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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended: March 31, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the transition period from to
 Commission file number: 0-9827
 PHI, Inc.
  Louisiana
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)2001 SE Evangeline ThruwayLafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
 (337) 235-2452
 þ o
  o þ o
 o þ
   Class
    
    Outstanding at April 27, 2007Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    12,423,992 shares




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##### 



PHI, INC.
 Index  Form 10-Q
  
 Part I  Financial InformationItem 1. Financial Statements  UnauditedCondensed Consolidated Balance Sheets  March 31, 2007
and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations  Quarter
Ended March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows  Quarter
Ended March 31, 2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about
Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24Part II  Other InformationItem 1. Legal Proceedings
    
    
    25Item 1.A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    33Signatures
    
    
    34Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 PHI, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share data)
(Unaudited)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    8,931
    
    
    $
    820Short-term investments
    
    
    119,893
    
    
    
    153,414Accounts receivable  net of allowance:Trade
    
    
    91,702
    
    
    
    87,366Other
    
    
    3,093
    
    
    
    1,928Inventories of spare parts and supplies
    
    
    50,796
    
    
    
    55,596Assets held for sale
    
    
    8,075
    
    
    
    Other current assets
    
    
    9,456
    
    
    
    7,930Refundable income taxes
    
    
    638
    
    
    
    635Total current assets
    
    
    292,584
    
    
    
    307,689Other
    
    
    25,730
    
    
    
    23,816Property and equipment, net
    
    
    393,398
    
    
    
    369,465Total assets
    
    $
    711,712
    
    
    $
    700,970LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    23,029
    
    
    $
    35,815Accrued liabilities
    
    
    10,670
    
    
    
    8,511Accrued interest
    
    
    6,635
    
    
    
    3,045Accrued vacation payable
    
    
    2,773
    
    
    
    2,583Accrued wages and salaries
    
    
    5,315
    
    
    
    3,636Total current liabilities
    
    
    48,422
    
    
    
    53,590Long-term debt
    
    
    220,500
    
    
    
    205,500Deferred income taxes
    
    
    33,135
    
    
    
    32,828Other long-term liabilities
    
    
    8,885
    
    
    
    8,927Commitments and contingencies (Note 3)Shareholders Equity:Voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    285
    
    
    
    285Non-voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    1,242
    
    
    
    1,242Additional paid-in capital
    
    
    290,695
    
    
    
    290,695Accumulated other comprehensive income
    
    
    59
    
    
    
    77Retained earnings
    
    
    108,489
    
    
    
    107,826Total shareholders equity
    
    
    400,770
    
    
    
    400,125Total liabilities and shareholders equity
    
    $
    711,712
    
    
    $
    700,970
  3




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PHI,
INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Quarter EndedMarch 31,2007
    
    
    2006Operating revenues
    
    $
    101,753
    
    
    $
    101,372Gain on disposition of property
and equipment, net
    
    
    2,534
    
    
    
    230Other
    
    
    1,654
    
    
    
    919105,941
    
    
    
    102,521Expenses:Direct expenses
    
    
    93,233
    
    
    
    87,055Selling, general and
administrative expenses
    
    
    7,537
    
    
    
    6,685Interest expense
    
    
    4,107
    
    
    
    5,073104,877
    
    
    
    98,813Earnings before income taxes
    
    
    1,064
    
    
    
    3,708Income taxes
    
    
    401
    
    
    
    1,483Net earnings
    
    $
    663
    
    
    $
    2,225Weighted average common shares
outstanding:Basic
    
    
    15,288
    
    
    
    10,422Diluted
    
    
    15,308
    
    
    
    10,439Net earnings per common shareBasic
    
    $
    0.04
    
    
    $
    0.21Diluted
    
    $
    0.04
    
    
    $
    0.21
  4




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PHI,
INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Quarter EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net earnings
    
    $
    663
    
    
    $
    2,225Adjustments to reconcile net earnings to net cash
(used in)
provided by operating activities:Depreciation
    
    
    7,970
    
    
    
    7,192Deferred income taxes
    
    
    307
    
    
    
    1,174Gain on asset dispositions
    
    
    (2,534
    )
    
    
    (230
    )Other
    
    
    215
    
    
    
    249Changes in operating assets and liabilities
    
    
    (15,341
    )
    
    
    2,695Net cash (used in) provided by operating activities
    
    
    (8,720
    )
    
    
    13,305Cash flows from investing activities:Purchase of property and equipment
    
    
    (34,227
    )
    
    
    (14,365
    )Proceeds from asset dispositions
    
    
    4,660
    
    
    
    27,026Purchase of short-term investments
    
    
    (7,004
    )
    
    
    (32,707
    )Proceeds from sale of short-term investments
    
    
    40,525
    
    
    
    6,800Other
    
    
    (2,123
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    1,831
    
    
    
    (13,246
    )Cash flows from financing activities:Proceeds from line of credit
    
    
    28,000
    
    
    
    200Payments on line of credit
    
    
    (13,000
    )
    
    
    Net cash provided by financing activities
    
    
    15,000
    
    
    
    200Increase in cash and cash equivalents
    
    
    8,111
    
    
    
    259Cash and cash equivalents, beginning of period
    
    
    820
    
    
    
    3,036Cash and cash equivalents, end of period
    
    $
    8,931
    
    
    $
    3,295Supplemental Disclosures Cash Flow InformationInterest paid
    
    $
    261
    
    
    $
    158Taxes paid, net
    
    $
    3
    
    
    $
    18Accrued payables related to purchase of property and
equipment
    
    $
    3,066
    
    
    $
    
  5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. General
   2. Segment Information
   Oil and Gas segment.
 Air Medical segment.
 Technical Services segment.
 6




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Quarter EndedMarch 31,2007
    
    
    2006(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    65,300
    
    
    $
    68,554Air Medical
    
    
    33,545
    
    
    
    30,711Technical Services
    
    
    2,908
    
    
    
    2,107Total operating revenues
    
    
    101,753
    
    
    
    101,372Segment direct expense (1)Oil and Gas
    
    
    57,435
    
    
    
    53,853Air Medical
    
    
    33,828
    
    
    
    31,619Technical Services
    
    
    1,970
    
    
    
    1,583Total direct expense
    
    
    93,233
    
    
    
    87,055Segment selling, general and administrative expenseOil and Gas
    
    
    391
    
    
    
    393Air Medical
    
    
    1,941
    
    
    
    1,838Technical Services
    
    
    8
    
    
    
    1Total selling, general and administrative expense
    
    
    2,340
    
    
    
    2,232Total direct and selling, general and administrative
expense
    
    
    95,573
    
    
    
    89,287Net segment profitOil and Gas
    
    
    7,474
    
    
    
    14,308Air Medical
    
    
    (2,224
    )
    
    
    (2,746
    )Technical Services
    
    
    930
    
    
    
    523Total
    
    
    6,180
    
    
    
    12,085Other, net (2)
    
    
    4,188
    
    
    
    1,149Unallocated selling, general and administrative costs
    
    
    (5,197
    )
    
    
    (4,453
    )Interest expense
    
    
    (4,107
    )
    
    
    (5,073
    )Earnings before income taxes
    
    $
    1,064
    
    
    $
    3,708
 
 (1)
    
    Included in direct expense are the depreciation expense amounts below: Quarter EndedMarch 312007
    
    
    2006Oil and Gas
    
    
    
    
    
    $
    4,392
    
    
    $
    4,151Air Medical
    
    
    
    
    
    
    2,295
    
    
    
    2,060Technical Services
    
    
    
    
    
    
    234
    
    
    
    95Total
    
    
    
    $
    6,921
    
    
    $
    6,306Unallocated SG&A
    
    
    
    
    
    $
    1,049
    
    
    $
    886
 
 (2)
    
    Including gains on disposition of property and equipment, and other income. 7




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3. Commitments and Contingencies
 Environmental Matters 
 Legal Matters
  Long-term Debt
   8




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Operating Leases
  Purchase Commitments
 Assets Held for Sale
 4. Valuation Accounts
   5. Employees
 Union Related Matters 
  9




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Employee Incentive Compensation 
 6. Recent Accounting Pronouncements
    7. Shareholders Equity
   10




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8. Comprehensive Income
  Quarter EndedMarch 31,2007
    
    
    2006(Thousands of dollars)Net earnings
    
    $
    663
    
    
    $
    2,225SFAS No. 158 adjustment
    
    
    (18
    )
    
    
    Comprehensive income
    
    $
    645
    
    
    $
    2,225
 9. Condensed Consolidating Financial Information
    11




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 March 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    8,489
    
    
    $
    442
    
    
    $
    
    
    
    $
    8,931Short-term investments
    
    
    119,893
    
    
    
    
    
    
    
    
    
    
    
    119,893Accounts receivable  net of allowance
    
    
    80,972
    
    
    
    13,823
    
    
    
    
    
    
    
    94,795Inventories of spare parts and supplies
    
    
    50,796
    
    
    
    
    
    
    
    
    
    
    
    50,796Assets held for sale
    
    
    8,075
    
    
    
    
    
    
    
    
    
    
    
    8,075Other current assets
    
    
    9,424
    
    
    
    32
    
    
    
    
    
    
    
    9,456Refundable income taxes
    
    
    44
    
    
    
    594
    
    
    
    
    
    
    
    638Total current assets
    
    
    277,693
    
    
    
    14,891
    
    
    
    
    
    
    
    292,584Investment in subsidiaries and other
    
    
    48,003
    
    
    
    
    
    
    
    (48,003
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    45,301
    
    
    
    (45,301
    )
    
    
    Other assets
    
    
    25,673
    
    
    
    57
    
    
    
    
    
    
    
    25,730Property and equipment, net
    
    
    385,918
    
    
    
    7,480
    
    
    
    
    
    
    
    393,398Total assets
    
    $
    737,287
    
    
    $
    67,729
    
    
    $
    (93,304
    )
    
    $
    711,712LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    41,963
    
    
    $
    3,686
    
    
    $
    
    
    
    $
    45,649Intercompany payable
    
    
    45,301
    
    
    
    
    
    
    
    (45,301
    )
    
    
    Accrued vacation payable
    
    
    2,484
    
    
    
    289
    
    
    
    
    
    
    
    2,773Total current liabilities
    
    
    89,748
    
    
    
    3,975
    
    
    
    (45,301
    )
    
    
    48,422Long-term debt
    
    
    220,500
    
    
    
    
    
    
    
    
    
    
    
    220,500Deferred income taxes and other long-term
liabilities
    
    
    26,269
    
    
    
    15,751
    
    
    
    
    
    
    
    42,020Shareholders Equity:Paid-in capital
    
    
    292,222
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,222Accumulated other comprehensive
income
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    59Retained earnings
    
    
    108,489
    
    
    
    43,601
    
    
    
    (43,601
    )
    
    
    108,489Total shareholders equity
    
    
    400,770
    
    
    
    48,003
    
    
    
    (48,003
    )
    
    
    400,770Total liabilities and
shareholders equity
    
    $
    737,287
    
    
    $
    67,729
    
    
    $
    (93,304
    )
    
    $
    711,712
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 12




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2006ParentCompany
    
    GuarantorOnly
    
    Subsidiaries(1)
    
    Eliminations
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    385
    
    
    $
    435
    
    
    $
    
    
    
    $
    820Short-term investments
    
    
    153,414
    
    
    
    
    
    
    
    
    
    
    
    153,414Accounts receivable  net of allowance
    
    
    75,642
    
    
    
    13,652
    
    
    
    
    
    
    
    89,294Inventories of spare parts and supplies
    
    
    55,596
    
    
    
    
    
    
    
    
    
    
    
    55,596Other current assets
    
    
    7,922
    
    
    
    8
    
    
    
    
    
    
    
    7,930Refundable income taxes
    
    
    44
    
    
    
    591
    
    
    
    
    
    
    
    635Total current assets
    
    
    293,003
    
    
    
    14,686
    
    
    
    
    
    
    
    307,689Investment in subsidiaries
    
    
    46,226
    
    
    
    
    
    
    
    (46,226
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    44,085
    
    
    
    (44,085
    )
    
    
    Other assets
    
    
    23,759
    
    
    
    57
    
    
    
    
    
    
    
    23,816Property and equipment, net
    
    
    361,570
    
    
    
    7,895
    
    
    
    
    
    
    
    369,465Total assets
    
    $
    724,558
    
    
    $
    66,723
    
    
    $
    (90,311
    )
    
    $
    700,970LIABILITIES AND
SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    46,653
    
    
    $
    4,354
    
    
    $
    
    
    
    $
    51,007Intercompany payable
    
    
    44,085
    
    
    
    
    
    
    
    (44,085
    )
    
    
    Accrued vacation payable
    
    
    2,295
    
    
    
    288
    
    
    
    
    
    
    
    2,583Total current liabilities
    
    
    93,033
    
    
    
    4,642
    
    
    
    (44,085
    )
    
    
    53,590Long-term debt
    
    
    205,500
    
    
    
    
    
    
    
    
    
    
    
    205,500Deferred income taxes and other long-term
liabilities
    
    
    25,900
    
    
    
    15,855
    
    
    
    
    
    
    
    41,755Shareholders EquityPaid-in capital
    
    
    292,222
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,222Accumulated other comprehensive
income
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    77Retained earnings
    
    
    107,826
    
    
    
    41,824
    
    
    
    (41,824
    )
    
    
    107,826Total shareholders equity
    
    
    400,125
    
    
    
    46,226
    
    
    
    (46,226
    )
    
    
    400,125Total liabilities and
shareholders equity
    
    $
    724,558
    
    
    $
    66,723
    
    
    $
    (90,311
    )
    
    $
    700,970
 13




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the quarter ended March 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    86,707
    
    
    $
    15,046
    
    
    $
    
    
    
    $
    101,753Management fees
    
    
    602
    
    
    
    
    
    
    
    (602
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    2,534
    
    
    
    
    
    
    
    
    
    
    
    2,534Other
    
    
    1,650
    
    
    
    4
    
    
    
    
    
    
    
    1,65491,493
    
    
    
    15,050
    
    
    
    (602
    )
    
    
    105,941Expenses:Direct expenses
    
    
    81,792
    
    
    
    11,441
    
    
    
    
    
    
    
    93,233Management fees
    
    
    
    
    
    
    602
    
    
    
    (602
    )
    
    
    Selling, general, and administrative
    
    
    6,785
    
    
    
    752
    
    
    
    
    
    
    
    7,537Equity in net income of consolidated
subsidiaries
    
    
    (1,777
    )
    
    
    
    
    
    
    1,777
    
    
    
    Interest expense
    
    
    4,107
    
    
    
    
    
    
    
    
    
    
    
    4,10790,907
    
    
    
    12,795
    
    
    
    1,175
    
    
    
    104,877Earnings before income taxes
    
    
    586
    
    
    
    2,255
    
    
    
    (1,777
    )
    
    
    1,064Income taxes
    
    
    (77
    )
    
    
    478
    
    
    
    
    
    
    
    401Net earnings
    
    $
    663
    
    
    $
    1,777
    
    
    $
    (1,777
    )
    
    $
    663
 For the quarter ended March 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    87,377
    
    
    $
    13,995
    
    
    $
    
    
    
    $
    101,372Management fees
    
    
    507
    
    
    
    
    
    
    
    (507
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    230Other
    
    
    917
    
    
    
    2
    
    
    
    
    
    
    
    91989,031
    
    
    
    13,997
    
    
    
    (507
    )
    
    
    102,521Expenses:Direct expenses
    
    
    77,880
    
    
    
    9,175
    
    
    
    
    
    
    
    87,055Management fees
    
    
    
    
    
    
    507
    
    
    
    (507
    )
    
    
    Selling, general, and administrative
    
    
    5,973
    
    
    
    712
    
    
    
    
    
    
    
    6,685Equity in net income of consolidated
subsidiaries
    
    
    (2,955
    )
    
    
    
    
    
    
    2,955
    
    
    
    Interest expense
    
    
    5,073
    
    
    
    
    
    
    
    
    
    
    
    5,07385,971
    
    
    
    10,394
    
    
    
    2,448
    
    
    
    98,813Earnings before income taxes
    
    
    3,060
    
    
    
    3,603
    
    
    
    (2,955
    )
    
    
    3,708Income taxes
    
    
    835
    
    
    
    648
    
    
    
    
    
    
    
    1,483Net earnings
    
    $
    2,225
    
    
    $
    2,955
    
    
    $
    (2,955
    )
    
    $
    2,225
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 14




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 For the quarter ended March 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    (8,740
    )
    
    $
    20
    
    
    $
    
    
    
    $
    (8,720
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (34,214
    )
    
    
    (13
    )
    
    
    
    
    
    
    (34,227
    )Proceeds from asset dispositions
    
    
    4,660
    
    
    
    
    
    
    
    
    
    
    
    4,660Purchase (sale) of short-term investments
    
    
    33,521
    
    
    
    
    
    
    
    
    
    
    
    33,521Other
    
    
    (2,123
    )
    
    
    
    
    
    
    
    
    
    
    (2,123
    )Net cash used in investing activities
    
    
    1,844
    
    
    
    (13
    )
    
    
    
    
    
    
    1,831Cash flows from financing activities:Proceeds from line of credit, net
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    15,000Net cash provided by financing activities
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    15,000Increase in cash and cash equivalents
    
    
    8,104
    
    
    
    7
    
    
    
    
    
    
    
    8,111Cash and cash equivalents, beginning of
period
    
    
    385
    
    
    
    435
    
    
    
    
    
    
    
    820Cash and cash equivalents, end of period
    
    $
    8,489
    
    
    $
    442
    
    
    $
    
    
    
    $
    8,931
 For the quarter ended March 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    13,295
    
    
    $
    10
    
    
    $
    
    
    
    $
    13,305Cash flows from investing activities:Purchase of property and equipment
    
    
    (14,365
    )
    
    
    
    
    
    
    
    
    
    
    (14,365
    )Proceeds from asset dispositions
    
    
    27,026
    
    
    
    
    
    
    
    
    
    
    
    27,026Purchase (sale) of short-term investments
    
    
    (25,907
    )
    
    
    
    
    
    
    
    
    
    
    (25,907
    )Net cash used in investing activities
    
    
    (13,246
    )
    
    
    
    
    
    
    
    
    
    
    (13,246
    )Cash flows from financing activities:Proceeds from line of credit, net
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Net cash provided by financing activities
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Increase in cash and cash equivalents
    
    
    249
    
    
    
    10
    
    
    
    
    
    
    
    259Cash and cash equivalents, beginning of
period
    
    
    2,577
    
    
    
    459
    
    
    
    
    
    
    
    3,036Cash and cash equivalents, end of period
    
    $
    2,826
    
    
    $
    469
    
    
    $
    
    
    
    $
    3,295
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 15




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Overview
    16




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17




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18




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Operating Statistics
  Quarter EndedMarch 31,2007
    
    
    2006(1)Flight hours:Oil and Gas
    
    
    26,086
    
    
    
    29,817Air Medical
    
    
    6,992
    
    
    
    7,155Technical Services
    
    
    408
    
    
    
    472Total
    
    
    33,486
    
    
    
    37,444Air Medical Transports(2)
    
    
    4,922
    
    
    
    4,822Aircraft operated at period end:Oil and Gas
    
    
    164
    
    
    
    167Air Medical
    
    
    71
    
    
    
    66Technical Services
    
    
    4
    
    
    
    4Total (3)
    
    
    239
    
    
    
    237
 
 (1)
    
    All prior periods have been recast to conform to the 2007 segment presentation. See Note
2, Segment Information, to the Condensed Consolidated Financial Statements for discussion on
change in reportable segments.(2)
    
    Represents individual patient transports for the period. Flight hours for these transports
are included above.(3)
    
    Includes 12 aircraft as of March 31, 2007 and 2006 that are customer owned. Quarter Ended March 31, 2007 compared with Quarter Ended March 31, 2006
 Combined Operations
 Revenues
  Other Income and Gains
 19




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Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 Earnings
 Segment Discussion
 Oil and
Gas
   20




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Air Medical
     Technical Services
   21




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Liquidity and Capital Resources
 General
   Cash Flow
   Financing Activities
   22




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Credit Facility
  Contractual Obligations
    Payment Due by YearBeyondTotal
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2011(Thousands of dollars)Aircraft Purchase
commitments (1)
    
    $
    105,231
    
    
    $
    95,662
    
    
    $
    9,569
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft Purchase
commitments (2) (3)
    
    
    37,181
    
    
    
    37,181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aircraft lease
obligations
    
    
    153,175
    
    
    
    11,748
    
    
    
    15,663
    
    
    
    15,663
    
    
    
    16,265
    
    
    
    17,533
    
    
    
    76,303Other lease
obligations
    
    
    20,571
    
    
    
    2,466
    
    
    
    2,731
    
    
    
    2,025
    
    
    
    1,744
    
    
    
    1,428
    
    
    
    10,177Long-term debt
    
    
    220,500
    
    
    
    
    
    
    
    20,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000$
    536,658
    
    
    $
    147,057
    
    
    $
    48,463
    
    
    $
    17,688
    
    
    $
    18,009
    
    
    $
    18,961
    
    
    $
    286,480
 
 (1)
    
    These commitments are for aircraft that we intend to finance with remaining cash from
the equity offering completed April 2006, and with cash from operations.(2)
    
    These commitments are for aircraft that we intend to finance with an operating lease.(3)
    
    One of these aircraft was delivered in April, 2007, and we paid the initial delivery
cost of that aircraft of $17.5 million. 
 23




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Environmental Matters
  New Accounting Pronouncements
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
   24




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PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   
 Item 1. A. RISK FACTORS
  RISKS INHERENT IN OUR BUSINESS
 Our operations are affected by adverse weather conditions and seasonal factors.
  Ø
    
    the tropical storm and hurricane season in the Gulf of Mexico;
 Ø
    
    poor weather conditions that often prevail during winter and can develop in any season; and;
 Ø
    
    reduced daylight hours during the winter months.
    25




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We may not be able to obtain acceptable customer contracts covering some of our new helicopters,
and there will be a delay between the time that a helicopter is delivered to us and the time that
it can begin generating revenues.
    Our contracts generally can be terminated or downsized by our customers without penalty.
  Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
    26




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The helicopter services business is highly competitive.
    The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
  Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
    27




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##### Table of Contents



Our air medical operations, which we are expanding, expose us to numerous special risks, including
collection risks, high start-up costs and potential medical malpractice claims.
   Our international operations are subject to political, economic and regulatory uncertainty.
  Ø
    
    political, social and economic instability;
 Ø
    
    terrorism, kidnapping and extortion;
 Ø
    
    potential seizure or nationalization of assets;
 Ø
    
    import-export quotas; and
 Ø
    
    currency fluctuations or devaluation.
  Ø
    
    the awarding of contracts to local contractors;
 Ø
    
    the employment of local citizens; and
 Ø
    
    the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership.
 Our failure to attract and retain qualified personnel could adversely affect us.
  28




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RISKS SPECIFIC TO OUR COMPANY
 We are highly dependent on the offshore oil and gas industry.
  Ø
    
    the supply of, and demand for, oil and natural gas and market
expectations regarding supply and demand;
 Ø
    
    weather-related or other natural causes;
 Ø
    
    actions of OPEC, and Middle Eastern and other oil producing
countries, to control prices or change production levels;
 Ø
    
    general economic conditions in the United States and worldwide;
 Ø
    
    war, civil unrest or terrorist activities;
 Ø
    
    governmental regulation; and
 Ø
    
    the price and availability of alternative fuels.
    Our pilot workforce represented by Office and Professional Employees International Union conducted
a general strike beginning on September 20, 2006.
  29




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We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
  Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
  Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
    Ø
    
    require us to dedicate a substantial portion of our cash flow from
operations to pay principal of, and interest on, our indebtedness,
thereby reducing the availability of our cash flow to fund working
capital, capital expenditures or other general corporate purposes,
or to carry out other aspects of our business plan;
 Ø
    
    increase our vulnerability to general adverse economic and
industry conditions and limit our ability to withstand competitive
pressures;
 30




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##### Table of Contents



Ø
    
    limit our flexibility in planning for, or reacting to, changes in
our business and future business opportunities;
 Ø
    
    place us at a competitive disadvantage compared to our competitors
that have less debt; and limit our ability to obtain additional
financing to fund future working capital, capital expenditures and
other aspects of our business plan.
 Ø
    
    limit our ability to obtain additional financing for working
capital, capital expenditures and other aspects of our business
plan.
  The DOJ investigation could result in criminal proceedings and the imposition of fines and
penalties.
   Our stock has a low trading volume.
  We do not pay dividends.
  Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
  31




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Future sales of our shares could depress the market price of our non-voting common stock.
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  32




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##### Table of Contents



Item 6. EXHIBITS
  3.1
    
    (i)
    Amended and Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit No. 3.1(i) to PHIs Report on Form 10-Q for the quarterly
period ended June 30, 2006).
 (ii)
    
    Amended and Restated By-laws of the Company (As amended
through May 1, 2002) (incorporated by reference to Exhibit
3.1(iii) to PHIs Report on Form 10-K for the year ended
December 31, 2006).
 4.1
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002).4.2
    
    1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004).4.3
    
    Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528)4.4
    
    Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528)4.5
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).4.6
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.7
    
    Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006).4.8
    
    Registration Rights Agreement dated April 12, 2006
(incorporated by reference to Exhibit 10.3 to PHIs Report on Form 8-K
filed on April 13, 2006).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
Michael J. McCann, 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
Michael J. McCann, Chief Financial Officer.
 33




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SIGNATURES
  PHI, Inc.May 10, 2007
    By:
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerMay 10, 2007
    By:
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer and Treasurer 34




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EXHIBIT INDEX
 Exhibit No.

Description 3.1
    
    (i)
    Amended and Restated Articles of Incorporation of the Company (incorporated
by reference to Exhibit No. 3.1(i) to PHIs Report on Form 10-Q for the quarterly
period ended June 30, 2006).
 (ii)
    
    Amended and Restated By-laws of the Company (As amended
through May 1, 2002) (incorporated by reference to Exhibit
3.1(iii) to PHIs Report on Form 10-K for the year ended
December 31, 2006).
 4.1
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002).4.2
    
    1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004).4.3
    
    Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528)4.4
    
    Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528)4.5
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).4.6
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors named
therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2
to PHIs Report on Form 8-K filed on April 13, 2006).4.7
    
    Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI, Inc.,
Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive, Inc.),
and International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April 13, 2006).4.8
    
    Registration Rights Agreement dated April 12, 2006
(incorporated by reference to Exhibit 10.3 to PHIs Report on Form 8-K
filed on April 13, 2006).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
Michael J. McCann, 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
Michael J. McCann, Chief Financial Officer.