14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In September 2010, PHI, Inc. issued $300 million of 8.625% Senior Notes due 2018 that are fully and unconditionally guaranteed on a joint and several, senior basis by all of our domestic subsidiaries. All of our domestic subsidiaries are 100% owned.

The following supplemental condensed financial information on the following pages sets forth, on a consolidated basis, the balance sheet, statement of operations, statement of comprehensive income, and statement of cash flows information for PHI, Inc. (“Parent Company Only”) and the guarantor subsidiaries. The eliminating entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenues and expenses. The condensed consolidating financial statements have been prepared on the same basis as the consolidated financial statements of PHI, Inc. The equity method is followed by the parent company within the financial information presented below.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)


	September 30, 2013
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	598		$	1,298	$	—		$	1,896
Short-term investments		77,238			—		—			77,238
Accounts receivable – net		86,478			92,029		—			178,507
Intercompany receivable		139,531			—		(139,531	)		—
Inventories of spare parts – net		69,557			127		—			69,684
Prepaid expenses		7,611			2,373		—			9,984
Work in progress		77,921			—		—			77,921
Deferred income taxes		11,966			—		—			11,966
Income taxes receivable		1,392			231		—			1,623

Total current assets		472,292			96,058		(139,531	)		428,819

Investment in subsidiaries		110,101			—		(110,101	)		—
Property and equipment – net		581,580			200,667		—			782,247
Restricted investments		14,685			—		—			14,685
Other assets		13,172			242		—			13,414

Total assets	$	1,191,830		$	296,967	$	(249,632	)	$	1,239,165

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	23,582		$	4,289	$	—		$	27,871
Accrued and other current liabilities		119,946			14,767		—			134,713
Intercompany payable		—			139,531		(139,531	)		—

Total current liabilities		143,528			158,587		(139,531	)		162,584

Long-term debt		388,265			—		—			388,265
Deferred income taxes and other long-term liabilities		117,642			28,279		—			145,921
Shareholders’ Equity:
Common stock and paid-in capital		297,754			2,674		(2,674	)		297,754
Accumulated other comprehensive loss		(43	)		—		—			(43	)
Retained earnings		244,684			107,427		(107,427	)		244,684

Total shareholders’ equity		542,395			110,101		(110,101	)		542,395

Total liabilities and shareholders’ equity	$	1,191,830		$	296,967	$	(249,632	)	$	1,239,165

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)


	December 31, 2012
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	552		$	2,297	$	—		$	2,849
Short-term investments		50,601			—		—			50,601
Accounts receivable – net		80,148			61,005		—			141,153
Intercompany receivable		115,300			—		(115,300	)		—
Inventories of spare parts – net		65,951			123		—			66,074
Prepaid expenses		8,354			1,783		—			10,137
Work in progress		77,764			—		—			77,764
Other current assets		988			—		—			988
Deferred income taxes		11,967			—		—			11,967
Income taxes receivable		1,395			218		—			1,613

Total current assets		413,020			65,426		(115,300	)		363,146

Investment in subsidiaries		96,706			—		(96,706	)		—
Property and equipment, net		559,686			189,815		—			749,501
Restricted investments		14,685			—		—			14,685
Other assets		19,726			836		—			20,562

Total assets	$	1,103,823		$	256,077	$	(212,006	)	$	1,147,894

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	21,188		$	5,120	$	—		$	26,308
Accrued and other current liabilities		105,875			11,287		—			117,162
Intercompany payable		—			115,300		(115,300	)		—

Total current liabilities		127,063			131,707		(115,300	)		143,470

Long-term debt		386,755			—		—			386,755
Deferred income taxes and other long-term liabilities		90,390			27,664		—			118,054
Shareholders’ Equity:
Common stock and paid-in capital		297,113			2,674		(2,674	)		297,113
Accumulated other comprehensive loss		(51	)		—		—			(51	)
Retained earnings		202,553			94,032		(94,032	)		202,553

Total shareholders’ equity		499,615			96,706		(96,706	)		499,615

Total liabilities and shareholders’ equity	$	1,103,823		$	256,077	$	(212,006	)	$	1,147,894

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)


	For the quarter ended September 30, 2013
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	125,160		$	75,602		$	—		$	200,762

Expenses:
Direct expenses		98,669			62,062			—			160,731
Selling, general and administrative expenses		7,365			2,420			—			9,785
Management fees		(3,024	)		3,024			—			—

Total operating expenses		103,010			67,506			—			170,516

Gain on disposal of assets, net		(1,380	)		(19	)		—			(1,399	)
Equity in income of unconsolidated affiliate		(172	)		—			—			(172	)

Operating income		23,702			8,115			—			31,817

Equity in net income of consolidated subsidiaries		(4,787	)		—			4,787			—
Interest expense		7,631			137			—			7,768
Other income, net		(163	)		—			—			(163	)

		2,681			137			4,787			7,605

Earnings before income taxes		21,021			7,978			(4,787	)		24,212
Income tax expense		7,244			3,191			—			10,435

Net earnings	$	13,777		$	4,787		$	(4,787	)	$	13,777


	For the quarter ended September 30, 2012
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	109,255		$	61,602		$	—		$	170,857

Expenses:
Direct expenses		92,980			48,726			—			141,706
Selling, general and administrative expenses		7,995			1,789			—			9,784
Management fees		(2,464	)		2,464			—			—

Total operating expenses		98,511			52,979			—			151,490

Gain on disposal of assets, net		701			—			—			701

Operating income		10,043			8,623			—			18,666

Equity in net income of consolidated subsidiaries		(5,174	)		—			5,174			—
Interest expense		7,488			—			—			7,488
Other income, net		(262	)		—			—			(262	)

		2,052			—			5,174			7,226

Earnings before income taxes		7,991			8,623			(5,174	)		11,440
Income tax expense		1,607			3,449			—			5,056

Net earnings	$	6,384		$	5,174		$	(5,174	)	$	6,384

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2013
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	354,453		$	220,820		$	—		$	575,273

Expenses:
Direct expenses		285,661			182,767			—			468,428
Selling, general and administrative expenses		21,719			6,356			—			28,075
Management fees		(8,833	)		8,833			—			—

Total operating expenses		298,547			197,956			—			496,503

Gain on disposal of assets, net		(16,056	)		(19	)		—			(16,075	)
Impairment of assets		—			421			—			421
Equity in loss of unconsolidated affiliate		911			—			—			911

Operating income		71,051			22,462			—			93,513
Equity in net income of consolidated subsidiaries		(13,395	)		—			13,395			—
Interest expense		22,297			137			—			22,434
Other income, net		(388	)		—			—			(388	)

		8,514			137			13,395			22,046

Earnings before income taxes		62,537			22,325			(13,395	)		71,467
Income tax expense		20,406			8,930			—			29,336

Net earnings	$	42,131		$	13,395		$	(13,395	)	$	42,131


	For the nine months ended September 30, 2012
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Operating revenues, net	$	303,623		$	165,839	$	—		$	469,462

Expenses:
Direct expenses		260,796			133,700		—			394,496
Selling, general and administrative expenses		22,942			5,350		—			28,292
Management fees		(6,634	)		6,634		—			—

Total operating expenses		277,104			145,684		—			422,788

Gain on disposal of assets, net		11			—		—			11

Operating income		26,508			20,155		—			46,663

Equity in net income of consolidated subsidiaries		(12,086	)		—		12,086			—
Interest expense		22,116			12		—			22,128
Other income, net		(625	)		—		—			(625	)

		9,405			12		12,086			21,503

Earnings before income taxes		17,103			20,143		(12,086	)		25,160
Income tax expense		2,487			8,057		—			10,544

Net earnings	$	14,616		$	12,086	$	(12,086	)	$	14,616

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	For the quarter ended September 30, 2013
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	13,777		$	4,787	$	(4,787	)	$	13,777
Unrealized gain on short-term investments		37			—		—			37
Changes in pension plan assets and benefit obligations		—			—		—			—

	$	13,814		$	4,787	$	(4,787	)	$	13,814


	For the quarter ended September 30, 2012
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	6,384		$	5,174	$	(5,174	)	$	6,384
Unrealized loss on short-term investments		(18	)		—		—			(18	)
Changes in pension plan assets and benefit obligations		(2	)		—		—			(2	)

	$	6,364		$	5,174	$	(5,174	)	$	6,364

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2013
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	42,131		$	13,395	$	(13,395	)	$	42,131
Unrealized gain on short-term investments		14			—		—			14
Changes in pension plan assets and benefit obligations		(6	)		—		—			(6	)

	$	42,139		$	13,395	$	(13,395	)	$	42,139

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2012
	Parent
	Company			Guarantor
	Only			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	14,616		$	12,086	$	(12,086	)	$	14,616
Unrealized gain on short-term investments		49			—		—			49
Changes in pension plan assets and benefit obligations		(14	)		—		—			(14	)

	$	14,651		$	12,086	$	(12,086	)	$	14,651

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2013
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	69,104		$	(999	)	$	—	$	68,105

Investing activities:
Purchase of property and equipment		(86,092	)		—			—		(86,092	)
Proceeds from asset dispositions		39,822			—			—		39,822
Purchase of short-term investments		(314,519	)		—			—		(314,519	)
Proceeds from sale of short-term investments		287,043			—			—		287,043
Deposits returned on aircraft		6,908			—			—		6,908
Deposits paid on aircraft		(2,693	)		—			—		(2,693	)

Net cash used in investing activities		(69,531	)		—			—		(69,531	)

Financing activities:
Proceeds from line of credit		101,273			—			—		101,273
Payments on line of credit		(99,763	)		—			—		(99,763	)
Repurchase of common stock for payroll tax withholding requirements		(1,037	)		—			—		(1,037	)

Net cash provided by financing activities		473			—			—		473

Increase (decrease) in cash		46			(999	)		—		(953	)
Cash, beginning of period		552			2,297			—		2,849

Cash, end of period	$	598		$	1,298		$	—	$	1,896


	For the nine months ended September 30, 2012
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations		Consolidated
Net cash provided by operating activities	$	25,632		$	404		$	—	$	26,036

Investing activities:
Purchase of property and equipment		(83,187	)		—			—		(83,187	)
Proceeds from asset dispositions		9,702			—			—		9,702
Purchase of short-term investments		(167,952	)		—			—		(167,952	)
Proceeds from sale of short-term investments		194,957			—			—		194,957
Deposits returned on aircraft		5,369			—			—		5,369
Deposits paid on aircraft		(11,176	)		—			—		(11,176	)

Net cash used in investing activities		(52,287	)		—			—		(52,287	)

Financing activities:
Proceeds from line of credit		91,863			—			—		91,863
Payments on line of credit		(68,915	)		—			—		(68,915	)

Net cash provided by financing activities		22,948			—			—		22,948

(Decrease) increase in cash		(3,707	)		404			—		(3,303	)
Cash, beginning of period		4,313			778			—		5,091

Cash, end of period	$	606		$	1,182		$	—	$	1,788

(1)	Foreign subsidiaries represent minor subsidiaries and are included in the guarantors’ subsidiaries amounts.