13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed further in Note 5, on March 17, 2014, PHI, Inc. issued $500 million of 5.25% Senior Notes due 2019 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)


	June 30, 2014
	Parent Company Only (issuer)		Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	2,374	$	20,243		$	—		$	22,617
Short-term investments		135,796		—			—			135,796
Accounts receivable – net		92,572		87,920			—			180,492
Intercompany receivable		156,975		—			(156,975	)		—
Inventories of spare parts – net		66,530		6,788			—			73,318
Prepaid expenses		8,096		2,221			—			10,317
Deferred income taxes		12,723		—			—			12,723
Income taxes receivable		711		510			—			1,221

Total current assets		475,777		117,682			(156,975	)		436,484
Investment in subsidiaries		125,119		—			(125,119	)		—
Property and equipment – net		604,416		218,326			—			822,742
Restricted investments		15,485		—			—			15,485
Other assets		22,513		(719	)		—			21,794

Total assets	$	1,243,310	$	335,289		$	(282,094	)	$	1,296,505

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	25,756	$	7,777		$	—		$	33,533
Accrued and other current liabilities		34,048		14,497			—			48,545
Intercompany payable		—		156,975			(156,975	)		—

Total current liabilities		59,804		179,249			(156,975	)		82,078
Long-term debt		500,000		—			—			500,000
Deferred income taxes and other long-term liabilities		113,910		30,921			—			144,831
Shareholders’ Equity:
Common stock and paid-in capital		300,034		2,674			(2,674	)		300,034
Accumulated other comprehensive loss		6		—			—			6
Retained earnings		269,556		122,445			(122,445	)		269,556

Total shareholders’ equity		569,596		125,119			(125,119	)		569,596

Total liabilities and shareholders’ equity	$	1,243,310	$	335,289		$	(282,094	)	$	1,296,505

(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, 2013
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	52		$	882		$	—		$	934
Short-term investments		85,916			—			—			85,916
Accounts receivable – net		83,988			89,732			—			173,720
Intercompany receivable		129,026			—			(129,026	)		—
Inventories of spare parts – net		71,023			114			—			71,137
Prepaid expenses		6,441			1,916			—			8,357
Deferred income taxes		12,723			—			—			12,723
Income taxes receivable		1,361			510			—			1,871

Total current assets		390,530			93,154			(129,026	)		354,658
Investment in subsidiaries		112,273			—			(112,273	)		—
Property and equipment, net		579,369			206,103			—			785,472
Restricted investments		14,685			—			—			14,685
Other assets		19,111			(603	)		—			18,508

Total assets	$	1,115,968		$	298,654		$	(241,299	)	$	1,173,323

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	31,232		$	5,642		$	—		$	36,874
Accrued liabilities		31,330			23,201			—			54,531
Intercompany payable		—			129,026			(129,026	)		—

Total current liabilities		62,562			157,869			(129,026	)		91,405
Long-term debt		379,000			—			—			379,000
Deferred income taxes and other long-term liabilities		114,441			28,512			—			142,953
Shareholders’ Equity:
Common stock and paid-in capital		298,480			2,674			(2,674	)		298,480
Accumulated other comprehensive loss		(24	)		—			—			(24	)
Retained earnings		261,509			109,599			(109,599	)		261,509

Total shareholders’ equity		559,965			112,273			(112,273	)		559,965

Total liabilities and shareholders’ equity	$	1,115,968		$	298,654		$	(241,299	)	$	1,173,323

(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 June 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	122,392		$	89,753		$	—		$	212,145

Expenses:
Direct expenses		102,915			67,442			—			170,357
Selling, general and administrative expenses		8,629			3,031			—			11,660
Management fees		(3,590	)		3,590			—			—

Total operating expenses		107,954			74,063			—			182,017

Loss (gain) on disposal of assets, net		1,199			(957	)		—			242
Equity in loss of unconsolidated affiliate		65			—			—			65

Operating income		13,174			16,647			—			29,821

Equity in net income of consolidated subsidiaries		(10,111	)		—			10,111			—
Interest expense		7,673			—			—			7,673
Loss on debt extinguishment		617			—			—			617
Other income, net		(169	)		—			—			(169	)

		(1,990	)		—			10,111			8,121


Earnings before income taxes		15,164			16,647			(10,111	)		21,700
Income tax expense		1,796			6,536			—			8,332

Net earnings	$	13,368		$	10,111		$	(10,111	)	$	13,368


	For the quarter ended June 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	116,808		$	78,735		$	—		$	195,543

Expenses:
Direct expenses		96,106			63,388			—			159,494
Selling, general and administrative expenses		8,022			2,002			—			10,024
Management fees		(5,809	)		5,809			—			—

Total operating expenses		98,319			71,199			—			169,518

Gain on disposal of assets, net		(14,701	)		—			—			(14,701	)
Impairment of assets		—			421			—			421
Equity in loss of unconsolidated affiliate		596			—			—			596

Operating income		32,594			7,115			—			39,709

Equity in net income of consolidated subsidiaries		(4,522	)		—			4,522			—
Interest expense		7,257			—			—			7,257
Other income, net		(73	)		—			—			(73	)

		2,662			—			4,522			7,184


Earnings before income taxes		29,932			7,115			(4,522	)		32,525
Income tax expense		10,163			2,846			—			13,009

Net earnings	$	19,769		$	4,269		$	(4,522	)	$	19,516

(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 six months ended June 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Operating revenues, net	$	246,746		$	162,470	$	—		$	409,216

Expenses:
Direct expenses		199,341			129,669		—			329,010
Selling, general and administrative expenses		15,710			5,278		—			20,988
Management fees		(6,499	)		6,499		—			—

Total operating expenses		208,552			141,446		—			349,998

Loss on disposal of assets, net		1,315			—		—			1,315
Equity in loss of unconsolidated affiliate		106			—		—			106

Operating income		36,773			21,024		—			57,797

Equity in net income of consolidated subsidiaries		(12,846	)		—		12,846			—
Interest expense		15,037			—		—			15,037
Loss on debt extinguishment		29,833			—		—			29,833
Other income, net		(260	)		—		—			(260	)

		31,764			—		12,846			44,610


Earnings before income taxes		5,009			21,024		(12,846	)		13,187
Income tax expense		(3,038	)		8,178		—			5,140

Net earnings	$	8,047		$	12,846	$	(12,846	)	$	8,047


	For the six months ended June 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Operating revenues, net	$	229,293		$	145,218	$	—		$	374,511

Expenses:
Direct expenses		186,992			120,705		—			307,697
Selling, general and administrative expenses		14,354			3,936		—			18,290
Management fees		(5,809	)		5,809		—			—

Total operating expenses		195,537			130,450		—			325,987

Gain on disposal of assets, net		(14,676	)		—		—			(14,676	)
Impairment of assets		—			421		—			421
Equity in loss of unconsolidated affiliate		1,083			—		—			1,083

Operating income		47,349			14,347		—			61,696

Equity in net income of consolidated subsidiaries		(8,861	)		—		8,861			—
Interest expense		14,666			—		—			14,666
Other income, net		(225	)		—		—			(225	)

		5,580			—		8,861			14,441


Earnings before income taxes		41,769			14,347		(8,861	)		47,255
Income tax expense		13,162			5,739		—			18,901

Net earnings	$	28,607		$	8,608	$	(8,861	)	$	28,354

(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 June 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	13,368		$	10,111	$	(10,111	)	$	13,368
Unrealized gain on short-term investments		25			—		—			25
Changes in pension plan assets and benefit obligations		11			—		—			11
Tax effect		(14	)		—		—			(14	)

Total Comprehensive Income	$	13,390		$	10,111	$	(10,111	)	$	13,390


	For the quarter ended June 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	19,516		$	4,522	$	(4,522	)	$	19,516
Unrealized loss on short-term investments		(70	)		—		—			(70	)
Changes in pension plan assets and benefit obligations		(3	)		—		—			(3	)
Tax effect		29			—		—			29

Total Comprehensive Income	$	19,472		$	4,522	$	(4,522	)	$	19,472

(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 six months ended June 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	8,047		$	12,846	$	(12,846	)	$	8,047
Unrealized gain on short-term investments		39			—		—			39
Changes in pension plan assets and benefit obligations		9			—		—			9
Tax effect		(19	)		—		—			(19	)

Total Comprehensive Income	$	8,076		$	12,846	$	(12,846	)	$	8,076


	For the six months ended June 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	28,354		$	8,861	$	(8,861	)	$	28,354
Unrealized loss on short-term investments		(38	)		—		—			(38	)
Changes in pension plan assets and benefit obligations		(10	)		—		—			(10	)
Tax effect		19			—		—			19

Total Comprehensive Income	$	28,325		$	8,861	$	(8,861	)	$	28,325

(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 six months ended June 30, 2014
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations		Consolidated
Net cash provided by operating activities	$	25,935		$	19,361	$	—	$	45,296

Investing activities:
Purchase of property and equipment		(66,887	)		—		—		(66,887	)
Proceeds from asset dispositions		7,170			—		—		7,170
Purchase of short-term investments		(233,606	)		—		—		(233,606	)
Proceeds from sale of short-term investments		182,336			—		—		182,336
Refund of deposits on aircraft		6,473			—		—		6,473
Payments of deposits on aircraft		(6,837	)		—		—		(6,837	)
Loan to unconsolidated affiliate		(200	)		—		—		(200	)

Net cash used in investing activities		(111,551	)		—		—		(111,551	)


Financing activities:
Proceeds from issuance of Senior Notes due 2019		500,000			—		—		500,000
Premium and costs to retire debt early		(26,749	)		—		—		(26,749	)
Repayment of Senior Notes due 2018		(300,000	)		—		—		(300,000	)
Debt issuance costs		(6,137	)		—		—		(6,137	)
Proceeds from line of credit		95,500			—		—		95,500
Payments on line of credit		(174,500	)		—		—		(174,500	)
Repurchase of common stock for payroll tax withholding requirements		(176	)		—		—		(176	)

Net cash provided by financing activities		87,938			—		—		87,938


Increase in cash		2,322			19,361		—		21,683
Cash, beginning of period		52			882		—		934

Cash, end of period	$	2,374		$	20,243	$	—	$	22,617

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	For the six months ended June 30, 2013
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations		Consolidated
Net cash provided by operating activities	$	48,970		$	8,736	$	—	$	57,706

Investing activities:
Purchase of property and equipment		(50,004	)		—		—		(50,004	)
Proceeds from asset dispositions		37,255			—		—		37,255
Deposits returned on aircraft, net		2,579			—		—		2,579
Purchase of short-term investments		(246,375	)		—		—		(246,375	)
Proceeds from sale of short-term investments, net		220,249			—		—		220,249

Net cash used in investing activities		(36,296	)		—		—		(36,296	)


Financing activities:
Proceeds from line of credit		41,965			—		—		41,965
Payments on line of credit		(52,997	)		—		—		(52,997	)
Repurchase of common stock		(1,037	)		—		—		(1,037	)

Net cash used in financing activities		(12,069	)		—		—		(12,069	)


Increase in cash		605			8,736		—		9,341
Cash, beginning of period		552			2,297		—		2,849

Cash, end of period	$	1,157		$	11,033	$	—	$	12,190

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