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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K (Mark One)þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2004ORo
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition Period From ___to ___
 Commission file number 0-9827 PETROLEUM HELICOPTERS, INC (Exact name of registrant as specified in its charter)
 Louisiana
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)2001 SE Evangeline ThruwayLafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (337) 235-2452 Securities registered pursuant to Section 12(b) of the Act:
NONE Securities registered pursuant to Section 12(g) of the Act:
Voting Common Stock
Non-Voting Common Stock
(Title of Each Class) Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes: þ No: o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein and will not be contained, to the best of registrants knowledge in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act). Yes: þ No: o The aggregate market value of the voting and non-voting common stock held by non-affiliates of
the registrant as of June 30, 2004 was $75,513,556 based upon the last sales price of the Common
Stock on June 30, 2004, as reported on the Nasdaq SmallCap Market. The number of shares outstanding of each of the registrants classes of common stock, as of
February 15, 2005 was: Voting Common Stock                         2,852,616 shares.
                    Non-Voting Common Stock                2,531,392 shares. Documents Incorporated by Reference Portions of the registrants definitive Information Statement for the 2005 Annual Meeting of
Shareholders are incorporated by reference into Part III of this Form 10-K.




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PETROLEUM HELICOPTERS, INC. INDEX  FORM 10-K PART IItem 1. Business
    
    
    1Item 2. Properties
    
    
    6Item 3. Legal Proceedings
    
    
    8Item 4. Submission of Matters to a Vote of Security Holders
    
    
    8PART IIItem 5. Market for Registrants Common Equity and Related
Shareholders Matters
    
    
    8Item 6. Selected Financial Data
    
    
    9Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9Item 7.A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 8. Financial Statements and Supplementary Data
    
    
    19Petroleum Helicopters, Inc. and Consolidated Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    
    19Consolidated
Balance Sheets

- December 31, 2004 and December 31, 2003
    
    
    20Consolidated
Statements of Operations

- Year ended December 31, 2004, Year ended December 31,
2003 and
Year ended December 31, 2002
    
    
    21Consolidated
Statements of Shareholders Equity

- Year ended December 31, 2004, Year ended December 31,
2003, and Year ended December 31, 2002
    
    
    22Consolidated
Statements of Comprehensive Income (Loss)

- Year ended December 31, 2004, Year ended December 31, 2003, and
Year ended December 31, 2002
    
    
    22Consolidated
Statements of Cash Flows

- Year ended December 31, 2004, Year ended December 31, 2003, and
Year ended December 31, 2002
    
    
    23Notes to Consolidated Financial Statements
    
    
    24Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    44Item 9.A. Controls and Procedures
    
    
    44Report of Independent Registered Public Accounting FirmPART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    46Item 11. Executive Compensation
    
    
    46Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    46Item 13. Certain Relationships and Related Transactions
    
    
    46Item 14. Principal Accounting Fees and Services
    
    
    46PART IVItem 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    47Signatures
    
    
    49Subsidiaries of the RegistrantConsent of Deloitte & Touche LLPCertificaiton of CEO Pursuant to Section 302Certificaiton of CFO Pursuant to Section 302Certificaiton of CEO Pursuant to Section 906Certificaiton of CFO Pursuant to Section 906
  i




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PART I Forward-Looking Statements All statements other than statements of historical fact contained in this Form 10-K and other
periodic reports filed by Petroleum Helicopters, Inc. (the Company or PHI) under the Securities
Exchange Act of 1934 and other written or oral statements made by it or on its behalf, are
forward-looking statements. When used herein, the words anticipates, expects, believes,
goals, intends, plans, or projects and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are based on a number of assumptions about
future events and are subject to significant risks, uncertainties, and other factors that may cause
the Companys actual results to differ materially from the expectations, beliefs, and estimates
expressed or implied in such forward-looking statements. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, no assurance can be given
that such assumptions will prove correct or even approximately correct. Factors that could cause
the Companys results to differ materially from the expectations expressed in such forward-looking
statements include but are not limited to the following: unexpected variances in flight hours, the
effect on demand for our services caused by volatility of oil and gas prices, the effect on our
operating costs of volatile fuel prices, the availability of capital required to acquire aircraft,
environmental risks, adverse weather conditions, the activities of our competitors, changes in
government regulation, unionization, operating hazards, risks related to operating in foreign
countries, the ability to obtain adequate insurance, at an acceptable cost and the ability of the
Company to develop and implement successful business strategies. For a more detailed description
of risks, see the Risk Factors section in Item 1 below. All forward-looking statements in this
document are expressly qualified in their entirety by the cautionary statements in this paragraph
and the Risk Factors section below. PHI undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future events, or otherwise. 
 ITEM 1. BUSINESS General Since our inception in 1949, our primary business has been the safe and reliable transportation of
personnel and, to a lesser extent, parts and equipment, to, from, and among offshore platforms for
customers engaged in the oil and gas exploration, development, and production industry, principally
in the Gulf of Mexico. We are a leading provider of helicopter transportation services in the Gulf
of Mexico. We also provide helicopter services to the oil and gas industry internationally, and to
non-oil and gas customers such as health care providers and US governmental agencies such as the
National Science Foundation. We also provide helicopter maintenance and repair services to certain
customers. At December 31, 2004, we owned or operated approximately 221 aircraft domestically and
internationally. Availability of SEC filings and other information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to any of these reports are available free of charge through our web site:
www.phihelico.com. These reports are available as soon as reasonably practicable after we file
them with the SEC. You may also read and copy any of the materials that we file with the SEC at
the SECs Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC. The SECs website
address is www.sec.gov. Description of Operations We operate in four business segments: Domestic Oil and Gas, Air Medical, International, and
Technical Services. For financial information regarding our operating segments and the geographic
areas in which they operate, see Note 9 of the Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K. Domestic Oil and Gas.Our Domestic Oil and Gas segment operates approximately 151 owned, leased,
and customer-owned aircraft from several bases or heliports in the Gulf of Mexico region. Those
operations serve facilities located offshore Louisiana, Texas, Alabama, and Mississippi. Operating
revenues from the Domestic Oil and Gas segment 1




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accounted for 62%, 68%, and 67% of consolidated operating revenues during the years ended December
31, 2004, December 31, 2003, and December 31, 2002, respectively. Oil and gas exploration and production companies and other offshore oil service companies use PHIs
services primarily for routine transportation of personnel and equipment, to transport personnel
during medical and safety emergencies, and to evacuate personnel during the threat of hurricanes
and other adverse weather conditions. Most of our customers have entered into contracts for
transportation services for a term of one year or longer, although some hire us on an ad hoc or
spot basis. Most of our Domestic Oil and Gas aircraft are available for hire by any customer, but some are
dedicated to individual customers. Our helicopters have flight ranges of up to 450 miles with a
30-minute fuel reserve and thus are capable of servicing many of the deepwater oil and gas
operations that are from 50 to 200 miles offshore. (See Item 2.  Properties, for specific
information by aircraft model.) Air Medical. We provide air medical transportation services for hospitals and medical programs
under the independent provider model in 12 states using approximately 51 aircraft. The aircraft
dedicated to this segment are specially outfitted to accommodate emergency patients and emergency
medical equipment. The Air Medical segments operating revenues accounted for 27% of consolidated
operating revenues for the year ended December 31, 2004, and 17% for each of the years ended
December 31, 2003 and 2002. International.Our International segment uses approximately 19 aircraft to provide helicopter
services in Angola, Antarctica, and the Democratic Republic of Congo. Aircraft operating
internationally are typically dedicated to one customer, most of which are oil and gas customers.
Operating revenues from our International segment accounted for 8% of consolidated operating
revenues during each of the years ended December 31, 2004, 2003, and 2002. Technical Services.We perform maintenance and repair services at our Lafayette facility pursuant
to an FAA repair station license, primarily for our existing customers that own their aircraft.
The license includes authority to repair airframes, powerplants, accessories, radios, and
instruments and to perform specialized services. Commencing in late 2001, we changed the strategic
focus of Technical Services from providing maintenance and overhaul services to any third party
customer, to providing those services only to customers of our helicopter transportation
operations. We implemented this change to allow the Technical Services segment to focus on our
aircraft and components. Operating revenues from the Technical Services segment accounted for 3% of consolidated operating
revenues for the year ended December 31, 2004, 7% for the year ended December 31, 2003, and 8% for
the year ended December 31, 2002. Seasonal Aspects Seasonality affects our operations, in three principal ways: weather conditions are generally
poorer in December, January, and February, tropical storms and hurricanes are prevalent in the Gulf
of Mexico in late summer and early fall, and reduced daylight hours restrict our operations in
winter. For a more detailed discussion of these events, see the Adverse Weather Conditions
paragraph in the Risk Factors section of this Item 1. Our operating results vary from quarter to
quarter, depending on seasonal factors and other factors outside of our control. As a result, full
year results are not likely to be a direct multiple of any particular quarter or combination of
quarters. Inventory We carry a significant inventory of aircraft parts to support the maintenance and repair of our
helicopters. Many of these inventory items are parts that have been removed from aircraft,
refurbished according to manufacturers and FAA specifications, and returned to inventory. The
cost to refurbish these parts is expensed as incurred. We use systematic procedures to estimate
the value of these used parts, which includes consideration of their condition and continuing
utility. The carrying values of inventory reported in our financial statements are affected by
these estimates and may change from time to time if our estimated values change. Customers Our principal customers are major integrated energy companies and independent exploration and
production companies. We also serve oil and gas service companies, hospitals and medical programs
under the independent provider model, government agencies, and other aircraft owners and operators.
Our largest customer is in our Domestic Oil and Gas 2




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segment and accounted for 13%, 15%, and 17% of operating revenues for the years ended December 31,
2004, 2003, and 2002, respectively. We have entered into contracts with most of our customers for
terms of at least one year, although most contracts include provisions permitting earlier
termination. Employees As of December 31, 2004, we employed 1,853 full-time employees and 50 part-time employees,
including approximately 500 pilots and 1,000 aircraft maintenance and support personnel. At
December 31, 2003, we employed 1,684 full-time employees and 52 part-time employees. On June 13, 2001, our domestic pilots ratified a three-year collective bargaining agreement between
us and the Office & Professional Employees International Union (OPEIU). The agreement was
effective retroactively to June 1, 2001 and remained effective through May 31, 2004. The agreement
provided for automatic base pay increases for pilots and strike protection for us. Union
membership under the agreement, which falls under the Railway Labor Act, is voluntary. We are
currently in negotiations with the OPEIU regarding a new collective bargaining agreement. Environmental Matters We are subject to federal, state and local environmental laws and regulations that impose
limitations on the discharge of pollutants into the environment and establish standards for the
treatment, storage, recycling, and disposal of toxic and hazardous wastes. Operating and
maintaining helicopters requires that we use, store, and dispose of materials that are subject to
federal and state environmental regulation. We periodically conduct environmental site surveys at
our facilities, and determine whether there is a need for environmental remediation based on these
surveys. Risk Factors All phases of our operations are subject to significant uncertainties, risks, and other influences.
Important factors that could cause our actual results to differ materially from anticipated
results or other expectations include the following: We are highly dependent on the offshore oil and gas industry.Approximately 76% of our 2004
operating revenue was attributable to helicopter support for offshore oil and gas exploration and
production companies. Our business is dependent primarily on the level of activity by the oil and
gas companies, particularly in the Gulf of Mexico. Traditionally, the level of activity has
fluctuated with the price of oil and gas, although current activity levels in the Gulf of Mexico
are relatively low in the height of commodity prices. Additionally, the Gulf of Mexico is
generally considered to be a mature area for oil and gas exploration, which may result in a
continuing decrease in activity over time. Our operations can be affected by adverse weather conditions and seasonal factors.We are subject
to three types of weather-related or seasonal factors: poor weather conditions generally, the
tropical storm and hurricane season in the Gulf of Mexico, and reduced daylight hours during the
winter months. Poor visibility, high winds, and heavy precipitation can affect the operation of helicopters and
result in a reduced number of flight hours. A significant portion of our operating revenue is
dependent on actual flight hours and a substantial portion of our direct cost is fixed. Thus,
prolonged periods of adverse weather can materially and adversely affect our operating revenues and
net earnings. In the Gulf of Mexico, the months of December, January, February have more days of adverse weather
conditions than the other months of the year. Also, June through November is tropical storm and
hurricane season in the Gulf of Mexico, with August and September typically being the most active
months. When a tropical storm or hurricane is about to enter or begins developing in the Gulf of
Mexico, flight activity may temporarily increase because of evacuations of offshore workers, but
during the storms we are unable to operate in the area of the storm and we can incur significant
expense in moving our aircraft to safer locations. In addition, as most of our facilities are
located along the Gulf of Mexico coast, tropical storms and hurricanes may cause substantial damage
to our property, including helicopters that we are unable to relocate. Because the fall and winter months have fewer hours of daylight, our flight hours are generally
lower at those times, which typically results in a reduction in operating revenues during those
months. Currently 44 of the 166 helicopters used in our oil and gas operations are equipped to fly
pursuant to instrument flight rules (IFR), which enables these aircraft, when 3




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manned by IFR rated pilots and co-pilots, to operate when poor visibility or darkness prevents
flight by aircraft that can fly only under visual flight rules (VFR). Increased governmental regulations could increase our costs or reduce our ability to operate
successfully. Our operations are regulated by a number of federal and state agencies. All of our flight
operations are regulated by the FAA. Aircraft accidents are subject to the jurisdiction of the
National Transportation Safety Board. Standards relating to the workplace health and safety are
monitored by the federal Occupational Safety and Health Administration (OSHA). Also, PHI is
subject to various federal and state environmental statutes that are discussed separately in the
Environmental Matters section below. The FAA has jurisdiction over many aspects our business, including personnel, aircraft, and ground
facilities. We are required to have an Air Taxi Certificate, granted by the FAA, to transport
personnel and property in our helicopters. This certificate contains operating specifications that
allow us to conduct our present operations, but it is potentially subject to amendment, suspension,
or revocation in accordance with procedures set forth in the Federal Aviation Act. We are not
required to file tariffs showing rates, fares, and other charges with the FAA. The FAA is
responsible for ensuring that we comply with all FAA regulations relating to the operation of our
aviation business. The FAA conducts regular inspections regarding the safety, training and general
regulatory compliance of our US aviation operations. Additionally,
the FAA requires us to file
reports confirming our continued compliance. FAA regulations require that at least 75% of our voting securities be owned or controlled by
citizens of the United States or one of its possessions, and that the president and at least
two-thirds of our directors be United States citizens. Currently, our president and all of our
directors are United States citizens, and our organizational documents provide for the automatic
reduction in voting power of each share of voting common stock owned or controlled by a non-United
States citizen if necessary to comply with these regulations. We are subject to significant regulatory oversight by OSHA and similar state agencies. We have an
extensive health, safety, and environmental program. The primary functions of our safety staff are
to develop and improve company policies so that they meet or exceed the safety standards set by
OSHA, to train company personnel, and to make inspections of safety procedures to ensure their
compliance with company policies on safety. Employees are required to attend safety-training
meetings at which the importance of full compliance with safety procedures is emphasized. We
believe that we meet or exceed all OSHA requirements and that our operations do not expose our
employees to unusual health hazards. We are also subject to the Communications Act of 1934 because of our ownership and operation of a
radio communications flight following network throughout the Gulf of Mexico. Numerous other federal statutes and rules regulate our offshore operations and those of our
customers, pursuant to which the federal government has the ability to suspend, curtail, or modify
certain or all offshore operations. A suspension or substantial curtailment of offshore oil and
gas operations for any prolonged period would have an immediate and materially adverse effect on
us. A substantial modification of current offshore operations could adversely affect the economics
of such operations and result in reduced demand for helicopter services. The helicopter services business is highly competitive. Our business is highly competitive in each of our markets. Many of our contracts are awarded after
competitive bidding, and the competition for those contracts is generally intense. The principal
aspects of competition are safety, price, reliability, availability, and service. We are a leading operator of helicopters in the Gulf of Mexico. We have two major competitors and
several small competitors operating in the Gulf of Mexico and certain of our customers and
potential customers operate their own helicopter fleets. However, oil and gas companies
traditionally contract for most specialty services associated with offshore operations, including
transportation services. Our Air Medical segment competes for business under both the independent provider model and the
hospital-based model. Under the independent provider model, we obtain the necessary local
approvals to position an aircraft and personnel in a community and respond on demand to individuals
requiring transport for medical reasons. Under that model, we are paid by either a commercial
insurance company, a federal or state agency, or the patient. Under the hospital-based model, we
contract directly with the hospital, work only for it and are paid only by the hospital based on
contracted service rates. 4




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These contracts are typically awarded on a competitive bid basis. We compete against national
firms, and there is usually more than one competitor in each local market. Our International segment primarily serves customers in the oil and gas industry. Most of our
international contracts are subject to competitive bidding, and certain of our principal
competitors domestically also compete internationally. In addition, there is one additional major
competitor internationally that does not compete domestically. Typically, in each international
area there are firms that compete only in that region. Our Technical Services segment competes regionally and nationally against various small and large
repair centers in the United States and Canada. Competition has increased with aggressive pricing
and acquisition moves by several service providers and original equipment manufacturers and their
subsidiaries. Our international operations are subject to political, economic and regulatory uncertainty.Our
International operations are subject to a number of risks inherent in any international operations
including (i) political, social, and economic instability; (ii) potential seizure or
nationalization of assets; (iii) import-export quotas; and (iv) other forms of governmental
regulation. Although our contracts to provide services internationally generally provide for payment in US
dollars, to the extent that we make investments in foreign assets or receive revenues in currencies
other than US dollars, the value of our assets and income could be adversely affected by
fluctuations in the value of local currencies. Additionally, competitiveness in international market areas may be adversely affected by
regulations, including regulations requiring (i) the awarding of contracts to local contractors,
(ii) the employment of local citizens, and (iii) the establishment of foreign subsidiaries with
significant ownership positions reserved by the foreign government for local ownership. We are currently negotiating a new collective bargaining agreement covering our pilots.We are
currently in negotiations with the Office of Professional Employees International Union (OPEIU)
regarding a new collective bargaining agreement. The prior agreement expired on May 31, 2004. We
cannot predict the outcome of these negotiations nor when they might be concluded and such
negotiations may result in an agreement that will materially increase our operating costs. Failure
to reach an agreement could result in job actions that could disrupt our operations. We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues.We derive a significant amount of our revenue from a small number of major and
independent oil and gas companies. Our loss of one of these significant customers, if not offset
by sales to new or other existing customers, would have a material adverse effect on business and
operations. For more information on customer concentration, see Customers above. Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.The operation of helicopters inherently involves a high degree of risk.
Hazards such as aircraft accidents, collisions, fire, and adverse weather are hazards that must be
managed by providers of helicopter services and may result in (i) loss of life, (ii) serious injury
to employees and third parties, and (iii) losses of equipment and revenues. A favorable safety
record is one of the primary factors a customer reviews in selecting an aviation provider. We maintain hull and liability insurance on our aircraft, which insures us against physical loss
of, or damage to, our aircraft and against certain legal liabilities to others. In addition, we
carry war risk, expropriation, confiscation, and nationalization insurance for our aircraft
involved in international operations. In some instances, we are covered by indemnity agreements
from our customers in lieu of, or in addition to our insurance. Our aircraft are not insured for
loss of use. While we believe that our insurance and indemnification arrangements provide
reasonable protection for most foreseeable losses, they do not cover all potential losses and are
subject to deductibles, retentions, coverage limits and coverage exceptions such that severe
casualty losses, or the expropriation or confiscation of significant assets could materially and
adversely affect our financial condition or results of operations. Our Chairman and Chief Executive Officer is also our principal stockholder and has voting control
of the Company.Al A. Gonsoulin, beneficially owns stock representing approximately 52% of our
total voting power. As a result, he exercises control over the election of our directors and the
outcome of most matters requiring a stockholder vote. We do not pay dividends.We have not paid any dividends on our common stock since 1999 and do not
anticipate that we will pay any dividends on our common stock in the foreseeable future. 5




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Our stock has a low trading volume.Our voting (PHEL) and non-voting (PHELK) common stock are
listed on the Nasdaq SmallCap Market (Nasdaq). However, neither class of shares has substantial
trading volume. Because of this limitation, among others, a shareholder may not be able to sell
shares of our common stock at the time, in the amounts, or at the price desired. 
 ITEM 2. PROPERTIES Aircraft Information regarding our owned and leased aircraft fleet as of December 31, 2004 is set forth in
the following table: Number
    
    
    
    
    
    
    
    
    Cruise
Speed
    
    Appr.RangeManufacturer
    
    Type
    
    in Fleet
    
    
    Engine
    
    Passengers
    
    
    (mph)
    
    (miles)(2)Light AircraftBell
    
    206 / 407
    
    
    106
    
    
    Turbine
    
    
    4  6
    
    
    
    103  144
    
    
    
    300  420Eurocopter
    
    BK-117 / BO-105
    
    
    21
    
    
    Twin Turbine
    
    
    4  6
    
    
    
    135
    
    
    
    255  270Aerospatiale
    
    AS350 B2 / B3
    
    
    22
    
    
    Turbine
    
    
    5
    
    
    
    140
    
    
    
    337  385Medium AircraftBell
    
    212 (1)/222(1)230 (1) / 412 (1)
    
    
    29
    
    
    Twin Turbine
    
    
    8  13
    
    
    
    115  160
    
    
    
    300  370Sikorsky
    
    S-76 (1) A, A++, C+
    
    
    17
    
    
    Twin Turbine
    
    
    12
    
    
    
    150
    
    
    
    400Transport AircraftBell
    
    214ST (1)
    
    
    4
    
    
    Twin Turbine
    
    
    18
    
    
    
    155
    
    
    
    450Sikorsky
    
    S-92A(1)
    
    
    2
    
    
    Twin Turbine
    
    
    19
    
    
    
    160
    
    
    
    510Miscellaneous AircraftKaman
    
    K-Max K-1200
    
    
    1
    
    
    Turbine
    
    
    1
    
    
    
    100
    
    
    
    225Total Helicopters
    
    
    202Fixed WingRockwell (3)
    
    Aero Commander
    
    
    2
    
    
    Turboprop
    
    
    6
    
    
    
    300-340
    
    
    
    1,200-1,600Cessna (4)
    
    Conquest 441 (1)
    
    
    3
    
    
    Turboprop
    
    
    6
    
    
    
    330
    
    
    
    1,200Total Fixed Wing
    
    
    5Total Aircraft
    
    
    207
   (1)
    
    Equipped to fly under instrument flight rules (IFR). All other types listed
can only fly under visual flight rules (VFR). See Item 1. Business  Risk Factors,
Adverse weather conditions/Seasonality.(2)
    
    Based on maintaining a 30-minute fuel reserve.(3)
    
    Aircraft used for corporate purposes.(4)
    
    Aircraft used in the Air Medical segment. Of the 207 aircraft listed, we own 203 and lease 4. Additionally, we operate 14 aircraft owned by
customers that are not reflected in the above table. In total, we own or operate 221 aircraft. We sell aircraft whenever they (i) become obsolete or (ii) do not fit into future fleet plans. 6




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Facilities Our principal facilities are located on property leased from The Lafayette Airport Commission at
the Lafayette Regional Airport in Lafayette, Louisiana. The lease covers approximately 28 acres
and two buildings, with an aggregate of approximately 256,000 square feet, housing our main
operational, executive, and administrative offices and the main repair and maintenance facility.
The lease for this new facility expires in 2021 and contains three five-year renewal options
following the expiration date. We own our Boothville, Louisiana operating facility. The property has a 23,000 square foot
building, a 7,000 square foot hangar, and landing pads for 35 helicopters. We also lease property for an Executive and Marketing office in Houston, Texas and 12 additional
bases to service the oil and gas industry throughout the Gulf of Mexico. Those bases that
represent a significant investment in leasehold improvements and are particularly important to our
operations are: Facility
    
    Lease Expiration
    
    Area
    
    Facilities
    
    CommentsMorgan City
(Louisiana)
    
    June 30, 2008
    
    53 acres
    
    Operational and
maintenance
facilities, landing
pads for 46
helicopters
    
    Options to extend
to June 30, 2018Intracoastal City
(Louisiana)
    
    December 31, 2006
    
    18 acres
    
    Operational and
maintenance
facilities, landing
pads for 45
helicopters
    
    Options to extend
to December 31,
2010Houma-Terrebonne
Airport (Louisiana)
    
    August 31, 2005
    
    14 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Four renewal
options to extend
for one year eachGalveston (Texas)
    
    May 31, 2021
    
    4 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Lease period to May
31, 2021 with
certain
cancellation
provisionsFourchon
(Louisiana)
    
    May 31, 2006
    
    8 acres
    
    Operational and
maintenance
facilities, landing
pads for 10
helicopters
    
    Facility under
three separate
leases, of which
two contain options
to extend thru 2026
and 2028.
 Our other operations-related facilities in the United States are located at New Orleans, Cameron,
and Lake Charles, Louisiana; at Port OConnor, Sabine Pass, and Rockport, Texas; and at Theodore,
Alabama. We also operate from offshore platforms that are provided without charge by the owners of the
platforms, although in certain instances we are required to indemnify the owners against loss in
connection with our use of their facilities. We also lease office and hangar space for our Air Medical operations in Phoenix, Arizona. The two
buildings are held under separate leases and collectively provide 5,000 square feet of hangar space
and 26,000 square feet of office space. The leases extend through 2007 and 2009 with options to
extend for two to ten years. Other Air Medical bases are located in California, Indiana, Kentucky,
New Mexico, Texas and Virginia. Other bases for our International and other Air Medical operations
are generally furnished by customers. 7




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##### Table of Contents



ITEM 3. LEGAL PROCEEDINGS We have been named as a defendant in various legal actions that have arisen in the ordinary
course of our business and have not been finally adjudicated. In the opinion of management, the
amount of the ultimate liability with respect to these actions will not have a material adverse
effect on our consolidated financial condition, results of operations or liquidity. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 
 PART II 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS Our voting and non-voting common stock trades on The Nasdaq Stock Market, SmallCap Issuers
under the symbols PHEL and PHELK, respectively. The following table sets forth the range of high
and low sales prices per share, as reported by Nasdaq, for our voting and non-voting common stock
for the fiscal quarters indicated. Voting
    
    
    Non-VotingPeriod
    
    High
    
    
    Low
    
    
    High
    
    
    LowJanuary 1, 2004 to March 31, 2004
    
    $
    30.46
    
    
    $
    23.00
    
    
    $
    27.00
    
    
    $
    22.50April 1, 2004 to June 30, 2004
    
    
    27.60
    
    
    
    18.55
    
    
    
    26.50
    
    
    
    18.61July 1, 2004 to September 30, 2004
    
    
    24.69
    
    
    
    19.08
    
    
    
    23.15
    
    
    
    19.30October 1, 2004 to December 31, 2004
    
    
    26.49
    
    
    
    22.25
    
    
    
    25.99
    
    
    
    20.77January 1, 2003 to March 31, 2003
    
    $
    30.13
    
    
    $
    26.44
    
    
    $
    29.90
    
    
    $
    26.30April 1, 2003 to June 30, 2003
    
    
    31.96
    
    
    
    24.41
    
    
    
    30.15
    
    
    
    24.35July 1, 2003 to September 30, 2003
    
    
    34.50
    
    
    
    26.83
    
    
    
    33.25
    
    
    
    27.01October 1, 2003 to December 31, 2003
    
    
    32.58
    
    
    
    23.01
    
    
    
    30.00
    
    
    
    23.75
 We have not paid dividends since 1999 and do not expect to pay dividends in the foreseeable future. In addition, the indenture governing our 9 3/4% Series B Senior Notes due 2009 and our revolving
credit facility with a commercial bank restrict the payment of dividends. See Item 8. Financial
Statements and Supplementary Data  Notes to the Consolidated Financial Statements, Note 3. As of February 15, 2005,
there were approximately 1,002 holders of record of our voting common stock
and 70 holders of record of our non-voting common stock. Information regarding our stock based compensation plan is included in Item 8, Notes to
Consolidated Financial Statements Note (5) EMPLOYEE BENEFIT PLANS  Stock Based Compensation. On April 23, 2002, we issued $200 million in principal amount of 9 3/8% Series A Senior Unsecured
Notes due 2009 in a private offering that was exempt from registration under Rule 144A under the
Securities Act of 1933 (the Securities Act). All of the notes were subsequently exchanged for
our 9 3/8% Series B Senior Notes due 2009 (the Series B Senior Notes), pursuant to an exchange
offer that was registered under the Securities Act. The Series B Senior Notes bear annual interest
at 9 3/8% payable semi-annually on May 1 and November 1 of each year and mature in May 2009. The
Series B Senior Notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and
mergers and consolidations or sales of assets. As of December 31, 2004, we were in compliance with
these covenants. 8




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below for each of the past five fiscal periods should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statement and Notes to Consolidated Financial Statements
included elsewhere in this Annual Report. Year EndedDecember 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(Thousands of dollars)Income Statement DataOperating revenues
    
    $
    291,308
    
    
    $
    269,392
    
    
    $
    283,751
    
    
    $
    282,437
    
    
    $
    236,843Net earnings (loss)
    
    
    3,972
    
    
    
    1,139
    
    
    
    9,231
    
    
    
    11,020
    
    
    
    (12,294
    )Net earnings (loss) per shareBasic
    
    
    0.74
    
    
    
    0.21
    
    
    
    1.73
    
    
    
    2.12
    
    
    
    (2.38
    )Diluted
    
    
    0.72
    
    
    
    0.21
    
    
    
    1.70
    
    
    
    2.08
    
    
    
    (2.38
    )Cash dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance Sheet Data (1)Total assets
    
    $
    394,173
    
    
    $
    377,454
    
    
    $
    366,707
    
    
    $
    225,645
    
    
    $
    222,755Total debt
    
    
    210,275
    
    
    
    202,000
    
    
    
    200,000
    
    
    
    66,616
    
    
    
    74,819Working capital
    
    
    88,716
    
    
    
    70,300
    
    
    
    72,751
    
    
    
    46,987
    
    
    
    41,547Shareholders equity
    
    
    109,975
    
    
    
    105,993
    
    
    
    104,854
    
    
    
    91,872
    
    
    
    81,622
   (1)
    
    As of the end of the period. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
should be read in conjunction with our Consolidated Financial Statements for the years ended
December 31, 2004, December 31, 2003, and December 31, 2002 and the related Notes to Consolidated
Financial Statements. Overview Operating revenues for 2004 were $291.3 million compared to $269.4 million for 2003, an increase of
$21.9 million. Operating revenues in the Air Medical segment increased $30.8 million, or 66%, due
to the additional Air Medical operations established during the year, further discussed below. In
addition, the International segment had an increase of $3.1 million in operating revenues due to an
increase in rates and flight hours. These amounts were offset in part by a decrease in Technical
Services operating revenues of $8.2 million due to completion of that segments principal contract
during the year. Domestic Oil and Gas operating revenues also decreased $3.7 million due to a
decrease in flight hours to 100,814 for 2004 compared to 114,769 in 2003, which resulted from a
decrease in activities in the Gulf of Mexico by our customers. Total flight hours were 136,280 for 2004 compared to 141,127 for 2003, a decrease of 3%. All of
the decrease occurred in the Domestic Oil and Gas segment, but was largely offset by increases of
8,053 hours in the Air Medical segment and 1,055 hours in the International segment. The number of
aircraft at December 31, 2004, was 221 compared to 225 at December 31, 2003. Aircraft in the
Domestic Oil and Gas segment decreased by 13, and aircraft in the Air Medical segment increased by
nine. Direct operating expense was $245.4 million in 2004 compared to $230.2 million for 2003, an
increase of $15.2 million, or 7%. Air Medical direct expense increased $34.9 million due to the
increased operations. This amount was offset in part by a decrease in the Domestic Oil and Gas
segment of $12.2 million due to additional insurance premium cost in the prior year ($3.1 million),
termination of certain manufacturer warranty agreements ($3.2 million) and a reduction in recurring
warranty expense ($3.0 million). There was also a decrease in flight hours and fewer aircraft in
that segment. In addition, there was a decrease of $2.4 million in the International segment due
to a decrease in aircraft component repairs, and a decrease of $5.1 million in Technical Services
segment due to reduced labor and parts costs resulting from completion of its principal contract. 9




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##### Table of Contents



Selling, general and administrative expense was $21.0 million for 2004 compared to $20.0 million
for 2003, an increase of $1.0 million, all of which was due to the expansion in the Air Medical
segment. As discussed in the September 30, 2004, Form 10Q, the expansion of the Air Medical segment
continued into late 2004, and we also plan to continue the expansion in 2005. Operating revenues
from the new locations were $29.9 million for 2004. This is further discussed in the segment
detail, Air Medical operations. Late in 2004, we took delivery of two transport category aircraft which will be placed in service
in the Domestic Oil and Gas segment in the first quarter 2005. We will take delivery of two
additional transport category aircraft with a total cost of $32.1 million in the second quarter of
2005, also to be placed in service in the Domestic Oil and Gas segment. Based on customer
commitments in that segment, we have placed orders for another nine medium and light aircraft with
a total cost of $46 million. Additionally, we expect to continue the expansion of the Air Medical
segment in 2005 and have placed orders for eight aircraft for that segment at a cost of $29
million. These plans are further discussed in the Liquidity and Capital Resources of Managements
Discussion and Analysis. Results of Operations The following table presents segment operating revenues, expense and operating profit before
tax, along with certain non-financial operational statistics, for the years ended December 31,
2004, 2003 and 2002: Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Segment operating revenuesDomestic Oil and Gas
    
    $
    180,102
    
    
    $
    183,849
    
    
    $
    189,480Air Medical
    
    
    77,476
    
    
    
    46,674
    
    
    
    48,664International
    
    
    24,342
    
    
    
    21,247
    
    
    
    22,474Technical Services
    
    
    9,388
    
    
    
    17,622
    
    
    
    23,133Total operating revenues
    
    
    291,308
    
    
    
    269,392
    
    
    
    283,751
    
    
    
    
    
    
    
    Segment direct expenseDomestic Oil and Gas
    
    
    151,107
    
    
    
    163,328
    
    
    
    161,711Air Medical
    
    
    67,664
    
    
    
    32,782
    
    
    
    34,223International
    
    
    18,668
    
    
    
    21,093
    
    
    
    20,568Technical Services
    
    
    7,935
    
    
    
    13,026
    
    
    
    18,687Total direct expense
    
    
    245,374
    
    
    
    230,229
    
    
    
    235,189Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    1,499
    
    
    
    1,494
    
    
    
    795Air Medical
    
    
    6,525
    
    
    
    4,480
    
    
    
    1,978International
    
    
    49
    
    
    
    214
    
    
    
    146Technical Services
    
    
    12
    
    
    
    12
    
    
    
    149Total selling, general and administrative expense
    
    
    8,085
    
    
    
    6,200
    
    
    
    3,068Total direct and selling, general and administrative
expense
    
    
    253,459
    
    
    
    236,429
    
    
    
    238,257Net segment profitDomestic Oil and Gas
    
    
    27,496
    
    
    
    19,027
    
    
    
    26,974Air Medical
    
    
    3,287
    
    
    
    9,412
    
    
    
    12,463International
    
    
    5,625
    
    
    
    (60
    )
    
    
    1,760Technical Services
    
    
    1,441
    
    
    
    4,584
    
    
    
    4,297Total
    
    
    37,849
    
    
    
    32,963
    
    
    
    45,494Other, net (1)
    
    
    2,961
    
    
    
    2,674
    
    
    
    2,261Unallocated selling, general and administrative costs
    
    
    (12,949
    )
    
    
    (13,783
    )
    
    
    (15,121
    )Interest expense
    
    
    (20,109
    )
    
    
    (19,952
    )
    
    
    (17,250
    )Earnings before income taxes
    
    $
    7,752
    
    
    $
    1,902
    
    
    $
    15,384
 10




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##### Table of Contents



Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Flight hoursDomestic Oil and Gas
    
    
    100,814
    
    
    
    114,769
    
    
    
    136,237Air Medical
    
    
    19,595
    
    
    
    11,542
    
    
    
    15,780International
    
    
    15,871
    
    
    
    14,816
    
    
    
    18,292Other
    
    
    
    
    
    
    
    
    
    
    153Total
    
    
    136,280
    
    
    
    141,127
    
    
    
    170,462Aircraft operated at period endDomestic Oil and Gas
    
    
    151
    
    
    
    164
    
    
    
    190Air Medical
    
    
    51
    
    
    
    42
    
    
    
    26International
    
    
    19
    
    
    
    19
    
    
    
    20Total (2)
    
    
    221
    
    
    
    225
    
    
    
    236
   (1)
    
    Including gains on disposition of property and equipment, and other income.(2)
    
    Includes 14, 14, and 13 aircraft as of December 31, 2004, 2003 and 2002, respectively
that are customer owned or leased by customers. Year Ended December 31, 2004 compared with Year Ended December 31, 2003 Combined Operations Revenues  Operating revenues for 2004 were $291.3 million compared to $269.4 million
for 2003, an increase of $21.9 million. Operating revenues in the Air Medical segment increased
$30.8 million, due to the additional operating locations, and there was also an increase of $3.1
million in operating revenues in the International segment. These amounts were offset in part by a
decrease in the Technical Services segment and in the Domestic Oil and Gas segment. These items
are discussed below in the Segment Discussion. Other Income and Losses  Gain (loss) on equipment dispositions was $2.6 million for 2004
compared to $2.0 million for 2003. Gain (loss) on equipment dispositions is related to
dispositions of aircraft. Direct Expenses  Direct expense was $245.4 million for 2004 compared to $230.2 for 2003,
an increase of $15.2 million. The increase was due to the increased Air Medical operations ($34.9
million), offset by decreases in all other business segments particularly Domestic Oil and Gas
($12.2 million). These items are further discussed in the Segment Discussion. Selling, General, and Administrative Expenses  Selling, general and administrative expense
was $21.0 million for 2004 compared to $20.0 million for
2003, an increase of $1.0 million. The
increase is due to an increase in the Air Medical segment ($2.0 million) due to the expansion
mentioned above. This amount was offset in part by a decrease in corporate administration costs of
$0.8 million due primarily to decreases in consulting expense. Income Taxes  Income tax expense for 2004 was $3.8 million, compared to $0.8 million for
2003. The effective tax-rate was 49% for 2004 compared to 40% for 2003. Included in the 2004
provision was $0.7 million related to foreign taxes paid for which we cannot take a credit for U.S.
tax purposes due to the availability of net operating losses for tax purposes. Such operating loss
carryforwards arose from accelerated tax depreciation expense deductions as a result of the
aircraft purchased in 2002 and 2003. Earnings  Our net earnings for 2004 were $4.0 million, compared to $1.1 million for 2003.
Earnings before tax for 2004 were $7.8 million compared to $1.9 million in 2003. Earnings per
diluted share were $0.72 for 2004 as compared to $0.21 per diluted share for 2003. Segment Discussion Domestic Oil and Gas Domestic Oil and Gas segment revenues were $180.1 million for 2004
compared to $183.8 million for 2003, a decrease of $3.7 million or 2%. The decrease was due to a
decrease in flight hours in the Gulf of Mexico. Flight hours were 100,814 for 2004 compared to
114,769 for 2003, a decrease of 13,955 hours which resulted from a decrease in activities in the
Gulf of Mexico by our customers. The number of aircraft in the segment at December 31, 2004 was
151 compared to 164 aircraft at December 31, 2003. In late 2004, we took delivery of two heavy
transport category aircraft that we expect to place in service in the first quarter of 2005. We
have two additional heavy transport aircraft 11




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##### Table of Contents



scheduled for delivery in the second quarter of 2005 and nine other aircraft on order and scheduled
for delivery throughout 2005 to meet customer requirements. Direct expenses in the Domestic Oil and Gas segment were $151.1 million for the year ended December
31, 2004 compared to $163.3 million for the year ended December 31, 2003, a decrease of $12.2
million. Employee compensation decreased $1.5 million due primarily to pilots and mechanics being
transferred to the Air Medical segment and also due to severance pay recorded in the prior year
($0.7 million). Manufacturer warranty expense decreased $6.2 million due to a nonrecurring credit
related to the termination of certain manufacturer warranty agreements ($3.2 million), and a
reduction in recurring warranty expense ($3.0 million) as a result of the termination. The
termination of these agreements is expected to have a slightly favorable impact to direct expense
in future periods. There was also a net decrease due to additional insurance premium costs
incurred in 2003 ($3.1 million). Aircraft parts usage decreased $2.8 million due to the decrease
in flight hour activity. There was an increase in fuel cost ($1.6 million) and a decrease in other
items, net, of $0.2 million. The Domestic Oil and Gas segment operating income was $27.5 million for 2004 compared to $19.0
million for 2003. The increase was due to the decrease in direct expense as discussed above. Air Medical Air Medical segment revenues were $77.5 million for 2004 compared to $46.7 million
for 2003. The increase was due to the additional operations established in 2004. Flight hours
were 19,595 for 2004 compared to 11,542 for 2003. The number of aircraft in the segment was 51 at
December 31, 2004, compared to 42 at December 31, 2003. In addition, we ordered eight additional
aircraft to be delivered throughout 2005, as we continue to expand the Air Medical segment. As mentioned, the expansion in the Air Medical segment continued late into 2004, and we also plan
to continue that expansion into 2005. To date, 24 new Air Medical operating locations have been
established since December 2003. Operating revenues in 2004 from the new locations were $29.9
million. The additional Air Medical operations are established under the independent provider model whereby
we respond to individual patient demands for air transport services and are paid by either a
commercial insurance company, federal or state agency, or the patient. Direct expenses in the Air Medical segment more than doubled to $67.7 million for December 31, 2004
compared to $32.8 million for December 31, 2003, due to the increased operations mentioned above.
Employee cost increased ($21.4 million) due to increased personnel, aircraft depreciation increased
($3.4 million) due to an increase in the number of aircraft, aircraft parts usage increased ($0.6
million) and manufacturer warranty expense increased due to additional aircraft ($0.6 million),
operating base expense increased ($3.4 million) due to additional bases established, fuel cost
increased ($1.4 million) due to increased flight hours, insurance cost increased ($0.9 million),
costs related to billing and collection services increased ($2.2 million), and other items, net,
increased ($1.0 million). Selling, general and administrative expense increased to $6.5 million for 2004 compared to $4.5
million for 2003, because of the increased operations as additional supervisory and management
personnel were added. The Air Medical segment operating income was $3.3 million for December 31, 2004 compared to $9.4
million for December 31, 2003. The decrease was due to increased direct expense and increased
selling, general and administrative expense related to the expansion of operations. There was a
loss of $2.7 million related to the additional operations that commenced in 2004. We expect that
these additional operations will be profitable in 2005. The decrease in operating income was also
due to the increased selling, general, and administrative expense. International International segment revenues were $24.3 million for 2004, compared to $21.2
million for 2003, an increase of $3.1 million. The increase was due to increased flight hours and
rates in 2004. Flight hours increased to 15,871 for 2004 as compared to 14,816 for 2003, but the
number of aircraft in the segment was unchanged at 19 for both periods. Direct expenses were $18.7 million for the year ended December 31, 2004 compared to $21.1 million
for the year ended December 31, 2003, a decrease of $2.4 million. There was a decrease in aircraft
component repairs ($1.8 million), and a decrease in employee compensation ($0.6 million). Selling, general and administrative expense was less than $0.1 million for 2004 compared to $0.2
million for 2003. 12




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##### Table of Contents



International segment operating income for 2004 was $5.6 million compared to a loss of less than
$0.1 million for 2003. The improvement was due to the increase in operating revenue and the
decrease in direct expense, as discussed above. Technical Services Technical Services segment revenues for 2004 were $9.4 million compared to
$17.6 million for 2003. The decrease in Technical Services revenues was due to completion of its
principal contract in the third quarter 2004. Direct expenses declined to $7.9 million for December 31, 2004 compared to $13.0 million for
December 31, 2003 due to completion of the contract. The Technical Services segment had operating income of $1.4 million for December 31, 2004, compared
to $4.6 million for December 31 2003. The decrease was due to completion of the contract mentioned
above. Year Ended December 31, 2003 compared with Year Ended December 31, 2002 Combined Operations Revenues  Operating revenues for 2003 were $269.4 million compared to $283.8 million
for 2002, a decrease of $14.4 million. The decrease was due to a decrease in Technical Services
segment revenue ($5.5 million) due to completion of a contract in 2002 for the upgrade and
refurbishment of two aircraft, and also due to a decrease in revenue in the Domestic Oil and Gas
segment ($5.6 million) resulting from a decrease in flight hours to 114,769 in 2003 compared to
136,237 in 2002. The effect in 2003 of customer rate increases implemented in 2002 offset in part
the decrease in flight hours in the Domestic Oil and Gas segment. The decrease in flight hours was
due to decreases in activity in the Gulf of Mexico by our customers. There was also a net decrease
in Air Medical operating revenues ($2.0 million) resulting from the termination of certain
traditional Air Medical contracts that were hospital-based, offset in part by an increase in the
average rate for patient transports under independent provider model. (Under independent provider
model, we respond to individual patient demands for air transport services and are paid by either a
commercial insurance company, a federal or state agency, or the patient.) There was also a
decrease in the International segment operating revenues ($1.2 million) due to a decrease in flight
hour activity. Flight hours were 141,127 for 2003 compared to 170,462 for 2002, a decrease of 29,335 hours. The
number of aircraft at December 31, 2003 was 225 compared to 236 at December 31, 2002. Other Income and Losses  Gain (loss) on equipment dispositions was $2.0 million for 2003
compared to $0.6 million for 2002, an increase of $1.4 million. This increase was due to the sale
or disposal of aircraft. Other income was $0.7 million for 2003 compared to $1.7 million for 2002. Included in 2002 was a
gain ($0.7 million) related to the favorable settlement in 2002 of a note receivable from a
previous joint venture sold in 2001. Direct Expenses  Direct expense was $230.2 million for 2003 compared to $235.2 million for
2002, a decrease of $5.0 million. The decrease was due to a decrease in aircraft parts usage and
in component repairs ($6.5 million), due primarily to decreased flight activity, a decrease in
helicopter rent ($5.3 million) due to the purchase of leased aircraft in 2002, and a decrease in
Technical Services segment costs ($5.7 million) due to completion in 2002 of a contract for the
upgrade and refurbishment of two aircraft. These decreases were offset in part by a net increase
in employee compensation due to increases in compensation rates ($3.7 million), net severance
charges recorded in 2003 compared to 2002 ($0.7 million), an increase in depreciation expense due
to the purchase of previously leased aircraft in 2002 ($3.6 million), an increase in insurance
expense ($3.1 million) due to higher premiums related to loss experience, and an increase in costs
at operational field bases which includes various supplies, base repairs, and other operating
costs, ($1.0 million). Included in the direct expense cost categories above, is $1.7 million in total related to
implementation of additional Air Medical operations. Selling, General, and Administrative Expenses  Selling, general and administrative expense
was $20.0 million for 2003 compared to $18.2 for 2002. The increase was due to an increase in the
Air Medical segment ($2.5 million) as we expanded operations, which necessitated additional
management and supervisory personnel and other related expenditures. Interest Expense  Interest expense increased to $20.0 million for 2003 compared to $17.3
million for 2002 due to interest on our Series B Senior Notes, which were issued in April 2002. 13




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##### Table of Contents



Income Taxes  Income tax expense for 2003 was $0.8 million, compared to $6.2 million for
2002. The effective tax-rate was 40% for both years. Earnings  Our net earnings for 2003 were $1.1 million, compared to $9.2 million for 2002.
Earnings before tax for 2003 were $1.9 million compared to $15.4 million in 2002. Earnings per
diluted share were $0.21 as compared to $1.70 per diluted share for 2002. The decline in domestic
flight hours, the additional costs associated with the Air Medical expansion, and the increase in
interest expense were the principal reasons for the earnings decline. Segment Discussion Effective July 1, 2002, we no longer allocate interest expense to our segments when evaluating
operating performance. All results prior to July 1, 2002 have been restated to remove interest
expense from the segment operating results. Domestic Oil and Gas Domestic Oil and Gas segment revenues were $183.8 million for 2003, compared
to $189.5 million for 2002, a decrease of $5.7 million. This decrease was due to a decrease in
flight hours to 114,769 in 2003 from 136,237 in 2002. The financial effect of the reduction in
flight hours was partially offset by the effects in 2003 of customer rate increases implemented in
2002. The decrease in flight hours was due to decreases in activity in the Gulf of Mexico by our
customers. The number of aircraft in the segment at December 31, 2003 was 164 compared to 190 at
December 31, 2002. Direct expenses in the segment were $163.3 million for the year ended December 31, 2003 compared to
$161.7 million for the year ended December 31, 2002. Employee compensation cost increased $3.7
million due primarily to increases in compensation rates for pilots and mechanics and to the
reassignment of pilots and mechanics from the Air Medical segment to the Domestic Oil and Gas
segment resulting from the termination of certain Air Medical contracts following proposed rate
increases by us. In the fourth quarter 2003, some pilots and mechanics were transferred back to
the Air Medical segment with the addition of other Air Medical operations. There was also a net
increase in severance costs in 2003 compared to 2002 ($0.7 million). In addition, depreciation
expense increased ($5.6 million) due to the purchase of leased aircraft in 2002, and insurance cost
increased ($3.4 million) due to additional premiums related to loss experience. These amounts were
partially offset by a decrease in aircraft parts usage and component repairs ($7.0 million), and a
decrease in helicopter rent due to the purchase of previously leased aircraft ($4.7 million).
Additionally, there was a decrease due to other items, net ($0.2 million). Selling, general and administrative expense was $1.5 million for 2003 compared to $0.8 million for
2002. The increase was due to an increase in operational field base supplies and repairs at field
bases. The Domestic Oil and Gas segment operating income decreased ($7.9 million) due primarily to the
decrease in flight hour activity, and the increase in costs. Air Medical Air Medical segment revenues were $46.7 million for 2003 compared to $48.7 million
for 2002. The decrease was due to the termination of certain hospital-based contracts as a result
of proposed increases in rates. This decrease was offset in part by an increase in rates on
remaining Air Medical operations. The number of aircraft in the segment was 42 at December 31,
2003, compared to 26 at December 31, 2002. Of the 42 aircraft at December 31, 2003, 13 were added
late 2003. Direct expenses were $32.8 million for December 31, 2003 compared to $34.2 million for December 31,
2002. Direct expense decreased due to the termination of certain hospital-based contracts, which
resulted in decreases in aircraft parts usage ($0.9 million), aircraft rent ($0.6 million), and
depreciation ($0.2 million). In addition, there was an increase in other items, net ($0.3
million). Selling, general and administrative expense was $4.5 million for 2003 compared to $2.0 million for
2002. The increase of $2.5 million was due to increased operations related to implementation of
additional community-based operations under which the patient or the patients insurance carrier is
invoiced for services. This increase was specifically in employee compensation cost due to
increased management and supervisory personnel which are charged to selling, general and
administrative expense. There were also increased costs related to additional office locations. The Air Medical segment operating income was $9.4 million for December 31, 2003 compared to $12.5
million for December 31, 2002. The decrease was due primarily to increased direct expense and
increased selling, general and administrative expense related to implementation of additional Air
Medical operations. 14




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##### Table of Contents



International International segment revenues were $21.2 million for 2003, compared to $22.5
million for 2002. The decrease was due to the decrease in flight hours. Flight hours were 14,816
for 2003 as compared to 18,292 for 2002. The number of aircraft in the segment was 19 at December
31, 2003 and 20 at December 31, 2002. Direct expenses were $21.1 million for the year ended December 31, 2003 compared to $20.6 million
for the year ended December 31, 2002. There was an increase in component repairs during 2003 ($1.4
million), offset in part by a decrease in depreciation expense ($0.9 million) due to fewer aircraft
in the segment in 2003. Selling, general and administrative expense was $0.2 million for 2003 compared to $0.1 million for
2002. The increase was less than $0.1 million and was due primarily to increased travel. International segment operating loss for 2003 was less than $0.1 million compared to operating
income of $1.8 million in 2002. The decrease in flight activity and increase in cost accounted for
the change. Technical Services Technical Services segment revenues for 2003 were $17.6 million compared to
$23.1 million for 2002. The decrease was related to revenue from a contract for the refurbishment
and upgrade of two aircraft completed in the first half of 2002. Direct expenses were $13.0 million for December 31, 2003 compared to $18.7 million for December 31,
2002. The decrease ($5.7 million) was due to the contract termination previously mentioned. Selling, general and administrative expense was less than $0.1 million for December 31, 2003,
compared to $0.1 million for December 31, 2002. The Technical Services segment had operating income of $4.6 million for December 31, 2003, compared
to $4.3 million for December 31 2002. The increase was due to an increase in rates on a continuing
contract. Liquidity and Capital Resources Our cash position at December 31, 2004 was $18.0 million, compared to $19.9 million at
December 31, 2003. Working capital was $88.7 million at December 31, 2004, as compared to $70.3
million at December 31, 2003, an increase of $18.4 million. The increase in accounts receivable
related to the increased Air Medical operations account for this increase. Net cash provided by operating activities was $10.9 million for 2004 compared to $29.4 million for
2003. The decrease in net cash provided by operating activities was due to the increase in
accounts receivable related to the increased operations in the Air Medical segment. Capital
expenditures were $33.9 million for 2004 compared to $36.9 million for 2003. Gross proceeds from
aircraft sales were $14.4 million for 2004 compared to $7.6 million for 2003. On April 23, 2002, we issued $200 million in principal amount of 9 3/8% Series A Senior Unsecured
Notes due 2009 in a private offering that was exempt from registration under Rule 144A under the
Securities Act of 1933 (the Securities Act). All of the notes were subsequently exchanged for
our 9 3/8% Series B Senior Notes due 2009 (the Series B Senior Notes), pursuant to an exchange
offer that was registered under the Securities Act. The Series B Senior Notes bear annual interest
at 9 3/8% payable semi-annually on May 1 and November 1 of each year and mature in May 2009. The
Series B Senior Notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of proceeds of asset sales, and
mergers and consolidations or sales of assets. As of December 31, 2004, we were in compliance with
these covenants. On June 18, 2004, we amended our $50 million revolving credit facility with a commercial bank,
which was scheduled to expire July 31, 2004. The amendment reduced the revolving credit facility
from $50 million to $35 million, and extends the expiration date to July 31, 2006. The credit
agreement includes covenants related to working capital, funded debt to net worth, and consolidated
net worth. As of December 31, 2004, we were in compliance with these covenants. We believe that cash flow from operations will be sufficient to fund operating requirements and
required interest payments on the Notes for the next twelve months. We expect to finance the
acquisition of new aircraft, discussed below, with operating leases, the issuance of debt or equity
securities or some combination thereof. 15




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The table below sets out our contractual obligations related to operating lease obligations, notes
payable and the Senior Notes issued in 2002. The operating leases are not recorded as liabilities
on the balance sheet, but payments are treated as an expense as incurred. Each contractual
obligation included in the table contains various terms, conditions, and covenants which, if
violated, accelerate the payment of that obligation. We currently lease four aircraft included in
the lease obligations below. Payment Due by YearBeyondTotal
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009(Thousands of dollars)Purchase
commitments
(1)
    
    $
    107,100
    
    
    $
    107,100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft lease
obligations
    
    
    31,051
    
    
    
    3,003
    
    
    
    3,003
    
    
    
    3,004
    
    
    
    3,004
    
    
    
    3,004
    
    
    
    16,033Facility lease
obligations
    
    
    18,826
    
    
    
    2,547
    
    
    
    2,188
    
    
    
    1,681
    
    
    
    1,410
    
    
    
    1,027
    
    
    
    9,973Notes payable
    
    
    2,000
    
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long term debt
    
    
    208,275
    
    
    
    
    
    
    
    8,275
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    $
    367,252
    
    
    $
    114,650
    
    
    $
    13,466
    
    
    $
    4,685
    
    
    $
    4,414
    
    
    $
    204,031
    
    
    $
    26,006
   (1)
    
    These commitments are for aircraft for which we intend to execute an operating lease or
obtain other external financing. These commitments are discussed below. Estimated interest costs on
the debt obligations set forth above, without considering any
additional debt that may be obtained relative to purchase commitments
for aircraft, are as follows (in thousands): 2005  $20,099, 2006 
$19,869, 2007  $19,869, 2008  $19,869, and 2009  $6,549. In 2004, we took delivery of two transport category aircraft and entered into a 10-year
operating lease with annual payments of approximately $1.4 million annually for each aircraft. We
also exercised our option to acquire two additional transport category aircraft due to customer
commitments. These aircraft are scheduled for delivery in the second quarter of 2005. The cost of
these additional two aircraft is $32.1 million. In addition, we have an option to acquire two
additional transport category aircraft from the same manufacturer, which would be exercised based
on customer requirements. Based on customer commitments in the Domestic Oil and Gas segment, we placed orders for nine
additional aircraft. The cost of these aircraft is $46.0 million with deliveries scheduled in 2005
and the first quarter 2006. Additionally, we will continue the expansion of the Air Medical operations in 2005, and have placed
orders for an additional eight aircraft. The cost of these aircraft is $29.0 million and
deliveries are scheduled throughout 2005. Critical Accounting Policies and Estimates Our discussion and analysis of the financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these
consolidated financial statements require us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including
those related to allowances for doubtful accounts, inventory valuation, long-lived assets and
self-insurance liabilities. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe the following critical accounting policies affect
its more significant judgments and estimates used in preparation of its consolidated financial
statements. The allowance for doubtful accounts receivable is estimated based on an evaluation of individual
customer financial strength, current market conditions, and other information. If our evaluation
of our significant customers and debtors 16




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##### Table of Contents



creditworthiness should change or prove incorrect, then we may have to recognize additional
allowances in the period that it identifies the risk of loss. We maintain inventory to service our own aircraft and the aircraft and components of customers.
Portions of that inventory are used parts that are often exchanged with parts removed from aircraft
or components and reworked to a useable condition. We use systematic procedures to estimate the
valuation of the used parts, which includes consideration of their condition and continuing
utility. If our valuation of these parts should be significantly different from amounts ultimately
realizable or if we discontinue using or servicing certain aircraft models, then we may have to
record a write-down of our inventory. We also record provisions against inventory for obsolescent
and slow-moving parts, relying principally on specific identification of such inventory. If we
fail to identify such parts, additional provisions may be necessary. Our principal long-lived assets are aircraft. We review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. We measure recoverability of assets to be held and used by comparing the carrying
amount of an asset to future undiscounted net cash flows that it expects the asset to generate.
When an asset is determined to be impaired, we recognize the impairment amount, which is measured
by the amount that the carrying value of the asset exceeds fair value. Similarly, we report assets
that we expect to sell at the lower of the carrying amount or fair value less costs to sell.
Future adverse market conditions or poor operating results could result in the inability to recover
the current carrying value of the long-lived asset, thereby possibly requiring an impairment charge
in the future. We must make estimates for certain of our liabilities and expenses, losses, and gains related to
self-insured programs, insurance deductibles, and good-experience premium returns. Our group
medical insurance program is largely self-insured, and we use estimates to record its periodic
expenses related to that program. We also carry deductibles on our workers compensation program
and aircraft hull and liability insurance and poor experience or higher accidents rates could
result in additional recorded losses. New Accounting Pronouncements For a discussion of new accounting pronouncements applicable to the Company, see Note 1 to the
Financial Statements. Environmental Matters We have an aggregate estimated liability of $0.3 million as of December 31, 2004 for
environmental remediation costs that are probable and estimable. We have conducted environmental
surveys of the former Lafayette facility, which we vacated in 2001, and have determined that
limited soil and ground water contamination exists at the facility. Groundwater monitoring wells
have been installed. Periodic monitoring and reporting are being conducted. In May, 2003 PHI
submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP) standard Site Assessment
Report to the Louisiana Department of Environmental Quality (LDEQ) fully defining the extent and
type of contamination. Once LDEQ completes its review of the site assessment and reports on
whether all contamination has been fully defined, a risk evaluation in accordance with RECAP will
be submitted and evaluated by LDEQ. At that point, LDEQ will establish what cleanup standards must
be met at the site. When the process is complete, we will be in a position to develop the
appropriate remediation plan and the resulting cost of remediation. However, we have not recorded
any estimated liability for remediation of contamination and, based on the May, 2003 Site
Assessment Report and ongoing monitoring, we believe the ultimate remediation costs for the
Lafayette facility will not be material to our consolidated financial position, results of
operation or liquidity. During 2004, LDEQ advised us that groundwater contaminants impacting monitor wells at our Lafayette
Heliport were originating from an off-site location and that PHI would not be required to perform
further monitoring at the site. Also during 2004, the Texas Commission on Environmental Quality
(TCEQ) agreed that remediation of the Rockport, Texas facility was at a point at which site closure has
been granted and no further action would be required. Final documents granting closure will be
issued by TCEQ during the first quarter of 2005. These two developments resulted in a reduction of
the environmental reserves of $0.2 million during 2004. 17




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ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK We are exposed to market risks associated with interest rates and prior to April 23, 2002,
made limited use of derivative financial instruments to manage that risk. When used, all
derivatives for risk management are closely monitored by our senior management. We do not hold
derivatives for trading purposes and we do not use derivatives with leveraged or complex features.
Derivative instruments are transacted either with creditworthy major financial institutions or over
national exchanges. On April 23, 2002, we paid our Terminated Loan Agreement. The Terminated Loan Agreement had
variable interest rates. In conjunction with the payment of the Terminated Loan Agreement, we
settled our interest rate Swap agreements by paying $1.6 million to the counterparties. Also on April 23, 2002, we issued Notes of $200 million that have an interest rate of 9 3/8%
payable semi-annually on May 1 and November 1 of each year, beginning November 1, 2002, and mature
in May 2009. The market value of the Notes will vary as changes occur to general market interest
rates, the remaining maturity of the Notes, and our credit worthiness. At December 31, 2004, the
market value of the Notes was $216 million. A hypothetical 100 basis-point increase to the Notes
imputed interest rate at December 31, 2003 would have resulted in a market value decline to
approximately $212.4 million. 18




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Petroleum Helicopters, Inc. We have audited the accompanying consolidated balance sheets of Petroleum Helicopters, Inc. and
subsidiaries (the Company) as of December 31, 2004 and 2003, and related consolidated statements
of operations, shareholders equity, and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the financial statement schedule for each of the three
years in the period ended December 31, 2004, listed in the Index at Item 15. These financial
statements and financial statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Petroleum Helicopters, Inc. and subsidiaries as of December 31, 2004 and
2003, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related financial schedule for each of the
three years in the period ended December 31, 2004, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of
the Companys internal control over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting. DELOITTE & TOUCHE LLP New Orleans, Louisiana
March 10, 2005 19




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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 (Thousands of dollars)
 December 31,
    
    
    December 31,2004
    
    
    2003ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    18,008
    
    
    $
    19,872Accounts receivable  net of allowance:Trade
    
    
    58,242
    
    
    
    41,743Other
    
    
    1,134
    
    
    
    1,315Inventory
    
    
    39,225
    
    
    
    40,405Other current assets
    
    
    10,695
    
    
    
    6,575Refundable income taxes
    
    
    1,101
    
    
    
    225Total current assets
    
    
    128,405
    
    
    
    110,135Other
    
    
    12,527
    
    
    
    8,793Property and equipment, net
    
    
    253,241
    
    
    
    258,526Total Assets
    
    $
    394,173
    
    
    $
    377,454LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    22,735
    
    
    $
    18,837Accrued liabilities
    
    
    6,472
    
    
    
    9,553Accrued interest
    
    
    3,181
    
    
    
    3,174Accrued insurance
    
    
    1,526
    
    
    
    2,871Accrued vacation payable
    
    
    3,775
    
    
    
    3,400Notes payable
    
    
    2,000
    
    
    
    2,000Total current liabilities
    
    
    39,689
    
    
    
    39,835Long-term debt
    
    
    208,275
    
    
    
    200,000Deferred income taxes
    
    
    29,805
    
    
    
    25,597Other long-term liabilities
    
    
    6,429
    
    
    
    6,029Commitments and contingencies (Note 8)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
    
    
    253
    
    
    
    253Additional paid-in capital
    
    
    15,098
    
    
    
    15,088Retained earnings
    
    
    94,339
    
    
    
    90,367Total shareholders equity
    
    
    109,975
    
    
    
    105,993Total Liabilities and Shareholders Equity
    
    $
    394,173
    
    
    $
    377,454
 The accompanying notes are an integral part of these consolidated financial statements. 20




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##### Table of Contents



PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Thousands of dollars and shares, except per share data)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Operating revenues
    
    $
    291,308
    
    
    $
    269,392
    
    
    $
    283,751Gain on disposition of property
and equipment, net
    
    
    2,569
    
    
    
    1,988
    
    
    
    586Other
    
    
    392
    
    
    
    686
    
    
    
    1,675294,269
    
    
    
    272,066
    
    
    
    286,012Expenses:Direct expenses
    
    
    245,374
    
    
    
    230,229
    
    
    
    235,189Selling, general and
administrative expenses
    
    
    21,034
    
    
    
    19,983
    
    
    
    18,189Interest expense
    
    
    20,109
    
    
    
    19,952
    
    
    
    17,250286,517
    
    
    
    270,164
    
    
    
    270,628Earnings before income taxes
    
    
    7,752
    
    
    
    1,902
    
    
    
    15,384Income taxes
    
    
    3,780
    
    
    
    763
    
    
    
    6,153Net earnings
    
    $
    3,972
    
    
    $
    1,139
    
    
    $
    9,231Earnings per shareBasic
    
    $
    0.74
    
    
    $
    0.21
    
    
    $
    1.73Diluted
    
    $
    0.72
    
    
    $
    0.21
    
    
    $
    1.70Weighted average shares outstanding:Basic
    
    
    5,383
    
    
    
    5,383
    
    
    
    5,334Diluted
    
    
    5,486
    
    
    
    5,486
    
    
    
    5,438
 The accompanying notes are an integral part of these consolidated financials statements. 21




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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 (Thousands of dollars and shares)
 AccumulatedOther Com-Voting
    
    
    Non-Voting
    
    
    Additional
    
    
    prehensiveCommon Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    Income
    
    
    RetainedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    (Loss)
    
    
    EarningsBalance at Dec. 31, 2001
    
    
    2,852
    
    
    $
    285
    
    
    
    2,413
    
    
    $
    241
    
    
    $
    13,327
    
    
    $
    (2,030
    )
    
    $
    80,049Stock options exercised
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    12
    
    
    
    1,735
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Unrecognized gain on
interest swaps
    

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    455
    
    
    
    Reclassification
adjustments for losses
included in net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,575
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,231Balance at Dec. 31, 2002
    
    
    2,852
    
    
    $
    285
    
    
    
    2,526
    
    
    $
    253
    
    
    $
    15,062
    
    
    $
    
    
    
    $
    89,254Stock options exercised
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,139Balance at Dec. 31, 2003
    
    
    2,852
    
    
    $
    285
    
    
    
    2,531
    
    
    $
    253
    
    
    $
    15,088
    
    
    $
    
    
    
    $
    90,367Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,972Balance at Dec. 31, 2004
    
    
    2,852
    
    
    $
    285
    
    
    
    2,531
    
    
    $
    253
    
    
    $
    15,098
    
    
    $
    
    
    
    $
    94,339
 PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 (Thousands of dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Net earnings
    
    $
    3,972
    
    
    $
    1,139
    
    
    $
    9,231Unrecognized gain (loss) on
interest rate swaps
    
    
    
    
    
    
    
    
    
    
    455Add reclassification adjustments for
previously unrecognized loss on
interest rate swap  included in
2002 earnings
    
    
    
    
    
    
    
    
    
    
    1,575Comprehensive income
    
    $
    3,972
    
    
    $
    1,139
    
    
    $
    11,261
 The accompanying notes are an integral part of these consolidated financial statements. 22




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PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Thousands of dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net earnings
    
    $
    3,972
    
    
    $
    1,139
    
    
    $
    9,231Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    27,843
    
    
    
    25,209
    
    
    
    21,048Deferred income taxes
    
    
    3,845
    
    
    
    (293
    )
    
    
    7,325Gain on asset dispositions
    
    
    (2,569
    )
    
    
    (1,988
    )
    
    
    (586
    )Bad debt allowance related to notes
receivable
    
    
    
    
    
    
    
    
    
    
    (731
    )Other
    
    
    1,332
    
    
    
    (323
    )
    
    
    1,100Changes in operating assets and liabilities:Accounts receivable
    
    
    (16,499
    )
    
    
    (2,245
    )
    
    
    6,928Inventory
    
    
    1,180
    
    
    
    (3,030
    )
    
    
    (2,993
    )Refundable income taxes
    
    
    (876
    )
    
    
    2,011
    
    
    
    (2,236
    )Other assets
    
    
    (7,241
    )
    
    
    3,021
    
    
    
    3,228Accounts payable, accrued liabilities and
vacation payable
    
    
    (146
    )
    
    
    7,239
    
    
    
    (4,671
    )Income taxes payable
    
    
    
    
    
    
    (504
    )
    
    
    (1,924
    )Other long-term liabilities
    
    
    64
    
    
    
    (821
    )
    
    
    3,810Net cash provided by operating activities
    
    
    10,905
    
    
    
    29,415
    
    
    
    39,529Cash flows from investing activities:Proceeds from notes receivable
    
    
    
    
    
    
    
    
    
    
    1,629Purchase of property and equipment
    
    
    (33,921
    )
    
    
    (36,863
    )
    
    
    (41,351
    )Acquisition of additional operating locations
    
    
    (1,518
    )
    
    
    
    
    
    
    Purchases of aircraft previously leased
    
    
    
    
    
    
    
    
    
    
    (118,076
    )Proceeds from asset dispositions
    
    
    14,395
    
    
    
    7,620

    
    
    
    3,263Net cash used in investing activities
    
    
    (21,044
    )
    
    
    (29,243
    )
    
    
    (154,535
    )Cash flows from financing activities:Proceeds from Notes and long-term debt
    
    
    
    
    
    
    2,000
    
    
    
    200,000Less related fees & expenses
    
    
    
    
    
    
    
    
    
    
    (5,835
    )Payments on long-term debt and capital lease
obligations
    
    
    
    
    
    
    
    
    
    
    (5,845
    )Payments on long-term debt from Notes
proceeds
    
    
    
    
    
    
    
    
    
    
    (60,771
    )Payment of interest rate swap settlement
    
    
    
    
    
    
    
    
    
    
    (1,575
    )Proceeds from line of credit
    
    
    37,008
    
    
    
    
    
    
    
    Payments on line of credit
    
    
    (28,733
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    50
    
    
    
    1,271Other
    
    
    
    
    
    
    (24
    )
    
    
    Net cash provided by financing
activities
    
    
    8,275
    
    
    
    2,026
    
    
    
    127,245(Decrease) Increase in cash and cash equivalents
    
    
    (1,864
    )
    
    
    2,198
    
    
    
    12,239Cash and cash equivalents, beginning of year
    
    
    19,872
    
    
    
    17,674
    
    
    
    5,435Cash and cash equivalents, end of year
    
    $
    18,008
    
    
    $
    19,872
    
    
    $
    17,674
 The accompanying notes are an integral part of these condensed consolidated financials
statements. 23




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##### Table of Contents



PETROLEUM HELICOPTERS, INC. and SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of Operations, Basis of Consolidation, and Other General PrinciplesSince its inception, Petroleum Helicopters, Inc.s primary business has been to transport
personnel and, to a lesser extent, parts and equipment, to, from and among offshore
facilities for customers engaged in the oil and gas exploration, development, and production
industry. The Company also provides air medical transportation services for hospitals,
medical programs, and aircraft maintenance services to third parties.The consolidated financial statements include the accounts of Petroleum Helicopters, Inc.
and its subsidiaries (PHI or the Company) after the elimination of all significant
intercompany accounts and transactions.A principal stockholder has substantial control. Al A. Gonsoulin, Chairman of the Board and
Chief Executive Officer, beneficially owns stock representing approximately 52% of the total
voting power. As a result, he exercises control over the election of PHIs directors and
the outcome of matters requiring a stockholder vote.Revenue RecognitionThe Company recognizes revenue related to aviation transportation services after the
services are performed or the contractual obligations are met. Aircraft maintenance
services revenues are recognized at the time the repair or services work is completed.
Revenues related to emergency flights generated by the Companys Air Medical segment are
recorded net of contractual allowances under agreements with third party payors when the
services are provided.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as well as
reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.Cash EquivalentsThe Company considers cash equivalents to include demand deposits and investments with
original maturity dates of three months or less.InventoriesThe Companys inventories are stated at the lower of average cost or market and consist
primarily of spare parts. Portions of the Companys inventories are used parts that are
often exchanged with parts removed from aircraft, reworked to a useable condition according
to manufacturers and FAA specifications, and returned to inventory. The Company uses
systematic procedures to estimate the valuation of the used parts, which includes
consideration of their condition and continuing utility. Reusable aircraft parts are
included in inventory at the average cost of comparable parts. The rework costs are
expensed as incurred. The Company also records an allowance for obsolescent and slow-moving
parts, relying principally on specific identification of such inventory. Valuation reserves
related to obsolescence and slow-moving inventory were $7.0 million and $5.5 million at
December 31, 2004 and 2003, respectively. The increase in the allowance is due to decreased
flight hours and the changing composition of the Companys aircraft fleet which has resulted
in excess parts inventory for certain models.Property and EquipmentThe Company records its property and equipment at cost less accumulated depreciation. For
financial reporting purposes, the Company uses the straight-line method to compute
depreciation based upon estimated useful lives of five to fifteen years for flight equipment
and three to ten years for other equipment. The Company uses 24




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##### Table of Contents



accelerated depreciation methods for tax purposes. Upon selling or otherwise disposing of
property and equipment, the Company removes the cost and accumulated depreciation from the
accounts and reflects any resulting gain or loss in earnings at the time of sale or other
disposition.Effective January 1, 2003, the Company changed the estimated residual value of certain
aircraft (77 aircraft of the total fleet) from 30% to 40%. The Company believes the revised
amounts reflect their historical experience and more appropriately matches costs over the
estimated useful lives and salvage values of these assets. The change in residual values of
certain aircraft was based on the Companys experience in sales of such aircraft which
indicated that these aircraft were retaining on average a salvage value of at least 40% by
model type. The effect of this change for the year ended December 31, 2003 was a reduction
in depreciation expense of $0.8 million ($0.05 million after tax or $0.09 per diluted
share).The Company reviews its long-lived assets and certain identifiable intangibles for

impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The Company measures recoverability of assets to be held
and used by comparing the carrying amount of an asset to future undiscounted net cash flows
that it expects the asset to generate. When an asset is determined to be impaired, the
Company recognizes that impairment amount, which is measured by the amount that the carrying
value of the asset exceeds its fair value. Similarly, the Company reports assets that it
expects to sell at the lower of the carrying amount or fair value less costs to sell.Self-InsuranceThe Company maintains a self-insurance program for a portion of its health care costs.
Self-insurance costs are accrued based upon the aggregate of the liability for reported
claims and the estimated liability for claims incurred but not reported. As of December 31,
2004 and 2003, the Company had $1.0 million and $1.3 million, respectively, of accrued
liabilities related to health care claims.Concentration of Credit RiskFinancial instruments that potentially expose the Company to concentrations of credit risk
consist primarily of cash equivalents and trade accounts receivable. The Company places its
short-term invested cash and cash equivalents on deposit with a major financial institution.
Cash equivalents include Commercial paper of companies with high credit ratings and money
market securities. The Company does not believe significant credit risk exists with respect
to these securities at December 31, 2004.PHI conducts a majority of its business with major and independent oil and gas exploration
and production companies with operations in the Gulf of Mexico. The Company also provides
services to major medical centers and US governmental agencies. The Company continually
evaluates the financial strength of its customers but generally does not require collateral
to support the customer receivables. The Company establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific customers, current
market conditions, and other information. Collection efforts are typically exhausted at
approximately nine months, at which time unpaid amounts are charged off as uncollectible.
The allowance for doubtful accounts was $0.2 million and $0.1 million at December 31, 2004
and December 31, 2003, respectively. The Companys largest domestic oil and gas customer
accounted for 13%, 15%, and 17%, of consolidated operating revenues for years ended December
31, 2004, 2003, and 2002, respectively. The Company also carried accounts receivable from
this same customer totaling 11% and 15%, of net trade receivable on December 31, 2004 and
2003, respectively.Stock CompensationThe Company uses the intrinsic value method of accounting for employee stock-based
compensation prescribed by Accounting Principles Board (APB) Opinion No. 25 and,
accordingly, follows the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS No. 123
encourages the use of a fair value based method of accounting for compensation expense
associated with stock option and similar plans. However, SFAS No. 123 permits the continued
use of the intrinsic value based method prescribed by Opinion No. 25 but requires additional
disclosures, including pro forma calculations of net earnings and earnings per share as if
the fair value method of accounting prescribed by SFAS No. 123 had applied. 25




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Stock-based employee compensation expense relates to restricted stock grants and stock
options that were settled for cash. The employee compensation expense for stock grants and
options settled for cash was $45,000 for 2004, $300,000 for 2003, and $178,000 for 2002. Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars, except per share data)Net earnings as reported
    
    $
    3,972
    
    
    $
    1,139
    
    
    $
    9,231Add stock-based employee compensation
expense included in reported net income
net of related tax effects
    
    
    45
    
    
    
    300
    
    
    
    178Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects,
    
    
    
    
    
    
    
    
    
    
    (161
    )Net earnings  pro forma
    
    $
    4,017
    
    
    $
    1,439
    
    
    $
    9,248Earnings per shareBasic  as reported
    
    
    0.73
    
    
    
    0.21
    
    
    
    1.73Basic  pro forma
    
    
    0.75
    
    
    
    0.27
    
    
    
    1.73Diluted  as reported
    
    
    0.72
    
    
    
    0.21
    
    
    
    1.70Diluted  pro forma
    
    
    0.73
    
    
    
    0.26
    
    
    
    1.70Average fair value of grants during the year
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ABlack-Sholes option pricing model
assumptions:Risk-free interest rate
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AExpected life (years)
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AVolatility
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ADividend yield
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
  Income TaxesThe Company provides for income taxes using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. The deferred tax assets and
liabilities measurement uses enacted tax rates that are expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The Company recognizes the effect of any tax rate changes in income of the period that
included the enactment date.Earnings per ShareThe Company computes basic earnings per share by dividing income available to common
stockholders by the weighted average number of common shares outstanding during the period.
The diluted earnings per share computation uses the weighed average number of shares
outstanding adjusted for incremental shares attributed to dilutive outstanding options to
purchase common stock and non-vested restricted stock awards.Deferred financing costsCosts of obtaining long term debt financing are deferred and amortized over the term of the
related debt agreement.Derivative Financial InstrumentsPrior to April 2002, the Company used interest rate swap agreements to manage its interest
rate exposure. The Company specifically designated these agreements as hedges of debt
instruments and recognized interest 26




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##### Table of Contents



differentials as adjustments to interest expense in the period the differentials occur.
Under the interest rate swap agreements, the Company agreed with other parties to exchange,
at specific intervals, the difference between fixed-rate and variable-rate interest amounts
calculated by reference to an agreed-upon notional principal amount. On April 23, 2002, the
Company settled its outstanding interest rate swap agreement for $1.6 million.New Accounting PronouncementsIn December 2004, the Financial Accounting Standards
Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 123 (R), Share Based Payment. SFAS No. 123 (R)
supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in
SFAS No. 123 (R) is similar to the approach described in SFAS
No. 123. However, SFAS No.
123 (R) requires all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. As permitted by SFAS No. 123, the Company currently
accounts for share-based payments to employees using the intrinsic value method and, as
such, generally recognizes no compensation expense for employee stock options. Accordingly,
the adoption of SFAS No. 123 (R) will have an impact on our results of operations. The
impact of the adoption of this Statement cannot be predicted at this time because it will
depend on levels of share-based payments granted in the future. However had we adopted SFAS
No. 123 (R) in prior periods, the impact of that standard would have approximated the impact
of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per
share in Note 1 to our consolidated financial statements. SFAS No. 123 (R) must be adopted
by the third quarter of 2005. The Company plans to adopt SFAS No. 123 (R) using the
modified-prospective method.SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording of
liabilities for all legal obligations associated with the retirement of long-lived assets
that result from the normal operation of those assets. These liabilities are required to be
recorded at their fair values (which are likely to be the present values of the estimated
future cash flows) in the period in which they are incurred. SFAS No. 143 requires the
associated asset retirement costs to be capitalized as part of the carrying amount of the
long-lived asset. The asset retirement obligation will be accreted each year through a
charge to expense. The amounts added to the carrying amounts of the assets will be
depreciated over the useful lives of the assets. The Company implemented SFAS No. 143 on
January 1, 2003, and determined that this statement did not have a material impact on its
consolidated financial position or results of operations.In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 elaborates on the disclosures to be made by a guarantor about
its obligations under certain guarantees. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. As required, the Company adopted the disclosure
requirements of FIN 45 as of December 31, 2002. The Company has adopted the initial
recognition and measurement provisions on a prospective basis for guarantees issued or
modified after December 31, 2002 and it did not have a material impact on the Companys
consolidated financial position or results of operations.In January 2003, FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities (FIN 46). FIN 46 requires that companies that control another entity through
interest other than voting interest should consolidate the controlled entity. FIN 46 became
effective immediately for variable interest entities created after January 31, 2003. For
entities created before January 31, 2003, the provisions of FIN 46 were delayed until
December 31, 2003. The Company does not believe that the Company has interests that would
be considered variable interest entities under FIN 46.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. SFAS No. 150 specifies that
freestanding financial instruments within its scope constitute
obligations of the issuer and
that, therefore, the issuer must classify them as liabilities. Such freestanding financial
instruments include mandatorily redeemable financial instruments, obligations to repurchase
the issuers equity shares by transferring assets and certain obligations to issue a
variable number of shares. SFAS No. 150 was effective immediately for all financial
instruments entered into or modified after May 31, 2003. For all other instruments, SFAS
No. 150 was effective at the beginning of the third quarter of 2003. Implementation did not
have a material impact on the Companys consolidated financial position. 27




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##### Table of Contents



In December 2004 FASB issued SFAS No. 153, Exchange of Nonmonetary Assets, an amendment of
APB Opinion No. 29. SFAS No. 153 is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets exchanged. ABP Opinion No.
29, Accounting for Nonmonetary Transactions provided an exception to its basic measurement
principle (fair value) for exchanges of similar productive assets. Under APB Opinion No. 29,
an exchange of a productive asset for a similar productive asset was based on the recorded
amount of the asset relinquished. SFAS No. 153 eliminates this exception and replaces it
with an exception for exchanges of nonmonetary assets that do not have commercial substance.
SFAS No. 153 is effective of July 1, 2005. The Company will apply the requirements of SFAS
No. 153 prospectively.ReclassificationsCertain reclassifications have been made in the prior period financial statements in order
to conform to the classifications adopted for reporting in 2004.(2)
    PROPERTY AND EQUIPMENTThe following table summarizes the Companys property and equipment at December 31, 2004 and
December 31, 2003. December 31,
    
    
    December 31,2004
    
    
    2003(Thousands of dollars)Flight equipment
    
    $
    350,022
    
    
    $
    346,914Other
    
    
    61,710
    
    
    
    50,334411,732
    
    
    
    397,248Less accumulated depreciation
    
    
    (158,491
    )
    
    
    (138,722
    )Property and equipment, net
    
    $
    253,241
    
    
    $
    258,526
  Property and equipment at December 31, 2004 and 2003 included aircraft with a net book value
of $1.0 million and $7.2 million, respectively that was held for sale.(3)
    LONG-TERM DEBTOn April 23, 2002, the Company issued $200 million in principal amount of 9 3/8% Series A
Senior Unsecured Notes due 2009 in a private offering that was exempt from registration
under Rule 144A under the Securities Act of 1933 (the Securities Act). All of the notes
were subsequently exchanged for the Companys 9 3/8% Series B Senior Unsecured Notes due
2009 (the Series B Senior Notes), pursuant to an exchange offer that was registered under
the Securities Act. The Series B Senior Notes bear annual interest at 9 3/8% payable
semi-annually on May 1 and November 1 of each year and mature in May 2009. The Series B
Senior Notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of
asset sales, and mergers and consolidations or sales of assets. As of December 31, 2004,
the Company was in compliance with these covenants.Also on April 23, 2002, the Company entered into a new credit agreement with a commercial
bank for a $50 million revolving credit and letter of credit facility. On June 18, 2004,
the Company amended its credit agreement, which was scheduled to expire July 31, 2004. The
amendment reduced the revolving credit facility from $50 million to $35 million, and
extended the expiration date to July 31, 2006. The credit agreement permits both prime
rate based borrowings and LIBOR rate borrowings plus a spread. The spread for LIBOR
borrowings is from 2.0% to 3.0%. Any amounts outstanding under the revolving credit
facility are due July 31, 2006. The Company will pay an annual 0.375% commitment fee on the
unused portion of the revolving credit facility. The Company may also obtain letters of
credit issued under the credit facility up to $5.0 million with a 0.125% fee payable on the
amount of letters of credit issued. The Company is not subject to any restrictions in
obtaining funds from any of its subsidiaries. At December 31, 2004, the Company had $8.3
million borrowings under the revolving credit facility, and there were no borrowings under
the credit facility at December 31, 2003. As of December 31, 2004 and 2003, the Company had
two letters of credit for $0.8 million and $0.6 million outstanding under the revolving
credit facility. The credit agreement includes covenants related to working capital, funded
debt to net worth, and consolidated net worth. As of December 31, 2004, the Company was in
compliance with 28




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##### Table of Contents



these covenants. The credit agreement is collateralized by accounts receivable and
inventory. Also included in notes payable at December 31, 2004 and 2003 are $2.0 million
each year, representing finance agreements on purchase commitments for transport category
aircraft as further described at Note 8.Cash paid for interest, net of amounts paid or received in connection with the interest rate
Swap agreements in 2002, was $19.1 million, $19.0 million, and $11.9 million, for the years
ended December 31, 2004, 2003, and 2002, respectively.(4)
    INCOME TAXESIncome tax expense (benefit) is composed of the following: Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    (2,009
    )State
    
    
    (1,142
    )
    
    
    102
    
    
    
    (79
    )Foreign
    
    
    1,077
    
    
    
    954
    
    
    
    916Deferred  principally Federal
    
    
    3,845
    
    
    
    (293
    )
    
    
    7,325Total
    
    $
    3,780
    
    
    $
    763
    
    
    $
    6,153
  Income tax expense (benefit) as a percentage of pre-tax earnings varies from the effective
Federal statutory rate of 34% as a result of the following: Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002(Thousands of dollars, except percentage amounts)Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Income taxes at statutory rate
    
    $
    2,636
    
    
    
    34
    
    
    $
    647
    
    
    
    34
    
    
    $
    5,231
    
    
    
    34Increase (decrease) in taxes
resulting from:Effect of foreign tax expense,
net of U.S. benefits
    
    
    679
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of state income taxes
    
    
    298
    
    
    
    4
    
    
    
    195
    
    
    
    10
    
    
    
    615
    
    
    
    4Other items  net
    
    
    167
    
    
    
    2
    
    
    
    (79
    )
    
    
    (4
    )
    
    
    307
    
    
    
    2Total
    
    $
    3,780
    
    
    
    49
    
    
    $
    763
    
    
    
    40
    
    
    $
    6,153
    
    
    
    40
 29




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##### Table of Contents



The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 are presented
below (in thousands): December 31,
    
    
    December 31,2004
    
    
    2003Deferred tax assets:Deferred compensation
    
    $
    1,527
    
    
    $
    1,292Tax credits
    
    
    3,246
    
    
    
    2,169Valuation allowance  tax credit carryforwards
    
    
    (2,142
    )
    
    
    (1,092
    )Vacation accrual
    
    
    1,397
    
    
    
    1,451Inventory valuation
    
    
    3,733
    
    
    
    2,818Workmans compensation reserve
    
    
    367
    
    
    
    447Allowance for uncollectible accounts
    
    
    282
    
    
    
    781Other
    
    
    157
    
    
    
    362Net operating loss
    
    
    28,913
    
    
    
    18,322Total deferred tax assets
    
    
    37,480
    
    
    
    26,550Deferred tax liabilities:Tax depreciation in excess of book
depreciation
    
    
    (61,890
    )
    
    
    (47,115
    )Total deferred tax liabilities
    
    
    (61,890
    )
    
    
    (47,115
    )Net deferred tax liabilities
    
    $
    (24,410
    )
    
    $
    (20,565
    )
  A valuation allowance was recorded against certain foreign tax credits as management
believes it is more likely than not that the deferred tax asset related to certain foreign
tax credit carryforwards will not be realized during their carryforward period. The
estimated future U.S. taxable income, after utilization of the available net operating loss
carryforwards, will limit the ability of the Company to utilize the foreign tax credit
carryforwards during their carryforward period. At December 31, 2004 and 2003, other
current assets include $5.4 million and $5.0 million, respectively, of deferred tax assets.The Company has net operating loss carryforwards (NOLs), of approximately $76.0 million
that, if not used will expire beginning in 2022 through 2024. Additionally, for state income
tax purposes, the Company has NOLs of approximately $57.6 million available to reduce future
state taxable income. These NOLs expire in varying amounts beginning in 2012 through 2024,
the majority of which expires in 2017 and through 2019.Income taxes paid were approximately $0.7 million, $1.4 million, and $4.6 million, for the
years ended December 31, 2004, 2003, and 2002, respectively. The Company received net
income tax refunds of approximately $0.5 million, $2.0 million and $1.6 million during the
years ended December 31, 2004, 2003 and 2002, respectively.(5)
    EMPLOYEE BENEFIT PLANSSavings and Retirement PlansThe Company maintains an Employee Savings Plan under Section 401(k) of the Internal Revenue
Code. The Company matches 2% for every 1% of an employees salary deferral contribution,
not to exceed 3% of the employees compensation. The Company contributions were $4.8
million for the year ended December 31, 2004, $4.3 million for the year ended December 31,
2003 and $4.5 million for the year ended December 31, 2002.The Company maintains a Supplemental Executive Retirement Plan (SERP). The nonqualified
and unfunded plan provides certain senior management with supplemental retirement and death
benefits at age 65. The SERP plan provides supplemental retirement benefits that are based
on each participants salary at the time of entrance into the plan. The benefit is
one-third of each participants annual salary of $200,000 or less, plus one-half of each
participants annual salary that is in excess of $200,000, if applicable. The plan does not
provide for automatic benefit increases. During 2000, the Companys board of directors
amended the plan to provide for partial vesting. The Company recorded the following plan
costs for the years ended December 31, 2004, 2003, and 2002. 30




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##### Table of Contents



Years Ended December 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Service cost
    
    $
    302
    
    
    $
    369
    
    
    $
    268Interest cost
    
    
    111
    
    
    
    95
    
    
    
    110Recognized actuarial gain
    
    
    (30
    )
    
    
    (36
    )
    
    
    (42
    )Net periodic plan cost
    
    
    383
    
    
    
    428
    
    
    
    336
  The benefit obligation, funded status, assumptions of the plan on December 31, 2004 and 2003
were as follows: December 31,2004
    
    
    2003(Thousands of dollars)Change in benefit obligation:Benefit obligation at the beginning of the year
    
    $
    2,609
    
    
    $
    2,080Service cost
    
    
    302
    
    
    
    369Interest cost
    
    
    111
    
    
    
    95Actuarial (gain) loss
    
    
    247
    
    
    
    130Benefits paid
    
    
    (121
    )
    
    
    (65
    )Benefit obligation at the end of the year
    
    
    3,148
    
    
    
    2,609
 December 31,2004
    
    
    2003(Thousands of dollars)Reconciliation of funded statusUnfunded status
    
    
    (3,148
    )
    
    
    (2,609
    )Unrecognized actuarial gains
    
    
    (82
    )
    
    
    (359
    )Total liability included in other long term
liabilities on the consolidated balance sheet
    
    $
    (3,230
    )
    
    $
    (2,968
    )Weighted average assumptionsDiscount rate
    
    
    3.8
    %
    
    
    4.7
    %Employee turnover/early retirement rate
    
    
    
    
    
    
    
  The SERP plan is an unfunded arrangement. However, the Company has purchased life insurance
contracts on the lives of certain participants in anticipation of using the life insurances
cash values and death benefits to help fulfill the obligations of the plan. The Company, as
owner of such policies, may sell or redeem the contracts at any time without any obligation
to the plan participants. During each of the years ended December 31, 2004, 2003, and 2002,
the Company recorded expenses of approximately $0.1 million related to the life insurance
contracts. Cash values of the life insurance contracts, recorded in other assets, are $0.7
million at December 31, 2004 and $0.6 million at December 31, 2003.The Board of Directors has resolved to terminate the SERP, subject to any vested participant
rights, and plans to offer participants a substitute benefit in the Officer Deferred
Compensation Plan based on a calculated present value participants interest in the SERP.The Company maintains an Officer Deferred Compensation Plan that permits key officers to
defer a portion of their compensation. The plan is nonqualified and unfunded. However, the
Company has established a bookkeeping account for each participant, which is deemed to be
invested and reinvested from time to time in investments that the participant selects from a
list of eligible investment choices. Earnings and losses on the book reserve accounts
accrue to the plan participants. The Company may sell or redeem the investments at any time
without any obligation to the plan participants. Liabilities for the plan are included in
other long-term liabilities, and the corresponding book reserve accounts are included in
other assets. Aggregate amounts deferred under the plans were $0.9 million and $0.8
million, respectively, for the years December 31, 2004 and 2003. 31




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##### Table of Contents



Stock Based CompensationUnder the PHI 1995 Incentive Plan (the 1995 Plan), the Company is authorized to issue up
to 175,000 shares of voting common stock and 575,000 shares of non-voting common stock. The
Compensation Committee of the Board of Directors is authorized under the 1995 Plan to grant
stock options, restricted stock, stock appreciation rights, performance shares, stock
awards, and cash awards. The exercise prices of the stock option grants are equal to the
fair market value of the underlying stock at the date of grant. The 1995 Plan also allows
awards under the plan to fully vest upon a change in control of the Company. In September
of 2001, the Company underwent a change of control as defined in the 1995 plan and as a
result, all awards issued prior to the change of control became fully vested.During the year ended December 31, 2001, the Company granted 20,000 non-voting restricted shares and 150,000 non-voting stock options under the 1995 Plan. The non-voting restricted
shares had a fair value of $11.06 on the date of issue and became unrestricted during 2001.
The non-voting stock options are 100% vested and expire on September 1, 2010. During the
years ended December 31, 2004, 2003 and 2002, the Company did not issue any shares, options
or rights under the 1995 Plan.At December 31, 2004, there were 116,250 voting shares and 190,126 non-voting shares
available for issuance under the 1995 Plan. The Company recorded compensation expense
related to the 1995 Plan of $0.1 million for December 31, 2004, $0.4 million for December
31, 2003 and $0.3 million for the year ended December 31, 2002. There was no unearned stock
compensation expense at December 31, 2004 and 2003.The following table summarizes employee and director stock option activities for the years
ended December 31, 2004, 2003, and 2002. All of the options were issued with an exercise
price equal to or greater than the market price of the stock at the time of issue. Director
    
    
    1995 Plan Options
    
    
    
    
    
    
    WeightedPlan -
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    AverageNon-Voting
    
    
    Voting
    
    
    Voting
    
    
    Totals
    
    
    Exercise PriceBalance outstanding atDecember 31, 2001
    
    
    20,165
    
    
    
    
    
    
    
    360,070
    
    
    
    380,235
    
    
    
    11.43Options settled for cash
    
    
    
    
    
    
    
    
    
    
    (17,730
    )
    
    
    (17,730
    )
    
    
    11.44Options lapsed/canceled
    
    
    
    
    
    
    
    
    
    
    (4,853
    )
    
    
    (4,853
    )
    
    
    8.50Options exercised
    
    
    (20,165
    )
    
    
    
    
    
    
    (92,864
    )
    
    
    (113,029
    )
    
    
    11.22Balance outstanding atDecember 31, 2002
    
    
    
    
    
    
    
    
    
    
    244,623
    
    
    
    244,623
    
    
    
    11.58Options settled for cash
    
    
    
    
    
    
    
    
    
    
    (21,250
    )
    
    
    (21,250
    )
    
    
    11.75Options exercised
    
    
    
    
    
    
    
    
    
    
    (5,670
    )
    
    
    (5,670
    )
    
    
    9.06Balance outstanding atDecember 31, 2003
    
    
    
    
    
    
    
    
    
    
    217,703
    
    
    
    217,703
    
    
    
    11.63Options settled for cash
    
    
    
    
    
    
    
    
    
    
    (10,750
    )
    
    
    (10,750
    )
    
    
    12.75Balance outstanding atDecember 31, 2004
    
    
    
    
    
    
    
    
    
    
    206,953
    
    
    
    206,953
    
    
    
    11.57Shares exercisable atDecember 31, 2004
    
    
    
    
    
    
    
    
    
    
    206,953
    
    
    
    206,953
    
    
    
    11.57December 31, 2003
    
    
    
    
    
    
    
    
    
    
    217,703
    
    
    
    217,703
    
    
    
    11.63December 31, 2002
    
    
    
    
    
    
    
    
    
    
    244,623
    
    
    
    244,623
    
    
    
    11.58
 32




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##### Table of Contents



The following table summarizes information about stock options outstanding as of December
31, 2004. All of the outstanding stock options are exercisable. Options Outstanding and ExercisableRemainingNumber

    
    Contractual

    
    ExerciseOutstanding

    
    Life (Years)

    
    Price10,203
    
    
    
    0.4
    
    
    $
    8.50150,000
    
    
    
    0.5
    
    
    
    11.0631,750
    
    
    
    4.5
    
    
    
    12.7515,000
    
    
    
    3.8
    
    
    
    16.25206,953
    
    
    
    1.3
    (1)
    
    
    11.57
   (1)
    
    Weighted Average  Incentive CompensationDuring 2002, the Company implemented an incentive plan for non-executive and non-represented
employees. The plan allows the Company to pay up to 7% of earnings before tax, net of
incentive compensation. Pursuant to the incentive plan for non-executives, the Company
recorded $0.9 million of compensation expense in 2002 and a related liability in accrued
liabilities at December 31, 2002. The Company did not record incentive compensation expense
for the years ended December 31, 2004 and 2003, as certain requirements under the incentive
plan established in 2002 were not met.During 2002, the Company recorded $1.1 million of compensation expense for a discretionary
incentive bonus paid to certain executive employees.(6)
    OTHER ASSETSThe following table summarizes the Companys other assets at December 31, 2004 and 2003. December 31,
    
    
    December 31,2004
    
    
    2003(Thousands of dollars)Goodwill acquired
    
    $
    1,878
    
    
    $
    Security deposits on aircraft
    
    
    4,250
    
    
    
    2,600Deferred financing cost
    
    
    3,892
    
    
    
    4,508Other
    
    
    2,507
    
    
    
    1,685Total
    
    $
    12,527
    
    
    $
    8,793
  During 2004 and 2003, the Company placed security deposits on aircraft to be leased or
purchased. Upon delivery of the aircraft, the deposits will be applied to the lease or
purchase.(7)
    FINANCIAL INSTRUMENTSFair Value The following table presents the carrying amounts and estimated fair values of
financial instruments held by the Company at December 31, 2004 and December 2003. The table
excludes cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities and term notes payable, all of which had fair values approximating carrying
amounts. December 31, 2004
    
    
    December 31, 2003Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmounts
    
    
    Fair Value
    
    
    Amounts
    
    
    Fair ValueLong-term debt
    
    $
    200,000
    
    
    $
    216,000
    
    
    $
    200,000
    
    
    $
    212,500
 At December 31, 2004 and 2003, the fair value of long-term debt is based on quoted market
indications. 33




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##### Table of Contents



(8)
    COMMITMENTS AND CONTINGENCIESOperating Leases The Company leases certain aircraft, facilities, and equipment used in
its operations. The related lease agreements, which include both non-cancelable and
month-to-month terms, generally provide for fixed monthly rentals and, for certain real
estate leases, renewal options. The Company generally pays all insurance, taxes, and
maintenance expenses associated with these aircraft and some of these leases contain renewal
and purchase options. Rental expense incurred under these leases consisted of the
following: Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Aircraft
    
    $
    748
    
    
    $
    1,094
    
    
    $
    5,604Other
    
    
    3,906
    
    
    
    3,033
    
    
    
    2,909Total
    
    $
    4,654
    
    
    $
    4,127
    
    
    $
    8,513
  The Company began leasing a new principal operating facility for twenty years, effective
September 2001. The lease expires in 2021 and has three five-year renewal options.The following table presents the remaining aggregate lease commitments under operating lease
having initial non-cancelable terms in excess of one year. The table includes renewal
periods on the principal operating facility lease. Aircraft
    
    
    Other
    
    
    Total(Thousands of dollars)2005
    
    $
    3,003
    
    
    $
    2,547
    
    
    $
    5,5502006
    
    
    3,003
    
    
    
    2,188
    
    
    
    5,1912007
    
    
    3,004
    
    
    
    1,681
    
    
    
    4,6852008
    
    
    3,004
    
    
    
    1,410
    
    
    
    4,4142009
    
    
    3,004
    
    
    
    1,027
    
    
    
    4,031Thereafter
    
    
    16,033
    
    
    
    9,973
    
    
    
    26,006$
    31,051
    
    
    $
    18,826
    
    
    $
    49,877
  The Company expects to finance the acquisition of new aircraft, discussed below, with
operating leases, the issuance of debt or equity securities or some combination thereof.In 2004, the Company took delivery of two transport category aircraft and entered into a
10-year operating lease with annual payments of approximately $1.4 million annually for each
aircraft. The Company also exercised its option to acquire two additional transport
category aircraft due to customer commitments. These aircraft are scheduled for delivery in
the second quarter of 2005. The cost of these additional two aircraft is $32.1 million. In
addition, the Company has an option to acquire two additional transport category aircraft
from the same manufacturer, which would be exercised based on customer requirements.Based on customer commitments in the Domestic Oil and Gas segment, the Company placed orders
for nine additional aircraft. The cost of these aircraft is $46.0 million with deliveries
scheduled in 2005 and the first quarter 2006. In addition, the Company has an option to
acquire up to five additional medium aircraft for service in the Domestic Oil and Gas
segment.Additionally, the Company will continue the expansion of the Air Medical operations in 2005,
and has placed orders for an additional eight aircraft. The cost of these aircraft is $29.0
million and deliveries are scheduled throughout 2005. 34




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##### Table of Contents



Environmental Matters The Company has an aggregate estimated liability of $0.3 million as
of December 31, 2004 for environmental remediation costs that are probable and estimable.
The Company has conducted environmental surveys of the former Lafayette facility, which it
vacated in 2001, and has determined that limited soil and ground water contamination exists
at the facility. Groundwater monitoring wells have been installed. Periodic monitoring and
reporting are being conducted. In May, 2003 PHI submitted a Louisiana Risk
Evaluation/Corrective Action Plan (RECAP) standard Site Assessment Report to the Louisiana
Department of Environmental Quality (LDEQ) fully defining the extent and type of
contamination. Once LDEQ completes its review of the site assessment and reports on whether
all contamination has been fully defined, a risk evaluation in accordance with RECAP will be
submitted and evaluated by LDEQ. At that point, LDEQ will establish what cleanup standards
must be met at the site. When the process is complete, the Company will be in a position to
develop the appropriate remediation plan and the resulting cost of remediation. However,
the Company has not recorded any estimated liability for remediation of contamination and,
based on the May, 2003 Site Assessment Report and ongoing monitoring, the Company believes
the ultimate remediation costs for the Lafayette facility will not be material to the
Companys consolidated financial position, results of operation or liquidity.During 2004, LDEQ advised the Company that groundwater contaminants impacting monitor wells
at its Lafayette Heliport were originating from an off-site location and that PHI would not
be required to perform further monitoring at the site. Also during 2004, the Texas
Commission on Environmental Quality (TCEQ) agreed that remediation of the Rockport facility
was at a point at which site closure has been granted and no further action would be
required. Final documents granting closure will be issued by TCEQ during the first quarter
of 2005. These two developments resulted in a reduction of the environmental reserves of
$0.2 million.Legal Matters The Company is named as a defendant in various legal actions that have
arisen in the ordinary course of its business and have not been finally adjudicated. In the
opinion of management, the amount of the ultimate liability with respect to these actions
will not have a material adverse effect on the Companys consolidated financial position,
results of operations or liquidity.Purchase Commitments At December 31, 2004, there were no purchase commitments other than
those described above with respect to aircraft which the Company expects to execute an
operating lease.(9)
    BUSINESS SEGMENTS AND GEOGRAPHIC AREASPHI is primarily a provider of helicopter services, including helicopter maintenance and
repair services. The Company has used a combination of factors to identify its reportable
segments as required by Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS 131). The overriding
determination of the Companys segments is based on how the chief operating decision-maker
of the Company evaluates the Companys results of operations. The underlying factors
include customer bases, types of service, operational management, physical locations, and
underlying economic characteristics of the types of work the Company performs. The Company
identifies four segments that meet the requirements of SFAS 131 for disclosure. The
reportable segments are Domestic Oil and Gas, Air Medical, International, and Technical
Services.The Domestic Oil and Gas segment provides helicopter services to oil and gas customers
operating in the Gulf of Mexico. The International segment provides helicopters in various
foreign countries to oil and gas customers. The Air Medical segment provides helicopter
services to hospitals and medical programs in several U.S. states, and also to individuals
under which the Company is paid by either a commercial insurance company, federal or state
agency, or the patient. The Companys Air Evac subsidiary is included in the Air Medical
segment. The Technical Services segment provides helicopter repair and overhaul services
for existing flight operations customers and, through September 30, 2004, for an existing
contract with one customer.The Companys largest customer, who is a customer in the Domestic Oil and Gas segment,
accounted for 13% ($37.8 million), 15% ($40.4 million), and 17% ($48.2 million) of operating
revenues for the years ended December 31, 2004, 2003, and 2002, respectively.The following table shows information about the profit or loss and assets of each of the
Companys reportable segments for the years ended December 31, 2004, 2003, and 2002. The
information contains certain allocations, including allocations of depreciation, rents,
insurance, and overhead expenses that the Company deems reasonable and appropriate for the
evaluation of results of operations. The Company does not allocate gains on dispositions 35




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##### Table of Contents



of property and equipment, other income, interest expense, and corporate selling, general,
and administrative costs to the segments. Where applicable, the tables present the
unallocated amounts to reconcile the totals to the Companys consolidated financial
statements. Segment assets are determined by where they are situated at period-end.
Corporate assets are principally cash and cash equivalents, short-term investment, other
assets, and certain property, plant, and equipment. Year EndedDecember 31,2004
    
    
    2003
    
    
    2002Segment operating revenuesDomestic Oil and Gas
    
    $
    180,102
    
    
    $
    183,849
    
    
    $
    189,480Air Medical
    
    
    77,476
    
    
    
    46,674
    
    
    
    48,664International
    
    
    24,342
    
    
    
    21,247
    
    
    
    22,474Technical Services
    
    
    9,388
    
    
    
    17,622
    
    
    
    23,133Total operating revenues
    
    
    291,308
    
    
    
    269,392
    
    
    
    283,751Segment direct expenseDomestic Oil and Gas
    
    
    151,107
    
    
    
    163,328
    
    
    
    161,711Air Medical
    
    
    67,664
    
    
    
    32,782
    
    
    
    34,223International
    
    
    18,668
    
    
    
    21,093
    
    
    
    20,568Technical Services
    
    
    7,935
    
    
    
    13,026
    
    
    
    18,687Total direct expense
    
    
    245,374
    
    
    
    230,229
    
    
    
    235,189Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    1,499
    
    
    
    1,494
    
    
    
    795Air Medical
    
    
    6,525
    
    
    
    4,480
    
    
    
    1,978International
    
    
    49
    
    
    
    214
    
    
    
    146Technical Services
    
    
    12
    
    
    
    12
    
    
    
    149Total selling, general and administrative expense
    
    
    8,085
    
    
    
    6,200
    
    
    
    3,068Total direct and selling, general and administrative
expense
    
    
    253,459
    
    
    
    236,429
    
    
    
    238,257Net segment profitDomestic Oil and Gas
    
    
    27,496
    
    
    
    19,027
    
    
    
    26,974Air Medical
    
    
    3,287
    
    
    
    9,412
    
    
    
    12,463International
    
    
    5,625
    
    
    
    (60
    )
    
    
    1,760Technical Services
    
    
    1,441
    
    
    
    4,584
    
    
    
    4,297Total
    
    
    37,849
    
    
    
    32,963
    
    
    
    45,494Other, net (1)
    
    
    2,961
    
    
    
    2,674
    
    
    
    2,261Unallocated selling, general and administrative costs
    
    
    (12,949
    )
    
    
    (13,783
    )
    
    
    (15,121
    )Interest expense
    
    
    (20,109
    )
    
    
    (19,952
    )
    
    
    (17,250
    )Earnings before income taxes
    
    $
    7,752
    
    
    $
    1,902
    
    
    $
    15,384
   (1)
    
    Including gains on disposition of property and equipment and other income. 36




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##### Table of Contents



Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Expenditures for long livedAssetsDomestic Oil and Gas
    
    $
    7,614
    
    
    $
    20,086
    
    
    $
    144,973Air Medical
    
    
    18,071
    
    
    
    12,881
    
    
    
    10,072International
    
    
    198
    
    
    
    276
    
    
    
    1,996Technical Services
    
    
    
    
    
    
    
    
    
    
    16Corporate
    
    
    8,038
    
    
    
    3,620
    
    
    
    2,370Total
    
    $
    33,921
    
    
    $
    36,863
    
    
    $
    159,427
 Year EndedDecember 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Depreciation and
AmortizationDomestic Oil and Gas
    
    $
    18,342
    
    
    $
    19,042
    
    
    $
    15,676Air Medical
    
    
    4,992
    
    
    
    2,031
    
    
    
    2,347International
    
    
    1,587
    
    
    
    1,928
    

    
    
    1,638Technical Services
    
    
    42
    
    
    
    127
    
    
    
    102Corporate
    
    
    2,880
    
    
    
    2,081
    
    
    
    1,285Total
    
    $
    27,843
    
    
    $
    25,209
    
    
    $
    21,048AssetsDomestic Oil and Gas
    
    $
    227,929
    
    
    $
    253,064
    
    
    $
    250,215Air Medical
    
    
    89,722
    
    
    
    49,672
    
    
    
    30,796International
    
    
    12,289
    
    
    
    14,733
    
    
    
    14,994Technical Services
    
    
    
    
    
    
    12,176
    
    
    
    23,076Corporate
    
    
    64,233
    
    
    
    47,809
    
    
    
    47,626Total
    
    $
    394,173
    
    
    $
    377,454
    
    
    $
    366,707
   (1)
    
    Includes the acquisition of aircraft from leasing companies and financial institutions as
discussed in Note 3. The following table presents the Companys revenues from external customers attributed to
operations in the United States and foreign areas and long-lived assets in the United States and
foreign areas. Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002(Thousands of dollars)Operating revenues:United States
    
    $
    266,966
    
    
    $
    248,145
    
    
    $
    261,277International
    
    
    24,342
    
    
    
    21,247
    
    
    
    22,474Total
    
    $
    291,308
    
    
    $
    269,392
    
    
    $
    283,751Long-Lived Assets:United States
    
    $
    246,819
    
    
    $
    248,211
    
    
    $
    242,883International
    
    
    6,422
    
    
    
    10,315
    
    
    
    9,694Total
    
    $
    253,241
    
    
    $
    258,526
    
    
    $
    252,577
 37




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##### Table of Contents



(10)
    RELATED PARTY TRANSACTIONSIn 2002, the Company leased a fixed wing aircraft from a senior executive for total lease
payments of $386,000. In the latter part of 2002, the Company purchased the aircraft from
the same senior executive for $695,000. The purchase of the aircraft was reviewed and
approved by the Audit Committee.(11)
    SEVERANCE LIABILITYDuring the year ended December 31, 2003, the Company recorded costs of approximately $1.9
million related to a plan of termination and early retirement covering approximately 60
employees. At December 31, 2003, the Company had an outstanding severance liability of $1.3
million for certain of these employees who have already terminated employment, or are
scheduled to terminate employment and who have elected payment of the severance benefits at
a later date. This amount was substantially all paid in 2004.(12)
    QUARTERLY FINANCIAL DATA (UNAUDITED)The summarized quarterly results of operations for the years ended December 31, 2004 and
December 31, 2003 (in thousands of dollars, except per share data) are as follows: Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004(Thousands of dollars, except per share data)Operating revenues
    
    $
    66,973
    
    
    $
    70,186
    
    
    $
    77,733
    
    
    $
    76,416Gross profit
    
    
    9,688
    
    
    
    12,138
    
    
    
    13,928
    
    
    
    10,180Net earnings
    
    
    3
    
    
    
    1,113
    
    
    
    2,659
    
    
    
    197Net earnings per shareBasic
    
    
    
    
    
    
    0.21
    
    
    
    0.49
    
    
    
    0.04Diluted
    
    
    
    
    
    
    0.20
    
    
    
    0.48
    
    
    
    0.04
 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2003
    
    
    2003
    
    
    2003
    
    
    2003(Thousands of dollars, except per share data)Operating revenues
    
    $
    64,607
    
    
    $
    66,339
    
    
    $
    69,640
    
    
    $
    68,806Gross profit
    
    
    10,032
    
    
    
    10,109
    
    
    
    9,688
    
    
    
    9,334Net earnings (loss)
    
    
    731
    
    
    
    602
    
    
    
    56
    
    
    
    (250
    )Net earnings per shareBasic
    
    
    0.14
    
    
    
    0.11
    
    
    
    0.01
    
    
    
    (0.04
    )Diluted
    
    
    0.13
    
    
    
    0.11
    
    
    
    0.01
    
    
    
    (0.04
    )
  (13)
    CONDENSED FINANCIAL INFORMATION  GUARANTOR ENTITIESOn April 23, 2002, the Company issued notes of $200 million that are fully and
unconditionally guaranteed on a senior basis, jointly and severally, by all of the Companys
existing 100% owned operating subsidiaries (Guarantor Subsidiaries).The following condensed financial information sets forth, on a consolidating basis, the
balance sheet, statement of operations, and statement of cash flows information for
Petroleum Helicopters, Inc. (Parent Company Only) and the Guarantor Subsidiaries. The
principal eliminating entries eliminate investments in subsidiaries, intercompany balances,
and intercompany revenues and expenses. 38




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars) December 31, 2004ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    17,701
    
    
    $
    307
    
    
    $
    
    
    
    $
    18,008Accounts receivable  net of allowance
    
    
    51,868
    
    
    
    7,508
    
    
    
    
    
    
    
    59,376Inventory
    
    
    39,225
    
    
    
    
    
    
    
    
    
    
    
    39,225Other current assets
    
    
    10,631
    
    
    
    64
    
    
    
    
    
    
    
    10,695Refundable income taxes
    
    
    916
    
    
    
    185
    
    
    
    
    
    
    
    1,101Total current assets
    
    
    120,341
    
    
    
    8,064
    
    
    
    
    
    
    
    128,405Investment in subsidiaries and other
    
    
    14,910
    
    
    
    27,885
    
    
    
    (30,238
    )
    
    
    12,527Property and equipment, net
    
    
    247,798
    
    
    
    5,443
    
    
    
    
    
    
    
    253,241Total assets
    
    $
    383,049
    
    
    $
    41,362
    
    
    $
    (30,238
    )
    
    $
    394,173LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    32,798
    
    
    $
    1,768
    
    
    $
    (652
    )
    
    $
    33,914Accrued vacation payable
    
    
    3,519
    
    
    
    256
    
    
    
    
    
    
    
    3,775Notes payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Total current liabilities
    
    
    38,317
    
    
    
    2,024
    
    
    
    (652
    )
    
    
    39,689Long-term debt
    
    
    208,275
    
    
    
    
    
    
    
    
    
    
    
    208,275Deferred income taxes and other long-term
liabilities
    
    
    26,482
    
    
    
    9,559
    
    
    
    193
    
    
    
    36,234Shareholders EquityPaid-in capital
    
    
    15,636
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    15,636Retained earnings
    
    
    94,339
    
    
    
    25,377
    
    
    
    (25,337
    )
    
    
    94,339Total shareholders equity
    
    
    109,975
    
    
    
    29,779
    
    
    
    (29,779
    )
    
    
    109,975Total liabilities and
shareholders equity
    
    $
    383,049
    
    
    $
    41,362
    
    
    $
    (30,238
    )
    
    $
    394,173
 39




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars) December 31, 2003ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    19,821
    
    
    $
    51
    
    
    $
    
    
    
    $
    19,872Accounts receivable  net of allowance
    
    
    36,831
    
    
    
    6,227
    
    
    
    
    
    
    
    43,058Inventory
    
    
    40,405
    
    
    
    
    
    
    
    
    
    
    
    40,405Other current assets
    
    
    6,526
    
    
    
    49
    
    
    
    
    
    
    
    6,575Refundable income taxes
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    225Total current assets
    
    
    103,808
    
    
    
    6,327
    
    
    
    
    
    
    
    110,135Investment in subsidiaries and other
    
    
    18,545
    
    
    
    22,739
    
    
    
    (32,491
    )
    
    
    8,793Property and equipment, net
    
    
    254,447
    
    
    
    4,079
    
    
    
    
    
    
    
    258,526Total Assets
    
    $
    376,800
    
    
    $
    33,145
    
    
    $
    (32,491
    )
    
    $
    377,454LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    41,041
    
    
    $
    3,504
    
    
    $
    (10,110
    )
    
    $
    34,435Accrued vacation payable
    
    
    3,144
    
    
    
    256
    
    
    
    
    
    
    
    3,400Notes payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Total current liabilities
    
    
    46,185
    
    
    
    3,760
    
    
    
    (10,110
    )
    
    
    39,835Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    24,622
    
    
    
    7,004
    
    
    
    
    
    
    
    31,626Shareholders EquityPaid-in capital
    
    
    15,626
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    15,626Retained earnings
    
    
    90,367
    
    
    
    14,979
    
    
    
    (17,979
    )
    
    
    90,367Total shareholders equity
    
    
    105,993
    
    
    
    22,381
    
    
    
    (22,381
    )
    
    
    105,993Total liabilities and
shareholders equity
    
    $
    376,800
    
    
    $
    33,145
    
    
    $
    (32,491
    )
    
    $
    377,454
 40




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars) For the year ended December 31, 2004ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    244,230
    
    
    $
    47,078
    
    
    $
    
    
    
    $
    291,308Management fees
    
    
    4,943
    
    
    
    
    
    
    
    (4,943
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    2,575
    
    
    
    (6
    )
    
    
    
    
    
    
    2,569Other
    
    
    373
    
    
    
    19
    
    
    
    
    
    
    
    392252,121
    
    
    
    47,091
    
    
    
    (4,943
    )
    
    
    294,269Expenses:Direct expenses
    
    
    217,072
    
    
    
    28,302
    
    
    
    
    
    
    
    245,374Management fees
    
    
    
    
    
    
    4,943
    
    
    
    (4,943
    )
    
    
    Selling, general, and administrative
    
    
    17,354
    
    
    
    3,680
    
    
    
    
    
    
    
    21,034Equity in net income of consolidated
subsidiaries
    
    
    (7,398
    )
    
    
    
    
    
    
    7,398
    
    
    
    Interest expense
    
    
    20,109
    
    
    
    
    
    
    
    
    
    
    
    20,109247,137
    
    
    
    36,925
    
    
    
    2,455
    
    
    
    286,517Earnings before income taxes
    
    
    4,984
    
    
    
    10,166
    
    
    
    (7,398
    )
    
    
    7,752Income taxes
    
    
    1,012
    
    
    
    2,768
    
    
    
    
    
    
    
    3,780Net earnings
    
    $
    3,972
    
    
    $
    7,398
    
    
    $
    (7,398
    )
    
    $
    3,972
 For the year ended December 31, 2003ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    218,273
    
    
    $
    51,119
    
    
    $
    
    
    
    $
    269,392Management fees
    
    
    3,763
    
    
    
    
    
    
    
    (3,763
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    1,988
    
    
    
    
    
    
    
    
    
    
    
    1,988Other
    
    
    686
    
    
    
    
    
    
    
    
    
    
    
    686224,710
    
    
    
    51,119
    
    
    
    (3,763
    )
    
    
    272,066Expenses:Direct expenses
    
    
    198,159
    
    
    
    32,070
    
    
    
    
    
    
    
    230,229Management fees
    
    
    
    
    
    
    3,763
    
    
    
    (3,763
    )
    
    
    Selling, general, and administrative
    
    
    16,600
    
    
    
    3,383
    
    
    
    
    
    
    
    19,983Equity in net income of consolidated
subsidiaries
    
    
    (7,141
    )
    
    
    
    
    
    
    7,141
    
    
    
    Interest expense
    
    
    19,952
    
    
    
    
    
    
    
    
    
    
    
    19,952227,570
    
    
    
    39,216
    
    
    
    3,378
    
    
    
    270,164Earnings before income taxes
    
    
    (2,860
    )
    
    
    11,903
    
    
    
    (7,141
    )
    
    
    1,902Income taxes
    
    
    (3,999
    )
    
    
    4,762
    
    
    
    
    
    
    
    763Net earnings
    
    $
    1,139
    
    
    $
    7,141
    
    
    $
    (7,141
    )
    
    $
    1,139
 41




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars) For the year ended December 31, 2002ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    230,031
    
    
    $
    53,720
    
    
    $
    
    
    
    $
    283,751Management fees
    
    
    5,447
    
    
    
    
    
    
    
    (5,447
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    586
    
    
    
    
    
    
    
    
    
    
    
    586Other
    
    
    1,335
    
    
    
    340
    
    
    
    
    
    
    
    1,675237,399
    
    
    
    54,060
    
    
    
    (5,447
    )
    
    
    286,012Expenses:Direct expenses
    
    
    200,085
    
    
    
    35,104
    
    
    
    
    
    
    
    235,189Management fees
    
    
    
    
    
    
    5,447
    
    
    
    (5,447
    )
    
    
    Selling, general, and administrative
    
    
    16,358
    
    
    
    1,831
    
    
    
    
    
    
    
    18,189Equity in net income of consolidated
subsidiaries
    
    
    (7,061
    )
    
    
    
    
    
    
    7,061
    
    
    
    Interest expense
    
    
    17,192
    
    
    
    58
    
    
    
    
    
    
    
    17,250226,574
    
    
    
    42,440
    
    
    
    1,614
    
    
    
    270,628Earnings before income taxes
    
    
    10,825
    
    
    
    11,620
    
    
    
    (7,061
    )
    
    
    15,384Income taxes
    
    
    1,594
    
    
    
    4,559
    
    
    
    
    
    
    
    6,153Net earnings
    
    $
    9,231
    
    
    $
    7,061
    
    
    $
    (7,061
    )
    
    $
    9,231
 42




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars) For the year ended December 31, 2004ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    10,644
    
    
    $
    261
    
    
    $
    
    
    
    $
    10,905Cash flows from investing activities:Acquisition of additional operating locations
    
    
    (1,518
    )
    
    
    
    
    
    
    
    
    
    
    (1,518
    )Purchase of property and equipment
    
    
    (33,916
    )
    
    
    (5
    )
    
    
    
    
    
    
    (33,921
    )Proceeds from asset dispositions
    
    
    14,395
    
    
    
    
    
    
    
    
    
    
    
    14,395Net cash used in investing activities
    
    
    (21,039
    )
    
    
    (5
    )
    
    
    
    
    
    
    (21,044
    )Cash flows from financing activities:Proceeds from long-term debt, net
    
    
    8,275
    
    
    
    
    
    
    
    
    
    
    
    8,275Proceeds from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    8,275
    
    
    
    
    
    
    
    
    
    
    
    8,275Increase in cash and cash equivalents
    
    
    (2,120
    )
    
    
    256
    
    
    
    
    
    
    
    (1,864
    )Cash and cash equivalents, beginning of
period
    
    
    19,821
    
    
    
    51
    
    
    
    
    
    
    
    19,872Cash and cash equivalents, end of period
    
    $
    17,701
    
    
    $
    307
    
    
    $
    
    
    
    $
    18,008
 For the year ended December 31, 2003ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    29,386
    
    
    $
    29
    
    
    $
    
    
    
    $
    29,415Cash flows from investing activities:Purchase of property and equipment
    
    
    (36,863
    )
    
    
    
    
    
    
    
    
    
    
    (36,863
    )Proceeds from asset dispositions
    
    
    7,620
    
    
    
    
    
    
    
    
    
    
    
    7,620Net cash used in investing activities
    
    
    (29,243
    )
    
    
    
    
    
    
    
    
    
    
    (29,243
    )Cash flows from financing activities:Proceeds from long-term debt, net
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Proceeds from exercise of stock options
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Other
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (24
    )Net cash provided by financing activities
    
    
    2,026
    
    
    
    
    
    
    
    
    
    
    
    2,026Increase in cash and cash equivalents
    
    
    2,169
    
    
    
    29
    
    
    
    
    
    
    
    2,198Cash and cash equivalents, beginning of
period
    
    
    17,652
    
    
    
    22
    
    
    
    
    
    
    
    17,674Cash and cash equivalents, end of period
    
    $
    19,821
    
    
    $
    51
    
    
    $
    
    
    
    $
    19,872
 43




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##### Table of Contents



PETROLEUM HELICOPTERS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars) For the year ended December 31, 2002ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    39,417
    
    
    $
    112
    
    
    $
    
    
    
    $
    39,529Cash flows from investing activities:Proceeds from notes receivable
    
    
    1,629
    
    
    
    
    
    
    
    
    
    
    
    1,629Purchase of property and equipment
    
    
    (41,247
    )
    
    
    (104
    )
    
    
    
    
    
    
    (41,351
    )Purchase of aircraft previously leased
    
    
    (118,076
    )
    
    
    
    
    
    
    
    
    
    
    (118,076
    )Proceeds from asset dispositions
    
    
    3,263
    
    
    
    
    
    
    
    
    
    
    
    3,263Net cash used in investing activities
    
    
    (154,431
    )
    
    
    (104
    )
    
    
    
    
    
    
    (154,535
    )Cash flows from financing activities:Proceeds from long-term debt, net
    
    
    194,165
    
    
    
    
    
    
    
    
    
    
    
    194,165Payment on long-term debt
    
    
    (5,845
    )
    
    
    
    
    
    
    
    
    
    
    (5,845
    )Payment of long-term debt with bond
proceeds
    
    
    (60,771
    )
    
    
    
    
    
    
    
    
    
    
    (60,771
    )Payment of interest rate swap
settlement
    
    
    (1,575
    )
    
    
    
    
    
    
    
    
    
    
    (1,575
    )Proceeds from exercise of stock options
    
    
    1,271
    
    
    
    
    
    
    
    
    
    
    
    1,271Net cash provided by financing
activities
    
    
    127,245
    
    
    
    
    
    
    
    
    
    
    
    127,245Increase in cash and cash equivalents
    
    
    12,231
    
    
    
    8
    
    
    
    
    
    
    
    12,239Cash and cash equivalents, beginning of
period
    
    
    5,422
    
    
    
    13
    
    
    
    
    
    
    
    5,435Cash and cash equivalents, end of period
    
    $
    17,653
    
    
    $
    21
    
    
    $
    
    
    
    $
    17,674
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES None. 
 ITEM 9.A. CONTROLS AND PROCEDURES Disclosure
Controls and Procedures Our Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Companys disclosure controls and procedures (as is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as
of the end of the period covered by this report (the Evaluation Date). Based on such
evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure
controls and procedures are effective in timely alerting them to material information
relating to us, including our consolidated subsidiaries, required to be included in reports
we file or submit to the SEC under the Exchange Act. Since the Evaluation Date, there have not been any significant changes in our internal
controls that has materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. Managements
Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Our internal control system was designed to provide reasonable
assurance to our management and board of directors regarding the preparation and fair
presentation of published financial statements. Our management assessed the effectiveness of our internal control over financial reporting
as of December 31, 2004. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment our management believes that, as of
December 31, 2004, our internal control over financial reporting is effective under those
criteria. 44




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Deloitte &
Touche, our independent registered public accounting firm, has issued an attestation report on our assessment of the
Companys internal control over financial reporting. This report appears below. 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Petroleum Helicopters, Inc. We have audited managements assessment, included in the accompanying Managements report on
internal control over financial reporting (Item 9A), that Petroleum Helicopters, Inc. (the Company)
maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Companys management
is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements assessment and an opinion on the
effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, evaluating managements
assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions. A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or
persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal control over
financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the companys assets
that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2004, is fairly stated, in all material
respects, based on the criteria established in Internal ControlIntegrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our
opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2004, based on the criteria established in Internal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission. 45




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We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the
year ended December 31, 2004 of the Company and our report dated March 10, 2005, expressed
an unqualified opinion on those financial statements. DELOITTE & TOUCHE LLP New Orleans, Louisiana
March 10, 2005 
 PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning directors and executive officers required by this item will be
included in our definitive information statement in connection with our 2005 Annual Meeting
of Shareholders and is incorporated herein by reference. 
 ITEM 11. EXECUTIVE COMPENSATION Information required by this item will be included in our definitive information
statement in connection with our 2005 Annual Meeting of Shareholders and is incorporated
herein by reference. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT Information required by this item will be included in our definitive information
statement in connection with our 2005 Annual Meeting of Shareholders and is incorporated
herein by reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this item will be included in our definitive information
statement in connection with our 2005 Annual Meeting of Shareholders and is incorporated
herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information required by this item will be included in our definitive information
statement in connection with our 2005 Annual Meeting of Shareholders and is incorporated
herein by reference. 46




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PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K (a)
    
    
    1.
    
    
    Financial StatementsIncluded in Part II of this report:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets  December 31, 2004 and December 31, 2003.Consolidated Statements of Operations for the years ended December 31, 2004, December 31,
2003,
and December 31, 2002.Consolidated Statements of Shareholders Equity for the years ended December 31, 2004,
December
31, 2003, and December 31, 2002.Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2004,
December 31, 2003, and December 31, 2002.Consolidated Statements of Cash Flows for the years ended December 31, 2004, December 31 2003,
and December 31, 2002.Notes to Consolidated Financial Statements2.
    
    
    
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying accounts for the years ended December 31, 2004,
December 31, 2003 and December 31, 2002.
 3.
    
    Exhibits3
    
    Articles of Incorporation and By-laws3.1
    
    
    
    
    
    (i)
    
    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 October 31, 1994).(ii)
    
    By-laws of the Company as amended
(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
    
    Instruments defining the rights of security holders, including indentures.4.1

    
    
    
    Indenture dated April 23, 2002 among Petroleum Helicopters, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 4.1 to PHIs Registration Statement on Form S-4, filed on April
30, 2002, File Nos. 333-87288 through 333-87288-08).4.2
    
    
    
    Form of 9 3/8% Senior Note (incorporated by reference to Exhibit 4.1 to PHIs
Registration Statement on Form S-4, filed on April 30, 2002, File Nos. 333-87288
through 333-87288-08).4.3
    
    
    
    Loan Agreement dated as of April 23, 2002 by and among Petroleum Helicopters,
Inc., 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).10
    
    Material Contracts10.2
    
    
    
    The Petroleum Helicopters, Inc. 401 (k) Retirement Plan effective July 1, 1989
(incorporated by reference to Exhibit No. 10.4 to PHIs Report on Form 10-K dated April
30, 1990).10.3
    
    
    
    Amended and Restated Petroleum Helicopters, Inc. 1995 Incentive Compensation
Plan adopted by PHIs Board effective July 11, 1995 and approved by the shareholders of
PHI on September 22, 1995 (incorporated by reference to Exhibit No. 10.12 to PHIs
Report on Form 10-K dated April 30, 1996).10.4
    
    
    
    Form of Non-Qualified Stock Option Agreement under the Petroleum Helicopters,
Inc. 1995 Incentive Compensation Plan between PHI and certain of its key employees
(incorporated by reference to Exhibit No. 10.13 to PHIs Report on Form 10-K dated
April 30, 1996).10.5
    
    
    
    Supplemental Executive Retirement Plan adopted by PHIs Board effective
September 14, 2000 (incorporated by reference to Exhibit 10.23 to PHIs Report on Form
10-Q dated September 30, 2000).10.6
    
    
    
    Amendment to the Supplemental Executive Retirement Plan dated May 24, 2001
(incorporated by reference to Exhibit 10.25 to PHIs Report on Form 10-Q dated June 30,
2001).
 47




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10.7
    
    
    
    Officer Deferred Compensation Plan adopted by PHIs Board effective January 1,
2001 (incorporated by reference to Exhibit 10.21 to PHIs Report on Form 10-K dated
December 31, 2001).10.8
    
    
    
    Articles of Agreement Between Petroleum Helicopters, Inc. & Office &
Professional Employees International Union and its Local 108 dated June 13, 2001
(incorporated by reference to Exhibit 10.24 to PHIs Report on Form 10-Q dated June 30,
2001).10.9
    
    
    
    Employment letter agreement between PHI and Lance F. Bospflug dated August 24,
2000 (incorporated by reference to Exhibit 10.22 to PHIs Report on Form 10-KA dated
December 31, 2001).21
    
    
    
    Subsidiaries of the Registrant23.1
    
    
    
    Consent of Deloitte & Touche LLP31.1
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Al
A. Gonsoulin, 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, Chief Executive Officer.32.2
    
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Michael J. McCann, Chief Financial Officer.(b)
    
    Reports on Form 8-KOn November 10, 2004, the Company filed a Form 8-K, reporting in Item 5 our earnings for
third quarter ended September 30, 2004.
 PETROLEUM HELICOPTER, INC. AND SUBSIDIARIES
Schedule II  Valuation and Qualifying Accounts
(Thousands of dollars) AdditionsBalance at
    
    
    Charged to
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    
    
    
    
    EndDescription
    
    of Year
    
    
    Expenses
    
    
    Deductions
    
    
    of YearYear ended December 31, 2004:Allowance for doubtful accounts
    
    $
    120
    
    
    $
    43
    
    
    $
    
    
    
    $
    163Allowance for obsolescent
inventory
    
    
    5,536
    
    
    
    2,400
    
    
    
    948
    
    
    
    6,988Year ended December 31, 2003:Allowance for doubtful accounts
    
    $
    158
    
    
    $
    
    
    
    $
    38
    
    
    $
    120Allowance for obsolescent
inventory
    
    
    4,822
    
    
    
    731
    
    
    
    17
    
    
    
    5,536Year ended December 31, 2002:Allowance for doubtful accounts
    
    $
    444
    
    
    $
    249
    
    
    $
    535
    
    
    $
    158Allowance for obsolescent
inventory
    
    
    4,340
    
    
    
    994
    
    
    
    512
    
    
    
    4,822
 48




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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized. PETROLEUM HELICOPTERS, INC.By:
    
    /s/
    
    Michael J. McCannMichael J. McCannChief Financial Officer(Principal Financial andAccounting Officer)
 Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/
    
    Al A. Gonsoulin
    
    Chairman of the Board
    
    March 15, 2005Al A. Gonsoulin
    
    Chief Executive Officerand Director(Principal Executive Officer)/s/
    
    Lance F. Bospflug
    
    Director
    
    March 15, 2005Lance F. Bospflug/s/
    
    Arthur J. Breault, Jr.
    
    Director
    
    March 15, 2005Arthur J. Breault, Jr./s/
    
    Thomas H. Murphy
    
    Director
    
    March 15, 2005Thomas H. Murphy/s/
    
    Richard H. Matzke
    
    Director
    
    March 15, 2005Richard H. Matzke/s/
    
    C. Russell Luigs
    
    Director
    
    March 15, 2005C. Russell Luigs/s/
    
    Michael J. McCann
    
    Chief Financial Officer
    
    March 15, 2005Michael J. McCann
    
    (Principal Financial andAccounting Officer)
 49