##### Table of Contents



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, 2006
 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
  Large accelerated filer o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
 o þ
   Class
    
    Outstanding at April 28, 2006Voting Common Stock
    
    2,852,616 sharesNon-Voting Common Stock
    
    12,415,492 shares




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##### 



PHI, INC.
 Index  Form 10-Q
 Part I  Financial InformationItem 1.
    
    Financial Statements  UnauditedCondensed Consolidated Balance Sheets  March 31, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations  Quarter Ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows  Quarter Ended March 31, 2006 and 2005
    
    
    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
    
    
    33Item 5.
    
    Other Information
    
    
    33Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    33Signatures
    
    
    34Amended and Restated Articles of Incorporation of the CompanyCertification pursuant to Section 302, Chairman and CEOCertification pursuant to Section 302, CFOCertification pursuant to Section 906, CFOCertification pursuant to Section 906, Chairman and CEO
  2




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##### Table of Contents



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 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    95,727
    
    
    $
    69,561Accounts receivable  net of allowance:Trade
    
    
    81,440
    
    
    
    89,351Other
    
    
    4,012
    
    
    
    6,766Inventory, net
    
    
    51,299
    
    
    
    48,123Other current assets
    
    
    10,169
    
    
    
    10,042Refundable income taxes
    
    
    404
    
    
    
    422Total current assets
    
    
    243,051
    
    
    
    224,265Property and equipment, net
    
    
    293,339
    
    
    
    311,678Other
    
    
    13,234
    
    
    
    13,266Total Assets
    
    $
    549,624
    
    
    $
    549,209LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    32,199
    
    
    $
    40,506Accrued liabilities
    
    
    10,048
    
    
    
    10,807Accrued vacation payable
    
    
    3,713
    
    
    
    3,811Accrued interest payable
    
    
    7,834
    
    
    
    3,175Accrued wages and salaries
    
    
    4,761
    
    
    
    2,439Notes payable
    
    
    
    
    
    
    1,000Total current liabilities
    
    
    58,555
    
    
    
    61,738Long-term debt
    
    
    203,500
    
    
    
    203,300Deferred income taxes
    
    
    40,080
    
    
    
    38,906Other long-term liabilities
    
    
    6,213
    
    
    
    6,214Commitments 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
    
    
    742
    
    
    
    742Additional paid-in capital
    
    
    129,531
    
    
    
    129,531Retained earnings
    
    
    110,718
    
    
    
    108,493Total shareholders equity
    
    
    241,276
    
    
    
    239,051Total liabilities and shareholders equity
    
    $
    549,624
    
    
    $
    549,209
  3




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PHI, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Quarter EndedMarch 31,2006
    
    
    2005Operating revenues
    
    $
    101,372
    
    
    $
    74,239Gain on disposition of property
and equipment, net
    
    
    230
    
    
    
    646Other
    
    
    919
    
    
    
    96102,521
    
    
    
    74,981Expenses:Direct expenses
    
    
    87,055
    
    
    
    64,036Selling, general and
administrative expenses
    
    
    6,685
    
    
    
    5,229Interest expense
    
    
    5,073
    
    
    
    5,11798,813
    
    
    
    74,382Earnings before income taxes
    
    
    3,708
    
    
    
    599Income taxes
    
    
    1,483
    
    
    
    240Net earnings
    
    $
    2,225
    
    
    $
    359Weighted average common shares
outstanding:Basic
    
    
    10,422
    
    
    
    5,383Diluted
    
    
    10,439
    
    
    
    5,467Net earnings per common shareBasic
    
    $
    0.21
    
    
    $
    0.07Diluted
    
    $
    0.21
    
    
    $
    0.07
  4




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PHI, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
 Quarter EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    2,225
    
    
    $
    359Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    7,192
    
    
    
    7,066Deferred income taxes
    
    
    1,174
    
    
    
    (41
    )Gain on disposition of property & equipment, net
    
    
    (230
    )
    
    
    (646
    )Other
    
    
    249
    
    
    
    342Changes in operating assets and liabilities
    
    
    2,695
    
    
    
    (2,372
    )Net cash provided by operating activities
    
    
    13,305
    
    
    
    4,708Cash flows from investing activities:Purchase of property and equipment
    
    
    (14,365
    )
    
    
    (6,298
    )Proceeds from asset dispositions
    
    
    1,957
    
    
    
    1,824Proceeds from sale-leaseback transactions
    
    
    25,069
    
    
    
    Net cash provided by (used) in investing activities
    
    
    12,661
    
    
    
    (4,474
    )Cash flows from financing activities:Proceeds from line of credit, net
    
    
    200
    
    
    
    2,000Net cash provided by financing activities
    
    
    200
    
    
    
    2,000Increase in cash and cash equivalents
    
    
    26,166
    
    
    
    2,234Cash and cash equivalents, beginning of period
    
    
    69,561
    
    
    
    18,008Cash and cash equivalents, end of period
    
    $
    95,727
    
    
    $
    20,242Supplemental Disclosures Cash Flow InformationInterest paid
    
    $
    158
    
    
    $
    188Taxes paid, net
    
    $
    18
    
    
    $
    650
  5




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




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Quarter EndedMarch 31,2006
    
    
    2005(Thousands of dollars)Segment operating revenuesDomestic Oil and Gas
    
    $
    61,940
    
    
    $
    44,867Air Medical
    
    
    30,711
    
    
    
    20,784International
    
    
    7,648
    
    
    
    7,018Technical Services
    
    
    1,073
    
    
    
    1,570Total operating revenues
    
    
    101,372
    
    
    
    74,239Segment direct expenseDomestic Oil and Gas
    
    
    50,100
    
    
    
    36,850Air Medical
    
    
    31,619
    
    
    
    21,324International
    
    
    4,446
    
    
    
    4,660Technical Services
    
    
    890
    
    
    
    1,202Total direct expense
    
    
    87,055
    
    
    
    64,036Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    349
    
    
    
    246Air Medical
    
    
    1,838
    
    
    
    1,366International
    
    
    44
    
    
    
    44Technical Services
    
    
    1
    
    
    
    3Total selling, general and administrative expense
    
    
    2,232
    
    
    
    1,659Total direct and selling, general and administrative
expense
    
    
    89,287
    
    
    
    65,695Net segment profitDomestic Oil and Gas
    
    
    11,491
    
    
    
    7,771Air Medical
    
    
    (2,746
    )
    
    
    (1,906
    )International
    
    
    3,158
    
    
    
    2,314Technical Services
    
    
    182
    
    
    
    365Total
    
    
    12,085
    
    
    
    8,544Other, net (1)
    
    
    1,149
    
    
    
    742Unallocated selling, general and administrative costs
    
    
    (4,453
    )
    
    
    (3,570
    )Interest expense
    
    
    (5,073
    )
    
    
    (5,117
    )Earnings before income taxes
    
    $
    3,708
    
    
    $
    599
 
 (1)
    
    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
 4. Valuation Accounts
   5. Employee Incentive Compensation
  9




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6. Recent Accounting Pronouncements
     10




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7. Condensed Consolidating Financial Information
       11




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 March 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    95,258
    
    
    $
    469
    
    
    $
    
    
    
    $
    95,727Accounts receivable  net of allowance
    
    
    71,723
    
    
    
    13,729
    
    
    
    
    
    
    
    85,452Inventory
    
    
    51,299
    
    
    
    
    
    
    
    
    
    
    
    51,299Other current assets
    
    
    10,126
    
    
    
    43
    
    
    
    
    
    
    
    10,169Refundable income taxes
    
    
    274
    
    
    
    130
    
    
    
    
    
    
    
    404Total current assets
    
    
    228,680
    
    
    
    14,371
    
    
    
    
    
    
    
    243,051Intercompany receivable
    
    
    
    
    
    
    39,046
    
    
    
    (39,046
    )
    
    
    Other assets
    
    
    13,225
    
    
    
    9
    
    
    
    
    
    
    
    13,234Investment in subsidiaries and other
    
    
    41,655
    
    
    
    
    
    
    
    (41,655
    )
    
    
    Property and equipment, net
    
    
    285,262
    
    
    
    8,077
    
    
    
    
    
    
    
    293,339Total Assets
    
    $
    568,822
    
    
    $
    61,503
    
    
    $
    (80,701
    )
    
    $
    549,624LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    49,683
    
    
    $
    5,159
    
    
    $
    
    
    
    $
    54,842Intercompany payable
    
    
    39,046
    
    
    
    
    
    
    
    (39,046
    )
    
    
    Accrued vacation payable
    
    
    3,425
    
    
    
    288
    
    
    
    
    
    
    
    3,713Total current liabilities
    
    
    92,154
    
    
    
    5,447
    
    
    
    (39,046
    )
    
    
    58,555Long-term debt
    
    
    203,500
    
    
    
    
    
    
    
    
    
    
    
    203,500Deferred income taxes and other long-term
liabilities
    
    
    31,892
    
    
    
    14,401
    
    
    
    
    
    
    
    46,293Shareholders Equity:Paid-in capital
    
    
    130,558
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    130,558Retained earnings
    
    
    110,718
    
    
    
    37,253
    
    
    
    (37,253
    )
    
    
    110,718Total shareholders equity
    
    
    241,276
    
    
    
    41,655
    
    
    
    (41,655
    )
    
    
    241,276Total Liabilities and
Shareholders Equity
    
    $
    568,822
    
    
    $
    61,503
    
    
    $
    (80,701
    )
    
    $
    549,624
 12




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PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2005ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    69,102
    
    
    $
    459
    
    
    $
    
    
    
    $
    69,561Accounts receivable  net of allowance
    
    
    81,881
    
    
    
    14,236
    
    
    
    
    
    
    
    96,117Inventory
    
    
    48,123
    
    
    
    
    
    
    
    
    
    
    
    48,123Other current assets
    
    
    9,978
    
    
    
    64
    
    
    
    
    
    
    
    10,042Refundable income taxes
    
    
    (61
    )
    
    
    483
    
    
    
    
    
    
    
    422Total current assets
    
    
    209,023
    
    
    
    15,242
    
    
    
    
    
    
    
    224,265Investment in subsidiaries
    
    
    38,700
    
    
    
    
    
    
    
    (38,700
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    39,867
    
    
    
    (39,867
    )
    
    
    Other assets
    
    
    13,253
    
    
    
    13
    
    
    
    
    
    
    
    13,266Property and equipment, net
    
    
    303,421
    
    
    
    8,257
    
    
    
    
    
    
    
    311,678Total assets
    
    $
    564,397
    
    
    $
    63,379
    
    
    $
    (78,567
    )
    
    $
    549,209LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    46,322
    
    
    $
    10,605
    
    
    $
    
    
    
    $
    56,927Intercompany payable
    
    
    39,867
    
    
    
    
    
    
    
    (39,867
    )
    
    
    Accrued vacation payable
    
    
    3,522
    
    
    
    289
    
    
    
    
    
    
    
    3,811Notes payable
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Total current liabilities
    
    
    90,711
    
    
    
    10,894
    
    
    
    (39,867
    )
    
    
    61,738Long-term debt
    
    
    203,300
    
    
    
    
    
    
    
    
    
    
    
    203,300Deferred income taxes and other long-term
liabilities
    
    
    31,335
    
    
    
    13,785
    
    
    
    
    
    
    
    45,120Shareholders EquityPaid-in capital
    
    
    130,558
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    130,558Retained earnings
    
    
    108,493
    
    
    
    34,298
    
    
    
    (34,298
    )
    
    
    108,493Total shareholders equity
    
    
    239,051
    
    
    
    38,700
    
    
    
    (38,700
    )
    
    
    239,051Total liabilities and
shareholders equity
    
    $
    564,397
    
    
    $
    63,379
    
    
    $
    (78,567
    )
    
    $
    549,209
 13




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the quarter ended March 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    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
 For the quarter ended March 31, 2005ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    61,727
    
    
    $
    12,512
    
    
    $
    
    
    
    $
    74,239Management fees
    
    
    626
    
    
    
    
    
    
    
    (626
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    646
    
    
    
    
    
    
    
    
    
    
    
    646Other
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    9663,095
    
    
    
    12,512
    
    
    
    (626
    )
    
    
    74,981Expenses:Direct expenses
    
    
    56,416
    
    
    
    7,620
    
    
    
    
    
    
    
    64,036Management fees
    
    
    
    
    
    
    626
    
    
    
    (626
    )
    
    
    Selling, general, and administrative
    
    
    4,560
    
    
    
    669
    
    
    
    
    
    
    
    5,229Equity in net income of consolidated
subsidiaries
    
    
    (2,546
    )
    
    
    
    
    
    
    2,546
    
    
    
    Interest expense
    
    
    5,117
    
    
    
    
    
    
    
    
    
    
    
    5,11763,547
    
    
    
    8,915
    
    
    
    1,920
    
    
    
    74,382Earnings before income taxes
    
    
    (452
    )
    
    
    3,597
    
    
    
    (2,546
    )
    
    
    599Income taxes
    
    
    (811
    )
    
    
    1,051
    
    
    
    
    
    
    
    240Net earnings
    
    $
    359
    
    
    $
    2,546
    
    
    $
    (2,546
    )
    
    $
    359
 14




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PHI, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 For the quarter ended March 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    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
    
    
    1,957
    
    
    
    
    
    
    
    
    
    
    
    1,957Proceeds from sale-leaseback transactions
    
    
    25,069
    
    
    
    
    
    
    
    
    
    
    
    25,069Net cash used in investing activities
    
    
    12,661
    
    
    
    
    
    
    
    
    
    
    
    12,661Cash flows from financing activities:Proceeds from line of credit, net
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Net cash provided by financing activities
    
    
    200
    
    
    
    
    
    
    
    
    
    
    
    200Increase in cash and cash equivalents
    
    
    26,156
    
    
    
    10
    
    
    
    
    
    
    
    26,166Cash and cash equivalents, beginning of
period
    
    
    69,102
    
    
    
    459
    
    
    
    
    
    
    
    69,561Cash and cash equivalents, end of period
    
    $
    95,258
    
    
    $
    469
    
    
    $
    
    
    
    $
    95,727
 For the quarter ended March 31, 2005ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    4,724
    
    
    $
    (16
    )
    
    $
    
    
    
    $
    4,708Cash flows from investing activities:Purchase of property and equipment
    
    
    (6,297
    )
    
    
    (1
    )
    
    
    
    
    
    
    (6,298
    )Proceeds from asset dispositions
    
    
    1,824
    
    
    
    
    
    
    
    
    
    
    
    1,824Net cash used in investing activities
    
    
    (4,473
    )
    
    
    (1
    )
    
    
    
    
    
    
    (4,474
    )Cash flows from financing activities:Proceeds from line of credit, net
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Net cash provided by financing activities
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Increase in cash and cash equivalents
    
    
    2,251
    
    
    
    (17
    )
    
    
    
    
    
    
    2,234Cash and cash equivalents, beginning of
period
    
    
    17,701
    
    
    
    307
    
    
    
    
    
    
    
    18,008Cash and cash equivalents, end of period
    
    $
    19,952
    
    
    $
    290
    
    
    $
    
    
    
    $
    20,242
 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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Operating Statistics
  Quarter EndedMarch 31,2006
    
    2005Flight hours:Domestic Oil and Gas
    
    
    26,092
    
    
    
    22,306Air Medical
    
    
    7,155
    
    
    
    4,630International
    
    
    4,197
    
    
    
    3,872Total
    
    
    37,444
    
    
    
    30,808Air Medical Transports(1)
    
    
    4,822
    
    
    
    3,147Aircraft operated at period end:Domestic Oil and Gas
    
    
    155
    
    
    
    153Air Medical
    
    
    66
    
    
    
    51International
    
    
    16
    
    
    
    17Total(2)
    
    
    237
    
    
    
    221
 
 (1)
    
    Represents individual patient transports for the period. Flight hours for these
transports are included above.(2)
    
    Includes 12 and 18 aircraft as of March 31, 2006 and 2005, respectively that are customer
owned. Quarter Ended March 31, 2006 compared with Quarter Ended March 31, 2005
 Combined Operations
 Revenues
  Other Income and Gains
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Direct Expenses
 Selling, General, and Administrative Expenses
 Interest Expense
 Income Taxes
 Earnings
 Segment Discussion
 Domestic Oil and Gas
   19




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Air Medical
    International
  20




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Technical Services
   Liquidity and Capital Resources
 General
  Cash Flow
    21




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Financing Activities
        22




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Payment Due by YearBeyondTotal
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010(Thousands of dollars)Aircraft Purchase
commitments (1)
    
    $
    194,661
    
    
    $
    127,366
    
    
    $
    67,295
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft lease
obligations
    
    
    137,282
    
    
    
    9,798
    
    
    
    13,064
    
    
    
    13,064
    
    
    
    13,064
    
    
    
    13,666
    
    
    
    74,626Facility lease
obligations
    
    
    20,007
    
    
    
    2,916
    
    
    
    2,345
    
    
    
    1,940
    
    
    
    1,459
    
    
    
    1,205
    
    
    
    10,142Notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term debt (2)
    
    
    203,500
    
    
    
    
    
    
    
    3,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000$
    555,450
    
    
    $
    140,080
    
    
    $
    86,204
    
    
    $
    15,004
    
    
    $
    14,523
    
    
    $
    14,871
    
    
    $
    284,768
 
 (1)
    
    These commitments are for aircraft that we intend to fund from existing cash from the
equity offerings completed June 2005 and April 2006.(2)
    
    Amounts reflect new 7 1/8% Senior Notes issued subsequent to March 31, 2006, that
mature 2013. The 9 3/8% Senior Notes were retired April 12, 2006 ($184.8 million) and May
1, 2006 ($15.2 million). Environmental Matters
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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
generally develop in any season; andØ
    
    reduced daylight hours during the winter months.
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We may not be able to obtain acceptable customer contracts covering some of our new helicopters and
some of our new helicopters may replace existing helicopters already under contract, which could
adversely affect the utilization of our existing fleet.
    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.
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The helicopter services business is highly competitive, which could adversely impact our pricing
and demand for our services.
    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 expose us to numerous special risks, including collection risks, high
start-up costs and potential medical malpractice claims.
   Our dependence on a small number of helicopter manufacturers poses a significant risk to our
business and prospects.
  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; andØ
    
    currency fluctuations or devaluation.
 28




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##### Table of Contents



Ø
    
    the awarding of contracts to local contractors;Ø
    
    the employment of local citizens; andØ
    
    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.
  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
    
    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; andØ
    
    the price and availability of alternative fuels.
   29




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We currently are negotiating a new collective bargaining agreement covering our pilots.
  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.
 3
 30




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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;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; andØ
    
    limit our ability to obtain additional financing to fund future working capital, capital expenditures and other aspects
of our business plan.
  Our stock has a low trading volume.
  We do not pay dividends.
  Provisions in our articles of incorporation and bylaws 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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##### Table of Contents



Future sales of our shares could depress the market price of our non-voting common stock.
  The DOJ investigation could result in criminal proceedings and the imposition of fines and
penalties.
   
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES.
  32




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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 Item 5. OTHER INFORMATION.
  
 Item 6. EXHIBITS AND REPORTS ON FORM 8-K
  3.1
    
    (i)
    
    Amended and Restated Articles of Incorporation of the Company.(ii)
    
    Amended and Restated By-laws of the Company (incorporated by reference to
Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the quarterly period ended March
31, 2002).
 4.1
    
    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).4.2
    
    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).4.3
    
    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).4.4
    
    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).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 5, 2006
    
    By:
    
    /s/ Al A. GonsoulinAl A. GonsoulinChairman and Chief Executive OfficerMay 5, 2006
    
    By:
    
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer and Treasurer
 34




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##### Table of Contents



EXHIBIT INDEX
 3.1
    
    (i)
    
    Amended and Restated Articles of Incorporation of the Company.(ii)
    
    Amended and Restated By-laws of the Company (incorporated by reference to
Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the quarterly period ended March
31, 2002).
 4.1
    
    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).4.2
    
    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).4.3
    
    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).4.4
    
    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).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.