CONDENSED CONSOLIDATING FINANCIAL INFORMATION – GUARANTOR SUBSIDIARIES

As discussed further in Note 8, on March 17, 2014, PHI, Inc. issued $500.0 million aggregate principal amount of 5.25% Senior Notes due 2019 that are fully and unconditionally guaranteed on a joint and several, senior basis by all of PHI, Inc.’s 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”) the guarantor subsidiaries and the non-guarantor subsidiaries, each 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.

Subsequent to the issuance of the Company's 2017 financial statements, the Company's management identified misstatements in the condensed consolidating balance sheet as of December 31, 2017, primarily related to consolidating eliminations for Non-Guarantor Subsidiaries. Investment in subsidiaries and others, other assets, and common stock and paid-in capital of the Parent Company and Non-Guarantor Subsidiaries, and the related Eliminations, have been restated to reflect the corrected amounts. The corrections increased investment in subsidiaries and others and decreased other assets in the Parent Company, increased other assets and common stock and paid-in capital in the Non-Guarantor Subsidiaries, and increased eliminations for investment in subsidiaries and others and common stock and paid-in capital by $131.9 million as compared to the previously reported amounts. These misstatements had no impact on our consolidated financial statements. The Company evaluated the materiality of these misstatements from quantitative and qualitative perspectives and concluded that they were immaterial to the prior period financial statements.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)



	December 31, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	39,091		$	1,259	$	10,524		$	—		$	50,874
Short-term investments	14,232			—		—			—			14,232
Accounts receivable – net	64,416			93,060		28,812			(3,823		)	182,465
Intercompany receivable	—			91,468		—			(91,468		)	—
Inventories of spare parts – net	43,933			9,577		3,188			—			56,698
Prepaid expenses	7,295			2,520		1,604			—			11,419
Deferred income taxes	—			—		—			—			—
Income taxes receivable	394			556		—			—			950
Total current assets	169,361			198,440		44,128			(95,291		)	316,638
Investment in subsidiaries and others	471,790			—		—			(471,790		)	—
Property and equipment – net	576,763			287,375		38,347			—			902,485
Restricted cash and investments	19,781			—		—			—			19,781
Other assets	17,179			1,199		—			—			$	18,378
Deferred income tax	—			—		4,944			—			4,944
Total assets	$	1,254,874		$	487,014	$	87,419		$	(567,081	)	$	1,262,226
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Senior Notes issued March 17, 2014	$	499,740		$	—	$	—		$	—		$	499,740
Accounts payable	$	44,089		$	4,587	$	5,452		$	(3,839	)	$	50,289
Accrued and other current liabilities	25,158			12,335		7,799			—			45,292
Intercompany payable	74,336			—		17,116			(91,452		)	—
Total current liabilities	643,323			16,922		30,367			(95,291		)	595,321
Long-term debt	129,235			—		—			—			129,235
Deferred income taxes and other long-term liabilities	4,934			58,752		551			—			64,237
Shareholders’ Equity:
Common stock and paid-in capital	315,898			77,951		132,650			(210,601		)	315,898
Accumulated other comprehensive loss	(3		)	—		(3,949		)	—			(3,952		)
Retained earnings	161,487			333,389		(72,200		)	(261,189		)	161,487
Total shareholders’ equity	477,382			411,340		56,501			(471,790		)	473,433
Total liabilities and shareholders’ equity	$	1,254,874		$	487,014	$	87,419		$	(567,081	)	$	1,262,226

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(Thousands of dollars)



	December 31, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets:
Cash	$	47		$	1,072	$	7,651		$	—		$	8,770
Short-term investments	64,237			—		—			—			64,237
Accounts receivable – net	90,077			74,886		38,020			(17,004		)	185,979
Intercompany receivable	—			126,366		—			(126,366		)	—
Inventories of spare parts – net	68,737			9,049		3,095			—			80,881
Prepaid expenses	8,348			1,898		1,229			—			11,475
Deferred income taxes	—			—		—			—			—
Income taxes receivable	345			9		917			—			1,271
Total current assets	231,791			213,280		50,912			(143,370		)	352,613
Investment in subsidiaries	529,222			—		—			(529,222		)	—
Property and equipment – net	617,488			284,984		44,293			—			946,765
Restricted investments	12,382			—		14			—			12,396
Other assets	7,833			908		—			—			8,741
Deferred income tax	—			—		3,309			—			3,309
Goodwill	—			—		61,299			—			61,299
Intangible assets	—			—		16,723			—			16,723
Total assets	$	1,398,716		$	499,172	$	176,550		$	(672,592	)	$	1,401,846
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	28,130		$	4,636	$	21,425		$	(17,005	)	$	37,186
Accrued liabilities	23,147			10,577		8,126			—			41,850
Intercompany payable	113,387			—		12,978			(126,365		)	—
Total current liabilities	164,664			15,213		42,529			(143,370		)	79,036
Long-term debt	615,994			—		—			—			615,994
Deferred income taxes and other long-term liabilities	5,404			84,300		4,458			—			94,162
Shareholders’ Equity:
Common stock and paid-in capital	309,933			77,951		133,296			(211,247		)	309,933
Accumulated other comprehensive loss	(280		)	—		—			—			(280		)
Retained earnings	303,001			321,708		(3,733		)	(317,975		)	303,001
Total shareholders’ equity	612,654			399,659		129,563			(529,222		)	612,654
Total liabilities and shareholders’ equity	$	1,398,716		$	499,172	$	176,550		$	(672,592	)	$	1,401,846

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)



	For the year ended December 31, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	329,268		$	263,679		$	109,882		$	(28,406	)	$	674,423
Expenses:
Direct expenses	331,785			236,366			92,062			(28,406		)	631,807
Selling, general, and administrative expenses	40,715			13,834			12,154			(18		)	66,685
Total operating expenses	372,500			250,200			104,216			(28,424		)	698,492
Loss on disposition of assets, net	774			—			(21		)	—			753
Impairment of assets	31,824			—			77,200			—			109,024
Equity in loss of unconsolidated affiliate	(188		)	—			—			—			(188		)
Operating (loss) income	(75,642		)	13,479			(71,513		)	18			(133,658		)
Equity in net earnings of consolidated subsidiaries	56,786			—			—			(56,786		)	—
Interest expense	33,964			13			4			—			33,981
Other income, net	(547		)	—			350			18			(179		)
	90,203			13			354			(56,768		)	33,802
(Loss) earnings before income taxes	(165,845		)	13,466			(71,867		)	56,786			(167,460		)
Income tax (benefit) expense	(24,331		)	1,785			(3,400		)	—			(25,946		)
Net earnings (loss)	$	(141,514	)	$	11,681		$	(68,467	)	$	56,786		$	(141,514	)
	For the year ended December 31, 2017
	Parent						Non-
	Company			Guarantor			Guarantor
	Only (issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	310,449		$	262,229		$	23,871		$	(17,004	)	$	579,545
Expenses:
Direct expenses	326,152			212,691			24,860			(17,004		)	546,699
Selling, general, and administrative expenses	41,134			12,462			221			—			53,817
Total operating expenses	367,286			225,153			25,081			(17,004		)	600,516
Gain on disposition of assets, net	300			(2		)	—			—			298
Impairment of assets	368			—			—			—			368
Equity in profit of unconsolidated affiliate	1,021			—			(636		)	—			385
Operating (loss) income	(58,526		)	37,078			(574		)	—			(22,022		)
Equity in net earnings of consolidated subsidiaries	(38,553		)	—			—			38,553			—
Interest expense	32,161			22			—			—			32,183
Other income, net	(2,757		)	(2		)	(5		)	—			(2,764		)
	(9,149		)	20			(5		)	38,553			29,419
(Loss) earnings before income taxes	(49,377		)	37,058			(569		)	(38,553		)	(51,441		)
Income tax (benefit) expense	(56,909		)	(1,138		)	(926		)	—			(58,973		)
Net (loss) earnings	$	7,532		$	38,196		$	357		$	(38,553	)	$	7,532

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(Thousands of dollars)



	For the year ended December 31, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating revenues, net	$	339,829		$	293,329		$	940		$	—		$	634,098
Expenses:
Direct expenses	347,532			237,635			7,383			—			592,550
Selling, general, and administrative expenses	32,911			10,984			541			(18		)	44,418
Total operating expenses	380,443			248,619			7,924			(18		)	636,968
Loss on disposition of assets, net	(3,350		)	—						—			(3,350		)
Equity in loss of unconsolidated affiliate	(151		)	—						—			(151		)
Operating income	(37,520		)	44,710			(6,984		)	18			224
Equity in net earnings of consolidated subsidiaries	(22,182		)	—			—			22,182			—
Interest expense	30,585			46			13			—			30,644
Other income, net	(3,284		)	(5		)	—			18			(3,271		)
	5,119			41			13			22,200			27,373
Earnings before income taxes	(42,639		)	44,669			(6,997		)	(22,182		)	(27,149		)
Income tax (benefit) expense	(15,959		)	15,490			—			—			(469		)
Net earnings	$	(26,680	)	$	29,179		$	(6,997	)	$	(22,182	)	$	(26,680	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)



	For the year ended December 31, 2018
	Parent Company Only			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	(141,514	)	$	11,681	$	(68,467	)	$	56,786		$	(141,514	)
Unrealized gain on short-term investments	364			—		—			—			364
Changes in pension plan assets and benefit obligations	(1		)	—		—			—			(1		)
Tax effect	(85		)	—		—			—			(85		)
Currency translation adjustment	—			—		(3,950		)	$	—		(3,950		)
Total comprehensive income	$	(141,236	)	$	11,681	$	(72,417	)	$	56,786		$	(145,186	)
	For the year ended December 31, 2017
	Parent					Non-
	Company			Guarantor		Guarantor
	Only			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net (loss) earnings	$	7,532		$	38,196	$	357		$	(38,553	)	$	7,532
Unrealized gain on short-term investments	310			—		—			—			310
Changes in pension plan assets and benefit obligations	(3		)	—		—			—			(3		)
Tax effect	(109		)	—		—			—			(109		)
Total comprehensive (loss) income	$	7,730		$	38,196	$	357		$	(38,553	)	$	7,730
	For the year ended December 31, 2016
	Parent					Non-
	Company			Guarantor		Guarantor
	Only			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net earnings	$	(26,680	)	$	29,179	$	(6,997	)	$	(22,182	)	$	(26,680	)
Unrealized loss on short-term investments	241			—		—			—			241
Other unrealized gain	—			—		—			—			—
Changes in pension plan assets and benefit obligations	(39		)	—		—			—			(39		)
Tax effect	(113		)	—		—			—			(113		)
Total comprehensive income	$	(26,591	)	$	29,179	$	(6,997	)	$	(22,182	)	$	(26,591	)

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)



	For the year ended December 31, 2018
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	24,123		$	(16,952	)	$	10,477		$	—	$	17,648
Investing activities:
Purchase of property and equipment	(40,865		)	—			(2,311		)	—		(43,176		)
Proceeds from asset dispositions	14,245			—			—			—		14,245
Purchase of short-term investments	(284,481		)	—			—			—		(284,481		)
Proceeds from sale of short-term investments	334,488			—			—			—		334,488
Loan to unconsolidated affiliate	(274		)	—			—			—		(274		)
Net cash provided by (used in) investing activities	23,113			—			(2,311		)	—		20,802
Financing activities:
Debt issuance costs	(874		)	—			—			—		(874		)
Repurchase of common stock	(106		)	—			—			—		(106		)
Proceeds on line of credit	34,295			—			—			—		34,295
Payments on line of credit	(151,795		)	—			—			—		(151,795		)
Proceeds from term loan	130,000			—			—			—		130,000
Due to/from affiliate, net	(12,022		)	17,139			(5,117		)	—		—
Net cash (used in) provided by financing activities	(502		)	17,139			(5,117		)	—		11,520
Effect of exchange rate changes on cash and cash equivalent	—			—			(176		)	—		(176		)
Increase (decrease) in cash, cash equivalents and restricted cash	46,734			187			2,873			—		49,794
Cash, cash equivalents and restricted cash at beginning of period	47			1,072			7,651			—		8,770
Cash, cash equivalents and restricted cash at end of period	$	46,781		$	1,259		$	10,524		$	—	$	58,564

(1) Net of the effect of business acquisitions.

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)



	For the year ended December 31, 2017
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations		Consolidated


Net cash (used in) by operating activities	$	(62,581	)	$	40,628		$	2,850	$	—	$	(19,103	)
Investing activities:
Purchase of property and equipment	(56,757		)	—			—		—		(56,757		)
Proceeds from asset dispositions	1,296			—			—		—		1,296
Purchase of short-term investments	(637,980		)	—			—		—		(637,980		)
Proceeds from sale of short-term investments	862,942			—			—		—		862,942
Payments of deposits on aircraft	—			—			—		—		—
Loan to third party	(824		)	—			—		—		(824		)
Business acquisitions net of cash acquired	(130,788		)	—			4,144		—		(126,644		)
Net cash used in investing activities	37,889			—			4,144		—		42,033
Financing activities:
Repurchase of common stock	(256		)	—			—		—		(256		)
Proceeds on line of credit	152,150			—			—		—		152,150
Payments on line of credit	(168,650		)	—			—		—		(168,650		)
Due to/from affiliate, net	41,459			(41,656		)	197		—		—
Net cash provided by (used in) financing activities	24,703			(41,656		)	197		—		(16,756		)
Increase (decrease) in cash, cash equivalents and restricted cash	11			(1,028		)	7,191		—		6,174
Cash, cash equivalents and restricted cash at beginning of period	36			2,100			460		—		2,596
Cash, cash equivalents and restricted cash at end of period	$	47		$	1,072		$	7,651	$	—	$	8,770

PHI, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(Thousands of dollars)



	For the year ended December 31, 2016
	Parent Company Only (issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	(46,738	)	$	52,873		$	(6,699	)	$	—	$	(564	)
Investing activities:
Purchase of property and equipment	(81,484		)	—			(358		)	—		(81,842		)
Proceeds from asset dispositions	14,983			—			—			—		14,983
Purchase of short-term investments	(321,453		)	—			—			—		(321,453		)
Proceeds from sale of short-term investments	316,543			—			—			—		316,543
Payments of deposits on aircraft	(2,249		)	—			—			—		(2,249		)
Loan to unconsolidated affiliate	(1,200		)	—			—			—		(1,200		)
Net cash used in investing activities	(74,860		)	—			(358		)	—		(75,218		)
Financing activities:
Repurchase of common stock	(529		)	—			—			—		(529		)
Proceeds on line of credit	264,700			—			—			—		264,700
Payments on line of credit	(188,200		)	—			—			—		(188,200		)
Due to/from affiliate, net	45,617			(52,445		)	6,828			—		—
Net cash provided by (used in) financing activities	121,588			(52,445		)	6,828			—		75,971
Decrease in cash	(10		)	428			(229		)	—		189
Cash, beginning of year	46			1,672			689			—		2,407
Cash, end of year	$	36		$	2,100		$	460		$	—	$	2,596