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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition Period From ___to ___
 Commission file number 0-9827
 PHI, INC.
  Louisiana
    
    72-0395707(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 2001 SE Evangeline ThruwayLafayette, Louisiana
    
    70508(Address of principal executive offices)
    
    (Zip Code)
 (337) 235-2452
   Title of Each ClassVoting Common StockNon-Voting Common Stock
 o R
 o R
 R o
 R
 
 o R o
 o R
    Documents Incorporated by Reference




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##### 



PHI, INC.
 INDEX  FORM 10-K
 PART IItem 1.
    
    Business
    
    
    1Item 1.A.
    
    Risk Factors
    
    
    4Item 1.B.
    
    Unresolved Staff Comments
    
    
    9Item 2.
    
    Properties
    
    
    10Item 3.
    
    Legal Proceedings
    
    
    11Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Registrants Common Equity and Related
Shareholders Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6.
    
    Selected Financial Data
    
    
    13Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    13Item 7.A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 8.
    
    Financial Statements and Supplementary Data
    
    
    25PHI, Inc. and Consolidated Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    
    25Consolidated Balance Sheets
- December 31, 2005 and December 31, 2004
    
    
    26Consolidated Statements of Operations
- Year ended December 31, 2005, Year ended December 31, 2004 and
Year ended December 31, 2003
    
    
    27Consolidated Statements of Shareholders Equity
- Year ended December 31, 2005, Year ended December 31, 2004, and
Year ended December 31, 2003
    
    
    28Consolidated Statements of Cash Flows
- Year ended December 31, 2005, Year ended December 31, 2004, and
Year ended December 31, 2003
    
    
    29Notes to Consolidated Financial Statements
    
    
    30Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    52Item 9.A.
    
    Controls and Procedures
    
    
    52Report of Independent Registered Public Accounting FirmItem 9.B.
    
    Other Information
    
    
    54PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    54Item 11.
    
    Executive Compensation
    
    
    54Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    54Item 13.
    
    Certain Relationships and Related Transactions
    
    
    54Item 14.
    
    Principal Accounting Fees and Services
    
    
    54PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    55Signatures
    
    
    58Subsidiaries of the RegistrantConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906




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PART I
 Forward-Looking Statements
  
 ITEM 1. BUSINESS
 General
  Availability of SEC filings and other information
 www.phihelico.com www.sec.gov
 Description of Operations
  Domestic Oil and Gas.
 1




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Air Medical
 International.
 Technical Services.
   Seasonal Aspects
  Inventory
  2




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Customers
  Competition
     Employees
   Environmental Matters
  3




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ITEM 1.A. Risk Factors
  RISKS INHERENT IN OUR BUSINESS
 Our operations are affected by adverse weather conditions and seasonal factors.
  Ø
    
    the tropical storm and hurricane season in the Gulf of Mexico;
 Ø
    
    poor weather conditions that often prevail during winter and can develop in any season; and;
 Ø
    
    reduced daylight hours during the winter months.
    We may not be able to obtain acceptable customer contracts covering some of our new helicopters,
and there will be a delay between the time that a helicopter is delivered to us and the time that
it can begin generating revenues.
    Our contracts generally can be terminated or downsized by our customers without penalty.
  4




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Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
      The helicopter services business is highly competitive.
    The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
  5




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Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
    Our air medical operations, which we are expanding, expose us to numerous special risks, including
collection risks, high start-up costs and potential medical malpractice claims.
   Our international operations are subject to political, economic and regulatory uncertainty.
  Ø
    
    political, social and economic instability;
 Ø
    
    terrorism, kidnapping and extortion;
 Ø
    
    potential seizure or nationalization of assets;
 Ø
    
    import-export quotas; and
 Ø
    
    currency fluctuations or devaluation;
  Ø
    
    the awarding of contracts to local contractors;
 Ø
    
    the employment of local citizens; and
 Ø
    
    the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership.
 6




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Our failure to attract and retain qualified personnel could adversely affect us.
  RISKS SPECIFIC TO OUR COMPANY
 We are highly dependent on the offshore oil and gas industry.
  Ø
    
    the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand;
 Ø
    
    weather-related or other natural causes;
 Ø
    
    actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels;
 Ø
    
    general economic conditions in the United States and worldwide;
 Ø
    
    war, civil unrest or terrorist activities;
 Ø
    
    governmental regulation; and
 Ø
    
    the price and availability of alternative fuels.
    We currently are negotiating a new collective bargaining agreement covering our pilots.
  We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
  7




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Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
  Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
  Ø
    
    require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other
general corporate purposes, or to carry out other aspects of our business plan;
 Ø
    
    increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand
competitive pressures;
 Ø
    
    limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities;
 Ø
    
    place us at a competitive disadvantage compared to our competitors that have less debt; and limit our ability to obtain
additional financing to fund future working capital, capital expenditures and other aspects of our business plan.
 Ø
    
    limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our
business plan.
  We are a subject of a Department of Justice anti-trust investigation, the outcome of which cannot
be predicted.
  Our stock has a low trading volume.
  8




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We do not pay dividends.
  Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
    Future sales of our shares could depress the market price of our non-voting common stock.
  
 ITEM 1.B. UNRESOLVED STAFF COMMENTS
  9




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ITEM 2. PROPERTIES
 Aircraft
  Cruise
    
    
    Appr.Number
    
    
    
    
    
    
    
    
    Speed
    
    
    RangeManufacturer
    
    Type
    
    in Fleet
    
    
    Engine
    
    Passengers
    
    
    (mph)
    
    
    (miles)(2)Light AircraftBell
    
    206 / 407
    
    
    105
    
    
    Turbine
    
    
    4  6
    
    
    
    130  150
    
    
    
    300  420Eurocopter
    
    BK-117 / BO-105
    
    
    21
    
    
    Twin Turbine
    
    
    4  6
    
    
    
    135
    
    
    
    255  270Eurocopter
    
    EC-135 (1)
    
    
    11
    
    
    Twin Turbine
    
    
    7
    
    
    
    143
    
    
    
    382Aerospatiale
    
    AS350 B2 / B3
    
    
    24
    
    
    Turbine
    
    
    5
    
    
    
    140
    
    
    
    337  385Medium AircraftBell
    
    212 (1) / 222 (1)230 (1) / 412 (1)
    
    
    25
    
    
    Twin Turbine
    
    
    8  13
    
    
    
    115  160
    
    
    
    300  370Sikorsky
    
    S-76 (1) A, A++, C+
    
    
    21
    
    
    Twin Turbine
    
    
    12
    
    
    
    150
    
    
    
    400Transport AircraftBell
    
    214ST       (1)
    
    
    4
    
    
    Twin Turbine
    
    
    18
    
    
    
    155
    
    
    
    429Sikorsky
    
    S-92A      (1)
    
    
    5
    
    
    Twin Turbine
    
    
    19
    
    
    
    160
    
    
    
    495Total Helicopters
    
    
    216Fixed WingRockwell (3)
    
    Aero Commander
    
    
    2
    
    
    Turboprop
    
    
    6
    
    
    
    300-340
    
    
    
    1,200-1,600Lear Jet (4)
    
    31A(1)
    
    
    1
    
    
    Turbojet
    
    
    8
    
    
    
    527
    
    
    
    1,437Cessna (4)
    
    Conquest 441 (1)
    
    
    3
    
    
    Turboprop
    
    
    6
    
    
    
    330
    
    
    
    1,200Beech (4)
    
    King Air(1)
    
    
    1
    
    
    Turboprop
    
    
    8
    
    
    
    300
    
    
    
    1,380Total Fixed Wing
    
    
    7Total Aircraft
    
    
    223
 
 (1)
    
    Equipped to fly under instrument flight rules (IFR). All other types listed
can only fly under visual flight rules (VFR). See Item 1A. Business  Risk Factors,
Risks Inherent In Our Business  Our operations are affected by adverse weather
conditions and seasonal factors.(2)
    
    Based on maintaining a 30-minute fuel reserve.(3)
    
    Aircraft used for corporate purposes.(4)
    
    Aircraft used in the Air Medical segment.   Facilities
  10




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Facility
    
    Lease Expiration
    
    Area
    
    Facilities
    
    CommentsMorgan City
    
    June 30, 2008
    
    53 acres
    
    Operational and
    
    Options to extend(Louisiana)
    
    
    
    
    
    maintenance
    
    to June 30, 2018facilities, landingpads for 46helicoptersIntracoastal City
    
    December 31, 2006
    
    18 acres
    
    Operational and
    
    Options to extend(Louisiana)
    
    
    
    
    
    maintenance
    
    to December 31,facilities, landing
    
    2010pads for 45helicoptersHouma-Terrebonne
    
    August 31, 2006
    
    14 acres
    
    Operational and
    
    Four renewalAirport (Louisiana)
    
    
    
    
    
    maintenance
    
    options to extendfacilities, landing
    
    for one year eachpads for 30helicoptersGalveston (Texas)
    
    May 31, 2021
    
    4 acres
    
    Operational and
    
    Lease period to Maymaintenance
    
    31, 2021 withfacilities, landing
    
    certainpads for 30
    
    cancellationhelicopters
    
    provisionsFourchon
    
    May 31, 2006
    
    8 acres
    
    Operational and
    
    Facility under three separate(Louisiana)
    
    
    
    
    
    maintenance
    
    leases, of whichfacilities, landing
    
    two contain optionspads for 10
    
    to extend thru 2026helicopters
    
    and 2028.
    
 ITEM 3. LEGAL PROCEEDINGS
   11




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  Voting
    
    Non-VotingPeriod
    
    High
    
    Low
    
    High
    
    LowJanuary 1, 2005 to March 31, 2005
    
    $
    30.25
    
    
    $
    23.42
    
    
    $
    30.11
    
    
    $
    20.75April 1, 2005 to June 30, 2005
    
    
    30.95
    
    
    
    24.10
    
    
    
    30.50
    
    
    
    23.12July 1, 2005 to September 30, 2005
    
    
    35.48
    
    
    
    23.90
    
    
    
    32.48
    
    
    
    23.02October 1, 2005 to December 31, 2005
    
    
    34.59
    
    
    
    27.25
    
    
    
    32.40
    
    
    
    26.35January 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
    
    
    
    20.77
       12




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ITEM 6. SELECTED FINANCIAL DATA
  Year EndedDecember 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Thousands)Income Statement DataOperating revenues
    
    $
    363,610
    
    
    $
    291,308
    
    
    $
    269,392
    
    
    $
    283,751
    
    
    $
    282,437Net earnings
    
    
    14,154
    
    
    
    3,972
    
    
    
    1,139
    
    
    
    9,231
    
    
    
    11,020Net earnings per shareBasic
    
    
    1.76
    
    
    
    0.74
    
    
    
    0.21
    
    
    
    1.73
    
    
    
    2.12Diluted
    
    
    1.76
    
    
    
    0.72
    
    
    
    0.21
    
    
    
    1.70
    
    
    
    2.08Weighted average shares outstandingBasic
    
    
    8,040
    
    
    
    5,383
    
    
    
    5,383
    
    
    
    5,334
    
    
    
    5,199Diluted
    
    
    8,063
    
    
    
    5,486
    
    
    
    5,486
    
    
    
    5,438
    
    
    
    5,305Cash dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash Flow DataNet cash provided by operating
activities
    
    $
    28,020
    
    
    $
    10,905
    
    
    $
    29,415
    
    
    $
    39,529
    
    
    $
    18,680Net cash used in investing activities
    
    
    (85,414
    )
    
    
    (21,044
    )
    
    
    (29,243
    )
    
    
    (154,535
    )
    
    
    (4,848
    )Net cash provided by financing
activities
    
    
    108,947
    
    
    
    8,275
    
    
    
    2,026
    
    
    
    127,245
    
    
    
    (9,260
    )Balance Sheet Data (1)Current assets
    
    $
    224,265
    
    
    $
    128,405
    
    
    $
    110,135
    
    
    $
    103,851
    
    
    $
    92,626Working capital
    
    
    162,527
    
    
    
    88,716
    
    
    
    70,300
    
    
    
    72,751
    
    
    
    46,987Property, plant and equipment, net
    
    
    311,678
    
    
    
    253,241
    
    
    
    258,526
    
    
    
    252,577
    
    
    
    122,168Total assets
    
    
    549,209
    
    
    
    394,173
    
    
    
    377,454
    
    
    
    366,707
    
    
    
    225,645Total debt
    
    
    204,300
    
    
    
    210,275
    
    
    
    202,000
    
    
    
    200,000
    
    
    
    66,616Shareholders equity
    
    
    239,051
    
    
    
    109,975
    
    
    
    105,993
    
    
    
    104,854
    
    
    
    91,872
 
 (1)
    
    As of the end of the period. 
 ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Overview
   13




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14




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15




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Results of Operations
  Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Segment operating revenuesDomestic Oil and Gas
    
    $
    219,644
    
    
    $
    180,102
    
    
    $
    183,849Air Medical
    
    
    112,123
    
    
    
    77,476
    
    
    
    46,674International
    
    
    28,192
    
    
    
    24,342
    
    
    
    21,247Technical Services
    
    
    3,651
    
    
    
    9,388
    
    
    
    17,622Total operating revenues
    
    
    363,610
    
    
    
    291,308
    
    
    
    269,392Segment direct expenseDomestic Oil and Gas
    
    
    173,177
    
    
    
    151,107
    
    
    
    163,328Air Medical
    
    
    104,465
    
    
    
    67,664
    
    
    
    32,782International
    
    
    19,099
    
    
    
    18,668
    
    
    
    21,093Technical Services
    
    
    2,522
    
    
    
    7,935
    
    
    
    13,026Total direct expense
    
    
    299,263
    
    
    
    245,374
    
    
    
    230,229Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    1,003
    
    
    
    1,499
    
    
    
    1,494Air Medical
    
    
    6,503
    
    
    
    6,525
    
    
    
    4,480International
    
    
    214
    
    
    
    49
    
    
    
    214Technical Services
    
    
    7
    
    
    
    12
    
    
    
    12Total selling, general and administrative expense
    
    
    7,727
    
    
    
    8,085
    
    
    
    6,200Total direct and selling, general and administrative
expense
    
    
    306,990
    
    
    
    253,459
    
    
    
    236,429Net segment profitDomestic Oil and Gas
    
    
    45,464
    
    
    
    27,496
    
    
    
    19,027Air Medical
    
    
    1,155
    
    
    
    3,287
    
    
    
    9,412International
    
    
    8,879
    
    
    
    5,625
    
    
    
    (60
    )Technical Services
    
    
    1,122
    
    
    
    1,441
    
    
    
    4,584Total
    
    
    56,620
    
    
    
    37,849
    
    
    
    32,963Other, net (1)
    
    
    3,230
    
    
    
    2,961
    
    
    
    2,674Unallocated selling, general and administrative costs
    
    
    (17,169
    )
    
    
    (12,949
    )
    
    
    (13,783
    )Interest expense
    
    
    (20,448
    )
    
    
    (20,109
    )
    
    
    (19,952
    )Earnings before income taxes
    
    $
    22,233
    
    
    $
    7,752
    
    
    $
    1,902Flight hoursDomestic Oil and Gas
    
    
    111,236
    
    
    
    100,814
    
    
    
    114,769Air Medical
    
    
    26,619
    
    
    
    19,595
    
    
    
    11,542International
    
    
    16,788
    
    
    
    15,871
    
    
    
    14,816Total
    
    
    154,643
    
    
    
    136,280
    
    
    
    141,127Air Medical Transports
    
    
    17,200
    
    
    
    11,390
    
    
    
    5,739Aircraft operated at period endDomestic Oil and Gas
    
    
    155
    
    
    
    151
    
    
    
    164Air Medical
    
    
    64
    
    
    
    51
    
    
    
    42International
    
    
    16
    
    
    
    19
    
    
    
    19Total (2)
    
    
    235
    
    
    
    221
    
    
    
    225
 
 (1)
    
    Including gains on disposition of property and equipment, and other income.(2)
    
    Includes 12, 14, and 14 aircraft as of December 31, 2005, 2004 and 2003, respectively
that are customer owned or leased by customers but operated by us. 16




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Year Ended December 31, 2005 compared with Year Ended December 31, 2004
 Combined Operations
 Revenues
 Other Income and Losses
 Direct
Expenses
 Selling,
General, and Administrative Expenses
 Income Taxes
 Earnings
 Segment Discussion
 Domestic Oil and Gas 
  17




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Air Medical 
    International 
    Technical Services 
   18




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Year Ended December 31, 2004 compared with Year Ended December 31, 2003
 Combined Operations
 Revenues
 Other Income and Losses
 Direct
Expenses
 Selling,
General, and Administrative Expenses
 Income Taxes
 Earnings
 Segment Discussion
 Domestic Oil and Gas 
   Air Medical 
 19




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International 
    Technical Services 
   Liquidity and Capital Resources
 General
   20




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Cash Flow
   Financing Activities
  Credit Facility
   Contractual Obligations
  21




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Payment Due by YearBeyondTotal
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010(Thousands of dollars)Aircraft Purchase
commitments (1)
    
    $
    176,753
    
    
    $
    102,442
    
    
    $
    74,311
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft Purchase
commitments (2)
    
    
    35,358
    
    
    
    35,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aircraft lease
obligations
    
    
    109,110
    
    
    
    10,300
    
    
    
    10,300
    
    
    
    10,300
    
    
    
    10,300
    
    
    
    10,902
    
    
    
    57,008Facility lease
obligations
    
    
    19,566
    
    
    
    2,839
    
    
    
    2,249
    
    
    
    1,858
    
    
    
    1,386
    
    
    
    1,132
    
    
    
    10,102Notes payable
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long term debt
    
    
    203,300
    
    
    
    
    
    
    
    3,300
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    $
    545,087
    
    
    $
    151,939
    
    
    $
    90,160
    
    
    $
    12,158
    
    
    $
    211,686
    
    
    $
    12,034
    
    
    $
    67,110
 
 (1)
    
    These commitments are for aircraft that we intend to finance through a combination of
operating leases, remaining cash from the equity offering completed June 2005 and
additional debt or equity financing sources that we are currently reviewing but are not yet
committed.(2)
    
    These commitments are for aircraft that we intend to finance with an operating lease.      Critical Accounting Policies and Estimates
  22




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New Accounting Pronouncements
  Environmental Matters
  23




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##### Table of Contents



ITEM 7.A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
  
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PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Thousands of dollars)
 December 31,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    69,561
    
    
    $
    18,008Accounts receivable  net of allowance:Trade
    
    
    89,351
    
    
    
    58,242Other
    
    
    6,766
    
    
    
    1,134Inventory
    
    
    48,123
    
    
    
    39,225Other current assets
    
    
    10,042
    
    
    
    10,695Refundable income taxes
    
    
    422
    
    
    
    1,101Total current assets
    
    
    224,265
    
    
    
    128,405Other
    
    
    13,266
    
    
    
    12,527Property and equipment, net
    
    
    311,678
    
    
    
    253,241Total Assets
    
    $
    549,209
    
    
    $
    394,173LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    40,506
    
    
    $
    22,735Accrued liabilities
    
    
    10,807
    
    
    
    4,836Accrued interest
    
    
    3,175
    
    
    
    3,181Accrued insurance
    
    
    
    
    
    
    1,526Accrued vacation payable
    
    
    3,811
    
    
    
    3,775Accrued salaries and wages
    
    
    2,439
    
    
    
    1,636Notes payable
    
    
    1,000
    
    
    
    2,000Total current liabilities
    
    
    61,738
    
    
    
    39,689Long-term debt
    
    
    203,300
    
    
    
    208,275Deferred income taxes
    
    
    38,906
    
    
    
    29,805Other long-term liabilities
    
    
    6,214
    
    
    
    6,429Commitments 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
    
    
    742
    
    
    
    253Additional paid-in capital
    
    
    129,531
    
    
    
    15,098Retained earnings
    
    
    108,493
    
    
    
    94,339Total shareholders equity
    
    
    239,051
    
    
    
    109,975Total Liabilities and Shareholders Equity
    
    $
    549,209
    
    
    $
    394,173
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PHI, 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 31,2005
    
    
    2004
    
    
    2003Operating revenues
    
    $
    363,610
    
    
    $
    291,308
    
    
    $
    269,392Gain on disposition of property
and equipment, net
    
    
    1,173
    
    
    
    2,569
    
    
    
    1,988Other
    
    
    2,057
    
    
    
    392
    
    
    
    686366,840
    
    
    
    294,269
    
    
    
    272,066Expenses:Direct expenses
    
    
    299,263
    
    
    
    245,374
    
    
    
    230,229Selling, general and
administrative expenses
    
    
    24,896
    
    
    
    21,034
    
    
    
    19,983Interest expense
    
    
    20,448
    
    
    
    20,109
    
    
    
    19,952344,607
    
    
    
    286,517
    
    
    
    270,164Earnings before income taxes
    
    
    22,233
    
    
    
    7,752
    
    
    
    1,902Income taxes
    
    
    8,079
    
    
    
    3,780
    
    
    
    763Net earnings
    
    $
    14,154
    
    
    $
    3,972
    
    
    $
    1,139Earnings per shareBasic
    
    $
    1.76
    
    
    $
    0.73
    
    
    $
    0.21Diluted
    
    $
    1.76
    
    
    $
    0.72
    
    
    $
    0.21Weighted average shares outstanding:Basic
    
    
    8,040
    
    
    
    5,383
    
    
    
    5,383Diluted
    
    
    8,063
    
    
    
    5,486
    
    
    
    5,486
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PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
                                 (Thousands of dollars and shares)
 Voting
    
    
    Non-Voting
    
    
    AdditionalCommon Stock
    
    
    Common Stock
    
    
    Paid-In
    
    
    RetainedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    EarningsBalance 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
    
    
    
    94,339Stock issuance, net
    
    
    
    
    
    
    
    
    
    
    4,887
    
    
    
    489
    
    
    
    113,352
    
    
    
    Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,154Balance at Dec. 31, 2005
    
    
    2,852
    
    
    $
    285
    
    
    
    7,418
    
    
    $
    742
    
    
    $
    129,531
    
    
    $
    108,493
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PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Thousands of dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net earnings
    
    $
    14,154
    
    
    $
    3,972
    
    
    $
    1,139Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation
    
    
    27,133
    
    
    
    27,843
    
    
    
    25,209Deferred income taxes
    
    
    6,415
    
    
    
    3,845
    
    
    
    (293
    )Gain on asset dispositions
    
    
    (1,173
    )
    
    
    (2,569
    )
    
    
    (1,988
    )Other
    
    
    1,411
    
    
    
    1,332
    
    
    
    (323
    )Changes in operating assets and liabilities:Accounts receivable  trade
    
    
    (31,109
    )
    
    
    (16,499
    )
    
    
    (2,245
    )Inventory
    
    
    (8,898
    )
    
    
    1,180
    
    
    
    (3,030
    )Refundable income taxes
    
    
    
    
    
    
    (876
    )
    
    
    2,011Other assets
    
    
    (2,313
    )
    
    
    (7,241
    )
    
    
    3,021Accounts payable, accrued liabilities and
vacation payable
    
    
    23,049
    
    
    
    (146
    )
    
    
    7,239Income taxes payable
    
    
    
    
    
    
    
    
    
    
    (504
    )Other long-term liabilities
    
    
    (649
    )
    
    
    64
    
    
    
    (821
    )Net cash provided by operating activities
    
    
    28,020
    
    
    
    10,905
    
    
    
    29,415Cash flows from investing activities:Purchase of property and equipment
    
    
    (96,165
    )
    
    
    (33,921
    )
    
    
    (36,863
    )Acquisition of additional operating locations
    
    
    
    
    
    
    (1,518
    )
    
    
    Proceeds from asset dispositions
    
    
    10,751
    
    
    
    14,395
    
    
    
    7,620Net cash used in investing activities
    
    
    (85,414
    )
    
    
    (21,044
    )
    
    
    (29,243
    )Cash flows from financing activities:Proceeds from (payments on) Notes and
long-term debt
    
    
    (1,000
    )
    
    
    
    
    
    
    2,000Proceeds from stock issuance
    
    
    115,162
    
    
    
    
    
    
    
    Less related fees & expenses
    
    
    (1,265
    )
    
    
    
    
    
    
    Proceeds from line of credit
    
    
    114,875
    
    
    
    37,008
    
    
    
    Payments on line of credit
    
    
    (119,850
    )
    
    
    (28,733
    )
    
    
    Proceeds from exercise of stock options
    
    
    1,025
    
    
    
    
    
    
    
    50Net cash provided by financing
activities
    
    
    108,947
    
    
    
    8,275
    
    
    
    2,026(Decrease) Increase in cash and cash equivalents
    
    
    51,553
    
    
    
    (1,864
    )
    
    
    2,198Cash and cash equivalents, beginning of year
    
    
    18,008
    
    
    
    19,872
    
    
    
    17,674Cash and cash equivalents, end of year
    
    $
    69,561
    
    
    $
    18,008
    
    
    $
    19,872
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PHI, 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, PHI, 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 PHI, 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 $6.3 million and $7.0 million at
December 31, 2005 and 2004, respectively.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 accelerated depreciation
methods for tax purposes. Upon selling or otherwise disposing of property and
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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).Effective January 1, 2005 and prospectively, the Company reassessed the salvage values applicable to major modifications to aircraft based on updated estimates derived from recent aircraft sales. The adjustment for the year 2005 resulted in a
decrease in depreciation expense ($1.6 million). In addition, we incurred approximately
($1.1 million) of expense in 2005 for repairs to an aircraft that incurred substantial
damage due to a weather related incident.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,
2005 and 2004, the Company had $1.1 million and $1.0 million, respectively, of accrued
liabilities related to health care claims.During 2005, the Company established an offshore insurance captive to realize savings in
reinsurance costs on its insurance premiums. Amounts paid to the captive in 2005 totaled $1.9
million. The financial position and operations of the insurance captive were not
significant in 2005. The captive is fully consolidated in the accompanying financial statements.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, 2005.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 at December 31, 2005 and December 31,
2004. The Companys largest domestic oil and gas customer accounted for 14%, 13%, and 15%,
of consolidated operating revenues for years ended December 31, 2005, 2004, and 2003,
respectively. The Company also carried accounts receivable from this same customer totaling
14% and 11%, of net trade receivable on December 31, 2005 and 2004, respectively.Trade receivables representing amounts due pursuant to air medical services are carried net
of an allowance for estimated contractual adjustments on unsettled invoices. The Company
monitors its collection experience by
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payor category within the Air Medical segment and updates its estimated collections to be
realized based on its most recent collection experience.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.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 $122,498 for 2005, $45,000 for 2004, and $300,000 for 2003.
There have been no stock awards granted since 2001.
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars, except per share data)Net earnings as reported
    
    $
    14,154
    
    
    $
    3,972
    
    
    $
    1,139Add stock-based employee compensation
expense included in reported net income
net of related tax effects
    
    
    122
    
    
    
    45
    
    
    
    300Deduct total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects,
    
    
    
    
    
    
    
    
    
    
    Net earnings  pro forma
    
    $
    14,276
    
    
    $
    4,017
    
    
    $
    1,439Earnings per shareBasic  as reported
    
    
    1.76
    
    
    
    0.74
    
    
    
    0.21Basic  pro forma
    
    
    1.78
    
    
    
    0.75
    
    
    
    0.27Diluted  as reported
    
    
    1.76
    
    
    
    0.72
    
    
    
    0.21Diluted  pro forma
    
    
    1.77
    
    
    
    0.73
    
    
    
    0.26Average 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.
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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.Deferred financing costsCosts of obtaining long term debt financing are deferred and amortized ratably over the term
of the related debt agreement.Derivative Financial InstrumentsThe Company has not engaged in activities involving financial derivatives during the years
2003, 2004, and 2005.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 first quarter of 2006. The Company has adopted SFAS No. 123
(R) using the modified-prospective method.SFAS No. 143, Accounting for Asset Retirement Obligationsrequires the recording of
liabilities for all legal obligations associated with the retirement of long-lived assets
that result from the normal operations of those assets. These liabilities are required to
be recorded at fair value in the period in which they are incurred with the associated asset
retirement costs capitalized as part of the carrying amount of the long-lived asset. The
Statement was effective for the Company on January 1, 2003. In 2005, FASB issued
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, (FIN 47)
to further clarify that such asset retirement obligations should be recognized for
conditional obligations in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. FIN 47 was effective
at December 31, 2005. The Company evaluated its leased and owned properties for potential
asset retirement obligations under SFAS No. 143, as amended and interpreted by FIN 47.
Based on this review, the Company identified obligations primarily related to the removal of
fuel storage tanks upon the abandonment or disposal of facilities. The operation of fuel
storage tanks is monitored on an ongoing basis to prevent ground contamination and the cost
of removing such tanks is not significant. Based on the Companys evaluation of such
obligations, such liabilities were deemed to be immaterial to the financial position,
results of operations or cash flows of the Company.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 was effective as of July 1, 2005, and did not have an
impact on the financial reporting of the Company.
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In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. This
Statement is a replacement APB Opinion No. 20, Accounting Changes,and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements, and changes the requirements for the
accounting for and reporting of a change in accounting principle. This Statement applies to
all voluntary changes in accounting principle and to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include specific
transition provisions. This statement requires retrospective application to prior periods
financial statements of changes in accounting principle, unless it is impracticable to
determine period-specific effects of an accounting change on one or more individual prior
periods presented. Then the new accounting principle is applied to the balances of assets
and liabilities as of the beginning of the earliest period for which retrospective
application is practicable and that a corresponding adjustment be made to the opening
balance of retained earnings for that period rather that being reported in an income
statement. Further, the accounting principle is to be applied prospectively from the
earliest date when it is impracticable to determine the effect to all prior periods. This
Statement is effective for the Company as of January 1, 2006. Adoption of this statement
could have an impact if there are future voluntary accounting changes and correction of
errors.Comprehensive IncomeComprehensive Income includes net earnings and other comprehensive income items such as
revenues, expenses, gains or losses that under Generally Accepted Accounting Principles are
included in comprehensive income, but excluded from net income. Since 2002, the Company has
no such items required to be excluded from net earnings. Accordingly, there is no
difference between net earnings and comprehensive income for the years ended December 31,
2005, 2004, or 2003.GoodwillGoodwill represents costs in excess of the fair value acquired in connection with purchase
business combinations. Goodwill arose in connection with the 2004 acquisition of a company related to the planned expansion of the Air Medical Segment. In accordance with the provisions of SFAS No. 142, Goodwill and
Other Intangibles, the Company tests its goodwill for impairment annually or if impairment
indicators are present. If indicators of impairment were present in goodwill and
undiscounted cash flows were not expected to be sufficient to recover the assets carrying
amount, an impairment loss would be charged to expense in the period identified.(2)
    
    PROPERTY AND EQUIPMENTThe following table summarizes the Companys property and equipment at
December 31, 2005 and December 31, 2004.
 December 31,
    
    
    December 31,2005
    
    
    2004(Thousands of dollars)Flight equipment
    
    $
    416,076
    
    
    $
    350,022Other
    
    
    67,645
    
    
    
    61,710483,721
    
    
    
    411,732Less accumulated depreciation
    
    
    (172,043
    )
    
    
    (158,491
    )Property and equipment, net
    
    $
    311,678
    
    
    $
    253,241
 Property and equipment at December 31, 2005 and 2004 included aircraft with a net book value
of $1.1 million and $1.0 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 Unsecured Notes),
pursuant to an exchange offer that was registered under the Securities
Act. The Series B Senior Unsecured 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 Unsecured 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
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stock, dispositions of proceeds of asset sales, and mergers and consolidations or sales of
assets. As of December 31, 2005 and 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 reduced the revolving credit facility from
$50 million to $35 million. On September 30, 2005, the Company amended its credit
agreement, which was scheduled to expire July 31, 2006, and extended the expiration date to
July 31, 2007. 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, 2007. 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, 2005, the Company had $3.3 million borrowings under the revolving credit
facility, and the Company had $8.3 million under the credit facility at December 31, 2004.
The Company had four letters of credit for $4.2 million outstanding at December 31, 2005,
and three letters of credit for $2.6 million outstanding at December 31, 2004. The credit
agreement includes covenants related to working capital, funded debt to net worth, and
consolidated net worth. As of December 31, 2005 and 2004, the Company was in compliance
with these covenants. The credit agreement is collateralized by accounts receivable and
inventory. Also included in notes payable at December 31, 2005 and 2004 are $1.0 million
and $2.0 million, respectively, representing finance agreements on purchase commitments for
transport category aircraft as further described at Note 8.Cash paid for interest was $19.5 million, $19.1 million, and $19.0 million, for the years
ended December 31, 2005, 2004, and 2003, respectively.(4)
    
    INCOME TAXESIncome tax expense (benefit) is composed of the following:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)CurrentFederal
    
    $
    343
    
    
    $
    
    
    
    $
    State
    
    
    (50
    )
    
    
    (1,142
    )
    
    
    102Foreign
    
    
    1,371
    
    
    
    1,077
    
    
    
    954Deferred  principally Federal
    
    
    6,415
    
    
    
    3,845
    
    
    
    (293
    )Total
    
    $
    8,079
    
    
    $
    3,780
    
    
    $
    763
 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, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003(Thousands of dollars, except percentage amounts)Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Income taxes at statutory rate
    
    $
    7,559
    
    
    
    34
    
    
    $
    2,636
    
    
    
    34
    
    
    $
    647
    
    
    
    34Increase (decrease) in taxes
resulting from:Effect of foreign tax expense,
net of U.S. benefits
    
    
    
    
    
    
    
    
    
    
    679
    
    
    
    9
    
    
    
    
    
    
    
    Hurricane relief credit
    
    
    (537
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of state income taxes
    
    
    762
    
    
    
    3
    
    
    
    298
    
    
    
    4
    
    
    
    195
    
    
    
    10Other items  net
    
    
    295
    
    
    
    1
    
    
    
    167
    
    
    
    2
    
    
    
    (79
    )
    
    
    (4
    )Total
    
    $
    8,079
    
    
    
    36
    
    
    $
    3,780
    
    
    
    49
    
    
    $
    763
    
    
    
    40
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The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2005 and 2004 are presented
below (in thousands):
 December 31,
    
    
    December 31,2005
    
    
    2004Deferred tax assets:Deferred compensation
    
    $
    1,652
    
    
    $
    1,527Foreign tax credits
    
    
    4,617
    
    
    
    3,246Valuation allowance  tax credit carryforwards
    
    
    (2,142
    )
    
    
    (2,142
    )Vacation accrual
    
    
    1,419
    
    
    
    1,397Inventory valuation
    
    
    3,549
    
    
    
    3,733Workmans compensation reserve
    
    
    190
    
    
    
    367Allowance for uncollectible accounts
    
    
    2,297
    
    
    
    282Alternative minimum tax credit
    
    
    343
    
    
    
    Hurricane relief credit
    
    
    814
    
    
    
    Other
    
    
    1,321
    
    
    
    157Net operating loss
    
    
    23,282
    
    
    
    28,913Total deferred tax assets
    
    
    37,342
    
    
    
    37,480Deferred tax liabilities:Tax depreciation in excess of book
depreciation
    
    
    (68,167
    )
    
    
    (61,890
    )Total deferred tax liabilities
    
    
    (68,167
    )
    
    
    (61,890
    )Net deferred tax liabilities
    
    $
    (30,825
    )
    
    $
    (24,410
    )
 A valuation allowance was recorded against certain foreign tax credits paid in 2004 and
prior 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. Due to recent changes in the tax
laws extending the credit carryforward period, management believes that a valuation
allowance is not necessary for foreign tax credits generated in 2005. A tax credit of $0.8
million was realized in 2005 as a result of Hurricanes Katrina and Rita Legislation. At
December 31, 2005 and 2004, other current assets include $8.1 million and $5.4 million,
respectively, of deferred tax assets.The Company has net operating loss carryforwards (NOLs), of approximately $61.0 million
that, if not used will expire beginning in 2022 through 2024. Additionally, for state income
tax purposes, the Company has NOLs of approximately $51.0 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. Most of these NOLs arose from
accelerated tax depreciation deductions related to substantial aircraft additions since
2002.Income taxes paid were approximately $0.1 million, $0.7 million, and $1.4 million, for the
years ended December 31, 2005, 2004, and 2003, respectively. The Company received net
income tax refunds of approximately $0.8 million, $0.5 million and $2.0 million during the
years ended December 31, 2005, 2004 and 2003, 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 $5.4
million for the year ended December 31, 2005, $4.8 million for the year ended December 31,
2004 and $4.3 million for the year ended December 31, 2003.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
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##### Table of Contents



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, 2005, 2004, and 2003.
 Years Ended December 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Service cost
    
    $
    259
    
    
    $
    302
    
    
    $
    369Interest cost
    
    
    124
    
    
    
    111
    
    
    
    95Recognized actuarial (gain) loss
    
    
    53
    
    
    
    (30
    )
    
    
    (36
    )Net periodic plan cost
    
    
    436
    
    
    
    383
    
    
    
    428
 The benefit obligation, funded status, and assumptions of the plan on December 31, 2005 and
2004 were as follows:
 December 31,2005
    
    
    2004(Thousands of dollars)Change in benefit obligation:Benefit obligation at the beginning of the year
    
    $
    3,148
    
    
    $
    2,609Service cost
    
    
    259
    
    
    
    302Interest cost
    
    
    124
    
    
    
    111Actuarial loss
    
    
    13
    
    
    
    247Benefits paid
    
    
    (131
    )
    
    
    (121
    )Benefit obligation at the end of the year
    
    
    3,413
    
    
    
    3,148
 December 31,2005
    
    
    2004(Thousands of dollars)Reconciliation of funded statusUnfunded status
    
    
    (3,413
    )
    
    
    (3,148
    )Unrecognized actuarial gains
    
    
    (123
    )
    
    
    (82
    )Total liability included in other long term
liabilities on the consolidated balance sheet
    
    $
    (3,536
    )
    
    $
    (3,230
    )Weighted average assumptionsDiscount rate
    
    
    4.0
    %
    
    
    3.8
    %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. The Company recorded expenses of approximately $0.5 million for
each of the years 2005 and 2004 related to the life insurance contracts. Cash values of the
life insurance contracts, recorded in other assets, are $0.9 million at December 31, 2005
and $0.7 million at December 31, 2004.The Board of Directors has resolved to terminate the SERP, subject to any vested participant
rights, and has offered participants a substitute benefit in the Officer Deferred
Compensation Plan based on a calculated present value participants interest in the SERP.
In January 2006, the participants agreed to such substitute benefits and as a result
approximately $2.2 million of the SERP liability will be transferred to the Deferred
Compensation Liability in 2006.
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##### Table of Contents



The Company maintains an Officer Deferred Compensation Plan that permits key officers to
defer a portion of their compensation. The plan is nonqualified and funded. The Company
has established a separate account for each participant, which is 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. Liabilities for the plan are included in other long-term liabilities, and the
corresponding investment accounts are included in other assets. Aggregate amounts deferred
under the plans were $0.9 million and $0.1 million, respectively, for the years December 31,
2005 and 2004.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. Such options
were exercised in 2005. The Company has not issued any shares, options or rights under the
1995 Plan since 2001.At December 31, 2005, 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 $0.2 million for December 31, 2005, $0.1 million for December
31, 2004 and $0.4 million for the year ended December 31, 2003. There was no unearned stock
compensation expense at December 31, 2005 and 2004.The following table summarizes employee and director stock option activities for the years
ended December 31, 2005, 2004, and 2003. 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.
 1995PlanOptions
    
    
    
    
    
    
    WeightedNon-
    
    
    
    
    
    
    AverageVoting
    
    
    Totals
    
    
    Exercise PriceBalance outstanding at
December 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 at
December 31, 2003
    
    
    217,703
    
    
    
    217,703
    
    
    
    11.63Options settled for cash
    
    
    (10,750
    )
    
    
    (10,750
    )
    
    
    12.75Balance outstanding at
December 31, 2004
    
    
    206,953
    
    
    
    206,953
    
    
    
    11.57Options exercised
    
    
    (150,000
    )
    
    
    (150,000
    )
    
    
    11.06Options settled for cash
    
    
    (10,203
    )
    
    
    (10,203
    )
    
    
    8.50Balance outstanding at
December 31, 2005
    
    
    46,750
    
    
    
    46,750
    
    
    
    13.87Shares exercisable atDecember 31, 2005
    
    
    46,750
    
    
    
    46,750
    
    
    
    13.87December 31, 2004
    
    
    206,953
    
    
    
    206,953
    
    
    
    11.57December 31, 2003
    
    
    217,703
    
    
    
    217,703
    
    
    
    11.63
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##### Table of Contents



Options Outstanding and ExercisableRemainingNumber
    
    Contractual
    
    
    ExerciseOutstanding
    
    Life (Years)
    
    
    Price31,750
    
    
    3.5
    
    
    $
    12.7515,000
    
    
    2.8
    
    
    
    16.2546,750
    
    
    3.3
    (1)
    
    
    13.87
 
 (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. During 2004, the Company implemented an Executive/Senior Management
plan for certain corporate and business unit management employees. For 2005, the Company
recorded $2.3 million of incentive compensation expense related to the above plans. The
Company did not record incentive compensation expense for the years ended December 31, 2004
and 2003, as certain requirements under the incentive plans established were not met.(6)
    
    OTHER ASSETSThe following table summarizes the Companys other assets at December 31, 2005 and 2004.
 December 31,
    
    
    December 31,2005
    
    
    2004(Thousands of dollars)Goodwill acquired
    
    $
    2,747
    
    
    $
    1,878Security deposits on aircraft
    
    
    4,576
    
    
    
    4,250Deferred financing cost
    
    
    3,520
    
    
    
    3,892Other
    
    
    2,513
    
    
    
    2,507Total
    
    $
    13,266
    
    
    $
    12,527
 During 2005 and 2004, 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, 2005 and December 2004. 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, 2005
    
    
    December 31, 2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmounts
    
    
    Fair Value
    
    
    Amounts
    
    
    Fair ValueLong-term debt
    
    $
    200,000
    
    
    $
    210,500
    
    
    $
    200,000
    
    
    $
    216,000
 At December 31, 2005 and 2004, the fair value of long-term debt is based on quoted market
indications.
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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 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Aircraft
    
    $
    5,817
    
    
    $
    748
    
    
    $
    1,094Other
    
    
    5,167
    
    
    
    3,906
    
    
    
    3,033Total
    
    $
    10,984
    
    
    $
    4,654
    
    
    $
    4,127
 The Company began leasing a principal operating facility at Lafayette, Louisiana 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)2006
    
    $
    10,300
    
    
    $
    2,839
    
    
    $
    13,1392007
    
    
    10,300
    
    
    
    2,249
    
    
    
    12,5492008
    
    
    10,300
    
    
    
    1,858
    
    
    
    12,1582009
    
    
    10,300
    
    
    
    1,386
    
    
    
    11,6862010
    
    
    10,902
    
    
    
    1,132
    
    
    
    12,034Thereafter
    
    
    57,008
    
    
    
    10,102
    
    
    
    67,110$
    109,110
    
    
    $
    19,566
    
    
    $
    128,676
 The Company expects to finance the acquisition of new aircraft, discussed below, with
existing cash, operating leases, the issuance of debt or equity securities or some
combination thereof.In 2005, we took delivery of three transport category aircraft, four medium and eight light
aircraft for service in the Domestic Oil and Gas segment. We also took delivery of eleven
light aircraft for service in the Air Medical segment. Subsequent to December 31, 2005, we
took delivery of one transport category, one medium, and two light aircraft, all for service
in Domestic Oil and Gas, and one light aircraft for service in the Air Medical segment. We
executed operating leases for the transport category aircraft.At December 31, 2005, we had an order for three additional transport category aircraft, one
of which was delivered early January and an operating lease was executed for that aircraft.
There are two aircraft remaining for delivery in 2006 at an approximate cost of $35.0
million, for which we intend to execute an operating lease for these aircraft also.Additionally, at December 31, 2005, we had orders for 35 additional aircraft with a total
cost of $176.8 million with scheduled delivery dates throughout 2006 and 2007. Of this
total, four aircraft totaling $14.5 million were delivered subsequent to December 31, 2005,
as mentioned above.Environmental Matters We have an aggregate estimated liability of $0.2 million as of
December 31, 2005 for environmental remediation costs that are probable and estimable. We
have conducted environmental surveys of our former Lafayette Facility, which we vacated in
2001, and have determined that limited soil and groundwater
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contamination exists at the facility. We have installed groundwater monitoring wells at the
facility and periodically monitor and report on the contamination. In May 2003, we
submitted a Louisiana Risk Evaluation/Corrective Action Plan (RECAP) Standard Site
Assessment Report to the Louisiana Department of Environmental Quality (LDEQ) fully
delineating the extent and type of contamination. LDEQ is reviewing the assessment report
and has requested that the Site Assessment Report be updated to include recent analytical
data and be resubmitted for further LDEQ review. Once LDEQ completes its review 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 an appropriate remediation plan and determine the resulting cost of
remediation. We have not recorded any estimated liability for remediation and contamination
and, based upon the May 2003 Site Assessment Report and ongoing monitoring, we believe the
ultimate remediation costs for the former Lafayette facility will not be material to our
consolidated financial position, results of operations, or liquidity.During 2004, LDEQ advised the us that groundwater contaminants impacting monitor wells at
the PHI Lafayette Heliport were originating from an off-site location and that we would no
longer be required to perform further monitoring at the site. Subsequently, based upon site
investigation work performed by the Lafayette Airport Commission, the source of the
contamination was identified as residing at another location, for which PHI is not
responsible. The Lafayette Airport Commission has begun remediation of the PHI Lafayette
Heliport.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.As previously reported, on June 15, 2005, we received a subpoena from the United States
Department of Justice relating to a grand jury investigation of potential antitrust
violations among providers of helicopter transportation services in the Gulf of Mexico. We
are cooperating fully with the investigation and are in the process of providing documents
and other information as required by the subpoena. We will respond to any DOJ request for
further information, and will continue to cooperate with the investigation. At this early
stage, it is not possible to assess the outcome of this investigation, although based on the
information available to us to date, management does not expect the outcome of the investigation to have a material adverse effect on our financial condition or results of operations.Purchase Commitments At December 31, 2005, there were no purchase commitments other than
those described above with respect to aircraft which the Company expects to fund with
existing cash, issue debt and/or equity securities, execute an operating lease, or some
combination thereof.(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 a now expired
contract with one customer.
 41




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##### Table of Contents



The Companys largest customer, who is a customer in the Domestic Oil and Gas segment,
accounted for 14% ($50.5 million), 13% ($37.8 million), and 15% ($40.4 million) of operating
revenues for the years ended December 31, 2005, 2004, and 2003, 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, 2005, 2004, and 2003. 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 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 investments, other assets, and certain
property, plant, and equipment.
 Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Segment operating revenuesDomestic Oil and Gas
    
    $
    219,644
    
    
    $
    180,102
    
    
    $
    183,849Air Medical
    
    
    112,123
    
    
    
    77,476
    
    
    
    46,674International
    
    
    28,192
    
    
    
    24,342
    
    
    
    21,247Technical Services
    
    
    3,651
    
    
    
    9,388
    
    
    
    17,622Total operating revenues
    
    
    363,610
    
    
    
    291,308
    
    
    
    269,392Segment direct expenseDomestic Oil and Gas
    
    
    173,177
    
    
    
    151,107
    
    
    
    163,328Air Medical
    
    
    104,465
    
    
    
    67,664
    
    
    
    32,782International
    
    
    19,099
    
    
    
    18,668
    
    
    
    21,093Technical Services
    
    
    2,522
    
    
    
    7,935
    
    
    
    13,026Total direct expense
    
    
    299,263
    
    
    
    245,374
    
    
    
    230,229Segment selling, general and administrative expenseDomestic Oil and Gas
    
    
    1,003
    
    
    
    1,499
    
    
    
    1,494Air Medical
    
    
    6,503
    
    
    
    6,525
    
    
    
    4,480International
    
    
    214
    
    
    
    49
    
    
    
    214Technical Services
    
    
    7
    
    
    
    12
    
    
    
    12Total selling, general and administrative expense
    
    
    7,727
    
    
    
    8,085
    
    
    
    6,200Total direct and selling, general and administrative
expense
    
    
    306,990
    
    
    
    253,459
    
    
    
    236,429Net segment profitDomestic Oil and Gas
    
    
    45,464
    
    
    
    27,496
    
    
    
    19,027Air Medical
    
    
    1,155
    
    
    
    3,287
    
    
    
    9,412International
    
    
    8,879
    
    
    
    5,625
    
    
    
    (60
    )Technical Services
    
    
    1,122
    
    
    
    1,441
    
    
    
    4,584Total
    
    
    56,620
    
    
    
    37,849
    
    
    
    32,963Other, net (1)
    
    
    3,230
    
    
    
    2,961
    
    
    
    2,674Unallocated selling, general and administrative costs
    
    
    (17,169
    )
    
    
    (12,949
    )
    
    
    (13,783
    )Interest expense
    
    
    (20,448
    )
    
    
    (20,109
    )
    
    
    (19,952
    )Earnings before income taxes
    
    $
    22,233
    
    
    $
    7,752
    
    
    $
    1,902
 
 (1)
    
    Including gains on disposition of property and equipment and other income. 42




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##### Table of Contents



Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Expenditures for long lived
AssetsDomestic Oil and Gas
    
    $
    55,876
    
    
    $
    7,614
    
    
    $
    20,086Air Medical
    
    
    39,361
    
    
    
    18,071
    
    
    
    12,881International
    
    
    284
    
    
    
    198
    
    
    
    276Corporate
    
    
    644
    
    
    
    8,038
    
    
    
    3,620Total
    
    $
    96,165
    
    
    $
    33,921
    
    
    $
    36,863
 Year EndedDecember 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Depreciation and
AmortizationDomestic Oil and Gas
    
    $
    15,829
    
    
    $
    18,342
    
    
    $
    19,042Air Medical
    
    
    6,023
    
    
    
    4,992
    
    
    
    2,031International
    
    
    1,236
    
    
    
    1,587
    
    
    
    1,928Technical Services
    
    
    
    
    
    
    42
    
    
    
    127Corporate
    
    
    4,045
    
    
    
    2,880
    
    
    
    2,081Total
    
    $
    27,133
    
    
    $
    27,843
    
    
    $
    25,209AssetsDomestic Oil and Gas
    
    $
    247,657
    
    
    $
    227,929
    
    
    $
    253,064Air Medical
    
    
    137,911
    
    
    
    89,722
    
    
    
    49,672International
    
    
    13,560
    
    
    
    12,289
    
    
    
    14,733Technical Services
    
    
    
    
    
    
    
    
    
    
    12,176Corporate
    
    
    150,081
    
    
    
    64,233
    
    
    
    47,809Total
    
    $
    549,209
    
    
    $
    394,173
    
    
    $
    377,454
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2003(Thousands of dollars)Operating revenues:United States
    
    $
    335,418
    
    
    $
    266,966
    
    
    $
    248,145International
    
    
    28,192
    
    
    
    24,342
    
    
    
    21,247Total
    
    $
    363,610
    
    
    $
    291,308
    
    
    $
    269,392Long-Lived Assets:United States
    
    $
    303,924
    
    
    $
    246,819
    
    
    $
    248,211International
    
    
    7,754
    
    
    
    6,422
    
    
    
    10,315Total
    
    $
    311,678
    
    
    $
    253,241
    
    
    $
    258,526
 43




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##### Table of Contents



(10)
    
    EFFECTS OF HURRICANESDuring 2005 two significant hurricanes affected our operations. Hurricane Katrina made
landfall in southeastern Louisiana on August 29, 2005 and caused substantial flooding at our
base at Boothville, Louisiana which we expect to be returned to service in late 2006. Other
bases incurred some damage, most of which has been repaired. Flight hours were adversely
affected initially as aircraft were evacuated and parked until the storm passed. When
flights resumed, we experienced an increase in flight hours as customers began assessing
damage and making repairs to facilities in the Gulf of Mexico. Additionally, the Air
Medical segment experienced higher than normal flight activity while assisting with the
evacuation of New Orleans following the hurricane.On September 24, 2005, Hurricane Rita made landfall in southwestern Louisiana destroying our
base in Cameron, and causing flooding and wind damage at other bases. Initially, flight
hours were also adversely affected by this storm, but once flights resumed, they returned to
pre-Katrina activity levels. The Air Medical segment also experienced additional flight
activity both before and after Hurricane Rita related to the evacuation of certain areas of
Texas.Operations at bases that are currently out of service have been relocated to other bases
that were unaffected or did not sustain significant damage. All employees were accounted
for and there were no injuries reported. All aircraft were evacuated prior to both storms,
and as a result there was no damage to aircraft. Through December 31, 2005 we recognized a
loss from the hurricanes of approximately $5.6 million consisting of the write-off of
inventory and other tangible assets of $2.5 million and incremental repair and relocation
costs of $3.1 million. Such losses were offset completely by estimated insurance recoveries
of which $2.7 million remains in accounts receivable, other at December 31, 2005. We
anticipate incurring additional repair costs of approximately $2.9 million in 2006 to
restore damaged facilities and we expect that substantially all of such costs will be
covered by insurance.If the estimates of our damages and insurance recoveries prove to be reasonably accurate, we
do not believe that we will record any net loss related to hurricane damages for financial
reporting purposes. Such estimates could, of course, change as better repair estimates
become available. We would expect to have an unreimbursed cash outlay of approximately $1.0
million due to the difference in the insurance reimbursement for certain assets that had
been in service for a number of years and were a total loss, compared to the replacement
cost we will incur for those assets.(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 had already terminated employment, or were
scheduled to terminate employment and who had 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, 2005 and December 31, 2004 (in thousands of dollars,
except per share data) are as follows:
 Quarter EndedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,2005
    
    2005
    
    2005
    
    2005(Thousands of dollars, except per share data)Operating revenues
    
    $
    74,239
    
    
    $
    86,783
    
    
    $
    100,018
    
    
    $
    102,570Gross profit
    
    
    10,203
    
    
    
    13,887
    
    
    
    19,834
    
    
    
    20,422Net earnings
    
    
    359
    
    
    
    1,961
    
    
    
    5,460
    
    
    
    6,374Net earnings per shareBasic
    
    
    0.07
    
    
    
    0.32
    
    
    
    0.53
    
    
    
    0.62Diluted
    
    
    0.07
    
    
    
    0.31
    
    
    
    0.53
    
    
    
    0.62
 44




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##### Table of Contents



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 (loss)
    
    
    3
    
    
    
    1,113
    
    
    
    2,659
    
    
    
    197Net earnings per shareBasic
    
    
    
    
    
    
    0.21
    
    
    
    0.49
    
    
    
    0.04Diluted
    
    
    
    
    
    
    0.20
    
    
    
    0.48
    
    
    
    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 PHI, Inc. (Parent Company
Only) and the Guarantor Subsidiaries. The principal eliminating
entries eliminate investments in subsidiaries, intercompany balances,
and intercompany revenues and expenses.
 45




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##### Table of Contents



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




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##### Table of Contents



PHI, 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
    
    
    10,632
    
    
    
    63
    
    
    
    
    
    
    
    10,695Refundable income taxes
    
    
    916
    
    
    
    185
    
    
    
    
    
    
    
    1,101Total current assets
    
    
    120,342
    
    
    
    8,063
    
    
    
    
    
    
    
    128,405Investment in subsidiaries
    
    
    29,779
    
    
    
    
    
    
    
    (29,779
    )
    
    
    Intercompany
receivable
    
    
    
    
    
    
    30,376
    
    
    
    (30,376
    )
    
    
    Other assets
    
    
    12,505
    
    
    
    22
    
    
    
    
    
    
    
    12,527Property and equipment, net
    
    
    247,797
    
    
    
    5,444
    
    
    
    
    
    
    
    253,241Total assets
    
    $
    410,423
    
    
    $
    43,905
    
    
    $
    (60,155
    )
    
    $
    394,173LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    29,796
    
    
    $
    4,118
    
    
    $
    
    
    
    $
    33,914Intercompany
payable
    
    
    30,376
    
    
    
    
    
    
    
    (30,376
    )
    
    
    Accrued vacation payable
    
    
    3,519
    
    
    
    256
    
    
    
    
    
    
    
    3,775Notes payable
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000Total current liabilities
    
    
    65,691
    
    
    
    4,374
    
    
    
    (30,376
    )
    
    
    39,689Long-term debt
    
    
    208,275
    
    
    
    
    
    
    
    
    
    
    
    208,275Deferred income taxes and other long-term
liabilities
    
    
    26,482
    
    
    
    9,752
    
    
    
    
    
    
    
    36,234Shareholders EquityPaid-in capital
    
    
    15,636
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    15,636Retained earnings
    
    
    94,339
    
    
    
    25,377
    
    
    
    (25,377
    )
    
    
    94,339Total shareholders equity
    
    
    109,975
    
    
    
    29,779
    
    
    
    (29,779
    )
    
    
    109,975Total liabilities and
shareholders equity
    
    $
    410,423
    
    
    $
    43,905
    
    
    $
    (60,155
    )
    
    $
    394,173
 47




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 For the year ended December 31, 2005ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    310,868
    
    
    $
    52,742
    
    
    $
    
    
    
    $
    363,610Management fees
    
    
    1,485
    
    
    
    
    
    
    
    (1,485
    )
    
    
    Gain on dispositions of property and
equipment, net
    
    
    1,173
    
    
    
    
    
    
    
    
    
    
    
    1,173Other
    
    
    1,988
    
    
    
    69
    
    
    
    
    
    
    
    2,057315,514
    
    
    
    52,811
    
    
    
    (1,485
    )
    
    
    366,840Expenses:Direct expenses
    
    
    263,861
    
    
    
    35,402
    
    
    
    
    
    
    
    299,263Management fees
    
    
    
    
    
    
    1,485
    
    
    
    (1,485
    )
    
    
    Selling, general, and administrative
    
    
    22,110
    
    
    
    2,786
    
    
    
    
    
    
    
    24,896Equity in net income of consolidated
subsidiaries
    
    
    (8,921
    )
    
    
    
    
    
    
    8,921
    
    
    
    Interest expense
    
    
    20,448
    
    
    
    
    
    
    
    
    
    
    
    20,448297,498
    
    
    
    39,673
    
    
    
    7,436
    
    
    
    344,607Earnings before income taxes
    
    
    18,016
    
    
    
    13,138
    
    
    
    (8,921
    )
    
    
    22,233Income taxes
    
    
    3,862
    
    
    
    4,217
    
    
    
    
    
    
    
    8,079Net earnings
    
    $
    14,154
    
    
    $
    8,921
    
    
    $
    (8,921
    )
    
    $
    14,154
 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
 48




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Thousands of dollars)
 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
 49




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 For the year ended December 31, 2005ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating
activities
    
    $
    27,864
    
    
    $
    156
    
    
    $
    
    
    
    $
    28,020Cash flows from investing activities:Purchase of property and equipment
    
    
    (96,161
    )
    
    
    (4
    )
    
    
    
    
    
    
    (96,165
    )Proceeds from asset dispositions
    
    
    10,751
    
    
    
    
    
    
    
    
    
    
    
    10,751Net cash used in investing activities
    
    
    (85,410
    )
    
    
    (4
    )
    
    
    
    
    
    
    (85,414
    )Cash flows from financing activities:Proceeds from (payment of) long-term
debt, net
    
    
    (5,975
    )
    
    
    
    
    
    
    
    
    
    
    (5,975
    )Proceeds from exercise of stock options
    
    
    1,025
    
    
    
    
    
    
    
    
    
    
    
    1,025Proceeds from stock issuance, net
    
    
    113,897
    
    
    
    
    
    
    
    
    
    
    
    113,897Net cash provided by financing
activities
    
    
    108,947
    
    
    
    
    
    
    
    
    
    
    
    108,947Increase in cash and cash equivalents
    
    
    51,401
    
    
    
    152
    
    
    
    
    
    
    
    51,553Cash and cash equivalents, beginning of
period
    
    
    17,701
    
    
    
    307
    
    
    
    
    
    
    
    18,008Cash and cash equivalents, end of period
    
    $
    69,102
    
    
    $
    459
    
    
    $
    
    
    
    $
    69,561
 For the year ended December 31, 2004ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by 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 (decrease) 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
 50




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(Thousands of dollars)
 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
 51




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
  
 ITEM 9.A.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting
  Internal
Control-Integrated Framework
  52




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal
ControlIntegrated Framework
   
 53




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##### Table of Contents



ITEM 9.B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  54




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##### Table of Contents



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, 2005 and December 31, 2004.Consolidated Statements of Operations for the years ended December 31, 2005, December 31,
2004, and December 31, 2003.Consolidated Statements of Shareholders Equity for the years ended December 31, 2005,
December 31, 2004, and December 31, 2003.Consolidated Statements of Cash Flows for the years ended December 31, 2005, December 31 2004,
and December 31, 2003.Notes to Consolidated Financial Statements2.
    
    
    
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying accounts for the years ended December 31, 2005,
December 31, 2004 and December 31, 2003.
 3.
    
    Exhibits
 3
    
    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)
    
    Articles of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K
filed January 3, 2006)(iii)
    
    Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the
quarterly period ended March 31, 2002).
 4
    
    Instruments defining the rights of security holders, including indentures.4.1
    
    Indenture dated April 23, 2002 among PHI, 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% Series B Senior Note due 2009 (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)  THIS FORM OF SENIOR NOTE IS AN EXHIBIT TO THE
INDENTURE WHICH IS FILED AS EXHIBIT 4.1 TO THIS REGISTRATION STATEMENT ON FORM S-4, AND
PROBABLY DOESNT NEED TO BE SEPARATELY INCORPORATED BY REFERENCE.4.3
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002).4.4
    
    1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004).
 55




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##### Table of Contents



4.5
    
    Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528)4.6
    
    Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528)10
    
    Material Contracts10.2
    
    The PHI, 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 PHI, 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 PHI, 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).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 PHI, 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-K/A 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.
 
 56




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##### Table of Contents



PHI, 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, 2005:Allowance for doubtful accounts
    
    $
    163
    
    
    $
    
    
    
    $
    
    
    
    $
    163Allowance for obsolescent
inventory
    
    
    6,988
    
    
    
    (70
    )
    
    
    650
    
    
    
    6,268Year 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
    
    
    
    5,536
 57




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##### Table of Contents



PHI,
    
    INC.By:
    
    /s/ Michael J. McCannMichael J. McCannChief Financial Officer(Principal Financial andAccounting Officer)
  Signature
    
    
    
    Title
    
    Date/s/
    
    Al A. Gonsoulin
    
    
    
    Chairman of the Board
    
    March 10, 2006Al A. Gonsoulin
    
    
    
    Chief Executive Officerand Director(Principal Executive Officer)/s/
    
    Lance F. Bospflug
    
    
    
    Director
    
    March 10, 2006Lance F. Bospflug/s/
    
    Arthur J. Breault, Jr.
    
    
    
    Director
    
    March 10, 2006Arthur J. Breault, Jr./s/
    
    Thomas H. Murphy
    
    
    
    Director
    
    March 10, 2006Thomas H. Murphy/s/
    
    Richard H. Matzke
    
    
    
    Director
    
    March 10, 2006Richard H. Matzke/s/
    
    C. Russell Luigs
    
    
    
    Director
    
    March 10, 2006C. Russell Luigs/s/
    
    Michael J. McCann
    
    
    
    Chief Financial Officer
    
    March 10, 2006Michael J. McCann
    
    
    
    (Principal Financial andAccounting Officer)
 58




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##### Table of Contents



Exhibit Index
 3.
    
    Exhibits
 3
    
    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)
    
    Articles of Amendment to Articles of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K
filed January 3, 2006)(iii)
    
    Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit No. 3.1 (ii) to PHIs Report on Form 10-Q for the
quarterly period ended March 31, 2002).
 4
    
    Instruments defining the rights of security holders, including indentures.4.1
    
    Indenture dated April 23, 2002 among PHI, 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% Series B Senior Note due 2009 (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)  THIS FORM OF SENIOR NOTE IS AN EXHIBIT TO THE
INDENTURE WHICH IS FILED AS EXHIBIT 4.1 TO THIS REGISTRATION STATEMENT ON FORM S-4, AND
PROBABLY DOESNT NEED TO BE SEPARATELY INCORPORATED BY REFERENCE.4.3
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002).4.4
    
    1st Amendment to Loan Agreement dated as of April 23, 2002 by and
among PHI, Inc. Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive
Inc., and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the
quarterly period ended June 30, 2004).




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##### Table of Contents



4.5
    
    Form of Senior Debt Indenture (incorporated by reference to Exhibit 4.5 to
PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No. 333-123528)4.6
    
    Form of Subordinated Debt Indenture (incorporated by reference to Exhibit 4.6
to PHIs Registration Statement on Form S-3, filed on March 23, 2005, File No.
333-123528)10
    
    Material Contracts10.2
    
    The PHI, 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 PHI, 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 PHI, 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).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 PHI, 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-K/A 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.