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

illiquidity in the trading of our securities, including limitations caused by the delisting of our common stock from Nasdaq and the subsequent trading of our securities in the over-the-counter market;

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;

the adverse impact of customers electing to terminate or reduce our services;

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;

the availability of adequate insurance;

adverse changes in the value of our aircraft or our ability to sell them in the secondary markets;

political, economic, payment, regulatory and other risks and uncertainties associated with our international operations, some of which are conducted in challenging business environments;

the effects of competition and changes in technology;

the special risks of our air medical operations, including collections risks and potential medical malpractice claims;

weather conditions and seasonal factors, including tropical storms;

our ability to timely realize the anticipated benefits of our December 29, 2017 acquisition of ~~the HNZ Offshore Business (as defined below in Item 2 of Part I of this report);~~additional offshore operations;

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 timely collect our receivables in full;

~~our ability to develop and implement successful business strategies;~~

•

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;

changes in fuel prices;

our ability to attract and retain key personnel and to avoid work stoppages or other labor ~~problems;~~problems, which as indicated above may be impacted by the Chapter 11 Cases;

changes in our operating plans or strategies, whether based upon changes in our cash flows, cash requirements, financial performance, financial position, market conditions or otherwise;

environmental and litigation risks; ~~and~~

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 (i) Item 1A of Part II or elsewhere in this report, (ii) Item 1A or elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 or (iii) other of our filings with the U.S. Securities and Exchange Commission ("SEC").

Additional factors or risks that we currently deem immaterial, that are not presently known to us, that arise in the future or that are not specific to us 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, which speak only as of the date made. PHI undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or developments, changed circumstances, or otherwise. Further, we may make changes to 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.

PART I – ~~FINANCIAL~~FINANCIAL INFORMATION

~~Item 1.~~Item1. FINANCIAL STATEMENTS

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except share data)

(Unaudited)

	June 30, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	21,882		$	50,874
Short-term investments		76,141			14,232
Accounts receivable – net
Trade		174,499			168,459
Other		8,845			14,006
Inventories of spare parts – net		54,242			56,698
Prepaid expenses		13,072			11,419
Income taxes receivable		509			950
Total current assets		349,190			316,638
Property and equipment – net		885,669			902,485
Right of use assets		144,944			—
Restricted cash and investments		19,739			19,781
Other assets		20,937			18,378
Deferred income taxes		5,137			4,944
Total assets	$	1,425,616		$	1,262,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Senior Notes issued March 17, 2014, net of debt issuance cost of $260	$	—		$	499,740
Accounts payable		70,615			50,289
Accrued and other current liabilities		38,483			45,292
Current portion of operating lease liabilities		27,535			—
Current maturities of long term debt		1,750			—
Total current liabilities		138,383			595,321
Long-term debt:
Term loan issued March 13, 2019, net of debt issuance costs of $5,254		62,996			—
Related party term loan issued September 28, 2018, net of debt issuance costs of $546 and $765, respectively		129,454			129,235
Deferred income taxes		51,964			59,178
Other long-term liabilities		3,673			5,059
Long-term operating lease liabilities		118,167			—
Total liabilities not subject to compromise		504,637			788,793
Liabilities subject to compromise		513,125			—
Total liabilities		1,017,762			788,793
Commitments and contingencies (Note 11)
Shareholders’ Equity:
Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		291			291
Non-voting common stock – par value of $0.10; 37,500,000 shares authorized, 12,919,681 issued and outstanding at June 30, 2019 and December 31, 2018, respectively		1,291			1,291
Additional paid-in capital		316,143			314,316
Accumulated other comprehensive income (loss)		(4,040	)		(3,952	)
Retained earnings		94,169			161,487
Total shareholders’ equity		407,854			473,433
Total liabilities and shareholders’ equity	$	1,425,616		$	1,262,226

~~(Unaudited)~~

September 30,
2018 December 31, 2017
ASSETS
Current Assets:
Cash $ 16,453
$ 8,770
Short-term investments 30,509
64,237
Accounts receivable – net
Trade 175,372
168,153
Other 22,035
17,826
Inventories of spare parts – net 74,352
80,881
Prepaid expenses 13,201
11,475
Income taxes receivable 649
1,271
Total current assets 332,571
352,613
Property and equipment – net 923,577
946,765
Restricted investments 19,781
12,396
Other assets 10,142
8,741
Deferred income taxes 1,009
3,309
Goodwill 61,299
61,299
Intangibles 15,557
16,723
Total assets $ 1,363,936
$ 1,401,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Senior Notes issued March 17, 2014, net of debt issuance costs of $571 499,429
—
Accounts payable 39,209
37,186
Accrued and other current liabilities 39,557
41,850
Total current liabilities 578,195
79,036
Long-term debt:
Revolving credit facility —
117,500
Senior Notes issued March 17, 2014, net of debt issuance costs of $1,506 —
498,494
Related Party Term Loan issued September 28, 2018, net of debt issuance costs of $874 129,126
—
Deferred income taxes 74,062
86,005
Other long-term liabilities 5,168
8,157
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 at September 30, 2018 and December 31, 2017, respectively 291
291
Non-voting common stock – par value of $0.10; 37,500,000 shares authorized, 12,914,011 and 12,897,614 issued and outstanding at September 30, 2018 and December 31, 2017, respectively 1,291
1,289
Additional paid-in capital 312,503
308,353
Accumulated other comprehensive income (loss) (4,094 ) (280 )
Retained earnings 267,394
303,001
Total shareholders’ equity 577,385
612,654
Total liabilities and shareholders’ equity $ 1,363,936
$ 1,401,846

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

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Operating revenues, net	$	165,172		$	169,243		$	317,062		$	329,607
Expenses:
Direct expenses		153,514			155,083			310,390			311,309
Selling, general and administrative expenses		17,591			14,485			42,458			29,944
Total operating expenses		171,105			169,568			352,848			341,253
(Gain) loss on disposal of assets		(95	)		(171	)		(44	)		708
Equity in income of unconsolidated affiliate		(1,039	)		(81	)		(2,400	)		(45	)
Operating loss		(4,799	)		(73	)		(33,342	)		(12,309	)
Interest expense		3,927			8,340			12,093			16,537
Reorganization items, net		26,503			—			28,103			—
Other income, net		(333	)		364			(293	)		1,404
		30,097			8,704			39,903			17,941
Loss before income taxes		(34,896	)		(8,777	)		(73,245	)		(30,250	)
Income tax (benefit) expense		(2,819	)		(1,684	)		(5,927	)		(6,175	)
Net loss	$	(32,077	)	$	(7,093	)	$	(67,318	)	$	(24,075	)
Weighted average shares outstanding:
Basic		15,825			15,806			15,825			15,806
Diluted		15,825			15,806			15,825			15,806
Net loss per share:
Basic	$	(2.03	)	$	(0.45	)	$	(4.25	)	$	(1.52	)
Diluted	$	(2.03	)	$	(0.45	)	$	(4.25	)	$	(1.52	)

~~(Unaudited)~~

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Operating revenues, net $ 168,787
$ 150,167
$ 498,400
$ 431,209
Expenses:

Direct expenses 160,200
136,786
471,509
400,250
Selling, general and administrative expenses 16,255
11,401
46,199
38,691
Total operating expenses 176,455
148,187
517,708
438,941
(Gain) loss on disposal of assets —
(4 ) 708
3
Equity in (gain) loss of unconsolidated affiliates, net (118 ) (438 ) (162 ) 1,556
Operating (loss) income (7,550 ) 2,422
(19,854 ) (9,291 )
Interest expense 8,357
8,027
24,894
24,305
Other income – net (1,845 ) (706 ) (436 ) (2,474 )
6,512
7,321
24,458
21,831
Loss before income taxes (14,062 ) (4,899 ) (44,312 ) (31,122 )
Income tax benefit (2,531 ) (1,622 ) (8,705 ) (9,324 )
Net loss $ (11,531 ) $ (3,277 ) $ (35,607 ) $ (21,798 )
Weighted average shares outstanding:

Basic 15,816
15,799
15,811
15,750
Diluted 15,816
15,799
15,811
15,750
Net loss per share:

Basic $ (0.73 ) $ (0.21 ) $ (2.25 ) $ (1.38 )
Diluted $ (0.73 ) $ (0.21 ) $ (2.25 ) $ (1.38 )

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

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~

LOSS

(Thousands of dollars)

(Unaudited)

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Net loss	$	(32,077	)	$	(7,093	)	$	(67,318	)	$	(24,075	)
Unrealized (loss) gain on short-term investments		—			(107	)		—			363
Currency translation adjustments		(928	)		160			(121	)		627
Changes in pension plan assets and benefit obligations		—			7			—			(1	)
Tax effect of the above-listed adjustments		25			100			33			(85	)
Total comprehensive loss	$	(32,980	)	$	(6,933	)	$	(67,406	)	$	(23,171	)

~~(Unaudited)~~

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Net loss $ (11,531 ) $ (3,277 ) $ (35,607 ) $ (21,798 )
Unrealized gain on short-term investments —
41
363
370
Currency translation adjustments (4,718 ) —
(4,091 ) —
Changes in pension plan assets and benefit obligations —
(24 ) (1 ) (2 )
Tax effect of the above-listed adjustments —
(8 ) (85 ) (134 )
Total comprehensive loss $ (16,249 ) $ (3,268 ) $ (39,421 ) $ (21,564 )

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

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Thousands of dollars and shares)

(Unaudited)

	Voting Common Stock				Non-Voting Common Stock					Additional			Accumulated Other Com-
	Shares		Amount		Shares			Amount		Paid-in Capital			prehensive (Loss) Income			Retained Earnings			Shareholders' Equity
Balance at March 31, 2018		2,906		291		12,905			1,290		309,672			464			286,018		$	597,735
Net loss		—		—		—			—		—			—			(7,092	)		(7,092	)
Unrealized gain on short-term investments		—		—		—			—		—			(4	)		—			(4	)
Changes in pension plan assets and benefit obligations		—		—		—			—		—			4			—			4
Amortization of unearned stock-based compensation		—		—		—			—		813			—			—			813
Cash payment of Performance Based stock units		—		—		—			—		—			—			—			—
Currency translation adjustment		—		—		—			—		—			160			—			160
Issuance of non-voting common stock (upon vesting of restricted stock units)		—		—		(2	)		1		(2	)		—			—			(1	)
Cancellation of restricted non-voting stock units for tax withholdings on vested shares		—		—		3			—		(50	)		—			—			(50	)
Balance at June 30, 2018		2,906	$	291		12,906		$	1,291	$	310,433		$	624		$	278,926		$	591,565

	Voting Common Stock				Non-Voting Common Stock				Additional		Accumulated Other Com-
	Shares		Amount		Shares		Amount		Paid-in Capital		prehensive (Loss) Income			Retained Earnings			Shareholders' Equity
Balance at March 31, 2019		2,906	$	291		12,919	$	1,291	$	314,818	$	(3,138	)	$	126,246		$	439,508
Net loss		—		—		—		—		—		—			(32,077	)		(32,077	)
Amortization of unearned stock-based compensation		—		—		—		—		1,325		—			—			1,325
Cash payment of Performance Based stock units																		—
Currency translation adjustment		—		—		—		—		—		(902	)		—			(902	)
Balance at June 30, 2019		2,906	$	291		12,919	$	1,291	$	316,143	$	(4,040	)	$	94,169		$	407,854

Voting
Common Stock

Non-Voting
Common Stock

Additional
Paid-in Capital

Accumulated
Other Com-prehensive (Loss) Income

Shares Amount Shares Amount 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 )
Retirement of treasury stock —
—
—
—
—
—
1,028
1,028
Balance at September 30, 2017 2,906
$ 291
12,893
$ 1,289
$ 307,054
$ (244 ) $ 273,671
$ 582,061

Voting
Common Stock

Non-Voting
Common Stock

Additional
Paid-in Capital

Accumulated
Other Com-prehensive (Loss) Income

Shares Amount Shares Amount Retained Earnings Shareholders' Equity
Balance at December 31, 2017 2,906
$ 291
12,897
$ 1,289
$ 308,353
$ (280 ) $ 303,001
$ 612,654
Net loss —
—
—
—
—
—
(35,607 ) (35,607 )
Unrealized gain on short-term investments —
—
—
—

278
—
278
Changes in pension plan assets and benefit obligations —
—
—
—
—
(1 ) —
(1 )
Amortization of unearned stock-based compensation —
—
—
—
4,250
—
—
4,250
Currency translation adjustment —
—
—
—
—
(4,091 ) —
(4,091 )
Issuance of non-voting common stock (upon vesting of restricted stock units) —
—
27
3
—
—
—
3
Cancellation of restricted non-voting stock units for tax withholdings on vested shares —
—
(10 ) (1 ) (100 ) —
—
(101 )
Balance at September 30, 2018 2,906
$ 291
12,914
$ 1,291
$ 312,503
$ (4,094 ) $ 267,394
$ 577,385

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

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Thousands of dollars and shares)

(Unaudited)

	Voting Common Stock				Non-Voting Common Stock				Additional			Accumulated Other Com-
	Shares		Amount		Shares		Amount		Paid-in Capital			prehensive (Loss) Income			Retained Earnings			Shareholders' Equity
Balance at January 1, 2018		2,906	$	291		12,897	$	1,289	$	308,353		$	(280	)	$	303,001		$	612,654
Net loss		—		—		—		—		—			—			(24,075	)		(24,075	)
Unrealized gain on short-term investments		—		—		—		—		—			278			—			278
Changes in pension plan assets and benefit obligations		—		—		—		—		—			(1	)		—			(1	)
Amortization of unearned stock-based compensation		—		—		—		—		2,132			—			—			2,132
Currency translation adjustment		—		—		—		—		—			627			—			627
Issuance of non-voting common stock (upon vesting of restricted stock units)		—		—		9		2		(2	)		—			—			—
Cancellation of restricted non-voting stock units for tax withholdings on vested shares		—		—		—		—		(50	)		—			—			(50	)
Balance at June 30, 2018		2,906	$	291		12,906	$	1,291	$	310,433		$	624		$	278,926		$	591,565

	Voting Common Stock				Non-Voting Common Stock				Additional			Accumulated Other Com-
	Shares		Amount		Shares		Amount		Paid-in Capital			prehensive (Loss) Income			Retained Earnings			Shareholders' Equity
Balance at January 1, 2019		2,906	$	291		12,919	$	1,291	$	314,316		$	(3,952	)	$	161,487		$	473,433
Net loss		—		—		—		—		—			—			(67,318	)		(67,318	)
Amortization of unearned stock-based compensation		—		—		—		—		2,640			—			—			2,640
Cash payment of Performance Based stock units										(813	)								(813	)
Currency translation adjustment		—		—		—		—		—			(88	)		—			(88	)
Balance at June 30, 2019		2,906	$	291		12,919	$	1,291	$	316,143		$	(4,040	)	$	94,169		$	407,854

PHI, INC. AND SUBSIDIARIES

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Operating activities:
Net loss	$	(67,318	)	$	(24,075	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		38,775			38,598
Deferred income taxes		(7,407	)		(7,446	)
(Gain) loss on asset dispositions		(44	)		708
Equity in (income) loss of unconsolidated affiliate, net		(2,400	)		(45	)
Inventory valuation reserves		1,416			3,308
Changes in operating assets and liabilities		13,301			(5,638	)
Net cash (used in) provided by operating activities		(23,677	)		5,410
Investing activities:
Purchase of property and equipment		(8,970	)		(18,098	)
Proceeds from asset dispositions		1,235			1,453
Purchase of short-term investments		(183,421	)		(260,996	)
Proceeds from sale of short-term investments		121,512			264,918
Payment of deposit on aircraft		(50	)		—
Refund of deposit on aircraft		503			—
Loan to unconsolidated affiliate		—			(274	)
Net cash used in investing activities		(69,191	)		(12,997	)
Financing activities:
Debt issuance cost		(5,668	)		—
Proceeds from line of credit		—			34,295
Payments on line of credit		—			(29,575	)
Repurchase of common stock					(51	)
Proceeds from Term Loan		70,000			—
Net cash provided by financing activities		64,332			4,669
Effect of exchange rate changes on cash		(483	)		—
Decrease in cash, cash equivalents and restricted cash		(29,019	)		(2,918	)
Cash, cash equivalents and restricted cash at the beginning of period		58,564			8,770
Cash, cash equivalents and restricted cash at end of period	$	29,545		$	5,852
Supplemental Disclosures Cash Flow Information
Cash paid during the period for:
Reorganization items, net	$	6,204		$	—
Interest	$	3,599		$	15,755
Income taxes	$	1,688		$	813
Noncash investing activities:
Other current liabilities and accrued payables related to purchase of property and equipment	$	96		$	272

~~(Unaudited)~~

Nine Months Ended
September 30,
2018 2017
Operating activities:
Net loss $ (35,607 ) $ (21,798 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 59,541
50,593
Deferred income taxes (9,734 ) (9,416 )
Loss (gain) on asset dispositions 708
3
Equity in loss of unconsolidated affiliate, net (162 ) 1,556
Inventory valuation reserves 1,234
(3 )
Changes in operating assets and liabilities (24,028 ) (22,803 )
Net cash used in operating activities (8,048 ) (1,868 )
Investing activities:
Purchase of property and equipment (22,761 ) (49,227 )
Proceeds from asset dispositions 1,453
21
Purchase of short-term investments (284,277 ) (268,525 )
Purchase of restricted investments (7,705 ) —
Proceeds from sale of short-term investments 318,007
354,250
Loan to unconsolidated affiliate (274 ) —
Net cash provided by investing activities 4,443
36,519
Financing activities:
Debt issuance cost (874 ) —
Proceeds from line of credit 34,295
99,150
Payments on line of credit (151,795 ) (133,150 )
Proceeds from Term Loan 130,000
—
Repurchase of common stock (99 ) (256 )
Net cash provided by (used in) financing activities 11,527
(34,256 )
Effect of exchange rate changes on cash (239 ) —
Increase in cash 7,683
395
Cash, beginning of period 8,770
2,596
Cash, end of period $ 16,453
$ 2,991
Supplemental Disclosures Cash Flow Information
Cash paid during the period for:
Interest $ 30,825
$ 29,536
Income taxes $ 1,304
$ 1,213
Noncash investing activities:
Other current liabilities and accrued payables related to purchase of property and equipment $ 223
$ 21

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 and the accompanying notes should be read in conjunction with the consolidated financial statements and the accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

Our financial results, particularly as they relate to our Oil and Gas segment, are influenced by seasonal fluctuations as discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. 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.

Going Concern - The financial statements accompanying this Quarterly Report have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”), which contemplates our continuation as a going concern. ~~For the reasons described~~As discussed further in Note 5,2 below, our operations are currently subject to the ~~classification~~jurisdiction of the Bankruptcy Code.

The accompanying interim Unaudited Condensed Consolidated Financial Statements have been prepared assuming that PHI will continue as a going concern and contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is contingent upon our ~~senior note indebtedness as current liabilities due within one year~~ability to successfully implement our plan of reorganization approved by the Bankruptcy Court on August 2, 2019, among other factors. The risks and ~~other conditions~~uncertainties surrounding our Chapter 11 proceedings raise substantial doubt ~~about~~as to our ability to continue as a going concern.

Under the absolute priority scheme established by the Bankruptcy Code, unless our creditors agree otherwise, all of our pre-petition liabilities and post-petition liabilities must be satisfied in full before the holders of our existing common stock may receive any distribution or retain any property under a plan of reorganization. Although Note 2 describes the general terms of our confirmed plan of reorganization, the ultimate recovery to creditors and shareholders will not be fully determined unless and until we can fully implement such plan. The accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the filing of the Chapter 11 Cases. See Note 2 for additional information.

Supplemental Cash Flow Information - The following table sets forth the Company’s reconciliation of cash, cash equivalents and restricted cash reported within ~~one year~~the Condensed Consolidated Statement of Cash Flows (in thousands):

	June 30,		December 31,		June 30,		December 31,
	2019		2018		2018		2017
Cash and Cash Equivalents	$	21,882	$	50,874	$	5,852	$	8,770
Restricted Cash		7,663		7,690		—		—
Total Cash, Cash Equivalents and Restricted Cash	$	29,545	$	58,564	$	5,852	$	8,770

Recently adopted accounting principles

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASC 842). ASC 842 replaces the existing guidance on leasing transactions in ASC 840 and requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASC 842 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The Company adopted the new standard effective January 1, 2019.

The Company elected the transition methodology provided by ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, whereby it applied the requirements of ASC 842 on a prospective basis as of the adoption date of January 1, 2019, without retrospectively adjusting prior periods. The Company elected to adopt the package of practical expedients provided by ASC 842 that allows prior determinations of whether existing contracts are, or contain, leases and the classification of existing leases to continue without reassessment. The Company elected to keep leases with an initial term of 12 months or less off of the balance sheet. The Company intends to recognize those lease payments in the consolidated statement of operations on a straight-line basis over the lease term. The Company also elected to combined lease and non-lease components in the computations of lease obligations and right-of-use assets. During our evaluation of ASU 2016-02, we concluded that certain of our helicopter service contracts contain a lease component. Our typical helicopter service contracts qualify for a practical expedient, which is available to lessors under certain circumstances, to combine the lease and non-lease components and account for the combined component in accordance with the accounting treatment for the predominant component. We have applied this practical expedient and intend to combine the lease and service components of our revenue contracts and continue to account for the combined component under Topic 606, Revenue from Contracts with Customers.

The Company completed the implementation of an information technology system to track and account for its leases and updated its accounting policies to support the accounting for leases under ASC 842. The Company completed its lease inventory and determined its most significant leases involve aircraft and facilities. For additional information, see Note 13.

2. BANKRUPTCY FILING

Initiation of Chapter 11 Proceedings

On March 14, 2019 (the "Petition Date"), PHI and four of its domestic subsidiaries (collectively, the "Debtors") filed voluntary petitions (the "Chapter 11 Cases") in the United States Bankruptcy Court for the Northern District of Texas (the "Bankruptcy Court") for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). The Chapter 11 Cases are being jointly administered under the caption "In re PHI, Inc., et al., Case No. 19-30923."

Shortly following the Petition Date, the Bankruptcy Court entered certain orders facilitating the Debtors' operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay employee wages and benefits, and pay vendors and suppliers in the ordinary course for all goods and services provided after the Petition Date.

The Debtors are currently operating their businesses and managing their properties as "debtors in possession" in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Certain subsidiaries of PHI (collectively, the "Non-Filing Entities") are not part of the Chapter 11 Cases. The Non-Filing Entities will continue to operate their businesses in the normal course and their results are included in our interim Unaudited Condensed Consolidated Financial Statements.

Significant Bankruptcy Court Actions

Development of Reorganization Plan. On April 1, 2019, the Debtors filed with the Bankruptcy Court their initial plan of reorganization under the Bankruptcy Code. Following such filing, the Debtors remained in discussions with various stakeholders in an attempt to obtain additional input about maximizing the value of the enterprise. Following mediation in late May 2019, on June 5, 2019, the Company entered into a settlement plan term sheet (the “Term Sheet”) with the Official Committee of Unsecured Creditors (the “UCC”) and certain other key stakeholders that resolved the UCC’s key objections and motions, subject to satisfaction of certain conditions contained within the Term Sheet.

Among other things, the Term Sheet provides that, upon our emergence from bankruptcy, our current secured lenders will be repaid and our current unsecured creditors will, subject to various exceptions and limitations, receive equity in a newly-reorganized parent company issuer. The Term Sheet further provides that, contingent upon the effectiveness of the Company’s plan of reorganization, Mr. Al A. Gonsoulin, who currently serves as the Company’s Chairman and Chief Executive Officer, will retire from all positions held with the Company and its subsidiaries, including as a member of the Board of Directors, effective upon the date of the Company’s emergence from the Chapter 11 Cases (the “Emergence Date”). The Term Sheet further provides that Mr. Lance F. Bospflug, who currently serves as President, Chief Operating Officer and a director of the Company, will be appointed to succeed Mr. Gonsoulin as Chief Executive Officer of the Company on the Emergence Date and will continue to serve as a member of the Board.

On June 13, 2019, the Debtors filed their second amended joint plan of organization and related disclosure statement, which, among other things, reflected restructuring terms agreed upon in the Term Sheet. On June 18, 2019, the Debtors entered into a term sheet reflecting a settlement with the Official Committee of Equity Security Holders. Subject to certain exceptions, this settlement contemplates issuing to our current equity holders three-year warrants entitling the holders to acquire under certain specified terms and conditions up to an aggregate of 5% of the reorganized parent’s equity interests issued and outstanding as of our emergence from bankruptcy, subject to dilution in connection with future equity issuances. On June 18, 2019, the Debtors filed their third amended joint plan of reorganization (the “Third Amended Plan”) and related disclosure statement (the “Disclosure Statement”). On June 19, 2019, the Bankruptcy Court approved the Disclosure Statement and authorized the Debtors to commence solicitation of approval of the Plan under the Bankruptcy Code.

Equity Commitment Agreement. In connection with the Chapter 11 Cases, on July 11, 2019, the Debtors entered into an Equity Commitment Agreement (the “Commitment Agreement”) with certain of the Company’s unsecured creditors (each a “Commitment Party” and collectively, the “Commitment Parties”). The Commitment Agreement is a component of the settlement plan agreed upon between the Company and certain creditors under the Term Sheet.

Subject to the terms and conditions of the Commitment Agreement, the Commitment Parties have agreed, in the aggregate, to provide up to $75 million cash (the “Equity Commitment”) in exchange for shares of common stock in the reorganized parent company. Under the Commitment Agreement, the shares would be issued at a discount of 25% to the value assigned to such shares in the Plan (as defined below). In addition, each of the Commitment Parties would be paid their pro rata share of an overall commitment fee of $15 million. The commitment fee would be paid on the Emergence Date in the form of additional shares of common stock of the reorganized parent company. Under the Commitment Agreement, the Company also agreed to enter into a registration rights agreement with certain Commitment Parties entitling such Commitment Parties under certain circumstances to request that the Company register their equity securities in the Company for sale under the rules of the U.S. Securities and Exchange Commission (the “SEC”).

The Commitment Agreement prohibits the Company from soliciting alternative financing or restructuring proposals, although the Company’s board of directors (the “Board”) can respond to an unsolicited alternative proposal if doing so would be required by its fiduciary duties.

The obligations of each Commitment Party to consummate the transactions contemplated by the Commitment Agreement are subject to specified conditions including, but not limited to, the Debtors’ compliance in all material respects with the terms of the Plan, the absence of a material adverse change in our business, our attainment of certain specified funding and liquidity thresholds, and the absence at the closing of any material breach of the representations, warranties and covenants made by the Debtors in the Commitment Agreement.

The Commitment Agreement may be terminated in a number of circumstances. We will be required to pay (i) a $3.75 million termination fee if we terminate the Commitment Agreement in connection with the Board’s exercise of its fiduciary duties and certain other conditions are met, including entering into an agreement to effect an alternative transaction within 12 months, or (ii) a higher termination fee if the Commitment Parties terminate the Commitment Agreement in certain other limited circumstances.

Term Loan Commitments. The Debtors have received binding commitments from lenders to fund on the Emergence Date the full amount of a $225 million first lien senior secured term loan that would mature in five years, subject to the satisfaction of certain conditions summarized herein. This term loan facility is a component of the reorganization plan agreed upon between the Debtors and certain of their creditors in the Term Sheet. The definitive documentation that is expected to govern this term loan facility has not yet been finalized or executed. Accordingly, we cannot assure you that the term loan facility will be completed as contemplated, or at all. For additional information, see Note 6.

Plan Supplementation. On June 23, 2019, the Debtors filed a supplement to their Third Amended Plan (the “Plan Supplement” and, collectively with the Third Amended Plan, the “Plan”) which included various documentation related to the Plan, including a partial list of the directors expected to be named to the new parent company and updated disclosure regarding our equity value. Prior to the hearing to confirm the Plan held on July 30, 2019, the Debtors filed additional documentation, including drafts of organizational documents of the new parent company and additional information about our post-emergence management incentive program.

Plan Confirmation. At a hearing held on July 30, 2019, the Bankruptcy Court confirmed the Plan, and on August 2, 2019, the Bankruptcy Court issued a written order to this effect. Implementation of the Plan is subject to the satisfaction or due waiver of several conditions, including without limitation (i) consummation of the debt and equity transactions contemplated by the Term Sheet and described herein, (ii) the payment in full of our secured lenders, (iii) certain minimum liquidity levels, (iv) the finalization of various documentation, (v) compliance with various regulatory requirements, (vi) the payment of various expenses and (vii) the implementation of the restructuring in a manner consistent with the Plan and certain stipulations contained therein.

Other. The description of our Chapter 11 Cases in this Note 2 and elsewhere in this report does not purport to be complete and is qualified in its entirety by reference to (i) our filings with the Bankruptcy Court, all of which are publicly available in the manner described elsewhere herein, and (ii) the exhibits to this report.

Executive Compensation Plans

In connection with the Chapter 11 Cases, the Compensation Committee of the Board of Directors of the Company has adopted on behalf of the Company a Key Employee Incentive Plan (the "KEIP") and a Key Employee Retention Plan ("KERP"). The KEIP is designed to incentivize seven of the Company's senior executives by providing a total potential cash award pool of approximately $4.2 million for performance at threshold levels, $5.6 million at plan target levels and $7.0 million for performance exceeding plan, target levels. Payouts under the KEIP are contingent upon emergence from Chapter 11, achievement of certain financial targets and achievement of certain safety metrics. The KERP is designed to enhance retention of up to 61 other non-insider employees and provides a total award pool of approximately $3.5 million cash. The Bankruptcy Court has approved both the KEIP and the KERP.

Financial Reporting in Reorganization

Effective on the Petition Date, the Company began to apply accounting standards applicable to reorganizations, which are applicable to companies under Chapter 11 bankruptcy protection. They require the financial statements for periods subsequent to the Petition Date to distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as reorganization items, net in the Unaudited Condensed Consolidated Statements of Operations. In addition, the balance sheet must distinguish pre-petition liabilities subject to compromise ("LSTC") of the Debtors from pre-petition liabilities that are not subject to compromise, post-petition liabilities, and liabilities of non-Debtor entities in the accompanying ~~this Quarterly Report~~Unaudited Condensed Consolidated Balance Sheets. LSTC are ~~filed.~~

pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, the Company has classified the entire amount of the claim as an outstanding liability.

Furthermore, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in- possession, certain claims against the Debtors in existence before the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtors continue business operations as debtors in possession. These claims are reflected in the unaudited Condensed Consolidated Balance Sheets at June 30, 2019 as LSTC. Additional LSTC may arise after the filing date resulting from rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreed to by parties in interest) of allowed claims for contingencies and other disputed amounts. Claims secured against the Debtors' assets (secured claims) also are stayed, although the holders of such claims have the right to move the Bankruptcy Court for relief from the stay. The Company's secured claims are secured primarily by liens on certain of the Debtors’ receivables, inventory and spare parts and certain of their specified aircraft.

Liabilities Subject to Compromise

As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities is generally subject to compromise pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors' business and assets. Among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, taxes, and certain critical vendors.

Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for different amounts. The amounts classified as LSTC may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, the determination of secured status of certain claims, the determination as to the value of any collateral securing claims, proof of claims, or other events. See Note 7 - “Liabilities Subject to Compromise” for a specific discussion on balances subject to compromise.

Process for Implementation of Plan of Reorganization

Although the Plan provides that the Debtors will emerge from bankruptcy as a going concern, there can be no assurance at this time that the Debtors will be able to successfully consummate the Plan or any other alternative restructuring transaction that satisfies the conditions of the Bankruptcy Code and is confirmed by the Bankruptcy Court, or that the Plan will be implemented successfully. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Reorganization Items, Net

Reorganization items, net represent amounts incurred after the Petition Date as a direct result of the Chapter 11 Cases and are comprised of professional and other bankruptcy-related fees for the period from March 15, 2019 through June 30, 2019. See Note 19.

3. INVESTMENTS

We classify all of our short-term investments as available-for-sale. We carry these at fair value and report unrealized gains and losses, net of taxes, in Accumulated other comprehensive 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 June 30, 2019:

	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(Thousands of dollars)
Investments:
Money market mutual funds	$	88,217	$	—	$	—	$	88,217
Deferred compensation plan assets included in other assets		889		—		—		889
Total	$	89,106	$	—	$	—	$	89,106

Investments consisted of the following as of December 31, 2018:

	Cost Basis		Unrealized Gains		Unrealized Losses		Fair Value
	(Thousands of dollars)
Investments:
Money market mutual funds	$	26,308	$	—	$	—	$	26,308
Deferred compensation plan assets included in other assets		772		—		—		772
Total	$	27,080	$	—	$	—	$	27,080

At June 30, 2019 and December 31, 2018, we classified $12.1 million 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.

4. 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 $6.3 million and $6.1 million at June 30, 2019, and December 31, 2018, 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 $140.5 million and $123.8 million as of June 30, 2019 and December 31, 2018, respectively. The allowance for uncompensated care was $45.5 million and $51.9 million as of June 30, 2019 and December 31, 2018, respectively.

~~Recently Adopted~~ 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 $1.6 million and $1.7 million for the quarters ended June 30, 2019 and 2018, respectively. The value of these services was $3.5 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively. The estimated cost of providing charity services was $0.3 million and $0.4 million for the quarters ended June 30, 2019 and 2018, respectively. The estimated cost of providing charity services was $0.8 million for the six months ended June 30, 2019 and 2018, 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:

	June 30, 2019	December 31, 2018
Allowance for Contractual Discounts	55%	51%
Allowance for Uncompensated Care	18%	22%

We have also established valuation reserves related to obsolete and slow-moving spare parts inventory. The inventory valuation reserves were $19.4 million and $17.9 million at June 30, 2019 and December 31, 2018, respectively.

5. FAIR VALUE MEASUREMENTS

Accounting ~~Pronouncements~~ 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:

	June 30, 2019
	Total		(Level 1)		(Level 2)
	(Thousands of dollars)
Investments:
Money market mutual funds	$	88,217	$	88,217	$	—
Deferred compensation plan assets		889		889		—
Total	$	89,106	$	89,106	$	—

	December 31, 2018
	Total		(Level 1)		(Level 2)
	(Thousands of dollars)
Investments:
Money market mutual funds	$	26,308	$	26,308	$	—
Deferred compensation plan assets		772		772		—
Total	$	27,080	$	27,080	$	—

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 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 2 or Level 3 investments.

Cash, accounts receivable, accounts payable and accrued liabilities, and term loan debt all had fair values approximating their carrying amounts at June 30, 2019 and December 31, 2018. We determine the estimated fair value of our 5.25% Senior Notes due 2019 (the "Senior Notes") 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 $245.0 million and $344.2 million at June 30, 2019 and December 31, 2018, respectively. We provide no assurances, however, that the ultimate recovery of the holders of these notes pursuant to the Chapter 11 Cases will correspond to these fair values as of these prior dates.

6. DEBT

Listed below is information regarding our indebtedness. All indebtedness owed under our Senior Notes as of June 30, 2019 is classified as subject to compromise, and as of December 31, 2018 was classified as short-term debt on our balance sheet. The Thirty-Two, LLC and Blue Torch term loans are classified as long-term debt as of June 30, 2019, except for the amount due within the next twelve months.

	June 30, 2019					December 31, 2018
	Principal			Unamortized Debt Issuance Debt Cost		Principal			Unamortized Debt Issuance Debt Cost
Unsecured	(Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, matured March 15, 2019	$	500,000		$	—	$	500,000		$	260
Secured
Term Loan - Blue Torch Finance, LLC, interest payable quarterly at LIBOR plus 6%, maturing March 13, 2023		70,000			5,254		—			—
Related Party Term Loan - Thirty Two L.L.C., interest payable quarterly at 6%, due September 28, 2020		130,000			546		130,000			765
Total indebtedness		700,000			5,800		630,000			1,025
Less: Current maturities		(1,750	)		—		(500,000	)		—
	$	698,250		$	5,800	$	130,000		$	1,025

Senior Notes - Subject to the automatic stay of the Bankruptcy Code, our 5.25% Senior Notes (the “Senior Notes”) matured on March 15, 2019. These notes are unconditionally guaranteed on a senior basis by each of PHI, Inc.’s wholly-owned domestic subsidiaries. These notes and related guarantees are the general, unsecured obligations of PHI, Inc. and the guarantors. For more information regarding the impact of our bankruptcy proceedings on the Senior Notes, see Note 2.

Blue Torch Loan Agreement - On March 13, 2019, we entered into a Loan Agreement, dated the same date (the “Blue Torch Agreement”), by and among the Company, as borrower, certain of our subsidiaries as guarantors party thereto, the lenders from time to time party thereto, and Blue Torch Finance, LLC, as administrative agent and collateral agent, for a first lien term loan of up to $70.0 million (the “Blue Torch Loan”). Immediately upon entering into the Blue Torch Agreement, and prior to the filing of the Chapter 11 Cases, we borrowed $70.0 million thereunder, the net proceeds of which (after the payment of transaction expenses and fees thereunder) we have used to continue to fund our working capital and liquidity requirements during the pendency of the Chapter 11 Cases. For additional information regarding our Chapter 11 Cases, see Notes 2 and 7 herein and Notes 1 and 19 to our filed 2018 10-K.

The remaining principal amount of the Blue Torch Loan is due March 13, 2023. At our election, borrowings under the Blue Torch Loan bear interest at either the LIBOR Rate (as defined in the Blue Torch Agreement) plus 6% or the Base Rate (as defined in the Blue Torch Agreement) plus 5%. The Blue Torch Loan is secured by a first lien on 91 aircraft registered and located in Australia, Canada, and the United States (which are currently deployed primarily in our oil and gas and technical services operations), the related spare parts for such aircraft, and certain other non-working capital assets, as well as a second lien on all working capital assets (second in priority to the liens granted under our below-described term loan agreement, dated as of September 28, 2018, with Thirty Two, L.L.C.). The Blue Torch Agreement contains customary pre-payment requirements. In addition, we paid on March 13, 2019 a funding fee, which is subject to forgiveness based on certain future events.

The Blue Torch Agreement contains certain customary negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s and each guarantor’s incurrence of additional indebtedness or liens, mergers, dispositions of assets, investments, restricted payments, modifications to material agreements, sale and leasebacks, transactions with affiliates, fundamental changes, locations of certain aircraft and acquisitions of assets. In addition, the financial covenants under the Blue Torch Agreement require us to maintain certain specified minimum levels of liquidity, fixed charge coverage and appraised collateral values, and certain specified maximum levels of secured leverage, all of which are explained in greater detail of our prior SEC reports. The Blue Torch Agreement also contains customary affirmative covenants and customary representations and warranties. As of the date of the financial statements, included in this report, we believe we were in compliance with these covenants.

The Blue Torch Agreement specifies certain customary events of default, including, among others, certain change of control events. The filings of the Chapter 11 Cases neither constituted an event of default nor accelerated payment of the Company’s indebtedness under the Blue Torch Agreement. As noted in Note 2, we plan to repay the Blue Torch Loan in full upon emergence from bankruptcy, assuming we consummate our Plan on the terms confirmed by order of the Bankruptcy Court on August 2, 2019.

Related Party Term Loan - On September 28, 2018, we entered into a term loan agreement with Thirty Two L.L.C., which provided us with a term loan of $130.0 million maturing on September 28, 2020. This loan bears interest at an annual fixed rate of 6% payable quarterly, with all principal due on maturity. Thirty Two L.L.C., an entity wholly-owned by our current CEO and controlling shareholder, is a related party.

Obligations under the term loan are guaranteed by PHI Air Medical, L.L.C. and PHI Tech Services, Inc., both of which are wholly-owned by us. Our obligations and the guarantors’ obligations are secured primarily by all of their respective inventory, spare parts and accounts receivable located in the U.S.

The related party term loan agreement contains customary restrictive covenants that, subject to certain exceptions and limitations, limit or restrict our ability to, among other things, (i) purchase, retire or redeem any shares of our capital stock; (ii) incur indebtedness; (iii) mortgage or encumber our assets; (iv) make loans to, or guarantee the indebtedness of, any individual or entity; (v) effect a change of control of PHI; (vi) consolidate with or merge into any other corporation, or permit any other corporation to merge into us; (vii) sell or lease all or substantially all of our assets; or (viii) acquire all or a substantial part of the assets or capital stock of another entity. The term loan agreement contains no financial covenants. The term loan agreement contains customary representations and warranties, affirmative covenants and events of default. As noted in Note 2, we plan to repay all of the principal and a portion of the accrued and unpaid interest under the related party term loan in full upon emergence from bankruptcy, assuming we consummate our Plan on the terms confirmed by order of the Bankruptcy Court on August 2, 2019.

Letter of Credit - At June 30, 2019, we had $19.7 million of outstanding letters of credit secured by a like amount of restricted cash, $12.1 million of which secured certain domestic operations or insurance policies and $7.6 million of which guaranteed our performance under an international contract. At December 31, 2018, we had $19.8 million of outstanding letters of credit issued for the same purposes.

Other - 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 GAAP, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see Note 15.

Acceleration of Certain Debt Obligations - The commencement of the Chapter 11 Cases constituted an event of default that accelerated the obligations under the indenture governing our 5.25% Senior Notes due 2019 and our term loan agreement with Thirty Two, L.L.C. Any efforts to enforce payment of such financial obligations under such instruments and agreements are automatically stayed as a result of the Chapter 11 Cases and the holders’ rights of enforcement in respect of such financial obligations are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

Subsequent Event

As described in greater detail in Note 2, we have received binding commitments from lenders to fund on the Emergence Date the full amount of a $225 million first lien senior secured term loan that would mature in five years (the “Exit Term Loan”), subject to the finalization, execution and delivery of definitive documentation and the satisfaction of various other conditions described below in this Note 6. The following description of the terms of the Exit Term Loan is only a summary, does not purport to be complete and is qualified in its entirety by reference to the form of term loan credit agreement that we filed with the SEC as an exhibit to our Current Report on Form 8-K dated July 22, 2019.

Borrower. All borrowings under the Exit Term Loan are expected to be incurred by a new parent holding company (the “Borrower”) to be formed under the Debtors’ plan of reorganization, which is expected to own directly or indirectly all of the outstanding equity interests of the Debtors upon their emergence from the bankruptcy proceedings.

Maturity. The Exit Term Loan would mature five years after the closing of the Exit Term Loan.

Guarantees and Security. The Borrower’s obligations under the Exit Term Loan are expected to be guaranteed, subject to certain exceptions, by all of its existing and future material domestic subsidiaries.

The Exit Term Loan is expected to be secured by a first-priority security interest on substantially all of assets of the Borrower and the guarantors party to the Exit Term Loan, excluding certain assets reserved to potentially collateralize a future asset-backed revolving credit facility.

Use of Proceeds. The borrowings under the Exit Term Loan would be used (i) to pay in full and discharge all of the Company’s indebtedness under debt agreements with Thirty Two, L.L.C. and Blue Torch Finance L.L.C., (ii) to pay various transaction expenses, and (iii) for general corporate purposes.

Interest Rates and Fees. Borrowings under the Exit Term Loan are expected to be subject to a 2.0% original issuance discount.

The Exit Term Loan will bear interest on the unpaid principal amount at a rate equal to, at our option, either:

a base rate determined by reference to the highest of (i) the prime rate in effect for such day as determined by Credit Suisse as its prime rate in effect at its principal office in New York City, (ii) the federal funds effective rate plus 0.5% and (iii) one-month LIBOR, adjusted for statutory reserve requirements, plus 1.0%, in each case, plus an applicable margin; or

A LIBOR rate determined by reference to the London interbank offered rate for U.S. dollars for the relevant interest period, adjusted for statutory reserve requirements, plus the applicable margin. The LIBOR rate will be subject to a 1.00% floor.

The applicable margin for borrowings under the Exit Term Loan would be 6.0% with respect to the base rate borrowings and 7.0% with respect to LIBOR borrowings.

We will pay customary fees and expenses in connection with obtaining funding commitments, including certain additional fees if the term loan is not funded by the end of August 30, 2019.

Prepayments. Amounts borrowed under the Exit Term Loan would amortize quarterly at an annual rate of 2.50% in the first and second years of the facility, 5.00% in the third year, and 7.50% thereafter, with the balance payable on the maturity date of the Exit Term Loan.

The Borrower would be required to prepay the Exit Term Loan, subject to exceptions and limitations, with:

100% of the net cash proceeds from any issuance or incurrence of indebtedness (other than indebtedness to be permitted by the Exit Term Loan);

The net cash proceeds of certain asset sales, subject to certain exceptions and limitations; and

The net cash proceeds from the sale of our Air Medical segment of the business.

Beginning with the fiscal year ending December 31, 2020, the Borrower will be required to prepay the Exit Term Loan in an amount equal to a certain percentage of its excess cash flow for each fiscal year, which percentage is based on the Borrower’s consolidated net total leverage ratio for the applicable fiscal year.

The Borrower may voluntarily prepay loans outstanding under the Exit Term Loan, in whole or in part, without premium or penalty (except as described below) in minimum amounts to be determined, at any time, subject to customary “breakage” costs with respect to LIBOR rate loans.

The Borrower would be required to pay a “prepayment premium” in connection with certain prepayments of the Exit Term Loan equal to a percentage of the principal amount so prepaid as follows:

during the first year following the closing date of the Exit Term Loan – the greater of (x) 1.0% of the principal amount prepaid and (y) the excess of: (i) the present value at such date of prepayment of (A) 2.0% of the principal amount so prepaid plus (B) the aggregate interest that would have accrued on such amount from the date of prepayment through the first anniversary of the closing of the Term Loan Facility, computed using a discount rate equal to the treasury rate plus 50 basis points discounted to the prepayment on a semi-annual basis, over (ii) the principal amount such loans;

during the second year following the closing date of the Exit Term Loan – 2.0%;

during the third year following the closing date of the Exit Term Loan – 1.0%; and

during the fourth year following the closing date of the Exit Term Loan and thereafter – 0%.

Covenants and Events of Default. The Exit Term Loan will contain customary restrictive covenants that, subject to certain exceptions and limitations, will limit or restrict the ability of the Borrower and its restricted subsidiaries (as defined in the Exit Term Loan) to, among other things, (i) purchase, retire or redeem any shares of their capital stock; (ii) incur indebtedness; (iii) mortgage or encumber their assets; (iv) make loans to, or guarantee the indebtedness of, any individual or entity; (v) effect a change of control; (vi) consolidate with or merge into any other corporation, or permit any other corporation to merge into the Borrower or the restricted subsidiaries; (vii) sell or lease all or substantially all of the assets of the Borrower or its restricted subsidiaries; or (viii) acquire all or a substantial part of the assets or capital stock of another entity. The Exit Term Loan will also contain a $20.0 million minimum liquidity financial covenant.

In addition, the Exit Term Loan will contain customary representations and warranties, affirmative covenants and events of default. Upon an event of default, the lenders (as defined in the Exit Term Loan) are entitled, subject to certain limitations, to declare the term loan, any other loans and all other obligations of the Borrower or its subsidiaries to the lenders immediately due and payable and to take all actions permitted to be taken by a secured creditor.

Conditions to Term Loan Facility. The obligations of the initial lenders to provide the Exit Term Loan is subject to certain conditions, including without limitation, the absence at the closing of any material breach of the representations, warranties and covenants made by the Borrower and its restricted subsidiaries.

7. LIABILITIES SUBJECT TO COMPROMISE

As a result of the filing of the Chapter 11 Cases on March 14, 2019, we have classified unsecured pre-petition liabilities that are expected to be impaired pursuant to the Plan as liabilities subject to compromise in our Condensed Consolidated Balance Sheet at June 30, 2019. Pre-petition liabilities that are subject to compromise are required to be reported at the amounts expected to be allowed, even if they may be settled for lesser amounts. If there was uncertainty at the time of determination about whether a secured claim was under-secured or would be impaired under the Plan, we reflected the entire amount of the claim as an outstanding liability. The amounts classified at June 30, 2019 as liabilities subject to compromise represent the Company’s estimate as of the filing date of this report of claims as of June 30, 2019 expected to be allowed under the Plan.

The Company’s obligations under the Senior Notes have been affected by the bankruptcy filing. As such, the outstanding balance of these Senior Notes and related accrued pre-petition interest have been classified as liabilities subject to compromise in the condensed consolidated balance sheet as of June 30, 2019.

Generally, actions to enforce or otherwise effect payment of pre-bankruptcy filing liabilities have been stayed during the pendency of the Chapter 11 Cases. Although payment of pre-petition claims is generally not permitted, the Bankruptcy Court approved the Debtors’ “first day” motions allowing, among other things, the Company to pay prepetition employee wages and benefits without interruption, maintain its insurance programs, utilize its current cash management system, and pay undisputed prepetition obligations owed to its vendors and trade creditors in the ordinary course of business. As a result of this approval, the Company continues to pay certain pre-petition claims in designated categories and subject to certain terms and conditions in the ordinary course of business, and we have not classified these liabilities as subject to compromise in the Condensed Consolidated Balance Sheet as of June 30, 2019. With respect to pre-petition claims, the Company notified all known claimants of the deadline to file a proof of claim with the Court.

The Company has been paying and intends to continue to pay post-petition claims in the ordinary course of business. The following table reflects pre-petition liabilities that are subject to compromise included in our Condensed Consolidated Balance Sheet as of June 30, 2019. See Note 6 - “Debt” for further information on our Senior Notes and related balances subject to compromise:

	June 30, 2019
	(Thousands of dollars)
Senior Notes issued March 17, 2014, interest only payable semi-annually at 5.25%, matured March 15, 2019	$	500,000
Accrued interest payable		13,125
Total liabilities subject to compromise	$	513,125

8. EARNINGS PER SHARE

The components of basic and diluted earnings per share for the quarter and six months ended June 30, 2019 and 2018 are as follows:

	Quarter Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(Thousands of dollars)
Weighted average outstanding shares of common stock, basic		15,825		15,806		15,825		15,806
Dilutive effect of unvested restricted stock units		—		—		—		—
Weighted average outstanding shares of common stock, diluted ⁽¹⁾		15,825		15,806		15,825		15,806

⁽¹⁾For the quarter ended June 30, 2019 and 2018, 0 and 425,317 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 six months ended June 30, 2019 and 2018, 0 and 14,258 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.

9. 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 the quarter and six months ended June 30, 2019 and 2018.

	Quarter Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(Thousands of dollars)
Stock-based compensation expense:
Time-based restricted stock units	$	845	$	435	$	1,685	$	1,077
Performance-based restricted stock units		480		378		955		1,055
Total stock-based compensation expense	$	1,325	$	813	$	2,640	$	2,132

During the quarter and six months ended June 30, 2019, no time-based restricted units or performance units were awarded to managerial employees.

During the quarter and six months ended June 30, 2018, 321,831 time-based restricted units and 448,012 performance-based restricted units were awarded to managerial employees.

On February 20, 2019, the PHI Compensation Committee approved the vesting of the 2017 performance RSUs based on the Company’s financial results exceeding the pre-determined business performance metrics set in 2017 for the two year performance period (January 1, 2017 - December 31, 2018). The PHI Compensation Committee decided to settle these vested RSU awards in cash based upon the closing market price on February 20, 2019, the date of the committee's certification that the performance metrics were met ($2.21 per share). The total amount of cash paid was $0.8 million. On February 20, 2019, the Compensation Committee certified that the performance metrics for performance-based restricted stock units granted in 2016 had not been met, which resulted in the forfeiture of 667,238 of such RSUs.

10. ASSET DISPOSALS

During the first quarter of 2019, there were no sales or disposals of aircraft. During the second quarter of 2019, we disposed of two light aircraft previously utilized in the Technical Services segment. The contract was terminated and these aircraft no longer met our strategic needs. Cash proceeds totaled $1.2 million, resulting in a gain of $0.2 million on the disposal of these assets. This gain was offset partially by a net loss on other assets disposals.

During the first quarter of 2018, we disposed of one light aircraft previously utilized in the Air Medical segment and donated to a charitable organization one aircraft previously used in our Oil and Gas segment. During the second quarter of 2018, we disposed of one medium and one light aircraft previously utilized in the Oil & Gas segment. These aircraft no longer met our strategic needs. Cash proceeds totaled $1.5 million, resulting in a $0.7 million loss on the disposal of these assets.

11. COMMITMENTS AND CONTINGENCIES

Commitments – We currently have no aircraft purchase commitments.

Environmental Matters – We have recorded an estimated liability of $0.15 million as of June 30, 2019 for environmental response costs. Previously, we conducted environmental surveys of our former Lafayette Facility located at the Lafayette Regional Airport, which we vacated in 2001, and 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, we have performed groundwater sampling of the required groundwater monitor well installations at both parcels and submitted these sampling reports to the LDEQ. Pursuant to an agreement with the LDEQ, we provided groundwater sample results semi-annually to the LDEQ for both parcels from 2005 to 2015. The LDEQ approved a reduction in the sampling program from semi-annual to annual groundwater monitoring in 2015. Based on our working relationship and agreements with the LDEQ, and the results of ongoing former facility parcel monitoring, we believe that ultimate remediation costs for the subject parcels will not be material to our consolidated financial position, operations or cash flows.

Legal Matters – From time to time, we are involved in various legal actions incidental to our business, including actions relating to employee claims, medical malpractice claims, 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.

Notwithstanding the foregoing, any litigation pending against us or any of the Debtors as of the Petition Date and any claims that could be asserted against us or an of the Debtors that arose prior to the Petition Date are automatically stayed as a result of the commencement of the Chapter 11 Cases pursuant to the section 362(2) of the Bankruptcy Code, subject to certain statutory exceptions. These matters will be subject to resolution in accordance with the Bankruptcy Code and applicable orders of the Bankruptcy Court.

12. REVENUE RECOGNITION

In 2014, the Financial Accounting Standard Board ("the FASB") issued ASC 606, Revenue from Contracts with Customers (“ASC 606”), replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the new standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 became effective on January 1, 2018 and we adopted it using the modified retrospective method applied to open contracts and only to the version of the contracts in effect as of January 1, 2018. ~~Prior period amounts have not been adjusted and continue to be reflected in accordance with our historical accounting.~~ There was no impact on the condensed consolidated financial statements and no cumulative effect adjustment was recognized.

In general, under ASC 606, we recognize revenue when a service or good is sold to a customer and ~~there is~~ a ~~contract.~~contract exists. At contract inception, we assess the goods and services promised in our contracts with customers and identify all performance obligations for each distinct promise that transfers a good or service (or bundle of goods or services) to the customer. To identify the performance obligations, we consider all goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. Revenue is recognized when control of the identified distinct goods or services has been transferred to the customer, the transaction price has been determined and allocated to the performed performance obligations and we have determined that collection has occurred or is probable of occurring.

~~We measure revenue as the amount of consideration we expect~~

Taxes billed to ~~receive in exchange for the services provided. Taxes~~and collected from customers and remitted to governmental authorities ~~and revenues~~ are reported as revenue on a net basis in ~~the~~ our financial statements. Thus, we exclude taxes ~~imposed on~~billed to the customer and collected on behalf of governmental agencies to be remitted to these agencies from the transaction price in determining the revenue related to contracts with a customer.

Oil & Gas Revenue Recognition - We provide helicopter services to oil and gas customers operating in the Gulf of Mexico and a number of foreign countries. Revenues are recognized when performance obligations are satisfied over time in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled to in exchange for services rendered.

Air Medical Revenue Recognition - We provide helicopter services to hospitals and emergency service providers in several U.S. states, or to individual patients in the U.S. in which case we are paid by either a commercial insurance company, federal or state agency, or the patient. Our Air Medical segment operates primarily under the independent provider model and, to a lesser extent, under the traditional provider model. Revenues related to the independent provider model services are recorded in the period in which we satisfy our performance obligations under contracts by providing our services to our customers based upon established billing rates net of contractual allowances under agreements with third party payors and net of uncompensated care allowances. These amounts are due from patients, third-party payors (including health insurers and government programs), and others and includes variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Generally, we bill the patients and third-party payors several days after the services are performed. Revenues generated under the

traditional provider model are recognized as performance obligations are satisfied over time in accordance with contractual terms, in an amount that reflects the consideration the Company expects to be entitled in exchange for services rendered.

Oil & Gas Performance Obligations - A performance obligation arises under contracts with customers to render services and is the unit of account under ASC 606. Operating revenue from our Oil and Gas segment is derived mainly from fixed-term contracts with our customers, a substantial portion of which are competitively bid. A small portion of our Oil and Gas segment revenue is derived from providing services on an "ad-hoc" basis. Our fixed-term contracts typically have original terms of one to seven years (subject to provisions permitting early termination on relatively short notice by the customers)~~, with payment in U.S. dollars.~~. We account for services rendered separately if they are distinct and the services are separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Within this contract type for helicopter services, we determined that each contract has a single distinct performance obligation. These services include a fixed monthly rate for a particular model of aircraft, and flight hour services, which represents the variable component of a typical contract with a customer. Rates for these services vary depending on the type of services provided and can be based on a per flight hour, per day, or per month basis. We also provide services to clients on an “ad hoc” basis, which usually entails a shorter contract notice period and duration. The charges for ad hoc services are based on an hourly rate or a daily or monthly fixed fee plus additional fees for each hour flown. The nature of our variable charges within our flight services contracts are not effective until a customer-initiated flight order and the actual hours flown are determined; therefore, the associated flight revenue generally cannot be reasonably and reliably estimated before hand. A contract’s standalone selling prices are determined based upon the prices that we charge for our services rendered. The majority of our revenue is recognized as performance obligations satisfied over time, by measuring progress towards satisfying the contracted services in a manner that best depicts the transfer of services to the customer, which is generally represented by a period of 30 days or less. We typically invoice customers on a monthly basis with the term between invoicing and when the payment is due typically being between 30 and 60 days.

Air Medical Performance Obligations - Performance obligations are determined based upon the nature of the services provided. Under the independent provider model, we measure the performance obligation from the moment the patient is loaded into the aircraft until it reaches its destination. Under this 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. These contracts are typically awarded or renewed through competitive bidding and typically permit early termination by the customer on relatively short notice. As a traditional provider, we typically bill a fixed monthly rate for aircraft availability and an hourly rate for flight time. For each of these types of helicopter services, we have determined that each has a single distinct performance obligation. Traditional provider models services include fixed monthly rate for a particular model of aircraft, and flight hour services, which represents the variable component of a typical contract with a customer. Rates for these services vary depending on the type of services provided and can be based on a per flight hour, per day, or per month basis. The variable charges within such contracts are not effective until the customer initiates a flight order and the actual hours flown are determined; therefore, the associated revenue generally cannot be reasonably and reliably estimated beforehand. For the traditional provider model, we determine the transaction price based upon standard charges for goods and services provided.

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 who self-pay. We recognize revenues for performance obligations satisfied at a point in time, which generally relate to patients receiving air medical services when: (1) services are provided; and (2) we do not believe the patient requires additional services. For the independent provider model, we determine the transaction price based upon gross charges for services provided reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients in accordance with Company policy, and/or implicit price concessions provided to uninsured patients. We determine estimates of contractual adjustments and discounts based upon contractual agreements, our discount policy, and historical experience. We determine our estimate of implicit price concessions based upon our historical collection experience with these classes of patients using a portfolio approach as a practical expedient to account for patient contracts as collective groups, rather than individually. The financial statement effects of using this practical expedient are not materially different from an individual contract approach.

Under the traditional provider model, we contract directly with the customer to provide their transportation services. These contracts are typically awarded or renewed through competitive bidding and typically permit early termination by the customer on relatively short notice. As a traditional provider, we typically bill a fixed monthly rate for aircraft availability and an hourly rate for flight time. For each of these types of helicopter services, we have determined that each has a single distinct performance obligation. Traditional provider models services include fixed monthly rate for a particular model of aircraft, and flight hour services, which represents the variable component of a typical contract with a customer. Rates for these services vary depending on the type of services provided and can be based on a per flight hour, per day, or per month basis. The variable charges within such contracts are not effective until the customer initiates a flight order and the actual hours flown are determined; therefore, the associated revenue generally cannot be reasonably and reliably estimated beforehand. For the traditional provider model, we determine the transaction price based upon standard charges for goods and services provided.

~~As further described in Note 3, independent provider revenues are recorded net of~~

We estimate 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~~category. The main payor categories are Medicaid, Medicare, private insurance, ~~Medicaid, Medicare,~~ and ~~self-pay).~~self-pay. Changes in payor mix, reimbursement rates and uncompensated care rates are the factors most subject to sensitivity and variability in calculating our allowances. We compute a historical payment analysis of accounts by category. The allowance percentages calculated are applied to the payor categories, and the necessary adjustments are made to the revenue allowance. ~~Agreements with third-party payors typically provide~~In our Air Medical Segment, the allowance for ~~payments at amounts less than established charges.~~

Ascontractual discounts against outstanding accounts receivable was $140.5 million, and $123.8 million as of ~~September~~June 30, ~~3018~~2019, and December 31, ~~2017,~~2018, respectively, and the allowance for uncompensated care against outstanding accounts receivable was $45.5 million, and $51.9 million as of June 30, 2019 and December 31, 2018, respectively. Included in the allowance for uncompensated care above is the value of services to patients who are unable to pay when it is determined that they qualify as charity care. The value of these services was $1.6 million, and $1.7 million for the quarter ended on June 30, 2019 and 2018, respectively. The value of these services was $3.5 million and $3.3 million for the six months ended June 30, 2019 and 2018, respectively. The estimated cost of providing charity services was $0.3 million and $0.4 million for the quarters ended June 30, 2019 and 2018, respectively. The estimated cost of providing charity services was $0.8 million for the six months ended June 30, 2019 and 2018, 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 the Air Medical independent provider model’s total expenses divided by gross patient service revenue.

In determining the allowance estimates for our Air Medical segment’s billing, receivables and revenue, we utilize the prior twelve months’ payment history and current trends in payor behavior by each separate payor group, which we evaluate on a state by state basis. A percentage of amounts collected compared to the total invoice is determined from this process and applied to the current month’s billings and receivables. If a receivable related to the self-pay category is outstanding twelve months or greater, we record a reserve equal to 100% of the receivable. Receivables related to other payor categories are scrutinized when they are outstanding for nine months or longer and additional allowances are recorded if warranted.

As of June 30, 2019 and December 31, 2018, net receivables related to our (i) Oil and Gas segment were ~~$103.1~~$86.2 million and ~~$106.8~~$74.1 million, (ii) Air Medical segment were ~~$91.8~~$95.8 million and ~~$74.4~~$90.2 million and (iii) Technical Services segment were ~~$2.5~~$1.3 million and ~~$4.8~~$4.1 million, respectively. Contract assets and contract liabilities were immaterial as of September 30, 2018. Our contracts typically include termination clauses that allow both parties to terminate existing contracts with a 30 to 180 day notice period.

We generally have a right to consideration in an amount that corresponds directly with the value to the customer of the entity's performance completed to date and may recognize revenue in the amount to which the entity has a right to invoice. We have elected to use the invoice practical expedient for revenue recognized when performance obligations are satisfied over time. In addition, payment for goods and services rendered is typically due in the subsequent month following satisfaction of our performance obligation.

Our contracts typically include termination clauses that allow both parties to terminate existing contracts with a 30 to 180 day notice period.

Our Technical Services segment - provides helicopter flight services and helicopter repair and overhaul services for existing flight operations customers that own their own aircraft. Under this segment, we periodically provide certain services to governmental customers, including our agreement to operate six aircraft for the National Science Foundation in Antarctica. Under this segment, we also offer certain software as a service to our Oil and Gas customers. Revenues are recognized when performance obligations are satisfied in accordance with contractual terms, in an amount that reflects the consideration we expect to be entitled to in exchange for services rendered. For these helicopter services, we determined that each has a single distinct performance obligation.

The following table presents the Company’s revenues by segment disaggregated by type (in thousands):

	For the Quarter Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Service Revenue
Oil & Gas	$	90,023	$	97,068	$	174,969	$	192,702
Air Medical		69,507		67,151		126,153		124,139
Technical Services		5,642		5,024		15,940		12,766
Total Services	$	165,172	$	169,243	$	317,062	$	329,607

Air Medical Revenue
Traditional provider model	$	12,401	$	12,085	$	24,378	$	23,956
Independent provider model		57,106		55,066		101,775		100,183
Total Air Medical Revenues	$	69,507	$	67,151	$	126,153	$	124,139

For the Quarter Ended September 30, For the Nine Months Ended September 30,
2018 2017 2018 2017
Service Revenue
Oil & Gas $ 93,338
$ 75,700
$ 286,046
$ 222,098
Air Medical 70,192
70,280
194,331
192,840
Technical Services 5,257
4,187
18,023
16,271
Total Services $ 168,787
$ 150,167
$ 498,400
$ 431,209

Air Medical Revenue
Traditional provider model $ 12,414
$ 11,816
$ 36,371
$ 35,427
Independent provider model 57,778
58,464
157,960
157,413
Total Air Medicals Revenues $ 70,192
$ 70,280
$ 194,331
$ 192,840

~~On January 26, 2017, the FASB issued ASU No. 2017-04,~~ 13. LEASES~~Intangibles - Goodwill and Other (Topic 350)~~: Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 removes the requirement to compare the implied fair value of goodwill with the carrying amount as part of Step 2 of the goodwill impairment test. Under the new standard, the goodwill impairment loss will be measured as the excess of a reporting unit's carrying amount over its fair value, not exceeding the total amount of goodwill allocated to that reporting unit, which may increase the frequency of goodwill impairment charges if a future goodwill impairment test does not pass the Step 1 evaluation. ASU 2017-04 is effective prospectively for periods beginning on or after December 15, 2019, with early adoption permitted. We

The Company adopted ASU ~~2017-04 effective January 1, 2018. We will perform goodwill impairment testing under the new~~2016-02 standard ~~annually as of October 1st or when events or changes in circumstances indicate that a potential impairment exist.~~

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes, which requires that deferred tax assets and liabilities be classified as noncurrent in a classified balance sheet. We adopted this ASU in the fourth quarter of 2017~~ on a prospective ~~basis. Beginning with the December 31, 2017 balances, all deferred taxes were classified as non-current. Periods prior to December 31, 2017 were not retrospectively adjusted.~~

~~In October 2016, the FASB issued ASU 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 is effective for annual periods beginning after December 15, 2017, including interim periods

~~within those annual periods. We adopted ASU 2016-16 effective~~basis on January 1, ~~2018 with no material impact to~~2019 and used the ~~condensed consolidated~~effective date as the date of initial application. Therefore, prior period financial ~~statements.~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business~~information has not been adjusted 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. We adopted ASU 2017-01 effective January 1, 2018 with no material impact to the condensed consolidated financial statements.

~~On December 22, 2017,~~ ~~the Tax Cuts and Jobs Act (the “Tax Act”)~~ was enacted which significantly reformed the U.S. Internal Revenue Code (the “Code”). The Tax Act, among other things, reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. Following the enactment of the Tax Act, the SEC staff issued Staff Accounting Bulletin 118 - "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), which provides for a measurement period of up to one year from the enactment date to complete accounting under GAAP for the tax effects of the legislation. As of December 31, 2017, we had not completed its accounting for the tax effects of the Tax Act, but did remeasure its net deferred tax liability at December 31, 2017 and provisionally recognized a net benefit of $49.2 million in its consolidated statement of operations for the year ended December 31, 2017. As of September 30, 2018, we had not completed its accounting for the tax effects of the Tax Act and had not recorded any adjustments to the original provisional estimate. Although it does not anticipate any material adjustments related to the Tax Act, we will continue analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to changes to its current provisional estimates. Our estimates may be affected by a wide variety of factors, including additional regulatory guidance issued with respect to the Tax Act. In accordance with SAB 118, any subsequent adjustments to our provisional estimate will be recorded in the 4th quarter of 2018.

~~New Accounting Pronouncements -~~ ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~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 have formed an implementation team that is inventorying leases under ASC 840 and contracts which may be leases under ASC 842, and evaluating the impact that adoption of this guidance will have on the Company’s financial statements, which includes monitoring industry specific developments including recent exposure drafts issued by the FASB. The Company is continuing work to complete the implementation of an information technology system to track and account for its leases and of changes to its internal controls and accounting policies to support the accounting for leases under ASU 2016-02. Based on our lease portfolio as of September 30, 2018, we expect the adoption of this standard will result in a material change to our consolidated assets and liabilities. We plan to adopt this standard beginning January 1, 2019.

~~2. INVESTMENTS~~

We classify all of our short-term investments as available-for-sale. We carry these at fair value and report unrealized gains and losses, net of taxes, in Accumulated other comprehensive 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 September 30, 2018:~~

Cost Basis Unrealized
Gains Unrealized
Losses Fair
Value
(Thousands of dollars)
Investments:
Money market mutual funds $ 50,290
$ —
$ —
$ 50,290
Deferred compensation plan assets included in other assets 852
—
—
852
Total $ 51,142
$ —
$ —
$ 51,142

~~Investments consisted of the following as of December 31, 2017:~~

Cost Basis
Unrealized
Gains

Unrealized
Losses

Fair
Value
(Thousands of dollars)
Investments:
Money market mutual funds $ 5,601
$ —
$ —
$ 5,601
U.S. government agencies 7,501
—
(34 ) 7,467
Corporate bonds and notes 63,880
—
(330 ) 63,550
Subtotal 76,982
—
(364 ) 76,618
Deferred compensation plan assets included in other assets 2,685
—
—
2,685
Total $ 79,667
$ —
$ (364 ) $ 79,303

At September 30, 2018 and December 31, 2017, we classified $19.8 million and $12.4 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.

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

September 30, 2018 December 31, 2017
Amortized
Costs Fair
Value Amortized
Costs Fair
Value
(Thousands of dollars)
Due in one year or less $ —
$ —
$ 31,348
$ 31,254
Due within two years —
—
40,032
39,763
Total $ —
$ —
$ 71,380
$ 71,017

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

September 30, 2018 December 31, 2017
Average
Coupon
Rate (%) Average
Days To
Maturity Average
Coupon
Rate (%) Average
Days To
Maturity
U.S. Government agencies —
0 1.370 370
Corporate bonds and notes —
0 1.766 392

~~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:~~

September 30, 2018 December 31, 2017
Fair Value Unrealized
Losses Fair Value Unrealized
Losses
(Thousands of dollars)
U.S. Government agencies $ —
$ —
$ 5,472
$ (28 )
Corporate bonds and notes —
—
44,069
(271 )
Total $ —
$ —
$ 49,541
$ (299 )

~~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:~~

September 30, 2018 December 31, 2017
Fair Value Unrealized
Losses Fair Value Unrealized
Losses
(Thousands of dollars)
U.S. Government agencies $ —
$ —
$ 1,994
$ (6 )
Corporate bonds and notes —
—
19,482
(59 )
Total $ —
$ —
$ 21,476
$ (65 )

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 valuecontinues to be due to customary market fluctuations, and we typically 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 December 31, 2017. For additional information regarding our criteria for making these assessments, see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

~~3. 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 $6.8 million and $7.2 million at September 30, 2018, and December 31, 2017, 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 $119.9 million and $117.8 million as of September 30, 2018 and December 31, 2017, respectively. The allowance for uncompensated care was $64.7 million and $52.5 million as of September 30, 2018 and December 31, 2017, 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 $2.2 million and $1.3 million for the quarters ended September 30, 2018 and 2017, respectively. The value of these services was $7.1 million and $5.7 million for the nine months ended September 30, 2018 and 2017, respectively. The estimated cost of providing charity services was $0.5 million and $0.3 million for the quarters ended September 30, 2018 and 2017, respectively. The estimated cost of providing charity services was $1.7 million and $1.3 million for the nine months ended September 30, 2018 and 2017, 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:~~

September 30, 2018 December 31, 2017
Allowance for Contractual Discounts 48% 53%
Allowance for Uncompensated Care 26% 24%

We have also established valuation reserves related to obsolete and slow-moving spare parts inventory. The inventory valuation reserves were $23.1 million and $20.9 million at September 30, 2018 and December 31, 2017, 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:~~

September 30, 2018
Total (Level 1) (Level 2)
(Thousands of dollars)
Investments:
Money market mutual funds $ 50,290
$ 50,290
$ —
Deferred compensation plan assets 852
852
—
Total $ 51,142
$ 51,142
$ —

December 31, 2017
Total (Level 1) (Level 2)
(Thousands of dollars)
Investments:
Money market mutual funds $ 5,601
$ 5,601
$ —
U.S. government agencies 7,467
—
7,467
Corporate bonds and notes 63,550
—
63,550
76,618
5,601
71,017
Deferred compensation plan assets 2,685
2,685
—
Total $ 79,303
$ 8,286
$ 71,017

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 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, 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 term loan / revolving credit facility debt all had fair values approximating their carrying amounts at September 30, 2018 and December 31, 2017. We determine the estimated fair value of our 5.25% Senior Notes due 2019 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 $477.1 million and $499.2 million at September 30, 2018 and December 31, 2017, respectively.

~~5. DEBT~~

~~Listed below is information regarding our indebtedness. All indebtedness owed under our Senior Notes as of September 30, 2018 is classified as short-term debt on our balance sheet as of such date.~~

September 30, 2018 December 31, 2017
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
$ 571
$ 500,000
$ 1,506
Revolving Credit Facility due March 7, 2019 with a group of commercial banks, interest payable at variable rates —
—
117,500
—
Related Party Term Loan - Thirty Two L.L.C., interest payable quarterly at 6%, due September 28, 2020 $ 130,000
$ 874
$ —
$ —
Total indebtedness $ 630,000
$ 1,445
$ 617,500
$ 1,506

~~Senior Notes -~~ 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, Inc.’s wholly-owned domestic subsidiaries. These notes and related guarantees 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, 2018 at par plus accrued interest. 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.

~~Related Party Term Loan~~ - On September 28, 2018, we entered into a term loan agreement with Thirty Two L.L.C., which provided us with a term loan of $130 million maturing on September 28, 2020. This loan bears interest at an annual fixed rate of 6% payable quarterly, with all principal due on maturity. Thirty Two L.L.C., an entity wholly-owned by our CEO and controlling shareholder, is a related party.

Contemporaneously with borrowing $130.0 million under the term loan, we applied approximately $122.7 million of the loan proceeds to repay principal and accrued interest under our senior secured revolving credit facility, which was terminated in connection with such repayment, and applied the remainder of the proceeds to cash collateralize certain outstanding letters of credit.

Obligations under the term loan are guaranteed by PHI Air Medical, L.L.C. and PHI Tech Services, Inc., both of which are wholly-owned by us. Our obligations and the guarantors’ obligations are secured by all of their respective inventory, spare parts and accounts receivable located in the U.S.

The term loan agreement contains customary restrictive covenants that, subject to certain exceptions and limitations, limit or restrict our ability to, among other things, (i) purchase, retire or redeem any shares of our capital stock; (ii) incur indebtedness; (iii) mortgage or encumber our assets; (iv) make loans to, or guarantee the indebtedness of, any individual or entity; (v) effect a change of control of PHI; (vi) consolidate with or merge into any other corporation, or permit any other corporation to merge into us; (vii) sell or lease all or substantially all of our assets; or (viii) acquire all or a substantial part of the assets or capital stock of another entity. The term loan agreement contains no financial covenants. The term loan agreement contains customary representations and warranties, affirmative covenants and events of default.

~~Letter of Credit -~~ At September 30, 2018, we had $19.8 million of outstanding letters of credit secured by a like amount of restricted cash, $12.0 million of which secured certain domestic operations or insurance policies and $7.8 million of which guaranteed our performance under an international contract. At December 31, 2017, we had $19.6 million of outstanding letters of credit issued for the same purposes.

~~Other~~ - 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 GAAP, are eliminated in consolidation and therefore not recognized on our consolidated balance sheets. For additional information, see Note 15.

~~Liquidity -~~ Our outstanding senior notes mature on March 15, 2019. As such, our senior note indebtedness is now due within less than one year. Beginning with our consolidated financial statements as of and for the quarter ended March 31, 2018, we have been required to classify under GAAP all such indebtedness as current liabilities on our consolidated balance sheets.

~~In August 2014, the FASB issued ASU 2014-15,~~ ~~“Presentation of Financial Statements - Going Concern (Subtopic 205-40):~~ Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (the "Standard"). Under the Standard, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the entity’s financial statements are issued. Under the Standard, substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within this one year period. This evaluation initially must be undertaken without considering the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this initial determination, management must evaluate whether the mitigating effect of its plans sufficiently alleviates substantial doubt about an entity’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered under the Standard if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within the one year period. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued. PHI’s accompanying financial statements have been prepared in conformity with GAAP, which contemplates PHI’s continuation as a going concern.

Based on our discussions to date with our advisors and current market conditions, we believe there are several possible transactions that could, if timely and successfully consummated, help us discharge our short-term indebtedness. Nonetheless, because our plans have not been finalized, and therefore not within our control, these plans cannot be considered probable. Consequently, in accordance with the ~~Standard, these conditions~~Company’s historical accounting policy. The standard establishes a right-of-use (ROU) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

The Company elected to adopt the "package of practical expedients" under ASU No. 2018-11, which allows the Company to carry forward its historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. The Company also elected to exclude short-term leases (those with terms of 12 months or less) from the balance sheet presentation and accounts for non-lease and lease components as a single lease component for all asset classes.

The adoption of ASU 2016-02 had the effects specified in Note 1.

Accounting Policy for Leases

The Company determines if an arrangement is a lease at inception. All of the Company’s leases are operating leases and are included in ROU assets, accounts payable and operating lease liabilities in the ~~aggregate raise substantial doubt about our ability~~Company's Condensed Consolidated Balance Sheet at June 30, 2019.

ROU assets represent the Company’s right to continue as a going concern within one year after the date the accompanying financial statements were filed. For additional information about our prior and current refinancing plans, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.”

~~6. EARNINGS PER SHARE~~

~~The components of basic and diluted earnings per share~~use an underlying asset for the ~~quarter~~lease term and ~~nine months ended September 30, 2018~~lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and ~~2017~~liabilities are ~~as follows:~~

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Thousands of dollars)
Weighted average outstanding shares of common stock, basic 15,816
15,799
15,811
15,750
Dilutive effect of unvested restricted stock units —
—
—
—
Weighted average outstanding shares of common stock, diluted ⁽¹⁾
15,816
15,799
15,811
15,750

~~(1)~~

For the quarters ended September 30, 2018 and 2017, 108,424 and -0- 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 on both September 30, 2018 and 2017, -0- unvested restricted stock units were excluded from the weighted average outstanding shares of common stock, diluted, 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~~recognized at commencement date based on the ~~grant date fair~~present value of ~~those awards.~~lease payments over the lease term. The ~~table below sets forth~~Company uses its incremental borrowing rate based on the ~~total amount~~information available at commencement date in determining the present value of ~~stock-based compensation expense for~~lease payments. The Company’s lease terms may include options to extend or terminate the ~~quarter~~lease. The lease term includes options to extend when we are reasonably certain to exercise the option. We are not, however, reasonably certain that we will exercise any of the options to extend and ~~nine months ended September 30, 2018 and 2017.~~

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Thousands of dollars)
Stock-based compensation expense:
Time-based restricted stock units $ 1,085
$ 582
$ 2,162
$ 1,678
Performance-based restricted stock units 1,033
689
2,088
1,396
Total stock-based compensation expense $ 2,118
$ 1,271
$ 4,250
$ 3,074

During the quarter and nine months ended September 30, 2018, 5,001 and 326,832 time-based restricted units, respectively and -0- and 448,012 performance-based restricted units, respectively, were awarded to managerial employees.

During the quarter and nine months ended September 30, 2017, 26,296 and 472,913 time-based restricted units, respectively and 4,646 and 371,045 performance-based restricted units were awarded to managerial employees, respectively.

~~8. ASSET DISPOSALS~~

~~During the first quarter of 2018, we disposed of one light aircraft previously utilized~~as such, they have not been included in the Air Medical segment and donated to a charitable organization one aircraft previously used in our Oil and Gas segment. During the second quarter of 2018, we disposed of one medium and one light aircraft previously utilized in the Oil & Gas segment. During the third quarter of 2018, we disposed of one medium aircraft previously utilized in the Oil & Gas segment. These aircraft no longer met our strategic needs. Aggregate cash proceeds totaled $1.5 million, resulting in a $0.7 million loss on the disposal of these assets.

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

~~9. COMMITMENTS AND CONTINGENCIES~~

~~Commitments~~ – ~~We currently have no aircraft purchase commitments.~~

~~Total aircraft deposits of $0.5 million were included in Other Assets as of September 30, 2018. This amount represents a deposit on a future~~remaining lease ~~buyout option. In the event we do not exercise the buyout option, the deposit will be applied against lease payments.~~

~~Environmental Matters –~~ We have recorded an estimated liability of $0.15 million as of September 30, 2018 for environmental response costs. Previously, we conducted environmental surveys of our former Lafayette Facility located at the Lafayette Regional Airport, which we vacated in 2001, and 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, we have performed groundwater sampling of the required groundwater monitor well installations at both parcels and submitted these sampling reports to the LDEQ. Pursuant to an agreement with the LDEQ, we provided groundwater sample results semi-annually to the LDEQ for both parcels from 2005 to 2015. The LDEQ approved a reduction in the sampling program from semi-annual to annual groundwater monitoring in 2015. Based on our working relationship and agreements with the LDEQ, and the results of ongoing former facility parcel monitoring, we believe that ultimate remediation costs for the subject parcels will not be material to our consolidated financial position, operations or cash flows.

~~Legal Matters –~~ From time to time, we are involved in various legal actions incidental to our business, including actions relating to employee claims, medical malpractice claims, 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~~ –terms.

Overview

We lease certain aircraft, facilities, and equipment used in our operations. The related lease agreements, which include both non-cancelable and month-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.~~leases, and these costs are not included in the lease liability and are recognized in the period in which they are incurred.

Total operating lease expense was $11.4 million and $12.1 million for the three months ended June 30, 2019 and 2018, respectively. For the three months ended June 30, 2019, a portion of the total operating lease expense relating to short-term leases was $1.6 million. The operating lease expense was $22.6 million and $23.8 million for the six months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, a portion of the total operating lease expense relating to short-term was $3.0 million.

Operating leases at June 30, 2019 were as follows (in thousands):

	June 30, 2019
	(Thousands of dollars)
Operating lease right-of-use-assets	$	144,944
Current portion of operating lease liabilities		27,535
Operating lease liabilities		118,167
Total operating lease liabilities	$	145,702
Cash paid for operating leases		21,475
ROU assets obtained in exchange for lease obligations		9,402
Weighted average remaining lease term	5 years
Weighted average discount rate		8.25	%

~~At September~~

Maturities of operating lease liabilities at June 30, 2019 are as follows (in thousands):

	Operating
Six Months Ending June 30,	Leases
	Thousands of dollars
Remainder of 2019	$	19,615
2020		37,140
2021		36,297
2022		34,254
2023		23,872
Thereafter		33,975
Total lease payments		185,153
Less imputed interest		(39,451	)
Total	$	145,702

As of December 31, 2018, ~~we had approximately $173.2~~future total rentals on our non-cancellable operating leases were $160 million in the aggregate, ~~commitments under operating leases~~which consisted of ~~which approximately $11.0 million is payable through~~ the ~~fourth quarter of 2018. The total lease commitments include $154.1 million for aircraft and $19.1 million for facility lease commitments.~~

~~As of September 30, 2018, we had options to purchase aircraft under leases, with such purchase options becoming exercisable in 2019 and 2020. The aggregate option purchase prices are $129.0~~following: $36 million in ~~2019, and $22.7~~2019; $33 million in ~~2020. Under current conditions, we believe it is unlikely that we will exercise~~2020; $31 million in 2021; $29 million in 2022; $20 million in 2023; and $11 million thereafter.

We are currently in the ~~purchase options arising over the next year, unless opportunistic conditions arise.~~

~~A majority~~process of renegotiating certain of our ~~aircraft operating~~ leases contain financial covenants that are substantially similar to the financial covenants that were contained in our revolving credit facility at the time the leases were entered into. We have solicited and received amendments and waivers of certain covenants in some of these leases. We remain in active discussions with our aircraft lessors to resolve open issues and pursue any additional waivers or amendments that may be required, but cannot assure you that these efforts will be successful.

Generally in the event of a default, the applicable lessor has the option of terminating the lease and requiring the return of the leased aircraft, with the repayment of any arrears of lease payments plus additional damages which may include the present value of all future lease payments and certain other amounts which could be material to our financial position. Defaults caused by payment failures or resulting in the acceleration of payment obligations would constitute an event of default under our senior notes if they involve sums in an aggregate amount in excess of $20 million. Our term loan and many of our operating leases contain similar cross-default or cross-acceleration provisions. Thus, our failure to meet the financial covenants in our operating lease agreements could ultimately result in the acceleration of significant obligations under other of our finance or lease instruments

~~10. GOODWILL~~

Our Goodwill represents the amount by which our purchase price for the HNZ Offshore Business exceeded the fair value of net assets acquired. Goodwill has an indefinite useful life and is not amortized. We test goodwill for impairment annually as of October 1st or when events or changes in circumstances indicate that a potential impairment exists.

~~Goodwill of $61.3 million as of September 30, 2018 and December 31, 2017 was as follows:~~

Oil & Gas Air Medical Technical Services Total
Balance December 31, 2017 $ 61,299
—
—
$ 61,299
Activity —
—
—
—
Balance September 30, 2018 $ 61,299
—
—
$ 61,299

~~11. OTHER INTANGIBLE ASSETS~~

~~Intangible assets with finite useful lives are amortized over estimated useful lives on a straight-line basis. Our intangible assets, which arose~~ in connection with the Chapter 11 Cases. These negotiations, if successfully completed, will likely impact our ~~acquisition of the HNZ Offshore Business, consist of the following (in thousands):~~

Estimated Useful Lives Gross Amount at December 31, 2017 Accumulated Amortization Net Balance at September 30, 2018
Customer Relationship 15 $ 11,622
$ (581 ) $ 11,041
Non-Compete Agreements 5 900
(135 ) 765
Trade Names 7 4,201
(450 ) 3,751
Total $ 16,723
$ (1,166 ) $ 15,557

~~Based on the carrying values of~~obligation under our intangible assets at September 30, 2018, we estimate our amortization expense for the next five years (2018 through 2022) to be $1.6 million per year. For the quarter and nine months ended September 30, 2018, amortization expense was $0.4 million and $1.2 million, respectively.

~~12.~~outstanding leases.

14. 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 portion of selling, general and administrative expenses that is charged directly to the segment, and a small portion that is allocated. 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. A significant portion of our selling, general and administrative expenses are neither charged nor allocated to our segments.

Oil and Gas 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 and a number of foreign countries. Our customers include Shell Oil Company, BP America Production Company, ExxonMobil Production Company, and ConocoPhillips Company, with whom we have worked for 35 or more years, and ENI Petroleum, with whom we have worked for more than 20 years. At ~~September~~June 30, ~~2018,~~2019, we had available for use ~~126~~121 aircraft in this segment.

Our fixed-term contracts typically have original terms of one year to seven years (subject to provisions permitting early termination upon ~~relatively~~ short notice by the customers), with payment in U.S. dollars. For the quarters ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, approximately 55% and ~~50%~~57% of our total operating revenues were generated by our Oil and Gas segment, with approximately 85% and ~~89%~~87% of these revenues from fixed-term customer contracts. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, approximately ~~57%~~55% and ~~51%~~58% of our total operating revenues were generated by our Oil and Gas segment, with approximately ~~87%~~85% and ~~90%~~87% of these revenues from fixed-term customer contracts. The remaining ~~13% and 10%~~15% of these revenues were attributable to work in the spot market and ad hoc flights for contracted customers.

Air Medical 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 ~~September~~June 30, ~~2018,~~2019, our Air Medical segment operated approximately ~~108~~111 aircraft in 18 states at 8081 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 ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, approximately 42% and ~~47%~~40% of our total operating revenues were generated by our Air Medical ~~segment, respectively.~~segment. For the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018, approximately 40% and ~~2017, approximately 39% and 45%~~38% of our total operating revenues were generated by our Air Medical segment.

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 for the periods listed below:

	Quarter Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Provision for contractual discounts		70	%		67	%		68	%		66	%
Provision for uncompensated care		8	%		7	%		9	%		8	%

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Provision for contractual discounts 65 % 65 % 66 % 66 %
Provision for uncompensated care 10 % 6 % 8 % 7 %

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, and Self-Pay (expressed as a percentage of net Air Medical revenues) were as follows for the periods listed below:

	Quarter Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Insurance		67	%		72	%		67	%		72	%
Medicare		23	%		19	%		23	%		20	%
Medicaid		9	%		8	%		8	%		8	%
Self-Pay		1	%		1	%		2	%		—	%

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
Insurance 70 % 73 % 71 % 72 %
Medicare 20 % 17 % 20 % 18 %
Medicaid 9 % 9 % 8 % 9 %
Self-Pay 1 % 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. Those contracts generated approximately ~~17%~~15% and ~~15%~~16% of the segment’s revenues for the quarters ended ~~September~~June 30, 2019 and 2018, ~~and 2017,~~ respectively. ~~For the nine months ended September 30, 2018 and 2017, these~~Those contracts generated approximately 17% and 18% of the ~~segment's revenues.~~

segment’s revenues for the six months ended June 30, 2019 and 2018, respectively.

We also derive a small portion of the segment’s revenues from providing services under our patient navigation business.

Technical Services 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. WeIn the past, we also periodically ~~provide~~provided flight services to governmental customers under this segment, including ~~our current agreement to operate~~operating six aircraft for the National Science Foundation in Antarctica ~~typically~~under a contract that lapsed on April 30, 2019. We sold two light aircraft during the quarter that were assigned to this contract, leaving four aircraft remaining in ~~the first and fourth quarters each year.~~this segment. Also included in this segment are our proprietary Helipass operations, which provide software as a service to certain of our Oil and Gas customers for the purpose of passenger check-in and compliance verification.

For each of the quarters ended ~~September~~June 30, 2019 and 2018, approximately and ~~2017, approximately~~ 3% of our total operating revenues were generated by our Technical Services ~~segment.~~segment, respectively. For each of the ~~nine~~six month periods ended ~~September~~June 30, 2019 and 2018, approximately 5% and ~~2017, approximately~~ 4% of our total operating revenues were generated by our Technical Services ~~segment.~~

segment, respectively.

Summarized financial information concerning our reportable operating segments for the quarters and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 is as follows:

	Quarter Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	90,023		$	97,068		$	174,969		$	192,702
Air Medical		69,507			67,151			126,153			124,139
Technical Services		5,642			5,024			15,940			12,766
Total operating revenues, net		165,172			169,243			317,062			329,607
Segment direct expenses
Oil and Gas⁽¹⁾		89,061			94,442			179,031			190,985
Air Medical		59,310			56,776			116,391			110,608
Technical Services		4,104			3,784			12,568			9,671
Total direct expenses		152,475			155,002			307,990			311,264
Segment selling, general and administrative expenses
Oil and Gas		4,672			4,400			9,432			9,321
Air Medical		4,141			3,254			7,433			6,421
Technical Services		152			340			300			710
Total selling, general and administrative expenses		8,965			7,994			17,165			16,452
Total segment direct and selling, general and administrative expenses		161,440			162,996			325,155			327,716
Net segment (loss) profit
Oil and Gas		(3,710	)		(1,774	)		(13,494	)		(7,604	)
Air Medical		6,056			7,121			2,329			7,110
Technical Services		1,386			900			3,072			2,385
Total net segment profit		3,732			6,247			(8,093	)		1,891
Other, net ⁽³⁾		428			(193	)		337			(2,112	)
Unallocated selling, general and administrative costs ^{(1) (4)}		(8,626	)		(6,491	)		(25,293	)		(13,492	)
Reorganization items, net		(26,503	)		—			(28,103	)		—
Interest expense		(3,927	)		(8,340	)		(12,093	)		(16,537	)
(Loss) earnings before income taxes	$	(34,896	)	$	(8,777	)	$	(73,245	)	$	(30,250	)

Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Thousands of dollars) (Thousands of dollars)
Segment operating revenues
Oil and Gas $ 93,338
$ 75,700
$ 286,046
$ 222,098
Air Medical 70,192
70,280
194,331
192,840
Technical Services 5,257
4,187
18,023
16,271
Total operating revenues, net 168,787
150,167
498,400
431,209
Segment direct expenses ^{(1) (2)}

Oil and Gas ⁽¹⁾
94,832
81,467
285,818
236,878
Air Medical 60,358
51,120
170,966
152,363
Technical Services 4,892
3,761
14,563
12,565
Total direct expenses 160,082
136,348
471,347
401,806
Segment selling, general and administrative expenses
Oil and Gas 4,321
1,148
13,642
4,501
Air Medical 3,666
3,136
10,087
9,280
Technical Services 356
338
1,066
1,032
Total segment selling, general and administrative expenses 8,343
4,622
24,795
14,813
Total segment direct and selling, general and administrative expenses 168,425
140,970
496,142
416,619
Net segment (loss) profit
Oil and Gas (5,815 ) (6,915 ) (13,414 ) (19,281 )
Air Medical 6,168
16,024
13,278
31,197
Technical Services 9
88
2,394
2,674
Total net segment profit 362
9,197
2,258
14,590

Other, net ⁽³⁾
1,845
710
(272 ) 2,471
Unallocated selling, general and administrative costs ^{(1) (4)}
(7,912 ) (6,779 ) (21,404 ) (23,878 )
Interest expense (8,357 ) (8,027 ) (24,894 ) (24,305 )
(Loss) earnings before income taxes $ (14,062 ) $ (4,899 ) $ (44,312 ) $ (31,122 )

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

	Depreciation and Amortization Expense
	Quarter Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	11,618	$	11,486	$	22,896	$	23,269
Air Medical		5,485		6,091		10,771		11,715
Technical Services		133		142		204		287
Total	$	17,236	$	17,719	$	33,871	$	35,271
Unallocated SG&A	$	3,095	$	1,412	$	4,904	$	3,327

Depreciation and Amortization Expense
Quarter Ended
September 30, Nine Months Ended
September 30,
2018 2017 2018 2017
(Thousands of dollars)
Segment Direct Expense:
Oil and Gas $ 13,175
$ 9,615
$ 36,444
$ 29,301
Air Medical 5,274
4,885
16,989
15,581
Technical Services 128
146
415
440
Total $ 18,577
$ 14,646
$ 53,848
$ 45,322
Unallocated SG&A $ 2,366
$ 1,936
$ 5,693
$ 5,271

(2)
~~(2)~~	Includes equity in (earnings) of unconsolidated affiliates, net.

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

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

~~13.~~15. INVESTMENT IN VARIABLE INTEREST ENTITY

We account for our investment in PHI Century Limited ("PHIC") as a variable interest entity, 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. As of ~~September~~June 30, ~~2018,~~2019, we had a 49% investment in the common stock of 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 ~~September~~June 30, ~~2018,~~2019, we recorded ~~gain~~income in equity of this unconsolidated affiliate of ~~$0.1~~$1.0 million compared to ~~loss~~income in equity of less than $0.1 million for the quarter ended ~~September~~June 30, ~~2017~~2018 relative to our 49% equity ownership. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, we recorded ~~a gain~~income in equity of this unconsolidated affiliate of $2.4 million and less than ~~$0.2~~$0.1 million, ~~and a loss of $1.0 million relative to our 49% equity ownership,~~ respectively. We had ~~$4.4~~$4.1 million and ~~$4.0~~$4.8 million of trade receivables from PHIC as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. ~~During the nine months ended September 30,~~In 2018, we loaned PHIC $0.4 million for operating purposes. This loan balance is included in Accounts receivable - other on our Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2018.~~2019. Our investment in the common stock of PHIC is included in Other Assets on our Condensed Consolidated Balance Sheets and was ~~$0.5~~$2.9 million at ~~September~~June 30, ~~2018~~2019 and ~~$0.3~~$0.5 million at December 31, ~~2017.~~

~~14.~~2018.

16. 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.

~~15.~~17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed further in Note 5,6, 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 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”) the guarantor subsidiaries and the non-guarantor subsidiaries, each under separate headings. The eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The condensed consolidating financial statements have been prepared on the same basis as the consolidated financial statements of PHI, Inc. The equity method is followed by the Parent Company within 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. ~~See "-Other" in Note 5.~~

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)

	June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	8,170		$	2,223	$	11,489		$	—		$	21,882
Short-term investments		76,141			—		—			—			76,141
Accounts receivable – net		64,467			101,381		23,676			(6,180	)		183,344
Intercompany receivable		—			98,616		22,116			(120,732	)		—
Inventories of spare parts – net		29,871			20,929		3,442			—			54,242
Prepaid expenses		8,944			2,805		1,323			—			13,072
Income taxes receivable		7			502		—			—			509
Total current assets		187,600			226,456		62,046			(126,912	)		349,190
Investment in subsidiaries		475,391			—		—			(475,391	)		—
Property and equipment – net		562,880			283,231		39,558			—			885,669
Right of use assets		116,918			11,652		16,374			—			144,944
Restricted cash and investments		19,739			—		—			—			19,739
Other assets		18,678			1,071		1,188			—			20,937
Deferred income tax		—			—		5,137			—			5,137
Total assets	$	1,381,206		$	522,410	$	124,303		$	(602,303	)	$	1,425,616
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	64,526		$	6,437	$	5,832		$	(6,180	)	$	70,615
Accrued and other current liabilities		19,667			13,500		5,316			—			38,483
Current portion of operating lease liabilities		20,823			3,404		3,308			—			27,535
Current maturities of long-term debt		1,750			—		—			—			1,750
Intercompany payable		63,263			17,125		40,344			(120,732	)		—
Total current liabilities		170,029			40,466		54,800			(126,912	)		138,383
Long-term Debt		192,450			—		—			—			192,450
Deferred income taxes and other long-term liabilities		93,711			67,234		12,859			—			173,804
Liabilities subject to compromise		513,125			—		—			—			513,125
Shareholders’ Equity:
Common stock and paid-in capital		317,725			77,951		132,426			(210,377	)		317,725
Accumulated other comprehensive loss		(3	)		—		(4,037	)		—			(4,040	)
Retained earnings		94,169			336,759		(71,745	)		(265,014	)		94,169
Total shareholders’ equity		411,891			414,710		56,644			(475,391	)		407,854
Total liabilities and shareholders’ equity	$	1,381,206		$	522,410	$	124,303		$	(602,303	)	$	1,425,616

~~(Unaudited)~~

September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS
Current Assets:
Cash $ 9,905
$ 1,880
$ 4,668
$ —
$ 16,453
Short-term investments 30,509
—
—
—
30,509
Accounts receivable – net 75,970
95,340
29,574
(3,477 ) 197,407
Intercompany receivable —
92,338
—
(92,338 ) —
Inventories of spare parts – net 60,914
10,646
2,792
—
74,352
Prepaid expenses 9,364
2,640
1,197
—
13,201
Income taxes receivable 139
510
—
—
649
Total current assets 186,801
203,354
38,231
(95,815 ) 332,571

Investment in subsidiaries 415,980
—
—
(415,980 ) —
Property and equipment – net 598,363
286,015
39,199
—
923,577
Restricted cash and investments 19,781
—
—
—
19,781
Other assets 140,265
1,042
(131,165 ) —
10,142
Deferred income tax —
—
1,009
—
1,009
Goodwill —
—
61,299
—
61,299
Intangible assets —
—
15,557
—
15,557
Total assets $ 1,361,190
$ 490,411
$ 24,130
$ (511,795 ) $ 1,363,936

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-term debt $ 499,429
$ —
$ —
$ —
$ 499,429
Accounts payable 32,458
5,200
5,028
(3,477 ) 39,209
Accrued and other current liabilities 18,781
14,053
6,723
—
39,557
Intercompany payable 81,384
—
10,954
(92,338 ) —
Total current liabilities 632,052
19,253
22,705
(95,815 ) 578,195

Long-term debt 129,126
—
—
—
129,126
Deferred income taxes and other long-term liabilities 18,536
57,439
3,255
—
79,230
Shareholders’ Equity:
Common stock and paid-in capital 314,085
77,952
1,510
(79,462 ) 314,085
Accumulated other comprehensive loss (3 ) —
(4,091 ) —
(4,094 )
Retained earnings 267,394
335,767
751
(336,518 ) 267,394
Total shareholders’ equity 581,476
413,719
(1,830 ) (415,980 ) 577,385
Total liabilities and shareholders’ equity $ 1,361,190
$ 490,411
$ 24,130
$ (511,795 ) $ 1,363,936

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

	December 31, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	39,091		$	1,259	$	10,524		$	—		$	50,874
Short-term investments		14,232			—		—			—			14,232
Accounts receivable – net		64,416			93,060		28,812			(3,823	)		182,465
Intercompany receivable		—			91,468		—			(91,468	)		—
Inventories of spare parts – net		43,933			9,577		3,188			—			56,698
Prepaid expenses		7,295			2,520		1,604			—			11,419
Income taxes receivable		394			556		—			—			950
Total current assets		169,361			198,440		44,128			(95,291	)		316,638
Investment in subsidiaries and others		471,790			—		—			(471,790	)		—
Property and equipment – net		576,763			287,375		38,347			—			902,485
Restricted investments		19,781			—		—			—			19,781
Other assets		17,179			1,199		—			—			18,378
Deferred income tax		—			—		4,944			—			4,944
Total assets	$	1,254,874		$	487,014	$	87,419		$	(567,081	)	$	1,262,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Senior Notes issued March 17, 2014	$	499,740		$	—	$	—		$	—		$	499,740
Accounts payable		44,089			4,587		5,452			(3,839	)		50,289
Accrued and other current liabilities		25,158			12,335		7,799			—			45,292
Intercompany payable		74,336			—		17,116			(91,452	)		—
Total current liabilities		643,323			16,922		30,367			(95,291	)		595,321
Long-term debt		129,235			—		—			—			129,235
Deferred income taxes and other long-term liabilities		4,934			58,752		551			—			64,237
Shareholders’ Equity:
Common stock and paid-in capital		315,898			77,951		132,650			(210,601	)		315,898
Accumulated other comprehensive loss		(3	)		—		(3,949	)		—			(3,952	)
Retained earnings		161,487			333,389		(72,200	)		(261,189	)		161,487
Total shareholders’ equity		477,382			411,340		56,501			(471,790	)		473,433
Total liabilities and shareholders’ equity	$	1,254,874		$	487,014	$	87,419		$	(567,081	)	$	1,262,226

December 31, 2017
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS
Current Assets:
Cash $ 47
$ 1,072
$ 7,651
$ —
$ 8,770
Short-term investments 64,237
—
—
—
64,237
Accounts receivable – net 90,077
74,886
38,020
(17,004 ) 185,979
Intercompany receivable —
126,366
—
(126,366 ) —
Inventories of spare parts – net 68,737
9,049
3,095
—
80,881
Prepaid expenses 8,348
1,898
1,229
—
11,475
Income taxes receivable 345
9
917
—
1,271
Total current assets 231,791
213,280
50,912
(143,370 ) 352,613

Investment in subsidiaries and others 397,301
—
—
(397,301 ) —
Property and equipment – net 617,488
284,984
44,293
—
946,765
Restricted investments 12,382
—
14
—
12,396
Other assets 139,754
908
(131,921 ) —
8,741
Deferred income tax —
—
3,309
—
3,309
Goodwill —
—
61,299
—
61,299
Intangible assets —
—
16,723
—
16,723
Total assets $ 1,398,716
$ 499,172
$ 44,629
$ (540,671 ) $ 1,401,846

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $ 28,130
$ 4,636
$ 21,425
$ (17,005 ) $ 37,186
Accrued and other current liabilities 23,147
10,577
8,126
—
41,850
Intercompany payable 113,387
—
12,978
(126,365 ) —
Total current liabilities 164,664
15,213
42,529
(143,370 ) 79,036

Long-term debt 615,994
—
—
—
615,994
Deferred income taxes and other long-term liabilities 5,404
84,300
4,458
—
94,162
Shareholders’ Equity:
Common stock and paid-in capital 309,933
77,951
1,375
(79,326 ) 309,933
Accumulated other comprehensive loss (280 ) —
—
—
(280 )
Retained earnings 303,001
321,708
(3,733 ) (317,975 ) 303,001
Total shareholders’ equity 612,654
399,659
(2,358 ) (397,301 ) 612,654
Total liabilities and shareholders’ equity $ 1,398,716
$ 499,172
$ 44,629
$ (540,671 ) $ 1,401,846

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)

	For the Quarter Ended June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	75,707		$	72,628	$	24,912		$	(8,075	)	$	165,172
Expenses:
Direct expenses		76,288			61,915		23,386			(8,075	)		153,514
Selling, general and administrative expenses		10,459			4,293		2,843			(4	)		17,591
Total operating expenses		86,747			66,208		26,229			(8,079	)		171,105
Loss on disposal of assets, net		(102	)		9		(2	)		—			(95	)
Equity in income of unconsolidated affiliates, net		(1,039	)		—		—			—			(1,039	)
Operating (loss) income		(9,899	)		6,411		(1,315	)		4			(4,799	)
Equity in net income of consolidated subsidiaries		(4,952	)		—		—			4,952			—
Interest expense		3,908			19		—			—			3,927
Reorganization items, net		26,503			—		—			—			26,503
Other income, net		(46	)		—		(291	)		4			(333	)
		25,413			19		(291	)		4,956			30,097
(Loss) earnings before income taxes		(35,312	)		6,392		(1,024	)		(4,952	)		(34,896	)
Income tax (benefit) expense		(3,235	)		792		(376	)		—			(2,819	)
Net (loss) earnings	$	(32,077	)	$	5,600	$	(648	)	$	(4,952	)	$	(32,077	)

~~(Unaudited)~~

For the Quarter Ended September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Operating revenues, net $ 75,654
$ 72,396
$ 22,027
$ (1,290 ) $ 168,787
Expenses:
Direct expenses 83,935
62,045
15,510
(1,290 ) 160,200
Selling, general and administrative expenses 9,987
3,666
2,606
(4 ) 16,255
Total operating expenses 93,922
65,711
18,116
(1,294 ) 176,455
Gain on disposal of assets, net —
—
—
—
—
Equity in income of unconsolidated affiliates, net (118 ) —
—
—
(118 )
Operating (loss) income (18,150 ) 6,685
3,911
4
(7,550 )
Equity in net income of consolidated subsidiaries (10,381 ) —
—
10,381
—
Interest expense 8,356
1
—
—
8,357
Other income, net (301 ) —
(1,548 ) 4
(1,845 )
(2,326 ) 1
(1,548 ) 10,385
6,512
(Loss) earnings before income taxes (15,824 ) 6,684
5,459
(10,381 ) (14,062 )
Income tax (benefit) expense (4,293 ) —
1,762
—
(2,531 )
Net (loss) earnings $ (11,531 ) $ 6,684
$ 3,697
$ (10,381 ) $ (11,531 )

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

	For the Quarter Ended June 30, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	79,857		$	68,717	$	51,404		$	(30,735	)	$	169,243
Expenses:
Direct expenses		78,955			58,263		48,658			(30,793	)		155,083
Selling, general and administrative expenses		8,395			3,256		2,838			(4	)		14,485
Total operating expenses		87,350			61,519		51,496			(30,797	)		169,568
Gain on disposal of assets, net		(150	)		—		(21	)		—			(171	)
Equity in income of unconsolidated affiliates, net		(81	)		—		—			—			(81	)
Operating (loss) income		(7,262	)		7,198		(71	)		62			(73	)
Equity in net income of consolidated subsidiaries		(6,064	)		—		—			6,064			—
Interest expense		8,337			—		542			(539	)		8,340
Other income, net		(365	)		—		128			601			364
		1,908			—		670			6,126			8,704
(Loss) earnings before income taxes		(9,170	)		7,198		(741	)		(6,064	)		(8,777	)
Income tax (benefit) expense		(2,077	)		—		393			—			(1,684	)
Net (loss) earnings	$	(7,093	)	$	7,198	$	(1,134	)	$	(6,064	)	$	(7,093	)

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
Loss (gain) on disposal of assets, net (4 ) —
—
—
(4 )
Equity in (income) loss of consolidated affiliate 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)

(Unaudited)

	For the Six Months Ended June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	149,740		$	131,930		$	49,251		$	(13,859	)	$	317,062
Expenses:
Direct expenses		160,793			120,941			42,515			(13,859	)		310,390
Selling, general and administrative expenses		28,507			7,731			6,229			(9	)		42,458
Total operating expenses		189,300			128,672			48,744			(13,868	)		352,848
Loss (gain) on disposal of assets, net		(51	)		9			(2	)		—			(44	)
Equity in income of unconsolidated affiliates, net		(2,400	)		—			—			—			(2,400	)
Operating (loss) income		(37,109	)		3,249			509			9			(33,342	)
Equity in net income of consolidated subsidiaries		(3,825	)		—			—			3,825			—
Interest expense		12,070			23			—			—			12,093
Regorganizations items, net		28,103			—			—			—			28,103
Other income, net		(235	)		—			(67	)		9			(293	)
		36,113			23			(67	)		3,834			39,903
(Loss) earnings before income taxes		(73,222	)		3,226			576			(3,825	)		(73,245	)
Income tax (benefit) expense		(5,904	)		(144	)		121			—			(5,927	)
Net (loss) earnings	$	(67,318	)	$	3,370		$	455		$	(3,825	)	$	(67,318	)

~~(Unaudited)~~

For the Nine Months Ended September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Operating revenues, net $ 233,608
$ 199,823
$ 68,065
$ (3,096 ) $ 498,400
Expenses:
Direct expenses 246,888
175,673
52,045
(3,097 ) 471,509
Selling, general and administrative expenses 27,129
10,089
8,994
(13 ) 46,199
Total operating expenses 274,017
185,762
61,039
(3,110 ) 517,708
Loss (gain) on disposal of assets, net 729
—
(21 ) —
708
Equity in income of unconsolidated affiliates, net (162 ) —
—
—
(162 )
Operating (loss) income (40,976 ) 14,061
7,047
14
(19,854 )
Equity in net income of consolidated subsidiaries (18,542 ) —
—
18,542
—
Interest expense 24,888
2
4
—
24,894
Other income, net (359 ) —
(91 ) 14
(436 )
5,987
2
(87 ) 18,556
24,458
(Loss) earnings before income taxes (46,963 ) 14,059
7,134
(18,542 ) (44,312 )
Income tax (benefit) expense (11,356 ) —
2,651
—
(8,705 )
Net (loss) earnings $ (35,607 ) $ 14,059
$ 4,483
$ (18,542 ) $ (35,607 )

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

	For the Six Months Ended June 30, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	157,949		$	127,426	$	100,900		$	(56,668	)	$	329,607
Expenses:
Direct expenses		162,953			113,627		91,436			(56,707	)		311,309
Selling, general and administrative expenses		17,143			6,423		6,388			(10	)		29,944
Total operating expenses		180,096			120,050		97,824			(56,717	)		341,253
Loss (gain) on disposal of assets, net		729			—		(21	)		—			708
Equity in income of unconsolidated affiliates, net		(45	)		—		—			—			(45	)
Operating (loss) income		(22,831	)		7,376		3,097			49			(12,309	)
Equity in net income of consolidated subsidiaries		(8,163	)		—		—			8,163			—
Interest expense		16,533			—		1,085			(1,081	)		16,537
Other income, net		(63	)		—		337			1,130			1,404
		8,307			—		1,422			8,212			17,941
(Loss) earnings before income taxes		(31,138	)		7,376		1,675			(8,163	)		(30,250	)
Income tax (benefit) expense		(7,063	)		—		888			—			(6,175	)
Net (loss) earnings	$	(24,075	)	$	7,376	$	787		$	(8,163	)	$	(24,075	)

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 of unconsolidated affiliate 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 COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

	For the Quarter Ended June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(32,077	)	$	5,600	$	(648	)	$	(4,952	)	$	(32,077	)
Currency translation adjustments		—			—		(928	)		—			(928	)
Tax effect of the above-listed adjustments		—			—		25			—			25
Total comprehensive (loss) income	$	(32,077	)	$	5,600	$	(1,551	)	$	(4,952	)	$	(32,980	)

~~(Unaudited)~~

For the Quarter Ended September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net (loss) earnings $ (11,531 ) $ 6,684
$ 3,697
$ (10,381 ) $ (11,531 )
Unrealized gain on short-term investments —
—
—
—
—
Currency translation adjustments —
—
(4,718 ) —
(4,718 )
Changes in pension plan asset and benefit obligation —
—
—
—
—
Tax effect of the above-listed adjustments —
—
—
—
—
Total comprehensive (loss) income $ (11,531 ) $ 6,684
$ (1,021 ) $ (10,381 ) $ (16,249 )

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

	For the Quarter Ended June 30, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(7,093	)	$	7,198	$	(1,134	)	$	(6,064	)	$	(7,093	)
Unrealized gain on short-term investments		(107	)		—		—			—			(107	)
Currency translation adjustments		—			—		160			—			160
Changes in pension plan asset and benefit obligation		7			—		—			—			7
Tax effect of the above-listed adjustments		100			—		—			—			100
Total comprehensive (loss) income	$	(7,093	)	$	7,198	$	(974	)	$	(6,064	)	$	(6,933	)

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 obligations (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 COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)

	For the Six Months Ended June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(67,318	)	$	3,370	$	455		$	(3,825	)		(67,318	)
Currency translation adjustment		—			—		(121	)		—			(121	)
Tax effect of the above-listed adjustments		—			—		33			—			33
Total comprehensive (loss) income	$	(67,318	)	$	3,370	$	367		$	(3,825	)	$	(67,406	)

~~(Unaudited)~~

For the Nine Months Ended September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net (loss) earnings $ (35,607 ) $ 14,059
$ 4,483
$ (18,542 ) (35,607 )
Unrealized gain on short-term investments 363
—
—
—
363
Currency translation adjustment —
—
(4,091 ) —
(4,091 )
Changes in pension plan asset and benefit obligation (1 ) —
—
—
(1 )
Tax effect of the above-listed adjustments (85 ) —
—
—
(85 )
Total comprehensive (loss) income $ (35,330 ) $ 14,059
$ 392
$ (18,542 ) $ (39,421 )

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

	For the Six Months Ended June 30, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Net (loss) earnings	$	(24,075	)	$	7,376	$	787	$	(8,163	)		(24,075	)
Unrealized gain on short-term investments		363			—		—		—			363
Currency translation adjustment		—			—		627		—			627
Changes in pension plan asset and benefit obligation		(1	)		—		—		—			(1	)
Tax effect of the above-listed adjustments		(85	)		—		—		—			(85	)
Total comprehensive (loss) income	$	(23,798	)	$	7,376	$	1,414	$	(8,163	)	$	(23,171	)

~~(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 obligations (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 CASH FLOWS

(Thousands of dollars)

(Unaudited)

	For the Six Months Ended June 30, 2019
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(20,773	)	$	(6,064	)	$	3,160		$	—	$	(23,677	)
Investing activities:													—
Purchase of property and equipment		(5,956	)		—			(3,014	)		—		(8,970	)
Proceeds from asset dispositions		1,235			—			—			—		1,235
Purchase of short-term investments		(183,421	)		—			—			—		(183,421	)
Proceeds from sale of short-term investments		121,512			—			—			—		121,512
Payment of deposit on aircraft		(50	)										(50	)
Refund of deposit on aircraft		503			—			—			—		503
Loan to unconsolidated affiliate		—			—			—			—		—
Net cash used in investing activities		(66,177	)		—			(3,014	)		—		(69,191	)
Financing activities:													—
Debt issuance costs		(5,668	)		—			—			—		(5,668	)
Proceeds from Term Loan		70,000			—			—					70,000
Due to/from affiliate, net		(8,330	)		7,028			1,302			—		—
Net cash provided by (used in) financing activities		56,002			7,028			1,302			—		64,332
Effect of exchange rate changes on cash		—			—			(483	)		—		(483	)
Increase (decrease) in cash		(30,948	)		964			965			—		(29,019	)
Cash, cash equivalents and restricted cash at beginning of period		46,781			1,259			10,524			—		58,564
Cash, cash equivalents and restricted cash at end of period	$	15,833		$	2,223		$	11,489		$	—	$	29,545

~~(Unaudited)~~

For the Nine Months Ended September 30, 2018
Parent
Company
Only (issuer) Guarantor
Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated
Net cash (used in) provided by operating activities $ (25,451 ) $ 6,439
$ 10,964
$ —
$ (8,048 )
Investing activities:
Purchase of property and equipment (20,580 ) —
(2,181 ) —
(22,761 )
Proceeds from asset dispositions 1,453
—
—
—
1,453
Purchase of short-term investments (284,277 ) —
—
—
(284,277 )
Purchase of restricted investments (7,705 ) —
—
—
(7,705 )
Proceeds from sale of short-term investments 318,007
—
—
—
318,007
Loan to unconsolidated affiliate (274 ) —
—
—
(274 )
Net cash (used in) investing activities 6,624
—
(2,181 ) —
4,443
Financing activities:
Debt issuance costs (874 ) —
—
—
(874 )
Proceeds from line of credit 34,295
—
—
—
34,295
Payments on line of credit (151,795 ) —
—
—
(151,795 )
Proceeds from Term Loan 130,000
130,000
Due to/from affiliate, net 17,158
(5,631 ) (11,527 ) —
—
Repurchase of common stock (99 ) —
—
—
(99 )
Net cash provided by (used in) financing activities 28,685
(5,631 ) (11,527 ) —
11,527
Effect of exchange rate changes on cash —
—
(239 ) —
(239 )
Increase (decrease) in cash 9,858
808
(2,983 ) —
7,683
Cash, beginning of period 47
1,072
7,651
—
8,770
Cash, end of period $ 9,905
$ 1,880
$ 4,668
$ —
$ 16,453

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

	For the Six Months Ended June 30, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(506	)	$	3,306		$	2,610		$	—	$	5,410
Investing activities:
Purchase of property and equipment		(16,768	)		—			(1,330	)		—		(18,098	)
Proceeds from asset dispositions		1,453			—			—			—		1,453
Purchase of short-term investments		(260,996	)		—			—			—		(260,996	)
Proceeds from sale of short-term investments		264,918			—			—			—		264,918
Loan to unconsolidated affiliate		(274	)		—			—			—		(274	)
Net cash used in investing activities		(11,667	)		—			(1,330	)		—		(12,997	)
Financing activities:
Proceeds from line of credit		34,295			—			—			—		34,295
Payments on line of credit		(29,575	)		—			—			—		(29,575	)
Due to/from affiliate, net		7,510			(3,073	)		(4,437	)		—		—
Repurchase of common stock		(51	)		—			—			—		(51	)
Net cash provided by (used in) financing activities		12,179			(3,073	)		(4,437	)		—		4,669
Increase (decrease) in cash		6			233			(3,157	)		—		(2,918	)
Cash, beginning of period		47			1,072			7,651			—		8,770
Cash, end of period	$	53		$	1,305		$	4,494		$	—	$	5,852

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
Payments of deposits on aircraft —
—
—
—
Net cash provided by 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 (decreased) 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

18. DEBTOR IN POSSESSION FINANCIAL INFORMATION

The financial statements below represent the condensed financial statements of the Debtors. The Debtors are PHI, Inc., PHI Air Medical, LLC, PHI Tech Services, Inc., PHI Helipass, LLC, and AM Equity Holdings, LLC. Intercompany transactions among the Debtors have been eliminated in the financial statements contained herein. Intercompany transactions among the Debtors and the non–debtor subsidiaries have not been eliminated in the Debtors’ financial statements.

PHI, INC. AND DEBTOR'S

CONDENSED COMBINED BALANCE SHEETS

(Thousands of dollars, except share data)

(Unaudited)

	June 30, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	10,310
Short-term investments		76,141
Accounts receivable – net
Trade		153,460
Other		6,120
Inventories of spare parts – net		50,800
Prepaid expenses		11,749
Income taxes receivable		509
Total current assets		309,089
Property and equipment – net		846,095
Right of use assets		127,821
Restricted cash and investments		19,739
Other assets		150,536
Total assets	$	1,453,280
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	66,187
Accrued and other current liabilities		33,168
Current portion of operating lease liabilities		24,125
Current maturities of long term debt		1,750
Total current liabilities		125,230
Long-term debt:
Term loan issued March 13, 2019, net of debt issuance costs of $5,254		62,996
Related party term loan issued September 28, 2018, net of debt issuance costs of $546		129,454
Deferred income taxes		52,135
Other long-term liabilities		3,673
Long-term operating lease liabilities		104,491
Total liabilities not subject to compromise		477,979
Liabilities subject to compromise		513,125
Total liabilities		991,104
Shareholders’ Equity:
Voting common stock – par value of $0.10; 12,500,000 shares authorized, 2,905,757 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		291
Non-voting common stock – par value of $0.10; 37,500,000 shares authorized, 12,919,681 issued and outstanding at June 30, 2019 and December 31, 2018, respectively		1,290
Additional paid-in capital		314,499
Accumulated other comprehensive income (loss)		(3	)
Retained earnings		146,099
Total shareholders’ equity		462,176
Total liabilities and shareholders’ equity	$	1,453,280

PHI, INC. AND DEBTOR'S

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)

	Quarter			Six Months
	Ended June 30, 2019
Operating revenues, net	$	139,501		$	266,164
Expenses:		—			—
Direct expenses		129,319			266,368
Selling, general and administrative expenses		14,746			36,228
Total operating expenses		144,065			302,596
Loss on disposal of assets		(93	)		(42	)
Equity in (income) loss of unconsolidated affiliates, net		(1,039	)		(2,400	)
Operating (loss) income		(3,432	)		(33,990	)
Interest expense		3,927			12,093
Reorganization items, net		26,503			28,103
Other income – net		(42	)		(226	)
		30,388			39,970
Loss before income taxes		(33,820	)		(73,960	)
Income tax benefit		(2,443	)		(6,048	)
Net loss	$	(31,377	)	$	(67,912	)

PHI, INC. AND DEBTOR'S

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

	Six Months Ended June 30,
	2019
Operating activities:
Net loss		(67,912	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		29,799
Deferred income taxes		(6,492	)
Loss (gain) on asset dispositions		(42	)
Equity in (income) loss of unconsolidated affiliate, net		(2,400	)
Inventory valuation reserves		1,110
Changes in operating assets and liabilities		19,751
Net cash used in operating activities		(26,186	)
Investing activities:
Purchase of property and equipment		(7,817	)
Proceeds from asset dispositions		1,235
Purchase of short-term investments		(183,421	)
Proceeds from sale of short-term investments		121,512
Payment of deposit on aircraft		(50	)
Refund of deposit on aircraft		503
Net cash used in investing activities		(68,038	)
Financing activities:
Debt issuance cost		(5,668	)
Proceeds from Term Loan		70,000
Net cash provided by financing activities		64,332
Decrease in cash, cash equivalents and restricted cash		(29,892	)
Cash, cash equivalents and restricted cash at the beginning of period		47,865
Cash, cash equivalents and restricted cash end of period	$	17,973

19. REORGANIZATION ITEMS

ASC 852 requires that transactions and events directly associated with our Chapter 11 reorganization be distinguished from the ongoing operations of the business. The Company refers to “Reorganization items” on its condensed consolidated statements of earnings (loss) to reflect the revenues, expenses, gains and losses that are the direct result of the reorganization of the business consist of professional fees of $1.6 million for the three months ended March 31, 2019 and $26.5 million for the three months ended June 30, 2019.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OFOF 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 Form 10-K for the year ended December 31, ~~2017,~~2018, including the audited consolidated financial statements and notes thereto, management’s discussion and analysis, and the risk factor disclosures contained therein.

Overview

As described further in Note ~~12,~~14, we are primarily a provider of helicopter transport services and derive most of our revenue from providing these services to the energy and medical industries. Our consolidated results of operations are principally driven by the following factors:

We expect the pending Chapter 11 Cases will impact our business. Certain of our customers have advised us that they will not enter into additional contracts with us during the Chapter 11 Cases. We also are expending substantial amounts of cash on professional fees relating to the reorganization process. For information on additional impacts of the Chapter 11 Cases, see (i) the balance of this Item 2, (ii) Note 2 and (iii) Item 1A of Part II of this report.

The level of offshore oil and gas exploration and production activities in the areas in which we operate. Operating revenues from our Oil and Gas segment relate substantially to operations in the Gulf of Mexico and a couple of our other key offshore markets. 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.

~~Our recent acquisition of the HNZ Offshore Business has increased the scope of our Oil and Gas segment.~~ On December 29, 2017, we acquired the offshore helicopter services business formerly conducted by HNZ Group, Inc. ("HNZ") in New Zealand, Australia, the Philippines and Papua New Guinea (the “HNZ Offshore Business”). Our consolidated financial statements include the accounts of the HNZ Offshore Business beginning on January 1, 2018. Accordingly, you should consider the impact of our acquisition of the HNZ Offshore Business when comparing our results of operations for periods ending September 30, 2018 to our results for any prior periods.

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 80%, ~~81%~~80%, 81% and 74% of our Air Medical segment revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, and ~~the years ended December 31, 2017, 2016 and 2015, respectively,~~2018, 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 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 Form 10-K for the year ended December 31, ~~2017.~~2018. Since mid-2014, prevailing oil prices have been substantially lower than prices for several years before then. Consequently, several of our oil and gas customers 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. These changes ~~have~~ created overcapacity in the offshore flight services industry and ~~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 have re-bid existing contracts, all of which has further reduced our aircraft utilization rates and intensified pricing pressures. Although various experts believe the negative consequences of the market downturn have crested, we cannot assure you of this. For information on the adverse impact of this market downturn on our liquidity, see “- Liquidity and Capital ~~Resources - Cash Flow - Liquidity”~~Resources" below.

Voluntary Reorganization under Chapter 11

On March 14, 2019, the Debtors filed voluntary petitions in the Bankruptcy Court seeking relief under the Bankruptcy Code. The Chapter 11 Cases are being jointly administered under the caption "In re PHI, Inc., et al., Case No. 19-30923." Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://restructuring.primeclerk.com/PHI. Documents and other information available on such website are not part of this document and shall not be deemed incorporated by reference in this document. The Debtors are authorized to continue to operate their businesses and manage their properties as "debtors in possession" under the jurisdiction of the Bankruptcy Code and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Certain subsidiaries of PHI (collectively, the "Non-Filing Entities") were not part of the Chapter 11 Cases. The Non-Filing Entities will continue to operate their businesses in the normal course and their results are included in our interim Unaudited Condensed Consolidated Financial Statements.

Subject to certain exceptions, under the Bankruptcy Code, the filing of the Chapter 11 Cases automatically enjoined, or stayed, the continuation of most judicial or administrative proceedings or filing of other actions against the Debtors or their property to recover, collect or secure a claim arising prior to the commencement date of the cases. Accordingly, except with respect to certain payments required to be made as adequate protection under the Bankruptcy Code and applicable Bankruptcy Court orders, any efforts to enforce payment obligations under the Company's pre-petition debt instruments are automatically stayed as a result of the filing of the Chapter 11 Cases and are subject to the applicable provisions of the Bankruptcy Code.

Our Plan has been confirmed, but has not yet been implemented. We plan to implement our Plan by the end of August 2019, but cannot assure you of this. Unless and until our Plan is implemented, the Company's operations and ability to develop and execute its business plan are subject to the risks and uncertainties associated with the Chapter 11 process. As a result of these risks and uncertainties, the amount and composition of the Company's assets, liabilities, officers and directors could be significantly different following the outcome of the Chapter 11 Cases. The description of the Company's operations, properties, liquidity, capital resources, capital structure, ownership or governance included in this or other of our periodic reports or in the Plan may not accurately reflect its operations, properties, liquidity, capital resources, capital structure, ownership or governance following resolution of the Chapter 11 Cases.

The accompanying interim Unaudited Condensed Consolidated Financial Statements have been prepared assuming that PHI will successfully emerge from bankruptcy and continue as a going concern and contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to successfully implement our Plan, among other factors. The risks and uncertainties surrounding our Chapter 11 proceedings raise substantial doubt as to our ability to continue as a going concern.

Furthermore, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business and subject to restrictions of our term loan financing (see Note 6 of Notes to our Condensed Consolidated Financial Statements) and applicable orders of the Bankruptcy Court, for amounts other than those reflected in the accompanying Unaudited Condensed Consolidated Financial Statements. Any such actions occurring during the Chapter 11 Cases confirmed by the Bankruptcy Court could materially impact the amounts and classifications of assets and liabilities reported in PHIs' interim Unaudited Condensed Consolidated Financial Statements.

Under the absolute priority scheme established by the Bankruptcy Code, unless our creditors agree otherwise, all of our pre-petition liabilities and post-petition liabilities must be satisfied in full before the holders of our existing common stock may receive any distribution or retain any property under a plan of reorganization. For more information, see Note 2 to our Condensed Consolidated Financial Statements.

Results of Operations

The following tables present operating revenues, expenses, and earnings, along with certain non-financial operational statistics, for the quarters ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~ 2018.

	Quarter Ended June 30,						Favorable (Unfavorable)
	2019			2018
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues
Oil and Gas	$	90,023		$	97,068		$	(7,045	)
Air Medical		69,507			67,151			2,356
Technical Services		5,642			5,024			618
Total operating revenues, net		165,172			169,243			(4,071	)
Segment direct expenses
Oil and Gas ⁽¹⁾		89,061			94,442			5,381
Air Medical		59,310			56,776			(2,534	)
Technical Services		4,104			3,784			(320	)
Total direct expenses		152,475			155,002			2,527
Segment selling, general and administrative expenses
Oil and Gas		4,672			4,400			(272	)
Air Medical		4,141			3,254			(887	)
Technical Services		152			340			188
Total selling, general and administrative expenses		8,965			7,994			(971	)
Total segment direct and selling, general and administrative expenses		161,440			162,996			1,556
Net segment (loss) profit
Oil and Gas		(3,710	)		(1,774	)		(1,936	)
Air Medical		6,056			7,121			(1,065	)
Technical Services		1,386			900			486
Total net segment profit⁽²⁾		3,732			6,247			(2,515	)
Other, net⁽³⁾		428			(193	)		621
Unallocated selling, general and administrative costs⁽⁴⁾		(8,626	)		(6,491	)		(2,135	)
Reorganization items, net		(26,503	)		—			(26,503	)
Interest expense		(3,927	)		(8,340	)		4,413
(Loss) earnings before income taxes		(34,896	)		(8,777	)		(26,119	)
Income tax (benefit) expense		(2,819	)		(1,684	)		1,135
Net loss	$	(32,077	)	$	(7,093	)	$	(24,984	)
Flight hours:
Oil and Gas		18,149			22,089			(3,940	)
Air Medical ⁽⁵⁾		10,716			9,992			724
Technical Services		82			38			44
Total		28,947			32,119			(3,172	)
Air Medical Transports ⁽⁶⁾		5,707			4,925			782

Quarter Ended
September 30,
Favorable
(Unfavorable)
2018 2017

(Thousands of dollars, except flight hours,
patient transports, and aircraft)
Segment operating revenues
Oil and Gas $ 93,338
$ 75,700
$ 17,638
Air Medical 70,192
70,280
(88 )
Technical Services 5,257
4,187
1,070
Total operating revenues, net 168,787
150,167
18,620
Segment direct expenses
Oil and Gas ⁽¹⁾
94,832
81,467
(13,365 )
Air Medical 60,358
51,120
(9,238 )
Technical Services 4,892
3,761
(1,131 )
Total direct expenses 160,082
136,348
(23,734 )
Segment selling, general and administrative expenses
Oil and Gas 4,321
1,148
(3,173 )
Air Medical 3,666
3,136
(530 )
Technical Services 356
338
(18 )
Total segment selling, general and administrative expenses 8,343
4,622
(3,721 )
Total segment direct and selling, general and administrative expenses 168,425
140,970
(27,455 )
Net segment (loss) profit
Oil and Gas (5,815 ) (6,915 ) 1,100
Air Medical 6,168
16,024
(9,856 )
Technical Services 9
88
(79 )
Total net segment profit ⁽²⁾
362
9,197

(8,835 )

Other, net ⁽³⁾
1,845
710
1,135
Unallocated selling, general and administrative costs ⁽⁴⁾
(7,912 ) (6,779 ) (1,133 )
Interest expense (8,357 ) (8,027 ) (330 )
(Loss) earnings before income taxes (14,062 ) (4,899 ) (9,163 )
Income tax benefit (2,531 ) (1,622 ) 909
Net loss $ (11,531 ) $ (3,277 ) $ (8,254 )

Flight hours:
Oil and Gas 20,540
21,178
(638 )
Air Medical ⁽⁵⁾
10,277
9,743
534
Technical Services 83
—
83
Total 30,900
30,921
(21 )

Air Medical Transports ⁽⁶⁾
5,311
5,162
149


(1)	Includes Equity in gain/loss of unconsolidated affiliate.

(2)

Total net segment profit has not been prepared in accordance with ~~GAAP.~~generally accepted accounting principles (“GAAP”). Management believes this non-GAAP financial measure provides meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of total net segment profit to the most comparable GAAP financial measure is as follows:

	Quarter Ended June 30,
	2019			2018
Total net segment profit	$	3,732		$	6,247
Other, net		428			(193	)
Unallocated selling, general and administrative costs		(8,626	)		(6,491	)
Reorganization items, net		(26,503	)
Interest expense		(3,927	)		(8,340	)
(Loss) before income taxes	$	(34,896	)	$	(8,777	)

Quarter Ended
September 30,
2018 2017
Total net segment profit $ 362
$ 9,197
Other, net 1,845
710
Unallocated selling, general and administrative costs (7,912 ) (6,779 )
Interest expense (8,357 ) (8,027 )
(Loss) before income taxes $ (14,062 ) $ (4,899 )


(3)	Includes gains on disposition of property and equipment, asset impairments, and other income.


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


(5)	Flight hours include ~~2,560~~2,221 flight hours associated with traditional provider contracts during the ~~third~~second quarter of ~~2018,~~2019, compared to ~~2,283~~2,479 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~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~ 2018.

	Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues
Oil and Gas	$	174,969		$	192,702		$	(17,733	)
Air Medical		126,153			124,139			2,014
Technical Services		15,940			12,766			3,174
Total operating revenues, net		317,062			329,607			(12,545	)
Segment direct expenses
Oil and Gas ⁽¹⁾		179,031			190,985			11,954
Air Medical		116,391			110,608			(5,783	)
Technical Services		12,568			9,671			(2,897	)
Total direct expenses		307,990			311,264			3,274
Segment selling, general and administrative expenses
Oil and Gas		9,432			9,321			(111	)
Air Medical		7,433			6,421			(1,012	)
Technical Services		300			710			410
Total selling, general and administrative expenses		17,165			16,452			(713	)
Total segment direct and selling, general and administrative expenses		325,155			327,716			2,561
Net segment (loss) profit
Oil and Gas		(13,494	)		(7,604	)		(5,890	)
Air Medical		2,329			7,110			(4,781	)
Technical Services		3,072			2,385			687
Total net segment (loss) profit⁽²⁾		(8,093	)		1,891			(9,984	)
Other, net ⁽³⁾		337			(2,112	)		2,449
Unallocated selling, general and administrative costs ⁽⁴⁾		(25,293	)		(13,492	)		(11,801	)
Reorganization items, net		(28,103	)		—			(28,103	)
Interest expense		(12,093	)		(16,537	)		4,444
(Loss) earnings before income taxes		(73,245	)		(30,250	)		(42,995	)
Income tax benefit		(5,927	)		(6,175	)		(248	)
Net loss	$	(67,318	)	$	(24,075	)	$	(43,243	)
Flight hours:
Oil and Gas		33,779			42,978			(9,199	)
Air Medical ⁽⁵⁾		19,304			18,822			482
Technical Services		463			479			(16	)
Total		53,546			62,279			(8,733	)
Air Medical Transports ⁽⁶⁾		10,206			9,324			882
Aircraft operated at period end: ⁽⁷⁾
Oil and Gas		121			125
Air Medical		111			109
Technical Services		4			6
Total		236			240

Nine Months Ended September 30,
Favorable
(Unfavorable)
2018 2017

(Thousands of dollars, except flight hours,
patient transports, and aircraft)
Segment operating revenues
Oil and Gas $ 286,046
$ 222,098
$ 63,948
Air Medical 194,331
192,840
1,491
Technical Services 18,023
16,271
1,752
Total operating revenues, net 498,400
431,209
67,191
Segment direct expenses
Oil and Gas ⁽¹⁾
285,818
236,878
(48,940 )
Air Medical 170,966
152,363
(18,603 )
Technical Services 14,563
12,565
(1,998 )
Total direct expenses 471,347
401,806
(69,541 )
Segment selling, general and administrative expenses
Oil and Gas 13,642
4,501
(9,141 )
Air Medical 10,087
9,280
(807 )
Technical Services 1,066
1,032
(34 )
Total segment selling, general and administrative expenses 24,795
14,813
(9,982 )
Total segment direct and selling, general and administrative expenses 496,142
416,619
(79,523 )
Net segment (loss) profit
Oil and Gas (13,414 ) (19,281 ) 5,867
Air Medical 13,278
31,197
(17,919 )
Technical Services 2,394
2,674
(280 )
Total net segment profit ⁽²⁾
2,258
14,590
(12,332 )

Other, net ⁽³⁾
(272 ) 2,471
(2,743 )
Unallocated selling, general and administrative costs ⁽⁴⁾
(21,404 ) (23,878 ) 2,474
Interest expense (24,894 ) (24,305 ) (589 )
(Loss) earnings before income taxes (44,312 ) (31,122 ) (13,190 )
Income tax benefit (8,705 ) (9,324 ) (619 )
Net loss $ (35,607 ) $ (21,798 ) $ (13,809 )

Flight hours:
Oil and Gas 63,518
58,335
5,183
Air Medical ⁽⁵⁾
29,100
27,787
1,313
Technical Services 562
511
51
Total 93,180
86,633
6,547

Air Medical Transports ⁽⁶⁾
14,635
14,580
55

Aircraft operated at period end: ⁽⁷⁾

Oil and Gas ⁽⁸⁾
126
126

Air Medical ⁽⁹⁾
108
105

Technical Services 6
6

Total 240
237


(1)	Includes Equity in gain/loss of unconsolidated affiliate.

(2)

Total net segment profit has not been prepared in accordance with ~~GAAP.~~generally accepted accounting principles (“GAAP”). Management believes this non-GAAP financial measure provides meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of total net segment profit to the most comparable GAAP financial measure is as follows:

	Six Months Ended June 30,
	2019			2018
Total net segment (loss) profit	$	(8,093	)	$	1,891
Other, net		337			(2,112	)
Unallocated selling, general and administrative costs		(25,293	)		(13,492	)
Reorganization items, net		(28,103	)
Interest expense		(12,093	)		(16,537	)
(Loss) before income taxes	$	(73,245	)	$	(30,250	)

Nine Months Ended September 30,
2018 2017
Total net segment profit $ 2,258
$ 14,590
Other, net (272 ) 2,471
Unallocated selling, general and administrative costs (21,404 ) (23,878 )
Interest expense (24,894 ) (24,305 )
(Loss) before income taxes $ (44,312 ) $ (31,122 )


(3)	Includes gains on disposition of property and equipment, asset impairments, and other income.


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


(5)	Flight hours include ~~7,261~~4,111 flight hours associated with traditional provider contracts during the ~~nine months ended September 30, 2018,~~first half of 2019, compared to ~~6,877~~4,701 flight hours ~~during~~in the first half of the prior ~~period~~ year.


(6)	Represents individual patient transports for the period.


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


~~(8)~~	~~Includes one aircraft as of September 30, 2018 that were owned or leased by customers but operated by us.~~


~~(9)~~	~~Includes seven and six aircraft as of September 30, 2018 and 2017, respectively that were owned or leased by customers but operated by us.~~

Quarter Ended ~~September~~June 30, ~~2018~~2019 compared with Quarter Ended ~~September~~June 30, ~~2017~~

~~Combined Operations~~

2018

Operating Revenues - Operating revenues for the three months ended ~~September~~June 30, ~~2018~~2019 were ~~$168.8~~$165.2 million, compared to ~~$150.2~~$169.3 million for the three months ended ~~September~~June 30, ~~2017, an increase~~2018, a decrease of ~~$18.6~~$4.1 million. Oil and Gas segment operating revenues ~~increased $17.6~~decreased $7.1 million for the three months ended ~~September~~June 30, ~~2018.~~2019. As discussed further below, this ~~increase~~decrease is attributable ~~principally~~ to ~~revenue derived from~~decreases in both our ~~recently-acquired HNZ Offshore Business~~International and ~~secondarily from an increase in revenues from our legacy international Oil and Gas operations, partially offset by a decrease in revenues from our~~ Gulf of Mexico operations. Air Medical segment operating revenues ~~remained basically unchanged at $70.2 million for the three months ended September 30, 2018, and September 30, 2017.~~increased by $2.4 million. Technical Services segment operating revenues increased ~~$1.1~~$0.6 million.

Total flight hours for the three months ended ~~September~~June 30, ~~2018~~2019 were ~~30,900~~28,947 compared to ~~30,921~~32,119 for the three months ended ~~September~~June 30, ~~2017.~~2018. As explained in more detail below, Oil and Gas segment flight hours decreased ~~638~~3,940 hours. ~~The increase of 1,900 flight hours in our international operations was more than offset by a decrease of 2,538 flight hours in the Gulf of Mexico operations.~~ Air Medical segment flight hours increased ~~534~~724 hours for the three months ended ~~September~~June 30, ~~2018,~~2019, due to ~~increased~~an increase of 982 flight hours for ~~both~~ our independent provider programs and a decrease of 258 flight hours in our traditional provider programs. As discussed further below, individual patient transports in the Air Medical segment were ~~5,311~~5,707 for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to transports of ~~5,162~~4,925 for the three months ended ~~September~~June 30, ~~2017.~~

2018.

Direct Expenses - Direct operating expense was ~~$160.1~~$152.5 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$136.3~~$155.0 million for the three months ended ~~September~~June 30, ~~2017, an increase~~2018, a decrease of ~~$23.8~~$2.5 million. We experienced a decrease in spare parts expense of $4.7 million ~~or 17.5%. Employee compensation expense~~and a decrease in aircraft warranty cost of $1.4 million. Equity in income of our Ghanaian affiliate increased ~~$12.7~~$1.0 million, primarily due to ~~our recent acquisition~~increased flight hours (see below). Fuel expense decreased $0.8 million due to decreased flight volume. These reductions were partially offset by an increase in employee compensation expense of ~~the HNZ Offshore Business and increased labor costs~~$4.1 million primarily due to staffing of new bases in our Air Medical segment. ~~Employee compensation expense represented approximately 46% and 44%~~Cost of ~~total direct expense for the quarters ended September 30, 2018 and 2017, respectively. We experienced an increase in aircraft warranty costs of $2.3 million as a result of~~goods sold increased flight hours for our international heavy aircraft, and the addition of a new warranty program to cover the fleet of one of our medium aircraft models at the beginning of 2018. Fuel expenses increased by $2.4 million, principally due to our expanded international operations. Training, airfare, and freight expenses increased $2.1 million, also due to our expanded international operations. Aircraft depreciation increased $2.6 million, partly due to the aircraft acquired in the HNZ acquisition. Contract medical labor increased $1.0$0.9 million due to government work in the ~~expansion of a cooperative program, and other~~Technical Services segment. Other items increased ~~$0.7,~~$0.4 million, net.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were ~~$16.3~~$17.6 million for the three months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$11.4~~$14.5 million for the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~$4.9~~$3.1 million increase ~~was principally attributable to a $2.6 million increase in salaries and services~~is primarily due to ~~our recent HNZ acquisition,~~ an increase in ~~attorney fees of $0.7 million related~~retention compensation attributable to ~~financing activities, and an increase of $0.9 million~~the KERP approved by the Bankruptcy Court in ~~equity-based compensation expense. Consulting and accounting fees increased $0.3 million, airfare increased $0.2, and other items increased $0.2 million, net.~~April 2019. See Note 2.

Loss/Gain on Disposal of Assets, Net - The gain on asset dispositions was ~~less than~~ $0.1 million for ~~each of~~ the three months ended ~~September~~June 30, ~~2018 and 2017.~~2019 compared to a gain of $0.2 million for the three months ended June 30, 2018. See Note 10.

Equity in ~~(Gain)~~(Income) Loss of Unconsolidated Affiliates - Equity in the ~~earnings~~income of our unconsolidated affiliate attributable to our investment in a Ghanaian entity was $1.0 million for the three months ended June 30, 2019, compared to income of less than $0.1 million for the three months ended ~~September~~June 30, ~~2018, compared~~2018. The $1.0 million increase is primarily attributable to ~~a loss of $0.1~~increased flight hours due to additional drilling activity in the region. See Note 15.

Interest Expense - Interest expense was $3.9 million for the three months ended ~~September~~June 30, ~~2017. See Note 13. We had equity in income of our unconsolidated Australian affiliate of $0.6~~2019 and $8.3 million for the three months ended June 30, 2018. The $4.4 million decrease is due a $6.6 million decrease in interest expense for our Senior notes that matured March 15, 2019 (attributable to classifying all accrued and unpaid interest as liabilities subject to compromise) and $1.5 million decrease in interest expense for our revolving credit facility that was refinanced September ~~30, 2017.~~28, 2018. These reductions were offset by a $2.0 million increase in interest for our term loan from Thirty-Two, LLC, and a $1.5 million increase in interest for our Blue Torch Loan. Other items increased $0.2 million, net.

Reorganization Expenses. As a result of ~~our acquisition~~filing the Chapter 11 Cases in mid-March 2019, we incurred net reorganization expenses of $26.5 million during the ~~HNZ Offshore Business in late 2017, this entity has been included in our consolidated operations for all~~quarter ended June 30, 2019, most of which related to the payment of professionals. We did not incur any such expenses during the quarter ended June 30, 2018.

Other Loss (Income) - ~~Interest Expense -Interest expense~~Other Income, net was ~~$8.4~~$0.3 million for the three months ended ~~September~~June 30, ~~2018 and $8.0 million the three months ended September 30, 2017, reflecting higher rates payable on our revolving credit facility borrowings.~~

~~Other Loss (Income) -Other income, net was $1.8 million for the three months ended September 30, 2018~~2019 compared to other ~~income,~~loss, net of ~~$0.7~~$0.4 million for the same period in ~~2017.~~2018. Net unrealized currency exchange rate ~~gains increased $1.5~~losses decreased $1.0 million, partially offset by a decrease in interest income of $0.3 million. ~~Interest income decreased $0.6 million due to lower investment balances. Other items increased $0.2 million, net.~~

Income Tax Benefit - Income tax benefit for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$2.5~~$2.8 million compared to income tax benefit of ~~$1.6~~$1.7 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Our ~~$2.5~~$2.8 million income tax benefit for the three months ended ~~September~~June 30, ~~2018~~2019 is attributable to our net loss from operations of ~~$14.1~~$32.1 million. Our effective tax rate was ~~18.0%~~8.1% and ~~33%~~19.2% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~September~~June 30, ~~2017,~~2018, respectively. The decrease in the effective

rate for the three months ended ~~September~~June 30, ~~2018~~2019 as compared to the three months ended ~~September~~June 30, ~~2017~~2018 is primarily the result of non-deductible professional fees associated with the ~~reduction in the federal corporate income tax rate from 35% to 21% that became effective January 1, 2018 pursuant to the Tax Cuts and Jobs Act enacted in December 2017.~~

Chapter 11 Cases.

Net Loss - Net loss for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$11.5~~$32.1 million compared to net loss of ~~$3.3~~$7.1 million for the three months ended ~~September~~June 30, ~~2017.~~2018. Loss before income taxes for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$14.1~~$34.9 million compared to loss before income taxes of ~~$4.9~~$8.8 million for the same period in ~~2017.~~2018. Loss per diluted share was ~~$0.73~~$2.03 for the current quarter compared to loss per diluted share of ~~$0.21~~$0.45 for the prior year quarter. The $26.1 million increase in loss before

income taxes for the quarter ended June 30, 2019 is primarily attributable to $26.5 million of reorganization items related to our restructuring efforts, an increase in segment loss and a decrease in segment profit for our Oil and Gas Operations and Air Medical Operations, respectively, as discussed further below. These items were partially offset by a decrease in interest expense. We had $15.8 million weighted average diluted common shares outstanding for the three months ended June 30, 2019 and 2018, respectively.

Segment Discussion

Oil and Gas - Oil and Gas segment revenues were $90.0 million for the three months ended June 30, 2019, compared to $97.1 million for the three months ended June 30, 2018, a decrease of $7.1 million. Revenues from our Gulf of Mexico operations decreased $6.0 million, primarily due to fewer aircraft on contract. Revenues from our international operations decreased $1.1 million during the quarter ended June 30, 2019, primarily due to lower flight hours in Australia, New Zealand, Trinidad, Canada, Israel, and the cessation of a contract in Papua New Guinea. These decreases were partially offset by revenue increases in Ghana due to increased flight hours. 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 18,149 for the most recently completed quarter compared to 22,089 for the same quarter in the prior year, a decrease of 3,940 flight hours. This decrease is attributable to 2,983 fewer flight hours in our Gulf of Mexico operations and 957 fewer flight hours from our international operations.

The number of aircraft available for use in the segment was 121 at June 30, 2019, compared to 125 at June 30, 2018. During the quarter ended June 30, 2019, we transferred one medium aircraft to the Air Medical segment.

Direct expense in our Oil and Gas segment was $89.1 million for the three months ended June 30, 2019, compared to $94.4 million for the three months ended June 30, 2018, a decrease of $5.3 million. Employee compensation expense decreased $0.9 million, primarily due to a decrease in labor for aircraft maintenance. Equity in income of our Ghanaian affiliate increased $1.0 million due to increased flight hours attributable to increased drilling activity in the region. Aircraft rent expense decreased $0.9 million due to lease terminations, and fuel expense decreased $0.9 million due to lower flight hours. Spare parts, repairs, and warranty costs decreased $2.9 million due to lower flight hours. These decreases were partially offset by an increase in aircraft depreciation expense of $1.2 million. Other items increased $.1 million, net.

Selling, general and administrative segment expenses increased slightly at $4.7 million for the three months ended June 30, 2019 compared to $4.4 million for the three months ended June 30, 2018. The $0.3 million increase is due to the accrual of compensation expense under our KEIP (See Note 2 Bankruptcy Filing).

Oil and Gas segment loss was $3.7 million for the three months ended June 30, 2019, compared to a loss of $1.8 million for the three months ended June 30, 2018. The $1.9 million increase in segment loss is attributable to the $7.1 million decrease in segment revenues, partially offset by the $5.2 million decrease in aggregate segment expenses.

Air Medical - Air Medical segment revenues were $69.5 million for the three months ended June 30, 2019 compared to $67.1 million for the three months ended June 30, 2018, an increase of $2.4 million. Revenue from our independent provider model increased $2.1 million. Revenues from our traditional provider and other air medical segment operations increased $0.3 million. Revenue from operating bases opened [during or] after the second quarter of 2018 were $6.4 million, but this increase was partially offset by revenue decreases of $4.0 million from existing and closed bases. We experienced an increase in medicare and self-pay transports, compared to the prior year quarter. Patient transports were 5,707 for the three months ended June 30, 2019, compared to 4,925 for the same period in the prior year. Patient transports for new bases increased by 677 transports while transports for existing and closed bases increased by 105 transports, net.

The number of aircraft available for use in the segment was 111 at June 30, 2019 compared to 109 at June 30, 2018. During the quarter ended June 30, 2019, we added one medium aircraft transferred from the Oil & Gas segment.

Direct expense in our Air Medical segment was $59.3 million for the three months ended June 30, 2019, compared to $56.8 million for the three months ended June 30, 2018, an increase of $2.5 million. This increase is due primarily to $5.8 million in increased expenses related to new bases that were not operating for part or all of the quarter in the prior year. This increase in expense was partially offset by decreases in cost for existing bases of $3.3 million. Spare parts and repairs decreased $2.2 million, depreciation expense decreased $0.5 million, and fuel decreased $0.2 million. Other items for existing bases decreased $0.4 million, net.

Selling, general and administrative segment expenses were $4.1 million for the three months ended June 30, 2019, compared to $3.3 million for the three months ended June 30, 2018. The $0.8 million increase is due to $0.5 million related to

compensation expense under our KEIP and KERP (see Note 2 Bankruptcy Filing), $0.1 million related to other equity-based compensation expense, and $0.2 million for other payroll items, net.

Air Medical segment profit was $6.1 million for the three months ended June 30, 2019, compared to a segment profit of $7.1 million for the three months ended June 30, 2018. The $1.0 million decrease in profit is attributable to a decrease in profit from our independent provider model bases of $2.4 million, partially offset by an increase in profit from our traditional bases and other air medical programs, net.

Technical Services - Technical Services segment revenues were $5.6 million for the three months ended June 30, 2019, compared to $5.0 million for the three months ended June 30, 2018. The $0.6 million increase in revenue is due to an increase in revenue related to government work of $0.5 million, and an increase in revenue from Helipass of $0.1 million. Direct expenses increased to $4.1 million for the three months ended June 30, 2019, compared to $3.8 million for the same period in 2018. Technical Services segment earnings was $1.4 million for the three months ended June 30, 2019, compared to $0.9 million for the three months ended June 30, 2018, and is primarily attributable to the above-mentioned revenue increases.

For additional information on our segments, see Note 14.

Six Months Ended June 30, 2019 compared with Six Months Ended June 30, 2018

Combined Operations

Operating Revenues - Operating revenues for the six months ended June 30, 2019 were $317.1 million, compared to $329.6 million for the six months ended June 30, 2018, a decrease of $12.5 million. Oil and Gas segment operating revenues decreased $17.7 million for the six months ended June 30, 2019. As discussed further below, this increase is attributable to decreases in both our International and Gulf of Mexico operations. Air Medical segment operating revenues increased $2.0 million due principally to an increase in revenues from both our independent provider operations and traditional provider programs. Technical Services segment operating revenues increased $3.2 million.

Total flight hours for the six months ended June 30, 2019 were 53,546 compared to 62,279 for the six months ended June 30, 2018. As explained in more details below, Oil and Gas segment flight hours decreased 9,199 hours. Air Medical segment flight hours increased 482 hours for the six months ended June 30, 2019, due to increased flight hours for our independent provider program, partially offset by a decrease in fight hours for our traditional provider programs. As discussed further below, individual patient transports in the Air Medical segment were 10,206 for the six months ended June 30, 2019, compared to transports of 9,324 for the six months ended June 30, 2018.

Direct Expenses - Direct operating expense was $308.0 million for the six months ended June 30, 2019, compared to $311.2 million for the six months ended June 30, 2018, a decrease of $3.2 million. Spare parts, repairs, and warranty costs decreased $5.7 million. Equity in income of our Ghanaian affiliate increased $2.4 million. Fuel expense decreased $1.8 million due to lower flight hours, aircraft rent decreased $1.4 million, and aircraft insurance decreased $0.5 million. These decreases were partially offset by a $4.8 million increase in employee compensation costs, primarily due to staffing of new bases in our Air Medical segment and partially due to expenses under the KERP, see Note 2. Employee compensation expense represented approximately 47% and 45% of total direct expense for the six-month periods ended June 30, 2019 and 2018, respectively. Cost of goods sold increased $3.7 million due to government work in the Technical Services segment. Other items increased $0.1 million, net.

Selling, General and Administrative Expenses - Selling, general and administrative expenses were $42.5 million for the six months ended June 30, 2019, compared to $29.9 million for the six months ended June 30, 2018. The $12.6 million increase is primarily due to costs associated with our restructuring efforts. These items include a $3.9 million increase in compensation expense arising under our KEIP and KERP (see Note 2 Bankruptcy Filing), a $3.3 million increase in consulting fees, a $4.2 million increase in attorney fees, and a $1.8 million increase in severance pay due to a voluntary early retirement plan offered to certain of our employees. Other items decreased $0.6 million, net.

Loss/Gain on Disposal of Assets, Net - The gain on asset dispositions for the six months ended June 30, 2019 was less than $0.1 million. For the six months ended June 30, 2018, we recorded a loss on assets dispositions $0.7 million. See Note 10.

Equity in (Income) Loss of Unconsolidated Affiliate - Equity in the income of our unconsolidated affiliates attributable to our investment in a Ghanaian entity was $2.4 million for the six months ended June 30, 2019, comparted to less than $0.1 million for the six months ended June 30, 2018. The $2.4 million increase is primarily attributable to increased flight hours due to additional drilling activity in the region. See Note 15.

Interest Expense -Interest expense was $12.1 million for the six months ended June 30, 2019 compared to $16.5 million for the six months ended June 30, 2018. The $4.4 million decrease is due to a $7.7 million reduction in interest expense for our senior notes that matured March 15, 2019 (attributable to classifying all accrued and unpaid interest as liability subject to compromise) and a $2.7 million decrease in interest expense for our revolving credit facility that was refinanced September 28, 2018. These reductions were offset by a $3.9 million increase in interest for our term loan from Thirty-Two, LLC, and a $1.8 million increase in interest for our Blue Torch Loan. Other items increased $0.3 million, net.

Reorganization Expenses. As a result of filing the Chapter 11 Cases in mid-March 2019, we incurred net reorganization expenses of $28.1 million during the six months ended June 30, 2019, most of which related to the payment of professionals. We did not incur any such expenses during the six months ended June 30, 2018.

Other (Income) Loss - Other income, net was $0.3 million for the six months ended June 30, 2019 compared to other loss, net of $1.4 million for the same period in 2018. Exchange losses decreased $1.5 million and losses on sales of investments decreased $0.6 million. These increases to income were offset by a reduction in interest income of $0.4 million due to lower investment balances.

Income Tax benefit - Income tax benefit for the six months ended June 30, 2019 was $5.9 million compared to income tax benefit of $6.2 million for the six months ended June 30, 2019. Our $5.9 million income tax benefit for the six months ended June 30, 2019 is attributable to our loss before income taxes of $73.2 million. Our effective tax rate was 8.1% and 20.4% for the six months ended June 30, 2019 and June 30, 2018, respectively. The decrease in the effective rate for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 is primarily the result of non-deductible professional fees associated with the Chapter 11 Cases.

Net Loss - Net loss for the six months ended June 30, 2019 was $67.3 million compared to net loss of $24.1 million for the six months ended June 30, 2018. Loss before income taxes for the six months ended June 30, 2019 was $73.2 million compared to loss before income taxes of $30.3 million for the same period in 2018. Loss per diluted share was $4.25 for the six months ended June 30, 2019 compared to loss per diluted share of $1.52 for the prior year six months. The increase in loss before income taxes for the ~~quarter~~six months ended ~~September~~June 30, ~~2018~~2019 is primarily attributable ~~principally~~ to ~~increased expenses~~the reorganization items related to our restructuring efforts, an increase in our Oil & Gas segment loss and a decrease in our Air Medical ~~Segment.~~segment profit, as discussed further below. We had 15.8 million weighted average diluted common shares outstanding for the ~~quarters~~six months ended ~~September~~June 30, 2019 and 2018, ~~and 2017.~~respectively.

Segment Discussion

Oil and Gas - Oil and Gas segment revenues were ~~$93.3~~$175.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$75.7~~$192.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018. Of this $17.7 million decrease, $11.0 million was attributable to a ~~$17.6 million increase. Revenues~~decrease in revenues derived from our ~~recently-acquired HNZ Offshore~~Gulf of Mexico Business, ~~during~~and the ~~quarter ended September 30, 2018 were $19.3 million. Revenues from our legacy international operations increased $4.3 million. These increases were offset by~~remainder was attributable to a ~~$6.0 million~~ decrease in revenues from our ~~Gulf of Mexico~~international aircraft operations, primarily from decreases in our Australia, New Zealand, and Trinidad operations. 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 ~~20,540~~33,779 for the ~~most recently completed quarter~~current six months compared to ~~21,178~~42,978 for the same ~~quarter~~six months in the prior ~~year, a~~year. Of this decrease of ~~638 flight hours. This decrease is attributable to 2,538 fewer~~9,199 flight hours, in7,060 were attributable to our Gulf of Mexico operations ~~which was partially offset by an increase of 1,108 flight~~and 2,139 hours were attributable to our ~~recently-acquired HNZ~~International operations~~and an increase~~ due to lower utilization of ~~792 flight hours in~~all of our ~~legacy international operations.~~

aircraft model types.

The number of aircraft available for use in the segment was ~~126~~121 at ~~September~~June 30, ~~2018,~~2019, compared to 125 at ~~June 30,~~December 31, 2018. We ~~disposed of~~terminated a lease on one heavy aircraft and transferred two light and one medium aircraft ~~during~~to the ~~quarter. Transfers between segments account for the remainder.~~

Air Medical segment.

Direct expense in our Oil and Gas segment was ~~$94.8~~$179.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$81.5~~$191.0 million for the ~~three~~six months ended ~~September~~June 30, ~~2017, an increase~~2018, a decrease of ~~$13.3~~$12.0 million. We experienced ~~an increase~~a decreased in ~~aircraft~~spare parts and repairs expense of $4.3 million, a decrease in fuel expenses of $1.9 million, and a decrease in warranty ~~costs~~cost of ~~$2.3~~$1.5 million, all due to lower flight hours. Aircraft rent decreased $2.0 million due to ~~increased flight hours for our~~a return of a heavy aircraft and ~~the addition~~a newly negotiated lease rate. Equity in income of ~~a new warranty program for~~ our ~~medium aircraft. Salaries and wages~~Ghanaian entity increased by $7.8 million, primarily due to our recent HNZ acquisition. Fuel expense increased $1.9 million, principally due to our expanded international operations. Aircraft depreciation increased $2.5 million, partly due to the aircraft acquired in the HNZ acquisition. Helicopter rent expense decreased $1.3 million, due to the termination of the heavy aircraft leases mentioned above.$2.4 million. Other items increased ~~$0.1~~$0.2 million, net.

Selling, general and administrative segment expenses were ~~$4.3~~$9.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~$1.1~~$9.3 million for the ~~three~~six months ended ~~September~~June 30, ~~2017. The $3.2~~2018. KEIP and KERP expense increased $0.4 million ~~increase is mainly attributable to an increase~~(see Note 2 Bankruptcy), partially offset by a $0.2 million decrease in ~~salaries and wages and other administrative costs due to our newly-acquired HNZ international operations.~~

airfare. Other items decreased $0.1 million, net.

Oil and Gas segment loss was ~~$5.8~~$13.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to a loss of ~~$6.9~~$7.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~$1.1~~$5.8 million ~~decrease~~increase in segment loss is attributable to ~~the $17.6~~a $17.7 million ~~increase~~decrease in segment revenues, partially offset by ~~the $16.5 million increase~~$11.9 reduction in ~~segment expenses.~~

expenses described above.

Air Medical - Air Medical segment revenues were ~~approximately $70.2~~$126.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2018~~2019, compared to $124.1 million for the six months ended June 30, 2018. This increase of $2.0 million is attributable to a $1.5 million increase in independent provider program revenue and ~~2017.~~a $0.5 million increase in traditional provider program revenue. Revenue from new bases that were not operating for part or all of the six months in the prior year increased ~~$5.9~~$11.8 million, but was partially offset by revenue decreases of $9.8 million from existing and closed bases. ~~Patient~~We experienced an increase in medicare and self-pay transports, ~~were 5,311 for the three months ended September 30, 2018,~~ compared to ~~5,162 for~~ the same period in the prior year. Patient transports were 10,206 for ~~new bases increased by 540 transports while transports~~the six months ended June 30, 2019, compared to 9,324 for ~~existing bases decreased by 391 transports.~~the same period in the prior year.

The number of aircraft available for use in the segment was ~~108 at September 30, 2018 compared to 109~~111 at June 30, 2019 compared to 108 at December 31, 2018. ~~During the quarter we added one customer owned light aircraft. Transfers~~The three aircraft additions were transfers between ~~segments account for the remainder.~~

segments.

Direct expense in our Air Medical segment was ~~$60.4~~$116.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$51.1~~$110.6 million for the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2018, an increase of ~~$9.3~~$5.8 million. ~~This increase is due primarily to $7.0 million in increased expenses related to new bases that were not operating in the prior year quarter.~~ Employee compensation costs ~~for the existing operations~~ increased ~~$2.8~~$5.0 million and contract medical labor increased $3.0 million, both due to ~~increased labor~~newly opened bases. These increases were partially offset by a decrease of $1.9 million in aircraft maintenance costs. Other items decreased ~~$0.5~~$0.3 million, net.

Selling, general and administrative segment expenses were ~~$3.7~~$7.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2018, compared~~

~~to $3.1~~2019 and $6.4 million for the ~~three~~six months ended ~~September~~June 30, ~~2017, an increase of $0.6 million. This~~2018. The increase is due in part to ~~higher employee~~the compensation ~~costs~~expense under our KEIP and ~~legal fees.~~

KERP (See Note 2 – Bankruptcy Filing).

Air Medical segment profit was ~~$6.2~~$2.3 million for the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to a segment profit of ~~$16.0~~$7.1 million for the ~~three~~six months ended September 30, 2017. The $9.8 million decrease in profit is attributable to a decrease in profit from our independent provider model bases. Increased revenues of $5.9 million from new bases was more than offset by an increase in expenses of $7.3 million related to these bases. Revenues from existing bases decreased $6.6 million, while expenses from existing bases increased $1.9 million.

~~Technical Services -~~Technical Services segment revenues were $5.3 million for the three months ended September 30, 2018, compared to $4.1 million for the three months ended September 30, 2017. The $1.2 million increase in revenue is due primarily to an increase in revenue from a new government contract that began in 2018. Direct expenses increased $1.1 million compared to the prior year three month period, principally due to an increase in costs associated with the new government contract. Technical Services segment earnings was less than $0.1 million for both the three months ended September 30, 2018 and September 30, 2017.

~~For additional information on our segments, see Note 12.~~

~~Nine Months Ended September 30, 2018 compared with Nine Months Ended September 30, 2017~~

~~Combined Operations~~

~~Operating Revenues -~~Operating revenues for the nine months ended September 30, 2018 were $498.4 million, compared to $431.2 million for the nine months ended September 30, 2017, an increase of $67.2 million. Oil and Gas segment operating revenues increased $63.9 million for the nine months ended SeptemberJune 30, 2018. As discussed further below, this increase is attributable principally to revenue derived from our newly-acquired HNZ Offshore Business and secondarily from an increase in revenues from our legacy international Oil and Gas operations, partially offset by a decrease in revenues from our Gulf of Mexico operations. Air Medical segment operating revenues increased $1.5 million due principally to an increase in revenues from both our independent provider operations and traditional provider programs. Technical Services segment operating revenues increased $1.8 million.

Total flight hours for the nine months ended September 30, 2018 were 93,180 compared to 86,633 for the nine months ended September 30, 2017. Oil and Gas segment flight hours increased 5,183 hours, primarily due to the operations of our newly-acquired HNZ Offshore Business and an increase in flight hours for legacy light and heavy aircraft models. Air Medical segment flight hours increased 1,313 hours for the nine months ended September 30, 2018, due to increased flight hours for both our independent provider and traditional provider programs. As discussed further below, individual patient transports in the Air Medical segment were 14,635 for the nine months ended September 30, 2018, compared to transports of 14,580 for the nine months ended September 30, 2017.

~~Direct Expenses -~~Direct operating expense was $471.3 million for the nine months ended September 30, 2018, compared to $401.8 million for the nine months ended September 30, 2017, an increase of $69.5 million, or 17.3%. Employee compensation expense increased $28.8 million primarily due to our recent acquisition of the HNZ Offshore Business and due to the expansion of Air Medical independent provider programs and higher employee compensation costs for existing bases. Employee compensation expense represented approximately 45% and 46% of total direct expense for the nine-month periods ended September 30, 2018 and 2017, respectively. We experienced an increase in aircraft warranty costs of $23.4 million partly as a result of the prior period $9.8 million non-recurring credit due to the cancellation of a warranty program on some of our medium aircraft. The remainder of the $23.4 million increase was due to increased flight hours for our heavy aircraft in our international operations, and the addition of a new warranty program for our medium aircraft at the beginning of 2018. Spare parts expense increased by $5.3 million due to our expanded international operations and increases in parts costs for our government contract. Fuel expenses increased $7.2 million, principally due to our expanded international operations, as well as increases in fuel costs in the other segments. Aircraft depreciation increased $4.8 ~~million, partly due to the aircraft acquired in the HNZ acquisition.~~

~~Selling, General and Administrative Expenses -~~Selling, general and administrative expenses were $46.2 million for the nine months ended September 30, 2018, compared to $38.7 million for the nine months ended September 30, 2017. The $7.5 million increase was principally attributable to a $8.9 million increase in salaries and services due to our recent HNZ acquisition. Equity based compensation increased $1.2 million and attorney fees increased $0.8 million. Severance pay decreased $3.2 million, and employee incentive expense decreased $0.8 million. Other items increased $0.6 million, net.

~~Loss/Gain on Disposal of Assets, Net -The loss on asset dispositions for the nine months ended September 30, 2018 was $0.7~~

~~million. For the nine months ended September 30, 2017, we recorded a loss on assets dispositions of less than $0.1 million. See Note 8.~~

~~Equity in (Gain) Loss of Unconsolidated Affiliates -~~Equity in our unconsolidated affiliate attributable to our investment in a Ghanaian entity was a gain of less than $0.2 million for the nine months ended September 30, 2018 and a loss of $1.0 million for the nine months ended September 30, 2017. See Note 13. We had equity in income of our unconsolidated Australian affiliate of $0.5 million for the nine months ended September 30, 2017. As a result of our acquisition of the HNZ Offshore Business in late 2017, this entity has been included in our consolidated operations in 2018.

~~Interest Expense -~~Interest expense was $24.9 million for the nine months ended September 30, 2018 compared to $24.3 million for the nine months ended September 30, 2017, reflecting higher rates payable on our revolving credit facility borrowings.

~~Other Loss (Income) -~~Other income, net was $0.3 million for the nine months ended September 30, 2018 compared to other income, net of $2.5 million for the same period in 2017. Net interest income decreased $1.4 million due to lower investment balances. Losses on sales of investments during the nine months of 2018 were $0.6 million. Other items decreased $0.2 million, net.

~~Income Tax Benefit~~ - Income tax benefit for the nine months ended September 30, 2018 was $8.7 million compared to income tax benefit of $9.3 million for the nine months ended September 30, 2017. Our $8.7 million income tax benefit for the nine months ended September 30, 2018 is attributable to our loss before income taxes of $44.3 million. Our effective tax rate was 19.6% and 29.9% for the nine months ended September 30, 2018 and September 30, 2017, respectively. The decrease in the effective rate for the nine months ended September 30, 2018 as compared to the nine months ended September 30, 2017 is primarily the result of the reduction in the federal corporate income tax rate from 35% to 21% that became effective January 1, 2018 pursuant to the Tax Cuts and Jobs Act enacted in December 2017.

~~Net Loss -~~Net loss for the nine months ended September 30, 2018 was $35.6 million compared to net loss of $21.8 million for the nine months ended September 30, 2017. Loss before income taxes for the nine months ended September 30, 2018 was $44.3 million compared to loss before income taxes of $31.1 million for the same period in 2017. Loss per diluted share was $2.25 for the nine months ended September 30, 2018 compared to loss per diluted share of $1.38 for the prior year nine months. The increase in loss before income taxes for the nine months ended September 30, 2018 is primarily attributable to an increase in expenses in our Air Medical Segment, partially offset by an increase in earnings before taxes from our Oil and Gas operations, net. We had 15.8 million million weighted average diluted common shares outstanding for the nine months ended September 30, 2018 and 2017.

~~Segment Discussion~~

~~Oil and Gas -~~Oil and Gas segment revenues were $286.0 million for the nine months ended September 30, 2018, compared to $222.1 million for the nine months ended September 30, 2017. Revenues derived from our recently-acquired HNZ Offshore Business were $69.2 million, and our international legacy operations revenues increased $11.7 million. These increases were partially offset by a $17.0 million decrease in our legacy Gulf of Mexico offshore operations. 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 63,518 for the current nine months compared to 58,335 for the same nine months in the prior year. Of this increase of 5,182 flight hours, 6,821 hours were attributable to our newly-acquired HNZ operations, which was partially offset by lower utilization rates of our legacy aircraft.

The number of aircraft available for use in the segment was 126 at September 30, 2018, compared to 126 at September 30, 2017. We terminated leases on two heavy aircraft and disposed of one light aircraft, three medium aircraft, and one fixed wing in the Oil and Gas segment since September 30, 2017. We added 9 medium aircraft in the Oil and Gas segment since September 30, 2017, as a result of our acquisition of the HNZ Offshore Business. Transfers between segments account for the remainder.

Direct expense in our Oil and Gas segment was $285.8 million for the nine months ended September 30, 2018, compared to $236.9 million for the nine months ended September 30, 2017, an increase of $48.9 million. Salaries and wages increased by $19.9 million, primarily due to our recent HNZ acquisition. We experienced an increase in aircraft warranty costs of $21.8 million partly as a result of an $8.9 million non-recurring prior period credit due to the cancellation of a warranty program on some of our medium aircraft fleet. The remaining $12.9 million increase in warranty cost was due to increased flight hours for our heavy aircraft in our international operations, and the addition of a new warranty program for our medium aircraft at the beginning of

2018. Fuel expense increased $6.1 million primarily due to the HNZ acquisition and increased fuel cost for our Gulf of Mexico operations. Helicopter rent decreased $4.5 million, net, due to the termination of two heavy aircraft leases. Aircraft depreciation expense increased $5.0 million due in part to the aircraft acquired from the HNZ acquisition. Other items increased $0.6 million, net.

Selling, general and administrative segment expenses were $13.6 million for the nine months ended September 30, 2018 and $4.5 million for the nine months ended September 30, 2017. The $9.1 million increase is mainly attributable to an increase in salaries and wages and other administrative costs due to our newly-acquired HNZ international operations.

Oil and Gas segment loss was $13.4 million for the nine months ended September 30, 2018, compared to a loss of $19.3 million for the nine months ended September 30, 2017. The $5.9 million decrease in segment loss is attributable to a $64.0 million increase in segment revenues, partially offset by $58.1 million increase in aggregate segment expenses.

~~Air Medical -~~Air Medical segment revenues were $194.3 million for the nine months ended September 30, 2018, compared to $192.8 million for the nine months ended September 30, 2017. This increase of $1.5 million is attributable to a $0.5 million increase in independent provider program revenue and a $1.0 million increase in traditional provider program revenue. Revenues for newly opened independent provider programs increased $7.5 million, while revenues for existing independent provider bases decreased $7.0 million. Patient transports were 14,635 for the nine months ended September 30, 2018, compared to 14,580 for the same period in the prior year. Patient transports for new bases increased by 690 transports while transports for existing bases decreased by 635 transports.

The number of aircraft available for use in the segment was 108 at September 30, 2018 compared to 105 at September 30, 2017. Since September 30, 2017, our Air Medical segment added one medium and one light customer aircraft, and disposed of one light customer aircraft. Transfers between segments account for the remainder.

Direct expense in our Air Medical segment was $171.0 million for the nine months ended September 30, 2018, compared to $152.4 million for the nine months ended September 30, 2017, an increase of $18.6 million. This increase is due in part to $9.6 million in increased expenses related to new bases that were not operating in the prior year. Employee compensation costs for the existing operations increased $8.7 million due to increased labor costs. Other items decreased $0.3 million, net.

Selling, general and administrative segment expenses were $10.1 million for the nine months ended September 30, 2018 and $9.2 million for the nine months ended September 30, 2017. The increase is primarily associated with increased attorney and consulting fees.

~~Air Medical segment profit was $13.3 million for the nine months ended September 30, 2018, compared to a segment profit of $31.2 million for the nine months ended September 30, 2017. The $17.9~~ million decrease in profit is primarily attributable to the increased expenses described above.

Technical Services - Technical Services segment revenues were ~~$18.0~~$15.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$16.3~~$12.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~$1.7~~$3.1 million increase in revenue is due primarily to an increase in revenue from our (i) ~~Antarctica and~~ Helipass operations, (ii) parts sales and ~~(ii)~~(iii) new government contract that began in 2018. ~~These increases were partially offset by a decrease in revenue derived from a third party customer whose service requirements typically vary from period to period.~~ Direct expenses increased ~~$2.0~~$2.9 million compared to the prior year ~~nine~~six month period, principally due to ~~expenses associated with~~ the increase expenses in our ~~Antarctica operations and the~~ new government ~~contract, partially offset by a decrease in expenses related to the third party customer mentioned above.~~contract. Technical Services segment profit was ~~$2.4~~$3.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to segment profit of ~~$2.7~~$2.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

For additional information on our segments, see Note ~~12.~~

14.

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.~~needs, as well as the costs associated with our Chapter 11 Cases during their pendency. Our principal sources of liquidity historically have been net cash provided by our operations, and borrowings under a revolving credit ~~facility, and proceeds from~~or term loan facilities or periodic senior note offerings. We have also periodically funded

certain of our aircraft acquisitions through sale-leaseback transactions.

~~Liquidity~~

~~Recently, our liquidity and ability to comply with our debt covenants have been negatively impacted by several factors, including:~~

~~the prolonged slowdown in exploration and production activity in our offshore oil and gas markets, and the resulting overcapacity of aircraft servicing those markets;~~

~~our leverage; and~~

~~our use of over $130 million of our short-term investments to fund our acquisition of the HNZ Offshore Business in late 2017.~~

As discussed further elsewhere in this and our other periodic reports filed with the SEC, beginning in the third quarter of 2016 we have on several occasions sought and received concessions from our revolving credit facility lenders and aircraft lessors to enable us to remain in compliance with various financial covenants in our debt and lease instruments.

Our outstanding senior notes mature on March 15, 2019. As such, all $500 million principal amount of our outstanding senior note indebtedness is now due within less than one year. Beginning with our consolidated financial statements as of and for the quarter ended March 31, 2018, we have been required to classify under GAAP all of our short term indebtedness as current liabilities on our consolidated balance sheets. As of September 30, 2018, we had (i) total current liabilities of $578.2 million and (ii) total current assets of $332.6 million.

In late 2017, we retained advisors to begin assisting us in evaluating alternatives to refinance our outstanding indebtedness. In February 2018, following the completion of our acquisition of the HNZ Offshore Business in December 2017, we continued our exploration of refinancing alternatives, including a broad assessment of interest rates and other prevailing conditions in the capital markets. During the first quarter of 2018, we explored several alternatives but deferred taking action until management could more fully evaluate additional potential refinancing opportunities. In June 2018, we sought to refinance all of our outstanding short-term indebtedness with the net proceeds from a senior secured note offering and two new secured credit facilities. Although several lenders expressed a willingness to loan us money under the newly-proposed credit facilities, we were unable over the course of the next several months to raise funds that, in our judgement, were sufficient in amount and contained terms that were fiscally prudent.

In the third quarter of 2018, we retained Houlihan Lokey Capital, Inc. as our financial advisor to assist us in exploring and evaluating a broad range of alternatives to improve our liquidity and enhance shareholder value. As of the date this report was filed, our Board had not set a timetable for the completion of this process, nor had it made any decisions related to specific strategic alternatives. There is no assurance that this process will result in any particular outcome. We do not intend to provide any updates on our process unless or until we determine that further disclosure is necessary or appropriate.

Based on our discussions to date with our advisors and current market conditions, we believe there are several possible transactions that could, if timely and successfully consummated, help us discharge our short-term indebtedness. Nonetheless, because our plans have not been finalized, and therefore are not within our control, these plans cannot be considered probable. As such, these plans cannot be considered to be probable of occurring within the meaning of ASU 2014-15 discussed in Note 5 (the "Standard"). Consequently, in accordance with the Standard, these conditions in the aggregate continue to raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements included herein were filed.

~~For additional information about ASU 2014-15, see Note 5. For additional information about the uncertainties and risks of our refinancing plans, see Item 1A of Part II of this report.~~

Historical Cash and Cash Flow Information

Cash and Short-Term Investments - Our cash position was ~~$16.5~~$21.9 million at ~~September~~June 30, ~~2018,~~2019, compared to ~~$8.8~~$50.9 million at December 31, ~~2017.~~2018. Short-term investments were ~~$30.5~~$76.1 million at ~~September~~June 30, ~~2018,~~2019, compared to ~~$64.2~~$14.2 million at December 31, ~~2017.~~2018. We also had ~~$19.8~~$19.7 million and ~~$12.4~~$19.8 million in restricted investments at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, securing outstanding letters of credit.

Operating Activities - Net cash used in operating activities was ~~$8.1~~$23.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to net cash ~~used~~provided of ~~$1.9~~$5.4 million for the same period in ~~2017, an increase~~2018, a decrease of ~~$6.2~~$29.1 million. ~~This increase is partly attributable to a $1.2 million increase in cash used relating to changes in operating assets and liabilities. The~~An increase in net loss ~~of $13.8 million,~~ adjusted for the non-cash items ~~specified in our accompanying condensed consolidated statement of cash flows,~~ accounted for ~~$5.0~~a $48.0 million ~~of the~~ decrease in cash ~~flows~~flow from ~~operating activities.~~

~~Investing Activities -Net~~operations. This was offset by an $18.9 increase in cash provided by changes in our operating assets and liabilities, primarily due to outstanding reorganization payables.

Investing Activities - Net cash used in investing activities was ~~$4.4~~$69.2 million for the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, compared to cash ~~provided by~~used in investing activities of ~~$36.5~~$13.0 million for the same period in ~~2017.~~2018. Net ~~sales~~purchases of short-term investments ~~provided $26.0~~used $61.9 million of cash during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$85.7~~$3.9 million provided by net sales in the comparable prior year period. Capital expenditures were ~~$22.5~~$9.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$49.2~~$18.1 million for the same period in ~~2017.~~2018. Gross proceeds from asset dispositions were ~~$1.5~~$1.2 million during the ~~nine~~six months of ~~2018,~~2019, compared to proceeds of ~~less than $0.1~~$1.5 million for the same period in ~~2017.~~2018.

Financing Activities - Financing activities during the ~~nine~~six months ended ~~September~~June 30, 2019 included proceeds from our new term loan (See Note 6) of $70.0 million and payments of debt issuance costs of $5.7 million. Financing activities during the six months ended June 30, 2018 included net ~~payments~~borrowings of ~~$117.5~~$4.7 million ~~to payoff of~~on our revolving credit ~~facility. We repaid and terminated the~~ facility, on September 28, 2018 and replaced it with a term loan, discussed above in Note 5 to the financial statements. Proceeds from this new loan totaled $130 million. We used $122.2 million of the proceeds to pay off the facility, and $7.7 million to secure letters of credit. Other financing items included $0.9 million of costs associated with obtaining the new loan, and less than $0.1 million used to repurchase shares of our non-voting common stock to satisfy withholding tax ~~obligation~~obligations of our employees. ~~Financing activities during~~

Liquidity - Our ability to maintain adequate liquidity throughout the ~~nine months~~reorganization process and beyond depends upon several factors, including (i) the length and final outcome of ~~2017 included net payments of $34.0 million on our revolving credit facility and $0.3 million used to repurchase shares~~the reorganization process, (ii) the successful management of our ~~non-voting common stock~~business, and (iii) the appropriate management of our operating and capital expenses. Our anticipated liquidity requirements are highly sensitive to ~~satisfy withholding tax obligations~~each of ~~employees.~~these factors. Upon emergence from bankruptcy, we currently expect to require additional financing to support future operations, and have commenced initial efforts to explore our alternatives.

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.

Debt Obligations

Senior Notes - ~~We owe $500~~In 2014, we issued $500.0 million ~~under our~~principal amount of 5.25% Senior Notes. These notes ~~mature~~matured on March 15, 2019. For more information, see Note 5.6.

Blue Torch Loan. We borrowed $70.0 million from Blue Torch Finance, LLC shortly before the commencement of the Chapter 11 Cases (the “Blue Torch Loan”). For more information about the Blue Torch Loan, see Note 6.

Related Party Term Loan - We owe ~~$130~~$130.0 million under a term loan provided by the financing affiliate of our current CEO and controlling ~~shareholder.~~shareholder (the “Related Party Loan”). On September 28, 2018, we applied the proceeds from ~~this term loan~~the Related Party Loan principally to repay approximately $122.7 million of principal and accrued interest under our senior secured revolving credit facility. Obligations under the term loan are guaranteed by two of our principal subsidiaries, and the Company’s obligation under the term loan and the guarantors’ obligations under their guaranty agreement are secured by inventory ~~spare parts~~ and accounts receivable located in the United ~~States.~~States, as well as certain spare parts. For additional information, see (i) Note 56 and (ii) our current ~~report~~reports on Form 8-K filed with the SEC on September 28, ~~2018.~~2018 and March 15, 2019.

Other - At ~~September~~June 30, ~~2018,~~2019, we had ~~$19.8~~$19.7 million of outstanding letters of credit secured by a like amount of restricted cash. Approximately ~~$12.0~~$12.1 million of these letters of credit were issued under a letter of credit facility, with the remainder represented by a free-standing letter of credit issued by our former revolving credit lender. For additional information, see Note 5.6.

For additional information on our debt obligations and letters of credit, see Note 5.

6.

Impact of Bankruptcy

Impact of Filing Chapter 11 Cases - The commencement of the Chapter 11 Cases constituted an event of default that accelerated the obligations under our Senior Notes and Related Party Loan. The related instruments and agreements provide that as a result of the commencement of the Chapter 11 Cases, the financial obligation thereunder, including any principal amount, together with accrued interest thereon, will be immediately due and payable. Any efforts to enforce payment of such financial obligations under such instruments and agreements were automatically stayed as result of the filing of the Chapter 11 Cases and the holders’ rights of enforcement of such financial obligations are subject to the applicable provisions of the Bankruptcy Code.

Impact of Implementing our Plan - As noted in Notes 2 and 6, we propose under the Plan to enter into the Exit Term Loan on the Emergence Date principally to refinance and discharge in full our obligations under the Blue Torch Loan and Related Party

Loan, subject to satifying all conditions to obtaining the Exit Term Loan and implementing our Plan. Our Plan further contemplates that our current unsecured creditors will, subject to various exceptions and limitations, receive equity in our newly-reorganized parent company issuer, which would result in lower post-emergence consolidated debt balances for us compared to our consolidated debt balances prior to the Chapter 11 Cases. See Notes 2 and 6. We are considering seeking an asset-backed revolving credit facility after the Emergence Date to provide us with greater financial flexibility. However, no definitive decision has been made to take this action, and no assurances can be provided that any such efforts would be successful.

Contractual Obligations

General - The table below sets out our contractual obligations as of ~~September~~June 30, ~~2018,~~2019, related to our aircraft and other operating lease obligations, related party term loan, and 5.25% Senior Notes ~~due~~that matured March 15, 2019. ~~Our~~The amounts set forth below reflect our obligations ~~under the operating leases are not~~ recorded ~~as liabilities~~ on our ~~balance sheets included in this report.~~Condensed Consolidated Balance Sheet as of June 30, 2019 and do not reflect the impact of the Chapter 11 Cases. 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.

			Payment Due by Year
	Total		2019		2020		2021		2022		2023		Beyond 2023
			Thousands of dollars
Aircraft lease obligations	$	112,624	$	10,835	$	22,555	$	24,488	$	25,987	$	19,213	$	9,546
Other lease obligations		33,079		3,102		4,916		4,454		3,327		1,866		15,414
Debt ⁽¹⁾		700,000		500,000		130,000		—		—		70,000		—
Senior notes interest ⁽¹⁾		13,125		13,125		—		—		—		—		—
Thirty-Two, LLC Interest ⁽²⁾		2,500		2,500		—		—		—		—		—
	$	861,328	$	529,562	$	157,471	$	28,942	$	29,314	$	91,079	$	24,960

Payment Due by Year
Total
2018 ⁽¹⁾
2019 2020 2021 2022
Beyond
2022
Thousands of dollars
Aircraft lease obligations $ 154,114
$ 8,795
$ 32,264
$ 28,425
$ 28,290
$ 27,262
$ 29,077
Other lease obligations 19,055
2,221
6,151
4,726
3,209
1,528
1,220
Debt⁽²⁾
630,000
—
500,000
130,000
—
—
—
Senior notes interest ⁽²⁾
13,125
13,125
—
—
—
—
$ 816,294
$ 11,016
$ 551,540
$ 163,151
$ 31,500
$ 28,790
$ 30,297


(1)	~~Payments due during the last three months of 2018 only.~~

~~(2)~~

“Debt” reflects the principal amount of debt due under our outstanding senior notes and our term ~~loan,~~loans, whereas “senior notes interest” reflects interest accrued under our fixed-rate 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.

(2)

Interest reflects the amount due per the mediation settlement agreement.

The table above reflects only contractual obligations as of ~~September~~June 30, ~~2018~~2019 and excludes, among other things, (i) commitments made thereafter, (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.

Operating Lease Commitments - At ~~September~~June 30, ~~2018,~~2019, we leased 17 of our ~~240~~236 aircraft (or 7%) under 17 separate aircraft lease agreements with 13 lessors. As of ~~September~~June 30, ~~2018,~~2019, we had options to purchase aircraft under these leases becoming exercisable in 2019 and 2020. The aggregate option purchase prices are ~~$129.0~~$64.8 million in 2019 and $22.7 million in 2020. Under current conditions, we believe it is unlikely that we will exercise these purchase options arising over the next year, unless opportunistic conditions arise.

~~A majority~~ As noted above, we are currently renegotiating several of ~~these operating~~our aircraft leases ~~contain financial covenants that are substantially similar to~~in connection with the financial covenants that were contained in our revolving credit facility at the time the leases were entered into. Although the terms vary from lease to lease, these particular lease agreements generally require that we maintain certain specified minimum ratios of current assets to current liabilities, minimum fixed charge or interest coverage ratios, minimum amounts of net worth, maximum ratios of funded debt to consolidated net worth, or certain combinations thereof, subject to certain variances and exceptions. For more information, see Note 9.

Chapter 11 Cases.

For other related information, see “Risk Factors” contained in Item 1A of Part II of this report.

Other - 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 Form 10-K for the year ended December 31, ~~2017.~~2018.

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.

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.

Prior to the retirement of our revolving credit facility on September 28, 2018, our earnings were subject to changes in short-term interest rates due to the variable interest rate payable under facility.

Our new term loan with Blue Torch, LLC. is subject to changes in short-term interest rates due the variable component of LIBOR. Based on the ~~$118.2 million~~principal amount weighted average loan balance of our variable-rate debt during the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, a 10% increase ~~(0.4436%~~(0.2403%) in interest rates would have reduced our annual pre-tax earnings approximately ~~$0.5~~$0.2 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~~that matured on March 15, 2019 ~~bear~~accrued 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 ~~September~~June 30, ~~2018,~~2019, the market value of the notes was approximately ~~$490.6~~$245.0 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 Rule 13a-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.

~~As previously disclosed, we still intend to extend our above-described internal control oversight and monitoring processes to cover our newly-acquired HNZ operations by the end of 2018.~~

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~~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

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”~~1A - "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and (ii) the supplemental disclosure ~~below, which is intended~~below.

We may not be able to ~~update portions~~consummate our Plan of Reorganization.

As noted elsewhere herein, on August 2, 2019, the Bankruptcy Court entered a confirmation order confirming the Debtors’ Third Amended Joint Plan of Reorganization filed with the Bankruptcy Court on June 18, 2019, as thereafter supplemented (collectively the “Plan”). The Plan contemplates a series of restructuring transactions, including without limitation borrowing additional funds principally to refinance existing debt, issuing additional equity securities, implementing a new holding company structure, settling bankruptcy claims in the manner contemplated under the Plan and making various regulatory filings in connection therewith. We expect to complete all these transactions and filings and to fully implement the Plan effective as of the ~~disclosures contained therein under~~end of August 2019, at which time we would emerge from Chapter 11. However, implementation of the ~~heading “Risk Factors - Risks Related~~Plan, as well as several of its component transactions, are subject to ~~Our Liquidity and Capital Resources”:~~

~~Risks Related~~various conditions that must either be met or duly waived on or prior to ~~our Liquidity and Capital Resources~~

~~Our~~such effective date, including those described in Note 2. It is also possible that the Plan could be amended or supplemented in accordance with the Bankruptcy Code prior to the Plan becoming effective. For these reasons, we can give you no assurance as to when, or ultimately if, the Plan (or any other plan or reorganization) will become effective. As such, there is raise substantial ~~indebtedness and operating lease commitments could adversely affect our financial condition and impair~~doubt about our ability to ~~operate our business.~~

~~We are a very highly leveraged company and,~~continue as a ~~result, have significant debt services obligations. We also have significant operating lease commitments and, as a result, have significant rent expense.~~

Asgoing concern.

Even if our Plan of September 30, 2018, our total senior indebtedness was $630 million, consisting of (i) $500.0 million of our 5.25% Senior Notes due March 15, 2019 and (ii) $130.0 million of borrowings under our two-year term loan with the financing affiliate of our controlling shareholder (in each case excluding debt issuance costs). We also had $19.8 million of letters of credit outstanding at September 30, 2018. As of September 30, 2018, we had approximately $173.2 million of aggregate lease commitments. For additional information on our indebtedness and commitments, please see Items 1 and 2 of Part I of this report.

~~The degree to which we are leveraged or may become leveraged in the future could have important consequences to our equity and debt holders, including:~~

limiting our ability to access the capital markets, particularly if, as discussed further in the risk factor disclosure below, (i) the ratings assigned to our debt securities by nationally recognized credit rating organizations are revised downward, (ii) potential creditors are unwilling to extend credit to us on reasonable terms or at all, or (iii) we seek capital during periods of turbulent or unsettled market conditions;

~~hindering our ability to capitalize on business opportunities and to plan for or react to changing market, industry, competitive or economic conditions;~~

limiting the amount of cash flow available for use in the business, including for working capital, capital expenditures, aircraft purchases, future operations, acquisitions, expansion or other uses, or to carry out other aspects of our business plan;

~~making us more vulnerable to economic or industry downturns, including interest rate increases;~~

~~increasing our future borrowing costs;~~

~~increasing the risk that third parties will be unwilling or unable to engage in hedging or other financial or commercial arrangements with us;~~

~~placing us at a competitive disadvantage compared to less leveraged competitors;~~

~~increasing the risk that we will need to sell securities or assets, possibly on unfavorable terms, to meet payment obligations; or~~

~~increasing the risk that~~Reorganization is consummated, we may not meet the financial covenants contained in our debt or lease agreements or timely make all required debt or lease payments, either of which could result in the acceleration of some or all of our outstanding indebtedness.

~~Subject to the limits contained in our existing debt and lease instruments, we may~~ be able to ~~incur substantial additional debt from time~~achieve our stated goals.

Even if the Plan or another Chapter 11 plan of reorganization is consummated, we will continue to ~~time. If we do so,~~be impacted by the ~~effects of each of these factors could be intensified.~~

~~Our~~adverse publicity associated with filing the Chapter 11 Cases. We cannot accurately predict or quantify the ultimate impact that our bankruptcy proceedings will ultimately have on our business, ability to ~~meet our debt obligations~~attract future work and ~~other commitments will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control.~~

~~Our~~capital, ability to ~~make payments on our indebtedness~~attract and under our operating leases and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to conditions in the oil and gas and air medical industries, general economic and financial conditions, the impact of legislative and regulatory actions on how we conduct our business, and several other factors, all or most of which are beyond our control. Our inability to generate sufficient cash flow to satisfy our debt and operating lease obligations, or to obtain alternative financings, could materially and adversely affect our business,retain key employees, financial condition, results of operations, and prospects.

Moreover, after any successful emergence from bankruptcy, we will continue to face a number of risks, including a deterioration in commodity prices, overcapacity of helicopters, adverse weather conditions, changes in demand for our services, increased expenses, increased competition, or other changes in our markets or industry. Accordingly, we cannot guarantee that the Plan or any other Chapter 11 plan of reorganization will achieve our stated goals.

Furthermore, even if our debts are reduced or discharged through the Plan, we may need to raise additional funds through public or private debt or equity financing or other various means to fund our business after the completion of our Chapter 11 proceedings. Our access to additional financing is, and for the foreseeable future will likely continue to be, limited, if it is available at all. Therefore, adequate funds may not be available when needed or may not be available on favorable terms, if they are available at all.

Assuming we successfully emerge from bankruptcy, our post-emergence reported financial results may not be comparable to our historical reported results.

Assuming we successfully emerge from bankruptcy as anticipated, we have determined that we will be required to adopt fresh start accounting, which will require us to record at fair value our assets and liabilities as of the fresh start reporting date. In connection with this change, we currently plan to change our accounting principles relating to the depreciation of our aircraft and inventory valuation. Accordingly, as previously reported, we expect that our financial condition and results of operations following our anticipated emergence from bankruptcy will not be comparable to the financial condition and results of operations reflected in our historical financial statements. The lack of comparable historical financial information could adversely impact the marketability of our securities.

~~Failure~~

Our actual financial results after emergence from our Chapter 11 Cases may not be comparable to our projections filed with the Bankruptcy Court in the course of our Chapter 11 Cases.

We filed with the Bankruptcy Court and the SEC projected financial information to demonstrate to the Bankruptcy Court the feasibility of our Plan and our ability to continue operations following our emergence from the Chapter 11 Cases. Those projections (and similar projections furnished to individuals during the Chapter 11 Cases in connection with their proposed investment in us) were prepared solely for the purpose of the Chapter 11 Cases and have not been, and will not be, updated on an ongoing basis. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections and valuation estimates may prove to be wrong in material respects. Actual results will likely vary significantly from those contemplated by the projections. For all of these reasons, investors should view our publicly-filed projections as speculative and should not rely on these projections.

The amount of publicly-available information concerning us may decrease substantially following our anticipated emergence from bankruptcy.

We expect to have fewer than 300 stockholders of record upon emergence from bankruptcy, and therefore will be eligible to terminate the registration of our common stock under the Exchange Act. Although no definitive decision has been made as to whether or when to take such action, we are currently contemplating filing documentation with the SEC after the Emergence Date that would voluntarily deregister our securities under Section 12(g) of the Exchange Act and suspend our reporting obligations under Section 15(d) of the Exchange Act. If we do so, our obligations to file periodic reports would be suspended or terminated. Although we could thereafter voluntarily elect to provide information to our security holders, we would not be legally obligated to do so. To the extent these actions limit the amount of publicly-available information concerning us and our securities, our ability to raise additional funds, the ability of our security holders to sell their securities, and the liquidity and trading prices of our securities could all be negatively impacted.

We expect to be subject to a different capital and governance structure following our anticipated emergence from bankruptcy.

Currently, all of our outstanding voting and non-voting common stock is issued by PHI, Inc., a Louisiana corporation. If the Plan is implemented on the terms contemplated on the date of this filing, a newly-organized Delaware corporation will issue a single class of common stock and two separate classes of warrants. As in the past, the organizational documents governing our equity securities will continue to include restrictions on the ability of non-U.S. citizens to exceed certain restrictions on their aggregate voting powers. These restrictions could limit the trading liquidity of our securities.

We expect to continue to be subject to the risk that future legislation or regulation could negatively impact our Air Medical operations.

As discussed in detail in our prior reports, in recent years legislators, regulators and consumer interest groups have focused on billing practices used in the air medical industry and have either implemented or proposed changes that have or could reduce the payments received by our Air Medical segment from federal reimbursement programs such as Medicare and Medicaid. Legislation currently pending in the U.S. Senate seeks to change how air ambulances bill for their services. Although we cannot predict at this point the ultimate impact of this or similar legislation, it is possible that these legislative initiatives could adversely impact our business.

We expect to continue to be subject to the risk of failing to comply with the covenants in our ~~debt and lease instruments could adversely affect~~future financing arrangements.

If our ~~business and~~Plan is implemented as anticipated, we expect to continue at emergence from bankruptcy to be subject to financing arrangements containing negative covenants that may materially restrict our operations. Similarly, we expect that our future financing arrangements will likely contain similar covenants. Our ability to ~~operate as a going concern.~~

~~The indenture governing~~meet certain of these covenants can be affected by events beyond our ~~5.25% Senior Notes due 2019~~control, and ~~our term loan limit, among~~we cannot assure you that we will meet them in the future. Any such failure to meet such covenants would constitute an event of default, which could potentially result in additional defaults or the acceleration of payment obligations under cross-default or cross-acceleration provisions in other ~~things, our ability to:~~

~~pay cash dividends or distributions on our capital stock or redeem or repurchase our capital stock;~~

~~make certain investments;~~

~~create certain liens on our assets to secure debt;~~

~~consolidate, merge or enter into other business combination transactions;~~

~~issue and sell capital stock~~ of our ~~subsidiaries;~~

~~incur additional indebtedness or issue certain capital stock;~~

~~enter into different lines of business;~~

~~enter into agreements that restrict dividends or other payments from our subsidiaries to us;~~

~~participate in activities through business entities that are not subsidiaries;~~

~~enter into certain transactions with affiliates; and~~

~~transfer or sell assets.~~

agreements. We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by these restrictive covenants.

In addition, certain of our operating leases require, and our future debt or lease instruments may require, us to maintain specified financial ratios and satisfy certain financial condition tests, and may require us to take action to reduce our debt or take some other action to comply with them. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet them in the future. These restrictions could also limit our ability to obtain future financings, make needed capital expenditures, withstand a downturn in our business or the economy in general, or otherwise conduct necessary corporate activities.

~~Prior~~

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 20, 2019, the PHI Compensation Committee approved the vesting of the 2017 performance RSUs based on the Company’s financial results exceeding the pre-determined business performance metrics set in 2017 for the two year performance period (January 1, 2017 - December 31, 2018). As discussed in greater detail in Note 9, the PHI Compensation Committee decided to ~~refinancing our former revolving credit facility on September 28, 2018, we were able to meet~~settle these vested RSU awards in cash.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

The commencement of the thresholds established by the financial covenants contained therein only by virtue of obtaining covenant amendments or waivers over the preceding 24 months. Similarly, we have maintained compliance with certain of our operating leases only through obtaining comparable covenant amendments or waivers over a similar period. As noted above under the heading “Management’sChapter 11 Cases, described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations - Operating Lease Commitments,” we may not be in compliance with the financial covenants in a couple of our other operating leases, which may have triggered various remediesOperations-Overview-Voluntary reorganization under ~~such leases. As described in greater detail in the above-referenced section of this report, in some cases certain breaches of these lease covenants or defaults under our term loan may create~~Chapter 11" above, constituted an event of default that accelerated the obligations under the indenture governing our ~~5.25%~~ Senior Notes ~~due 2019, potentially resulting in~~and our term loan agreement with Thirty Two, L.L.C. Any efforts to enforce payment of such financial obligations were automatically stayed as a result of the ~~acceleration of our obligation to pay principal, interest and potential penalties under such Notes (even though we may otherwise be in compliance with our obligations under those Notes~~Chapter 11 Cases, and the ~~associated indenture). Our term loan and many~~holders' rights of our operating leases also include similar cross-default or cross-acceleration provisions. Thus, an event of default under any of our debt or lease instruments, including one that is technical in nature or otherwise not material, could result in the acceleration of significant payment obligations under other of our instruments. If our debt or lease obligationsenforcement are ~~accelerated, we cannot assure you that we would be able to obtain enough cash to repay such accelerated payment obligations.~~

If we are unable to make required debt or lease payments, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations. Our current and future debt or lease instruments may restrict, or market or business conditions may limit, our ability to do some of these things on favorable terms, or at all. Our ability to sell assets could be further constrained if potential purchasers believe that competition law restricts their ability to acquire additional assets or conclude that

there is an overcapacity of assets in our markets. For these reasons and others, you should be aware that these efforts may not succeed and that we may need to seek protection under applicable bankruptcy or insolvency laws.

Any downgrade in the credit ratings for our public debt securities could limit our ability to obtain future financing, increase our borrowing costs and adversely affect the market price of our outstanding debt securities, or otherwise impair our business, financial condition and results of operations.

Credit rating agencies continually review their ratings for the companies that they follow, including us. Credit rating agencies also evaluate the industries in which we and our affiliates operate as a whole and may change their credit rating for us based on their overall view of such industries. There can be no assurance that any rating assigned to our currently outstanding public debt securities will remain in effect for any given period of time or that any such ratings will not be lowered, suspended or withdrawn entirely by a rating agency if, in that rating agency’s judgment, circumstances so warrant.

~~A downgrade of our credit ratings could, among other things:~~

~~limit our access~~subject to the ~~capital markets or otherwise adversely affect the availability of other new financing on favorable terms, if at all;~~

~~result in more restrictive covenants in agreements governing the terms of any future indebtedness that we may incur;~~

~~increase our cost of borrowing;~~

~~adversely affect the market price of our outstanding equity securities or our 5.25% Senior Notes due 2019; and~~

~~impair our business, financial condition and results of operation.~~

~~We expect to periodically require financing, and we cannot assure you that we will be able to obtain such financing on terms that are acceptable to us, or at all.~~

We have a significant amount of indebtedness, including our 5.25% Senior Notes due March 15, 2019. We are exploring several alternatives for discharging our senior notes, including potential refinancing transactions. Moreover, we might seek financing from time to time to fund other cash requirements, such as financing acquisitions of businesses or aircraft or paying unanticipated liabilities. Our ability to arrange additional financing will depend on, among other factors, our financial position, performance, available collateral and credit ratings, as well as prevailing market conditions and other factors beyond our control. Global financial markets continue to be volatile. Prevailing market conditions could be adversely affected by (i) general economic conditions, such as disruptions in domestic or overseas sovereign debt markets, geo-political instabilities, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad, and (ii) specific conditions in the offshore oil and gas service industry. Volatility in the global markets, among other factors, could limit our access to the credit markets, leading to higher borrowing costs or our inability to obtain financing on terms that are as favorable as those from which we previously benefited, on terms that are acceptable to us, or at all. In addition, our ability to borrow funds in the future will depend in part on the satisfactionapplicable provisions of the ~~covenants in our debt~~Bankruptcy Code and lease instruments, which are discussed further above. For all the reasons mentioned above, we can give no assurance that additional financing for any of these purposes will be available on terms that are acceptable to us, or at all. Any such failure to obtain additional financing could jeopardize our ability to repay, refinance or reduce our debt obligations or to meet our other financial commitments.

~~We cannot assure you that our pending review of our strategic alternatives will be successful.~~

We announced in late September 2018 that we have engaged a financial advisor to assist us in exploring and evaluating a broad range of potential strategic alternatives to improve our liquidity and enhance shareholder value. For all the reasons discussed in this report, we cannot assure you that this process will be successful in the near term or at all.

~~Our senior notes are unsecured and will be effectively subordinated to any secured indebtedness.~~

~~Our currently outstanding senior notes are unsecured and are effectively subordinated to any of our existing or future secured indebtedness, to the extent~~orders of the value of the assets securing such indebtedness, and any debt or liabilities of our non-guarantor subsidiaries. In the event of a bankruptcy or similar proceeding, the assets that serve as collateral for any secured indebtedness would generally be available to satisfy our obligations under such secured indebtedness, and would not be expected to be available to satisfy other claims.Bankruptcy Court.

Item 4.

MINE SAFETY DISCLOSURES

None.

Item 5.

OTHER INFORMATION

None.

The consolidated financial statements included herein contain disclosures that express substantial doubt about our ability to continue as a going concern, indicating the possibility that we may not be able to operate in the future.

The consolidated financial statements included herein have been prepared on a going concern basis, which assumes that we will continue to operate in the future in the normal course of business. Recently, our liquidity and ability to maintain compliance with

debt covenants have been negatively impacted by several factors, including by the prolonged slowdown in exploration and production activity by the customers in our Oil and Gas segment, by overcapacity in our markets, by our leverage and by our use of cash equivalents to fund our acquisition of the HNZ Offshore Business in late 2017. As of September 30, 2018, all of our senior note indebtedness (which matures on March 15, 2019) was due within less than one year, which under GAAP necessitated classifying all such indebtedness as current liabilities on our accompanying balance sheet as of such date. Consequently, as of September 30, 2018, we had (i) total current liabilities of $578.2 million and (ii) total current assets of $332.6 million. As discussed elsewhere herein, we have also been required on several occasions since 2016 to receive concessions from certain of our creditors or lessors to enable us to remain in compliance with various financial covenants.

As noted elsewhere herein, we believe there are several possible transactions that could, if timely and successfully consummated, help discharge our outstanding short-term indebtedness . For a variety of reasons, however, we cannot provide you with any assurances that these efforts will be successful in the near term or at all. As noted in greater detail above, failure to satisfy any of the financial covenants in certain of our operating leases could cause us to suffer an event of default, which could under certain circumstances, among other things, accelerate our obligations under such leases, which in turn could potentially lead to the acceleration of our obligations under other debt or lease instruments. In the absence of sufficient cash to fund these payments or forbearances of our creditors, we could not assure you of our ability to continue operations without protection under applicable bankruptcy or insolvency laws. In accordance with applicable accounting standards, these conditions in the aggregate raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements included herein are filed.

In light of the foregoing, our independent registered public accounting firm may include an explanatory paragraph expressing substantial doubt relating to our ability to continue as a going concern in its report on our consolidated financial statements for the year ended December 31, 2018. The inclusion of a going concern explanatory paragraph may negatively impact the trading price of our securities, have an adverse impact on our relationship with third parties with whom we do business, including our customers, vendors and employees, and could make it challenging and difficult for us to raise additional debt or equity financing to the extent needed, all of which could have a material adverse impact on our business, results of operations, financial condition and prospects.

For additional information on the above-referenced accounting standards and our plans to refinance our debt, see Note 5 of the financial statements included under Item 1 of Part I of this report and the discussion included in Item 2 of Part I of this report, respectively.

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

During the third quarter of 2018, we withheld from employees and canceled 0 shares of our non-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.

Total Number of Average Price
Period Shares Purchased Paid per Share
July 1, 2018 - September 30, 2018 5,758 $8.27

~~Item 3. DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~Item 4. MINE SAFETY DISCLOSURES~~

~~None.~~

~~Item 5. OTHER INFORMATION~~

~~None.~~

~~Item 6. EXHIBITS~~

~~(a)Exhibits~~

Item 6.

EXHIBITS

(a)

Exhibits

10.1
~~2.1~~	~~Arrangement Agreement dated as~~Third Amended Joint Plan of ~~October 30, 2017 by and among HNZ Group Inc.,~~Reorganization of the ~~Company, 2075568 Alberta ULC and Don E. Wall~~Debtors filed with the Bankruptcy Court on June 18, 2019 (incorporated herein by reference to Exhibit 2.1 to PHI’s ~~Report~~current report on Form ~~10-Q~~8-K, filed August 6, 2019).

10.2	Disclosure Statement of the Debtors for the ~~quarter ended September 30, 2017, and~~Third Amended Joint Plan of Reorganization filed ~~November 3, 2017).~~

~~3.1~~	~~(i)~~	~~Amended and Restated Articles of Incorporation of~~with the ~~Company~~Bankruptcy Court (incorporated herein by reference to Exhibit ~~3(i)~~99.1 to PHI’s ~~Report~~current report on Form ~~10-Q for the quarterly period ended March 31, 2017,~~8-K, filed ~~May 9, 2017)~~August 6, 2019).

10.3	~~(ii)~~	~~Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3(ii) to PHI’s Report on Form 10-Q for the quarterly period ended September 30, 2015, filed November 6, 2015).~~

~~4.1~~	~~Second Amended and Restated Loan~~Equity Commitment Agreement dated as of ~~September 18, 2013, by~~July 11, 2019 among the Debtors 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 Bankthe Commitment Parties thereto (incorporated ~~by reference to Exhibit 4.1 to PHI’s Report on Form 10-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 Form 8-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 Form 10-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 Form 10-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 Form 10-Q for the quarterly period ended September 30, 2016, filed November 7, 2016).

~~4.6~~	Fifth Amendment to Second Amended and Restated Loan Agreement, dated as of December 26, 2017, 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 Current Report on Form 8-K filed December 29, 2017).

~~4.7~~	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 Form 8-K filed March 17, 2014).

~~4.8~~	~~Form of 5.25% Senior Note due 2019 (incorporated by reference to Exhibit 4.2 to PHI’s Report on Form 8-K filed on March 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~~

~~10.3~~	~~Loan Agreement, dated as of September 28, 2018, by and among Thirty Two, L.L.C., PHI, Inc., PHI Air Medical, L.L.C., and PHI Tech Services, Inc. (incorporated~~herein by reference to Exhibit 10.1 to PHI’s ~~Report~~current report on Form 8-K filed ~~on September 28, 2018)~~July 17, 2019).

10.4	~~Promissory Note due September 28, 2020~~Form of Term Loan Credit Agreement (incorporated herein by reference to Exhibit ~~10.2~~10.1 to PHI’s ~~Report~~current report on Form 8-K filed ~~on September 28, 2018)~~July 24, 2019).


10.5
~~10.5~~		~~Guaranty Agreement, dated and effective as~~Confirmation Order of ~~September 28, 2018, by PHI Air Medical, L.L.C. and PHI Tech Services, Inc., in favor of Thirty Two, L.L.C.~~the Bankruptcy Court issued on August 2, 2019 (incorporated herein by reference to Exhibit ~~10.3~~99.2 to PHI’s ~~Report~~current report on Form 8-K filed ~~on September 28, 2018)~~August 6, 2019).

~~10.6~~ 31.1*		Security Agreement, dated and effective as of September 28, 2018, by PHI, Inc., PHI Air Medical, L.L.C. and PHI Tech Services, Inc., in favor of Thirty Two, L.L.C. (incorporated by reference to Exhibit 10.4 to PHI’s Report on Form 8-K filed on September 28, 2018).

~~10.7~~		~~PHI, Inc. Retention Plan (incorporated by reference to Exhibit 10.5 to PHI’s Report on Form 8-K filed on September 28, 2018).~~




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~~

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.

August 9, 2019	By:
	~~PHI, Inc.~~

~~November 9, 2018~~	~~By:~~	/s/ Al A. Gonsoulin
		Al A. Gonsoulin
		Chairman and Chief Executive Officer

~~November~~ August 9, ~~2018~~2019	By:	/s/ Trudy P. McConnaughhay
		Trudy P. McConnaughhay
		Chief Financial Officer

55

58

Louisiana	72-0395707

~~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)



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

Non-accelerated filer:	☐			Emerging Growth Company:	☐	☐



Part I – Financial Information
Item 1.	Financial Statements – Unaudited
	Condensed Consolidated Balance Sheets – ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018	5
	Condensed Consolidated Statements of Operations – Quarter and ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	6
	Condensed Consolidated Statements of Comprehensive ~~Income~~Loss – Quarter and ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	7
	Condensed Consolidated Statements of Shareholders’ Equity – ~~Nine~~Quarter and Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	8
	Condensed Consolidated Statements of Cash Flows – ~~Nine~~Six Months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	9 10

	Notes to Condensed Consolidated Financial Statements	10 11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34 41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47 53

Item 4.	Controls and Procedures	47 54

Part II – Other Information

Item 1.	Legal Proceedings	49 55

Item 1A.	Risk Factors	49 55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52 57

Item 3.	Defaults Upon Senior Securities	52 57

Item 4.	Mine Safety Disclosures	52 57

Item 5.	Other Information	52 57

Item 6.	Exhibits	53 57

	Signatures	55 58

Class		Outstanding at August 1, 2019

~~Class~~		~~Outstanding at October 31, 2018~~
Voting Common Stock		2,905,757 shares
Non-Voting Common Stock		~~12,914,011~~ 12,919,681 shares



	September 30, 2018			December 31, 2017
ASSETS
Current Assets:
Cash	$	16,453		$	8,770
Short-term investments	30,509			64,237
Accounts receivable – net
Trade	175,372			168,153
Other	22,035			17,826
Inventories of spare parts – net	74,352			80,881
Prepaid expenses	13,201			11,475
Income taxes receivable	649			1,271
Total current assets	332,571			352,613
Property and equipment – net	923,577			946,765
Restricted investments	19,781			12,396
Other assets	10,142			8,741
Deferred income taxes	1,009			3,309
Goodwill	61,299			61,299
Intangibles	15,557			16,723
Total assets	$	1,363,936		$	1,401,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Senior Notes issued March 17, 2014, net of debt issuance costs of $571	499,429			—
Accounts payable	39,209			37,186
Accrued and other current liabilities	39,557			41,850
Total current liabilities	578,195			79,036
Long-term debt:
Revolving credit facility	—			117,500
Senior Notes issued March 17, 2014, net of debt issuance costs of $1,506	—			498,494
Related Party Term Loan issued September 28, 2018, net of debt issuance costs of $874	129,126			—
Deferred income taxes	74,062			86,005
Other long-term liabilities	5,168			8,157
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 at September 30, 2018 and December 31, 2017, respectively	291			291
Non-voting common stock – par value of $0.10; 37,500,000 shares authorized, 12,914,011 and 12,897,614 issued and outstanding at September 30, 2018 and December 31, 2017, respectively	1,291			1,289
Additional paid-in capital	312,503			308,353
Accumulated other comprehensive income (loss)	(4,094		)	(280		)
Retained earnings	267,394			303,001
Total shareholders’ equity	577,385			612,654
Total liabilities and shareholders’ equity	$	1,363,936		$	1,401,846



	Quarter Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Operating revenues, net	$	168,787		$	150,167		$	498,400		$	431,209
Expenses:
Direct expenses	160,200			136,786			471,509			400,250
Selling, general and administrative expenses	16,255			11,401			46,199			38,691
Total operating expenses	176,455			148,187			517,708			438,941
(Gain) loss on disposal of assets	—			(4		)	708			3
Equity in (gain) loss of unconsolidated affiliates, net	(118		)	(438		)	(162		)	1,556
Operating (loss) income	(7,550		)	2,422			(19,854		)	(9,291		)
Interest expense	8,357			8,027			24,894			24,305
Other income – net	(1,845		)	(706		)	(436		)	(2,474		)
	6,512			7,321			24,458			21,831
Loss before income taxes	(14,062		)	(4,899		)	(44,312		)	(31,122		)
Income tax benefit	(2,531		)	(1,622		)	(8,705		)	(9,324		)
Net loss	$	(11,531	)	$	(3,277	)	$	(35,607	)	$	(21,798	)
Weighted average shares outstanding:
Basic	15,816			15,799			15,811			15,750
Diluted	15,816			15,799			15,811			15,750
Net loss per share:
Basic	$	(0.73	)	$	(0.21	)	$	(2.25	)	$	(1.38	)
Diluted	$	(0.73	)	$	(0.21	)	$	(2.25	)	$	(1.38	)



	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		)
Retirement of treasury stock	—	—		—		—			—			—			1,028			1,028
Balance at September 30, 2017	2,906	$	291	12,893		$	1,289		$	307,054		$	(244	)	$	273,671		$	582,061

	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, 2017	2,906	$	291	12,897		$	1,289		$	308,353		$	(280	)	$	303,001		$	612,654
Net loss	—	—		—		—			—			—			(35,607		)	(35,607		)
Unrealized gain on short-term investments	—	—		—		—						278			—			278
Changes in pension plan assets and benefit obligations	—	—		—		—			—			(1		)	—			(1		)
Amortization of unearned stock-based compensation	—	—		—		—			4,250			—			—			4,250
Currency translation adjustment	—	—		—		—			—			(4,091		)	—			(4,091		)
Issuance of non-voting common stock (upon vesting of restricted stock units)	—	—		27		3			—			—			—			3
Cancellation of restricted non-voting stock units for tax withholdings on vested shares	—	—		(10	)	(1		)	(100		)	—			—			(101		)
Balance at September 30, 2018	2,906	$	291	12,914		$	1,291		$	312,503		$	(4,094	)	$	267,394		$	577,385



	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2018		2017		2018		2017
Service Revenue
Oil & Gas	$	93,338	$	75,700	$	286,046	$	222,098
Air Medical	70,192		70,280		194,331		192,840
Technical Services	5,257		4,187		18,023		16,271
Total Services	$	168,787	$	150,167	$	498,400	$	431,209

Air Medical Revenue
Traditional provider model	$	12,414	$	11,816	$	36,371	$	35,427
Independent provider model	57,778		58,464		157,960		157,413
Total Air Medicals Revenues	$	70,192	$	70,280	$	194,331	$	192,840



	September 30, 2018				December 31, 2017
	Amortized Costs		Fair Value		Amortized Costs		Fair Value
	(Thousands of dollars)
Due in one year or less	$	—	$	—	$	31,348	$	31,254
Due within two years	—		—		40,032		39,763
Total	$	—	$	—	$	71,380	$	71,017



	September 30, 2018		December 31, 2017
	Average Coupon Rate (%)	Average Days To Maturity	Average Coupon Rate (%)	Average Days To Maturity
U.S. Government agencies	—	0	1.370	370
Corporate bonds and notes	—	0	1.766	392



	September 30, 2018				December 31, 2017
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Thousands of dollars)
U.S. Government agencies	$	—	$	—	$	5,472	$	(28	)
Corporate bonds and notes	—		—		44,069		(271		)
Total	$	—	$	—	$	49,541	$	(299	)



	Estimated Useful Lives	Gross Amount at December 31, 2017		Accumulated Amortization			Net Balance at September 30, 2018
Customer Relationship	15	$	11,622	$	(581	)	$	11,041
Non-Compete Agreements	5	900		(135		)	765
Trade Names	7	4,201		(450		)	3,751
Total		$	16,723	$	(1,166	)	$	15,557



	Nine Months Ended September 30,						Favorable (Unfavorable)
	2018			2017
	(Thousands of dollars, except flight hours, patient transports, and aircraft)
Segment operating revenues
Oil and Gas	$	286,046		$	222,098		$	63,948
Air Medical	194,331			192,840			1,491
Technical Services	18,023			16,271			1,752
Total operating revenues, net	498,400			431,209			67,191
Segment direct expenses
Oil and Gas ⁽¹⁾	285,818			236,878			(48,940		)
Air Medical	170,966			152,363			(18,603		)
Technical Services	14,563			12,565			(1,998		)
Total direct expenses	471,347			401,806			(69,541		)
Segment selling, general and administrative expenses
Oil and Gas	13,642			4,501			(9,141		)
Air Medical	10,087			9,280			(807		)
Technical Services	1,066			1,032			(34		)
Total segment selling, general and administrative expenses	24,795			14,813			(9,982		)
Total segment direct and selling, general and administrative expenses	496,142			416,619			(79,523		)
Net segment (loss) profit
Oil and Gas	(13,414		)	(19,281		)	5,867
Air Medical	13,278			31,197			(17,919		)
Technical Services	2,394			2,674			(280		)
Total net segment profit ⁽²⁾	2,258			14,590			(12,332		)

Other, net ⁽³⁾	(272		)	2,471			(2,743		)
Unallocated selling, general and administrative costs ⁽⁴⁾	(21,404		)	(23,878		)	2,474
Interest expense	(24,894		)	(24,305		)	(589		)
(Loss) earnings before income taxes	(44,312		)	(31,122		)	(13,190		)
Income tax benefit	(8,705		)	(9,324		)	(619		)
Net loss	$	(35,607	)	$	(21,798	)	$	(13,809	)

Flight hours:
Oil and Gas	63,518			58,335			5,183
Air Medical ⁽⁵⁾	29,100			27,787			1,313
Technical Services	562			511			51
Total	93,180			86,633			6,547

Air Medical Transports ⁽⁶⁾	14,635			14,580			55

Aircraft operated at period end: ⁽⁷⁾
Oil and Gas ⁽⁸⁾	126			126
Air Medical ⁽⁹⁾	108			105
Technical Services	6			6
Total	240			237



			Payment Due by Year
	Total		2018 ⁽¹⁾		2019		2020		2021		2022		Beyond 2022
			Thousands of dollars
Aircraft lease obligations	$	154,114	$	8,795	$	32,264	$	28,425	$	28,290	$	27,262	$	29,077
Other lease obligations	19,055		2,221		6,151		4,726		3,209		1,528		1,220
Debt⁽²⁾	630,000		—		500,000		130,000		—		—		—
Senior notes interest ⁽²⁾	13,125				13,125		—		—		—		—
	$	816,294	$	11,016	$	551,540	$	163,151	$	31,500	$	28,790	$	30,297



	Total Number of	Average Price
Period	Shares Purchased	Paid per Share
July 1, 2018 - September 30, 2018	5,758	$8.27