##### Table of Contents



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, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-9827
 PHI, INC.
  2001 SE Evangeline Thruway
Lafayette, Louisiana 70508
(337) 235-2452
 Louisiana
(State or other jurisdiction of incorporation or organization)
    
    72-0395707
(I.R.S. Employer Identification No.)
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredVoting Common Stock
    
    The NASDAQ Global MarketNon-Voting Common Stock
    
    The NASDAQ Global Market
  o þ
 o þ
 þ o
 þ
  o þ o o
  o þ
   Voting Common Stock
    
    2,852,616
    shares.Non-Voting Common Stock
    
    12,438,992
    shares.
 Documents Incorporated by Reference




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##### 



PHI, INC.
 INDEX  FORM 10-K
 PART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    4Item 1B. Unresolved Staff Comments
    
    
    11Item 2. Properties
    
    
    11Item 3. Legal Proceedings
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5. Market for Registrants Common Equity, Related Shareholders Matters and Issuer Purchases of Equity Securities
    
    
    13Item 6. Selected Financial Data
    
    
    15Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 8. Financial Statements and Supplementary Data
    
    
    26PHI, Inc. and Consolidated Subsidiaries:Report of Independent Registered Public Accounting Firm
    
    
    26Consolidated Balance Sheets- Years ended December 31, 2007 and 2006
    
    
    27Consolidated Statements of Operations- Years ended December 31, 2007, 2006 and 2005
    
    
    28Consolidated Statements of Shareholders Equity- Years ended December 31, 2007, 2006, and 2005
    
    
    29Consolidated Statements of Cash Flows- Years ended December 31, 2007, 2006, and 2005
    
    
    30Notes to Consolidated Financial Statements
    
    
    31Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    54Item 9A. Controls and Procedures
    
    
    54Report of Independent Registered Public Accounting FirmItem 9B. Other Information
    
    
    56PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    56Item 11. Executive Compensation
    
    
    56Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    56Item 13. Certain Relationships, Related Transactions and Director Independence
    
    
    56Item 14. Principal Accounting Fees and Services
    
    
    56PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    57Signatures
    
    
    60Amended and Restated 401(k) Retirement PlanSubsidiariesConsent 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
  i




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##### Table of Contents



PART I
 Forward-Looking Statements
  
 ITEM 1. BUSINESS
 General
  Description of Operations
    1




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Oil and Gas.
     Air Medical
   Revenue
    
    Accounts ReceivableYear Ended December 31,
    
    Year Ended December 31,2007
    
    2006
    
    2005
    
    2007
    
    2006
    
    2005Gross billings
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Provision for contractual discounts
    
    
    46
    %
    
    
    43
    %
    
    
    42
    %
    
    
    33
    %
    
    
    32
    %
    
    
    34
    %Provision for uncompensated care
    
    
    10
    %
    
    
    10
    %
    
    
    9
    %
    
    
    20
    %
    
    
    22
    %
    
    
    16
    %
 2




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##### Table of Contents



Year Ended December 31,2007
    
    2006
    
    2005Medicaid
    
    
    10
    %
    
    
    12
    %
    
    
    14
    %Medicare
    
    
    16
    %
    
    
    14
    %
    
    
    10
    %Insurance
    
    
    66
    %
    
    
    62
    %
    
    
    60
    %Self Pay
    
    
    8
    %
    
    
    12
    %
    
    
    16
    %
  Technical Services.
  Seasonal Aspects
  Inventories
  Customers
  Competition
  3




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Employees
     Environmental Matters
  Availability of SEC filings and other information
 www.phihelico.com www.sec.gov
 
 ITEM 1A. Risk Factors
  4




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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.
  Increased governmental regulations could increase our costs or reduce our ability to operate
successfully.
  5




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The helicopter services business is highly competitive.
    The failure to maintain our safety record would seriously harm our ability to attract new customers
and maintain our existing customers.
  Helicopter operations involve risks that may not be covered by our insurance or may increase the
cost of our insurance.
  6




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##### Table of Contents



Our air medical operations expose us to numerous special risks, including collection risks, high
start-up costs and potential medical malpractice claims.
   Our international operations are subject to political, economic and regulatory uncertainty.
  Ø
    
    political, social and economic instability;
 Ø
    
    terrorism, kidnapping and extortion;
 Ø
    
    potential seizure or nationalization of assets;
 Ø
    
    import-export quotas; and
 Ø
    
    currency fluctuations or devaluation.
  Ø
    
    the awarding of contracts to local contractors;
 Ø
    
    the employment of local citizens; and
 Ø
    
    the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local
ownership.
 Our failure to attract and retain qualified personnel could adversely affect us.
  7




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RISKS SPECIFIC TO OUR COMPANY
 We are highly dependent on the offshore oil and gas industry.
  Ø
    
    the supply of, and demand for, oil and natural gas and market expectations regarding supply and demand;
 Ø
    
    weather-related or other natural causes;
 Ø
    
    actions of OPEC, and Middle Eastern and other oil producing countries, to control prices or change production levels;
 Ø
    
    general economic conditions in the United States and worldwide;
 Ø
    
    war, civil unrest or terrorist activities;
 Ø
    
    governmental regulation; and
 Ø
    
    the price and availability of alternative fuels.
    Our pilot workforce is represented by the Office and Professional Employees International Union,
with which the Company is engaged in strike-related litigation.
   8




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We depend on a small number of large oil and gas industry customers for a significant portion of
our revenues, and our credit exposure within this industry is significant.
  Our Chairman of the Board and Chief Executive Officer is also our principal stockholder and has
voting control of the Company.
  Our substantial indebtedness could adversely affect our financial condition and impair our ability
to operate our business.
    Ø
    
    require us to dedicate a substantial portion of our cash flow from operations to pay principal of, and interest on, our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures or other
general corporate purposes, or to carry out other aspects of our business plan;
 Ø
    
    increase our vulnerability to general adverse economic and industry conditions and limit our ability to withstand
competitive pressures;
 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
 Ø
    
    limit our ability to obtain additional financing for working capital, capital expenditures and other aspects of our
business plan.
  9




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The United States Department of Justice (DOJ) investigation could result in criminal proceedings
and the imposition of fines and penalties.
   Our stock has a low trading volume.
  We do not pay dividends.
  Provisions in our articles of incorporation and by-laws and Louisiana law make it more difficult to
effect a change in control of us, which could discourage a takeover of our company and adversely
affect the price of our common stock.
    10




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Future sales of our shares could depress the market price of our non-voting common stock.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
 Aircraft
  Cruise
    
    Appr.Number
    
    
    
    
    
    
    
    Speed
    
    RangeManufacturer
    
    Type
    
    in Fleet
    
    Engine
    
    Passengers
    
    (mph)
    
    (miles)(2)Light AircraftBell
    
    206 / 407
    
    
    95
    
    
    Turbine
    
    
    4  6
    
    
    
    130  150
    
    
    
    300  420Eurocopter
    
    BK-117 / BO-105
    
    
    11
    
    
    Twin Turbine
    
    
    4  6
    
    
    
    135
    
    
    
    255  270Eurocopter
    
    EC-135 (1)
    
    
    30
    
    
    Twin Turbine
    
    
    7
    
    
    
    143
    
    
    
    382Aerospatiale
    
    AS350 B2 / B3
    
    
    24
    
    
    Turbine
    
    
    5
    
    
    
    140
    
    
    
    337  385Medium AircraftBell
    
    212 (1) / 222 (1)230
(1) / 412 (1)/ 430 (1)
    
    
    17
    
    
    Twin Turbine
    
    
    8  13
    
    
    
    115  160
    
    
    
    300  370Sikorsky
    
    S-76 (1) A++, C+, C++
    
    
    41
    
    
    Twin Turbine
    
    
    12
    
    
    
    150
    
    
    
    400Transport AircraftSikorsky
    
    S-92A(1)
    
    
    10
    
    
    Twin Turbine
    
    
    19
    
    
    
    160
    
    
    
    495Total Helicopters
    
    
    228Fixed 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)
    
    
    3
    
    
    Turboprop
    
    
    8
    
    
    
    300
    
    
    
    1,380Total Fixed Wing
    
    
    9Total Aircraft
    
    
    237
 
 (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. 11




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Facilities
    Facility
    
    Lease Expiration
    
    Area
    
    Facilities
    
    CommentsMorgan City
(Louisiana)
    
    June 30, 2008
    
    53 acres
    
    Operational and
maintenance
facilities, landing
pads for 46
helicopters
    
    Options to extend
to June 30, 2018Intracoastal City
(Louisiana)
    
    December 31, 2008
    
    18 acres
    
    Operational and
maintenance
facilities, landing
pads for 45
helicopters
    
    Options to extend
to December 31,
2010Houma-Terrebonne 
Airport (Louisiana)
    
    July 31, 2017
    
    91 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Facility under four
separate leases, of
which two contain
options to extend
thru 2027Galveston (Texas)
    
    May 31, 2021
    
    4 acres
    
    Operational and
maintenance
facilities, landing
pads for 30
helicopters
    
    Lease period to May
31, 2021 with
certain
cancellation
provisionsFourchon
(Louisiana)
    
    February 28, 2013
    
    8 acres
    
    Operational and
maintenance
facilities, landing
pads for 10
helicopters
    
    Facility under
three separate
leases, of which
two contain options
to extend thru 2026
and 2028.
   12




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ITEM 3. LEGAL PROCEEDINGS
     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, 2007 to March 31, 2007
    
    $
    34.10
    
    
    $
    23.45
    
    
    $
    33.30
    
    
    $
    25.03April 1, 2007 to June 30, 2007
    
    
    32.16
    
    
    
    26.04
    
    
    
    30.72
    
    
    
    25.02July 1, 2007 to September 30, 2007
    
    
    34.00
    
    
    
    19.94
    
    
    
    34.69
    
    
    
    27.02October 1, 2007 to December 31, 2007
    
    
    34.49
    
    
    
    28.85
    
    
    
    35.38
    
    
    
    28.39January 1, 2006 to March 31, 2006
    
    $
    41.00
    
    
    $
    29.00
    
    
    $
    39.48
    
    
    $
    30.00April 1, 2006 to June 30, 2006
    
    
    38.00
    
    
    
    29.99
    
    
    
    38.54
    
    
    
    29.00July 1, 2006 to September 30, 2006
    
    
    34.24
    
    
    
    29.01
    
    
    
    34.39
    
    
    
    26.69October 1, 2006 to December 31, 2006
    
    
    34.10
    
    
    
    27.29
    
    
    
    33.06
    
    
    
    27.56
 13




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Stock Performance Graph
   
 Index
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007PHI
    
    
    
    122.50
    
    
    
    
    128.90
    
    
    
    
    155.00
    
    
    
    
    165.00
    
    
    
    
    155.10Peer Group
    
    
    
    106.41
    
    
    
    
    143.28
    
    
    
    
    155.95
    
    
    
    
    198.35
    
    
    
    
    239.61OSX
    
    
    
    108.36
    
    
    
    
    142.95
    
    
    
    
    210.08
    
    
    
    
    230.57
    
    
    
    
    347.88Russell 2000
    
    
    
    115.60
    
    
    
    
    135.25
    
    
    
    
    139.75
    
    
    
    
    163.50
    
    
    
    
    159.01
   14




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Year EndedDecember 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(Thousands)Income Statement DataOperating revenues
    
    $
    446,406
    
    
    $
    413,118
    
    
    $
    363,610
    
    
    $
    291,308
    
    
    $
    269,392Net earnings (loss)
    
    
    28,218
    
    
    
    (667
    )
    
    
    14,154
    
    
    
    3,972
    
    
    
    1,139Net earnings (loss) per shareBasic
    
    
    1.85
    
    
    
    (0.05
    )
    
    
    1.76
    
    
    
    0.74
    
    
    
    0.21Diluted
    
    
    1.85
    
    
    
    (0.05
    )
    
    
    1.76
    
    
    
    0.72
    
    
    
    0.21Weighted average shares outstandingBasic
    
    
    15,277
    
    
    
    13,911
    
    
    
    8,040
    
    
    
    5,383
    
    
    
    5,383Diluted
    
    
    15,286
    
    
    
    13,911
    
    
    
    8,063
    
    
    
    5,486
    
    
    
    5,486Cash Flow DataNet cash provided by operating
activities
    
    $
    25,226
    
    
    $
    30,324
    
    
    $
    28,020
    
    
    $
    10,905
    
    
    $
    29,415Net cash used in investing activities
    
    
    (19,464
    )
    
    
    (178,928
    )
    
    
    (137,464
    )
    
    
    (18,594
    )
    
    
    (30,943
    )Net cash (used in) provided by
financing
activities
    
    
    (5,157
    )
    
    
    146,388
    
    
    
    108,947
    
    
    
    8,275
    
    
    
    2,026Balance Sheet Data (1)Current assets
    
    $
    230,029
    
    
    $
    307,689
    
    
    $
    224,265
    
    
    $
    128,405
    
    
    $
    110,135Working capital
    
    
    176,633
    
    
    
    254,099
    
    
    
    162,527
    
    
    
    88,716
    
    
    
    70,300Property and equipment, net
    
    
    484,119
    
    
    
    369,465
    
    
    
    311,678
    
    
    
    253,241
    
    
    
    258,526Total assets
    
    
    741,296
    
    
    
    700,970
    
    
    
    549,209
    
    
    
    394,173
    
    
    
    377,454Total debt
    
    
    200,000
    
    
    
    205,500
    
    
    
    204,300
    
    
    
    210,275
    
    
    
    202,000Shareholders equity
    
    
    428,669
    
    
    
    400,125
    
    
    
    239,051
    
    
    
    109,975
    
    
    
    105,993
 
 (1)
    
    As of the end of the period. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    15




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16




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Results of Operations
  Year EndedDecember 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    286,118
    
    
    $
    270,707
    
    
    $
    242,464Air Medical
    
    
    149,590
    
    
    
    133,397
    
    
    
    112,123Technical Services
    
    
    10,698
    
    
    
    9,014
    
    
    
    9,023Total operating revenues
    
    
    446,406
    
    
    
    413,118
    
    
    
    363,610Segment direct expenseOil and Gas
    
    
    250,110
    
    
    
    228,797
    
    
    
    188,872Air Medical
    
    
    137,703
    
    
    
    130,412
    
    
    
    104,465Technical Services
    
    
    6,608
    
    
    
    7,063
    
    
    
    5,926Total direct expense
    
    
    394,421
    
    
    
    366,272
    
    
    
    299,263Segment selling, general and administrative expensesOil and Gas
    
    
    1,531
    
    
    
    1,150
    
    
    
    1,181Air Medical
    
    
    7,883
    
    
    
    7,384
    
    
    
    6,503Technical Services
    
    
    59
    
    
    
    38
    
    
    
    43Total selling, general and administrative expenses
    
    
    9,473
    
    
    
    8,572
    
    
    
    7,727Total direct and selling, general and administrative expenses
    
    
    403,894
    
    
    
    374,844
    
    
    
    306,990Net segment profit (loss)Oil and Gas
    
    
    34,477
    
    
    
    40,760
    
    
    
    52,411Air Medical
    
    
    4,004
    
    
    
    (4,399
    )
    
    
    1,155Technical Services
    
    
    4,031
    
    
    
    1,913
    
    
    
    3,054Total
    
    
    42,512
    
    
    
    38,274
    
    
    
    56,620Other, net (1)
    
    
    40,051
    
    
    
    9,946
    
    
    
    3,230Unallocated selling, general and administrative expenses
    
    
    (20,753
    )
    
    
    (19,267
    )
    
    
    (17,169
    )Interest expense
    
    
    (16,121
    )
    
    
    (17,243
    )
    
    
    (20,448
    )Loss on debt restructuring
    
    
    
    
    
    
    (12,790
    )
    
    
    Earnings (loss) before income taxes
    
    $
    45,689
    
    
    $
    (1,080
    )
    
    $
    22,233Flight hoursOil and Gas
    
    
    107,812
    
    
    
    119,503
    
    
    
    126,591Air Medical
    
    
    31,341
    
    
    
    29,980
    
    
    
    26,619Technical Services
    
    
    1,216
    
    
    
    1,497
    
    
    
    1,433Total
    
    
    140,369
    
    
    
    150,980
    
    
    
    154,643Air Medical Transports
    
    
    21,710
    
    
    
    20,808
    
    
    
    17,200Aircraft operated at period endOil and Gas
    
    
    163
    
    
    
    164
    
    
    
    167Air Medical
    
    
    70
    
    
    
    68
    
    
    
    64Technical Services
    
    
    4
    
    
    
    4
    
    
    
    4Total (2)
    
    
    237
    
    
    
    236
    
    
    
    235
 
 (1)
    
    Including gains on disposition of property and equipment, and other income.(2)
    
    Includes 12 aircraft as of December 31, 2007, 2006 and 2005 that are customer owned or
leased by customers but operated by us. 17




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Year Ended December 31, 2007 compared with Year Ended December 31, 2006
 Combined Operations
 Operating Revenues
 Other Income and Losses
 Direct Expenses
 Selling, General and Administrative Expenses
 Interest Expense
 Income Taxes
 Earnings
 Segment Discussion
 Oil and Gas
 18




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Air Medical
    Technical Services
 19




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Year Ended December 31, 2006 compared with Year Ended December 31, 2005
 Combined Operations
 Revenues
 Other Income and Losses
 Direct Expenses
    Selling, General and Administrative Expenses
 Income Taxes .
 Earnings
 20




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Segment Discussion
 Oil and Gas 
   Air Medical 
    Technical Services 
 21




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##### Table of Contents



Liquidity and Capital Resources
 General
   Cash Flow
   Financing Activities
  22




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##### Table of Contents



Credit Facility
  Contractual Obligations
  Payment Due by YearBeyondTotal
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2012(Thousands of dollars)Aircraft Purchase
commitments (1)
    
    $
    153,967
    
    
    $
    72,468
    
    
    $
    81,499
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Aircraft Purchase
commitments (2)
    
    
    127,407
    
    
    
    20,255
    
    
    
    107,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aircraft lease
obligations
    
    
    169,150
    
    
    
    18,274
    
    
    
    18,274
    
    
    
    18,876
    
    
    
    20,144
    
    
    
    20,811
    
    
    
    72,771Other lease
obligations
    
    
    21,211
    
    
    
    3,463
    
    
    
    2,726
    
    
    
    2,325
    
    
    
    1,897
    
    
    
    1,442
    
    
    
    9,358Long term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000$
    671,735
    
    
    $
    114,460
    
    
    $
    209,651
    
    
    $
    21,201
    
    
    $
    22,041
    
    
    $
    22,253
    
    
    $
    282,129
 
 (1)
    
    These commitments are for aircraft that we intend to fund from existing cash,
short-term investments, and operating leases, as required.(2)
    
    These commitments are for aircraft that we intend to finance with an operating lease.
Once the leases are entered into, the lease payments will be made over the term of the
leases.     23




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##### Table of Contents



Critical Accounting Policies and Estimates
        24




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##### Table of Contents



New Accounting Pronouncements
  Environmental Matters
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
   25




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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
  
 26




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Thousands of dollars)
 December 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,425
    
    
    $
    820Short-term investments
    
    
    62,970
    
    
    
    153,414Accounts receivable  net:Trade
    
    
    95,111
    
    
    
    87,366Other
    
    
    2,973
    
    
    
    1,928Inventories of spare parts and supplies
    
    
    55,831
    
    
    
    55,596Other current assets
    
    
    11,194
    
    
    
    7,930Refundable income taxes
    
    
    525
    
    
    
    635Total current assets
    
    
    230,029
    
    
    
    307,689Other
    
    
    27,148
    
    
    
    23,816Property and equipment, net
    
    
    484,119
    
    
    
    369,465Total Assets
    
    $
    741,296
    
    
    $
    700,970LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    28,454
    
    
    $
    35,815Accrued liabilities
    
    
    24,942
    
    
    
    17,775Total current liabilities
    
    
    53,396
    
    
    
    53,590Long-term debt
    
    
    200,000
    
    
    
    205,500Deferred income taxes
    
    
    51,644
    
    
    
    32,828Other long-term liabilities
    
    
    7,587
    
    
    
    8,927Commitments and contingencies (Note 9)Shareholders Equity:Voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    285
    
    
    
    285Non-voting common stock  par value of $0.10;
authorized shares of 12,500,000
    
    
    1,242
    
    
    
    1,242Additional paid-in capital
    
    
    291,037
    
    
    
    290,695Accumulated other comprehensive income
    
    
    61
    
    
    
    77Retained earnings
    
    
    136,044
    
    
    
    107,826Total shareholders equity
    
    
    428,669
    
    
    
    400,125Total Liabilities and Shareholders Equity
    
    $
    741,296
    
    
    $
    700,970
  27




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##### Table of Contents



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 31,2007
    
    
    2006
    
    
    2005Operating revenues
    
    $
    446,406
    
    
    $
    413,118
    
    
    $
    363,610Gain on disposition of assets, net
    
    
    34,953
    
    
    
    1,910
    
    
    
    1,173Other
    
    
    5,098
    
    
    
    8,036
    
    
    
    2,057486,457
    
    
    
    423,064
    
    
    
    366,840Expenses:Direct expenses
    
    
    394,421
    
    
    
    366,272
    
    
    
    299,263Selling, general and
administrative expenses
    
    
    30,226
    
    
    
    27,839
    
    
    
    24,896Interest expense
    
    
    16,121
    
    
    
    17,243
    
    
    
    20,448Loss on debt restructuring
    
    
    
    
    
    
    12,790
    
    
    
    440,768
    
    
    
    424,144
    
    
    
    344,607Earnings (loss) before income taxes
    
    
    45,689
    
    
    
    (1,080
    )
    
    
    22,233Income tax expense (benefit)
    
    
    17,471
    
    
    
    (413
    )
    
    
    8,079Net earnings (loss)
    
    $
    28,218
    
    
    $
    (667
    )
    
    $
    14,154Earnings (loss) per shareBasic
    
    $
    1.85
    
    
    $
    (0.05
    )
    
    $
    1.76Diluted
    
    $
    1.85
    
    
    $
    (0.05
    )
    
    $
    1.76Weighted average shares outstanding:Basic
    
    
    15,277
    
    
    
    13,911
    
    
    
    8,040Diluted
    
    
    15,286
    
    
    
    13,911
    
    
    
    8,063
  28




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars and shares)
 Accumulated
    
    
    
    
    
    
    TotalVoting
    
    
    Non-Voting
    
    
    Additional
    
    
    Other Com-
    
    
    
    
    
    
    Share-Common Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    prehensive
    
    
    Retained
    
    
    HoldersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at Dec. 31, 2004
    
    
    2,852
    
    
    $
    285
    
    
    
    2,531
    
    
    $
    253
    
    
    $
    15,098
    
    
    $
    
    
    
    $
    94,339
    
    
    $
    109,975Stock issuance, net
    
    
    
    
    
    
    
    
    
    
    4,887
    
    
    
    489
    
    
    
    113,352
    
    
    
    
    
    
    
    
    
    
    
    113,841Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,081
    
    
    
    
    
    
    
    
    
    
    
    1,081Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,154
    
    
    
    14,154Balance at Dec. 31, 2005
    
    
    2,852
    
    
    
    285
    
    
    
    7,418
    
    
    
    742
    
    
    
    129,531
    
    
    
    
    
    
    
    108,493
    
    
    
    239,051Stock issuance, net
    
    
    
    
    
    
    
    
    
    
    4,867
    
    
    
    487
    
    
    
    160,235
    
    
    
    
    
    
    
    
    
    
    
    160,722Other
    
    
    
    
    
    
    
    
    
    
    139
    
    
    
    13
    
    
    
    929
    
    
    
    
    
    
    
    
    
    
    
    942SFAS No. 158 incremental effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (667
    )
    
    
    (667
    )Balance at Dec. 31, 2006
    
    
    2,852
    
    
    
    285
    
    
    
    12,424
    
    
    
    1,242
    
    
    
    290,695
    
    
    
    77
    
    
    
    107,826
    
    
    
    400,125Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    342SFAS No. 158 incremental effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,218
    
    
    
    28,218Balance at Dec. 31, 2007
    
    
    2,852
    
    
    $
    285
    
    
    
    12,424
    
    
    $
    1,242
    
    
    $
    291,037
    
    
    $
    61
    
    
    $
    136,044
    
    
    $
    428,669
  29




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Operating activities:Net earnings (loss)
    
    $
    28,218
    
    
    $
    (667
    )
    
    $
    14,154Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    30,047
    
    
    
    30,297
    
    
    
    27,133Deferred income taxes
    
    
    16,498
    
    
    
    (1,631
    )
    
    
    6,415Gain on asset dispositions
    
    
    (34,953
    )
    
    
    (1,910
    )
    
    
    (1,173
    )Loss on debt restructuring
    
    
    
    
    
    
    12,790
    
    
    
    Other
    
    
    868
    
    
    
    806
    
    
    
    1,411Changes in operating assets and liabilities:Accounts receivable
    
    
    (8,790
    )
    
    
    1,985
    
    
    
    (31,109
    )Inventories
    
    
    (1,492
    )
    
    
    (7,473
    )
    
    
    (8,898
    )Refundable income taxes
    
    
    110
    
    
    
    (213
    )
    
    
    Other assets
    
    
    (1,824
    )
    
    
    177
    
    
    
    (2,313
    )Accounts payable and accrued liabilities
    
    
    (2,100
    )
    
    
    (6,679
    )
    
    
    23,049Other long-term liabilities
    
    
    (1,356
    )
    
    
    2,842
    
    
    
    (649
    )Net cash provided by operating activities
    
    
    25,226
    
    
    
    30,324
    
    
    
    28,020Investing activities:Purchase of property and equipment
    
    
    (159,715
    )
    
    
    (123,253
    )
    
    
    (96,165
    )Proceeds from asset dispositions
    
    
    58,105
    
    
    
    36,809
    
    
    
    10,751Purchase of short-term investments
    
    
    (134,241
    )
    
    
    (186,339
    )
    
    
    (97,950
    )Proceeds from sale of short-term investments
    
    
    224,685
    
    
    
    99,450
    
    
    
    45,900Other
    
    
    (8,298
    )
    
    
    (5,595
    )
    
    
    Net cash used in investing activities
    
    
    (19,464
    )
    
    
    (178,928
    )
    
    
    (137,464
    )Financing activities:Proceeds of debt issuance  Senior Notes
    
    
    
    
    
    
    200,000
    
    
    
    Premium and costs to retire debt early
    
    
    
    
    
    
    (10,208
    )
    
    
    Repayment of Senior Notes
    
    
    
    
    
    
    (200,000
    )
    
    
    Debt issuance costs
    
    
    
    
    
    
    (4,857
    )
    
    
    Payments on long-term debt
    
    
    
    
    
    
    (1,000
    )
    
    
    (1,000
    )Proceeds from line of credit
    
    
    37,200
    
    
    
    181,900
    
    
    
    114,875Payments on line of credit
    
    
    (42,700
    )
    
    
    (179,700
    )
    
    
    (119,850
    )Proceeds from stock issuance
    
    
    
    
    
    
    161,155
    
    
    
    115,162Less related fees and expenses
    
    
    
    
    
    
    (433
    )
    
    
    (1,265
    )Proceeds from exercise of stock options
    
    
    343
    
    
    
    
    
    
    
    1,025Other
    
    
    
    
    
    
    (469
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (5,157
    )
    
    
    146,388
    
    
    
    108,947Increase (decrease) in cash and cash equivalents
    
    
    605
    
    
    
    (2,216
    )
    
    
    (497
    )Cash and cash equivalents, beginning of year
    
    
    820
    
    
    
    3,036
    
    
    
    3,533Cash and cash equivalents, end of year
    
    $
    1,425
    
    
    $
    820
    
    
    $
    3,036Supplemental Disclosures Cash Flow InformationAccrued payables related to purchases of property and equipment
    
    $
    1,906
    
    
    $
    
    
    
    $
    
  30




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##### Table of Contents



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 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.Estimates Include:
 
 Cash EquivalentsThe Company considers cash equivalents to include demand deposits and investments with
original maturity dates of three months or less. The Companys cash and cash equivalents
are maintained in one financial institution in amounts that typically exceed federally
insured limits. The Company has not experienced any losses in such accounts and believes it
is not exposed to significant credit risk.Short-term InvestmentsShort-term investments consist primarily of money market funds, which represent funds
available for current operations. In accordance with SFAS
No. 115, Accounting for Certain
Investments in Debt and Equity Securities, these short-term investments are classified as
available for sale. The Company has not recorded any unrealized gains or losses associated
with short-term investments as the carrying value approximates fair value at December 31,
2007 and 2006.
 31




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##### Table of Contents



Investments included in Other Assets as detailed in Note 7 are comprised of mutual funds.
These investments are amounts related to the liability for the Officers Deferred
Compensation Plan.Inventories of Spare Parts and SuppliesThe 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 obsolete and slow-moving
parts, relying principally on specific identification of such inventory. Valuation reserves
related to obsolescence and slow-moving inventory were $7.5 million and $7.3 million at
December 31, 2007 and 2006, 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. Leasehold improvements are amortized over the
shorter of the life of the respective lease, or the asset, and range
from six to ten years.
The salvage value used in calculating depreciation of aircraft ranges from 30% to 54%. The
Company uses accelerated depreciation methods for tax purposes. The cost of scheduled
inspections and modifications for flight equipment are charged to maintenance expense as
incurred. Modifications that enhance the operating performance or extend the useful lives
of the aircraft are capitalized and depreciated over the remaining life of the asset. Upon
selling or otherwise disposing of property and equipment, the Company removes the cost and
accumulated depreciation from the accounts and reflects any resulting gain or loss in
earnings at the time of sale or other disposition.Effective July 1, 2007, the Company changed the estimated residual value of certain aircraft from 40%
to 54%. The Company believes the revised amounts reflect their historical experience and more
appropriately match 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 and industry data which indicated that these aircraft were retaining
on average a salvage value of at least 54% by model type. The effect of this change for the
year ended December 31, 2007 was a reduction in depreciation expense of $1.6 million ($1.0
million after tax or $0.07 per diluted share).The Company had previously reassessed the salvage values applicable to major modifications
to aircraft at January 1, 2005 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).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. The Companys
insurance retention is $200,000 per claim through December 31, 2007. As of December 31,
2007 and 2006, the Company had $1.5 million and $1.3 million, respectively, of accrued
liabilities related to health care claims.
 32




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##### Table of Contents



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 2007 and 2006
totaled $1.5 million and $3.2 million, respectively. The financial position and operations
of the insurance captive were not significant in 2007 nor 2006. 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 short-term investments and trade accounts receivable. Short-term
investments at December 31, 2007 include money market securities. The Company does not
believe significant credit risk exists with respect to these securities at December 31,
2007.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. Amounts are charged off as uncollectible when
collection efforts have been exhausted. The allowance for doubtful accounts was $0.1
million at December 31, 2007 and 2006. The Companys largest oil and gas customer accounted
for 15%, 17%, and 14% of consolidated operating revenues for years ended December 31, 2007,
2006, and 2005, respectively. The Company also carried accounts receivable from this same
customer totaling 12% and 14% of net trade receivable on December 31, 2007 and 2006,
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 payor category within the Air Medical segment and
updates its estimated collections to be realized as deemed necessary.Stock CompensationEffective January 1, 2006, the Company adopted the accounting policies described in Statement of
Financial Accounting Standards (SFAS) No. 123
(R),Share Based Payment. The Company chose to use
the modified prospective method of transition, and accordingly, no adjustments to prior
period financial statements were made. SFAS No. 123 (R) superseded Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and amended 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. Prior to January 1, 2006, the Company accounted for share-based payments to employees
using the intrinsic value method of and, as such, generally recognized no compensation
expense for employee stock options. In September 2001, the Company underwent a change of
control and as a result, all awards issued prior to the change of control became fully
vested. The Company has not issued any shares, options or rights under its stock plan since
2001. As a result, no pro forma information for 2005 is necessary under SFAS No. 123. As
no employee stock options were granted in 2007 and 2006, the adoption of SFAS No. 123 (R)
had no impact on the Companys results of operations for the years ended December 31, 2007 and 2006.
The impact on future periods will be dependent on levels of share based payments granted in
the future.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 $0 for 2007, $0 for 2006, and $122,498 for 2005. There have
been no stock awards granted since 2001.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
 33




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##### Table of Contents



Company recognizes the effect of any tax rate changes in income of the period that included
the enactment date.
 In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting and disclosure for uncertain tax positions, as defined. FIN 48 seeks to reduce
the diversity in practice associated with certain aspects of the recognition and measurement
related to accounting for income taxes. On January 1, 2007, the Company adopted the provisions of
FIN 48. Based on the Companys evaluation, the Company concluded that there are no significant uncertain
tax positions requiring recognition in their financial statements. The Companys evaluation was
performed for the tax years ended December 31, 2001 to 2006, the tax years which remained
subject to examination by major tax jurisdictions.Based on a review and evaluation at December 31, 2007, it was determined that there are no
material tax positions requiring recognition for the current tax year. The Companys evaluation was
performed for the tax years ended December 31, 2004 to 2007, the tax years which remain
subject to examination by major tax jurisdictions as of December 31, 2007.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 weighted 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
2007, 2006, and 2005.New Accounting PronouncementsIn September 2006, FASB issued SFAS No. 157, Fair Value Measurements which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. This Statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. Earlier application is encouraged provided
that the reporting entity has not yet issued financial statements for that fiscal year
including financial statements for an interim period within that fiscal year. The Company
is assessing SFAS No. 157 and has not determined yet the impact that the adoption of SFAS
No. 157 will have on its results of operations, financial position, or cash flows.In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB No. 108 provides interpretive
guidance on the consideration of the effects of prior year misstatements in quantifying
current year misstatements when evaluating materiality. The application of the guidance in
SAB No. 108 did not have a significant impact on the Companys consolidated financial
statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statements No. 115 (SFAS No.
159). SFAS No. 159 permits the Company to choose, at specified election dates, to measure
eligible items at fair value (the fair value option). The Company would report unrealized
gains and losses on items for which the fair value option has been elected in earnings at
each subsequent reporting period. This accounting standard is effective as of the beginning
of the first fiscal year that begins after November 15, 2007. The Company is assessing SFAS
No. 159 and has not determined yet the impact that the adoption of SFAS No. 159 will
 34




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##### Table of Contents



have on its results of operations, financial position, or cash flows.
 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.The following table summarizes the components of total comprehensive income (net of taxes):
 Year Ended December 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Net earnings (loss)
    
    $
    28,218
    
    
    $
    (667
    )
    
    $
    14,154SFAS No. 158 adjustment
    
    
    (16
    )
    
    
    77
    
    
    
    Comprehensive income (loss)
    
    $
    28,202
    
    
    $
    (590
    )
    
    $
    14,154
 GoodwillGoodwill represents costs in excess of the fair value acquired in connection with purchase
business combinations. Goodwill arose in connection with the 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 on December 31 or if impairment indicators are present. The
impairment evaluation for goodwill is performed by using a two-step process. In the first
step, the fair value of each reporting unit is compared with the carrying amount of the
reporting unit, including goodwill. The estimated fair value of the reporting unit is
generally determined on the basis of discounted future cash flows. If the estimated fair
value of the reporting unit is less than the carrying amount of the reporting unit, then a
second step must be completed in order to determine the amount of the goodwill impairment
that should be recorded. In the second step, the implied fair value of the reporting units
goodwill is determined by allocating the reporting units fair value to all of its assets
and liabilities other than goodwill (including any unrecognized intangible assets) in a
manner similar to a purchase price allocation. The resulting implied fair value of the
goodwill that results from the application of this second step is then compared to the
carrying amount of the goodwill and an impairment charge is recorded for the difference.
The Company performed the test at December 31, 2007 and determined that no impairment charge
for goodwill was required.(2)
    
    PROPERTY AND EQUIPMENTThe following table summarizes the Companys property and equipment at
December 31, 2007 and 2006.
 December 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Flight equipment
    
    $
    583,076
    
    
    $
    480,934Other
    
    
    81,829
    
    
    
    74,638664,905
    
    
    
    555,572Less
accumulated depreciation and amortization
    
    
    (180,786
    )
    
    
    (186,107
    )Property and equipment, net
    
    $
    484,119
    
    
    $
    369,465
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(3)
    
    ACCRUED LIABILITIESAccrued liabilities consisted of the following:
 December 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Salaries & Wages
    
    $
    9,654
    
    
    $
    4,141Vacation Payable
    
    
    3,103
    
    
    
    2,583Interest
    
    
    2,974
    
    
    
    3,045Helicopter Lease
    
    
    2,821
    
    
    
    Group Medical
    
    
    1,480
    
    
    
    1,260Transportations Tax
    
    
    1,195
    
    
    
    738Workers Compensation
    
    
    1,332
    
    
    
    1,158Other
    
    
    2,383
    
    
    
    4,850Total Accrued Liabilities
    
    $
    24,942
    
    
    $
    17,775
 (4)
    
    LONG-TERM DEBTOn April 12, 2006, the Company issued $200.0 million of 7.125% Senior
Notes that mature in 2013. These Notes were offered and sold in a
private placement under Rule 144A and Regulation S under the
Securities Act of 1933. Net proceeds of $196.0 million were used to
repurchase $184.8 million of the Companys outstanding
9 3/8% Senior Notes due 2009 pursuant to a tender offer that also closed on April 12, 2006.
The total cost to repurchase those notes was $201.6 million, including the tender offer
premium and accrued interest. The Company called for redemption on May 1, 2006, the
remaining $15.2 million of 9 3/8% notes outstanding, at a redemption price of 104.688% of
their face amount plus accrued and unpaid interest. Interest on the 7.125% notes is payable
semi-annually on April 15 and October 15, and those notes mature April 15, 2013. The
estimated annual interest cost of the new notes is $14.3 million, excluding amortization of
issuance costs, which represents a reduction in annual interest cost on the notes of $4.5
million. As a result of the early redemption of the 9 3/8% notes, a pretax charge of $12.8
million ($7.7 million, net of tax) was recorded as a charge for debt restructuring in the
quarter ended June 30, 2006, which consisted of $9.8 million for the early call premium,
$2.6 million of unamortized issuance costs, and $0.4 million in related expenses for the
tender of outstanding notes.The new notes contain restrictive covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of proceeds of
asset sales, and mergers and consolidations or sales of assets. The Senior Notes are fully
and unconditionally guaranteed on a joint and several senior basis by all of the Companys
Guarantor Subsidiaries, which are all of the domestic subsidiaries.
See Note 14 of the Notes to Consolidated Financial Statements. The
Company was in compliance with the covenants applicable to these notes as of December 31, 2007 and
2006.The Company has a $35 million revolving credit facility with a commercial bank, which is
scheduled to expire on September 1, 2009. At December 31, 2007, the Company had no
borrowings under the revolving credit facility, and the Company had $5.5 million under the
credit facility at December 31, 2006. The Company had four letters of credit for $4.6
million outstanding at December 31, 2007, and five letters of credit for $5.1 million
outstanding at December 31, 2006. The credit agreement permits both prime rate based
borrowings and LIBOR rate borrowings plus a spread. The spread for LIBOR borrowings is
from 1.25% to 3.0%. The Company will pay an annual 0.25% commitment fee on the unused
portion of the revolving credit facility. The credit agreement includes covenants related
to working capital, funded debt to net worth, and consolidated net worth. As of December
31, 2007 and 2006, the Company was in compliance with these covenants. The credit agreement
is collateralized by accounts receivable and inventory.Cash paid for interest was $15.4 million, $16.5 million, and $19.5 million, for the years
ended December 31, 2007, 2006, and 2005, respectively.
 36




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##### Table of Contents



(5)
    
    INCOME TAXESIncome tax expense (benefit) is composed of the following:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)CurrentFederal
    
    $
    
    
    
    $
    
    
    
    $
    343State
    
    
    
    
    
    
    
    
    
    
    (50
    )Foreign
    
    
    973
    
    
    
    1,175
    
    
    
    1,371Deferred  principally Federal
    
    
    16,498
    
    
    
    (1,588
    )
    
    
    6,415Total
    
    $
    17,471
    
    
    $
    (413
    )
    
    $
    8,079
 Income tax expense (benefit) as a percentage of pre-tax earnings varies from the effective
Federal statutory rate of 35% as a result of the following:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005(Thousands of dollars, except percentage amounts)Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Income taxes at statutory rate
    
    $
    15,991
    
    
    
    35
    
    
    $
    (367
    )
    
    
    (34
    )
    
    $
    7,559
    
    
    
    34Increase (decrease) in taxes
resulting from:Hurricane relief credit
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (537
    )
    
    
    (2
    )Effect of state income taxes
    
    
    1,479
    
    
    
    3
    
    
    
    (35
    )
    
    
    (3
    )
    
    
    762
    
    
    
    3Other items  net
    
    
    135
    
    
    
    
    
    
    
    (11
    )
    
    
    (1
    )
    
    
    295
    
    
    
    1Total
    
    $
    17,471
    
    
    
    38
    
    
    $
    (413
    )
    
    
    (38
    )
    
    $
    8,079
    
    
    
    36
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented
below:
 December 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Deferred tax assets:Deferred compensation
    
    $
    1,889
    
    
    $
    1,644Foreign tax credits
    
    
    6,466
    
    
    
    5,792Vacation accrual
    
    
    2,563
    
    
    
    962Inventory valuation
    
    
    4,065
    
    
    
    3,355Workmans compensation reserve
    
    
    
    
    
    
    323Allowance for uncollectible accounts
    
    
    19
    
    
    
    19Alternative minimum tax credit
    
    
    
    
    
    
    343Hurricane relief credit
    
    
    1,083
    
    
    
    814Other
    
    
    770
    
    
    
    720Net operating loss
    
    
    28,464
    
    
    
    34,192Total deferred tax assets
    
    
    45,319
    
    
    
    48,164Valuation allowance  tax credit carryforwards
    
    
    (1,945
    )
    
    
    (2,142
    )Total deferred tax assets, net
    
    
    43,374
    
    
    
    46,022Deferred tax liabilities:Tax depreciation in excess of book
depreciation
    
    
    (88,331
    )
    
    
    (74,326
    )Total deferred tax liabilities
    
    
    (88,331
    )
    
    
    (74,326
    )Net deferred tax liabilities
    
    $
    (44,957
    )
    
    $
    (28,304
    )
 37




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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 after 2005. A tax credit of
$0.1 million was realized in 2006 and 2007 as a result of Hurricanes Katrina and Rita
Legislation. At December 31, 2007 and 2006, other current assets include $6.6 million and
$4.5 million, respectively, of deferred tax assets.The Company has net operating loss carryforwards (NOLs), of approximately $72.0 million
that, if not used will expire beginning in 2022 through 2027. Additionally, for state income
tax purposes, the Company has NOLs of approximately $84.0 million available to reduce future
state taxable income. These NOLs expire in varying amounts beginning in 2012 through 2027,
the majority of which expires in 2017 and through 2020. Most of these NOLs arose from
accelerated tax depreciation deductions related to substantial aircraft additions since
2002.Income taxes paid were approximately $0.02 million, $0.1 million, and $0.1 million, for the
years ended December 31, 2007, 2006, and 2005, respectively. The Company received net
income tax refunds of approximately $0.9 million, $0.3 million and $0.8 million during the
years ended December 31, 2007, 2006 and 2005, respectively.(6)
    
    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 $7.0 million
for the year ended December 31, 2007, $6.2 million for the year ended
December 31, 2006 and $5.4 million for the year ended December 31,
2005.The Company maintains a Supplemental Executive Retirement Plan
(SERP). During January 2006, selected active employees were given a
substitute benefit in the Officer Deferred Compensation Plan based on
a calculated present value of the participants interest in the SERP,
except for the four remaining retired participants. As a result,
approximately $2.0 million of the SERP liability was transferred to
the Deferred Compensation Liability in 2006.As of December 31, 2006, the Company adopted SFAS
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  An Amendment of FASB
Statements No. 87, 88, 106 and 132(R), for its SERP
plan.The Company recorded the following plan costs for the years ended
December 31, 2007, 2006, and 2005.
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Service cost
    
    $
    
    
    
    $
    
    
    
    $
    259Interest cost
    
    
    56
    
    
    
    64
    
    
    
    124Recognized actuarial (gain) loss
    
    
    (4
    )
    
    
    62
    
    
    
    53Net periodic plan cost
    
    $
    52
    
    
    $
    126
    
    
    $
    436
 38




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##### Table of Contents



December 31,2007
    
    
    2006(Thousands of dollars)Change in benefit obligation:Benefit obligation at the beginning of the year
    
    $
    1,063
    
    
    $
    3,413Service cost
    
    
    
    
    
    
    Interest cost
    
    
    56
    
    
    
    64Actuarial loss (gain)
    
    
    24
    
    
    
    (18
    )Benefits paid
    
    
    (131
    )
    
    
    (384
    )Transferred to deferred compensation
    
    
    
    
    
    
    (2,012
    )Benefit obligation at the end of the year
    
    $
    1,012
    
    
    $
    1,063
 December 31,2007
    
    
    2006(Thousands of dollars)Reconciliation of funded statusUnfunded status
    
    
    (1,012
    )
    
    
    (1,063
    )Unrecognized actuarial gains
    
    
    (101
    )
    
    
    (129
    )Total liability included in other long term
liabilities on the consolidated balance sheet
    
    $
    (1,113
    )
    
    $
    (1,192
    )Weighted
average assumptionsDiscount rate
    
    
    5.4
    %
    
    
    5.8
    %
    Stock Based Compensation
  39




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##### Table of Contents



1995PlanOptions
    
    WeightedNon-
    
    AverageVoting
    
    Exercise PriceBalance outstanding at
December 31, 2004
    
    
    206,953
    
    
    $
    11.57Options exercised
    
    
    (150,000
    )
    
    
    11.06Options settled for cash
    
    
    (10,203
    )
    
    
    8.50Balance outstanding at
December 31, 2005
    
    
    46,750
    
    
    
    13.87Options exercised
    
    
    (8,500
    )
    
    
    12.75Options cancelled
    
    
    (500
    )
    
    
    12.75Balance outstanding at
December 31, 2006
    
    
    37,750
    
    
    
    14.14Options exercised
    
    
    (15,000
    )
    
    
    16.25Balance outstanding at
December 31, 2007
    
    
    22,750
    
    
    
    12.75Shares exercisable at
December 31, 2007
    
    
    22,750
    
    
    
    12.75December 31, 2006
    
    
    37,750
    
    
    
    13.87December 31, 2005
    
    
    46,750
    
    
    
    11.57
  Options Outstanding and ExercisableRemainingNumber
    
    Contractual
    
    ExerciseOutstanding
    
    Life (Years)
    
    Price22,750
    
    1.5
    
    $12.75
 Incentive Compensation
  40




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##### Table of Contents



(7) OTHER ASSETS
  December 31,
    
    
    December 31,2007
    
    
    2006(Thousands of dollars)Goodwill acquired
    
    $
    2,747
    
    
    $
    2,747Security deposits on aircraft
    
    
    13,493
    
    
    
    10,170Deferred financing cost
    
    
    4,468
    
    
    
    5,231Investments
    
    
    4,089
    
    
    
    3,298Other
    
    
    2,351
    
    
    
    2,370Total
    
    $
    27,148
    
    
    $
    23,816
  (8) FINANCIAL INSTRUMENTS
 Fair Value .
 December 31, 2007
    
    
    December 31, 2006Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmounts
    
    
    Fair Value
    
    
    Amounts
    
    
    Fair ValueLong-term debt
    
    $
    200,000
    
    
    $
    191,000
    
    
    $
    200,000
    
    
    $
    194,000
  (9) COMMITMENTS AND CONTINGENCIES
 Operating Leases
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Aircraft
    
    $
    19,110
    
    
    $
    15,663
    
    
    $
    5,817Other
    
    
    6,715
    
    
    
    5,174
    
    
    
    5,167Total
    
    $
    25,825
    
    
    $
    20,837
    
    
    $
    10,984
  41




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##### Table of Contents



Aircraft
    
    
    Other
    
    
    Total(Thousands of dollars)2008
    
    $
    18,274
    
    
    $
    3,463
    
    
    $
    21,7372009
    
    
    18,274
    
    
    
    2,726
    
    
    
    21,0002010
    
    
    18,876
    
    
    
    2,325
    
    
    
    21,2012011
    
    
    20,144
    
    
    
    1,897
    
    
    
    22,0412012
    
    
    20,811
    
    
    
    1,442
    
    
    
    22,253Thereafter
    
    
    72,771
    
    
    
    9,358
    
    
    
    82,129$
    169,150
    
    
    $
    21,211
    
    
    $
    190,361
 Purchase Commitments
    Environmental Matters
  Legal Matters
 42




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##### Table of Contents



Employee Matters
  (10) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
     43




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##### Table of Contents



Accounts Receivable
    
    Net SalesDecember 31,
    
    Years Ended December 31,2007
    
    2006
    
    2007
    
    2006
    
    2005Customer A
    
    
    11
    %
    
    
    11
    %
    
    
    15
    %
    
    
    17
    %
    
    
    14
    %Customer B
    
    
    11
    %
    
    
    7
    %
    
    
    12
    %
    
    
    10
    %
    
    
    9
    %
  44




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Segment operating revenuesOil and Gas
    
    $
    286,118
    
    
    $
    270,707
    
    
    $
    242,464Air Medical
    
    
    149,590
    
    
    
    133,397
    
    
    
    112,123Technical Services
    
    
    10,698
    
    
    
    9,014
    
    
    
    9,023Total operating revenues
    
    
    446,406
    
    
    
    413,118
    
    
    
    363,610Segment direct expenseOil and Gas
    
    
    250,110
    
    
    
    228,797
    
    
    
    188,872Air Medical
    
    
    137,703
    
    
    
    130,412
    
    
    
    104,465Technical Services
    
    
    6,608
    
    
    
    7,063
    
    
    
    5,926Total direct expense
    
    
    394,421
    
    
    
    366,272
    
    
    
    299,263Segment selling, general and administrative expensesOil and Gas
    
    
    1,531
    
    
    
    1,150
    
    
    
    1,181Air Medical
    
    
    7,883
    
    
    
    7,384
    
    
    
    6,503Technical Services
    
    
    59
    
    
    
    38
    
    
    
    43Total selling, general and administrative expenses
    
    
    9,473
    
    
    
    8,572
    
    
    
    7,727Total direct
and selling, general and administrative expenses
    
    
    403,894
    
    
    
    374,844
    
    
    
    306,990Net segment
profit (loss)Oil and Gas
    
    
    34,477
    
    
    
    40,760
    
    
    
    52,411Air Medical
    
    
    4,004
    
    
    
    (4,399
    )
    
    
    1,155Technical Services
    
    
    4,031
    
    
    
    1,913
    
    
    
    3,054Total
    
    
    42,512
    
    
    
    38,274
    
    
    
    56,620Other, net (1)
    
    
    40,051
    
    
    
    9,946
    
    
    
    3,230Unallocated selling, general and administrative expenses
    
    
    (20,753
    )
    
    
    (19,267
    )
    
    
    (17,169
    )Interest expense
    
    
    (16,121
    )
    
    
    (17,243
    )
    
    
    (20,448
    )Loss on debt restructuring
    
    
    
    
    
    
    (12,790
    )
    
    
    Earnings (loss) before income taxes
    
    $
    45,689
    
    
    $
    (1,080
    )
    
    $
    22,233
 
 (1)
    
    Including gains on disposition of property and equipment and other income. Year EndedDecember 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Expenditures for long
lived assetsOil and Gas
    
    $
    130,574
    
    
    $
    107,514
    
    
    $
    56,157Air Medical
    
    
    35,053
    
    
    
    14,446
    
    
    
    39,361Technical Services
    
    
    
    
    
    
    518
    
    
    
    3Corporate
    
    
    971
    
    
    
    775
    
    
    
    644Total
    
    $
    166,598
    
    
    $
    123,253
    
    
    $
    96,165
 45




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##### Table of Contents



Year EndedDecember 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Depreciation and AmortizationOil and Gas
    
    $
    17,211
    
    
    $
    17,147
    
    
    $
    16,842Air Medical
    
    
    8,303
    
    
    
    8,634
    
    
    
    6,023Technical Services
    
    
    252
    
    
    
    235
    
    
    
    223Corporate
    
    
    4,281
    
    
    
    4,281
    
    
    
    4,045Total
    
    $
    30,047
    
    
    $
    30,297
    
    
    $
    27,133AssetsOil and Gas
    
    $
    392,154
    
    
    $
    284,981
    
    
    $
    254,146Air Medical
    
    
    184,435
    
    
    
    164,234
    
    
    
    138,994Technical Services
    
    
    7,481
    
    
    
    9,984
    
    
    
    4,950Corporate
    
    
    157,226
    
    
    
    241,771
    
    
    
    151,119Total
    
    $
    741,296
    
    
    $
    700,970
    
    
    $
    549,209
  Year EndedDecember 31,2007
    
    
    2006
    
    
    2005(Thousands of dollars)Operating revenues:United States
    
    $
    424,268
    
    
    $
    387,530
    
    
    $
    335,418International
    
    
    22,138
    
    
    
    25,588
    
    
    
    28,192Total
    
    $
    446,406
    
    
    $
    413,118
    
    
    $
    363,610Long-Lived Assets:United States
    
    $
    478,795
    
    
    $
    362,527
    
    
    $
    303,924International
    
    
    5,324
    
    
    
    6,938
    
    
    
    7,754Total
    
    $
    484,119
    
    
    $
    369,465
    
    
    $
    311,678
 (11) EFFECTS OF HURRICANES
  46




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##### Table of Contents



(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
  Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2007(1)
    
    
    2007
    
    
    2007
    
    
    2007(Thousands of dollars, except per share data)Operating revenues
    
    $
    101,753
    
    
    $
    112,975
    
    
    $
    118,401
    
    
    $
    113,277Gross profit
    
    
    8,520
    
    
    
    15,856
    
    
    
    16,974
    
    
    
    10,635Net earnings
    
    
    663
    
    
    
    7,169
    
    
    
    8,629
    
    
    
    11,757Net earnings per shareBasic
    
    
    0.04
    
    
    
    0.47
    
    
    
    0.56
    
    
    
    0.77Diluted
    
    
    0.04
    
    
    
    0.47
    
    
    
    0.56
    
    
    
    0.77
 Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006(2)
    
    
    2006(1)
    
    
    2006(1)(Thousands of dollars, except per share data)Operating revenues
    
    $
    101,372
    
    
    $
    107,157
    
    
    $
    109,315
    
    
    $
    95,274Gross profit
    
    
    14,317
    
    
    
    17,946
    
    
    
    16,091
    
    
    
    (1,508
    )Net earnings (loss)
    
    
    2,225
    
    
    
    (2,755
    )
    
    
    5,122
    
    
    
    (5,259
    )Net earnings (loss) per shareBasic
    
    
    0.21
    
    
    
    (0.19
    )
    
    
    0.34
    
    
    
    (0.34
    )Diluted
    
    
    0.21
    
    
    
    (0.19
    )
    
    
    0.33
    
    
    
    (0.34
    )
 
 (1)
    
    Earnings in the quarters ended September 30, 2006, December 31, 2006, and March
31, 2007, were impacted due to the pilots strike that commenced September 20, 2006.(2)
    
    The loss for the quarter ended June 30, 2006 was a result of the $12.8 million
early call premium and associated costs for redemption of the
Companys 9 3/8% Senior Notes
recorded in that period. (13) SHAREHOLDERS EQUITY
   (14) CONDENSED FINANCIAL INFORMATION  GUARANTOR ENTITIES
    47




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    1,004
    
    
    $
    421
    
    
    $
    
    
    
    $
    1,425Short-term investments
    
    
    62,970
    
    
    
    
    
    
    
    
    
    
    
    62,970Accounts
receivable  net
    
    
    84,318
    
    
    
    13,766
    
    
    
    
    
    
    
    98,084Inventories of spare parts and supplies
    
    
    55,831
    
    
    
    
    
    
    
    
    
    
    
    55,831Other current assets
    
    
    11,184
    
    
    
    10
    
    
    
    
    
    
    
    11,194Refundable income taxes
    
    
    525
    
    
    
    
    
    
    
    
    
    
    
    525Total current assets
    
    
    215,832
    
    
    
    14,197
    
    
    
    
    
    
    
    230,029Investment in subsidiaries and others
    
    
    59,384
    
    
    
    
    
    
    
    (59,384
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    50,729
    
    
    
    (50,729
    )
    
    
    Other assets
    
    
    26,878
    
    
    
    270
    
    
    
    
    
    
    
    27,148Property and equipment, net
    
    
    468,070
    
    
    
    16,049
    
    
    
    
    
    
    
    484,119Total assets
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296LIABILITIES ANDSHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    24,696
    
    
    $
    3,758
    
    
    $
    
    
    
    $
    28,454Accrued liabilities
    
    
    24,942
    
    
    
    
    
    
    
    
    
    
    
    24,942Intercompany payable
    
    
    50,729
    
    
    
    
    
    
    
    (50,729
    )
    
    
    Total current liabilities
    
    
    100,367
    
    
    
    3,758
    
    
    
    (50,729
    )
    
    
    53,396Long-term debt
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Deferred income taxes and other long-term
liabilities
    
    
    41,128
    
    
    
    18,103
    
    
    
    
    
    
    
    59,231Shareholders EquityPaid-in capital
    
    
    292,564
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,564Accumulated other comprehensive
income
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Retained earnings
    
    
    136,044
    
    
    
    54,982
    
    
    
    (54,982
    )
    
    
    136,044Total shareholders equity
    
    
    428,669
    
    
    
    59,384
    
    
    
    (59,384
    )
    
    
    428,669Total liabilities and
shareholders equity
    
    $
    770,164
    
    
    $
    81,245
    
    
    $
    (110,113
    )
    
    $
    741,296
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 48




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##### Table of Contents



PHI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
(Thousands of dollars)
 December 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    385
    
    
    $
    435
    
    
    $
    
    
    
    $
    820Short-term investments
    
    
    153,414
    
    
    
    
    
    
    
    
    
    
    
    153,414Accounts
receivable  net
    
    
    75,642
    
    
    
    13,652
    
    
    
    
    
    
    
    89,294Inventories of spare parts and supplies
    
    
    55,596
    
    
    
    
    
    
    
    
    
    
    
    55,596Other current assets
    
    
    7,922
    
    
    
    8
    
    
    
    
    
    
    
    7,930Refundable income taxes
    
    
    44
    
    
    
    591
    
    
    
    
    
    
    
    635Total current assets
    
    
    293,003
    
    
    
    14,686
    
    
    
    
    
    
    
    307,689Investment in subsidiaries and other
    
    
    46,226
    
    
    
    
    
    
    
    (46,226
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    44,085
    
    
    
    (44,085
    )
    
    
    Other assets
    
    
    23,759
    
    
    
    57
    
    
    
    
    
    
    
    23,816Property and equipment, net
    
    
    361,570
    
    
    
    7,895
    
    
    
    
    
    
    
    369,465Total assets
    
    $
    724,558
    
    
    $
    66,723
    
    
    $
    (90,311
    )
    
    $
    700,970LIABILITIES ANDSHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    31,461
    
    
    $
    4,354
    
    
    $
    
    
    
    $
    35,815Accrued liabilities
    
    
    17,487
    
    
    
    288
    
    
    
    
    
    
    
    17,775Intercompany payable
    
    
    44,085
    
    
    
    
    
    
    
    (44,085
    )
    
    
    Total current liabilities
    
    
    93,033
    
    
    
    4,642
    
    
    
    (44,085
    )
    
    
    53,590Long-term debt
    
    
    205,500
    
    
    
    
    
    
    
    
    
    
    
    205,500Deferred income taxes and other long-term
liabilities
    
    
    25,900
    
    
    
    15,855
    
    
    
    
    
    
    
    41,755Shareholders EquityPaid-in capital
    
    
    292,222
    
    
    
    4,402
    
    
    
    (4,402
    )
    
    
    292,222Accumulated other comprehensive
income
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    77Retained earnings
    
    
    107,826
    
    
    
    41,824
    
    
    
    (41,824
    )
    
    
    107,826Total shareholders equity
    
    
    400,125
    
    
    
    46,226
    
    
    
    (46,226
    )
    
    
    400,125Total liabilities and
shareholders equity
    
    $
    724,558
    
    
    $
    66,723
    
    
    $
    (90,311
    )
    
    $
    700,970
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 49




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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, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    378,092
    
    
    $
    68,314
    
    
    $
    
    
    
    $
    446,406Management fees
    
    
    2,733
    
    
    
    
    
    
    
    (2,733
    )
    
    
    Gain on dispositions of assets, net
    
    
    34,953
    
    
    
    
    
    
    
    
    
    
    
    34,953Other
    
    
    5,090
    
    
    
    8
    
    
    
    
    
    
    
    5,098420,868
    
    
    
    68,322
    
    
    
    (2,733
    )
    
    
    486,457Expenses:Direct expenses
    
    
    347,397
    
    
    
    47,024
    
    
    
    
    
    
    
    394,421Management fees
    
    
    
    
    
    
    2,733
    
    
    
    (2,733
    )
    
    
    Selling, general, and administrative
    
    
    27,140
    
    
    
    3,086
    
    
    
    
    
    
    
    30,226Equity in net income of consolidated
subsidiaries
    
    
    (13,158
    )
    
    
    
    
    
    
    13,158
    
    
    
    Interest expense
    
    
    16,121
    
    
    
    
    
    
    
    
    
    
    
    16,121377,500
    
    
    
    52,843
    
    
    
    10,425
    
    
    
    440,768Earnings before income taxes
    
    
    43,368
    
    
    
    15,479
    
    
    
    (13,158
    )
    
    
    45,689Income taxes
    
    
    15,150
    
    
    
    2,321
    
    
    
    
    
    
    
    17,471Net earnings
    
    $
    28,218
    
    
    $
    13,158
    
    
    $
    (13,158
    )
    
    $
    28,218
 For the year ended December 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    357,355
    
    
    $
    55,763
    
    
    $
    
    
    
    $
    413,118Management fees
    
    
    2,231
    
    
    
    
    
    
    
    (2,231
    )
    
    
    Gain on dispositions of assets, net
    
    
    1,910
    
    
    
    
    
    
    
    
    
    
    
    1,910Other
    
    
    8,016
    
    
    
    20
    
    
    
    
    
    
    
    8,036369,512
    
    
    
    55,783
    
    
    
    (2,231
    )
    
    
    423,064Expenses:Direct expenses
    
    
    325,115
    
    
    
    41,157
    
    
    
    
    
    
    
    366,272Management fees
    
    
    
    
    
    
    2,231
    
    
    
    (2,231
    )
    
    
    Selling, general, and administrative
    
    
    25,106
    
    
    
    2,733
    
    
    
    
    
    
    
    27,839Equity in net income of consolidated
subsidiaries
    
    
    (7,592
    )
    
    
    
    
    
    
    7,592
    
    
    
    Interest expense
    
    
    17,243
    
    
    
    
    
    
    
    
    
    
    
    17,243Loss on debt restructuring
    
    
    12,790
    
    
    
    
    
    
    
    
    
    
    
    12,790372,662
    
    
    
    46,121
    
    
    
    5,361
    
    
    
    424,144Loss before income taxes
    
    
    (3,150
    )
    
    
    9,662
    
    
    
    (7,592
    )
    
    
    (1,080
    )Income taxes
    
    
    (2,483
    )
    
    
    2,070
    
    
    
    
    
    
    
    (413
    )Net Loss
    
    $
    (667
    )
    
    $
    7,592
    
    
    $
    (7,592
    )
    
    $
    (667
    )
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 50




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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(1)
    
    
    Eliminations
    
    
    ConsolidatedOperating revenues
    
    $
    310,868
    
    
    $
    52,742
    
    
    $
    
    
    
    $
    363,610Management fees
    
    
    1,485
    
    
    
    
    
    
    
    (1,485
    )
    
    
    Gain on dispositions of assets, 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
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 51




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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, 2007ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    25,224
    
    
    $
    2
    
    
    $
    
    
    
    $
    25,226Investing activities:Purchase of property and equipment
    
    
    (159,699
    )
    
    
    (16
    )
    
    
    
    
    
    
    (159,715
    )Proceeds from asset dispositions
    
    
    58,105
    
    
    
    
    
    
    
    
    
    
    
    58,105Purchase (sale) of short-term investments
    
    
    90,444
    
    
    
    
    
    
    
    
    
    
    
    90,444Other
    
    
    (8,298
    )
    
    
    
    
    
    
    
    
    
    
    (8,298
    )Net cash used in investing activities
    
    
    (19,448
    )
    
    
    (16
    )
    
    
    
    
    
    
    (19,464
    )Financing activities:Proceeds (payments) line of credit, net
    
    
    (5,500
    )
    
    
    
    
    
    
    
    
    
    
    (5,500
    )Proceeds from exercise of stock options
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    343Net cash used in by financing activities
    
    
    (5,157
    )
    
    
    
    
    
    
    
    
    
    
    (5,157
    )Increase (decrease) in cash and cash
equivalents
    
    
    619
    
    
    
    (14
    )
    
    
    
    
    
    
    605Cash and cash equivalents, beginning of
period
    
    
    385
    
    
    
    435
    
    
    
    
    
    
    
    820Cash and cash equivalents, end of period
    
    $
    1,004
    
    
    $
    421
    
    
    $
    
    
    
    $
    1,425
 For the year ended December 31, 2006ParentCompany
    
    
    GuarantorOnly
    
    
    Subsidiaries(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    30,142
    
    
    $
    182
    
    
    $
    
    
    
    $
    30,324Investing activities:Purchase of property and equipment
    
    
    (123,047
    )
    
    
    (206
    )
    
    
    
    
    
    
    (123,253
    )Proceeds from asset dispositions
    
    
    36,809
    
    
    
    
    
    
    
    
    
    
    
    36,809Purchase (sale) of short-term investments
    
    
    (86,889
    )
    
    
    
    
    
    
    
    
    
    
    (86,889
    )Other
    
    
    (5,595
    )
    
    
    
    
    
    
    
    
    
    
    (5,595
    )Net cash used in investing activities
    
    
    (178,722
    )
    
    
    (206
    )
    
    
    
    
    
    
    (178,928
    )Financing activities:Proceeds of
debt issuance  Senior Notes
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000Premium and costs to retire debt early
    
    
    (10,208
    )
    
    
    
    
    
    
    
    
    
    
    (10,208
    )Repayment of Senior Notes
    
    
    (200,000
    )
    
    
    
    
    
    
    
    
    
    
    (200,000
    )Debt issuance costs
    
    
    (4,857
    )
    
    
    
    
    
    
    
    
    
    
    (4,857
    )Payments on long-term debt
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Proceeds from line of credit, net
    
    
    2,200
    
    
    
    
    
    
    
    
    
    
    
    2,200Proceeds from stock issuance, net
    
    
    160,722
    
    
    
    
    
    
    
    
    
    
    
    160,722Other
    
    
    (469
    )
    
    
    
    
    
    
    
    
    
    
    (469
    )Net cash provided by financing activities
    
    
    146,388
    
    
    
    
    
    
    
    
    
    
    
    146,388Increase in cash and cash equivalents
    
    
    (2,192
    )
    
    
    (24
    )
    
    
    
    
    
    
    (2,216
    )Cash and cash equivalents, beginning of
period
    
    
    2,577
    
    
    
    459
    
    
    
    
    
    
    
    3,036Cash and cash equivalents, end of period
    
    $
    385
    
    
    $
    435
    
    
    $
    
    
    
    $
    820
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 52




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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(1)
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    27,864
    
    
    $
    156
    
    
    $
    
    
    
    $
    28,020Investing activities:Purchase of property and equipment
    
    
    (96,161
    )
    
    
    (4
    )
    
    
    
    
    
    
    (96,165
    )Proceeds from asset dispositions
    
    
    10,751
    
    
    
    
    
    
    
    
    
    
    
    10,751Purchase of short-term investments
    
    
    (52,050
    )
    
    
    
    
    
    
    
    
    
    
    (52,050
    )Net cash used in investing activities
    
    
    (137,460
    )
    
    
    (4
    )
    
    
    
    
    
    
    (137,464
    )Financing activities: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
    
    
    
    
    
    
    
    
    
    
    
    108,947(Decrease) Increase in cash and cash
cash equivalents
    
    
    (649
    )
    
    
    152
    
    
    
    
    
    
    
    (497
    )Cash and cash equivalents, beginning of
period
    
    
    3,226
    
    
    
    307
    
    
    
    
    
    
    
    3,533Cash and cash equivalents, end of period
    
    $
    2,577
    
    
    $
    459
    
    
    $
    
    
    
    $
    3,036
 
 1)
    
    Foreign subsidiaries represent minor subsidiaries and are included in the guarantors
subsidiaries amounts. 53




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##### Table of Contents



ITEM 9.  CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
   ITEM 9A.  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Managements Report on Internal Control over Financial Reporting
  Internal
Control-Integrated Framework
  54




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework
   
 55




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##### Table of Contents



ITEM 9.B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  56




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 1.
    
    Financial Statements
    
    PageIncluded in Part II of this report:Report of Independent Registered Public Accounting Firm
    
    
    26Consolidated Balance Sheets  December 31, 2007 and December 31, 2006.
    
    
    27Consolidated Statements of Operations for the years ended December 31, 2007,
December 31, 2006, and December 31, 2005.
    
    
    28Consolidated Statements of Shareholders Equity for the years ended
December 31, 2007,
December 31, 2006, and December 31, 2005.
    
    
    29Consolidated Statements of Cash Flows for the years ended December 31, 2007,
December 31 2006, and December 31, 2005.
    
    
    30Notes to Consolidated Financial Statements.
    
    
    312.
    
    Financial Statement SchedulesSchedule II  Valuation and Qualifying accounts for the years ended
December 31, 2007,
December 31, 2006 and December 31, 2005.
    
    
    593.
    
    Exhibits
 3
    
    Articles of Incorporation and By-laws
 3.1

    (i)
    
    Amended and Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit No. 3.1(i) to PHIs Report on Form 10-Q for the quarterly period
ended June 30, 2006).(ii)
    
    Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to PHIs Report on Form 8-K filed December 18,
2007).
 4
    
    Instruments defining the rights of security holders, including indentures.4.1
    
    Loan Agreement dated as of April 23, 2002 by and among PHI, Inc., Acadian
Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and International
Helicopter Transport, Inc. and Whitney National Bank (incorporated by reference to
Exhibit 10.3 to PHIs Report on Form 10-Q for the quarterly period ended June 30,
2002, Commission File No. 0-9827).4.2
    
    First Amendment to Loan Agreement dated June 18, 2004 by and among PHI, Inc.
Acadian Composites, LLC, Air Evac Services, Inc., Evangeline Airmotive Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.4 to PHIs Report on Form 10-Q for the quarterly period ended
June 30, 2004).4.3
    
    Second Amendment to Loan Agreement dated September 30, 2005 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc., Evangeline Airmotive, Inc., and
International Helicopter Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 4.7 to PHIs Report on Form 10-Q for the quarterly period ended
September 30, 2007).4.4
    
    Third Amendment to Loan Agreement dated April 12, 2006 by and among PHI,
Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive,
Inc.), and International Helicopter Transport, Inc. and Whitney National Bank
(incorporated by reference to Exhibit 10.4 to PHIs Report on Form 8-K filed on April
13, 2006).4.5
    
    Fourth Amendment to Loan Agreement dated September 30, 2006 by and among PHI,
Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive,
Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by reference to Exhibit 4.8 to PHIs Report on Form 10-Q for the
quarterly period ended September 30, 2007).
 57




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##### Table of Contents



4.6
    
    Fifth Amendment to Loan Agreement dated August 1, 2007 by and among PHI,
Inc., Air Evac Services, Inc., PHI Tech Services, Inc. (formerly Evangeline Airmotive,
Inc.), and International Helicopter Transport, Inc. and Whitney National Bank Bank
(incorporated by reference to Exhibit 4.9 to PHIs Report on Form 10-Q for the
quarterly period ended September 30, 2007).4.7
    
    Indenture dated April 12, 2006 among PHI, Inc., the Subsidiary Guarantors
named therein and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 10.2 to PHIs Report on Form 8-K filed on April 13, 2006).4.8
    
    First Supplemental Indenture dated April 12, 2006, among PHI, Inc., the
Subsidiary Guarantors named therein and The Bank of New York, as Trustee (incorporated
by reference to Exhibit 10.1 to PHIs Report on Form 8-K filed on April 13, 2006).10
    
    Material Contracts10.1
    
    The Amended and Restated PHI, Inc. 401 (k) Retirement Plan effective January
1, 2007.10.2
    
    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 10.3 to PHIs Report on Form
10-K for the year ended December 31, 2006).10.3
    
    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 10.4 to PHIs Report on Form 10-K for the year ended December
31, 2006).10.4
    
    Officer Deferred Compensation Plan II adopted by PHIs Board effective
January 1, 2005 (incorporated by reference to Exhibit 10.5 to PHIs Report on Form
10-K for the year ended December 31, 2006).10.5
    
    Articles of Agreement Between PHI, Inc. & Office & Professional Employees
International Union and its Local 108 dated June 13, 2001 (incorporated by reference
to Exhibit 10.6 to PHIs Report on Form 10-K for the year ended December 31, 2006).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.
 58




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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, 2007:Allowance for doubtful accounts
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50Allowance for obsolescent inventory
    
    
    7,256
    
    
    
    843
    
    
    
    639
    
    
    
    7,460Allowance for contractual discounts
    
    
    29,930
    
    
    
    130,753
    
    
    
    128,825
    
    
    
    31,858Allowance for uncompensated care
    
    
    20,099
    
    
    
    42,190
    
    
    
    43,159
    
    
    
    19,130Year ended December 31, 2006:Allowance for doubtful accounts
    
    $
    163
    
    
    $
    
    
    
    $
    113
    
    
    $
    50Allowance for obsolescent inventory
    
    
    6,268
    
    
    
    1,502
    
    
    
    514
    
    
    
    7,256Allowance for contractual discounts
    
    
    24,091
    
    
    
    97,226
    
    
    
    91,387
    
    
    
    29,930Allowance for uncompensated care
    
    
    11,597
    
    
    
    40,073
    
    
    
    31,571
    
    
    
    20,099Year ended December 31, 2005:Allowance for doubtful accounts
    
    $
    163
    
    
    $
    
    
    
    $
    
    
    
    $
    163Allowance for obsolescent inventory
    
    
    6,988
    
    
    
    (70
    )
    
    
    650
    
    
    
    6,268Allowance for contractual discounts
    
    
    12,871
    
    
    
    77,672
    
    
    
    66,452
    
    
    
    24,091Allowance for uncompensated care
    
    
    7,424
    
    
    
    26,796
    
    
    
    22,623
    
    
    
    11,597
 59




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##### Table of Contents



PHI, INC.By:
    /s/  Michael J. McCannMichael J. McCannChief Financial Officer
(Principal Financial and
Accounting Officer)  Signature
    
    Title
    
    Date/s/ Al A. Gonsoulin

Al A. Gonsoulin
    
    Chairman of the Board
Chief Executive Officer
and Director
(Principal Executive Officer)
    
    March 11, 2008/s/ Lance F. Bospflug
    
    Director
    
    March 11, 2008Lance F. Bospflug/s/ Arthur J. Breault, Jr.
    
    Director
    
    March 11, 2008Arthur J. Breault, Jr./s/ Thomas H. Murphy
    
    Director
    
    March 11, 2008Thomas H. Murphy/s/ Richard H. Matzke
    
    Director
    
    March 11, 2008Richard H. Matzke/s/ C. Russell Luigs

C. Russell Luigs
    
    Director
    
    March 11, 2008/s/ Michael J. McCann
Michael J. McCann A
    
    Chief Financial Officer

(Principal Financial
and Accounting Officer)
    
    March 11, 2008
 60