)		149,557

Equity in loss of unconsolidated affiliate		1,003			—			—			1,003

Operating (loss) income		(19,171	)		3,225			4			(15,942	)

Equity in net income of consolidated subsidiaries		(2,631	)		—			2,631			—
Interest expense		8,174			21			—			8,195
Other income, net		(1,067	)		(1	)		4			(1,064	)

		4,476			20			2,635			7,131

(Loss) earnings before income taxes		(23,647	)		3,205			(2,631	)		(23,073	)
Income tax (benefit) expense		(8,399	)		574			—			(7,825	)

Net (loss) earnings	$	(15,248	)	$	2,631		$	(2,631	)	$	(15,248	)


	For the quarter ended March 31, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	91,869		$	72,147		$	—		$	164,016

Expenses:
Direct expenses		92,037			60,517			—			152,554
Selling, general and administrative expenses		9,044			2,802			(173	)		11,673

Total operating expenses		101,081			63,319			(173	)		164,227

Loss on disposal of assets, net		359			—			—			359

Operating (loss) income		(9,571	)		8,828			173			(570	)

Equity in net income of consolidated subsidiaries		(5,054	)		—			5,054			—
Interest expense		7,513			20			—			7,533
Other income, net		(786	)		(2	)		173			(615	)

		1,673			18			5,227			6,918

(Loss) earnings before income taxes		(11,244	)		8,810			(5,054	)		(7,488	)
Income tax (benefit) expense		(2,312	)		3,756			—			1,444

Net (loss) earnings	$	(8,932	)	$	5,054		$	(5,054	)	$	(8,932	)


	For the quarter ended March 31, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(15,248	)	$	2,631	$	(2,631	)	$	(15,248	)
Unrealized gain on short-term investments		162			—		—			162
Changes in pension plan asset and benefit obligation		(1	)		—		—			(1	)
Tax effect of preceding gains, losses or changes		(58	)		—		—			(58	)

Total Comprehensive (loss) income	$	(15,145	)	$	2,631	$	(2,631	)	$	(15,145	)


	For the quarter ended March 31, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(8,932	)	$	5,054	$	(5,054	)	$	(8,932	)
Unrealized gain on short-term investments		807			—		—			807
Changes in pension plan asset and benefit obligations		1			—		—			1
Tax effect of preceding gains, losses or changes		(332	)		—		—			(332	)

Total Comprehensive (loss) income	$	(8,456	)	$	5,054	$	(5,054	)	$	(8,456	)


	Quarter Ended						Favorable
	March 31,						(Unfavorable)
	2017			2016
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues
Oil and Gas	$	71,731		$	88,437		$	(16,706	)
Air Medical		55,338			70,060			(14,722	)
Technical Services		7,549			5,519			2,030

Total operating revenues		134,618			164,016			(29,398	)

Segment direct expenses
Oil and Gas⁽¹⁾		81,728			91,916			10,188
Air Medical		50,842			57,044			6,202
Technical Services		4,946			3,594			(1,352	)

Total segment direct expenses		137,516			152,554			15,038

Segment selling, general and administrative expenses
Oil and Gas		1,720			1,528			(192	)
Air Medical		2,881			2,595			(286	)
Technical Services		338			224			(114	)

Total segment selling, general and administrative expenses		4,939			4,347			(592	)

Total segment expenses		142,455			156,901			14,446

Net segment (loss) profit
Oil and Gas		(11,717	)		(5,007	)		(6,710	)
Air Medical		1,615			10,421			(8,806	)
Technical Services		2,265			1,701			564

Total net segment (loss) profit⁽²⁾		(7,837	)		7,115			(14,952	)

Other, net⁽³⁾		1,064			256			808
Unallocated selling, general and administrative costs		(8,105	)		(7,326	)		(779	)
Interest expense		(8,195	)		(7,533	)		(662	)

Loss before income taxes		(23,073	)		(7,488	)		(15,585	)
Income tax (benefit) expense		(7,825	)		1,444			9,269

Net loss	$	(15,248	)	$	(8,932	)	$	(6,316	)

Flight hours:
Oil and Gas		17,474			20,737			(3,263	)
Air Medical⁽⁴⁾		8,392			8,688			(296	)
Technical Services		511			523			(12	)

Total		26,377			29,948			(3,571	)

Air Medical Transports⁽⁵⁾		4,297			4,503			(206	)

Aircraft operated at period end:⁽⁶⁾
Oil and Gas		131			154
Air Medical⁽⁷⁾		104			105
Technical Services		6			6

Total		241			265


			Payment Due by Year
													Beyond
	Total		2017⁽¹⁾		2018		2019		2020		2021		2021
			(Thousands of dollars)
Aircraft purchase obligations	$	17,876	$	17,876	$	—	$	—	$	—	$	—	$	—
Aircraft lease obligations		205,028		29,952		36,879		30,226		26,387		26,253		55,331
Other lease obligations		14,649		4,769		3,850		2,897		2,045		1,063		25
Long-term debt⁽²⁾		635,500		—		135,500		500,000		—		—		—
Senior notes interest⁽²⁾		52,500		13,125		26,250		13,125		—		—		—

	$	925,553	$	65,722	$	202,479	$	546,248	$	28,432	$	27,316	$	55,356


Period	Total Number of Shares Purchased		Average Price Paid per Share
March 1, 2017 – March 31, 2017		7,016	$	14.27

September 30, 2017

December 31, 2016

Allowance for Contractual Discounts

Allowance for Uncompensated Care