EAC-2015.03.31-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
_________________________
FORM 10-Q
_________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
¨
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) 
 _________________________
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 April 30, 2015, 13,833,174 shares of common stock, par value $0.0001, were outstanding.

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Table of Contents

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


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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)

March 31,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,874

 
$
5,097

Restricted cash
518

 
567

Accounts receivable, net of allowances for doubtful accounts of $188 and $739 in 2015 and 2014, respectively
51,932

 
44,350

Inventory
9,153

 
—

Prepaid expenses and other current assets
8,783

 
8,780

Income tax receivable
739

 
677

Deferred tax assets
1,286

 
1,230

Total current assets
75,285

 
60,701

Aircraft support parts, net
138,898

 
137,593

Assets held for sale
8,350

 
—

Aircraft, net
115,099

 
128,221

Property, plant and equipment, net
117,127

 
120,635

Goodwill
164,550

 
215,241

Other intangible assets, net
19,413

 
20,053

Other non-current assets
21,932

 
23,077

Total assets
$
660,654

 
$
705,521

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
17,149

 
$
19,844

Current portion of long-term debt
3,793

 
4,144

Accrued and other current liabilities
35,612

 
19,034

Income tax payable
—

 
315

Deferred tax liabilities
—

 
884

Total current liabilities
56,554

 
44,221

Long-term debt
12,185

 
12,751

Long-term revolving credit facilities
103,925

 
89,339

Long-term notes payable
355,000

 
355,000

Other long-term liabilities
19,513

 
13,181

Uncertain tax positions
6,581

 
6,313

Deferred tax liabilities
3,412

 
3,703

Total liabilities
557,170

 
524,508

Stockholders’ equity:
 
 
 
Common stock; $0.0001 par value; 110,000,000 shares authorized; 13,823,818 and 13,823,818 issued and outstanding at March 31, 2015 and December 31, 2014, respectively
1

 
1

Additional paid-in capital
181,163

 
181,018

Retained earnings (accumulated deficit)
(73,158
)
 
1,812

Accumulated other comprehensive loss, net of tax
(5,012
)
 
(2,544
)
Total stockholders’ equity attributable to Erickson Incorporated
102,994

 
180,287

Noncontrolling interest
490

 
726

Total stockholders’ equity
103,484

 
181,013

Total liabilities and stockholders’ equity
$
660,654

 
$
705,521


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

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Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(Unaudited) 
 
Three Months Ended March 31,

2015
 
2014
Net revenues
$
66,162

 
$
74,184

Cost of revenues
64,788

 
66,658

Gross profit
1,374

 
7,526

Operating expenses:
 
 
 
General and administrative
6,938

 
6,797

Research and development
878

 
1,318

Selling and marketing
1,755

 
2,234

Impairment of goodwill
49,823

 
—

Other asset impairment
7,143

 
—

Total operating expenses
66,537

 
10,349

Operating loss
(65,163
)
 
(2,823
)
Other income (expense):
 
 
 
Interest expense, net
(9,212
)
 
(8,753
)
Amortization of debt issuance costs
(624
)
 
(621
)
Unrealized foreign exchange gain (loss)
(436
)
 
217

Realized foreign exchange gain (loss)
(68
)
 
(57
)
Gain (loss) on disposal of equipment
(6
)
 
130

Other expense, net
(191
)
 
(188
)
Total other income (expense)
(10,537
)
 
(9,272
)
Net loss before income taxes and noncontrolling interest
(75,700
)
 
(12,095
)
Income tax benefit
(617
)
 
(4,570
)
Net loss
(75,083
)
 
(7,525
)
Less: Net (income) loss related to noncontrolling interest
113

 
(69
)
Net loss attributable to Erickson Incorporated and common stockholders
$
(74,970
)
 
$
(7,594
)
Net loss
$
(75,083
)
 
$
(7,525
)
Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment
(2,591
)
 
330

Comprehensive loss
(77,674
)
 
(7,195
)
Comprehensive (income) loss attributable to noncontrolling interest
236

 
(69
)
Comprehensive loss attributable to Erickson Incorporated
$
(77,438
)
 
$
(7,264
)
Net loss per share attributable to common stockholders
 
 
 
Basic
$
(5.42
)
 
$
(0.55
)
Diluted
$
(5.42
)
 
$
(0.55
)
Weighted average shares outstanding
 
 
 
Basic
13,823,818

 
13,789,426

Diluted
13,823,818

 
13,789,426



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

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

Shares
 
Amount
 
 
 
 
 
 
Balance at December 31, 2013
13,787,914

 
$
1

 
$
179,954

 
$
12,104

 
$
(42
)
 
$
192,017

 
$
890

 
$
192,907

Issuance of Restricted Stock Units
50,695

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Noncontrolling interest dividend
—

 
—

 
—

 
—

 
—

 
—

 
(69
)
 
(69
)
Stock-based compensation
—

 
—

 
861

 
—

 
—

 
861

 
—

 
861

Shares withheld for payment of taxes
(14,791
)
 
—

 
(211
)
 
—

 
—

 
(211
)
 
—

 
(211
)
Proceeds from shareholder, net
—

 
—

 
414

 
—

 
—

 
414

 
—

 
414

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

 
—

 
—

 
(10,292
)
 
—

 
(10,292
)
 
61

 
(10,231
)
Foreign currency translation
—

 
—

 
—

 
—

 
(2,502
)
 
(2,502
)
 
(156
)
 
(2,658
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(12,889
)
Balance at December 31, 2014
13,823,818

 
$
1

 
$
181,018

 
$
1,812

 
$
(2,544
)
 
$
180,287

 
$
726

 
$
181,013

Stock-based compensation
—

 
—

 
145

 
—

 
—

 
145

 
—

 
145

Components of comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(74,970
)
 
—

 
(74,970
)
 
(113
)
 
(75,083
)
Foreign currency translation
—

 
—

 
—

 
—

 
(2,468
)
 
(2,468
)
 
(123
)
 
(2,591
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(77,674
)
Balance at March 31, 2015
13,823,818

 
$
1

 
$
181,163

 
$
(73,158
)
 
$
(5,012
)
 
$
102,994

 
$
490

 
$
103,484


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

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ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended March 31,

2015
 
2014
Cash flows from operating activities:
 
 
 
Net loss
$
(75,083
)
 
$
(7,525
)
Adjustments to reconcile loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
8,818

 
7,953

Impairment of goodwill
49,823

 
—

Other asset impairment
7,143

 
—

Deferred income taxes
(1,418
)
 
(3,984
)
Non-cash interest expense on debt
177

 
37

Stock-based compensation
145

 
160

Amortization of debt issuance costs
624

 
621

Loss (gain) on sale of equipment
6

 
(130
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(8,059
)
 
13,876

Inventory
(9,153
)
 
—

Prepaid expenses and other current assets
(224
)
 
(599
)
Income tax receivable
263

 
(785
)
Aircraft support parts, net
(1,523
)
 
(7,864
)
Other non-current assets
2,390

 
1,545

Accounts payable
(2,205
)
 
1,995

Accrued and other current liabilities
17,447

 
(4,043
)
Income tax payable
(601
)
 
943

Other long-term liabilities
3,689

 
294

Net cash provided by (used in) operating activities
(7,741
)
 
2,494

Cash flows from investing activities:
 
 
 
Purchases of aircraft and property, plant and equipment, net
(5,674
)
 
(17,483
)
Restricted cash
(51
)
 
200

Net cash used in investing activities
(5,725
)
 
(17,283
)
Cash flows from financing activities:
 
 
 
Proceeds from shareholders, net
—

 
414

Repayments of subordinated notes
(1,000
)
 
—

Repayments of credit facilities
(34,211
)
 
(24,400
)
Borrowings from credit facilities
48,797

 
39,867

Other long-term borrowings
(48
)
 
—

Payments under capital leases
(140
)
 
—

Debt issuance costs
(70
)
 
(230
)
Net cash provided by financing activities
13,328

 
15,651

Effect of foreign currency exchange rates on cash and cash equivalents
(2,085
)
 
467

Net increase (decrease) in cash and cash equivalents
(2,223
)
 
1,329

Cash and cash equivalents at beginning of period
5,097

 
1,881

Cash and cash equivalents at end of period
$
2,874

 
$
3,210

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
1,594

 
$
1,269

Cash paid for income taxes, net
$
768

 
$
486


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

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ERICKSON INCORPORATED AND SUBSIDIARIES
NOTES TO THE 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 March 31, 2015, the Company owned a fleet of 19 heavy lift helicopters, comprised of 13 S-64E and six S-64F model Aircranes, and 34 medium and light lift aircraft of varying model types, comprised of 28 rotor wing aircraft and six fixed-wing aircraft. As of March 31, 2015, the Company leased a fleet of one heavy lift S-64F model Aircrane, 31 medium and light lift aircraft of varying types, comprised of 26 rotor wing aircraft and five fixed-wing aircraft. The Company’s fleet operations span the globe with a presence on six continents. As of March 31, 2015, 24 of the owned aircraft and 20 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. The Company also holds the production certificate to manufacture engine parts for the Pratt & Whitney JT12 and JFTD12 engines.

Fiscal 2015
On January 1, 2015, as a result of an organizational restructuring, the Company established new operating reportable segments to assess performance by type of customer and end market: Government Aviation Services, Commercial Aviation Services and Manufacturing & MRO.

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.

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

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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, 2014 included in the Company’s annual report on Form 10-K filed with the SEC on March 10, 2015.

The balance sheet at December 31, 2014 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.

Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. Reclassification has been made to prior period amounts of external commissions from sales and marketing operating expenses to cost of revenues on the consolidated statements of comprehensive loss. Such reclassification had no effect on previously reported consolidated statements of stockholders’ equity or the consolidated balance sheet. The prior period reclassification includes $0.8 million of external commissions reclassified from sales and marketing operating expenses to cost of revenues on the consolidated statements of comprehensive loss for the three months ended March 31, 2014.
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 March 31, 2015, 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.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company is currently evaluating the impact the adoption of this standard will have on the consolidated financial statements.
There have been no other recent accounting pronouncements or changes in accounting pronouncements during the quarter ended March 31, 2015 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):
 
March 31, 2015
 
December 31, 2014
Trade accounts receivable
$
49,597

 
$
42,296

Other receivables
2,523

 
2,793

Less: allowance for doubtful accounts
(188
)
 
(739
)

$
51,932

 
$
44,350


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The Company had bad debt expense of zero in the three months ended March 31, 2015. During the three months ended March 31, 2014, the Company had bad debt recoveries of $0.3 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 March 31, 2015 or December 31, 2014:
 
Segment
 
March 31, 2015
 
December 31, 2014
Fluor
Government Aviation Services
 
15.9
%
 
14.4
%
Alion Science and Technology Corporation
Government Aviation Services
 
9.6
%
 
11.8
%
Hellenic Fire Brigade(1)
Commercial Aviation Services
 
8.4
%
 
10.8
%
 
 
 
33.9
%
 
37.0
%
(1)
On May 23, 2012, the Company entered into a three year agreement with the NATO Support Agency (“NSPA”), pursuant to which the Company agreed to supply aerial firefighting services in Greece for the 2012 to 2014 firefighting seasons. Prior to the agreement with NAMSA, the Company contracted directly with the Hellenic Fire Brigade to provide firefighting services in Greece. At March 31, 2015 and December 31, 2014, the receivable from Hellenic Fire Brigade was classified in other non-current assets due to the long-term nature of obtaining resolution regarding the Company’s permanent establishment status in Greece.
The following is a summary of customers that accounted for at least 10% of the Company’s net revenues in the three months ended March 31, 2015 or March 31, 2014:
 
Three Months Ended March 31,
 
2015
 
2014
Fluor
20.5
%
 
20.4
%
Kestrel (Australia)
12.8
%
 
14.9
%
Alion Science and Technology Corporation
10.3
%
 
—
%
Army Contracting Command - Rock Island
—
%
 
11.2
%
 
43.6
%
 
46.5
%
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. Inventory
Inventory consists of the following (in thousands):

March 31, 2015
 
December 31, 2014
Finished goods
$
9,153

 
$
—

In the first quarter of 2015, the Company entered into an exclusive agreement with Bell Helicopters Textron Inc. (Bell) to provide support for the Bell 214 B and ST models, including spare parts supply, technical assistance, maintenance training, and maintenance, repair and overhaul (MRO) services. As a part of the agreement the Company acquired $9.4 million of inventory from Bell in exchange for a two year promissory note. When acquired, the Company classified the assets as inventory within current assets in the consolidated balance sheet.


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Note 5. 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 both March 31, 2015 and December 31, 2014, there was one aircraft being remanufactured.
Aircraft support parts consisted of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Aircraft parts
$
126,580

 
$
124,629

Work-in-process
17,868

 
18,604

Less: Excess and obsolete reserve
(5,550
)
 
(5,640
)

$
138,898

 
$
137,593


Note 6. Assets Held for Sale
We have classified certain assets as held for sale as these assets are ready for immediate sale and the Company expects these assets to be sold within one year. The changes in assets held for sale during the three months ended March 31, 2015, are as follows (dollars in thousands):
 
Assets Held for Sale
 
# of Aircraft
 
 
Aircraft held for sale
 
 
 
Book value, January 1, 2015
—
 
$
—

Classified as held for sale, net of impairment
9
 
5,779

Aircraft held for sale, March 31, 2015
9
 
5,779

Deferred overhauls associated with aircraft held for sale, March 31, 2015
 
 
2,571

Total assets held for sale, March 31, 2015
 
 
$
8,350

During the first quarter of 2015, nine aircraft were reclassified to assets held for sale as the Company reviewed its fleet strategy for fiscal 2015. The Company recorded an impairment charge of $7.1 million to write down the carrying value of the aircraft to their estimated fair value less the costs to sell. The charge is included in other asset impairment in the consolidated statement of comprehensive loss for the three months ended March 31, 2015. The fair value of assets held for sale is considered a level 2 measurement in the fair value hierarchy as the measurement is based on the recent sales and listed prices in the active markets for similar aircraft. The assets will no longer be depreciated or amortized effective March 31, 2015.

Note 7. Aircraft and Property, Plant and Equipment
Aircraft, net consisted of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Aircraft
$
149,634

 
$
162,246

Less: Accumulated depreciation
(34,535
)
 
(34,025
)

$
115,099

 
$
128,221


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Property, plant, and equipment, net consisted of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Land and land improvements
$
308

 
$
308

Buildings
9,372

 
7,926

Vehicles and equipment
30,198

 
29,500

Deferred overhauls, net
82,881

 
86,768

Construction-in-progress
15,126

 
15,926

 
137,885

 
140,428

Less: Accumulated depreciation and amortization
(20,758
)
 
(19,793
)

$
117,127

 
$
120,635

During the three months ended March 31, 2015 and 2014, depreciation expense was $4.7 million and $4.2 million, respectively. During the three months ended March 31, 2015 and 2014, amortization expense associated with deferred overhauls was $3.4 million and $3.2 million, respectively.
During the first quarter of 2015, the Company completed a nonmonetary exchange of aircraft pursuant to which the Company transferred four Bell 212 helicopters to a third party in exchange for two Sikorsky S-76C+ helicopters. Independent appraisal confirmed that the fair values of the two aircraft received approximated the book values of the four aircraft transferred, and no gain or loss was recorded on the transaction. Prior to the exchange the aircraft were recorded in aircraft, net and their major components were recorded in deferred overhauls, net within property, plant, and equipment, net in the Company's consolidated balance sheets. The aircraft received and their major components were also recorded in aircraft, net and deferred overhauls, net, respectively, in the consolidated balance sheets.
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 had 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 accrued and other current liabilities, and the non-current portion of deferred gain of $9.2 million is included in other long-term liabilities in the consolidated balance sheet as of March 31, 2015.

Note 8. Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2015, are as follows (in thousands):

Government Aviation Services
 
Commercial Aviation Services
 
Manufacturing & MRO
 
Total
Balance at January 1, 2015
 
 
 
 
 
 
 
Goodwill, gross
$
207,128

 
$
23,843

 
$
5,542

 
$
236,513

Accumulated impairment losses
(21,272
)
 
—

 
—

 
(21,272
)
Goodwill, net
185,856

 
23,843

 
5,542

 
215,241

Activity during 2015
 
 
 
 
 
 
 
Impairment losses
(49,823
)
 
—

 
—

 
(49,823
)
Fluctuations due to foreign currency translation adjustments
—

 
(868
)
 
—

 
(868
)
Balance at March 31, 2015
 
 
 
 
 
 
 
Goodwill, gross
207,128

 
22,975

 
5,542

 
235,645

Accumulated impairment losses
(71,095
)
 
—

 
—

 
(71,095
)
Goodwill, net
$
136,033

 
$
22,975

 
$
5,542

 
$
164,550

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 business climate.

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The goodwill impairment test involves a two-step process pursuant to ASC 350-20 "Intangibles - Goodwill and Other". 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 was considered a reporting unit for the purposes of that analysis. As a result, the Company recorded an impairment charge of $21.3 million against the carrying amount of goodwill during the year ended December 31, 2014.
On January 1, 2015, the Company re-evaluated its reporting units and determined four reporting units under its three operating reportable segments. The Company reassigned its goodwill to each of the four reporting units as of January 1, 2015 using a relative fair value approach.
During the first quarter of 2015, the Company performed a qualitative and quantitative analysis which indicated that it is more likely than not not that the fair value of the Government Aviation Services reporting unit is less than its carrying amount. The Company compared the business unit book value to its fair value, determined through the income approach, and concluded step two of the impairment test should be performed. For the purposes of the step two analysis, the Company estimated the fair value of the reporting unit using the 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 $49.8 million during the quarter ended March 31, 2015.
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%, an effective tax rate of 38%, a terminal EBITDA multiple of 7.0, and utilizing the excess earnings method to value the customer relationship intangible.
Note 9. Other Intangible Assets, net
Other intangible assets, net consisted of the following (in thousands):
 
Reportable Segment
 
Useful Life
(in years)
 
March 31,
2015
 
December 31,
2014
Customer Relationships
Government Aviation Services
 
9
 
$
19,300

 
$
19,300

Customer Relationships
Commercial Aviation Services
 
2
(1) 
 
2,500

 
2,500

Type Certificate(2)
Manufacturing & MRO
 
Indefinite
 
2,205

 
2,205

 
 
 
 
 
24,005

 
24,005

Less: accumulated amortization
 
 
 
 
(4,592
)
 
(3,952
)

 
 
 
 
$
19,413

 
$
20,053

(1)
During the first quarter of 2015 the Company reevaluated the customer relationship intangible related to the acquisition of Air Amazonia and reduced the useful life from 9 years to 2 years.
(2)
The Type Certificate included in intangible assets is the Type Certificate for engines used in the Aircrane, purchased individually during 2013.

During the three months ended March 31, 2015 and 2014, amortization expense for intangible assets was $0.6 million and $0.6 million, respectively, and was recorded in cost of revenues. Estimated amortization expense for intangible assets for future periods, including remaining amounts to be recorded in 2015 as of March 31, 2015, is as follows (in thousands):

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Intangible Asset Amortization
2015
$
2,398

2016
3,197

2017
2,320

2018
2,144

2019
2,144

Thereafter
5,005

Total
$
17,208


Note 10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following (in thousands):
 
March 31, 2015
 
December 31, 2014
Interest
$
13,002

 
$
5,542

Payroll and related taxes
7,739

 
6,069

Promissory note, net of discount(1)
4,568

 
—

Deferred revenue
2,011

 
795

Deferred gain on sale-leaseback
1,760

 
1,760

Accrued commissions
1,369

 
1,301

Capital lease obligations
834

 
—

Other
4,329

 
3,567


$
35,612

 
$
19,034

(1)
In the first quarter of 2015, the Company entered into a $10.0 million promissory note with Bell Helicopter Textron Inc. (Bell) in exchange for inventory delivered to the Company. The promissory note has no stated interest rate and matures on March 1, 2017. The Company has agreed to pay, beginning on March 1, 2015, semi-annual principal payments, in cash, until the date of maturity. For the purposes of recording the initial liability, the fair value of the promissory note was estimated at $9.4 million, assuming a market level borrowing rate of 6.5% per annum. Interest expense is recorded as the discount is amortized over the term of the note. As of March 31, 2015, the carrying value of the promissory note was $8.4 million, made up of the face value of the remaining principal of $9.0 million, net of the unamortized discount of $0.6 million. The non-current portion of the note of $3.8 million is included in other long-term liabilities in the consolidated balance sheet as of March 31, 2015.

Note 11. Debt
Outstanding debt consisted of the following (in thousands):

March 31, 2015
 
December 31, 2014
 
Current
 
Long-term
 
Current
 
Long-term
2020 Senior Notes
$
—

 
$
355,000

 
$
—

 
$
355,000

Revolving Credit Facility
—

 
103,925

 
—

 
89,339

2020 subordinated notes, net of discount
3,647

 
11,969

 
4,000

 
12,486

Fixtures financing
146

 
216

 
144

 
265

Total
$
3,793

 
$
471,110

 
$
4,144

 
$
457,090


2020 Senior Notes 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 primarily to finance a portion of the purchase price for the EHI acquisition and refinance its 2015 Subordinated Notes and 2016 Subordinated Notes.
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;

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(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 March 31, 2015 and December 31, 2014 was $355.0 million.

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 March 11, 2014 the Revolving Credit Facility was amended to increase the maximum amount that the Company may borrow from $125.0 million 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 fixed charge coverage ratio has multiple inputs, including, but not limited to, bank EBITDA, maintenance capital expenditures, and cash paid for interest and taxes. The Revolving Credit Facility also imposes an annual growth capital expenditures limit of approximately $25.0 million which is subject to standard carry-over provisions. The Company was in compliance with the financial covenants as of March 31, 2015 and December 31, 2014.

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 March 31, 2015 and December 31, 2014 was $103.9 million and $89.3 million, respectively. The weighted average interest rate for borrowings under the Revolving Credit Facility for the three months period ended March 31, 2015 was 5.07%. The interest rate at March 31, 2015 and December 31, 2014 was 5.00% and 5.02%, respectively. As of March 31, 2015 and December 31, 2014 the Company had $1.8 million and $4.7 million in outstanding standby letters of credit under the Revolving Credit Facility, respectively, and maximum borrowing availability was $34.3 million and $46.0 million as of March 31, 2015 and December 31, 2014, 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 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.


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Table of Contents

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 March 31, 2015, the carrying value of the 2020 Subordinated Notes was $15.6 million, made up of the face value of the remaining principal of $16.5 million net of the unamortized discount of $0.9 million. As of December 31, 2014, the carrying value of the 2020 Subordinated Notes was $16.5 million, made up of the face value of $17.5 million net of the unamortized discount of $1.0 million. The weighted average interest rate for borrowings under the 2020 Subordinated Notes was 6.00% during the three months period ended March 31, 2015.

Note 12. Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):

March 31, 2015
 
December 31, 2014
Deferred gain on sale-leaseback
$
9,238

 
$
9,678

Promissory note, net of discount (see Note 10)
3,833

 
—

Capital lease obligations
2,892

 
—

Other
3,550

 
3,503

 
$
19,513

 
$
13,181


Note 13. 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 March 31, 2015 and 2014, and for the three months ended March 31, 2015 and 2014 are unaudited.
 

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Table of Contents

 
Condensed Consolidating Balance Sheet 
 March 31, 2015

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
90

 
$
44

 
$
2,740

 
$
—

 
$
2,874

Restricted cash
135

 
—

 
383

 
—

 
518

Accounts receivable, net
16,522

 
25,626

 
9,746

 
38

 
51,932

Inventory
9,153

 
—

 
—

 
—

 
9,153

Prepaid expenses and other current assets
5,984

 
824

 
1,975

 
—

 
8,783

Income tax receivable
652

 
—

 
87

 
—

 
739

Deferred tax assets
1,188

 
—

 
(154
)
 
252

 
1,286

Total current assets
33,724

 
26,494

 
14,777

 
290

 
75,285

Aircraft support parts, net
108,113

 
30,486

 
344

 
(45
)
 
138,898

Assets held for sale
3,800

 
2,550

 
2,000

 
—

 
8,350

Aircraft, net
83,087

 
32,009

 
3

 
—

 
115,099

Property, plant and equipment, net
72,353

 
43,280

 
1,494

 
—

 
117,127

Goodwill
—

 
160,533

 
4,779

 
(762
)
 
164,550

Other intangible assets, net
2,205

 
15,190

 
2,018

 
—

 
19,413

Other non-current assets
322,076

 
4,313

 
637

 
(305,094
)
 
21,932

Total assets
$
625,358

 
$
314,855

 
$
26,052

 
$
(305,611
)
 
$
660,654

Liabilities and stockholders’ equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
5,030

 
9,712

 
2,407

 
—

 
$
17,149

Current portion of long-term debt
3,793

 
—

 
—

 
—

 
3,793

Accrued and other current liabilities
(26,744
)
 
34,212

 
28,144

 
—

 
35,612

Income tax payable
—

 
—

 
—

 
—

 
—

Deferred tax liabilities
226

 
—

 
—

 
(226
)
 
—

Total current liabilities
(17,695
)
 
43,924

 
30,551

 
(226
)
 
56,554

Long-term debt, less current portion
12,185

 
—

 
—

 
—

 
12,185

Long-term revolving credit facilities
103,925

 
—

 
—

 
—

 
103,925

Long-term notes payable
355,000

 
—

 
—

 
—

 
355,000

Other long-term liabilities
15,912

 
3,538

 
63

 
—

 
19,513

Uncertain tax positions
6,581

 
—

 
—

 
—

 
6,581

Deferred tax liabilities
4,051

 
—

 
(1,116
)
 
477

 
3,412

Total liabilities
479,959

 
47,462

 
29,498

 
251

 
557,170

Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
1,675

 
(1,675
)
 
1

Additional paid-in capital
181,163

 
297,994

 
33

 
(298,027
)
 
181,163

Retained earnings (accumulated deficit)
(32,150
)
 
(30,601
)
 
(5,110
)
 
(5,297
)
 
(73,158
)
Accumulated other comprehensive loss
(3,615
)
 
—

 
(678
)
 
(719
)
 
(5,012
)
Total stockholders’ equity (deficit) attributable to Erickson Incorporated
145,399

 
267,393

 
(4,080
)
 
(305,718
)
 
102,994

Noncontrolling interest
—

 
—

 
634

 
(144
)
 
490

Total stockholders’ equity (deficit)
145,399

 
267,393

 
(3,446
)
 
(305,862
)
 
103,484

Total liabilities and stockholders’ equity
$
625,358

 
$
314,855

 
$
26,052

 
$
(305,611
)
 
$
660,654


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Table of Contents

 
Condensed Consolidating Balance Sheet 
 December 31, 2014

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7

 
$
274

 
$
4,816

 
$
—

 
$
5,097

Restricted cash
136

 
—

 
431

 
—

 
567

Accounts receivable, net
13,117

 
26,199

 
4,990

 
44

 
44,350

Prepaid expenses and other current assets
6,506

 
1,171

 
1,103

 
—

 
8,780

Income tax receivable
320

 
—

 
335

 
22

 
677

Deferred tax assets
1,440

 
—

 
(210
)
 
—

 
1,230

Total current assets
21,526

 
27,644

 
11,465

 
66

 
60,701

Aircraft support parts, net
106,721

 
30,482

 
435

 
(45
)
 
137,593

Aircraft, net
82,799

 
42,405

 
3,017

 
—

 
128,221

Property, plant and equipment, net
70,732

 
47,762

 
2,141

 
—

 
120,635

Other intangible assets, net
2,205

 
15,726

 
2,122

 
—

 
20,053

Goodwill
—

 
210,356

 
5,647

 
(762
)
 
215,241

Other non-current assets
323,332

 
4,337

 
501

 
(305,093
)
 
23,077

Total assets
$
607,315

 
$
378,712

 
$
25,328

 
$
(305,834
)
 
$
705,521

Liabilities and stockholders’ equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts Payable
6,021

 
11,465

 
2,358

 
—

 
$
19,844

Current portion of long-term debt
4,144

 
—

 
—

 
—

 
4,144

Accrued and other current liabilities
(54,577
)
 
49,166

 
24,998

 
(553
)
 
19,034

Income tax payable
(397
)
 
—

 
137

 
575

 
315

Deferred tax liabilities
884

 
—

 
—

 
—

 
884

Total current liabilities
(43,925
)
 
60,631

 
27,493

 
22

 
44,221

Long-term debt, less current portion
12,751

 
—

 
—

 
—

 
12,751

Long-term revolving credit facilities
89,339

 
—

 
—

 
—

 
89,339

Long-term notes payable
355,000

 
—

 
—

 
—

 
355,000

Other long-term liabilities
12,410

 
708

 
63

 
—

 
13,181

Uncertain tax positions
6,313

 
—

 
—

 
—

 
6,313

Deferred tax liabilities
5,061

 
—

 
(1,358
)
 
—

 
3,703

Total liabilities
436,949

 
61,339

 
26,198

 
22

 
524,508

Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
1,675

 
(1,675
)
 
1

Additional paid-in capital
181,018

 
297,994

 
33

 
(298,027
)
 
181,018

Retained earnings (accumulated deficit)
(8,993
)
 
19,379

 
(3,171
)
 
(5,403
)
 
1,812

Accumulated other comprehensive loss
(1,660
)
 
—

 
(41
)
 
(843
)
 
(2,544
)
Total stockholders’ equity (deficit) attributable to Erickson Incorporated
170,366

 
317,373

 
(1,504
)
 
(305,948
)
 
180,287

Noncontrolling interest
—

 
—

 
634

 
92

 
726

Total stockholders’ equity (deficit)
170,366

 
317,373

 
(870
)
 
(305,856
)
 
181,013

Total liabilities and stockholders’ equity
$
607,315

 
$
378,712

 
$
25,328

 
$
(305,834
)
 
$
705,521


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Table of Contents

 
Condensed Consolidating Statement of Operations 
 Quarter Ended March 31, 2015

Parent 
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net revenues:
$
24,329

 
$
37,544

 
$
12,892

 
$
(8,603
)
 
$
66,162

Cost of revenues
25,197

 
34,642

 
13,517

 
(8,568
)
 
64,788

Gross profit
(868
)
 
2,902

 
(625
)
 
(35
)
 
1,374

Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
6,038

 
202

 
698

 
—

 
6,938

Research and development
878

 
—

 
—

 
—

 
878

Selling and marketing
1,707

 
50

 
33

 
(35
)
 
1,755

Impairment of goodwill
—

 
49,823

 
—

 
—

 
49,823

Other asset impairment
3,441

 
2,749

 
953

 
—

 
7,143

Total operating expenses
12,064

 
52,824

 
1,684

 
(35
)
 
66,537

Operating loss
(12,932
)
 
(49,922
)
 
(2,309
)
 
—

 
(65,163
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(9,030
)
 
(76
)
 
(106
)
 
—

 
(9,212
)
Other income (expense), net
(1,743
)
 
19

 
405

 
(6
)
 
(1,325
)
Total other income (expense)
(10,773
)
 
(57
)

299


(6
)

(10,537
)
Net loss before income taxes and noncontrolling interest
(23,705
)
 
(49,979
)
 
(2,010
)
 
(6
)
 
(75,700
)
Income tax benefit
(542
)
 
—

 
(75
)
 
—

 
(617
)
Net loss
(23,163
)
 
(49,979
)
 
(1,935
)
 
(6
)
 
(75,083
)
Less: Net loss related to noncontrolling interest
—

 
—

 
—

 
113

 
113

Net income (loss) attributable to Erickson Incorporated and common stockholders
$
(23,163
)
 
$
(49,979
)
 
$
(1,935
)
 
$
107

 
$
(74,970
)

18
Table of Contents


 
Condensed Consolidating Statement of Operations 
 Quarter Ended March 31, 2014

Parent Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net revenues:
$
24,627

 
$
42,752

 
$
11,560

 
$
(4,755
)
 
$
74,184

Cost of revenues
21,896

 
37,776

 
11,741

 
(4,755
)
 
66,658

Gross profit
2,731

 
4,976

 
(181
)
 
—

 
7,526

Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
5,642

 
420

 
735

 
—

 
6,797

Research and development
1,318

 
—

 
—

 
—

 
1,318

Selling and marketing
2,047

 
157

 
30

 
—

 
2,234

Total operating expenses
9,007

 
577

 
765

 
—

 
10,349

Operating income (loss)
(6,276
)
 
4,399

 
(946
)
 
—

 
(2,823
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income (expense), net
(8,508
)
 
16

 
(261
)
 
—

 
(8,753
)
Other income (expense), net
(598
)
 
26

 
66

 
(13
)
 
(519
)
Total other income (expense)
(9,106
)
 
42

 
(195
)
 
(13
)
 
(9,272
)
Net income (loss) before income taxes and noncontrolling interest
(15,382
)
 
4,441

 
(1,141
)
 
(13
)
 
(12,095
)
Income tax expense (benefit)
(3,807
)
 
—

 
(763
)
 
—

 
(4,570
)
Net income (loss)
(11,575
)
 
4,441

 
(378
)
 
(13
)
 
(7,525
)
Less: Net loss related to noncontrolling interest
—

 
—

 
—

 
(69
)
 
(69
)
Net income (loss) attributable to Erickson Incorporated and common stockholders
$
(11,575
)
 
$
4,441

 
$
(378
)
 
$
(82
)
 
$
(7,594
)

 


19
Table of Contents

 
Condensed Consolidating Statement of Cash Flows 
 Quarter Ended March 31, 2015

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Net loss
$
(23,163
)
 
$
(49,979
)
 
$
(1,935
)
 
$
(6
)
 
$
(75,083
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
5,272

 
3,328

 
218

 
—

 
8,818

Impairment of goodwill
—

 
49,823

 
—

 
—

 
49,823

Other asset impairment
3,441

 
2,749

 
953

 
—

 
7,143

Deferred income taxes
(1,418
)
 
—

 
—

 
—

 
(1,418
)
Non-cash interest expense on debt
177

 
—

 
—

 
—

 
177

Stock-based compensation
145

 
—

 
—

 
—

 
145

Amortization of debt issuance costs
624

 
—

 
—

 
—

 
624

Loss (gain) on sale of equipment
(22
)
 
—

 
28

 
—

 
6

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
Accounts receivable
(3,404
)
 
571

 
(5,232
)
 
6

 
(8,059
)
Inventory
(9,153
)
 
—

 
—

 
—

 
(9,153
)
Prepaid expenses and other current assets
522

 
347

 
(1,093
)
 
—

 
(224
)
Income tax receivable
—

 
—

 
241

 
22

 
263

Aircraft support parts, net
(1,536
)
 
(3
)
 
16