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, 2002

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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

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. [X]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the registrant as of June 28, 2002 was $119,777,821
based upon the last sales price of the Common Stock on June 28, 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 21, 2003 was:

Voting Common Stock..................................2,851,866 shares.
Non-Voting Common Stock..............................2,525,722 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Information Statement for the
2003 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....................................................................7
Item 3. Legal Proceedings.............................................................8
Item 4. Submission of Matters to a Vote of Security Holders...........................9
Item 4.A. Executive Officers of the Registrant..........................................9

PART II

Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters..........................................................10
Item 6. Selected Financial Data......................................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................12
Item 7.A. Quantitative and Qualitative Disclosures about Market Risk...................21
Item 8. Financial Statements and Supplementary Data..................................22
Petroleum Helicopters, Inc. and Consolidated Subsidiaries:
Independent Auditors' Reports..........................................22
Consolidated Balance Sheets
- December 31, 2002 and December 31, 2001...........................23
Consolidated Statements of Operations
- Year ended December 31, 2002, Year ended December 31, 2001, and
Year ended December 31, 2000.................................24
Consolidated Statements of Shareholders' Equity
- Year ended December 31, 2002, Year ended December 31, 2001, and
Year ended December 31, 2000.................................25
Consolidated Statements of Comprehensive Income (Loss)
- Year ended December 31, 2002, Year ended December 31, 2001, and
Year ended December 31, 2000.................................25
Consolidated Statements of Cash Flows
- Year ended December 31, 2002, Year ended December 31, 2001, and
Year ended December 31, 2000.................................26
Notes to Consolidated Financial Statements.............................27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures....................................................50

PART III

Item 10. Directors and Executive Officers of the Registrant...........................51
Item 11. Executive Compensation.......................................................51
Item 12. Security Ownership of Certain Beneficial Owners and Management...............51
Item 13. Certain Relationships and Related Transactions...............................51
Item 14. Controls and Procedures......................................................51

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............51
Signatures...................................................................54
Certifications...............................................................55

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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 to certain
customers. At December 31, 2002, the Company owned or operated approximately 236
aircraft domestically and internationally.

On April 23, 2002, the Company issued $200 million in 9 3/8% Senior Unsecured
Notes ("Notes") due May 1, 2009. The proceeds from the offering were used to
retire $62.3 million of existing bank debt ("Terminated Loan Agreement") and
Interest Rate Swaps ("Swaps"), which were contracts to fix the interest rate on
the Company's bank debt, and to acquire 101 aircraft for $118.1 million, that
the Company previously leased. Although the Company expects that these actions
will reduce earnings before income taxes by approximately $4.8 million per year,
management believes that the changes will improve overall liquidity over the
next several years, which will allow the Company to pursue earnings growth
opportunities, by increasing cash from operations by approximately $5.9 million
in 2002 and an expected increase of $10.8 million in 2003, including incremental
tax effects. In later years, this amount reduces due to the effects of lower tax
depreciation. Additionally, until 2009 when the Notes become due, the Company
will be able to retain cash that would have otherwise been needed for bank debt
principal payments.

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.

DOMESTIC OIL AND GAS. PHI operates approximately 190 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. The operations in the Gulf of Mexico service customers located
offshore Louisiana, Texas, Alabama, and Mississippi.

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Operating revenues from the Domestic Oil and Gas segment accounted for 67%, 68%,
and 65% of consolidated operating revenues during the years ended December 31,
2002, December 31, 2001, and December 31, 2000, 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, and the
Democratic Republic of Congo. The Company operates approximately 20 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. Operating revenues from the Company's International segment
accounted for 8% of consolidated operating revenues during the years ended
December 31, 2002 and December 31, 2001, and 9% during the year ended December
31, 2000.

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 9 states using approximately 26 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 26 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%, 17%, and 19% of
consolidated operating revenues during the years ended December 31, 2002,
December 31, 2001, and December 31, 2000, respectively.

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. Commencing in late 2001, 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 each of the years ended December 31, 2002
and December 31, 2001, and 7% for the year ended December 31, 2000.

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.

2

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 17%, 14%, and 10% of operating
revenues for the years ended December 31, 2002, December 31, 2001, and December
31, 2000, 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. Also,
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 potentially 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 and improve 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

3

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, 2002, the Company employed a total of 1,632 full-time
employees and 57 part-time employees, including approximately 500 pilots and
1,000 aircraft maintenance and support personnel. At December 31, 2001, the
Company employed 1,718 full-time employees and 60 part-time employees.

On June 13, 2001, the Company'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 and remains effective through May 31, 2004. The agreement provides for
automatic base pay increases for pilots 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 74% of the Company's 2002
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
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.

4

Accordingly, when oil prices are relatively low, the Company's revenues and
income are adversely affected. Additionally, as demonstrated in current markets,
commodity prices are high and activity levels in the Gulf of Mexico are
relatively low, attributable to concerns over economic and political
uncertainties.

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. Additionally, the Company incurs costs in evacuating its aircraft
and bases during tropical storms.

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 and
darkness 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 international operations 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 hazards, which must be managed by providers of helicopter services
and may result in (i) loss of life, (ii) serious injury to employees and third
parties, and (iii) losses of equipment and revenues.

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The Company's safety record is very favorable in comparison to the record for
both United States and International operators. 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, Chairman of
the Board, beneficially owns stock representing approximately 52% of the total
voting power. As a result, he exercises control over the election of PHI's
directors and the outcome of matters requiring a stockholder vote.

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 SmallCap 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.

AVAILABILITY OF SEC FILINGS AND OTHER INFORMATION. The Company's internet
address is www.phihelico.com. The Company's annual report on Form 10-K for the
year ended December 31, 2002, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to any of these reports, are available free of charge
through Petroleum Helicopters Inc.'s web site, as soon as reasonably practicable
after filing with the SEC.

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ITEM 2. PROPERTIES

AIRCRAFT

Certain information regarding the Company's owned and leased fleet as of
December 31, 2002 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 223 aircraft listed, the Company owns 219 and leases 4. Additionally, the
Company operates 13 aircraft that are owned or leased by customers that are not
reflected in the above table. In total the Company owns or operates 236
aircraft.

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.

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.

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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.

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; and at Theodore, Alabama.

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.

The Company also leases facilities for its Aeromedical operations in Phoenix,
Arizona. Other bases for the Company's International and other Aeromedical
operations are generally furnished by the customer.

ITEM 3. LEGAL PROCEEDINGS

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 the
Company's consolidated financial statements.

8

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

None.

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
had 35 years of oil and gas service industry experience as a manager, owner, and
investor prior to becoming Chairman of PHI. 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 December 2001. In 1998 he sold
Sea Mar to Pool Energy Services, which was subsequently merged into Nabors
Industries, Inc. in 1999.

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. Bouillion received the certification as a Certified Safety
Professional in December 2001.

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. Craig was
also a captain in the U.S. Army and served in the Republic of South Vietnam.

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. Hurst
is also an active member of the HSAV IFR sub-committee, representative of
JAR-OPS Implementation committee. In 1996-97 he was acknowledged as Pilot
Proficiency examiner, staff instructor for HAI (CFI Renewal Course in 1993 - 94,
and FAA's Louisiana Instructor of the Year in 1993).

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.

9

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 three fiscal years and does
not expect to pay dividends in the foreseeable future. In addition, the Notes
and a revolving credit facility with a commercial bank restrict the payment of
dividends by the Company. See Item 8. "Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements, Note 4."

As of February 21, 2003, there were approximately 1,022 holders of record of the
Company's voting common stock and 84 holders of record of the Company's
non-voting common stock.

Information regarding the Company's stock based compensation plan is included in
Item 8, Notes to Consolidated Financial Statements Note (6) EMPLOYEE BENEFIT
PLANS - Stock Based Compensation.

On April 23, 2002, the Company issued $200 million in aggregate principal amount
of 9 3/8% Senior Unsecured Notes that mature on May 1, 2009 in an offering made
pursuant to Rule 144A and Regulation S of the Securities Act of 1933. The net
proceeds from the issuance of Senior Notes were approximately $194.2 million
(net of underwriting discounts and other issuance costs). The net proceeds were
used to purchase leased aircraft and aircraft on capital lease ($118.0 million),
reduce outstanding borrowings under a working capital facility ($44.5 million),
and reduce outstanding borrowings under a term debt facility ($16.3 million),
settlement of interest rate Swap agreements ($1.6 million), and the remainder
for general corporate purposes. In May 2002, the Company filed a registration
statement for an offer to exchange these Notes for debt securities with
identical terms.

10

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.

11

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, 2002,
December 31, 2001, and December 31, 2000 and the related Notes to Consolidated
Financial Statements.

OVERVIEW

Operating revenues for 2002 were $283.8 million compared to $282.4 million for
the prior year, an increase of $1.4 million. The increase in operating revenue
was due to an increase of $1.8 million in Technical Services revenues due to
completion of a project for the upgrade and refurbishment of a customer's
aircraft in the first half of this year, and an increase of $1.2 million in
Aeromedical segment revenues. The strategic focus of the Technical Services
segment is discussed below and will result in a reduction in that segment's
revenues. Aeromedical segment revenues increased $1.2 million due to an
improvement in rates on retained aeromedical contracts, offset by a reduction in
revenue due to the termination of certain other aeromedical contracts. Domestic
Oil and Gas revenues decreased $1.5 million due to a decrease in activity in the
Gulf of Mexico, offset in part by an increase in rates implemented in 2001.

Flight hours were 170,462 for 2002 compared to 192,753 for 2001, a decrease of
22,291 flight hours (11.6% decrease). The Domestic Oil and Gas segment had a
decrease of 12,326 flight hours due to decreased activity in the Gulf of Mexico,
and the Aeromedical segment had a decrease of 6,225 flight hours due to the
termination of certain Aeromedical contracts that were the result of increases
in rates.

Direct operating expense was $235.2 million for 2002 compared to $243.5 million
for 2001, a decrease of $8.3 million. The decrease was due to a reduction in
headcount resulting in decreased compensation costs, decreased helicopter rent
due to the purchase of leased aircraft as a result of the Notes issuance
described below, decreased insurance due in part to a decrease in the number of
aircraft the Company operates, decreased fuel costs due to decreased activity,
and decreased maintenance costs due to a decrease in parts usage. In addition,
there was increased depreciation expense due to the purchase of leased aircraft,
and an increase in Technical Services cost due to a project for the
refurbishment and upgrade of a customer's aircraft completed in 2002.

Selling, general and administrative expense was $18.2 million for 2002 compared
to $18.0 million for 2001, an increase of $0.2 million. Selling, general and
administrative expense for 2002 includes a severance charge ($0.3 million), and
a management bonus ($0.8 million). There were no management bonuses recorded in
2001 and no significant severance charges in 2001. After deducting the
management bonus and the severance charge, selling, general and administrative
expense decreased due to a decrease in employee compensation costs as a result
of a decrease in headcount, and also due to a decrease in legal costs.

Interest expense was $17.3 million for 2002 compared to $6.2 million for 2001.
The increase was due to interest on the Notes issuance described below, and $1.9
million of costs incurred in 2002 related to the retirement of the Company's
bank debt and liquidation of the Company's interest rate Swap agreements, which
were contracts to fix interest rates on the Company's bank debt.

On April 23, 2002, the Company issued $200 million in 9 3/8% Notes due May 1,
2009. The proceeds from the offering were used to retire $62.3 million of
existing bank debt and the Swaps, and to acquire 101 aircraft for $118.1
million, that the Company previously leased. Also on April 23, 2002, the Company
entered into a new $50 million revolving credit facility with a commercial bank
to be available through July 2004. As of December 31, 2002, the Company had no
borrowings and a $0.6 million letter of credit outstanding under the revolving
credit facility.

As a result of the Notes issuance and the purchases of the leased aircraft, the
Company has incurred and will incur increased interest and depreciation expense,
and decreased aircraft rent expense. Although the Company expects that these
changes will reduce earnings before income taxes by approximately $4.8 million
per year, the transaction will improve overall liquidity over the next several
years, which will allow the Company to pursue earnings growth opportunities.
Increased cash from operations was approximately $5.9 million in 2002, including
incremental tax effects. The Company expects increased cash from operations of
$10.8 million in 2003, including incremental tax effects. In later years, this

12

amount reduces due to the effects of lower tax depreciation. Additionally,
until 2009 when the Notes become due, the Company will be able to retain cash
that would have otherwise been needed for bank debt principal payments.

RESULTS OF OPERATIONS

The following table presents segment operating revenues and segment operating
profit before tax, along with certain non-financial operational statistics, for
the years ended December 31, 2002, 2001 and 2000:

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

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

(3) Includes 13, 19, and 18 aircraft as of December 31, 2002, 2001 and
2000, respectively that are customer owned or leased by customers.

YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001

COMBINED OPERATIONS

REVENUES - Operating revenues for 2002 were $283.8 million compared to $282.4
million for the prior year, an increase of $1.4 million. The increase in
operating revenue was due to an increase of $1.8 million in Technical Services
revenues due to completion of a project for the upgrade and refurbishment of a
customer's aircraft during the year and also due to an increase of $1.2 million
in the Aeromedical segment. Although Technical Services revenues increased in
2002, the strategic focus of that segment is limited to maintenance services
primarily for certain military aircraft, flight operations customers, and
original equipment manufacturers. As a result, the Company anticipates that

13

revenues in this segment will decline in future years. Aeromedical segment
revenues increased due to an improvement in rates on retained aeromedical
contracts, offset by a reduction in revenue due to the termination of certain
other aeromedical contracts. Domestic Oil and Gas revenues decreased $1.5
million due to a decrease in activity in the Gulf of Mexico, offset in part by
an increase in rates implemented in 2001.

Flight hours were 170,462 for 2002 compared to 192,753 for 2001, a decrease of
22,291 flight hours (11.6% decrease). The Domestic Oil and Gas segment had a
decrease of 12,326 flight hours due to decreased activity in the Gulf of Mexico,
and the Aeromedical segment had a decrease of 6,225 flight hours due to the
termination of certain Aeromedical contracts that were the result of increases
in rates to customers unwilling to absorb those increases.

OTHER INCOME AND LOSSES - Gain (loss) on equipment dispositions was $0.6 million
for 2002 compared to $1.4 million for 2001, a decrease of $0.8 million. This
decrease was due to a decrease in the sale of aircraft as compared to the prior
year.

Other income was $1.7 million for 2002 compared to $1.5 million for 2001. The
current year includes a gain related to the favorable settlement of a note
receivable from a previous joint venture sold in the prior year in which the
Company accepted a note receivable for the proceeds ($0.7 million), and the
balance of other income primarily being interest income ($0.9 million). The
prior year included a reimbursement received from the U.S. Department of
Transportation under the Air Safety Stabilization Act ($0.8 million), and
interest income ($0.7 million).

DIRECT EXPENSES - Direct operating expense was $235.2 million for 2002 compared
to $243.5 million for 2001, a decrease of $8.3 million. Employee compensation
costs decreased ($2.0 million) due to decreased headcount in 2002 compared to
2001. Additionally, included in employee compensation costs in direct expenses
for 2002 are severance costs ($1.4 million) and a management bonus ($0.3
million). No significant severance costs or bonuses were recorded in 2001.
Helicopter rent decreased ($10.7 million) due to the purchase of leased aircraft
as previously discussed. Aircraft fuel decreased as a result of decreased
activity ($1.8 million), insurance expense decreased due in part to a decrease
in the number of aircraft the Company operates ($1.4 million), and a decrease in
maintenance costs ($0.5 million). Depreciation expense increased ($5.6 million)
due to the purchase of leased aircraft. Technical Services costs increased ($1.0
million) due to costs related to a project for the refurbishment and upgrade of
a customer's aircraft completed in 2002, and there was an increase, net, of
other items ($1.5 million).

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expense was $18.2 million for 2002 compared to $18.0 for 2001.
Selling, general and administrative expense for 2002 includes a severance charge
($0.3 million), and a management bonus ($0.8 million). After deducting the
severance charges and management bonus, selling, general and administrative
expense decreased due to employee compensation costs as a result of a decrease
in headcount, and also due to a decrease in legal costs.

INTEREST EXPENSE - Interest expense was $17.3 million for 2002 compared to $6.2
million for 2001. The increase was due to interest on the Notes issuance
previously described, and $1.9 million of costs incurred in the second quarter
of 2002 related to the retirement of the Company's bank debt and liquidation of
the Company's interest rate Swap agreements, which is a contract to fix interest
rates on the Company's bank debt, which were charged to interest expense.

INCOME TAXES - Income tax expense for 2002 was $6.2 million, compared to $6.5
million for 2001. The effective tax-rate was 40% for 2002, and 37% for 2001. The
increase in the effective tax rate is primarily due to increased state income
taxes and permanent book and tax differences.

EARNINGS - The Company's net earnings for 2002 were $9.2 million, compared to
$11.0 million for 2001. Earnings before tax for 2002 were $15.4 million compared
to $17.5 million in 2001. Earnings per diluted share were $1.70 as compared to
$2.08 per diluted share for 2001. Although there was a decline in flight hour
activity, the principal reason for the earnings decline was the increase in
interest expense, described above.

SEGMENT DISCUSSION

Effective July 1, 2002, the Company no longer allocates interest expense to its
segments when evaluating operating performance. All results prior to July 1,
2002 have been restated to remove interest expense from the segment operating
results.

14

Domestic Oil and Gas - Domestic Oil and Gas segment revenues were $189.5 million
for 2002, compared to $191.0 million for 2001, a decrease of $1.5 million. There
was a decrease in flight activity due to reduced oil and gas activity in the
Gulf of Mexico, as indicated by a decrease of 12,326 flight hours for the year.
This was offset in part by an increase in rates implemented in 2001. The number
of aircraft in the segment was 190 at December 31, 2002 as compared to 177 at
December 31, 2001. Certain aircraft were acquired during the year and certain
other aircraft models that can be configured to meet customers' deepwater
service requirements were also transferred from the Aeromedical segment upon
termination of certain aeromedical contracts.

Direct expenses in the Domestic Oil and Gas segment increased $0.6 million due
to an increase in human resource cost due primarily to certain of the pilot and
mechanic employees in the Aeromedical segment being reassigned to the Domestic
Oil and Gas segment ($2.3 million), increased depreciation expense ($5.6
million) due to the purchase of leased aircraft, an increase in maintenance
costs ($0.5 million), and an increase in workers' compensation expense ($0.3
million). These amounts were offset by a decrease in helicopter rent due to the
purchase of the leased aircraft ($7.3 million), a decrease in fuel cost due to
decreased activity ($1.1 million), and a decrease in insurance cost due in part
to a decrease in the number of aircraft the Company operates in total that
benefited the segment ($0.7 million). The Company also reduced its environmental
reserve ($0.3 million), primarily due to costs at one site being less than
anticipated. Additionally, there was an increase due to other items, net ($1.3
million), which consists primarily of supplies and base operating costs and
facility repairs.

The Domestic Oil and Gas segment operating income decreased ($2.1 million) due
in part to a decrease in activity and also due in part to the transfer of
certain pilots and mechanics from the Aeromedical segment. Operating margin was
14.2% for the year compared to 15.2% in the prior year.

International - International segment revenues were $22.5 million for 2002,
compared to $22.6 million for 2001. The number of aircraft in the segment was 20
at December 31, 2002 and 21 at December 31, 2001. Flight hours were 18,292 for
2002 as compared to 21,235 for 2001. The decrease in revenue due to a decrease
in activity was offset by an improvement in rates.

Direct expenses in the International segment decreased for the year ($1.2
million) due to a decrease in human resource cost ($0.5 million), a decrease in
insurance cost ($0.3 million), and a decrease, net, of other items ($0.4
million).

International segment operating income increased for 2002 ($1.0 million).
Operating margin of 7.8% for the year compares to 3.2% for the prior year. The
improvement in operating income and operating margin was due to an increase in
customer rates and a decrease in direct expenses.

In October 2002, the Company exited a contract in Taiwan that included one
aircraft.

Aeromedical - Aeromedical segment revenues were $48.7 million for 2002 compared
to $47.5 million for 2001. The increase in Aeromedical revenues is due to an
increase in rates substantially offset by a decrease in flight hour activity of
6,225 flight hours due to the termination of certain aeromedical contracts as a
result of increases in rates. The number of aircraft in the segment was 26 in
2002 compared to 41 for 2001.

Direct expenses in the Aeromedical segment for 2002 decreased ($9.8 million) due
to a decrease in headcount ($4.1 million), a decrease in helicopter rent ($3.4
million) due to a decrease in the number of aircraft in the segment and to the
purchase of leased aircraft, a decrease in maintenance cost ($1.0 million) and
insurance cost ($0.4 million), both due to fewer aircraft in the segment, a
decrease in fuel costs ($0.7 million), and other items, net, decreased ($0.2
million), which is primarily base operating costs.

The Aeromedical segment operating income increased ($11.0 million) for the year.
Operating margin was 25.6% for 2002 and compares to 3.2% for 2001. The increase
in operating income and operating margin is attributable to an increase in
customer rates on retained Aeromedical contracts, and also due to a reduction in
direct expense as a result of reduced aircraft, reduced personnel, and other
related costs caused by the termination of certain Aeromedical contracts as
mentioned above. Flight hours for the 2002 were 15,780 compared to 22,005 for
2001.

Technical Services - Technical Services segment revenues for 2002 were $23.1
million compared to $21.3 million for 2001. The increase in Technical Services
revenues was related to revenue from a contract for the refurbishment and

15

upgrade of two aircraft completed in the first half of 2002. The strategic focus
of the Technical Services segment is discussed below and will result in a
reduction in that segment's revenues in future years.

There was an increase in direct expense ($1.0 million) in the Technical Services
segment due to the contract previously mentioned.

The Technical Services segment had operating income of $4.3 million for 2002,
compared to $3.5 million for 2001. The operating margin was 18.6% for 2002,
compared to 16.4% in the prior year. The improvement in operating income and
operating margin was due to increases in rates on continuing activities.

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

COMBINED OPERATIONS

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

OTHER INCOME AND LOSSES - Gains on property and equipment dispositions were $1.4
million in 2001 as compared to $4.0 million in 2000. During 2001, the Company
reduced its fleet by 40 owned and leased aircraft.

Equity in net losses from unconsolidated subsidiaries for 2000, excluding an
impairment charge against the Company's investment in Clintondale, a joint
venture operating primarily in Kazakhstan, 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 the joint venture 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 $13.2 million to $243.5
million for 2001 compared to $230.3 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 $13.2 million increase in direct expenses, the increase in human resource
costs accounted for 35% 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.

16

Cost of sales in the Technical Services segment accounted for 17% 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.

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 also increased in 2001 generally reflecting increases in the
industry. Helicopter rent increased for the year related to the number of
aircraft on operating leases, obtained during the latter part of 2000.

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., a joint venture operating primarily
in Kazakhstan, 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.

SEGMENT DISCUSSION

Domestic Oil and Gas - Domestic Oil and Gas segment revenues increased 24.2% to
$191.0 million for 2001 compared to $153.8 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 $29.1 million operating profit in 2001 compared to a $1.5
million operating loss for the prior year. Operating margin of 15.2% for 2001
compares to 1.0% 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 - 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

17

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 $0.7 million operating profit for 2001 compared
to a $0.1 million operating loss for the prior year. Operating margin of 3.1%
for 2001 compares to (1.0)% 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 - 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 $1.5 million for 2001
compared to an operating loss of $0.2 million for the prior year. Operating
margin was 3.2% for the year ended December 31, 2001 and compares to (0.3)% for
the prior year. The improvement in earnings is the result of certain 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 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 - 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.

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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash position at December 31, 2002 was $17.7 million, compared to
$5.4 million at December 31, 2001. Working capital was $72.8 million at December
31, 2002, as compared to $47.0 million at December 31, 2001, an increase of
$25.8 million. An increase in cash of $12.3 million, primarily the remaining
proceeds of the Notes issuance, and a decrease in current maturities of
long-term debt of $7.9 million as bank debt was repaid with the proceeds of
long-term notes accounts for the increase in working capital. Net cash provided
by operating activities funded capital expenditure requirements of $41.4 million
in 2002. Notes issuance costs of $5.8 million were funded with proceeds from the
sale of the Notes.

On April 23, 2002, the Company issued Notes of $200 million that carry an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year that commenced on November 1, 2002, and mature in May 2009. On November 1,
2002, the Company paid interest amounts due on the Notes of $9.8 million. The
Notes contain certain covenants, including limitations on indebtedness, liens,
dividends, repurchases of capital stock and other payments affecting restricted
subsidiaries, issuance and sales of restricted subsidiary stock, dispositions of
proceeds of asset sales, and mergers and consolidations or sales of assets. As
of December 31, 2002, the Company was in compliance with these covenants.

18

Proceeds from the Notes, net of $5.8 million of fees and expenses, were used to
retire the Company's $16.3 million term credit facility and $44.5 million
revolving credit facility, and to terminate the related Swap agreements for $1.6
million. The Company also purchased 101 aircraft, which were previously leased,
for $118.1 million.

Also, on April 23, 2002, the Company executed a new credit agreement with a
commercial bank for a $50 million revolving credit facility to be available
through July 2004. As of December 31, 2002, the Company had no borrowings and a
$0.6 million letter of credit outstanding under the revolving credit facility.
The credit agreement includes covenants related to working capital, funded debt
to net worth, and consolidated net worth. As of December 31, 2002, the Company
was in compliance with these covenants.

Capital expenditures totaled $41.4 million for the twelve months ended December
31, 2002 as compared to $29.5 million for the twelve months ended December 31,
2001. Capital expenditures primarily include amounts for the upgrade of
capability and renewals of certain aircraft, and the purchase of aircraft during
the year. As discussed above, the Company also purchased $118.1 million of
aircraft it previously leased. At December 31, 2002, the Company had commitments
of $7.9 million for the upgrade of aircraft and the purchase of other equipment.

The Company believes that cash flow from operations will be sufficient to fund
required interest payments on the Notes and capital expenditures for the next
twelve months.

The effect of the Notes issuance and purchase of leased aircraft is expected to
improve cash flow by reduced aircraft lease payments partially offset by
increased interest payments. In addition, there is a decrease in current income
taxes due to accelerated tax depreciation related to the purchased aircraft.
Also, until 2009 when the Notes become due, the Company will be able to retain
cash that would have otherwise been required for bank debt principal payments.

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. The Company leases four
aircraft included in the lease obligations below. The operating lease
obligations primarily relate to the Company's facilities in Lafayette,
Louisiana.

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

19

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.

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's principal long-lived assets are aircraft. 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 that program. The Company also carries deductibles on its
workers' compensation program and aircraft hull and liability insurance and
estimates periodic expenses related to the retained portion of those risks.
Significant changes in estimates due to poor experience or higher accident rates
could result in additional recorded losses.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of new accounting pronouncements applicable to the Company, see
Note 1 to the Financials Statements

ENVIRONMENTAL MATTERS

The Company has an aggregate estimated liability of $1.5 million as of December
31, 2002 for environmental remediation costs that are probable and estimable. In
the fourth quarter of 2002, the Company reduced its recorded estimated liability
by $0.3 million as the result of a 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 vacated in 2001, 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.

20

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

The Company is exposed to market risks associated with interest rates and prior
to April 23, 2002, made limited use of derivative financial instruments to
manage that risk. When used, all derivatives for risk management are closely
monitored by 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.

On April 23, 2002, the Company paid its Terminated Loan Agreement. The
Terminated Loan Agreement had variable interest rates. In conjunction with the
payment of the Terminated Loan Agreement, the Company settled its interest rate
Swap agreements by paying $1.6 million to the counterparties.

Also on April 23, 2002, the Company issued Notes of $200 million that have an
interest rate of 9 3/8% payable semi-annually on May 1 and November 1 of each
year, beginning November 1, 2002, and mature in May 2009. The market value of
the Notes will vary as changes occur to general market interest rates, the
remaining maturity of the Notes, and the Company's credit worthiness. At
December 31, 2002, the market value of the Notes was $209.0 million. A
hypothetical 100 basis-point increase to the Notes' imputed interest rate at
December 31, 2002 would have resulted in a market value decline to approximately
$199.4 million.

21

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, 2002 and 2001, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for each of the three years in the
period ended December 31, 2002. Our audits also included the financial statement
schedule for each of the three years in the period ended December 31, 2002,
listed in the Index at Item 15. 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, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement schedule
for each of the three years in the period ended December 31, 2002, 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 20, 2003

22

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

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

23

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.

24

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.

25

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.

26

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 facilities 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 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. ("Air Evac") are recorded
net of contractual allowances under agreements with third party payors
when the services are provided.

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 Company's inventories are stated at the lower of average cost or
market and consist primarily of spare parts. Portions of the Company's
inventories are used parts that are often exchanged with parts removed
from aircraft, reworked to a useable condition according to
manufacturers' and FAA specifications, and returned to inventory. The
Company uses systematic procedures to estimate the valuation of the
used parts, which includes consideration of their condition and
continuing utility. 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 $4.8 million and $4.3
million at December 31, 2002 and 2001, respectively.

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 five to 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

27

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 years ended
December 31, 2002 and 2001, there were no gains deferred on sale and
leaseback transactions. For the year ended December 31, 2000, the gains
deferred on sale and leaseback transactions were $2.9 million.

The Company reviews its long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
The Company measures recoverability of assets to be held and used by
comparing the carrying amount of an asset to future undiscounted net
cash flows that it expects the asset to generate. When an asset is
determined to be impaired, the Company recognizes 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. As of December 31, 2002
and 2001, the Company had $1.1 million and $0.8 million, respectively,
of accrued liabilities related to health care claims.

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 and cash equivalents on deposit with a major
financial institution. Cash equivalents include Commercial paper of
companies with high credit ratings and money market securities. The
Company does not believe significant credit risk exists with respect to
these securities at December 31, 2002.

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 and US governmental agencies. The Company continually evaluates
the financial strength of its customers but generally does not require
collateral to support the customer receivables. The Company establishes
an allowance for doubtful accounts based upon factors surrounding the
credit risk of specific customers, current market conditions, and other
information. The allowance for doubtful accounts was $0.2 million and
$0.4 million at December 31, 2002 and December 31, 2001, respectively.
The Company's largest domestic oil and gas customer accounted for $46.9
million, $40.3 million, and $27.2 million, of consolidated operating
revenues for years ended December 31, 2002, 2001, and 2000,
respectively. The Company also carried accounts receivable from this
same customer totaling 22% and 19%, of net trade accounts receivable on
December 31, 2002 and 2001, respectively.

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

28

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 excludes incremental shares of 10,488 related to employee stock
options and restricted stock awards that are antidilutive as a result
of the Company's net loss for that period.

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.

29

The Company uses interest rate Swap agreements to manage its interest
rate exposure. The Company specifically designated these agreements as
hedges of debt instruments and recognized interest differentials as
adjustments to interest expense in the period the differentials occur.
Under the interest rate Swap agreements, the Company agreed with other
parties to exchange, at specific intervals, the difference between
fixed-rate and variable-rate interest amounts calculated by reference
to an agreed-upon notional principal amount. At December 31, 2001, the
Company estimated the fair value of the interest rate Swap agreements
using quotes from counterparties. The fair value of the agreements
represented the cash effect if the Company had settled the agreements
on that date. On April 23, 2002, the Company settled its outstanding
interest rate Swap agreement for $1.6 million. See Note 4 and Note 8 of
these consolidated financial statements.

New Accounting Pronouncements

On September 29, 2001, Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" was approved
by the Financial Accounting Standards Board ("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, ceased upon adoption of this
statement. The Company implemented SFAS No. 142 on January 1, 2002. The
implementation had no material impact on the Company's 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
implemented SFAS No. 143 on January 1, 2003, and determined that this
statement did not have a material impact on its consolidated financial
position or results of operations.

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 implemented SFAS No.
144 on January 1, 2002. The implementation of this standard did not
have a material effect on the Company's financial position or results
of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 eliminates SFAS No. 4 and as a
result, gains and losses from extinguishments of debt should be
classified as extraordinary items only if they meet the criteria in APB
Opinion No. 30. SFAS No. 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also updates and amends
existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under
changed conditions. The Company implemented SFAS No. 145 on January 1,
2003, and determined that this statement did not have a material impact
on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for
fiscal periods after December 31, 2002. SFAS No. 146 requires companies
to recognize costs associated with restructurings, discontinued
operations, plant closings, or other exit or disposal activities, when
incurred rather than at the date a plan is committed to. The Company
will implement the provisions of this statement on a prospective basis
for exit or disposal activities that are initiated after December 31,
2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
Based Compensation--Transition and Disclosure, an amendment of SFAS No.
123." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements to require prominent disclosures in both the

30

annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. The Company has implemented the disclosure
requirements of this statement as of December 31, 2002. See Note 1 to
the Consolidated Financial Statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45
elaborates on the disclosures to be made by a guarantor about its
obligations under certain guarantees. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. As required, the Company adopted the disclosure
requirements of FIN 45 as of December 31, 2002. See Notes 4 and 9 to
the consolidated financial statements. The Company will adopt the
initial recognition and measurement provisions on a prospective basis
for guarantees issued or modified after December 31, 2002. The Company
has not determined the impact that the adoption of the
recognition/measurement provisions will have on its consolidated
financial position or results of operations.

In January 2003, FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46"). FIN 46 requires that companies
that control another entity through interest other than voting
interests should consolidate the controlled entity. FIN 46 applies to
variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest
in after that date. The Company does not expect that the adoption of
FIN 46 will have a material impact on its consolidated 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 2002. Such reclassifications include an adjustment to
increase operating revenues and direct expenses by $5.4 million and
$4.8 million for the years ended December 31, 2001 and 2000,
respectively. This reclassification did not affect income (loss) before
taxes, net earnings (loss), or earnings (loss) per share for any
periods.

(2) SPECIAL CHARGES

Special Charges recorded in the year ended December 31, 2000 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, 2002 and December 31, 2001,
the Company carried a liability of $0.3 million and $0.3 million
respectively, for the remainder of the severance. The Company expects
to pay the remaining severance liability, covering two employees, over
the next eight months.

31

(3) PROPERTY AND EQUIPMENT

The following table summarizes the Company's property and equipment at
December 31, 2002 and December 31, 2001.

Property and equipment at December 31, 2002 and 2001 included aircraft
with a net book value of $4.3 million and $5.8 million, respectively
that was held for sale.

During 2002, the Company used $118.1 million of proceeds from the
issuance of the Notes to acquire aircraft that it had previously
leased.

(4) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt and capital lease obligations at December 31, 2002 and
December 31, 2001 consisted of the following:

Maturities of long-term debt are as follows:

32

On April 23, 2002, the Company issued Senior Unsecured Notes (the
"Notes") of $200 million that have an interest rate of 9 3/8% payable
semi-annually on May 1 and November 1 of each year, beginning November
1, 2002, and mature in May 2009. The Notes contain certain covenants,
including limitations on indebtedness, liens, dividends, repurchases of
capital stock and other payments affecting restricted subsidiaries,
issuance and sales of restricted subsidiary stock, dispositions of
proceeds of asset sales, and mergers and consolidations or sales of
assets. As of December 31, 2002, the Company was in compliance with
these covenants.

The proceeds of the Notes were used to retire existing bank debt,
interest rate Swap agreements, and to purchase 101 aircraft previously
under lease. As of December 31, 2002, the Company had used $186.3
million of the proceeds as follows (in thousands):

Pay amounts outstanding under the Terminated Loan Agreement:
Revolving credit facility $ 44,500
Term debt facility 16,271
Acquisition of 101 aircraft from leasing companies and
financial institutions:
Capital leases 2,679
Operating leases 115,397
Settlement of interest rate swap agreements 1,575
Fees and expenses related to the issue of the Notes 5,835
-----------
Total $ 186,257
===========

Also on April 23, 2002, the Company entered into a new credit agreement
with a commercial bank for a $50 million revolving credit and letter of
credit facility. The credit agreement permits both prime rate based
borrowings and "LIBOR" rate borrowings plus a spread. The spread for
LIBOR borrowings is from 2.0% to 3.0%. Any amounts outstanding under
the revolving credit facility are due July 31, 2004. The Company will
pay an annual 0.375% commitment fee on the unused portion of the
revolving credit facility. The Company may also obtain letters of
credit issued under the credit facility up to $5.0 million with a
0.125% fee payable on the amount of letters of credit issued. At
December 31, 2002, the Company had no borrowings and a $0.6 million
letter of credit outstanding under the revolving credit facility.

The Company is subject to certain financial covenants under the credit
agreement. These covenants include maintaining certain levels of
working capital and shareholders' equity and contain other provisions
including a restriction on purchases of the Company's stock and payment
of dividends. The credit 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. As of December 31, 2002, the Company was in compliance
with these covenants.

The following table presents the non-cash investing and financing
activities for the years ended December 31, 2002 2001, 2000.

As discussed in Note 1, the Company uses derivative instruments on a
limited basis to manage risks related to interest rates. At December
31, 2001, the Company had interest rate Swap agreements, which were
contracts to fix interest rates associated with the Company's bank
debt, with notional amounts totaling $40.0 million that served to
convert an equal amount of variable rate long-term debt to fixed rates.
The Swap agreements were scheduled to mature in 2003 and required the
Company to pay a weighted-average interest rate of 5.78% over their

33

composite lives and to receive a variable rate, which was 4.77% at
December 31, 2001. Using the accrual/settlement method of accounting,
the Company recorded 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 $0.5 million, $0.6 million,
and $0.3 million, for years ended December 31, 2002, 2001, and 2000,
respectively. On April 23, 2002, the Company settled its outstanding
interest rate Swap agreements for $1.6 million.

Cash paid for interest, net of amounts paid or received in connection
with the interest rate Swap agreements, was $11.9 million, $6.6
million, and $5.8 million, for the years ended December 31, 2002, 2001,
and 2000, respectively.

(5) INCOME TAXES

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

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:

34

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001 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, 2002 and
2001, other current assets include $3.4 million and $4.1 million,
respectively, of deferred tax assets.

For Federal income tax purposes, the Company has foreign tax credits of
approximately $1.2 million, which expire in 2005 through 2007. The
Company also has net operating loss carryforwards ("NOLs"), of
approximately $9.8 million that, if not used will expire in 2022.
Additionally, for state income tax purposes, the Company has NOLs of
approximately $13.6 million available to reduce future state income
taxable income. These NOLs expire in varying amounts beginning in 2011
through 2022.

Income taxes paid were approximately $4.6 million, $0.6 million and
$4.9 million, for the years ended December 31, 2002, 2001 and 2000,
respectively. The Company received net income tax refunds of
approximately $1.6 million, $0.2 million and $2.2 million during the
years ended December 31, 2002, 2001 and 2000, respectively.

35

(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 2% for every 1% of an
employee's salary deferral contribution, not to exceed 3% of the
employee's compensation. The Company's contributions were $4.5 million
for the years ended December 31, 2002 and December 31, 2001, and $4.1
million for the year ended December 31, 2000.

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
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 Company recorded the following plan costs for the years
ended December 31, 2002, 2001, and 2000.

The benefit obligation, funded status, assumptions of the plan on
December 31, 2002 and 2001 were as follows:

The SERP plan is an unfunded arrangement. 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. During
each of the years ended December 31, 2002, 2001, and 2000, the Company
recorded expenses of less than $0.1 million related to the life
insurance contracts. Cash values of the life insurance contracts,
recorded in other assets, are $0.4 million at December 31, 2002 and
2001.

36

The Company maintains an Officer Deferred Compensation Plan that
permits key officers to defer a portion of their compensation. The plan
is nonqualified and unfunded. However, the Company has established a
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. Liabilities for the plan are included in other long-term
liabilities, and the corresponding book reserve accounts are included
in other assets. Aggregate amounts deferred under the plans at December
31, 2002 and 2001 are $0.6 million and $0.8 million, respectively.

In 2002, the Company terminated its Director Deferred Compensation
Plan. The unfunded plan permitted all directors to defer a portion of
their compensation. At December 31, 2001, other long-term liabilities
included $0.1 million for amounts payable under the plan, which the
Company paid in 2002.

Stock Based Compensation

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 prices of the stock
option grants are equal to the fair market value of the underlying
stock at the date of grant. The 1995 Plan also allows awards under the
plan to fully vest upon a change in control of the Company. In
September of 2001, the Company underwent a change of control as defined
in the 1995 plan and as a result, all awards issued prior to the change
of control became fully vested.

During the year ended December 31, 2001, the Company granted 20,000
non-voting restricted shares and 150,000 non-voting stock options under
the 1995 Plan. The non-voting restricted shares had a fair value of
$11.06 on the date of issue and became unrestricted during 2001. The
non-voting stock options are 100% vested and expire on September 1,
2010. During the years ended December 31, 2002 and December 31, 2000,
the Company did not issue any shares, options or rights under the 1995
Plan.

At December 31, 2002, there were 116,520 voting shares and 190,876
non-voting shares available for issuance under the 1995 Plan. The
Company recorded $0.3 million of compensation expense related to the
1995 Plan in each of the years ended December 31, 2002 and 2001 and
$0.1 million of compensation expense related to the 1995 Plan in the
year ended December 31, 2000. There was no unearned stock compensation
expense at December 31, 2002.

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.
The Company issued no stock options under the plan during 2001. During
the year ended December 31, 2000, the Company issued 4,165 options to
purchase non-voting common stock.

37

The following table summarizes employee and director stock option
activities for the years ended December 31, 2002, 2001, and 2000. 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.

The following table summarizes information about stock options
outstanding as of December 31, 2002. All of the outstanding stock
options are exercisable.

(1) Weighted Average

Incentive Compensation

During 2002, the Company implemented an incentive plan for
non-executive and non-represented employees. The plan allows the
Company to pay up to 7% of earnings before tax, net of incentive
compensation. Pursuant to the incentive plan for non-executives, the
Company recorded $0.9 million of compensation expense in 2002 and a
related liability in accrued liabilities at December 31, 2002.

During 2002, the Company recorded $1.1 million of compensation expense
for a discretionary incentive bonus paid to certain executive
employees.

38

For the year ended December 31, 2001, the Company recorded $1.3 million
of compensation expense for a discretionary incentive bonus it paid in
2002 to non-represented employees.

(7) OTHER ASSETS

The following table summarizes the Company's other assets at December
31, 2002 and 2001.

In December 2000, the Company initiated discussions to exit its 50%
ownership interest in Clintondale Aviation, Inc. ("Clintondale"), a New
York corporation that operated helicopters and fixed-wing aircraft
primarily in Kazakhstan. PHI also leased four aircraft to 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.
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. The promissory note was 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 the note receivable.

During 2002, the Company entered into a final agreement and received
$1.2 million from Clintondale, resulting in a settlement that was $0.7
million better than previously estimated, which is included in the
results of operations (in "Other") during 2002.

The Company maintained security deposits with lessors for aircraft it
previously leased. The security deposits were refunded to the Company
with the purchase of those aircraft in 2002.

During 2001, the Company funded $4.0 million of the construction cost
of a new principal operating facility leased by the Company. The lease
provides that the amounts funded by PHI will reduce PHI's monthly lease
payments ratably for the first 10 years of the lease. The unamortized
balance is presented in the table above as prepaid rent and will
amortize ratably through 2011.

39

(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, 2002 and December 2001. The table excludes cash and cash
equivalents, accounts receivable, accounts payable, and accrued
liabilities, all of which had fair values approximating carrying
amounts.

At December 31, 2002, the fair value of long-term debt is based on
quoted market indications. At December 2001, the fair value of
long-term debt and capital lease obligations approximates its carrying
amount. The fair value of the interest rate Swap agreements is an
estimate based on quotes from counterparties and approximates the
amount that the Company would pay to cancel the contracts on the
reporting date. Effective January 1, 2001, the Company began accounting
for its interest rate Swap agreements in accordance with SFAS No. 133,
as amended, and recorded the fair market value of the Swap agreements
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:

During 2002, the Company acquired 99 aircraft that it had previously
leased under operating leases. See Notes 3 and 4. 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 reduces PHI's monthly lease
payments and expense ratably through 2011. The unamortized balance at
December 31, 2002 is $3.7 million. The lease expires in 2021 and has
three five-year renewal options.

40

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 $1.5 million as of December 31, 2002 for environmental
remediation costs that are probable and estimable. In the fourth
quarter of 2002, the Company reduced its recorded estimated liability
by $0.3 million as the result of a 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
vacated in 2001, 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.

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 the
Company's consolidated financial statements.

Purchase Commitments - At December 31, 2002, the Company had
commitments of $7.9 million for the upgrade of certain aircraft,
building construction, and purchase of other equipment. The Company
expects to complete the purchase commitments during 2003.

(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, and certain US
governmental agencies. The Aeromedical

41

segment provides helicopter services to hospitals and medical programs
in several U.S. states. The Company's Air Evac subsidiary is included
in the Aeromedical segment. The Technical Services segment provides
helicopter repair and overhaul services for existing flight operations
customers and for an existing long-term contract with one customer.

Effective July 1, 2002, the Company no longer allocates interest
expense to its segments when evaluating operating performance. All
results prior to July 1, 2002 have been restated to remove interest
expense from the segment operating results.

The following table shows information about the profit or loss and
assets of each of the Company's reportable segments for the years ended
December 31, 2002, 2001, and 2000. The information contains certain
allocations, including allocations of depreciation, rents, insurance,
and overhead expenses that the Company deems reasonable and appropriate
for the evaluation of results of operations. The Company does not
allocate gains on dispositions of property and equipment, equity in
losses of unconsolidated subsidiaries, other income, interest expense,
and corporate selling, general, and administrative costs to the
segments. Where applicable, the tables present the unallocated amounts
to reconcile the totals to the Company's consolidated financial
statements. Segment assets are determined by where they are situated at
period-end. Corporate assets are principally cash and cash equivalents,
short-term investments, other current assets, and certain property,
plant, and equipment.

(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.

(3) Includes the acquisition of aircraft from leasing companies
and financial institutions as discussed in Note 4.

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) RELATED PARTY TRANSACTIONS

In 2002, the Company leased a fixed wing aircraft from Al A. Gonsoulin,
Chairman of the Board, for total lease payments of $386,000. In the
latter part of 2002, the Company purchased the aircraft from Mr.
Gonsoulin for $695,000. The purchase of the aircraft was reviewed and
approved by the Audit Committee.

43

(12) QUARTERLY FINANCIAL DATA (UNAUDITED)

The summarized quarterly results of operations for the years ended
December 31, 2002 and December 31, 2001 (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.

(13) SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On April 23, 2002, the Company issued Notes of $200 million that are
fully and unconditionally guaranteed on a senior basis, jointly and
severally, by all of the Company's existing operating subsidiaries
("Guarantor Subsidiaries").

The following supplemental condensed financial information sets forth,
on a consolidating basis, the balance sheet, statement of operations,
and statement of cash flows information for Petroleum Helicopters, Inc.
("Parent Company Only") and the Guarantor Subsidiaries. The principal
eliminating entries eliminate investments in subsidiaries, intercompany
balances, and intercompany revenues and expenses.

44

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

45

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

46

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)

47

PETROLEUM HELICOPTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(THOUSANDS OF DOLLARS)

48

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

49

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

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

None.

50

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 information statement in connection with
its 2003 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 information statement in connection with its 2003 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 information statement in connection with its 2003 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 information statement in connection with its 2003 Annual
Meeting of Shareholders and is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and
procedures (as is defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) as of a date
within 90 days before the filing date of this report (the "Evaluation
Date"). Based on such evaluation, such officers have concluded that, as
of the Evaluation Date, the Company's disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic filings
under the Exchange Act.

Since the Evaluation Date, there have not been any significant changes
in the Company's internal controls or in other factors that could
significantly affect such controls.

PART IV

ITEM 15. 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, 2002 and
December 31, 2001. Consolidated Statements of Operations
for the years ended December 31, 2002, December 31,
2001, and December 31, 2000.
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, December 31, 2001, and December
31, 2000.
Notes to Consolidated Financial Statements.

51

2. Financial Statement Schedules
Schedule II - Valuation and Qualifying accounts for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.

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 March 31,
2002).

4 Instruments defining the rights of security holders, including
indentures

4.1 Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.1
to PHI's Registration Statement on Form S-4, filed on April
30, 2002, File Nos. 333-87288 through 333-87288-08).

4.2 Form of 9 3/8% Senior Note (incorporated by reference to
Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed
on April 30, 2002, File Nos. 333-87288 through 333-87288-08).

4.3 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc.,
Evangeline Airmotive, Inc., and International Helicopter
Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the
quarterly period ended June 30, 2002).

10 Material Contracts

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

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

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

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

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

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

10.9 Employment letter agreement between PHI and Lance F. Bospflug
dated August 24, 2000 (incorporated by reference to Exhibit
10.22 to PHI's Report on Form 10-KA dated December 31, 2001).

21 Subsidiaries of the Registrant

23.1 Consent of Deloitte & Touche LLP

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Lance F. Bospflug, Chief Executive Officer.

52

99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Michael J. McCann, Chief Financial Officer.

(b) Reports on Form 8-K

None.

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

53

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.

54

CERTIFICATIONS

I, Lance F. Bospflug, certify that:

1. I have reviewed this annual report on Form 10-K of Petroleum
Helicopters, Inc.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 31, 2003

By: /s/ Lance F. Bospflug
----------------------------------------
Lance F. Bospflug
President & Chief Executive Officer

55

I, Michael J. McCann, certify that:

1. I have reviewed this annual report on Form 10-K of Petroleum
Helicopters, Inc.

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: March 31, 2003

By: /s/ Michael J. McCann
----------------------------------------
Michael J. McCann
Chief Financial Officer and Treasurer

56

EXHIBIT INDEX

(a) 1. Financial Statements
Included in Part II of this report:
Independent Auditors' Reports.
Consolidated Balance Sheets - December 31, 2002 and
December 31, 2001. Consolidated Statements of Operations
for the years ended December 31, 2002, December 31,
2001, and December 31, 2000.
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, December 31, 2001, and December
31, 2000.
Notes to Consolidated Financial Statements.

2. Financial Statement Schedules
Schedule II - Valuation and Qualifying accounts for the
years ended December 31, 2002, December 31, 2001, and
December 31, 2000.

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 March 31,
2002).

4 Instruments defining the rights of security holders, including
indentures

4.1 Indenture dated April 23, 2002 among Petroleum Helicopters,
Inc., the Subsidiary Guarantors named therein and The Bank of
New York, as Trustee (incorporated by reference to Exhibit 4.1
to PHI's Registration Statement on Form S-4, filed on April
30, 2002, File Nos. 333-87288 through 333-87288-08).

4.2 Form of 9 3/8% Senior Note (incorporated by reference to
Exhibit 4.1 to PHI's Registration Statement on Form S-4, filed
on April 30, 2002, File Nos. 333-87288 through 333-87288-08).

4.3 Loan Agreement dated as of April 23, 2002 by and among
Petroleum Helicopters, Inc., Air Evac Services, Inc.,
Evangeline Airmotive, Inc., and International Helicopter
Transport, Inc. and Whitney National Bank (incorporated by
reference to Exhibit 10.3 to PHI's Report on Form 10-Q for the
quarterly period ended June 30, 2002).

10 Material Contracts

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

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

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

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

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

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

10.9 Employment letter agreement between PHI and Lance F. Bospflug
dated August 24, 2000 (incorporated by reference to Exhibit
10.22 to PHI's Report on Form 10-KA dated December 31, 2001).

21 Subsidiaries of the Registrant

23.1 Consent of Deloitte & Touche LLP

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Lance F. Bospflug, Chief Executive Officer.

99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Michael J. McCann, Chief Financial Officer.