PETROLEUM HELICOPTERS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ________________ TO ________________

COMMISSION FILE NO. 0-9827

PETROLEUM HELICOPTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

LOUISIANA 72-0395707
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

2001 SE EVANGELINE THRUWAY
LAFAYETTE, LOUISIANA 70508
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (337) 235-2452

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
VOTING COMMON STOCK
NON-VOTING COMMON STOCK
(TITLE OF EACH CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant as of March 8, 2002 was $86,947,144
based upon the last sales price of the Common Stock on March 8, 2002, as
reported on the Nasdaq SmallCap Market.

The number of shares outstanding of each of the registrant's classes of
common stock, as of February 28, 2002 was:
Voting Common Stock.........................2,851,866 shares.
Non-Voting Common Stock.....................2,432,609 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 2002
Annual Meeting of Shareholders are incorporated by reference into Part III of
this Form 10-K.

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PETROLEUM HELICOPTERS, INC.

INDEX - FORM 10-K

PART I

Item 1. Business......................................................................................1
Item 2. Properties....................................................................................8
Item 3. Legal Proceedings.............................................................................9
Item 4. Submission of Matters to a Vote of Security Holders..........................................10
Item 4.A. Executive Officers of the Registrant.........................................................10

PART II

Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters..........................................................................11
Item 6. Selected Financial Data......................................................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................13
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk...................................23
Item 8. Financial Statements and Supplementary Data..................................................24
Petroleum Helicopters, Inc. and Consolidated Subsidiaries:
Independent Auditors' Reports..........................................................24
Consolidated Balance Sheets
- December 31, 2001 and December 31, 2000...........................................26
Consolidated Statements of Operations
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 31, 1999, and Year ended April 30, 1999..........27
Consolidated Statements of Shareholders' Equity
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 31, 1999, and year ended April 30, 1999..........28
Consolidated Statements of Comprehensive Income (Loss)
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 30, 1999, and Year ended April 30, 1999..........28
Consolidated Statements of Cash Flows
- Year ended December 31, 2001, Year ended December 31, 2000,
Eight months ended December 30, 1999, and Year ended April 30, 1999..........29
Notes to Consolidated Financial Statements.............................................30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures....................................................................47

PART III

Item 10. Directors and Executive Officers of the Registrant...........................................47
Item 11. Executive Compensation.......................................................................47
Item 12. Security Ownership of Certain Beneficial Owners and Management...............................47
Item 13. Certain Relationships and Related Transactions...............................................47

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................48
Signatures...................................................................................50

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PART I

FORWARD-LOOKING STATEMENTS

All statements other than statements of historical fact contained in this Form
10-K and other periodic reports filed by Petroleum Helicopters, Inc. (the
"Company" or "PHI") under the Securities Exchange Act of 1934 and other written
or oral statements made by it or on its behalf, are forward-looking statements.
When used herein, the words "anticipates", "expects", "believes", "goals",
"intends", "plans", or "projects" and similar expressions are intended to
identify forward-looking statements. It is important to note that
forward-looking statements are based on a number of assumptions about future
events and are subject to various risks, uncertainties, and other factors that
may cause the Company's actual results to differ materially from the views,
beliefs, and estimates expressed or implied in such forward-looking statements.
Although the Company believes that the assumptions reflected in forward-looking
statements are reasonable, no assurance can be given that such assumptions will
prove correct. Factors that could cause the Company's results to differ
materially from the results discussed in such forward-looking statements include
but are not limited to the following: flight variances from expectations,
volatility of oil and gas prices, the substantial capital expenditures and
commitments required to acquire aircraft, environmental risks, weather
conditions, competition, government regulation, unionization, operating hazards,
risks related to international operations, the ability to obtain insurance, and
the ability of the Company to implement its business strategy. For a more
detailed description of risks, see the "Risk Factors" section in Item 1 below.
All forward-looking statements in this document are expressly qualified in their
entirety by the cautionary statements in this paragraph. PHI undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise.

ITEM 1. BUSINESS

GENERAL

PHI, a Louisiana corporation, was incorporated in 1949. Since its inception, the
Company's primary business has been and continues to be the safe and reliable
transportation of personnel and, to a lesser extent, parts and equipment, to,
from, and among offshore platforms for customers engaged in the oil and gas
exploration, development, and production industry, principally in the Gulf of
Mexico. The Company is a leading provider of helicopter transportation services
in the Gulf of Mexico. PHI also provides helicopter services to the oil and gas
industry internationally, and to non-oil and gas customers such as health care
providers and US governmental agencies such as the National Science Foundation.
The Company also provides helicopter maintenance and repair services. At
December 31, 2001, the Company owned or operated approximately 239 aircraft
domestically and internationally.

In September 2001, Mr. Al A. Gonsoulin purchased in a privately negotiated
transaction the Voting Stock of PHI that was owned by the Suggs Family Fund, LLC
and Mrs. Carroll W. Suggs. The stock acquired in this transaction represented at
the time approximately 28% of the total outstanding common stock and
approximately 52% of the total Voting Common Stock. The transactions did not
involve PHI or any of its officers and directors other than Mrs. Suggs, managing
member of the Suggs Family Fund, LLC, and who was also at that time Chairman of
PHI.

Mr. Gonsoulin, who was elected Chairman of the Company following the
transaction, has 35 years of oil and gas service industry experience as a
manager, owner, and investor. He founded Sea Mar, Inc. in 1977 and served as
President and CEO of that company until he sold Sea Mar to Pool Energy Services
in 1998. Through December 31, 2001, Mr. Gonsoulin continued as President of Sea
Mar, Inc., now a subsidiary of Nabors Industries, Inc.

In September 2000, Mr. Lance F. Bospflug joined the Company as its President. He
previously was President and Chief Executive Officer of T. L. James and Company
from 1999 to 2000. Prior to that, he was Executive Vice President and Chief
Financial Officer. In August 2001, the Board of Directors elected Mr. Bospflug
Chief Executive Officer of the Company, and in November 2001, he was elected to
the board of directors.

Following Mr. Bospflug joining the Company in September 2000, the acquisition by
Mr. Gonsoulin of 52% of the voting common stock, and election of Mr. Gonsoulin
as Chairman of the Company, which occurred in September 2001, the Company
implemented changes at various times to improve profitability, most notably of
which were: an across the board billing rate increase was implemented, a number
of surplus or unprofitable aircraft were sold or otherwise disposed of, a number
of actions were taken regarding some of the Company's unprofitable operations
including the discontinuation of its

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fixed-wing services and certain unprofitable international operations, the
management organizational structure was reorganized to reduce layers of
management and supervisory staff to improve operating efficiency, a reduction in
the Company's work force was implemented, the Technical Services segment's
customer focus was changed, and, lastly, the Company's office located in
Metairie, Louisiana was closed.

PHI increased the rates it charges its customers in 2001 to better align the
pricing of its services with their market value. It announced and began
implementing rate increases in January 2001 and additional rate increases were
implemented in May 2001. The May 2001 increase was the first meaningful increase
in over a decade. It has gradually instituted the higher rate schedules
throughout 2001 in accordance with its contracts and expects to have the revised
rate structure fully implemented in 2002. The Company engaged in significant
communication with customers at the time of the increase to insure they
understood the reasons for the increase, which included historical cost
increases, recent and proposed wage increases for pilots and mechanics in 2001,
and the ability to upgrade and acquire appropriate aircraft.

At various times during 2001, PHI sold or terminated leases for 40 aircraft that
were surplus to the Company's needs, aged, or operated in the Company's
discontinued fixed wing operations.

In June 2001, the Company completed phasing out its Domestic Oil and Gas fixed
wing operations. Also, in June 2001, the Company executed an agreement for the
sale of its 50% equity interest and related assets in Clintondale Aviation, Inc.
("Clintondale"), which operated helicopters and fixed-wing aircraft primarily in
Kazakhstan. (See Notes to Financial Statements Note 7 Other Assets.) In
addition, the Company ceased operations in China, Brazil, and Mexico although
one of its aircraft remains in Brazil. The Company has sold certain of the
aircraft used in these operations and intends either to sell the remaining
aircraft or return them to the US during 2002.

There was a reduction in the work force implemented in February 2001. The total
work force was reduced by approximately 161 personnel in 2001. (See Item 7. --
Management Discussion and Analysis of Financial Condition and Results of
Operations.) In the first quarter of 2002, the Company completed a minimal
reduction in work force and also implemented an early retirement program, which
will be completed in the second quarter 2002.

In addition to those actions described above there were two events which were
also significant to the Company during 2001; a collective bargaining agreement
signed with its US pilots effective June 1, 2001 and the tragic events of
September 11, 2001.

On June 13, 2001, PHI's domestic pilots ratified a three-year collective
bargaining agreement between the Company and the Office & Professional Employees
International Union ("OPEIU"). The agreement was effective retroactively to June
1, 2001. The contract is discussed further in the "Employees" section of this
Item 1.

The Company also adjusted to temporary and permanent business disruptions that
followed the September 11 attacks. After the terrorist attacks on September 11,
2001, the Federal Aviation Administration (the "FAA") suspended all domestic
flights for three days. It also further limited air travel for a number of weeks
thereafter. PHI's flight hours were impacted by these restrictions. In addition
to these temporary disruptions, PHI is incurring ongoing costs resulting from
these attacks that it believes will continue, including higher insurance
premiums relating to risk of war and additional costs in connection with the
implementation of heightened security precautions. The Company received a
reimbursement of $0.8 million from the United States Department of
Transportation under the Air Safety and System Stabilization Act that was a
result of the these events.

DESCRIPTION OF OPERATIONS

PHI operates in four business segments: Domestic Oil and Gas, International,
Aeromedical, and Technical Services. For financial information regarding the
Company's operating segments and the geographic areas in which they operate, see
Note 10 of the Notes to Consolidated Financial Statements included elsewhere in
this Form 10-K. During the year, the Company changed the strategic focus of
Technical Services from providing maintenance and overhaul services to all
customers, to providing such services only to customers that are currently
serviced by the Company's helicopter operations. The Company also plans to
fulfill a contractual obligation to provide maintenance to certain military
aircraft.

DOMESTIC OIL AND GAS. PHI operates approximately 177 owned, leased, and
customer-owned aircraft related to its Domestic Oil and Gas operations from
several bases or heliports in the Gulf of Mexico region and one base in
California.

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The operations in the Gulf of Mexico service customers located offshore
Louisiana, Texas, Alabama, and Mississippi. Operating revenues from the Domestic
Oil and Gas segment accounted for 67%, 64%, 62%, and 64% of consolidated
operating revenues during the years ended December 31, 2001 and December 31,
2000, the eight months ended December 31, 1999, and year ended April 30, 1999,
respectively.

PHI's oil and gas operations derive revenue primarily from the transport of its
customers' workers and equipment to platforms and other offshore locations. Oil
and gas exploration and production companies and other offshore oil service
companies use PHI's services primarily for routine offshore transportation, to
transport personnel during medical and safety emergencies, and to evacuate
personnel during the threat of hurricanes and other adverse weather conditions.
Most of PHI's customers have entered into contracts for transportation services
for a term of one year or longer, although some do hire the Company on an "ad
hoc" or "spot" basis.

Most of the Domestic Oil and Gas aircraft are available for hire by any
customer, but some are dedicated to individual customers. The Company operates
helicopters that have flying ranges of up to 450 miles with a 30-minute fuel
reserve and thus are capable of servicing many of the deepwater oil and gas
operations that are from 50 to 250 miles offshore. (See Item 2. -- Properties,
for specific information by aircraft model.)

INTERNATIONAL. PHI provides helicopter services in Angola, Antarctica,
Democratic Republic of Congo, and Taiwan. The Company operates approximately 21
aircraft internationally. Each aircraft operating internationally is typically
dedicated to one customer. The Company's international customers are mostly oil
and gas customers, including national oil companies and US corporations
operating internationally. However, some international services are also
provided to certain US governmental agencies. Operating revenues from the
Company's International segment accounted for 8% of consolidated operating
revenues during the year ended December 31, 2001 and 10% during each of the year
ended December 31, 2000, the eight months ended December 31, 1999 and the year
ended April 30, 1999.

AEROMEDICAL. The Company, both directly and through its subsidiary, Air Evac
Services, Inc. ("Air Evac"), provides air medical transportation services for
hospitals and medical programs in 13 states using approximately 41 aircraft. The
aircraft dedicated to this segment are specially outfitted to accommodate
emergency patients and emergency medical equipment. In Arizona, Air Evac
operates 10 of the 41 dedicated aeromedical aircraft and offers its services to
many hospitals and medical programs. Each of the other aircraft operated by the
Aeromedical segment are typically dedicated to one hospital or medical program.
The Aeromedical segment's operating revenues accounted for 17%, 19%, 21%, and
19% of consolidated operating revenues during the years ended December 31, 2001
and December 31, 2000, the eight months ended December 31, 1999, and the year
ended April 30, 1999, respectively.

At December 31, 2001, the Company discontinued a contract with an aeromedical
customer. Revenues in 2001 for that contract were $4.1 million. This contract
produced an unacceptable rate of return.

TECHNICAL SERVICES. PHI performs maintenance and repair services at its
Lafayette facility pursuant to an FAA repair station license, primarily for its
existing customers. The license includes authority to repair airframes,
powerplants, accessories, radios, and instruments and to perform specialized
services. During the year the Company changed the strategic focus of Technical
Services from providing maintenance and overhaul services to any third party
customer, to only those customers that are currently serviced by the Company's
helicopter operations. The Company implemented this change to allow the
Technical Services segment to focus on the Company's aircraft and components.
The Company will continue to fulfill its obligation to provide maintenance to
certain military aircraft.

Operating revenues from the Technical Services segment accounted for 8% of
consolidated operating revenues during the year ended December 31, 2001 and 7%
during each of the year ended December 31, 2000, the eight months ended December
31, 1999, and the year ended April 30, 1999.

SEASONAL ASPECTS

Three seasonal related occurrences affect the Company's operations, including
poor weather conditions generally, tropical storm season in the Gulf of Mexico,
and variation in the number of hours of daylight. For a more detailed discussion
of these events, see the "Adverse Weather Conditions" paragraph in the "Risk
Factors" section of this Item 1. The Company's operating results may, and
usually do, vary from quarter to quarter, depending on factors outside of its
control. As a result, full year results are not likely to be a direct multiple
of any particular quarter or combination of quarters.

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INVENTORY

For aircraft maintenance and repair related to both PHI-owned helicopters and
those repaired by the Technical Services segment, the Company carries an
inventory of aircraft parts. Many of these inventory items are parts that have
been removed from aircraft, refurbished according to manufacturers' and FAA
specifications, and returned to inventory. The Company uses systematic
procedures to estimate the valuation of these used parts, which includes
consideration of their condition and continuing utility. As a result, the
carrying values of inventory reported in the Company's financial statements are
impacted by these estimates.

CUSTOMERS

The Company's principal customers are major integrated energy companies and
independent exploration and production companies. The Company also serves oil
and gas service companies, hospitals and medical programs, government agencies,
and other aircraft owners and operators. The Company's largest customer, Shell
Oil Company and its affiliates, accounted for 15%, 12%, 13%, and 17%, of
operating revenues for the years ended December 31, 2001 and December 31, 2000,
the eight months ended December 31, 1999, and the year ended April 30, 1999,
respectively. The Company has entered into contracts with most of its customers
with terms of at least one year, although most include provisions allowing for
earlier termination.

GOVERNMENT REGULATION

PHI is regulated by a number of different federal and state agencies. All of
PHI's flight operations are regulated by the FAA. Aircraft accidents are subject
to the jurisdiction of the National Transportation Safety Board. Standards
relating to the workplace health and safety of PHI's employees are created and
monitored through the federal Occupational Safety and Health Act ("OSHA"). There
are a number of statutes and regulations that govern offshore operations.
Finally, PHI is subject to various federal and state environmental statutes that
are discussed separately in the "Environmental Matters" section below.

The FAA has authority to exercise jurisdiction over many aspects of the
Company's business, including personnel, aircraft, and ground facilities. The
Company requires an Air Taxi Certificate, granted by the FAA, to transport
personnel and property in its helicopters. This certificate contains operating
specifications that allow the Company to conduct its present operations, but
this certificate is subject to amendment, suspension, and revocation in
accordance with procedures set forth in the Federal Aviation Act. The Company is
not required to file tariffs showing rates, fares, and other charges with the
FAA. The FAA is responsible for ensuring that PHI complies with all FAA
regulations relating to the operation of its aviation business. It conducts
regular inspections regarding the safety, training and general regulatory
compliance of PHI's US aviation operations. Additionally, the FAA requires the
Company to file reports confirming its continued compliance.

The FAA's regulations, as currently in effect, require that at least 75% of the
Company's voting securities be owned or controlled by citizens of the United
States or one of its possessions, and that the president and at least two-thirds
of the directors of the Company be United States citizens. The Company's
president and all of its directors are United States citizens, and its
organizational documents provide for the automatic reduction in voting power of
each share of voting common stock owned or controlled by a non-United States
citizen if necessary to comply with these regulations.

The Company is subject to OSHA and similar state statutes. The Company has an
extensive health, safety and environmental program. The primary functions of the
safety staff are to develop company policies that meet or exceed the safety
standards set by OSHA, train company personnel, and make inspections of safety
procedures to ensure their compliance with company policies on safety. Employees
are required to attend safety-training meetings at which the importance of full
compliance with safety procedures is emphasized. The Company believes that it
meets or exceeds all OSHA requirements and that its operations do not expose its
employees to unusual health hazards.

The Company is also subject to the Communications Act of 1934 because of its
ownership and operation of a radio communications flight following network
throughout the Gulf of Mexico and off the coast of California.

Numerous other federal statutes and rules regulate the offshore operations of
the Company and the Company's customers, pursuant to which the federal
government has the ability to suspend, curtail, or modify certain or all
offshore operations. A suspension or substantial curtailment of offshore oil and
gas operations for any prolonged period would have an immediate

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and materially adverse effect on the Company. A substantial modification of
current offshore operations could adversely affect the economics of such
operations and result in reduced demand for helicopter services.

COMPETITION

The Company's business is highly competitive in each of its markets. Many of the
Company's contracts are awarded after competitive bidding. The principal aspects
of competition are safety, price, reliability, availability, and service.

The Company is a leading operator of helicopters in the Gulf of Mexico. There
are two major and several small competitors operating in the Gulf of Mexico.
Certain of the Company's customers and potential customers in the oil industry
operate their own helicopter fleets; however, oil and gas companies
traditionally contract for most specialty services associated with offshore
operations, including helicopter services.

In the air medical market, the Company competes against local and national
firms, and there is usually more than one competitor per local market. Most of
the Company's customers are independent hospitals who serve only their region.
Competition in the air medical market continues to increase.

The Technical Services segment competes regionally and nationally against
various small and large repair centers in the United States and Canada.
Competition has intensified with aggressive pricing and acquisitions by several
service providers and original equipment manufacturers and their subsidiaries.

The International segment of PHI's business primarily serves customers in the
oil and gas industry, although it does service some government contracts. Most
of PHI's international contracts are subject to competitive bidding.

EMPLOYEES

As of December 31, 2001, the Company employed a total of 1,778 people, including
approximately 595 pilots and 704 aircraft maintenance and support personnel.
During 2001, PHI reduced its work force by approximately 161 employees,
approximately 120 of which were terminated under a restructuring plan during the
first quarter of 2001. In the first quarter of 2002, the Company completed a
minimal reduction in work force and also implemented an early retirement
program, which will be completed in the second quarter 2002.

On June 13, 2001, the Company's domestic pilots ratified a three-year collective
bargaining agreement between the Company and the OPEIU. The agreement was
effective retroactively to June 1, 2001 and remains effective through May 31,
2004. The agreement includes provisions for automatic pilot base pay increases
and strike protection for the Company. Union membership under the agreement,
which falls under the Railway Labor Act, is voluntary.

ENVIRONMENTAL MATTERS

The Company is subject to federal, state and local environmental laws and
regulations that impose limitations on the discharge of pollutants into the
environment and establish standards for the treatment, storage, recycling, and
disposal of toxic and hazardous wastes. Operating and maintaining helicopters
requires that the Company use, store, and dispose of materials that are subject
to federal and state environmental regulation. The Company periodically conducts
environmental site surveys at its facilities, and determines whether there is a
need for environmental remediation based on these surveys.

RISK FACTORS

All phases of the Company's operations are subject to a number of uncertainties,
risks, and other influences. Some important factors that could cause actual
results to differ materially from anticipated results or other expectations
include the following:

DEPENDENCE ON THE OIL AND GAS INDUSTRY. Approximately 72% of the Company's 2001
operating revenue is attributable to helicopter support for oil and gas
companies. The Company's business is dependent primarily on the level of
activity by the oil and gas companies, particularly in the Gulf of Mexico. This
level of activity has traditionally been volatile as a result of fluctuations in
oil and natural gas prices and the uncertainty of these prices in the future.
Low oil prices adversely affect demand throughout the oil and natural gas
industry, including the demand for PHI's products and services. As prices

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decline, PHI is affected in two significant ways. First, the funds available to
customers for the purchase of goods and services decline. Second, exploration
and drilling activity declines as companies delay or eliminate projects.
Accordingly, when oil prices are relatively low, the Company's revenues and
income are adversely affected.

ADVERSE WEATHER CONDITIONS/SEASONALITY. Three types of weather-related or
seasonal occurrences impact the Company's business: poor weather conditions
generally, tropical storm season in the Gulf of Mexico, and the number of hours
of daylight.

Poor visibility, high winds, and heavy precipitation can affect the operation of
helicopters and result in a reduced number of flight hours. A significant
portion of the Company's operating revenues is dependent on actual flight hours
and a substantial portion of the Company's direct costs is fixed. Thus,
prolonged periods of adverse weather can materially and adversely affect the
Company's operating revenues and net earnings.

In the Gulf of Mexico, the months of December through February have more days of
adverse weather conditions than the other months of the year. Also in the Gulf
of Mexico, June through November is tropical storm season. When a tropical storm
is about to enter or begins developing in the Gulf of Mexico, flight activity
may increase because of evacuations of offshore workers. However, during
tropical storms, the Company is unable to operate in the area of the storm. In
addition, as most of PHI's facilities are located along the Gulf of Mexico
coast, tropical storms may cause substantial damage to its property, including
helicopters.

The fall and winter months have fewer hours of daylight. Consequently, flight
hours are generally lower at these times, which typically results in a reduction
in operating revenues during those months. The Company currently operates 44
helicopters in its oil and gas operations that are equipped to fly pursuant to
instrument flight rules ("IFR"), which enables these aircraft, when manned by
IFR rated pilots and co-pilots, to operate at times when poor visibility
prevents flights by aircraft that can fly only by visual flight rules ("VFR").

INTERNATIONAL OPERATIONS ARE SUBJECT TO POLITICAL, ECONOMIC AND REGULATORY
UNCERTAINTY. PHI's international operations are subject to a number of risks
inherent in any business operating in foreign countries including, but not
limited to; (i) political, social, and economic instability; (ii) potential
seizure or nationalization of assets; (iii) import-export quotas; (iv) currency
fluctuations; and (v) other forms of governmental regulation.

The Company's results of operations could be susceptible to adverse events
beyond its control that could occur in any particular country in which it is
conducting operations. PHI's contracts to provide services internationally
generally provide for payment in US dollars. To the extent PHI does make
investments in foreign assets or receives revenues in currencies other than US
dollars, the value of the Company's assets and income could be adversely
affected by fluctuations in the value of local currencies.

Additionally, competitiveness in international market areas may be adversely
affected by regulations, including, but not limited to, regulations requiring;
(i) the awarding of contracts to local contractors, (ii) the employment of local
citizens, and (iii) the establishment of foreign subsidiaries with significant
ownership positions reserved by the foreign government for local citizens.

CONCENTRATION OF CUSTOMERS IN OIL AND GAS INDUSTRY MAY INCREASE THE COMPANY'S
RISK. The majority of PHI's customers are engaged in the oil and gas industry.
This concentration of customers may impact the Company's overall exposure to
credit risk, either positively or negatively, in that customers may be similarly
affected by changes in economic and industry conditions. PHI does not generally
require collateral in support of trade receivables, but does maintain reserves
for potential credit losses, and, generally, actual losses have historically
been within expectations.

SIGNIFICANT CUSTOMERS. The Company derives a significant amount of its revenue
from a small number of major and independent oil and gas companies. The
Company's loss of one of these significant customers, if not offset by sales to
new or other existing customers, would have a material adverse effect on
business and operations. For more information on customer concentration, see
"Customers" above.

SAFETY AND INSURANCE. The operation of helicopters inherently involves a degree
of risk. Hazards such as aircraft accidents, collisions, fire, and adverse
weather are part of the business of providing helicopter services and may result
in (i) loss of life, (ii) serious injury to employees and third parties, and
(iii) losses of equipment and revenues. The Company's safety record is very
favorable in comparison to the record for all United States operators as
reflected in industry

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publications. A favorable safety record is one of the primary factors a customer
reviews in selecting an aviation provider. Significant emphasis is placed on
safety in the Company and it is a very important factor affecting daily
operations.

The Company maintains hull and liability insurance on its aircraft, which
insures the Company against physical loss of, or damage to, its aircraft and
against certain legal liabilities to others. In addition, the Company carries
war risk, expropriation, confiscation, and nationalization insurance for its
aircraft involved in international operations. In some instances, the Company is
covered by indemnity agreements from its customers in lieu of, or in addition to
its insurance. The Company's aircraft are not insured for loss of use. While the
Company believes it is adequately covered by insurance and indemnification
arrangements, the loss, expropriation or confiscation of, or severe damage to, a
material number of its helicopters could adversely affect revenues and profits.

THE PRINCIPAL STOCKHOLDER HAS SUBSTANTIAL CONTROL. Al A. Gonsoulin beneficially
owns stock representing approximately 52% of the total voting power. As a
result, he exercises control over the outcome of matters requiring a stockholder
vote.

THE COMPANY DOES NOT PAY DIVIDENDS. The Company has not paid any dividends on
its common stock since 1999 and does not anticipate that it will pay any
dividends on its common stock in the foreseeable future.

LOW TRADING VOLUME. Both the Company's voting (PHEL) and nonvoting (PHELK)
common stock are listed on the Nasdaq Small Cap Market ("Nasdaq"). However,
neither class of shares has substantial trading volume, and on some days no
shares are traded. Because of this limitation, among others, a shareholder may
not be able to sell shares of the Company at the time, in the amounts, or at the
price desired.

7

ITEM 2. PROPERTIES

AIRCRAFT

Certain information regarding the Company's owned and leased fleet as of
December 31, 2001 is set forth in the following table:

- ----------

(1) Equipped to fly under instrument flight rules ("IFR"). All other types
listed can only fly under visual flight rules ("VFR"). See Item 1.
"Business - Risk Factors, Adverse weather conditions/Seasonality."

(2) Based on maintaining a 30-minute fuel reserve.

Of the 220 aircraft listed, the Company owns 116 and leases 104. Additionally,
the Company operates 19 aircraft that are owned or leased by customers that are
not reflected in the foregoing tables. Most of the owned aircraft collateralize
the Company's long-term debt.

The Company sells aircraft whenever they (i) become obsolescent, (ii) do not fit
into future fleet plans, or (iii) are surplus to the Company's needs. The
Company often sells its aircraft for more than book value.

FACILITIES

The Company's principal facility is located on property leased from The
Lafayette Airport Commission at the Lafayette Regional Airport in Lafayette,
Louisiana. The lease covers approximately 28 acres and two buildings, with an
aggregate of approximately 256,000 square feet, housing the Company's main
operational, executive, and administrative offices and the main repair and
maintenance facility. The lease for this new facility expires in 2021 and
contains three five-year renewal options following the expiration date.

The Company owns its Boothville, Louisiana operating facility. The property has
a 23,000 square foot building, a 7,000 square foot hangar, and landing pads for
35 helicopters.

8

The Company also leases property for 12 additional bases to service the oil and
gas industry throughout the Gulf of Mexico and one base in California. Those
bases that represent a significant investment by the Company in leasehold
improvements or which are particularly important to the Company's operations
are:

The Company's other operations-related facilities in the United States are
located at New Orleans, Cameron, and Lake Charles, Louisiana; at Port O'Connor,
Sabine Pass, and Rockport, Texas; at Theodore, Alabama; and at Santa Barbara,
California.

The Company also operates from offshore platforms that are provided without
charge by the owners of the platforms, although in certain instances the Company
is required to indemnify the owners against loss in connection with the
Company's use thereof.

Bases for the Company's international and air medical operations are generally
furnished by the customer.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to, and its property is not the subject of, any
pending legal proceedings, other than ordinary routine litigation incidental to
its business.

9

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held its 2001 Annual Meeting of Stockholders on November 19, 2001.
At the meeting, shareholders elected each of the following persons listed below
to PHI's Board of Directors for a term ending at the Company's 2002 Annual
Meeting of Stockholders. The number of votes cast with respect to the election
of each such person is opposite such person's name. The persons listed below
constitute the entire Board of Directors of the Company.

ITEM 4.A. EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information about the executive officers of PHI is set forth in the
following table and accompanying text:

Mr. Gonsoulin was elected Chairman of the Board in September 2001. Mr. Gonsoulin
has 35 years of oil and gas service industry experience as a manager, owner, and
investor. He is a business graduate of the University of Louisiana at Lafayette.
He founded Sea Mar, Inc. in 1977 and served as President and CEO of that company
until he sold Sea Mar to Pool Energy Services in 1998. Mr. Gonsoulin continued
as President of Sea Mar, Inc. until December 31, 2001.

Mr. Bospflug joined PHI in September 2000 as President. He previously was
President and Chief Executive Officer of T. L. James and Company from 1999 to
2000. Prior to that, he was Executive Vice President and Chief Financial
Officer. Mr. Bospflug holds a business degree from Jamestown College in
Jamestown, North Dakota and a Masters of Business Administration from the
University of South Dakota in Vermillion, South Dakota and is a Chartered
Financial Analyst.

Mr. Bouillion became Director of Health, Safety, and Environment in January
2001. Previously, he was Director of Safety from 1999 to 2000, Assistant
Director of Safety from 1998 to 1999, and Director of Industrial Safety from
1995 to 1998.

Mr. Cornett became Director of Maintenance and Federal Aviation Regulations
("FAR") 145 Maintenance in January 2001. In this position, Mr. Cornett also
directs the Technical Service segment. He has served PHI in various positions
since 1964 and from 1991 to 2000 was Director of FAR 135 Maintenance.

Mr. Craig became Director of Operations in January 2001. In this position, Mr.
Craig directs the Domestic Oil and Gas, International, and Aeromedical segments.
He has been with PHI since 1977 and held the title of Regional Manager of the
Eastern Gulf of Mexico from 1992 until his recent appointment.

Mr. Cummiskey has served as Secretary since 1992 and Director of Risk Management
since 1991. He holds a Bachelor of Science Degree in Business from the
University of New Orleans.

10

Mr. Hurst has served as Chief Pilot since 1994. Mr. Hurst was a Captain in the
US Army and was awarded several flying and service awards and medals.

Mr. McCann has served as Chief Financial Officer ("CFO") and Treasurer since
November 1998. From January 1998 to October 1998, he was the CFO for Global
Industries Ltd. and Chief Administrative Officer ("CAO") from July 1996. Prior
to that, he was CFO for Sub Sea International, Inc. Mr. McCann is a Certified
Public Accountant and holds a Masters of Business Administration from Loyola
University.

Mr. Rovinelli joined the Company in February 1999 as Director of Human Resources
and was also named Chief Administrative Officer in December 1999. From January
1996 to February 1999, he was self-employed. Prior to that, he was Manager,
Human Resources for Arco Alaska, Inc., Headquarters Staff Manager, Human
Resource Services, Arco Oil and Gas Company, as well as numerous other positions
within Arco. Mr. Rovinelli holds a Bachelor of Science Degree in Industrial
Psychology from the University of Houston.

Mr. Sorenson became Director of Marketing and Planning in February 2002.
Previously, he was Director of International, Aeromedical, and Technical
Services beginning in January 2001, after serving as Director of Corporate
Marketing/New Business since 1999 and as General Manager of Aeromedical Services
since November 1995. Mr. Sorenson holds a Bachelor of Science degree in Business
from the University of Wisconsin.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's voting and non-voting common stock trades on The Nasdaq Stock
Market, SmallCap Issuers under the symbols PHEL and PHELK, respectively. The
following table sets forth the range of high and low sales prices per share, as
reported by Nasdaq, for the Company's voting and non-voting common stock for the
fiscal quarters indicated.

The Company did not pay dividends during the last two fiscal years and does not
expect to pay dividends for the foreseeable future. A credit agreement to which
the Company is a party generally restricts the declaration or payment of
dividends to 20% of net earnings for the previous four fiscal quarters. See Item
8. "Financial Statements and Supplementary Data - Notes to Consolidated
Financial Statements, Note 4."

As of March 14, 2002, there were approximately 1,037 holders of record of the
Company's voting common stock and 93 holders of record of the Company's
non-voting common stock.

11

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for each of the past six fiscal
periods should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included elsewhere in
this Annual Report. Effective December 31, 1999, the Company changed its fiscal
accounting year-end to December 31 of each year. The table below also presents
comparative information for the twelve months ended December 31, 1999 and the
eight months ended December 31, 1998.

- ----------

(1) Information for the year ended December 31, 1999 and the eight months
ended December 31, 1998 is derived from unaudited financial information
and presented for comparison purposes only.

(2) On December 31, 1997, PHI purchased the net assets of Samaritan
AirEvac. The results of that acquisition are consolidated with the
Company's results effective January 1, 1998.

(3) See Item 8. "Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements, Note 1 - Summary of Significant
Accounting Policies (Fiscal Year Change)" and "Note 2 - Special
Charges."

(4) As of the end of the period.

12

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Company's
Consolidated Financial Statements for the years ended December 31, 2001 and
December 31, 2000, the eight months ended December 31, 1999 and the year ended
April 30, 1999 and the related Notes to Consolidated Financial Statements.

OVERVIEW

Net income for the twelve months ended December 31, 2001 was $11.0 million as
compared to a loss for the twelve months ended December 31, 2000 of $12.3
million. Earnings before tax was $17.5 million in 2001 as compared to a loss of
$17.8 million in 2000. Results for 2000 included special charges and adjustments
totaling $7.9 million before tax.

Operating revenues for 2001 were $277.1 million compared to $232.1 million for
the prior year, an increase of $45.0 million or a 19.4% increase. The increase
in operating revenue is due to rate increases to customers implemented during
the year. Additionally, there was a reimbursement of $0.8 million received from
the United States Department of Transportation under the Air Safety and System
Stabilization Act that was a result of the events of September 11, 2001, which
the Company recorded in other income.

Flight hours decreased 5% (9,714 hours) in 2001 (192,753 total hours) as
compared to 2000 (202,467 total hours). The decrease in flight hours is due to a
decrease in activity in the Gulf of Mexico, which is the Company's primary
market, but also due to the tragic events of September 11, 2001. Flight hours
for the month of September were 3,513 hours less than the same period prior
year. The Company estimates that it lost approximately 1,350 flight hours as a
result of the three-day suspension of flight operations by the FAA.

The improvement in earnings was primarily due to customer rate increases
implemented during 2001. It was also due in part to cost reduction efforts, sale
or disposal of unprofitable business units and assets, and the discontinuance of
selected unprofitable business initiatives. There were also certain cost
increases, as described in Results of Operations in this Item 1, that occurred
during the year, particularly in compensation costs for the Company's pilot and
mechanic work force.

The Company recorded $1.3 million representing discretionary incentive
compensation for 2001 for non-executive employees. The Company also reduced its
environmental provision by $1.2 million that primarily relates to one site.
Remediation costs at that site are expected to be less than the amount
originally estimated.

In the second quarter the Company recorded the sale of its interest in
Clintondale Aviation, Inc. ("Clintondale") that operated helicopters and
fixed-wing aircraft primarily in Kazakhstan. The Company previously leased four
aircraft to Clintondale. The Company received a promissory note for in exchange
for the previously leased four aircraft, certain amounts receivable from
Clintondale, and the Company's 50% equity interest in Clintondale. (See Notes to
Financial Statements, Note 7 Other Assets.)

The decrease in flight activity, as mentioned above, occurred primarily in the
period after September 11, 2001. The Company expects that it will experience
reduced activity in 2002. Also, the Company expects its insurance costs to
increase in 2002 as a result of the events that occurred September 11, 2001.
Notwithstanding those expectations, the Company is currently reviewing its
insurance program through a competitive bidding process. As a result of the
elimination of certain unprofitable contracts and the sale of certain
operations, the Company's fleet was reduced by 40 aircraft in 2001. The Company
does not expect significant changes to its fleet size in 2002.

During the year the Company changed the strategic focus of Technical Services
from providing maintenance and overhaul services to all customers, to only those
customers that are currently serviced by the Company's helicopter operations.
The Company implemented this change to allow the Technical Services segment to
focus on the Company's aircraft and components. The Company also plans to
fulfill its obligation to provide maintenance to certain military aircraft.

During 2001, the Company commenced a review and conversion of its accounting,
inventory systems, and other systems and processes. The Company will spend
approximately $2 million in 2002 related to this process.

13

On June 1, 2001, the Company entered into a three-year collective bargaining
agreement covering the Company's domestic pilots. This agreement will result in
compensation increases of 5% for the pilots in each of the succeeding three
years.

The Company continues to review its cost structure, certain business segments,
and certain contracts and customer rates. There was an aeromedical contract
terminated late 2001, and a reduction in certain Technical Services activities
as a result of these reviews. Management expects to take actions to implement
cost reductions and achieve increased profitability related to certain areas as
this process continues.

RESULTS OF OPERATIONS

The following tables present segment operating revenues and segment operating
profit before tax, along with certain non-financial operational statistics, for
the years ended December 31, 2001, 2000 and 1999:

(1) Information for the year ended December 31, 1999 is derived from
unaudited financial information and presented for comparison purposes
only.

(2) Includes special charges. See Note 2 of the Consolidated Financial
Statements.

(3) Including gains on disposition of property and equipment, equity in
losses of unconsolidated subsidiaries, and other income.

YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

For the year ended December 31, 2001, the Company recorded $1.3 million in 2001
for discretionary incentive compensation to be paid to its non-executive
employees. Future incentive compensation expenses are dependant upon the

14

Company achieving desired profit levels. The Company also reduced its
environmental provision by $1.2 million that primarily relates to one site.
Remediation costs at that site are estimated to be less than originally
anticipated.

Additionally, for the year 2001 there was a reimbursement of $0.8 million
received from the United States Department of Transportation under the Air
Safety and System Stabilization Act, which was a result of the events of
September 11, 2001.

For the year ended December 31, 2000, the Company recorded certain significant
adjustments ($4.3 million related to inventory) and special charges ($3.6
million total) that resulted from a reduction in work force, asset write-downs,
and decisions to exit certain operations.

Where appropriate, the above items are allocated to the Company's business
segments and are included in the respective discussion of each segment.

Domestic Oil and Gas

The Domestic Oil and Gas segment revenues increased 24.5% to $185.6 million for
2001 compared to $149.1 million for the prior year. The increase in revenue is
due to customer rate increases implemented in 2001. Flight hours in the Domestic
Oil and Gas segment decreased 6.0% to 148,563 as compared to 158,094 for 2000.
The decrease in flight hour activity was due to decreased activity in the oil
and gas segment and also due to the events of September 11, 2001.

The segment had a $24.7 million operating profit in 2001 compared to a $2.2
million operating loss for the prior year. Operating margin of 13.3% for 2001
compares to (1.5)% for the same period last year. The improvement in earnings in
2001 is a result of customer rate increases implemented in 2001. Also, as
described in Direct Expenses, there were cost reductions, sale or disposal of
unprofitable business units and assets and personnel reductions, but these were
more than offset by other cost increases, primarily increases in compensation of
pilots and mechanics, aircraft parts cost, and other costs. Additionally, the
operating loss in 2000 included a $2.4 million charge for the write-down of
inventory and $0.8 million for severance costs that were included in special
charges.

International

The International segment's revenues increased 4.3% to $22.6 million for 2001
compared to $21.7 million for the prior year. The increase was due to a full
year of operations related to a contract in Taiwan and also due to rate
increases on a contract in West Africa. Flight hours in the International
segment decreased 4.9% to 21,235 as compared to 22,338 for 2000. The decrease in
flight hours was due to decreased demand for flight services in West Africa,
partially offset by the activities in Taiwan.

The International segment had a $0.1 million operating profit for 2001 compared
to a $0.7 million operating loss for the prior year. Operating margin of 0.5%
for 2001 compares to (3.3)% for the prior year. The improvement in earnings is
related to customer rate increases and also due to a full year of operations
related to a contract in Taiwan. Additionally, the operating loss in 2000
included a $0.3 million charge for the write-down of inventory and $0.1 million
for severance costs that were included in special charges.

Aeromedical

The Aeromedical segment's revenue increased 7.3% to $47.5 million for 2001
compared to $44.3 million in the prior year. The increase in revenues is
primarily attributable to a full year operation related to a contract in Grand
Junction, Colorado, rate increases on certain other contracts, and a slight
increase in flight hour activity. Flight hours in the Aeromedical segment
increased 2.4% to 22,005 as compared to 21,490 for 2000.

At December 31, 2001 the Company terminated a contract with an aeromedical
customer. Revenues in 2001 for that contract were $4.1 million. The contract
produced an unacceptable rate of return.

The Aeromedical segment had an operating profit of $0.3 million for 2001
compared to an operating loss of $1.5 million for the prior year. Operating
margin was 0.6% for the year ended December 31, 2001 and compares to (3.3)% for
the prior year. The improvement in earnings is the result of some customer rate
increases. The improvement in earnings was partially offset by cost increases
described in Direct Expenses, including significant increases in compensation of
pilots and

15

mechanics, aircraft parts cost, and other costs. Additionally, the operating
loss in 2000 included a $0.7 million charge for the write-down of inventory.

Technical Services

The Technical Services segment's revenue increased 25.2% to $21.3 million for
2001 compared to $17.0 million in the prior year. The increase in revenues is
primarily attributable to an ongoing contract to provide maintenance to certain
military aircraft and components.

The Company expects revenue from this segment to decrease in 2002. During the
year the Company changed the strategic focus of Technical Services from
providing maintenance and overhaul services to all customers, to only those
customers that are currently serviced by the Company's helicopter operations.
The Company implemented this change to allow the Technical Services segment to
focus on the Company's aircraft and components. The Company also plans to
fulfill its obligation to provide maintenance to certain military aircraft.

Technical Services operating profit in 2001 was $3.5 million compared to an
operating loss of $0.6 million for the prior year. The operating margin was
16.4% for the year ended December 31, 2001 and (3.2%) in the prior year. The
increased operating profit was due to increased activity. The operating loss in
2000 included a $0.9 million charge for the write-down of inventory and $0.2
million for severance costs that were recorded in Special Charges.

OTHER INCOME AND LOSSES

Gains on property and equipment dispositions were $1.4 million in 2001 as
compared to $4.0 million in 2002. During 2001, the Company reduced its fleet by
40 owned and leased aircraft. The Company does not expect a significant change
in its fleet size in 2002.

Equity in net losses from unconsolidated subsidiaries for 2000, excluding an
impairment charge against the Company's investment in Clintondale that the
Company recorded in special charges, was $0.7 million. The Company recorded no
equity income or losses in 2001. In 2000, the Company recognized an impairment
of its remaining equity investment in Clintondale and, during 2001, sold its 50%
interest in Clintondale. Also, in 2000, the Company closed operations of its
Thailand unconsolidated subsidiary.

Other income for 2001 includes $0.7 million of interest income and $0.8 million
for the reimbursement received from the US Department of Transportation under
the Air Safety and Systems Stabilization Act. During 2001, the Company recorded
interest income for amounts received for interest on prior years tax refunds,
interest credited to the Company on rent prepaid on its new facility, and
interest earned on overnight cash investments.

DIRECT EXPENSES

Direct expenses for 2001 increased $12.6 million or 5.6% to $238.2 million for
2001 compared to $225.6 million for the prior year. The increase was due to
increases in human resource costs, cost of sales related to the Technical
Services segment, insurance costs, aircraft parts costs, helicopter rent, and an
increase in depreciation expense. The most significant of these increases was
the human resource costs. Numerous actions were taken during the year including
closure of certain business operations and a reduction in the Company's work
force, and other actions previously described. These actions reduced the effect
of the cost increases as further described below.

Of the $12.6 million increase in direct expenses, the increase in human resource
costs accounted for 37% of the total increase. This resulted from wage and
benefit increases for the Company's pilot and mechanic work force as well as
certain employees (including a non-executive incentive compensation of $1.3
million) and offset in part by a reduction in the Company's work force
implemented in February 2001. These wage and benefit increases were implemented
to achieve competitive wages in the Company's work force, consistent with the
Company's compensation philosophy to maintain an industry-competitive
compensation package for all of its employees. The Company's total labor work
force at December 31, 2001 was 1,778 compared to 1,939 at December 31, 2000, or
a decrease of 161 personnel.

Cost of sales in the Technical Services segment accounted for 18% of the total
increase in costs. As previously described there was an increase in activity in
the Technical Services segment due to a full year of activity on a certain
contract to perform maintenance, repair and overhaul services for certain
military aircraft and components.

16

The cost of aircraft parts accounts for 11% of the total increase in costs, due
to price increases implemented by the manufacturers in 2001.

The Company's insurance costs increased in 2001 generally reflecting increases
in the industry. In addition, as a result of the tragic events of September 11,
2001, and also the helicopter industry in general, the Company expects those
costs will increase further in 2002. Notwithstanding those expectations, the
Company is currently reviewing its insurance program through a competitive
bidding process.

Helicopter rent also increased for the year related to the number of aircraft on
operating leases, obtained during the latter part of 2000. As previously stated,
in 2001, the Company has bought a number of aircraft that were on operating
leases and the decrease in rent expense will not be reflected until 2002.

Depreciation expense included in direct expenses for 2001 was $13.8 million
compared to $12.5 million in the prior year. Total depreciation expense, which
includes expense charged to selling, general and administrative expense, was
$15.1 million and $13.7 million for the same two periods, respectively.

Depreciation expense increased due to acceleration of depreciation of leasehold
improvements on the Company's Lafayette facilities vacated at the time the
Company moved to the new Lafayette facilities, and also due to the depreciation
of aircraft refurbishments and upgrades accomplished during recent years.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses decreased to $18.0 million for
2001 compared to $18.2 million for the prior year. The decrease in selling,
general, and administrative expense was due to lower compensation and bad debt
expense. However, these decreases were offset by increases in consulting costs
related to a review of the Company's inventory and accounting systems, and legal
costs associated with the union contract negotiation.

SPECIAL CHARGES

In the fourth quarter of 2000, in connection with the plan to restore
profitability, the Company recorded special charges of $3.6 million that
included severance costs of $1.1 million, impairment of an investment in and
receivables from Clintondale Aviation, Inc. totaling $1.7 million, and
impairment of two helicopters of $0.8 million due to pending sales. (See Notes
to Financial Statements, Note 7 Other Assets.)

INTEREST EXPENSE

Interest expense was $6.2 million for the year ended December 31, 2001 and $5.8
million for the year ended December 31, 2000. The increase in interest expense
was due to an increase in the interest rate charged by the Company's lenders.

INCOME TAXES

Income tax expense for the year ended December 31, 2001 was $6.5 million
compared to an income tax benefit in the prior year of $5.5 million. The
effective tax rates were 37% and 30.9% for the years ended December 31, 2001
and 2000, respectively. The lower effective rate for the year ended December
31, 2000 is the result of permanent differences between book income and tax
income and the effect of state income taxes.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH TWELVE MONTHS ENDED DECEMBER 31, 1999
(see Note 1 of the Notes to Consolidated Financial Statements included elsewhere
in this annual report)

For the years ended December 31, 2000 and 1999, the Company recorded significant
and special charges ($3.6 million total) that resulted from a reduction in work
force, asset write-downs, and decisions to exit certain operations. Where
appropriate, the charges are allocated to the Company's business segments and
are included in the respective discussion of each segment.

17

Domestic Oil and Gas

The Domestic Oil & Gas segment revenues increased 8.7% to $149.1 million for
2000 compared to $137.1 million for the same period in 1999. Increased domestic
activity that resulted from increased oil and gas exploration and production
activities in the Gulf of Mexico, increased forest fire-fighting activity, and
rate increases implemented in January 2000 contributed to the increase.

The segment had a $2.2 million operating loss in 2000 compared to a $3.1 million
operating loss for the same period in 1999. The 2000 loss included a $2.4
million charge for the write-down of inventory, $0.9 million for a retroactive
pay adjustment for pilots, and $0.8 million for severance costs that were
included in special charges. The operating loss in 1999 included $1.3 million of
special charges (see Special Charges within this discussion), $1.5 million in
charges for environmental remediation, and $1.7 million for the disposition of
slow-moving inventory. Operating margin of (1.5)% for 2000 compares to (2.2)%
for the same period last year. The decrease in operating loss was primarily due
to increased revenues, lower aircraft depreciation, and rate increases in
January 2000. Increases in pilot compensation, aircraft repairs and maintenance,
fuel, insurance, helicopter rent, and pilot training costs partially offset the
decrease in operating loss. The increased fuel costs were the result of both
increased flight activity and increased fuel prices.

International

The International segment's revenues decreased 2.8% to $21.7 million for 2000
compared to $22.3 million for the same period in 1999. Decreased revenues that
resulted from the closure of certain operations in South America were primarily
responsible for the decrease. Increased revenue of certain other foreign
locations partially offset the decrease.

The International segment had a $0.7 million operating loss for 2000 compared to
a $2.0 million operating loss for the same period in 1999. Operating margin of
(3.3)% for 2000 compares to (9.0)% for the same period last year. The operating
loss in 2000 included a $0.3 million charge for the write-down of inventory,
$0.1 million for a retroactive pay adjustment for pilots, and $0.1 million for
severance costs that were included in special charges. The operating loss in
1999 included $3.5 million of special charges (see Special Charges within this
discussion). In 2000, increased repairs, maintenance, and insurance, and the
decreased revenues also negatively impacted operating profit.

Aeromedical

The Aeromedical segment's revenue decreased 1.8% to $44.3 million for 2000
compared to $45.1 million during the same period in the prior year. The decrease
in revenues is primarily attributable to decreased revenue and activity in the
Company's AirEvac operations in Arizona. In November 1999, the Company
restructured its Arizona operations and reduced the number of its aircraft in
that operation.

The Aeromedical segment had an operating loss of $1.5 million for 2000 compared
to operating income of $0.5 million for the same period in 1999. The operating
loss in 2000 included a $0.7 million charge for the write-down of inventory and
$0.2 million for a retroactive pay adjustment for pilots. Operating margin was
(3.3)% for the year ended December 31, 2000 and compares to 1.1% for the same
period in 1999. In addition to the inventory write-down and the increased pilot
pay, increased repairs and maintenance, fuel, helicopter rental, and pilot
training costs, and the decreased revenues contributed to the lower operating
profit. Lower labor costs that were primarily attributable to AirEvac's
restructuring partially offset the decrease in operating profit.

Technical Services

Technical Services segment operating revenues for 2000 were $17.0 million
compared to $18.6 million in the prior year, a decrease of 8.4%. The decrease in
operating revenues was primarily attributable to work performed on two large
contracts for the refurbishment and overhaul of two helicopters and a large
parts sale, all occurring during the year ended December 31, 1999. An ongoing
contract to provide maintenance to certain military aircraft commenced in the
second quarter of 2000, which partially offset the decrease.

Technical Services operating profit decreased to a $0.6 million operating loss
for the year compared to $3.0 million operating profit for 1999. The operating
loss in 2000 included a $0.9 million charge for the write-down of inventory and
$0.2 million for severance costs that were recorded in Special Charges. The
operating margin was (3.2)% in the year ended December 31, 2000 and 16.0% in the
year ended December 31, 1999.

18

OTHER INCOME AND LOSSES

Gains on property and equipment dispositions were $4.0 million in 2000 as
compared to $8.7 million for the prior twelve months.

Equity in net losses from unconsolidated subsidiaries for 2000, excluding an
impairment charge against the Company's investment in Clintondale that the
Company recorded in special charges, was $0.7 million. Equity in net losses from
unconsolidated subsidiaries was $0.8 million for the twelve months ended
December 31, 1999.

DIRECT EXPENSES

Direct expenses for 2000 increased by $15.8 million, or 7.5%, to $225.6 million
compared to $209.8 million in the prior year. The direct expenses in 2000
included a $4.3 million charge for the write-down of inventory and $1.2 million
for a retroactive pay adjustment for pilots. In 1999, there were $1.5 million in
charges for environmental remediation and a $1.7 million charge for the
disposition of slow-moving inventory. The increase in 2000 was also due to the
increase in flight activity and higher repairs and maintenance, fuel, insurance,
helicopter rental, and pilot training costs.

Depreciation expense included in direct expenses for 2000 was $12.5 million
compared to $14.1 million in the prior year. Total depreciation expense was
$13.7 million and $15.3 million for the same two periods, respectively. The
decrease was attributable to a reduction in the number of owned aircraft and to
the change in estimated useful lives and residual values implemented in May
1999. (See Note 1 of the Notes to Consolidated Financial Statements included
elsewhere in this annual report).

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses for the year ended December 31,
2000 decreased by 1.6% to $18.2 million compared to $18.5 million in the same
period in the prior year. Selling, general, and administrative expense in 1999
included severance costs totaling $1.1 million. Adjusting for such severance
costs, selling, general, and administrative expense increased $0.8 million in
2000, which was mostly the result of higher bad debt provisions.

SPECIAL CHARGES

In the fourth quarter of 2000, in connection with the plan to restore
profitability, the Company recorded Special Charges of $3.6 million that
included severance costs of $1.1 million, impairment of an investment in and
receivables from a joint venture totaling $1.7 million, and impairment of
property and equipment of $0.8 million.

In April 1999, in connection with expense reduction efforts and management's
decision to recognize the impairment of assets as a result of decreased
activity, the Company recorded Special Charges of $4.8 million. The Special
Charges included impairment of certain foreign based joint ventures amounting to
$2.5 million, severance costs of $1.3 million, impairment of property and
equipment of $0.4 million, and other charges of $0.6 million.

INTEREST EXPENSE

Interest expense was $5.8 million for the year ended December 31, 2000 and $5.9
million for the year ended December 31, 1999. Lower debt levels during 2000,
compared to the debt levels in 1999, offset the effect of increased interest
rates in 2000.

INCOME TAXES

Income tax benefit for the year ended December 31, 2000 increased $2.6 million
to $5.5 million. The effective tax rates were 30.9% and 36.6% for the years
ended December 31, 2000 and 1999, respectively. The lower effective rate for the
year ended December 31, 2000 is the result of permanent differences between book
income and tax income and the effect of state income taxes.

19

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position on December 31, 2001 was $5.4 million compared to
$0.9 million at December 31, 2000. Working capital increased $5.5 million to
$47.0 million at December 31, 2001 from $41.5 million at December 31, 2000. Net
cash of $18.7 million provided by operating activities during 2001 and $24.3
million of asset sales funded debt service requirements and capital
expenditures.

Total long-term debt, including capital lease commitments and the current
portion of debt and lease commitments, decreased $8.2 million from December 31,
2000 to $66.6 million at December 31, 2001. In July 2001, the Company executed a
revised credit agreement with its lending group, which originally provided for a
$45.0 million revolving credit facility and a $25.5 million secured term credit
facility, secured by substantially all of the Company's assets. At December 31,
2001, $19 million was outstanding on the secured term credit facility, and $44.5
million was outstanding on the revolving credit facility, and no further
borrowing is permitted under either facility, nor is other borrowing permitted.
The current interest rate on these facilities is LIBOR plus 2.5%, an effective
rate of 6.86% at February 5, 2002 including the effect of interest rate swaps.

The secured term credit facility is payable in equal installments of $1.9
million payable quarterly beginning on March 31, 2002, and a final payment of
$0.3 million due on September 30, 2004. No payments are due on the revolving
credit facility in 2002, but the facility converts to a term loan on January 31,
2003, with scheduled quarterly installments of approximately $2.2 million,
payable beginning March 31, 2003 and a final balance of $35.6 million due
January 31, 2004. The Company intends to restructure its debt as discussed
below.

Capital expenditures in 2001 totaled $29.5 million and primarily consisted of
purchase and completion of aircraft improvements and engines. Also included in
capital expenditures were the exercise of purchase options on certain leased
aircraft ($5.4 million), purchase of a number of aircraft on operating leases
for resale ($5.2 million), equipment and leasehold improvements related to the
new Lafayette facility ($2.0 million) and purchase of customer-specified new
aircraft ($3.0 million).

In addition to debt service and capital expenditures, the Company funded $4.0
million of construction costs in 2001 for its new operating facility, pursuant
to the terms of a 20-year lease of the facility that became effective September
2001. The funding is treated under the lease as prepaid rent and amortized over
10 years at 7% per annum, thus reducing PHI's monthly cash lease payments for
the first 10 years of the lease. PHI has no additional funding commitments under
the lease.

In 2001 the Company's cash flow was substantially augmented from the proceeds of
the sale of aircraft. The Company expects the fleet size to remain substantially
unchanged in 2002, but may have some sales to strategically adjust the fleet of
aircraft. Nonetheless, the Company believes that cash flow from operations will
be sufficient to fund required debt service and the reduced level of capital
expenditures during 2002.

20

The table below sets out the cash contractual obligations of the Company. The
operating leases are not recorded as liabilities on the balance sheet, but
payments are treated as an expense as incurred. Each contractual obligation
included in the table contains various terms, conditions, and covenants which,
if violated, accelerate the payment of that obligation.

(1) The Company's revolving line of credit converts to term debt on January
31, 2003, at which time quarterly payments equal to 5% of the total
outstanding become payable quarterly, but in any case must be paid in
full on the revolver maturity date, which is January 31, 2004.

PHI's borrowing capacity and cash flows from operations have not historically
provided sufficient capital to acquire additional aircraft needed to support the
Company's customers. To meet these needs, the Company has obtained aircraft
under operating and capital lease arrangements, which are more expensive to the
Company as compared to the purchase of the aircraft, and the Company had 104
aircraft on such lease arrangements at December 31, 2001. The Company believes
that its recent improved operating performance may enable it to obtain
additional financing, which would allow it to (i) reduce significantly its
number of, and reliance on, operating leases, and (ii) repay outstanding amounts
under the bank credit facility. The Company is currently reviewing financing
alternatives including the possible issuance of debt securities or obtaining
alternative commercial bank financing. There is no assurance when or if the
Company would be able to obtain additional debt financing, in which case the
Company's ability to acquire additional aircraft will continue to be constrained
by existing and future operating leases, and also by the Company's current bank
credit facility.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these consolidated financial
statements require the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to allowances for
doubtful accounts, inventory valuation, long-lived assets and self-insurance
liabilities. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The Company believes the following critical
accounting policies affect its more significant judgments and estimates used in
preparation of its consolidated financial statements.

PHI estimates its allowance for doubtful accounts receivable based on an
evaluation of individual customer financial strength, current market conditions,
and other information. If the Company's evaluation of its significant customers'
and debtors' creditworthiness should change or prove incorrect, then the Company
may have to recognize additional allowances in the period that it identifies the
risk of loss.

21

PHI maintains inventory to service its own aircraft and the aircraft and
components of customers. Portions of that inventory are used parts that are
often exchanged with parts removed from aircraft or components and reworked to a
useable condition. The Company uses systematic procedures to estimate the
valuation of the used parts, which includes consideration of their condition and
continuing utility. If the Company's valuation of these parts should be
significantly different from amounts ultimately realizable or if it discontinues
using or servicing certain aircraft models, then the Company may have to record
a write-down of its inventory. The Company also records provisions against
inventory for obsolescent and slow-moving parts, relying principally on specific
identification of such inventory. If the Company fails to identify such parts,
additional provisions may be necessary.

The Company reviews its long-lived assets 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 the impairment amount, which is measured by
the amount that the carrying value of the asset exceeds 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. Future adverse market conditions or
poor operating results could result in the inability to recover the current
carrying value of the long-lived asset, thereby possibly requiring an impairment
charge in the future.

The Company must make estimates for certain of its liabilities and expenses,
losses, and gains related to self-insured programs, insurance deductibles, and
good-experience premium returns. The Company's group medical insurance program
is largely self-insured, and the Company uses estimates to record its periodic
expenses related to the program. The Company also carries deductibles on its
aircraft hull and liability insurance and estimates periodic expenses related to
the retained portion of hull and liability risk. For its workers' compensation
and certain other insurance, the Company receives a return premium if its
accident experience is favorable, and the Company recognizes reductions in
insurance expense when it believes return premiums are likely based on accident
rates and actual accident experiences. If actual experience under any of the
Company's insurance programs is significantly different from estimated, then the
Company may have to record losses when it identifies the risk of additional
loss. Conversely, if return premiums are larger than originally projected, then
the Company may have to record gains when it identifies the excess return
premiums.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133. SFAS No. 133 establishes new
accounting and reporting standards for derivative financial instruments and for
hedging activities. SFAS No. 133 requires the Company to measure all derivatives
at fair value and to recognize them in the balance sheet as an asset or
liability, depending on the Company's rights or obligations under the applicable
derivative contract.

The Company uses interest rate swaps to hedge its cash flow related to interest.
Effective January 1, 2001, the Company began accounting for its interest rate
swaps in accordance with SFAS No. 133, as amended and has designated the
interest rate swaps as cash flow hedges. The cumulative effect of adopting SFAS
No. 133, as amended on January 1, 2001 resulted in an increase of $38,000 to
other comprehensive income. As of December 31, 2001, the fair market value of
these interest rate swaps was a $2.0 million liability and is included in other
long-term liabilities on the balance sheet.

On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
Financial Accounting Standards Board ("FASB"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Goodwill and certain intangible assets will remain on the
balance sheet and not be amortized. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company
implemented SFAS No. 141 on July 1, 2001 and it has determined that this
statement did not have a material impact on its consolidated financial position
or results of operations.

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January 1, 2002 and it has determined that this statement will have no material
impact on its consolidated financial position or results of operation.

22

SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of liabilities for all legal obligations associated with the
retirement of long-lived assets that result from the normal operation of those
assets. These liabilities are required to be recorded at their fair values
(which are likely to be the present values of the estimated future cash flows)
in the period in which they are incurred. SFAS No. 143 requires the associated
asset retirement costs to be capitalized as part of the carrying amount of the
long-lived asset. The asset retirement obligation will be accreted each year
through a charge to expense. The amounts added to the carrying amounts of the
assets will be depreciated over the useful lives of the assets. The Company is
required to implement SFAS No. 143 on January 1, 2003, and it has not determined
the impact that this statement will have on its consolidated financial position
or results of operations.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets,
promulgates standards for measuring and recording impairments of long-lived
assets. Additionally, this standard establishes requirements for classifying an
asset as held for sale, and changes existing accounting and reporting standards
for discontinued operations and exchanges for long-lived assets. The Company is
required to implement SFAS No. 144 on January 1, 2002, and it does not expect
the implementation of this standard to have a material effect on the Company's
financial position or results of operations.

ENVIRONMENTAL MATTERS

The Company has an aggregate estimated liability of $1.8 million as of December
31, 2001 for environmental remediation costs that are probable and estimable. In
the fourth quarter of 2001, the Company reduced its recorded estimated liability
by $1.2 million as the result of a comprehensive re-evaluation of environmental
exposure at all of its operating sites and lowered remediation cost estimates
primarily at its Morgan City, Louisiana facility. The Company has conducted
environmental surveys of the Lafayette facility which it recently vacated, and,
has determined that contamination exists at that facility. To date, borings have
been installed to determine the type and extent of contamination. Preliminary
results indicate limited soil and groundwater impacts. Once the extent and type
of contamination are fully defined, a risk evaluation in accordance with the
Louisiana Risk Evaluation/Corrective Action Plan ("RECAP") standard will be
submitted and evaluated by Louisiana Department of Environmental Quality
("LDEQ"). At that point, LDEQ will establish what cleanup standards must be met
at the site. When the process is complete, the Company will be in a position to
develop the appropriate remediation plan and the resulting cost of remediation.
However the Company has not recorded any estimated liability for remediation of
contamination and, based on preliminary surveys and ongoing monitoring, the
Company believes the ultimate remediation costs for the Lafayette facility will
not be material.

To date, the Company has expended $0.1 million on conducting facility
environmental surveys and expects to spend an additional $0.1 million performing
follow-up work in 2002.

ITEM 7.A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks associated with interest rates and makes
limited use of derivative financial instruments to manage that risk. All
derivatives used for risk management are closely monitored by the Company's
senior management. The Company does not hold derivatives for trading purposes
and it does not use derivatives with leveraged or complex features. Derivative
instruments are transacted either with creditworthy major financial institutions
or over national exchanges.

At December 31, 2001, the Company was a party to interest rate swaps with
notional amounts totaling $40.0 million that were designed to convert a similar
amount of variable-rate debt to fixed rates. The swaps mature in 2003 and
require the Company to pay an average interest rate of 5.78% on the notional
amount and, in turn, receive LIBOR interest rates. The variable interest rate
received by the Company under each swap contract is repriced quarterly. The
Company considers these swaps to be a hedge against potentially higher future
interest rates. As described in Note 8 to the consolidated financial statements,
the estimated fair value of these interest rate swaps was a $2.0 million
liability at December 31, 2001.

At December 31, 2001, $63.5 million of the Company's long-term debt had variable
interest rates of which $40.0 million was effectively converted to fixed
interest rates through the interest rate swaps. Based on debt outstanding and
interest rate swap agreements in place at December 31, 2001, a 100 basis point
increase in variable interest rates would increase the Company's interest
expense in the year ending 2002 by $0.2 million.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Auditors' Report

To the Board of Directors and Shareholders of
Petroleum Helicopters, Inc.

We have audited the accompanying consolidated balance sheets of Petroleum
Helicopters, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for the years ended December 31, 2001
and 2000, and the eight months ended December 31, 1999. Our audits also included
the financial statement schedule for the years ended December 31, 2001 and 2000,
and the eight months ended December 31, 1999 listed in the Index at Item 14.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Petroleum Helicopters, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for the years ended December 31, 2001 and 2000, and the eight
months ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule for the years ended December 31, 2001 and
2000, and the eight months ended December 31, 1999, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2001 the
Company adopted Statement of Financial Accounting Standards No. 133, "Accounting
for Derivatives Instruments and Hedging Activities," as amended.

/s/ DELOITTE & TOUCHE LLP

New Orleans, Louisiana
March 22, 2002

24

Independent Auditors' Report

The Board of Directors and Shareholders
Petroleum Helicopters, Inc.

We have audited the consolidated statements of operations, shareholders' equity,
and cash flows of Petroleum Helicopters, Inc. and subsidiaries for the year
ended April 30, 1999. In connection with our audit of the consolidated financial
statements, we also have audited the accompanying financial statement schedule,
"Valuation and Qualifying Accounts," for the year ended April 30, 1999. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of Petroleum Helicopters, Inc. and
subsidiaries' operations and their cash flows for the year ended April 30, 1999,
in conformity with accounting principles generally accepted in the United States
of America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, in fiscal 1999
the Company adopted the method of accounting for computer software costs
prescribed by Statement of Position 98-1.

/s/ KPMG LLP

KPMG LLP
New Orleans, Louisiana
June 11, 1999

25

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS)

The accompanying notes are an integral part of these consolidated financial
statements.

26

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS AND SHARES, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.

27

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(THOUSANDS OF DOLLARS AND SHARES)

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(THOUSANDS OF DOLLARS)

The accompanying notes are an integral part of these consolidated financial
statements.

28

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF DOLLARS)

The accompanying notes are an integral part of these consolidated financial
statements.

29

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations, Basis of Consolidation, and Other General
Principles

Since its inception, Petroleum Helicopters, Inc.'s primary business has
been to transport personnel and, to a lesser extent, parts and
equipment, to, from and among offshore platforms for customers engaged
in the oil and gas exploration, development, and production industry.
The Company also provides aircraft maintenance services to third
parties and air medical transportation services for hospitals and
medical programs.

The consolidated financial statements include the accounts of Petroleum
Helicopters, Inc. and its majority-owned subsidiaries ("PHI" or the
"Company") after the elimination of all significant intercompany
accounts and transactions. For its investments of 20% to 50% in
affiliates, which are primarily foreign affiliates, the Company uses
the equity method of accounting.

Revenue Recognition

The Company recognizes revenue related to aviation transportation
services after the services are performed or the contractual
obligations are met. Aircraft maintenance service revenues are
generally recognized at the time the repair or service work is
completed. Revenues related to emergency flights generated by the
Company's subsidiary, Air Evac Services, Inc. ("AirEvac") are recorded
net of contractual allowances under agreements with third party payors
when the services are provided.

Fiscal Year Change

Effective December 31, 1999, the Company changed its fiscal year-end to
December 31 of each year. The consolidated statements of operations,
shareholders' equity and cash flows for the period from May 1, 1999 to
December 31, 1999 represent a transition period of eight months, which
is referred to as the eight months ended December 31, 1999.

30

The following is a comparative summary of the operating results for
years ended December 31, 2000 and December 31, 1999 and the eight-month
periods ended December 31, 1999 and December 31, 1998:

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well
as reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Cash Equivalents

The Company considers cash equivalents to include demand deposits and
investments with original maturity dates of three months or less.

Inventories

The Companies 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. The Company also records an allowance for
obsolescent and slow-moving parts, relying principally on specific
identification of such inventory. Valuation reserves related to
obsolescence and slow-moving inventory were $4.3 million and $3.7
million at December 31, 2001 and 2000, respectively.

Change in Accounting Estimate

Effective May 1, 1999, the Company changed the estimated useful lives
on its aircraft from ten years to fifteen years and also increased the
residual values from 25% to 30%. The Company believes the revised
estimated useful

31

lives and residual values more appropriately reflect its financial
results by better matching costs over the estimated useful lives of
these assets. The effect of this change on net income for the eight
months ended December 31, 1999 was an increase of approximately $1.1
million ($0.21 per diluted share).

Property and Equipment

The 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 fifteen years for flight equipment and three to ten
years for other equipment. The Company uses a 30% residual value in the
calculation of depreciation for its flight equipment. The Company uses
accelerated depreciation methods for tax purposes. Upon selling or
otherwise disposing of property and equipment, the Company removes the
cost and accumulated depreciation from the accounts and reflects any
resulting gain or loss in earnings at the time of sale or other
disposition.

The Company defers any gains resulting from the sale and leaseback of
assets and amortizes the gain over the lease term. For the year ended
December 31, 2001, there were no gains deferred on sale and leaseback
transactions. For the year ended December 31, 2000, the eight months
ended December 31, 1999, and the year ended April 30, 1999, the gains
deferred on sale and leaseback transactions were $2.9 million, $1.2
million, and $0.6 million, respectively.

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 the 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-Insurance

The 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 does not presently have any significant obligations for
post employment health care benefits.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its
short-term invested cash in overnight repurchase agreements with a
bank. The Company does not believe significant credit risk exists with
respect to these securities at December 31, 2001.

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 the medical
centers, ambulance services, and US and foreign 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. The
allowance for doubtful accounts was $0.4 million and $2.2 million at
December 31, 2001 and December 31, 2000, respectively. The Company's
largest domestic oil and gas customer accounted for $40.3 million,
$27.2 million, $19.7 million, and $41.1 million of consolidated
operating revenues for year ended December 31, 2001, December 31, 2000,
the eight months ended December 31, 1999, and year ended April 30,
1999, respectively. The Company also carried accounts receivable from
this same customer totaling 19% and 12%, of net trade accounts
receivable on December 31, 2001 and December 31, 2000, respectively.

32

Stock Compensation

The Company uses the intrinsic value method of accounting for employee
stock-based compensation prescribed by Accounting Principles Board
(APB) Opinion No. 25 and, accordingly, follows the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". See Note 6.

Accounting for Computer Software

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which
establishes criteria for when these types of costs should be expensed
as incurred or capitalized. The Company has implemented SOP 98-1 on a
prospective basis as of May 1, 1998 resulting in approximately $1.2
million of costs being capitalized during the year ended April 30, 1999
that would have been expensed under the Company's previous accounting
method for such costs. This increased net earnings by $0.7 million or
$0.13 per diluted share for the year ended April 30, 1999.
Post-implementation costs are being expensed in accordance with the SOP
and capitalized costs are being amortized over their estimated useful
life.

Income Taxes

The Company provides for income taxes using the asset and liability
method under which deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. The deferred tax assets and liabilities
measurement uses enacted tax rates that are expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The Company recognizes the effect
of any tax rate changes in income of the period that included the
enactment date.

Earnings per Share

The Company computes basic earnings (loss) per share by dividing income
available to common stockholders by the weighted average number of
common shares outstanding during the period. The diluted earnings
(loss) per share computation uses the weighted average number of shares
outstanding adjusted for incremental shares attributed to dilutive
outstanding options to purchase common stock and non-vested restricted
stock awards. The diluted share base for the year ended December 31,
2000 and the eight months ended December 31, 1999 excludes incremental
shares of 10,488 and 34,972, respectively, related to employee stock
options and restricted stock awards that are antidilutive as a result
of the Company's net loss for those periods.

Derivative Financial Instruments

The Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities," on January 1, 2001. The Company recorded a cumulative
effect to Comprehensive Income (Loss) of $38,000 in the first quarter
of 2001 in connection with the initial adoption of SFAS No. 133.

The Company uses interest rate swap agreements to manage its interest
rate exposure. The Company specifically designates these agreements as
hedges of debt instruments and recognizes interest differentials as
adjustments to interest expense in the period the differentials occur.
Under interest rate swap agreements, the Company agrees with other
parties to exchange, at specific intervals, the difference between
fixed-rate and variable-rate interest amounts calculated by reference
to an agreed-upon notional principal amount. The Company has estimated
the fair value of the interest rate swap agreements using quotes from
counterparties. The fair value of the agreements represents the cash
effect if the Company had settled the existing agreements at December
31, 2001 and 2000. See Note 4 and Note 8 of these consolidated
financial statements.

New Accounting Pronouncements

On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by
the Financial Accounting Standards Board ("FASB"). SFAS No. 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Goodwill and
certain intangible assets will remain on the balance sheet

33

and not be amortized. On an annual basis, and when there is reason to
suspect that their values have been diminished or impaired, these
assets must be tested for impairment, and write-downs may be necessary.
The Company implemented SFAS No. 141 on July 1, 2001 and it has
determined that this statement did not have a material impact on its
consolidated financial position or results of operations.

On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement. The Company
is required to implement SFAS No. 142 on January 1, 2002 and it has
determined that this statement will have no material impact on its
consolidated financial position or results of operation.

SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of liabilities for all legal obligations associated with the
retirement of long-lived assets that result from the normal operation
of those assets. These liabilities are required to be recorded at their
fair values (which are likely to be the present values of the estimated
future cash flows) in the period in which they are incurred. SFAS
No.143 requires the associated asset retirement costs to be capitalized
as part of the carrying amount of the long-lived asset. The asset
retirement obligation will be accreted each year through a charge to
expense. The amounts added to the carrying amounts of the assets will
be depreciated over the useful lives of the assets. The Company is
required to implement SFAS No. 143 on January 1, 2003, and it has not
determined the impact that this statement will have on its consolidated
financial position or results of operations.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets, promulgates standards for measuring and recording impairments
of long-lived assets. Additionally, this standard establishes
requirements for classifying an asset as held for sale, and changes
existing accounting and reporting standards for discontinued operations
and exchanges for long-lived assets. The Company is required to
implement SFAS No. 144 on January 1, 2002, and it does not expect the
implementation of this standard to have a material effect on the
Company's financial position or results of operations.

Reclassifications

Certain reclassifications have been made in the prior period financial
statements in order to conform to the classifications adopted for
reporting in 2001.

(2) SPECIAL CHARGES

Special Charges recorded in the years ended December 31, 2000 and April
30,1999 consisted of the following:

During the year ended December 31, 2000, in connection with
management's decision to reduce costs and to recognize the impairment
of certain assets, the Company recorded Special Charges of $3.6 million
($2.5 million on an after tax basis or $0.48 per diluted share).
Additionally, the Company recorded a $4.3 million charge for the
write-down of inventory, included in direct expenses, as a result of an
analysis of its overhaul and maintenance operations including
requirements for its fleet. At December 31, 2000, the Company carried a
liability for the $1.1 million of severance and related costs shown
above. At December 31, 2001, the remaining severance liability was $0.3
million, covering two employees. The Company expects to pay the
remaining severance liability over the next 18 months.

34

During the year ended April 30, 1999, in connection with management's
decision to reduce costs and to recognize the impairment of assets as a
result of decreased activity, the Company recorded Special Charges of
$7.3 million ($4.4 million on an after tax basis or $0.84 per diluted
share). Additionally, a charge of $1.7 million was recognized during
the year-ended April 30, 1999 for the disposition of slow moving
inventories and is included in direct expenses.

(3) PROPERTY AND EQUIPMENT

The following table summarizes the Company's property and equipment at
December 31, 2001 and December 31, 2000.

Property and equipment at December 31, 2001 and 2000 includes aircraft
with a net book value of $5.8 million and $3.1 million, respectively,
that is held for sale.

(4) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations at December 31, 2001 and
December 31, 2000 consisted of the following:

35

Maturities of long-term debt and capital lease obligations are as
follows:

At December 31, 2001, the following assets and their related net book
values are pledged as collateral on long-term debt and capital lease
obligations aggregating $66.6 million:

On July 3, 2001, the Company and its principal lending group entered
into a loan agreement that amended and restated its original loan
agreement dated January 1, 1986. This amended and restated agreement
was further amended on January 31, 2002. The agreement provides a $45.0
million revolving credit facility and a $25.5 million term credit
facility. The loan is secured by substantially all of the Company's
assets. The secured term and revolving loan agreement permits both
prime rate based borrowings and "LIBOR" borrowings plus a spread. The
spread for LIBOR borrowings is from 2.0% to 3.0% (2.5% at December 31,
2001). The interest rates on the secured term and revolving loans
ranged from 4.43% to 4.77% at December 31, 2001. The term credit
facility is payable in quarterly principal payments of $1.9 million
until maturity on September 30, 2004. The revolving credit facility
converts to a term loan on January 31, 2003, with quarterly
installments due beginning March 31, 2003, equal to 5% of the amount
outstanding at the conversion date, with the final balance due on
January 31, 2004. The Company paid a 0.50% commitment fee on the unused
portion of the revolving credit facility totaling less than $0.1
million for each of the years ended December 31, 2001 and 2000, the
eight months ended December 31, 1999, and the year ended April 30,
1999.

The Company is subject to certain financial covenants under its loan
agreement with its principal lending group, and was in compliance with
those covenants on December 31, 2001. These covenants include
maintaining certain levels of cash flow, working capital and
shareholders' equity and contain other provisions, some of which
restrict the purchases of the Company's stock, capital expenditures,
and payment of dividends. The declaration or payment of dividends is
restricted to 20% of net earnings for the previous four fiscal
quarters. The loan agreement also limits the creation, incurrence, or
assumption of Funded Debt (as defined, which includes long-term debt)
and the acquisition of investments in unconsolidated subsidiaries.

The Company has two capital lease obligations for two aircraft with
imputed interest rates of 9.36% and 7.96%, with monthly lease payments
aggregating $0.1 million and $0.2 million per year, respectively, with
final payments of $0.6 million in January 2007 and $0.9 million in
January 2008, respectively. The Company has recorded $2.2 million in
property and equipment for the two aircraft under the capital leases.

The Company also entered into a capital lease obligation for a new
computer system in December 2001. Under the terms of the lease, the
Company made an initial installment of $0.3 million and will make
annual payments in 2002 and 2003 of $0.3 million each, including
imputed interest at 7.77%. The Company has recorded $0.9 million in
property, plant, and equipment for the computer system and a $0.6
million capital lease obligation for the remaining annual installments.

36

The following table presents the non-cash investing and financing
activities for the years ended December 31, 2001 and 2000, the eight
months ended December 31, 1999, and the year ended April 30, 1999.

As discussed in Note 1, the Company uses derivative instruments on a
limited basis to manage risks related to interest rates. At each of
December 31, 2001 and December 31, 2000, the Company had interest rate
swap agreements with notional amounts totaling $40.0 million that serve
to convert an equal amount of variable rate long-term debt to fixed
rates. The swaps mature in 2003 and require the Company to pay a
weighted-average interest rate of 5.78% over their composite lives and
to receive a variable rate, which was 4.77% at December 31, 2001. Based
upon the current spread, the effect of these agreements is to limit
interest rate exposure to 8.08% on $20.0 million of the Company's
revolving credit facility, 8.69% on $10.0 million and 8.27% on $10.0
million of the Company's term loan. Using the accrual/settlement method
of accounting, the Company records the net amount to be received or
paid under the swap agreements as part of interest expense in the
Consolidated Statements of Operations. The interest rate swap
agreements had the effect of increasing interest expense by $0.6
million, $0.3 million, $0.1 million and $0.2 million for years ended
December 31, 2001 and December 31, 2000, the eight months ended
December 31, 1999 and for the year ended April 30, 1999, respectively.

Cash paid for interest, net of amounts paid or received in connection
with the interest rate swaps, was $6.6 million, $5.8 million, $3.0
million, and $5.7 million for the year ended December 31, 2001, year
ended December 31, 2000, the eight months ended December 31, 1999, and
the year ended April 30, 1999, respectively.

(5) INCOME TAXES

Income tax expense (benefit) is composed of the following:

37

Income tax expense (benefit) as a percentage of pre-tax earnings varies
from the effective Federal statutory rate of 34% as a result of the
following:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2001 and December 31, 2000 are presented below:

No valuation allowance was recorded against the deferred tax assets
because management believes that the deferred tax assets will more than
likely be realized in full through future operating results and the
reversal of taxable temporary differences. At December 31, 2001 and
2000, other current assets includes $4.1 million and $3.7 million,
respectively, of deferred tax assets.

For Federal income tax purposes, the Company has foreign tax credits of
approximately $1.8 million, which expire in 2004 through 2006.

Income taxes paid were approximately $0.6 million and $4.9 million, for
the eight months ended December 31, 1999 and the year ended April 30,
1999, respectively. The Company received net income tax refunds of
approximately $0.2 million and $2.2 million during the years ended
December 31, 2001 and 2000, respectively.

38

(6) EMPLOYEE BENEFIT PLANS

Savings and Retirement Plans

The Company maintains an Employee Savings Plan under Section 401(k) of
the Internal Revenue Code. The Company matches 200% of up to 3% of
employee contributions. The Company's contributions were $4.5 million,
$4.1 million, $2.4 million, and $2.1 million for the years ended
December 31, 2001 and 2000, the eight months ended December 31, 1999,
and the year ended April 30, 1999, respectively.

The Company maintains a Supplemental Executive Retirement Plan
("SERP"). The nonqualified and unfunded plan provides certain senior
management with supplemental retirement and death benefits at age 65.
The SERP plan provides supplemental retirement benefits that are based
on each participant's salary at the time of entrance into the plan.
Occasionally, the Company's board of directors may increase certain
individuals' benefits. The benefit is one-third of each participant's
annual salary of $200,000 or less, plus one-half of each participant's
annual salary that is in excess of $200,000, if applicable. The plan
does not provide for automatic benefit increases. During 2000, the
Company's board of directors amended the plan to provide for partial
vesting. The assumed discount rate was 6.15% for the year ended
December 31, 2001, 6.85% for the year ended December 31, 2000, 7.50%
for the eight months ended December 31, 1999 and 7.50% for the year
ended April 30, 1999. The Company recorded plan costs of $0.4 million
for each of the years ended December 31, 2001 and 2000 and $0.3 million
for each of the eight months ended December 31, 1999 and the year ended
April 30, 1999.

The SERP plan is an unfunded plan. However, the Company has purchased
life insurance contracts in anticipation of using the life insurance's
cash values and death benefits to help fulfill the obligations of the
plan. The Company may sell or redeem the contracts at any time without
any obligation to the plan participants.

The Company maintains an Officer Deferred Compensation Plan and a
Director Deferred Compensation Plan. The plans permit key officers and
all directors to defer a portion of their compensation. The plans are
nonqualified and unfunded. However, under the Officer Deferred
Compensation Plan, the Company has established a book reserve account
for each participant, which is deemed to be invested and reinvested
from time to time in investments that the participant selects from a
list of eligible investment choices. Earnings and losses on the book
reserve accounts accrue to the plan participants. The Company has
deposited funds in a brokerage account equal to amounts deferred under
the plan. The Company may sell or redeem the investments at any time
without any obligation to the plan participants.

Stock Based Compensation and Other Compensation Plans

Under PHI's 1992 Non-Qualified Stock Option and Stock Appreciation
Rights Plan (the "Plan"), the Company may grant non-qualified stock
options and stock appreciation rights to selected employees for up to
100,000 shares of the Company's non-voting common stock. Options issued
under the plan may be exercisable at a price of not less than 25% of
the related stock's fair market value at the date of grant. The options
may be exercised any time after one year from the date of grant until
their expiration at five years from such date. At December 31, 2001,
there were no options or stock appreciation rights outstanding under
the Plan and grants were available for 34,000 shares. The Company does
not expect to issue any additional options or rights under the Plan.

Under the PHI 1995 Incentive Plan (the "1995 Plan"), the Company is
authorized to issue up to 175,000 shares of voting common stock and
575,000 shares of non-voting common stock. The Compensation Committee
of the Board of Directors is authorized under the 1995 Plan to grant
stock options, restricted stock, stock appreciation rights, performance
shares, stock awards, and cash awards. The exercise price of the stock
option grants is equal to the fair market value of the underlying stock
at the date of grant. The 1995 Plan also allows awards under the plan
to fully vest upon a change in control of the Company. In September of
2001, the Company underwent a change of control as defined in the 1995
plan and as a result, all awards issued prior to the change of control
became fully vested.

During the year ended December 31, 2001, the Company granted 20,000
non-voting restricted shares and 150,000 non-voting stock options under
the 1995 Plan. The non-voting restricted shares had a fair value of
$11.06 on the date of issue and became unrestricted during 2001. The
non-voting stock options are 100% vested and expire on September 1,
2010. During the year ended December 31, 2000, the Company did not
issue any shares, options or rights under the 1995 Plan. During the
eight months ended December 31, 1999, the Company granted 30,000

39

voting stock options and 142,000 non-voting stock options under the
1995 Plan. All of the outstanding stock options are 100% vested and
expire on July 14, 2009. During the year ended April 30, 1999, the
Company granted 11,691 non-voting restricted shares (net of
forfeitures), 4,000 voting stock options, and 15,000 non-voting stock
options under the 1995 Plan. The restricted shares had a fair value of
$20.00 per share on the date of issue and became unrestricted during
2001. All of the outstanding stock options are 100% vested and expire
on October 31, 2008.

At December 31, 2001, there were 116,520 voting shares and 167,793
non-voting shares available for issuance under the 1995 Plan. The
Company has recorded $0.3 million of compensation expense related to
the 1995 Plan for the year ended December 31, 2001 and $0.1 million of
compensation expense related to the 1995 Plan in each of the year ended
December 31, 2000, the eight months ended December 31, 1999, and the
year ended April 30, 1999. There was no unearned stock compensation
expense at December 31, 2001.

During 2001, the Company's Board of Directors repealed the Directors
Stock Compensation Plan (the "Director's Plan"). Previously, under the
Directors Plan, each non-employee director ("Director") received his or
her annual retainer in the form of PHI's non-voting common stock. Each
Director could voluntarily defer all or a portion of the stock awards
or fees otherwise payable. The Directors Plan also provided for the
automatic annual grant of options to Directors to purchase 2,000 shares
of non-voting common stock. During 2001, The Company issued no stock or
deferred stock awards under the plan. The Company issued 547 shares and
2,388 deferred stock awards during the year ended December 31, 2000 and
1,277 shares and 4,908 deferred stock awards during the eight months
ended December 31, 1999. The Company issued no stock options under the
plan during 2001. During the year ended December 31, 2000, the eight
months ended December 31, 1999, and the year ended April 30, 1999, the
Company issued 4,165, 10,000 and 6,000 options, respectively, to
purchase non-voting common stock.

The following table summarizes employee and director stock option
activities for the years ended December 31, 2001 and 2000, the eight
months ended December 31, 1999, and the year ended April 30, 1999. All
of the options were issued with an exercise price equal to or greater
than the market price of the stock at the time of issue.

40

The following table summarizes information about stock options
outstanding as of December 31, 2001:

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS No. 123), encourages the use of a fair
value based method of accounting for compensation expense associated
with stock option and similar plans. However, SFAS No. 123 permits the
continued use of the intrinsic value based method prescribed by Opinion
No. 25 but requires additional disclosures, including pro forma
calculations of net earnings and earnings per share as if the fair
value method of accounting prescribed by SFAS No. 123 had been applied.

For the year ended December 31, 2001, the Company recorded $1.3 of
compensation expense for a discretionary incentive bonus it plans to
pay in 2002 to certain non-executive employees. The Company recorded
the related liability in accrued liabilities. Future discretionary
incentive compensation payments are subject to the Company achieving
desired profit levels.

41

(7) OTHER ASSETS

The following table summarizes the Company's other assets at December
31, 2001 and December 31, 2000.

During 2000, other assets included investments in and advances to
affiliates, including a 50% ownership interest in Clintondale Aviation,
Inc. ("Clintondale"), a New York corporation that operates helicopters
and fixed-wing aircraft primarily in Kazakhstan. PHI also leased four
aircraft to Clintondale.

In December 2000, the Company initiated discussions to exit its
ownership interest in Clintondale. In conjunction with the plan, the
Company recorded an impairment charge of $1.7 million to its investment
in and advances to Clintondale.

In June 2001, the Company continued its exit plan and executed an
agreement for the sale of its 50% equity interest and related assets in
Clintondale. The Company received a promissory note for $3.1 million
from Clintondale in exchange for the previously leased four aircraft,
certain amounts receivable from Clintondale, and the Company's 50%
equity interest in Clintondale. The promissory note is secured by a
lien on the four aircraft and was recorded at its estimated net
realizable value of $1.8 million based on the fair value of the
collateral aircraft. No gain or loss was recognized during 2001 related
to this exchange as the impairment charge recorded during December 2000
was based on the estimated fair value of the collateral aircraft.

As a result of the tragic events that occurred on September 11, 2001,
the Company reassessed Clintondale's financial ability to repay the
note receivable based on their reduced operations in Kazakhstan and
therefore recorded an additional provision of $0.6 million in the third
quarter of 2001 against amounts receivable from Clintondale.

During 2001, the Company funded $4.0 million toward the construction
cost of a new principal operating facility leased by the Company. The
amounts funded by PHI will amortize over 10 years at 7% per annum and
the resulting monthly amortization amounts will reduce PHI's monthly
lease payments for the first 10 years of the lease.

(8) FINANCIAL INSTRUMENTS

Fair Value - The following table presents the carrying amounts and
estimated fair values of financial instruments held by the Company at
December 31, 2001 and December 2000. The table excludes cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities, all of which had fair values approximating carrying
amounts.

The fair value of long-term debt and capital lease obligations also
approximates its carrying amount. The fair value of the interest rate
swaps is an estimate based on quotes from counterparties and
approximates the amount

42

that the Company would receive (pay) to cancel the contracts on the
reporting date. Effective January 1, 2001, the Company began accounting
for its interest rate swaps in accordance with SFAS No. 133, as
amended, and has recorded the fair market value of the swap in other
long-term liabilities on the balance sheet at December 31, 2001. See
Note 4.

(9) COMMITMENTS AND CONTINGENCIES

Operating Leases - The Company leases certain aircraft, facilities, and
equipment used in its operations. The related lease agreements, which
include both non-cancelable and month-to-month terms, generally provide
for fixed monthly rentals and, for certain real estate leases, renewal
options. The Company generally pays all insurance, taxes, and
maintenance expenses associated with these aircraft and some of these
leases contain renewal and purchase options. Rental expense incurred
under these leases consisted of the following:

The Company began leasing a new principal operating facility for twenty
years, effective September 2001. Under the terms of the new facility
lease, PHI funded $4.0 million of construction costs, which will
amortize over 10 years at 7% per annum and the resulting monthly
amortization amounts will reduce PHI's monthly lease payments for the
first 10 years of the lease. The lease expires in 2021 and has three
five-year renewal options.

The following table presents the remaining aggregate lease commitments
under operating leases having initial non-cancelable terms in excess of
one year. The table includes renewal periods on the principal operation
facility lease.

Environmental Matters -- The Company has an aggregate estimated
liability of $1.8 million as of December 31, 2001 for environmental
remediation costs that are probable and estimable. In the fourth
quarter of 2001, the Company reduced its recorded estimated liability
by $1.2 million as the result of a comprehensive re-evaluation of
environmental exposure at all of its operating sites and lowered
remediation cost estimates primarily at its Morgan City, Louisiana
facility. The Company has conducted environmental surveys of the
Lafayette facility which it recently vacated, and, has determined that
contamination exists at that facility. To date, borings have been
installed to determine the type and extent of contamination.
Preliminary results indicate limited soil and groundwater impacts. Once
the extent and type of contamination are fully defined, a risk
evaluation in accordance with the Louisiana Risk Evaluation/Corrective
Action Plan ("RECAP") standard will be submitted and evaluated by
Louisiana Department of Environmental Quality ("LDEQ"). At that point,
LDEQ will establish what cleanup standards must be met at the site.
When the process is complete, the Company will be in a position to
develop the appropriate remediation plan and the resulting cost of
remediation. However the Company has not recorded any

43

estimated liability for remediation of contamination and, based on
preliminary surveys and ongoing monitoring, the Company believes the
ultimate remediation costs for the Lafayette facility will not be
material.

To date, the Company has expended $0.1 million on conducting facility
environmental surveys and expects to spend an additional $0.1 million
performing follow-up work in 2002.

Legal Matters - The Company is named as a defendant in various legal
actions that have arisen in the ordinary course of its business and
have not been finally adjudicated. The amount, if any, of ultimate
liability with respect to such matters cannot be determined. In the
opinion of management, the amount of the ultimate liability with
respect to these actions will not have a material adverse effect on
results of operations, cash flow or financial position of the Company.

Purchase Commitments - At December 31, 2001, the Company had no
outstanding purchase commitments.

(10) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

PHI is primarily a provider of helicopter services, including
helicopter maintenance and repair services. The Company has used a
combination of factors to identify its reportable segments as required
by Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS 131").
The overriding determination of the Company's segments is based on how
the chief operating decision-maker of the Company evaluates the
Company's results of operations. The underlying factors include
customer bases, types of service, operational management, physical
locations, and underlying economic characteristics of the types of work
the Company performs. The Company identifies four segments that meet
the requirements of SFAS 131 for disclosure. The reportable segments
are Domestic Oil and Gas, International, Aeromedical, and Technical
Services.

The Domestic Oil and Gas segment provides helicopter services to oil
and gas customers operating in the Gulf of Mexico. Prior to 2001, the
Domestic Oil and Gas segment also provided helicopter services to
certain domestic governmental agencies involved with forest-fire
fighting activities. The International segment provides helicopters in
various foreign countries to oil and gas customers, including national
oil companies, and certain US and foreign governmental agencies. The
Aeromedical segment provides helicopter services to hospitals and
medical programs in several U.S. states. The Company's AirEvac
subsidiary is included in the Aeromedical segment. The Technical
Services segment provides helicopter repair and overhaul services for a
variety of helicopter owners and operators. The Company has taken steps
to curtail its Technical Services Segment.

The following tables show information about the profit or loss and
assets of each of the Company's reportable segments for the years ended
December 31, 2001, 2000, the eight months ended December 31, 1999, and
the year ended April 30, 1999. The information contains certain
allocations, including allocations of depreciation, rents, insurance,
interest, and overhead expenses that the Company deems reasonable and
appropriate for the evaluation of results of operations. The Company
does not allocate gains on dispositions of property and equipment,
equity in losses of unconsolidated subsidiaries, other income, and
corporate selling, general, and administrative costs to the segments.
Where applicable, the tables present the unallocated amounts to
reconcile the totals to the Company's consolidated financial
statements. Segment assets are determined by where they are situated at
period-end. Corporate assets are principally cash and cash equivalents,
short-term investments, other current assets, and certain property,
plant, and equipment.

44

45

\

(1) Includes special charges as discussed in Note 2 - Special Charges of
the Consolidated Financial Statements

(2) Includes gains on disposition of property and equipment, equity in
losses of unconsolidated subsidiaries, and other income.

The following table presents the Company's revenues from external
customers attributed to operations in the United States and foreign areas
and long-lived assets in the United States and foreign areas.

(11) QUARTERLY FINANCIAL DATA (UNAUDITED)

The summarized quarterly results of operations for the years ended
December 31, 2001 and December 31, 2000, (in thousands of dollars,
except per share data) are as follows:

(1) Includes the effect of (a) $1.3 million ($0.8 million after tax or
$0.15 per diluted share) of compensation expense recorded for a
discretionary bonus accrued for certain non-executive employees; (b)
$0.8 million ($0.5 million after tax or $0.09 per diluted share) of
other income, recorded for the reimbursement received from the United
States Department of Transportation under the Air Safety and System
Stabilization Act; and (c) $1.2 million ($0.7 million after tax or
$0.14 per diluted share) expense reduction for lowered estimated
environmental remediation costs.

(2) Includes the effect of $3.6 million ($2.5 million after tax or $0.48
per diluted share) of special charges recognized in the fourth quarter
ended December 31, 2000. Also includes a charge of $4.3 million ($3.0
million after tax or $0.58 per diluted share) for a write-down of
inventory.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning Directors required by this item will be included
in the Company's definitive proxy statement in connection with its
Annual Meeting of Shareholders and is incorporated herein by reference.
Information concerning Executive Officers is included as Item 4. (a)
"Executive officers of the registrant."

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item will be included in the Company's
definitive proxy statement in connection with its 2002 Annual Meeting
of Shareholders and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item will be included in the Company's
definitive proxy statement in connection with its 2002 Annual Meeting
of Shareholders and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item will be included in the Company's
definitive proxy statement in connection with its 2002 Annual Meeting
of Shareholders and is incorporated herein by reference.

47

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

Included in Part II of this report:

Independent Auditors' Reports.

Consolidated Balance Sheets - December 31, 2001 and
December 31, 2000.

Consolidated Statements of Operations for the years ended
December 31, 2001 and December 31, 2000, the eight
months ended December 31, 1999, and year ended April
30, 1999.

Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2001 and December 31, 2000,
the eight months ended December 31, 1999, and year
ended April 30, 1999.

Consolidated Statements of Comprehensive Income (Loss) for
the years ended December 31, 2001 and December 31,
2000, the eight months ended December 31, 1999, and
year ended April 30, 1999.

Consolidated Statements of Cash Flows for the years ended
December 31, 2001 and December 31, 2000, the eight
months ended December 31, 1999, and year ended April
30, 1999.

Notes to Consolidated Financial Statements.

2. Financial Statement Schedules

Schedule II - Valuation and Qualifying accounts for the
year ended December 31, 2001 and December 31, 2000,
the eight months ended December 31, 1999, and year
ended April 30, 1999.

3. Exhibits

3 Articles of Incorporation and By-laws

3.1 (i) Articles of Incorporation of the Company
(incorporated by reference to Exhibit No. 3.1(i) to
PHI's Report on Form 10-Q for the quarterly period
ended October 31, 1994).

(ii) By-laws of the Company as amended (incorporated by
reference to Exhibit No. 3.1 (ii) to PHI's Report on
Form 10-Q for the quarterly period ended September
30, 2001).

10 Material Contracts

10.1 Master Helicopter Lease Agreement dated February 14, 1991
between General Electric Capital Corporation and PHI
(incorporated by reference to Exhibit No. 10.1 (1) to PHI's
Report on Form 10-K dated April 30, 1991).

10.2 The Petroleum Helicopters, Inc. 401(k) Retirement Plan
effective July 1, 1989 (incorporated by reference to Exhibit
No. 10.4 to PHI's Report on Form 10-K dated April 30, 1990).

10.3 Petroleum Helicopters, Inc. 1992 Non-Qualified Stock Option
and Stock Appreciation Rights Plan adopted by PHI's Board
effective May 1, 1992 and approved by the shareholders of PHI
on September 30, 1992 (incorporated by reference to Exhibit
No. 10.8 to PHI's Report on Form 10-K dated April 30, 1993).

10.4 Amended and Restated Petroleum Helicopters, Inc. 1995
Incentive Compensation Plan adopted by PHI's Board effective
July 11, 1995 and approved by the shareholders of PHI on
September 22, 1995 (incorporated by reference to Exhibit No
10.12 to PHI's Report on Form 10-K dated April 30, 1996).

10.5 Form of Non-Qualified Stock Option Agreement under the
Petroleum Helicopters, Inc. 1995 Incentive Compensation Plan
between PHI and certain of its key employees (incorporated by
reference to Exhibit No. 10.13 to PHI's Report on Form 10-K
dated April 30, 1996).

10.6 Supplemental Executive Retirement Plan adopted by PHI's Board
effective September 14, 2000 (incorporated by reference to
Exhibit 10.23 to PHI's Report on Form 10-Q dated September 30,
2000).

10.7 Amendment to the Supplemental Executive Retirement Plan dated
May 24, 2001 (incorporated by reference to Exhibit 10.25 to
PHI's Report on Form 10-Q dated June 30, 2001).

10.8 Officer Deferred Compensation Plan adopted by PHI's Board
effective January 1, 2001 (incorporated by reference to
Exhibit 10.21 to PHI's Report on Form 10-K dated December
31, 2000).

48

10.9 Second Amended and Restated Loan Agreement among Petroleum
Helicopters, Inc., and Bank of America, NA, Whitney National
Bank, Bank One, NA, and Bank of America, N.A. as Agent, and
Letter of Credit Issuing Bank dated July 3, 2001 (incorporated
by reference to Exhibit 10.23 to PHI's Report on Form 10-Q
dated June 30, 2001).

10.10 First Amendment to Second Amended and Restated Loan Agreement
and Limited Waiver.

10.11 Articles of Agreement Between Petroleum Helicopters, Inc. &
Office & Professional Employees International Union and its
Local 108 dated June 13, 2001 (incorporated by reference to
Exhibit 10.24 to PHI's Report on Form 10-Q dated June 30,
2001).

10.12 Employment letter agreement between PHI and Lance F. Bospflug
dated August 24, 2000 (incorporated by reference to Exhibit
10.22 to PHI's Report on Form 10-KA dated December 31, 2000).

10.13 Director Deferred Compensation Plan adopted by PHI's Board
effective May 31, 1995 (incorporated by reference to Exhibit
10.18, to PHI's Report on Form 10-K dated April 30, 1999).

21 Subsidiaries of the Registrant

23.1 Consent of Deloitte & Touche LLP

23.2 Consent of KPMG LLP

(b) Reports on Form 8-K

None.

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)

49

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

PETROLEUM HELICOPTERS, INC.

By: /s/ Michael J. McCann
----------------------------------------
Michael J. McCann
Chief Financial Officer
(Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

50

EXHIBIT INDEX