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)


	September 30, 2014
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	51		$	3,065	$	—		$	3,116
Short-term investments		185,379			—		—			185,379
Accounts receivable – net		95,733			107,103		—			202,836
Intercompany receivable		50,651			—		(50,651	)		—
Inventories of spare parts – net		66,528			7,916		—			74,444
Prepaid expenses		8,841			1,998		—			10,839
Deferred income taxes		12,723			—		—			12,723
Income taxes receivable		713			510		—			1,223

Total current assets		420,619			120,592		(50,651	)		490,560

Investment in subsidiaries		214,025			—		(214,025	)		—
Property and equipment – net		661,184			215,133		—			876,317
Restricted investments		15,485			—		—			15,485
Other assets		18,239			193		—			18,432

Total assets	$	1,329,552		$	335,918	$	(264,676	)	$	1,400,794

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	24,788		$	6,205	$	—		$	30,993
Accrued and other current liabilities		30,682			18,100		—			48,782
Intercompany payable		—			50,551		(50,551	)		—

Total current liabilities		55,470			74,856		(50,551	)		79,775

Long-term debt		581,604			—		—			581,604
Deferred income taxes and other long-term liabilities		104,177			46,937		—			151,114
Shareholders’ Equity:
Common stock and paid-in capital		301,592			3,186		(3,186	)		301,592
Accumulated other comprehensive loss		(96	)		—		—			(96	)
Retained earnings		286,805			210,939		(210,939	)		286,805

Total shareholders’ equity		588,301			214,125		(214,125	)		588,301

Total liabilities and shareholders’ equity	$	1,329,552		$	335,918	$	(264,676	)	$	1,400,794

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


	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 September 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	128,580		$	87,714		$	—		$	216,294

Expenses:
Direct expenses		105,327			65,208			(4	)		170,531
Selling, general and administrative Expenses		8,597			2,306			—			10,903

Total operating expenses		113,924			67,514			(4	)		181,434

Loss on disposal of assets, net		56			—			—			56
Equity in income of unconsolidated affiliate		(319	)		—			—			(319	)

Operating income		14,919			20,200			4			35,123

Equity in net income of consolidated subsidiaries		(12,333	)		—			12,333			—
Interest expense		7,082			2			—			7,084
Other income, net		(226	)		(16	)		4			(238	)

		(5,477	)		(14	)		12,337			6,846

Earnings before income taxes		20,396			20,214			(12,333	)		28,277
Income tax expense		3,147			7,881			—			11,028

Net earnings	$	17,249		$	12,333		$	(12,333	)	$	17,249


	For the quarter ended September 30, 2013
	Parent Company Only			Guarantor 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

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


	For the nine months ended September 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	375,326		$	250,184		$	—		$	625,510

Expenses:
Direct expenses		304,668			194,886			(13	)		499,541
Selling, general and administrative expenses		24,307			7,584			—			31,891

Total operating expenses		328,975			202,470			(13	)		531,432

Loss on disposal of assets, net		1,371			—			—			1,371
Equity in income of unconsolidated affiliate		(213	)		—			—			(213	)

Operating income		45,193			47,714			13			92,920

Equity in net income of consolidated subsidiaries		(29,118	)		—			29,118			—
Interest expense		22,119			2			—			22,121
Loss on debt extinguishment		29,833			—			—			29,833
Other income, net		(495	)		(16	)		13			(498	)

		22,339			(14	)		29,131			51,456

Earnings before income taxes		22,854			47,728			(29,118	)		41,464
Income tax expense		(2,442	)		18,610			—			16,168

Net earnings	$	25,296		$	29,118		$	(29,118	)	$	25,296


	For the nine months ended September 30, 2013
	Parent Company Only			Guarantor 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

(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, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	17,249		$	12,333	$	(12,333	)	$	17,249

Unrealized loss on short-term investments		(165	)		—		—			(165	)

Changes in pension plan assets and benefit obligations		(1	)		—		—			(1	)

Tax effect		64			—		—			64

Total Comprehensive Income	$	17,147		$	12,333	$	(12,333	)	$	17,147


	For the quarter ended September 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	13,777		$	4,787	$	(4,787	)	$	13,777

Unrealized gain on short-term investments		61			—		—			61

Changes in pension plan assets and benefit obligations		—			—		—			—

Tax effect		(24	)		—		—			(24	)

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

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


	For the nine months ended September 30, 2014
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	25,296		$	29,118	$	(29,118	)	$	25,296

Unrealized gain on short-term investments		(126	)		—		—			(126	)

Changes in pension plan assets and benefit obligations		9			—		—			9

Tax effect		45			—		—			45

Total Comprehensive Income	$	25,224		$	29,118	$	(29,118	)	$	25,224


	For the nine months ended September 30, 2013
	Parent Company Only			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	42,131		$	13,395	$	(13,395	)	$	42,131

Unrealized gain on short-term investments		23			—		—			23

Changes in pension plan assets and benefit obligations		(10	)		—		—			(10	)

Tax effect		(5	)		—		—			(5	)

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

(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, 2014
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Net cash provided by operating activities	$	30,206		$	25,879		$	—		$	56,085

Investing activities:
Purchase of property and equipment		(131,478	)		—			—			(131,478	)
Proceeds from asset dispositions		7,171			—			—			7,171
Purchase of short-term investments		(439,745	)		—			—			(439,745	)
Proceeds from sale of short-term investments		338,253			—			—			338,253
Refund of deposits on aircraft		9,506			—			—			9,506
Payments of deposits on aircraft		(6,882	)		—			—			(6,882	)
Loan to unconsolidated affiliate		(175	)		—			—			(175	)
Receivables due from affiliate		23,696			—			(23,696	)		—

Net cash used in investing activities		(199,654	)		—			(23,696	)		(223,350	)

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		(6,232	)		—			—			(6,232	)
Proceeds from line of credit		205,604			—			—			205,604
Payments on line of credit		(203,000	)		—			—			(203,000	)
Repurchase of common stock for payroll tax withholding requirements		(176	)		—			—			(176	)
Payable due to affiliate		—			(23,696	)		23,696			—

Net cash provided by financing activities		169,447			(23,696	)		23,696			169,447

Increase in cash		(1	)		2,183			—			2,182
Cash, beginning of period		52			882			—			934

Cash, end of period	$	51		$	3,065		$	—		$	3,116

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


	For the nine months ended September 30, 2013
	Parent Company Only (issuer)			Guarantor 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

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