EAC-2014.09.30-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q
 
(Mark One)
x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014. 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 001-35482
 
 
ERICKSON INCORPORATED
(Exact name of registrant as specified in its charter)
  
 
  
Delaware
 
93-1307561
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
5550 SW Macadam Avenue, Suite 200,
Portland, Oregon
 
97239
(Address of principal executive offices)
 
(Zip Code)
(503) 505-5800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: 
Title of each class
 
Name of each exchange on which registered
Common Stock, $0.0001 par value
 
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
N/A
(Title of each class) 
 
 
 

Table of Contents

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
 
¨
  
Accelerated filer
 
ý
 
 
 
 
 
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
On October 31, 2014, 13,812,964 shares of common stock, par value $0.0001, were outstanding.
 


2
Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 


3
Table of Contents

PART I—FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(Unaudited)
 
 
September 30, 2014
 
December 31, 2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,559

 
$
1,881

Restricted cash
465

 
2,883

Accounts receivable, net of allowances for doubtful accounts of $648 and $991 in 2014 and 2013, respectively
65,961

 
65,987

Prepaid expenses and other current assets
10,198

 
3,360

Income tax receivable
162

 
135

Deferred tax assets
2,351

 
3,715

Total current assets
81,696

 
77,961

Aircraft support parts, net
137,848

 
126,696

Aircraft, net
123,475

 
127,179

Property, plant and equipment, net
125,901

 
109,382

Goodwill
215,634

 
234,978

Other intangible assets, net
20,654

 
22,484

Other non-current assets
24,861

 
28,625

Total assets
$
730,069

 
$
727,305

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
22,673

 
$
29,035

Accrued and other current liabilities
39,508

 
41,233

Income tax payable
975

 
621

Total current liabilities
63,156

 
70,889

Long-term debt
16,831

 
16,160

Long-term revolving credit facilities
86,240

 
68,086

Long-term notes payable
355,000

 
355,000

Other long-term liabilities
12,688

 
1,819

Uncertain tax positions
5,669

 
5,669

Deferred tax liabilities
5,722

 
16,775

Total liabilities
545,306

 
534,398

Stockholders’ equity:
 
 
 
Common stock; $0.0001 par value; 110,000,000 shares authorized; 13,802,212 and 13,787,914 issued and outstanding at September 30, 2014 and December 31, 2013, respectively
1

 
1

Additional paid-in capital
180,818

 
179,954

Retained earnings
4,263

 
12,104

Accumulated other comprehensive loss, net of tax
(1,122
)
 
(42
)
Total stockholders’ equity attributable to Erickson Incorporated
183,960

 
192,017

Noncontrolling interest
803

 
890

Total stockholders’ equity
184,763

 
192,907

Total liabilities and stockholders’ equity
$
730,069

 
$
727,305

The accompanying notes are an integral part of these consolidated financial statements

4
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
(Unaudited) 
 
Three Months Ended September 30, 2014
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
Net revenues:
$
118,338

 
$
120,226

 
$
273,407

 
$
225,756

Cost of revenues
70,360

 
74,041

 
203,420

 
152,808

Gross profit
47,978

 
46,185

 
69,987

 
72,948

Operating expenses:
 
 
 
 
 
 
 
General and administrative
6,608

 
10,107

 
20,399

 
26,486

Research and development
783

 
1,154

 
2,839

 
3,116

Selling and marketing
2,060

 
1,642

 
7,203

 
5,507

Impairment of goodwill
—

 
—

 
21,272

 
—

Total operating expenses
9,451

 
12,903

 
51,713

 
35,109

Operating income
38,527

 
33,282

 
18,274

 
37,839

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(9,002
)
 
(8,665
)
 
(26,866
)
 
(16,516
)
Interest expense related to tax contingencies
—

 
(560
)
 
—

 
(871
)
Amortization of debt issuance costs
(613
)
 
(599
)
 
(1,827
)
 
(1,386
)
Unrealized foreign exchange gain (loss)
(518
)
 
159

 
(274
)
 
299

Loss on early extinguishment of debt
—

 
—

 
—

 
(215
)
Realized foreign exchange gain (loss)
93

 
(68
)
 
51

 
(218
)
Gain on involuntary conversion
308

 
—

 
308

 
—

Gain on disposal of equipment
62

 
20

 
253

 
41

Other expense, net
(163
)
 
95

 
(704
)
 
(267
)
Total other income (expense)
(9,833
)
 
(9,618
)
 
(29,059
)
 
(19,133
)
Net income before income taxes and noncontrolling interest
28,694

 
23,664

 
(10,785
)
 
18,706

Income tax expense (benefit)
11,753

 
9,176

 
(3,039
)
 
7,009

Net income (loss)
16,941

 
14,488

 
(7,746
)
 
11,697

Less: Net (income) loss related to noncontrolling interest
(79
)
 
37

 
(95
)
 
(341
)
Net income (loss) attributable to Erickson Incorporated and common stockholders
$
16,862

 
$
14,525

 
$
(7,841
)
 
$
11,356

Net income (loss)
$
16,941

 
$
14,488

 
$
(7,746
)
 
$
11,697

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(1,995
)
 
727

 
(1,189
)
 
542

Comprehensive income (loss)
14,946

 
15,215

 
(8,935
)
 
12,239

Comprehensive (income) loss attributable to noncontrolling interest
17

 
(14
)
 
14

 
(375
)
Comprehensive income (loss) attributable to Erickson Incorporated
$
14,963

 
$
15,201

 
$
(8,921
)
 
$
11,864

Net income (loss) per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
$
1.22

 
$
1.26

 
$
(0.57
)
 
$
1.10

Diluted
$
1.22

 
$
1.05

 
$
(0.57
)
 
$
1.02

Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
13,802,212

 
11,562,465

 
13,797,093

 
10,356,507

Diluted
13,817,050

 
13,813,514

 
13,797,093

 
11,122,050


The accompanying notes are an integral part of these consolidated financial statements

5
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)
(Unaudited)
 
 
Preferred Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity (Deficit) Of Erickson Incorporated
 
Noncontrolling Interest Amount
 
Total Stockholders' Equity

Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2012
—

 
$
—

 
9,726,785

 
$
1

 
$
101,833

 
$
2,447

 
$
71

 
$
104,352

 
$
1,016

 
$
105,368

Issuance of Series A Preferred Stock
4,008,439

 
78,044

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Noncontrolling interest dividend
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(341
)
 
(341
)
Issuance of Restricted Stock Units
—

 
—

 
87,634

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
—

 
—

 
792

 
—

 
—

 
792

 
—

 
792

Conversion of Series A Preferred Stock to Common Stock
(4,008,439
)
 
(78,044
)
 
4,008,439

 
—

 
78,044

 
—

 
—

 
78,044

 
—

 
78,044

Shares withheld for payment of taxes
—

 
—

 
(34,944
)
 
—

 
(715
)
 
—

 
—

 
(715
)
 
—

 
(715
)
Components of comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
9,657

 
—

 
9,657

 
209

 
9,866

Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

 
(113
)
 
(113
)
 
6

 
(107
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9,759

Balance at December 31, 2013
—

 
$
—

 
13,787,914

 
$
1

 
$
179,954

 
$
12,104

 
$
(42
)
 
$
192,017

 
$
890

 
$
192,907

Issuance of Restricted Stock Units
—

 
—

 
23,022

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Noncontrolling interest dividend
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(73
)
 
(73
)
Stock-based compensation
—

 
—

 
—

 
—

 
616

 
—

 
—

 
616

 
—

 
616

Shares withheld for payment of taxes
—

 
—

 
(8,724
)
 
—

 
(166
)
 
 
 
 
 
(166
)
 
—

 
(166
)
Proceeds from shareholder, net
—

 
—

 
—

 
—

 
414

 
—

 
—

 
414

 
—

 
414

Components of comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
(7,841
)
 
—

 
(7,841
)
 
95

 
(7,746
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
—

 
(1,080
)
 
(1,080
)
 
(109
)
 
(1,189
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(8,935
)
Balance at September 30, 2014
—

 
$
—

 
13,802,212

 
$
1

 
$
180,818

 
$
4,263

 
$
(1,122
)
 
$
183,960

 
$
803

 
$
184,763

The accompanying notes are an integral part of these consolidated financial statements


6
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Three Months Ended September 30, 2014
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income (loss)
$
16,941

 
$
14,488

 
$
(7,746
)
 
$
11,697

Adjustments to reconcile loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
10,164

 
11,566

 
27,098

 
25,439

Impairment of goodwill
—

 
—

 
21,272

 
—

Deferred income taxes
8,467

 
8,460

 
(8,273
)
 
4,665

Non-cash interest expense on debt
147

 
579

 
670

 
1,776

Non-cash interest on tax contingencies
—

 
560

 
—

 
871

Non-cash interest income on loans
—

 
(58
)
 
—

 
(99
)
Write-off of debt issuance costs related to the early extinguishment of debt
—

 
—

 
—

 
215

Stock-based compensation
220

 
255

 
616

 
665

Amortization of debt issuance costs
613

 
599

 
1,827

 
1,386

Gain on sale of equipment
(62
)
 
(20
)
 
(253
)
 
(41
)
Gain on involuntary conversion
(308
)
 
—

 
(308
)
 
—

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(3,095
)
 
(12,799
)
 
(1,525
)
 
(26,482
)
Prepaid expenses and other current assets
(6,001
)
 
(380
)
 
(6,907
)
 
(2,018
)
Income tax receivable
3

 
(246
)
 
949

 
(561
)
Aircraft support parts, net
(923
)
 
(9,999
)
 
(13,638
)
 
(23,193
)
Other non-current assets
1,106

 
(1,622
)
 
4,232

 
(4,303
)
Accounts payable
(6,892
)
 
4,736

 
(6,161
)
 
(20,740
)
Accrued and other current liabilities
12,291

 
(3,272
)
 
(4,050
)
 
2,740

Income tax payable
493

 
25

 
1,210

 
1,256

Other long-term liabilities
(366
)
 
(656
)
 
192

 
896

Net cash provided by (used in) operating activities
32,798

 
12,216

 
9,205

 
(25,831
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Acquisition of businesses, net of cash acquired (see Note 6)
—

 
(22,998
)
 
—

 
(231,868
)
Purchases of aircraft and property, plant and equipment, net
(15,569
)
 
(7,733
)
 
(52,707
)
 
(32,366
)
Proceeds from sale-leaseback of aircraft
—

 
—

 
24,660

 
—

Restricted cash
574

 
45,953

 
2,341

 
942

Purchase of intangible assets
—

 
(2,200
)
 
—

 
(2,200
)
Decrease in other assets
—

 
—

 
—

 
(35
)
Dividends paid to non-controlling interest
—

 
—

 
(73
)
 
(341
)
Net cash provided by (used in) investing activities
(14,995
)
 
13,022

 
(25,779
)
 
(265,868
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from shareholders, net
—

 
—

 
414

 
—

Repayments of subordinated notes
—

 
—

 
—

 
(27,572
)
Repayments of credit facilities
(69,716
)
 
(30,382
)
 
(148,839
)
 
(214,799
)
Borrowings from credit facilities
53,862

 
49,535

 
166,993

 
197,387

Borrowing of notes
—

 
—

 
—

 
400,000

Repayment of notes
—

 
(45,000
)
 
—

 
(45,000
)
Debt issuance costs
(72
)
 
(691
)
 
(339
)
 
(14,667
)
Shares withheld for payment of taxes
—

 
(84
)
 
(166
)
 
(697
)
Net cash provided by (used in) financing activities
(15,926
)
 
(26,622
)
 
18,063

 
294,652

Effect of foreign currency exchange rates on cash and cash equivalents
(1,762
)
 
865

 
(811
)
 
881

Net increase (decrease) in cash and cash equivalents
115

 
(519
)
 
678

 
3,834

Cash and cash equivalents at beginning of period
2,444

 
5,821

 
1,881

 
1,468

Cash and cash equivalents at end of period
$
2,559

 
$
5,302

 
$
2,559

 
$
5,302

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
$
2,017

 
$
1,972

 
$
19,553

 
$
11,820

Cash paid for income taxes, net
$
1,588

 
$
526

 
$
2,449

 
$
971

The accompanying notes are an integral part of these financial statements

7
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of the Business

The consolidated financial statements include the accounts of Erickson Incorporated (“EAC”) and its subsidiaries and affiliated companies: EAC Acquisition Corporation (“EAC Acq.”), Erickson Helicopters, Inc. and its subsidiaries (“EHI”, formerly known as Evergreen Helicopters, Inc.), CAC Development Ltd. (“Canada”), Canadian Air-Crane Ltd. (“CAC”), Erickson Air-Crane Malaysia Sdn. Bhd. (“EACM”), European Air-Crane S.p.A. (“EuAC”), Air Amazonia Serviços Aeronáuticos Ltda. (“Air Amazonia”), Dutch Air-Crane B.V. (“DAC”), and Erickson Aviation Peru S.A.C. (“Peru”) (collectively referred to as “the Company”). EuAC owns a 60% equity interest in Societa Italiania de Manutenzioni Aeroautiche S.p.A. (“SIMA”), which is an aircraft maintenance organization located in Lucca, Italy; and EACM owns a 49% equity interest in Layang-Layang Services Sdn. Bhd., which provides aircraft rental services in Malaysia.

As of September 30, 2014, the Company owned a fleet of 19 heavy lift helicopters, comprised of 13 S-64E and six S-64F model Aircranes, and 37 medium and light lift aircraft of varying model types, comprised of 30 rotor wing aircraft and seven fixed-wing aircraft. As of September 30, 2014, the Company leased a fleet of one heavy lift, 31 medium and light lift aircraft of varying types, comprised of 26 rotary wing aircraft and five fixed-wing aircraft. The Company’s fleet operations span the globe with a presence on six continents. As of September 30, 2014, 20 of the owned aircraft and 21 of the leased aircraft were deployed outside of North America.

The Company owns the Type Certificate and Production Certificate for the S-64 Aircrane which gives it the authorization to convert and remanufacture the S-64 Aircrane for its own use or to sell to third parties. The Company holds a Type Certificate issued by the European Aviation Safety Agency (“EASA”) certifying the S-64F model which allows the Aircrane to be sold to third parties in the European Union. The Company holds a Repair Station Certificate which allows the Company to repair and overhaul airframes and components for Aircranes and certain other aircraft, and the Company owns the Type Certificate for engines used in the S-64 Aircrane.

Fiscal 2014

On April 1, 2014, the Company completed a rebranding initiative which included the following changes in legal names of entities: Erickson Air-Crane, Incorporated became Erickson Incorporated, Evergreen Helicopters, Inc. became Erickson Helicopters, Inc., and Evergreen Helicopters of Alaska, Inc. became Erickson Transport, Inc.

Fiscal 2013

On May 2, 2013, the Company closed its $400.0 million aggregate principal note offering of 8.25% second priority senior secured obligations due 2020 (the “2020 Senior Notes”). Net proceeds from the offering were approximately $386.4 million after deducting the initial purchasers’ commissions and estimated transaction fees and expenses. The Company used the net proceeds of the offering to (i) finance a portion of the purchase price for the EHI acquisition (see “Note 6 — Acquisitions”), (ii) refinance its 2015 Subordinated Notes and 2016 Subordinated Notes, (iii) refinance its prior senior secured asset-based revolving credit facility, comprised of the Term Debt and Revolving Line of Credit, (iv) pay related fees and expenses and (v) record the remaining cash to the balance sheet. A total of $46.0 million of the net proceeds were deposited in escrow on May 2, 2013, consisting of $45.0 million of aggregate principal and $1.0 million related to anticipated interest, to be used toward the acquisition of Air Amazonia, the aerial services business of Brazil-based HRT Participações em Petroleo, S.A.(“HRT”). These proceeds of the offering were not released from escrow to consummate the Air Amazonia acquisition before July 31, 2013, and as a result, pursuant to the terms of the 2020 Senior Notes, an aggregate principal amount of Notes equal to $45.0 million were redeemed, on a pro rata basis, on August 5, 2013 pursuant to a special mandatory redemption, at a price equal to 100% of the principal amount of the 2020 Senior Notes being redeemed, plus accrued and unpaid interest to, but not including, August 5, 2013. The Company completed the acquisition of Air Amazonia on September 3, 2013, funding the purchase price with borrowings from its senior secured asset-based credit facility also entered into on May 2, 2013 (the “Revolving Credit Facility”). See “Note 6 — Acquisitions” for further information.


8
Table of Contents

On May 2, 2013, the Company completed its acquisition of EHI, based in McMinnville, Oregon, a wholly owned subsidiary of Evergreen International Aviation, Inc. (“EIA”) prior to the acquisition. EHI operated a fleet that consisted of 63 aircraft as of May 2, 2013, which included varying rotary-wing and fixed-wing types for a wide range of passenger transport and light, medium and heavy load-carrying missions. This diverse fleet serves both government and commercial customers, including programs with the U.S. military in support of overseas operations. EHI maintains a global presence with operations in North America, the Middle East, Africa, and Asia-Pacific (see “Note 6 — Acquisitions”).

On September 3, 2013, the Company completed its acquisition of Air Amazonia, which included a fleet of six rotor wing aircraft and ground facilities. This fleet serves oil and gas activities in the Solimoes region of Brazil (see “Note 6 — Acquisitions”).

Note 2. Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts and transactions of all majority owned subsidiaries and variable interest entities in which the Company is the primary beneficiary. In presenting these unaudited consolidated financial statements, management makes estimates and assumptions that affect reported amounts of assets and liabilities and related disclosures, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting periods. Estimates, by their nature, are based on judgments and available information at a point in time. As such, actual results could differ from those estimates. In management’s opinion, the unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair presentation of interim results reported.

All intercompany accounts and transactions have been eliminated in consolidation.

The results of operations reported for interim periods are not necessarily indicative of the results of operations for the entire year or any subsequent interim period.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and following the guidance of Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the U.S. Securities and Exchange Commission (the “SEC”). As permitted under such rules, certain notes and other financial information normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”)
have been condensed or omitted; however, the unaudited consolidated financial statements do include such notes and financial information sufficient so as to make the interim information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes as of December 31, 2013 included in the Company’s annual report on Form 10-K filed with the SEC on March 14, 2014.

The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board (FASB) issued accounting standards update (“ASU”) No. 2013-11 “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to resolve the diversity in practice in the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Although permitted by the ASU, the Company did not elect early adoption or retrospective application. As such, the ASU became effective prospectively for the Company as of its first quarter of 2014. As of September 30, 2014, the Company did not have any unrecognized tax benefits that meet the conditions described by the ASU; accordingly, the ASU did not have any impact on the Company’s results of operations or financial position.

In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”. This ASU requires revenue to be recognized to reflect the consideration an entity expects to be entitled to in exchange for the transfer of goods or services to customers in the appropriate period. This ASU also requires disclosures enabling users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract are required. The Company will be required to implement this guidance in the first quarter of fiscal year 2017, using one of the two prescribed retrospective methods. No early adoption is permitted. The Company has not yet determined the effect of the adoption on the consolidated financial statements.

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There have been no other recent accounting pronouncements or changes in accounting pronouncements during the quarter ended September 30, 2014 that are of significance, or potential significance, to the Company.

Note 3. Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consisted of the following (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Trade accounts receivable
$
61,565

 
$
60,190

Other receivables
5,044

 
6,788

Less: allowance for doubtful accounts
(648
)
 
(991
)

$
65,961

 
$
65,987

The Company had bad debt expense of zero and $0.3 million in the three months ended September 30, 2014 and 2013, respectively. During the nine months ended September 30, 2014, the Company had bad debt recoveries of $0.3 million. During the nine months ended September 30, 2013, the Company had bad debt expense of $0.5 million.
The Company performs ongoing credit evaluations of its customers and believes it has made adequate provisions for potential credit losses. The Company does not generally require collateral on accounts receivable; however, under certain circumstances, the Company may require from its customers a letter of credit, a parent corporation guarantee, or full or partial prepayment prior to performing services. The Company estimates its allowance for doubtful accounts using a specific identification method based on an evaluation of payment history, the customer’s credit situation, and other factors.
The following is a summary of customers that accounted for at least 10% of the total current and non-current trade receivables as of September 30, 2014 or December 31, 2013:
 
 
September 30, 2014
 
December 31, 2013
Fluor
14.2
%
 
19.4
%
HRT Participações em Petroleo, S.A.
10.1
%
 
4.0
%
NAMSA
10.5
%
 
0.7
%
Army Contracting Command – Rock Island
2.4
%
 
13.8
%
 
37.2
%
 
37.9
%
The following is a summary of customers that accounted for at least 10% of the Company’s net revenues in the three or nine months ended September 30, 2014 or September 30, 2013:
 
 
Three Months Ended 
 September 30, 2014
 
Three Months Ended 
 September 30, 2013
 
Nine Months Ended 
 September 30, 2014
 
Nine Months Ended 
 September 30, 2013
Fluor
13.0
%
 
14.0
%
 
16.7
%
 
12.0
%
US Forest Service
27.1
%
 
26.7
%
 
13.9
%
 
18.0
%
The Company operates in portions of Europe that have been significantly affected by the global recession, such as Greece and Italy, and the Company bears risk that existing or future accounts receivable may be uncollectible if the customers experience curtailed government spending.

Note 4. Aircraft Support Parts, net
Aircraft support parts, net consists of aircraft parts and work-in-process which are valued at the lower of cost or market utilizing the first-in first-out method. Costs capitalized in aircraft support parts include materials, labor, and operating overhead. Work-in-process consists of remanufactured aircraft in various stages of production and in-process aircraft support parts. Upon completion of an aircraft remanufacture, based on the demand for the Company’s services, the Company may transfer an aircraft into its fleet. As of September 30, 2014 and December 31, 2013, there were one and zero aircraft being remanufactured, respectively.


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Aircraft support parts consisted of the following (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Aircraft parts
$
121,249

 
$
115,400

Work-in-process
22,249

 
17,296

Less: Excess and obsolete reserve
(5,650
)
 
(6,000
)

$
137,848

 
$
126,696


Note 5. Aircraft and Property, Plant and Equipment
Aircraft, net consisted of the following (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Aircraft
$
153,019

 
$
151,044

Less: Accumulated depreciation
(29,544
)
 
(23,865
)

$
123,475

 
$
127,179

Property, plant, and equipment, net consisted of the following (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Land and land improvements
$
308

 
$
308

Buildings
7,857

 
7,597

Vehicles and equipment
37,969

 
29,598

Deferred overhauls, net
84,029

 
68,773

Construction-in-progress
16,533

 
19,923

 
146,696

 
126,199

Less: Accumulated depreciation and amortization
(20,795
)
 
(16,817
)

$
125,901

 
$
109,382

During the three months ended September 30, 2014 and 2013, depreciation expense was $4.5 million and $4.2 million, respectively. During the nine months ended September 30, 2014 and 2013, depreciation expense was $13.4 million and $9.9 million, respectively. During the three months ended September 30, 2014 and 2013, amortization expense associated with deferred overhauls was $5.1 million and $6.6 million, respectively. During the nine months ended September 30, 2014 and 2013, amortization expense associated with deferred overhauls was $11.9 million and $14.3 million, respectively.
During the second quarter of 2014, the Company completed a sale-leaseback transaction pursuant to which the Company sold one S-64 Aircrane for a total purchase price of $24.7 million. The net book value of the Aircrane at the date of the transaction was $12.3 million. The lease has an initial term of seven years commencing on June 30, 2014, and base lease payments of approximately $264 thousand per month. The Company has the right to purchase the aircraft back from the lessor at the end of the fourth year of the lease term at a purchase price based upon the fair market value at that time. At the end of the term of the lease, the lessor has a put right to sell the aircraft back at a purchase price based on the fair market value at that time. The Company has accounted for the transaction as a sale-leaseback under ASC 840-40 “Sale-Leaseback Transactions”. The profit on the sale was deferred and will be recognized ratably over the term of the lease as a reduction to rent expense. The current portion of the deferred gain of $1.8 million is included in other current liabilities, and the non-current portion of deferred gain of $10.1 million is included in other non-current liabilities in the consolidated balance sheet as of September 30, 2014.
We have an ongoing process of reviewing our fleet of existing aircraft with operations management to determine which aircraft may be marketed for sale by our Trade group.


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Note 6. Acquisitions

Evergreen Helicopters, Inc.

On May 2, 2013, the Company completed its acquisition of EHI, based in McMinnville Oregon, and prior to the acquisition, a wholly owned subsidiary of Evergreen International Aviation (“EIA”). EHI operates a fleet of aircraft of varying rotary-wing and fixed-wing types for a wide range of passenger transport and light, medium and heavy load-carrying missions. The assets purchased and liabilities assumed for EHI have been reflected in the Company’s consolidated balance sheet as of September 30, 2014 and December 31, 2013, and the results of operations of EHI are included in the Company’s consolidated statements of comprehensive income (loss) since the closing date of the acquisition. Intangible assets included goodwill of $231.6 million, customer relationships of $19.3 million amortized over a period of nine years, and trade names of $0.4 million amortized over a period of 6 months. The goodwill and other intangible assets totaling $251.3 million are amortized over a 15-year period for tax purposes.

Pro Forma Results of Operations (Unaudited)

The following pro forma information presents a summary of the Company’s results of operations assuming the EHI acquisition had occurred at the beginning of the period presented. The pro forma results include the straight-line amortization associated with acquired intangible assets consisting of customer relationships of $19.3 million amortized over a period of nine years and trade names of $0.4 million amortized over a period of six months, fair value adjustments to depreciable property, plant, and equipment assets, and interest expense associated with debt used to fund the acquisition. The following pro forma information assumes the shares of Series A Preferred Stock had converted into the same number of shares of common stock at the beginning of the period presented. To better reflect the combined operating results, significant nonrecurring acquisition-related expenses directly attributable to the transaction have been excluded. In addition, the pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. Accordingly, the unaudited pro forma information is not necessarily indicative of the results that would have occurred if the acquisition had been completed at the beginning of the period presented, nor is it necessarily indicative of future results.
 
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2013
Net revenues
$
120,226

 
$
286,231

Net income attributable to common stockholders
14,525

 
20,252

Net income per share attributable to common stockholders:
 
 
 
Basic
1.05

 
1.47

Diluted
1.05

 
1.47

Weighted average shares outstanding(1):
 
 
 
Basic
13,784,537

 
13,762,947

Diluted
13,813,519

 
13,779,663


(1) Weighted average shares outstanding for the purposes of the above pro forma calculation assume the Convertible Redeemable Preferred Stock of 4,008,439 shares converted to the same number of shares of common stock at the beginning of the period presented.

During the three months ended September 30, 2014 and September 30, 2013, the Company incurred approximately zero and $1.9 million in EHI acquisition and integration-related expenses, respectively, which are included in general and administrative expenses. During the nine months ended September 30, 2014 and September 30, 2013, the Company incurred approximately $1.2 million and $7.5 million in EHI acquisition and integration-related expenses, respectively, which are included in general and administrative expenses.

Air Amazonia

On September 3, 2013, the Company completed its acquisition of Air Amazonia, the aerial services business of HRT, based in Brazil, including a fleet of six rotor wing aircraft and ground facilities. This fleet serves oil and gas activities in the Solimoes region of Brazil. In addition to the acquired fleet, the Company also has the right of first refusal on all helicopter services in the Solimoes region of Brazil from HRT as operator, as well as on all helicopter services in all of Brazil (including offshore) from HRT. Our original contract with HRT had expired effective September 2, 2014 and we are currently in the process of negotiating future business.

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In connection with the acquisition of Air Amazonia, consideration transferred included cash of $23.0 million at closing for the business, which includes a fully-operational fleet of six rotary-wing aircraft of varying types and mission capabilities, and an additional $3 million due within 12 months of closing.
During the three months ended September 30, 2014 and September 30, 2013, the Company incurred approximately $0.2 million and $0.6 million in Air Amazonia acquisition and integration-related expenses, respectively, which are included in general and administrative expenses. During the nine months ended September 30, 2014 and September 30, 2013, the Company incurred approximately $0.5 million and $1.3 million in Air Amazonia acquisition and integration-related expenses, respectively, which are included in general and administrative expenses.
The assets purchased and liabilities assumed for Air Amazonia have been reflected in the Company’s consolidated balance sheet as of September 30, 2014 and December 31, 2013, and the results of operations of Air Amazonia are included in the Company’s consolidated statements of comprehensive income (loss) since the closing date of the acquisition. During the third quarter of 2014 the Company finalized the purchase accounting related to the acquisition, including the working capital adjustment receivable under the purchase agreement of $1.0 million, goodwill of $5.3 million, and $2.5 million customer relationship intangible, for a final total purchase price consideration of $26.0 million.

Note 7. Other Intangible Assets, net

Other intangible assets, net consisted of the following (in thousands):
 
 
Useful Life
(in years)
 
September 30, 2014
 
December 31, 2013
Customer Relationships (EHI)
9
 
$
19,300

 
$
19,300

Customer Relationships (Air Amazonia)
9
 
2,500

 
2,500

Type Certificate(1)
Indefinite
 
2,205

 
2,205

 
 
 
24,005

 
24,005

Less: accumulated amortization
 
 
(3,351
)
 
(1,521
)

 
 
$
20,654

 
$
22,484

 
(1)
The Type Certificate included in intangible assets is the Type Certificate for engines used in the Aircrane, purchased individually during 2013.

During the three and nine months ended September 30, 2014, amortization expense for intangible assets was $0.6 million and $1.8 million, respectively, and was recorded in cost of sales. Estimated amortization expense for intangible assets for future periods, including remaining amounts to be recorded in 2014 as of September 30, 2014, is as follows (in thousands):
 

Intangible Asset Amortization
2014
$
605

2015
2,421

2016
2,421

2017
2,421

2018
2,421

Thereafter
8,160

Total
$
18,449



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Note 8. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following (in thousands):
 
 
September 30, 2014
 
December 31, 2013
Payroll and related taxes
$
12,112

 
$
12,004

Deferred maintenance on aircraft(1)
3,287

 
9,694

Interest
12,640

 
5,142

Deferred revenue
757

 
1,210

Deferred gain on sale-leaseback
1,760

 
—

Other
8,952

 
13,183


$
39,508

 
$
41,233


(1) In connection with the acquisition of EHI, the Company pre-negotiated accelerated timelines and return-to-service obligations with the lessors of certain EHI leased aircraft in exchange for obtaining consent for the transfer of the leases to the Company. The liability was estimated based on historical maintenance costs incurred for the same or like components.

Note 9. Debt

Outstanding debt consisted of the following (in thousands):
 

September 30, 2014
 
December 31, 2013
2020 Senior Notes
$
355,000

 
$
355,000

Revolving Credit Facility
86,240

 
68,086

2020 subordinated notes, net of discount
16,387

 
16,160

Fixtures financing
444

 
—

Total
$
458,071

 
$
439,246


2020 Senior Notes Offering

On May 2, 2013, the Company closed its $400.0 million aggregate principal note offering. The 2020 Senior Notes bear interest at 8.25%, are second priority senior secured obligations, and are due in 2020. The 2020 Senior Notes are guaranteed by certain of the Company’s existing and future domestic subsidiaries.

The Company used the net proceeds of the offering to (i) finance a portion of the purchase price for the EHI acquisition, (ii) refinance its 2015 Subordinated Notes and 2016 Subordinated Notes, (iii) refinance its prior senior secured asset-based revolving credit facility, comprised of the Term Debt and Revolving Line of Credit, (iv) pay related fees and expenses, and (v) used the remaining cash to fund operations.
The indenture under which the 2020 Senior Notes were issued, among other things, limits the Company’s ability and the ability of its restricted subsidiaries to: (i) pay dividends or distributions, repurchase equity, prepay subordinated debt or make certain investments; (ii) incur additional debt or issue certain disqualified stock and preferred stock; (iii) incur liens on assets; (iv) merge or consolidate with another company or sell all or substantially all assets; (v) enter into transactions with affiliates; and (vi) allow to exist certain restrictions on the ability of the guarantors to pay dividends or make other payments to the Company.
The 2020 Senior Notes are secured by second-position liens, subject to certain exceptions and permitted liens, on substantially all of the Company and the guarantors’ existing and future assets that secure the Company’s new Revolving Credit Facility.

The interest rate on the 2020 Senior Notes is fixed at 8.25%. The outstanding balance under the 2020 Senior Notes at September 30, 2014 and December 31, 2013 was $355.0 million.


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A total of $46.0 million of the net proceeds were initially deposited in escrow, consisting of $45.0 million of aggregate principal and $1.0 million related to anticipated interest, to be used toward the acquisition of Air Amazonia. Pursuant to the terms of the 2020 Senior Notes, these proceeds of the offering were not released from escrow to consummate the Air Amazonia acquisition before July 31, 2013, and as a result, an aggregate principal amount of 2020 Senior Notes equal to $45.0 million were redeemed, on a pro rata basis, on August 5, 2013 pursuant to a special mandatory redemption, at a price equal to 100% of the principal amount of the 2020 Senior Notes being redeemed, plus accrued and unpaid interest to, but not including, August 5, 2013. The Company funded the purchase price of the Air Amazonia acquisition with borrowings from its Revolving Credit Facility during 2013 (see “Note 6 —Acquisitions”).

On May 2, 2014, the Company commenced an offer (the “Exchange Offer”) to exchange all $355.0 aggregate principal amount of its outstanding 8.25% Second Priority Senior Secured Notes due 2020, which were not registered under the Securities Act of 1933 (the “Old Notes”), for an equal principal amount of new 8.25% Second Priority Senior Secured Notes due 2020 which have been registered under the Securities Act of 1933 (the “New Notes”). The Exchange Offer was completed on June 6, 2014.

Revolving Credit Facility

On May 2, 2013, the Company entered into the Revolving Credit Facility, providing a new $100.0 million, five-year revolving credit facility with a group of financial institutions led by Wells Fargo Bank N.A. and including Bank of the West, Deutsche Bank Trust Company Americas, and HSBC Bank USA NA. On June 14, 2013, the Revolving Credit Facility was amended to increase the maximum aggregate amount that the Company may borrow from $100.0 million to $125.0 million, and on March 11, 2014 it was amended to increase the maximum amount that the Company may borrow to $140.0 million. The interest rate under the Revolving Credit Facility is 225-450 basis points over LIBOR/Prime base rate depending on the Company’s senior leverage ratio. The proceeds under the Revolving Credit Facility are primarily used for general corporate purposes.

The Company and each of the Company’s current and future, direct and indirect, material subsidiaries guarantee the indebtedness under the Revolving Credit Facility on a senior secured first lien basis.

The Revolving Credit Facility contains certain financial covenants including, without limitation, a minimum fixed charge coverage ratio of 1.20:1.00 if the Company’s average excess availability, as calculated pursuant to the terms of the Revolving Credit Facility, is greater than $16.8 million or 1.05:1.00 if the Company’s average excess availability, as calculated pursuant to the terms of the Revolving Credit Facility, is less than or equal to $16.8 million. The Revolving Credit Facility also imposes an annual growth capital expenditures limit of approximately $25.0 million, subject to standard carry-over provisions. The Company was in compliance with the financial covenants as of September 30, 2014 and December 31, 2013.

The Revolving Credit Facility includes mandatory prepayment requirements for the certain types of transactions, including, without limitation, requiring prepayment from (a) proceeds that the Company receives as a result of certain asset sales, subject to re-investment provisions on terms to be determined, and (b) proceeds from extraordinary receipts.

The outstanding balance under the Revolving Credit Facility at September 30, 2014 and December 31, 2013 was $86.2 million and $68.1 million, respectively. The weighted average interest rate for borrowings under the Revolving Credit Facility for the three and nine months period ended September 30, 2014 was 5.08% and 5.10%, respectively. The interest rate at September 30, 2014 and December 31, 2013 was 4.92% and 5.06%, respectively. As of September 30, 2014 and December 31, 2013 the Company had $4.4 million and $5.1 million in outstanding standby letters of credit under the Revolving Credit Facility, respectively, and maximum borrowing availability was $49.4 million and $51.8 million as of September 30, 2014 and December 31, 2013, respectively.

2020 Subordinated Notes

Pursuant to the terms of the EHI stock purchase agreement, the consideration included $17.5 million of the Company’s subordinated notes. The subordinated notes accrue interest at a fixed rate of 6.0% per annum, mature on November 2, 2020, and may be prepaid at the Company’s option. Upon an event of default under the subordinated notes, the interest rate will increase to 8.0% per annum until the event of default is cured. The Company has agreed to pay, in cash, quarterly installments of interest only (in arrears) until March 31, 2015, after which date the Company has agreed to pay, in addition to such interest, on a quarterly basis $1.0 million in principal. Upon any refinancing of the 2020 Senior Notes or the Revolving Credit Facility the principal amount of the subordinated notes with all accrued interest thereon will become due and payable. Upon a change of control, the principal amount together with all accrued interest shall forthwith be due and payable. Until the principal amount of the subordinated notes together with all accrued interest thereon has been paid in full, the Company and its subsidiaries may not

15
Table of Contents

declare or pay any dividend, make any payment on account of, or take certain other actions in respect of any of the Company or its subsidiaries’ equity interests, subject to certain exceptions.

For purchase accounting of the EHI acquisition, the fair value of the subordinated notes was estimated at $15.9 million, assuming a market level borrowing rate of 9.00%. As of September 30, 2014, the carrying value of the 2020 Subordinated Notes was $16.4 million, made up of the face value of $17.5 million net of the unamortized discount of $1.1 million. As of December 31, 2013, the carrying value of the 2020 Subordinated Notes was $16.2 million, made up of the face value of $17.5 million net of the unamortized discount of $1.3 million.The weighted average interest rate for borrowings under the 2020 Subordinated Notes was 6.00% during the three and nine months period ended September 30, 2014.

Advance from Cambiano

EuAC is party to an Amended Agreement with Banca Di Credito Cooperativo Di Cambiano (“Cambiano”) whereby EuAC may request advances up to €4.0 million. Advances are based on documentary proof of receivables due from the Italian government. The purpose of this Agreement is to provide short term liquidity needs. There were no advances outstanding as of September 30, 2014 and December 31, 2013. The agreement may be canceled by either party at any time.

On August 4, 2008, EuAC executed a bank guarantee and pledged €3.0 million as restricted cash in connection with a performance guarantee for a four-year leasing contract in Italy. Following receipt of the restricted cash, Cambiano issued a letter of credit for the performance bond. In the third quarter of 2012, the restricted cash amount was reduced to $2.6 million (€2.0 million), in conjunction with the reduction in the corresponding letter of credit. The restrictions renewed in June 2013 through the remainder of the 2013 fire season and the Company has classified the restricted cash related to the pledges as current assets based on the anticipated release date of the restriction. In the third quarter of 2014, the restricted cash amount was reduced to $0.3 million (€0.3 million), in conjunction with the reduction in the corresponding letter of credit.

Note 10. Goodwill
The changes in the carrying amount of goodwill for the nine months ended September 30, 2014, are as follows (in thousands):
 

Government Segment
 
Commercial Segment
 
Total
Balance at January 1, 2014
 
 
 
 
 
Goodwill
$
231,627

 
$
3,351

 
$
234,978

Activity during 2014
 
 
 
 
 
Impairment losses
(21,272
)
 
—

 
(21,272
)
Purchase accounting adjustments for Air Amazonia
—

 
1,928

 
1,928

Balance at September 30, 2014
 
 
 
 
 
Goodwill
$
210,355

 
$
5,279

 
$
215,634

The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Conditions that would trigger an impairment assessment, include, but are not limited to, a significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action.

The goodwill impairment test involves a two-step process pursuant to ASC 350-20-35. The first step compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the second step of the impairment test is to measure the amount of impairment loss. In the second step, the reporting unit’s fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit’s goodwill is less than the carrying value, the difference is recorded as an impairment loss.

During the second quarter of 2014, the Company performed the annual impairment review for EHI, which is considered a reporting unit for the purposes of that analysis. The Company compared business unit book value to its fair value, determined through the income approach, and concluded step two of the impairment test should be performed.


16
Table of Contents

For the purposes of step two analysis, the Company estimated the fair value of EHI reporting unit using income approach. The income approach estimates fair value by discounting the future cash flows expected to be generated by the business unit to their present value. The Company believes this is the most reliable indicator of fair value and is consistent with the approach a market place participant would use. Based on the Company’s step two analysis, the implied fair value of goodwill was lower than its carrying value. As a result, the Company recorded an impairment charge of $21.3 million against the carrying amount of goodwill during the quarter ended June 30, 2014. The impairment charge is included in impairment of goodwill on the consolidated statements of comprehensive income (loss).
The estimation of fair value utilizing the above approach includes numerous uncertainties which require significant judgment when making assumptions of the cost of capital, expected growth rates, selection of discount rates, as well as assumptions regarding general economic and business conditions, among other factors. Key assumptions used in measuring the implied fair value of goodwill included a discount rate of 10%, effective tax rate of 38%, terminal EBITDA multiple of 7.0, and utilizing excess earnings method to value the customer relationship intangible.

During the third quarter of 2014, the Company performed the annual goodwill impairment review for the Oil and Gas business, which is considered a reporting unit, under our commercial operating segment, for the purposes of that analysis. The goodwill originated as a result of purchase price accounting for Air Amazonia acquisition, see Note 6 "Acquisitions". The Company assessed qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As a result of this qualitative assessment, the Company determined it was not necessary to perform the step one of the goodwill impairment test.


17
Table of Contents

Note 11. Consolidating Financial Information

Certain of the Company’s subsidiaries have guaranteed its obligations under the $355.0 million outstanding principal amount of 8.25% notes due 2020. The following presents the condensed consolidating financial information for:
 
•
Erickson Incorporated (the ‘‘Parent Company’’), the issuer of the guaranteed obligations;

•
Guarantor subsidiaries, on a combined basis, as specified in the indenture related to the Company’s obligations under the 2020 Senior Notes;

•
Non-guarantor subsidiaries, on a combined basis;

•
Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions between or among the Parent Company, the guarantor subsidiaries and the non-guarantor subsidiaries, (b) eliminate the investments in the Company’s subsidiaries, and (c) record consolidating entries; and

•
Erickson Incorporated and Subsidiaries on a consolidated basis

Each guarantor subsidiary was 100% owned by the Parent Company as of the date of each condensed consolidating balance sheet presented. The 2020 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements, except for the use by the Parent Company and guarantor subsidiaries of the equity method of accounting to reflect ownership interests in subsidiaries which are eliminated upon consolidation. Changes in intercompany receivables and payables related to operations, such as intercompany sales or service charges, are included in cash flows from operating activities. All figures presented are in thousands. Figures presented as of September 30, 2014 and for the three and nine months ended September 30, 2014 are unaudited.
 

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Table of Contents

 
Condensed Consolidating Balance Sheet 
 September 30, 2014

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
26

 
$
61

 
$
2,472

 
$
—

 
$
2,559

Restricted cash
142

 
—

 
323

 
—

 
465

Accounts receivable, net
27,268

 
25,216

 
13,412

 
65

 
65,961

Prepaid expenses and other current assets
8,060

 
1,013

 
1,125

 
—

 
10,198

Income tax receivable
70

 
—

 
92

 
—

 
162

Deferred tax assets
1,882

 
—

 
469

 
—

 
2,351

Total current assets
37,448

 
26,290

 
17,893

 
65

 
81,696

Aircraft support parts, net
105,597

 
31,848

 
448

 
(45
)
 
137,848

Aircraft, net
84,158

 
35,940

 
3,377

 
—

 
123,475

Property, plant and equipment, net
67,633

 
56,751

 
1,517

 
—

 
125,901

Goodwill
—

 
210,355

 
6,041

 
(762
)
 
215,634

Other intangible assets, net
2,205

 
16,262

 
2,187

 
—

 
20,654

Other non-current assets
323,843

 
5,579

 
533

 
(305,094
)
 
24,861

Total assets
$
620,884

 
$
383,025

 
$
31,996

 
$
(305,836
)
 
$
730,069

Liabilities and stockholders’ equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
7,683

 
12,594

 
2,396

 
—

 
$
22,673

Accrued and other current liabilities
(45,491
)
 
56,170

 
28,829

 
—

 
39,508

Income tax payable
74

 
(2
)
 
903

 
—

 
975

Total current liabilities
(37,734
)
 
68,762

 
32,128

 
—

 
63,156

Long-term debt, less current portion
16,831

 
—

 
—

 
—

 
16,831

Long-term revolving credit facilities
86,240

 
—

 
—

 
—

 
86,240

Long-term notes payable
355,000

 
—

 
—

 
—

 
355,000

Other long-term liabilities
12,625

 
—

 
63

 
—

 
12,688

Uncertain tax positions
5,669

 
—

 
—

 
—

 
5,669

Deferred tax liabilities
7,208

 
—

 
(1,486
)
 
—

 
5,722

Total liabilities
445,839

 
68,762

 
30,705

 
—

 
545,306

Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
1,675

 
(1,675
)
 
1

Additional paid-in capital
180,818

 
297,994

 
33

 
(298,027
)
 
180,818

Retained earnings (accumulated deficit)
(5,172
)
 
16,269

 
(1,420
)
 
(5,414
)
 
4,263

Accumulated other comprehensive income (loss)
(602
)
 
—

 
369

 
(889
)
 
(1,122
)
Total stockholders’ equity (deficit) attributable to Erickson Incorporated
175,045

 
314,263

 
657

 
(306,005
)
 
183,960

Noncontrolling interest
—

 
—

 
634

 
169

 
803

Total stockholders’ equity (deficit)
175,045

 
314,263

 
1,291

 
(305,836
)
 
184,763

Total liabilities and stockholders’ equity
$
620,884

 
$
383,025

 
$
31,996

 
$
(305,836
)
 
$
730,069


19
Table of Contents

 
Condensed Consolidating Balance Sheet 
 December 31, 2013

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
576

 
$
(12
)
 
$
1,317

 
$
—

 
$
1,881

Restricted cash
151

 
364

 
2,368

 
—

 
2,883

Accounts receivable, net
17,290

 
40,560

 
8,024

 
113

 
65,987

Prepaid expenses and other current assets
1,878

 
582

 
900

 
—

 
3,360

Income tax receivable
70

 
—

 
65

 
—

 
135

Deferred tax assets
3,372

 
—

 
343

 
—

 
3,715

Total current assets
23,337

 
41,494

 
13,017

 
113

 
77,961

Aircraft support parts, net
93,719

 
33,022

 
—

 
(45
)
 
126,696

Aircraft, net
88,242

 
35,236

 
3,701

 
—

 
127,179

Property, plant and equipment, net
70,145

 
37,825

 
1,412

 
—

 
109,382

Other intangible assets, net
2,205

 
17,870

 
2,409

 
—

 
22,484

Goodwill
—

 
231,626

 
4,114

 
(762
)
 
234,978

Other non-current assets
325,768

 
7,133

 
816

 
(305,092
)
 
28,625

Total assets
$
603,416

 
$
404,206

 
$
25,469

 
$
(305,786
)
 
$
727,305

Liabilities and stockholders’ equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
8,179

 
17,889

 
2,967

 
—

 
$
29,035

Accrued and other current liabilities
(48,899
)
 
66,513

 
23,592

 
27

 
41,233

Income tax payable
—

 
—

 
621

 
—

 
621

Total current liabilities
(40,720
)
 
84,402

 
27,180

 
27

 
70,889

Long-term debt, less current portion
16,160

 
—

 
—

 
—

 
16,160

Long-term revolving credit facilities
68,086

 
—

 
—

 
—

 
68,086

Long-term notes payable
355,000

 
—

 
—

 
—

 
355,000

Other long-term liabilities
1,756

 
—

 
63

 
—

 
1,819

Uncertain tax positions
5,669

 
—

 
—

 
—

 
5,669

Deferred tax liabilities
16,745

 
—

 
30

 
—

 
16,775

Total liabilities
422,696

 
84,402

 
27,273

 
27

 
534,398

Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
1,674

 
(1,674
)
 
1

Additional paid-in capital
179,954

 
297,994

 
33

 
(298,027
)
 
179,954

Retained earnings (accumulated deficit)
806

 
21,810

 
(5,142
)
 
(5,370
)
 
12,104

Accumulated other comprehensive income (loss)
(41
)
 
—

 
997

 
(998
)
 
(42
)
Total stockholders’ equity (deficit) attributable to Erickson Incorporated
180,720

 
319,804

 
(2,438
)
 
(306,069
)
 
192,017

Noncontrolling interest
—

 
—

 
634

 
256

 
890

Total stockholders’ equity (deficit)
180,720

 
319,804

 
(1,804
)
 
(305,813
)
 
192,907

Total liabilities and stockholders’ equity
$
603,416

 
$
404,206

 
$
25,469

 
$
(305,786
)
 
$
727,305


20
Table of Contents

 
Condensed Consolidating Statement of Operations 
 Quarter Ended September 30, 2014

Parent 
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net revenues:
$
64,553

 
$
39,111

 
$
19,107

 
$
(4,433
)
 
$
118,338

Cost of revenues
28,709

 
34,940

 
11,025

 
(4,314
)
 
70,360

Gross profit
35,844

 
4,171

 
8,082

 
(119
)
 
47,978

Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
5,450

 
186

 
972

 
—

 
6,608

Research and development
783

 
—

 
—

 
—

 
783

Selling and marketing
2,012

 
136

 
31

 
(119
)
 
2,060

Impairment of goodwill
—

 
—

 
—

 
—

 
—

Total operating expenses
8,245

 
322

 
1,003

 
(119
)
 
9,451

Operating income
27,599

 
3,849

 
7,079

 
—

 
38,527

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(8,874
)
 
—

 
(128
)
 
—

 
(9,002
)
Other income (expense), net
(1,227
)
 
316

 
87

 
(7
)
 
(831
)
Total other income (expense)
(10,101
)
 
316


(41
)

(7
)

(9,833
)
Net income (loss) before income taxes and noncontrolling interest
17,498

 
4,165

 
7,038

 
(7
)
 
28,694

Income tax expense
9,580

 
—

 
2,173

 
—

 
11,753

Net income (loss)
7,918

 
4,165

 
4,865

 
(7
)
 
16,941

Less: Net income related to noncontrolling interest
—