EAC-2015.06.30-10Q
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 June 30, 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 July 31, 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.
 
 


2
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)

June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,766

 
$
5,097

Restricted cash
359

 
567

Accounts receivable, net of allowances for doubtful accounts of $191 and $739 in 2015 and 2014, respectively
48,454

 
44,350

Inventory
8,667

 
—

Prepaid expenses and other current assets
8,433

 
8,780

Income tax receivable
609

 
677

Deferred tax assets
1,340

 
1,230

Total current assets
69,628

 
60,701

Aircraft support parts, net
136,727

 
137,593

Assets held for sale
8,436

 
—

Aircraft, net
112,611

 
128,221

Property, plant and equipment, net
116,804

 
120,635

Goodwill
164,756

 
215,241

Other intangible assets, net
18,749

 
20,053

Other non-current assets
21,851

 
23,077

Total assets
$
649,562

 
$
705,521

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
19,487

 
$
19,844

Current portion of long-term debt
4,702

 
4,144

Accrued and other current liabilities
22,279

 
19,034

Income tax payable
28

 
315

Deferred tax liabilities
—

 
884

Total current liabilities
46,496

 
44,221

Long-term debt
13,986

 
12,751

Long-term revolving credit facilities
113,710

 
89,339

Long-term notes payable
355,000

 
355,000

Other long-term liabilities
16,876

 
13,181

Uncertain tax positions
6,668

 
6,313

Deferred tax liabilities
3,159

 
3,703

Total liabilities
555,895

 
524,508

Stockholders’ equity:
 
 
 
Common stock; $0.0001 par value; 110,000,000 shares authorized; 13,833,174 and 13,823,818 issued and outstanding at June 30, 2015 and December 31, 2014, respectively
1

 
1

Additional paid-in capital
181,083

 
181,018

Retained earnings (accumulated deficit)
(83,279
)
 
1,812

Accumulated other comprehensive loss, net of tax
(4,544
)
 
(2,544
)
Total stockholders’ equity attributable to Erickson Incorporated
93,261

 
180,287

Noncontrolling interest
406

 
726

Total stockholders’ equity
93,667

 
181,013

Total liabilities and stockholders’ equity
$
649,562

 
$
705,521


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

3
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(Unaudited) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,

2015
 
2014
 
2015
 
2014
Net revenues
$
69,319

 
$
80,885

 
$
135,481

 
$
155,069

Cost of revenues
61,587

 
67,501

 
126,375

 
134,159

Gross profit
7,732

 
13,384

 
9,106

 
20,910

Operating expenses:
 
 
 
 
 
 
 
General and administrative
5,661

 
6,994

 
12,599

 
13,791

Research and development
583

 
738

 
1,461

 
2,056

Selling and marketing
1,330

 
1,810

 
3,085

 
4,044

Impairment of goodwill
—

 
21,272

 
49,823

 
21,272

Other asset impairment
—

 
—

 
7,143

 
—

Total operating expenses
7,574

 
30,814

 
74,111

 
41,163

Operating income (loss)
158

 
(17,430
)
 
(65,005
)
 
(20,253
)
Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(9,375
)
 
(9,111
)
 
(18,587
)
 
(17,864
)
Amortization of debt issuance costs
(630
)
 
(593
)
 
(1,254
)
 
(1,214
)
Unrealized foreign exchange gain (loss)
57

 
27

 
(379
)
 
244

Realized foreign exchange gain (loss)
15

 
15

 
(53
)
 
(42
)
Gain on disposal of equipment
76

 
61

 
70

 
191

Other income (expense), net
151

 
(353
)
 
(40
)
 
(541
)
Total other income (expense)
(9,706
)
 
(9,954
)
 
(20,243
)
 
(19,226
)
Net loss before income taxes and noncontrolling interest
(9,548
)
 
(27,384
)
 
(85,248
)
 
(39,479
)
Income tax expense (benefit)
691

 
(10,222
)
 
74

 
(14,792
)
Net loss
(10,239
)
 
(17,162
)
 
(85,322
)
 
(24,687
)
Less: Net (income) loss related to noncontrolling interest
118

 
53

 
231

 
(16
)
Net loss attributable to Erickson Incorporated and common stockholders
$
(10,121
)
 
$
(17,109
)
 
$
(85,091
)
 
$
(24,703
)
Net loss
$
(10,239
)
 
$
(17,162
)
 
$
(85,322
)
 
$
(24,687
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
502

 
476

 
(2,089
)
 
806

Comprehensive loss
(9,737
)
 
(16,686
)
 
(87,411
)
 
(23,881
)
Comprehensive (income) loss attributable to noncontrolling interest
84

 
66

 
320

 
(3
)
Comprehensive loss attributable to Erickson Incorporated
$
(9,653
)
 
$
(16,620
)
 
$
(87,091
)
 
$
(23,884
)
Net loss per share attributable to common stockholders
 
 
 
 
 
 
 
Basic
$
(0.73
)
 
$
(1.24
)
 
$
(6.15
)
 
$
(1.79
)
Diluted
$
(0.73
)
 
$
(1.24
)
 
$
(6.15
)
 
$
(1.79
)
Weighted average shares outstanding
 
 
 
 
 
 
 
Basic
13,831,127

 
13,799,501

 
13,827,493

 
13,794,491

Diluted
13,831,127

 
13,799,501

 
13,827,493

 
13,794,491



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

4
Table of Contents

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

Issuance of Restricted Stock Units
16,213

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
97

 
—

 
—

 
97

 
—

 
97

Shares withheld for payment of taxes
(6,857
)
 
—

 
(32
)
 
—

 
—

 
(32
)
 
—

 
(32
)
Components of comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
—

 
—

 
—

 
(85,091
)
 
—

 
(85,091
)
 
(231
)
 
(85,322
)
Foreign currency translation
—

 
—

 
—

 
—

 
(2,000
)
 
(2,000
)
 
(89
)
 
(2,089
)
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(87,411
)
Balance at June 30, 2015
13,833,174

 
$
1

 
$
181,083

 
$
(83,279
)
 
$
(4,544
)
 
$
93,261

 
$
406

 
$
93,667


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

5
Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,

2015
 
2014
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
$
(10,239
)
 
$
(17,162
)
 
$
(85,322
)
 
$
(24,687
)
Adjustments to reconcile loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
9,898

 
8,981

 
18,716

 
16,934

Impairment of goodwill
—

 
21,272

 
49,823

 
21,272

Other asset impairment
—

 
—

 
7,143

 
—

Deferred income taxes
(269
)
 
(12,756
)
 
(1,687
)
 
(16,740
)
Non-cash interest expense on debt
229

 
93

 
406

 
130

Stock-based compensation
(48
)
 
236

 
97

 
396

Amortization of debt issuance costs
630

 
593

 
1,254

 
1,214

Gain on sale of equipment
(76
)
 
(61
)
 
(70
)
 
(191
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
3,587

 
(12,306
)
 
(4,472
)
 
1,570

Inventory
487

 
—

 
(8,666
)
 
—

Prepaid expenses and other current assets
366

 
(307
)
 
142

 
(906
)
Income tax receivable
(195
)
 
788

 
68

 
946

Aircraft support parts, net
1,564

 
(4,851
)
 
41

 
(12,715
)
Other non-current assets
294

 
1,581

 
2,684

 
3,126

Accounts payable
2,230

 
(1,264
)
 
25

 
731

Accrued and other current liabilities
(12,933
)
 
(12,298
)
 
4,514

 
(16,341
)
Income tax payable
344

 
717

 
(257
)
 
717

Other long-term liabilities
282

 
264

 
3,971

 
558

Net cash used in operating activities
(3,849
)
 
(26,480
)
 
(11,590
)
 
(23,986
)
Cash flows from investing activities:
 
 
 
 
 
 
 
Purchases of aircraft and property, plant and equipment, net
(6,165
)
 
(19,655
)
 
(11,839
)
 
(37,138
)
Proceeds from sale-leaseback of aircraft
—

 
24,660

 
—

 
24,660

Restricted cash
175

 
1,567

 
124

 
1,767

Dividends paid to non-controlling interest
—

 
(73
)
 
—

 
(73
)
Net cash provided by (used in) investing activities
(5,990
)
 
6,499

 
(11,715
)
 
(10,784
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Proceeds from shareholders, net
—

 
—

 
—

 
414

Repayments of subordinated notes
(1,000
)
 
—

 
(2,000
)
 
—

Repayments of credit facilities
(38,971
)
 
(54,723
)
 
(73,182
)
 
(79,123
)
Borrowings from credit facilities
48,756

 
73,264

 
97,553

 
113,131

Other long-term borrowings
(36
)
 
393

 
(84
)
 
393

Payments under capital leases
(200
)
 
—

 
(340
)
 
—

Debt issuance costs
(67
)
 
(37
)
 
(137
)
 
(267
)
Shares withheld for payment of taxes
(32
)
 
(166
)
 
(32
)
 
(166
)
Net cash provided by financing activities
8,450

 
18,731

 
21,778

 
34,382

Effect of foreign currency exchange rates on cash and cash equivalents
281

 
484

 
(1,804
)
 
951

Net increase (decrease) in cash and cash equivalents
(1,108
)
 
(766
)
 
(3,331
)
 
563

Cash and cash equivalents at beginning of period
2,874

 
3,210

 
5,097

 
1,881

Cash and cash equivalents at end of period
$
1,766

 
$
2,444

 
$
1,766

 
$
2,444

Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Cash paid for interest
$
16,503

 
$
16,267

 
$
18,097

 
$
17,536

Cash paid for income taxes, net
$
499

 
$
375

 
$
1,267

 
$
861


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

6
Table of Contents

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.), 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 June 30, 2015, the Company owned a fleet of 19 heavy lift helicopters, comprised of 13 S-64E and six S-64F model Aircranes, and 33 medium and light lift aircraft of varying model types, comprised of 27 rotor wing aircraft and six fixed-wing aircraft. As of June 30, 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 27 rotor wing aircraft and four fixed-wing aircraft. The Company’s fleet operations span the globe with a presence on six continents. As of June 30, 2015, 18 of the owned aircraft and 19 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. For the three and six months ended June 30, 2014 the prior period reclassification includes $0.3 million and $1.1 million, respectively, of external commissions reclassified from sales and marketing operating expenses to cost of revenues on the consolidated statements of comprehensive loss.
Additionally, reclassification has been made to prior period amounts of other long-term borrowings from non-cash interest expense on debt in the operating activities section of the consolidated statement of cash flows to other long-term borrowings in the financing activities section of the consolidated statement of cash flows. Such reclassification had no effect on previously reported consolidated statements of stockholders' equity or the consolidated balance sheet. For both the three and six months ended June 30, 2014 the prior period reclassification was $0.4 million.
Recent Accounting Pronouncements
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. On July 9, 2015, the FASB agreed to delay the effective date by one year. In accordance with the agreed upon delay, the FASB will allow early adoption in 2017, however, the Company will not be required to implement this guidance until the first quarter of fiscal year 2018, using one of the two prescribed retrospective methods. 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 June 30, 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):
 
June 30, 2015
 
December 31, 2014
Trade accounts receivable
$
45,300

 
$
42,296

Other receivables
3,345

 
2,793

Less: allowance for doubtful accounts
(191
)
 
(739
)

$
48,454

 
$
44,350

The Company had bad debt expense of zero in the three months ended June 30, 2015 and 2014. During the six months ended June 30, 2015, the Company had bad debt expense of zero. During the six months ended June 30, 2014, the Company had bad debt recoveries of $0.3 million.

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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 June 30, 2015 or December 31, 2014:
 
Segment
 
June 30, 2015
 
December 31, 2014
Fluor
Government Aviation Services
 
18.0
%
 
14.4
%
Alion Science and Technology Corporation
Government Aviation Services
 
11.0
%
 
11.8
%
Hellenic Fire Brigade(1)
Commercial Aviation Services
 
9.3
%
 
10.8
%
 
 
 
38.3
%
 
37.0
%
(1)
On May 23, 2012, the Company entered into a three year agreement with the NATO Support Agency (“NSPA”), formerly known as the NATO Maintenance and Supply Agency, 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 NSPA, the Company contracted directly with the Hellenic Fire Brigade to provide firefighting services in Greece. At June 30, 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 and six months ended June 30, 2015 or June 30, 2014:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Fluor
20.7
%
 
18.6
%
 
20.6
%
 
19.4
%
Alion Science and Technology Corporation
10.1
%
 
—
%
 
10.2
%
 
—
%
 
30.8
%
 
18.6
%
 
30.8
%
 
19.4
%
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):

June 30, 2015
 
December 31, 2014
Finished goods
$
8,667

 
$
—

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.

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.

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Aircraft support parts consisted of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
Aircraft parts
$
129,087

 
$
124,629

Work-in-process
13,240

 
18,604

Less: Excess and obsolete reserve
(5,600
)
 
(5,640
)

$
136,727

 
$
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 six months ended June 30, 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

Fluctuations due to foreign currency translation adjustments
—
 
65

Aircraft held for sale, June 30, 2015
9
 
5,844

Deferred overhauls associated with aircraft held for sale, June 30, 2015
 
 
2,592

Total assets held for sale, June 30, 2015
 
 
$
8,436

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 six months ended June 30, 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 are no longer being depreciated or amortized effective March 31, 2015.
Note 7. Aircraft and Property, Plant and Equipment
Aircraft, net consisted of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
Aircraft
$
150,251

 
$
162,246

Less: Accumulated depreciation
(37,640
)
 
(34,025
)

$
112,611

 
$
128,221

Property, plant, and equipment, net consisted of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
Land and land improvements
$
308

 
$
308

Buildings
9,265

 
7,926

Vehicles and equipment
30,827

 
29,500

Deferred overhauls, net
81,355

 
86,768

Construction-in-progress
16,797

 
15,926

 
138,552

 
140,428

Less: Accumulated depreciation and amortization
(21,748
)
 
(19,793
)

$
116,804

 
$
120,635

During the three months ended June 30, 2015, and 2014, depreciation expense was $4.4 million and $4.8 million, respectively. During the three months ended June 30, 2015 and 2014, amortization expense associated with deferred overhauls was $4.8 million and $3.6 million, respectively. During the six months ended June 30, 2015, and 2014, depreciation expense was $9.2

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million and $8.9 million, respectively. During the six months ended June 30, 2015, and 2014, amortization expense associated with deferred overhauls was $8.3 million and $6.8 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 $8.8 million is included in other long-term liabilities in the consolidated balance sheet as of June 30, 2015.
On July 31, 2015, the Company completed a sale-leaseback transaction pursuant to which the company sold its hangar facility located at the Medford international airport in Oregon. The lease has an initial term of 15 years, commencing on August 1, 2015.

Note 8. Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 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
—

 
(662
)
 
—

 
(662
)
Balance at June 30, 2015
 
 
 
 
 
 
 
Goodwill, gross
207,128

 
23,181

 
5,542

 
235,851

Accumulated impairment losses
(71,095
)
 
—

 
—

 
(71,095
)
Goodwill, net
$
136,033

 
$
23,181

 
$
5,542

 
$
164,756

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.

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.


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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 evaluated its reporting units and determined four reporting units under its three operating reportable segments. The Company assigned its goodwill to each of the four reporting units as of January 1, 2015 using a relative fair value approach. During the quarter ended June 30, 2015 the Company re-evaluated its reporting units and determined that Oil and Gas Aviation Services business is no longer considered a stand-alone reporting unit, and is a part of Commercial Aviation Services.
During the first quarter of 2015, the Company performed a qualitative and quantitative analysis which indicated that it is more likely than 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.
Subsequent to the Company's re-organization into three operating segments, the Company elected an annual testing date for each reporting unit during the second quarter of the fiscal year. During the second quarter of 2015, the Company performed the annual goodwill impairment review for the Government Aviation Services, Commercial Aviation Services, and Manufacturing & MRO reporting units. The Company assessed qualitative factors to determine whether it is more likely than not that the fair value of the reporting units are less than its carrying amount. As a result of this qualitative assessment, the Company determined it was not necessary to perform step one of the goodwill impairment tests.

Note 9. Other Intangible Assets, net
Other intangible assets, net consisted of the following (in thousands):
 
Reportable Segment
 
Useful Life
(in years)
 
June 30,
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
 
 
 
 
(5,256
)
 
(3,952
)

 
 
 
 
$
18,749

 
$
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 June 30, 2015 and 2014, amortization expense for intangible assets was $0.7 million and $0.6 million, respectively. During the six months ended June 30, 2015 and 2014, amortization expense for intangible assets was $1.3 million and $1.2 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 June 30, 2015, is as follows (in thousands):

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Intangible Asset Amortization
2015
$
1,639

2016
3,279

2017
2,333

2018
2,144

2019
2,144

Thereafter
5,005

Total
$
16,544


Note 10. Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following (in thousands):
 
June 30, 2015
 
December 31, 2014
Interest
$
5,653

 
$
5,542

Payroll and related taxes
5,589

 
6,069

Promissory note, net of discount(1)
4,642

 
—

Deferred revenue
1,899

 
795

Deferred gain on sale-leaseback
1,760

 
1,760

Accrued commissions
191

 
1,301

Other
2,545

 
3,567


$
22,279

 
$
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 June 30, 2015, the carrying value of the promissory note was $8.5 million, made up of the face value of the remaining principal of $9.0 million, net of the unamortized discount of $0.5 million. The non-current portion of the note of $3.9 million is included in other long-term liabilities in the consolidated balance sheet as of June 30, 2015.

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

June 30, 2015
 
December 31, 2014
 
Current
 
Long-term
 
Current
 
Long-term
2020 Senior Notes
$
—

 
$
355,000

 
$
—

 
$
355,000

Revolving Credit Facility
—

 
113,710

 
—

 
89,339

2020 subordinated notes, net of discount
3,667

 
11,045

 
4,000

 
12,486

Capital lease obligations
888

 
2,763

 
—

 
—

Fixtures financing
147

 
178

 
144

 
265

Total
$
4,702

 
$
482,696

 
$
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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Table of Contents

(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 June 30, 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 million 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
The maximum amount that the Company may borrow under the Revolving Credit Facility is $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 was in compliance with the financial covenants as of June 30, 2015 and December 31, 2014.

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.

Effective June 30, 2015, the Revolving Credit Facility was amended to, among other things, limit the requirement to be compliant with the fixed charge coverage ratio to periods when the availability is less than 12.5% of the maximum revolver amount. The Revolving Credit Facility contains certain financial covenants, including a minimum fixed charge coverage ratio of 1.10:1.00. The fixed charge coverage ratio has multiple inputs, including, but not limited to, bank EBITDA, capital expenditures, and cash paid for interest, taxes, and principal debt payments. The Revolving Credit Facility also imposes an annual growth capital expenditures limit of approximately $10.0 million for the fiscal year of 2015, escalating to $20.0 million for fiscal 2016, and to $25.0 million in subsequent years, which is subject to standard carry-over provisions for 2016 and beyond.

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 June 30, 2015 and December 31, 2014 was $113.7 million and $89.3 million, respectively. The weighted average interest rate for borrowings under the Revolving Credit Facility for the three and six months period ended June 30, 2015 was 5.01% and 5.04%, respectively. The interest rate at June 30, 2015 and December 31, 2014 was 5.00% and 5.02%, respectively. As of June 30, 2015 and December 31, 2014 the Company had $0.7 million and $4.7 million in outstanding standby letters of credit under the Revolving Credit Facility, respectively, and maximum borrowing availability was $25.6 million and $46.0 million as of June 30, 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 agreed to pay, in cash, quarterly installments of interest only (in arrears) until March 31, 2015, after which date the Company will 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 June 30, 2015, the carrying value of the 2020 Subordinated Notes was $14.7 million, made up of the face value of the remaining principal of $15.5 million net of the unamortized discount of $0.8 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 and six months period ended June 30, 2015.

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

June 30, 2015
 
December 31, 2014
Deferred gain on sale-leaseback (see Note 7)
$
8,798

 
$
9,678

Promissory note, net of discount (see Note 10)
3,895

 
—

Other
4,183

 
3,503

 
$
16,876

 
$
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 June 30, 2015 and 2014, and for the three and six months ended June 30, 2015 and 2014 are unaudited.
 

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Table of Contents

 
Condensed Consolidating Balance Sheet 
 June 30, 2015

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
16

 
$
41

 
$
1,709

 
$
—

 
$
1,766

Restricted cash
136

 
—

 
223

 
—

 
359

Accounts receivable, net
16,100

 
23,661

 
8,653

 
40

 
48,454

Inventory
8,667

 
—

 
—

 
—

 
8,667

Prepaid expenses and other current assets
6,243

 
1,142

 
1,048

 
—

 
8,433

Income tax receivable
150

 
170

 
289

 
—

 
609

Deferred tax assets
1,240

 
—

 
(104
)
 
204

 
1,340

Total current assets
32,552

 
25,014

 
11,818

 
244

 
69,628

Aircraft support parts, net
105,672

 
29,971

 
1,129

 
(45
)
 
136,727

Assets held for sale
3,800

 
2,550

 
2,086

 
—

 
8,436

Aircraft, net
81,953

 
30,658

 
—

 
—

 
112,611

Property, plant and equipment, net
73,710

 
41,664

 
1,430

 
—

 
116,804

Goodwill
—

 
160,532

 
4,986

 
(762
)
 
164,756

Other intangible assets, net
2,205

 
14,654

 
1,890

 
—

 
18,749

Other non-current assets
321,715

 
4,566

 
664

 
(305,094
)
 
21,851

Total assets
$
621,607

 
$
309,609

 
$
24,003

 
$
(305,657
)
 
$
649,562

Liabilities and stockholders’ equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
7,055

 
11,178

 
1,254

 
—

 
$
19,487

Current portion of long-term debt
3,843

 
859

 
—

 
—

 
4,702

Accrued and other current liabilities
(31,393
)
 
26,789

 
26,883

 
—

 
22,279

Income tax payable
(340
)
 
—

 
368

 
—

 
28

Deferred tax liabilities
246

 
—

 
—

 
(246
)
 
—

Total current liabilities
(20,589
)
 
38,826

 
28,505

 
(246
)
 
46,496

Long-term debt, less current portion
11,319

 
2,667

 
—

 
—

 
13,986

Long-term revolving credit facilities
113,710

 
—

 
—

 
—

 
113,710

Long-term notes payable
355,000

 
—

 
—

 
—

 
355,000

Other long-term liabilities
16,229

 
584

 
63

 
—

 
16,876

Uncertain tax positions
6,668

 
—

 
—

 
—

 
6,668

Deferred tax liabilities
3,874

 
—

 
(1,165
)
 
450

 
3,159

Total liabilities
486,211

 
42,077

 
27,403

 
204

 
555,895

Stockholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
1,675

 
(1,675
)
 
1

Additional paid-in capital
181,083

 
297,994

 
33

 
(298,027
)
 
181,083

Retained earnings (accumulated deficit)
(42,465
)
 
(30,462
)
 
(5,176
)
 
(5,176
)
 
(83,279
)
Accumulated other comprehensive loss
(3,223
)
 
—

 
(566
)
 
(755
)
 
(4,544
)
Total stockholders’ equity (deficit) attributable to Erickson Incorporated
135,396

 
267,532

 
(4,034
)
 
(305,633
)
 
93,261

Noncontrolling interest
—

 
—

 
634

 
(228
)
 
406

Total stockholders’ equity (deficit)
135,396

 
267,532

 
(3,400
)
 
(305,861
)
 
93,667

Total liabilities and stockholders’ equity
$
621,607

 
$
309,609

 
$
24,003

 
$
(305,657
)
 
$
649,562


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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


17
Table of Contents

 
Condensed Consolidating Statement of Operations 
 Quarter Ended June 30, 2015

Parent 
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Net revenues:
$
29,495

 
$
34,433

 
$
13,285

 
$
(7,894
)
 
$
69,319

Cost of revenues
23,264

 
34,173

 
11,999

 
(7,849
)
 
61,587

Gross profit
6,231

 
260

 
1,286

 
(45
)
 
7,732

Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
4,742

 
151

 
768

 
—

 
5,661

Research and development
583

 
—

 
—

 
—

 
583

Selling and marketing
1,338

 
4

 
33

 
(45
)
 
1,330

Total operating expenses
6,663

 
155

 
801

 
(45
)
 
7,574

Operating income (loss)
(432
)
 
105

 
485

 
—

 
158

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(9,172
)
 
(109
)
 
(94
)
 
—

 
(9,375
)
Other income (expense), net
(367
)
 
143

 
(109
)
 
2

 
(331
)
Total other income (expense)
(9,539
)
 
34


(203
)

2


(9,706
)
Net income (loss) before income taxes and noncontrolling interest
(9,971
)
 
139

 
282

 
2

 
(9,548
)
Income tax expense
342

 
—

 
349

 
—

 
691

Net income (loss)
(10,313
)
 
139

 
(67
)
 
2

 
(10,239
)
Less: Net loss related to noncontrolling interest
—

 
—

 
—

 
118

 
118

Net income (loss) attributable to Erickson Incorporated and common stockholders
$
(10,313
)
 
$