13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As discussed further in Note 5, on March 17, 2014, PHI, Inc. issued $500.0 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. PHI, Inc. directly or indirectly owns 100% of all of its domestic subsidiaries.

The 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”) and the guarantor subsidiaries under separate headings. 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.

The transactions reflected in “Due to/from affiliates, net” in the following condensed consolidated statements of cash flows primarily consist of centralized cash management activities between PHI, Inc. and its subsidiaries, pursuant to which cash earned by the guarantor subsidiaries is regularly transferred to PHI, Inc. to be centrally managed. Because these balances are treated as short-term borrowings of the Parent Company, serve as a financing and cash management tool to meet our short-term operating needs, turn over quickly and are payable to the guarantor subsidiaries on demand, we present borrowings and repayments with our affiliates on a net basis within the condensed consolidating statement of cash flows. Net receivables from our affiliates are considered advances and net payables to our affiliates are considered borrowings, and both changes are presented as financing activities in the following condensed consolidating statements of cash flows.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)


	September 30, 2016
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	36		$	2,603		$	—		$	2,639
Short-term investments		289,520			—			—			289,520
Accounts receivable – net		64,564			77,911			—			142,475
Intercompany receivable		—			41,796			(41,796	)		—
Inventories of spare parts – net		60,416			8,993			—			69,409
Prepaid expenses		4,412			2,564			—			6,976
Deferred income taxes		10,379			—			—			10,379
Income taxes receivable		950			(87	)		—			863

Total current assets		430,277			133,780			(41,796	)		522,261
Investment in subsidiaries		351,440			—			(351,440	)		—
Property and equipment – net		602,296			314,264			—			916,560
Restricted cash and investments		13,023			15			—			13,038
Other assets		6,181			1,153			—			7,334

Total assets	$	1,403,217		$	449,212		$	(393,236	)	$	1,459,193

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	17,232		$	3,611		$	—		$	20,843
Accrued and other current liabilities		21,894			10,284			—			32,178
Intercompany payable		41,796			—			(41,796	)		—

Total current liabilities		80,922			13,895			(41,796	)		53,021
Long-term debt:
Revolving credit facility		132,400			—			—			132,400
Senior Notes dated March 17, 2014, net of debt issuance costs of $3,064		496,936			—			—			496,936
Deferred income taxes and other long-term liabilities		71,472			83,877			—			155,349
Shareholders’ Equity:
Common stock and paid-in capital		310,259			79,191			(79,191	)		310,259
Accumulated other comprehensive income		(271	)		—			—			(271	)
Retained earnings		311,499			272,249			(272,249	)		311,499

Total shareholders’ equity		621,487			351,440			(351,440	)		621,487

Total liabilities and shareholders’ equity	$	1,403,217		$	449,212		$	(393,236	)	$	1,459,193

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)

(Unaudited)


	December 31, 2015
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	46		$	2,361		$	—		$	2,407
Short-term investments		284,523			—			—			284,523
Accounts receivable – net		70,336			74,442			—			144,778
Intercompany receivable		—			90,943			(90,943	)		—
Inventories of spare parts – net		60,060			9,431			—			69,491
Prepaid expenses		7,162			1,789			—			8,951
Deferred income taxes		10,379			—			—			10,379
Income taxes receivable		1,002			(241	)		—			761

Total current assets		433,508			178,725			(90,943	)		521,290
Investment in subsidiaries		330,848			—			(330,848	)		—
Property and equipment – net		632,759			250,770			—			883,529
Restricted investments		15,336			—			—			15,336
Other assets		5,975			203			—			6,178

Total assets	$	1,418,426		$	429,698		$	(421,791	)	$	1,426,333

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	25,512		$	5,861		$	—		$	31,373
Accrued liabilities		29,138			15,621			—			44,759
Intercompany payable		90,943			—			(90,943	)		—

Total current liabilities		145,593			21,482			(90,943	)		76,132
Long-term debt:
Revolving credit facility		57,500			—			—			57,500
Senior Notes dated March 17, 2014, net of debt issuance costs of $3,999		496,001			—			—			496,001
Deferred income taxes and other long-term liabilities		92,334			77,368			—			169,702
Shareholders’ Equity:
Common stock and paid-in capital		306,444			79,061			(79,061	)		306,444
Accumulated other comprehensive loss		(567	)		—			—			(567	)
Retained earnings		321,121			251,787			(251,787	)		321,121

Total shareholders’ equity		626,998			330,848			(330,848	)		626,998

Total liabilities and shareholders’ equity	$	1,418,426		$	429,698		$	(421,791	)	$	1,426,333

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)


	For the quarter ended September 30, 2016
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	79,532		$	78,561		$	—		$	158,093
Expenses:
Direct expenses		83,188			61,750			—			144,938
Selling, general and administrative expenses		10,639			3,092			(350	)		13,381

Total operating expenses		93,827			64,842			(350	)		158,319
Loss on disposal of assets, net		85			—			—			85
Equity in loss of unconsolidated affiliate		198			—			—			198

Operating income		(14,578	)		13,719			350			(509	)
Equity in net income of consolidated subsidiaries		(8,372	)		—			8,372			—
Interest expense		7,716			3			—			7,719
Other income, net		(812	)		—			350			(462	)

		(1,468	)		3			8,722			7,257

(Loss) earnings before income taxes		(13,110	)		13,716			(8,372	)		(7,766	)
Income tax (benefit) expense		(8,143	)		5,344			—			(2,799	)

Net (loss) earnings	$	(4,967	)	$	8,372		$	(8,372	)	$	(4,967	)


	For the quarter ended September 30, 2015
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	124,505		$	90,228		$	—		$	214,733
Expenses:
Direct expenses		111,876			70,192			(4	)		182,064
Selling, general and administrative expenses		9,219			2,356			—			11,575

Total operating expenses		121,095			72,548			(4	)		193,639
Gain on disposal of assets, net		(165	)		—			—			(165	)
Equity in loss of unconsolidated affiliate		75			—			—			75

Operating income		3,500			17,680			4			21,184
Equity in net income of consolidated subsidiaries		(10,682	)		—			10,682			—
Interest expense		7,274			92			—			7,366
Other income, net		(474	)		(2	)		4			(472	)

		(3,882	)		90			10,686			6,894

Earnings before income taxes		7,382			17,590			(10,682	)		14,290
Income tax (benefit) expense		(287	)		6,908			—			6,621

Net earnings	$	7,669		$	10,682		$	(10,682	)	$	7,669

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2016
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	260,766		$	228,479		$	—		$	489,245
Expenses:
Direct expenses		264,761			185,148			—			449,909
Selling, general and administrative expenses		28,914			8,766			(848	)		36,832

Total operating expenses		293,675			193,914			(848	)		486,741
Gain on disposal of assets, net		(3,854	)		—			—			(3,854	)
Equity in loss of unconsolidated affiliate		274			—			—			274

Operating income		(29,329	)		34,565			848			6,084
Equity in net income of consolidated subsidiaries		(20,462	)		—			20,462			—
Interest expense		22,762			30			—			22,792
Other income, net		(2,415	)		(4	)		848			(1,571	)

		(115	)		26			21,310			21,221

(Loss) earnings before income taxes		(29,214	)		34,539			(20,462	)		(15,137	)
Income tax (benefit) expense		(19,592	)		14,077			—			(5,515	)

Net (loss) earnings	$	(9,622	)	$	20,462		$	(20,462	)	$	(9,622	)


	For the nine months ended September 30, 2015
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾			Eliminations			Consolidated
Operating revenues, net	$	368,202		$	249,275		$	—		$	617,477
Expenses:
Direct expenses		321,841			198,271			(13	)		520,099
Selling, general and administrative expenses		27,198			7,661			—			34,859

Total operating expenses		349,039			205,932			(13	)		554,958
Gain on disposal of assets, net		(238	)		—			—			(238	)
Equity in loss of unconsolidated affiliate		249			—			—			249

Operating income		19,152			43,343			13			62,508
Equity in net income of consolidated subsidiaries		(26,044	)		—			26,044			—
Interest expense		21,599			92			—			21,691
Other income, net		(1,508	)		(6	)		13			(1,501	)

		(5,953	)		86			26,057			20,190

Earnings before income taxes		25,105			43,257			(26,044	)		42,318
Income tax expense		619			17,213			—			17,832

Net earnings	$	24,486		$	26,044		$	(26,044	)	$	24,486

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	For the quarter ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(4,967	)	$	8,372	$	(8,372	)	$	(4,967	)
Unrealized loss on short-term investments		(494	)		—		—			(494	)
Changes in pension plan assets and benefit obligations		1			—		—			1
Tax effect		178			—		—			178

Total comprehensive (loss) income	$	(5,282	)	$	8,372	$	(8,372	)	$	(5,282	)


	For the quarter ended September 30, 2015
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	7,669		$	10,682	$	(10,682	)	$	7,669
Unrealized gain on short-term investments		12			—		—			12
Changes in pension plan assets and benefit obligations		4			—		—			4
Tax effect		(6	)		—		—			(6	)

Total comprehensive income	$	7,679		$	10,682	$	(10,682	)	$	7,679

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2016
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net (loss) earnings	$	(9,622	)	$	20,462	$	(20,462	)	$	(9,622	)
Unrealized gain on short-term investments		523			—		—			523
Changes in pension plan assets and benefit obligations		3			—		—			3
Tax effect		(229	)		—		—			(229	)

Total comprehensive (loss) income	$	(9,325	)	$	20,462	$	(20,462	)	$	(9,325	)


	For the nine months ended September 30, 2015
	Parent
	Company			Guarantor
	Only (issuer)			Subsidiaries ⁽¹⁾		Eliminations			Consolidated
Net earnings	$	24,486		$	26,044	$	(26,044	)	$	24,486
Unrealized loss on short-term investments		(7	)		—		—			(7	)
Unrealized realized gain		24			—		—			24
Changes in pension plan assets and benefit obligations		4			—		—			4
Tax effect		3			—		—			3

Total comprehensive income	$	24,510		$	26,044	$	(26,044	)	$	24,510

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	(32,467	)	$	25,319		$	—	$	(7,148	)
Investing activities:
Purchase of property and equipment		(74,647	)		(303	)		—		(74,950	)
Proceeds from asset dispositions		13,233			—			—		13,233
Purchase of short-term investments		(263,204	)		—			—		(263,204	)
Proceeds from sale of short-term investments		259,322			—			—		259,322
Payments of deposits on aircraft		(197	)		—			—		(197	)
Loan to unconsolidated affiliate		(1,200	)		—			—		(1,200	)

Net cash used in investing activities		(66,693	)		(303	)		—		(66,996	)

Financing activities:
Proceeds from line of credit		213,900			—			—		213,900
Payments on line of credit		(139,000	)		—			—		(139,000	)
Repurchase of common stock		(524	)		—			—		(524	)
Due to/from affiliate, net		24,774			(24,774	)		—		—

Net cash provided by (used in) financing activities		99,150			(24,774	)		—		74,376

(Decrease) increase in cash		(10	)		242			—		232
Cash, beginning of period		46			2,361			—		2,407

Cash, end of period	$	36		$	2,603		$	—	$	2,639

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

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	For the nine months ended September 30, 2015
	Parent Company Only (issuer)			Guarantor Subsidiaries ⁽¹⁾			Eliminations		Consolidated
Net cash provided by operating activities	$	39,490		$	68,665		$	—	$	108,155
Investing activities:
Purchase of property and equipment		(48,244	)		—			—		(48,244	)
Proceeds from asset dispositions		3,469			—			—		3,469
Purchase of short-term investments		(560,148	)		—			—		(560,148	)
Proceeds from sale of short-term investments		458,468			—			—		458,468
Refund of deposits on aircraft		6,010			—			—		6,010
Payments of deposits on aircraft		(1,207	)		—			—		(1,207	)

Net cash used in investing activities		(141,652	)		—			—		(141,652	)

Financing activities:
Proceeds from line of credit		206,660			—			—		206,660
Payments on line of credit		(171,440	)		—			—		(171,440	)
Repurchase of common stock for payroll tax withholding requirements		(2,441	)		—			—		(2,441	)
Due to/from affiliate, net		70,792			(70,792	)		—		—

Net cash provided by (used in) financing activities		103,571			(70,792	)		—		32,779

Increase (decrease) in cash		1,409			(2,127	)		—		(718	)
Cash, beginning of period		51			6,219			—		6,270

Cash, end of period	$	1,460		$	4,092		$	—	$	5,552

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