Document


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, 2016
¨
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
 
¨

 
Non-accelerated filer
 
ý  (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 August 10, 2016, 13,895,421 shares of common stock, par value $0.0001, were outstanding.

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Table of Contents

ERICKSON INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 


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Table of Contents

PART I—FINANCIAL INFORMATION
 
Item 1.    Financial Statements.

ERICKSON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)


June 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,283

 
$
2,129

Restricted cash
222

 
373

Accounts receivable, net
41,861

 
40,520

Prepaid expenses and other current assets
6,204

 
5,233

Total current assets
51,570

 
48,255

Aircraft, net
144,989

 
155,917

Aircraft parts, net
173,655

 
169,824

Aircraft held for sale
6,200

 
12,348

Property, plant and equipment, net
23,590

 
25,553

Other assets
9,291

 
10,261

Other intangible assets, net
14,714

 
15,787

Goodwill, net
159,770

 
163,708

Total assets
$
583,779

 
$
601,653

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
28,225

 
$
13,660

Current portion of long-term debt
8,421

 
8,205

Accrued expenses and other current liabilities
22,360

 
17,828

Total current liabilities
59,006

 
39,693

Credit facility
119,523

 
96,165

Long-term debt, less current portion
361,357

 
364,782

Other liabilities
17,949

 
11,720

Total liabilities
557,835

 
512,360

Equity:
 
 
 
Erickson Incorporated shareholders’ equity:
 
 
 
Common stock; $0.0001 par value; 110,000,000 shares authorized; 13,895,421 issued and outstanding as of June 30, 2016 and December 31, 2015
1

 
1

Additional paid-in capital
181,396

 
181,259

Accumulated deficit
(149,883
)
 
(84,901
)
Accumulated other comprehensive loss, net of tax
(6,543
)
 
(7,789
)
Total Erickson Incorporated shareholders’ equity
24,971

 
88,570

Noncontrolling interests’ equity
973

 
723

Total equity
25,944

 
89,293

Total liabilities and equity
$
583,779

 
$
601,653


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

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Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)(Unaudited) 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,

2016
 
2015
 
2016
 
2015
Revenues, net
$
50,838

 
$
67,019

 
$
95,667

 
$
130,981

Cost of revenues
52,168

 
59,101

 
101,071

 
122,076

Gross (loss) profit
(1,330
)
 
7,918

 
(5,404
)
 
8,905

Operating expenses:
 
 
 
 
 
 
 
General and administrative
6,161

 
5,847

 
12,653

 
12,398

Research and development
699

 
583

 
1,330

 
1,461

Selling and marketing
2,646

 
1,330

 
4,528

 
3,085

Loss on idle aircraft
7,815

 
—

 
7,815

 
—

Impairment of goodwill
4,523

 
—

 
4,523

 
49,823

Impairment of other assets
6,127

 
—

 
6,127

 
7,143

Total operating expenses
27,971

 
7,760

 
36,976

 
73,910

Operating (loss) income
(29,301
)
 
158

 
(42,380
)
 
(65,005
)
Interest expense, net
(9,475
)
 
(9,375
)
 
(18,722
)
 
(18,587
)
Other expense, net
(28
)
 
(331
)
 
(1,039
)
 
(1,656
)
Net loss before income tax (benefit) expense
(38,804
)
 
(9,548
)
 
(62,141
)
 
(85,248
)
Income tax (benefit) expense
(92
)
 
691

 
2,578

 
74

Net loss
(38,712
)
 
(10,239
)
 
(64,719
)
 
(85,322
)
Less: net (income) loss related to noncontrolling interests
(286
)
 
118

 
(263
)
 
231

Net loss attributable to Erickson Incorporated
$
(38,998
)
 
$
(10,121
)
 
$
(64,982
)
 
$
(85,091
)
Net loss per share attributable to Erickson Incorporated common shareholders—basic and diluted
$
(2.81
)
 
$
(0.73
)
 
$
(4.68
)
 
$
(6.15
)
Weighted average shares outstanding—basic and diluted
13,895,421

 
13,831,127

 
13,895,421

 
13,827,493


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

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Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(38,712
)
 
$
(10,239
)
 
$
(64,719
)
 
$
(85,322
)
Other comprehensive income (loss)—Foreign currency translation adjustment
439

 
502

 
1,233

 
(2,089
)
Comprehensive loss
(38,273
)
 
(9,737
)
 
(63,486
)
 
(87,411
)
Less: Comprehensive (income) loss attributable to noncontrolling interests
(256
)
 
84

 
(250
)
 
320

Comprehensive loss attributable to Erickson Incorporated
$
(38,529
)
 
$
(9,653
)
 
$
(63,736
)
 
$
(87,091
)

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

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Table of Contents

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

2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(64,719
)
 
$
(85,322
)
Adjustments to reconcile loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
19,088

 
18,716

Impairment of goodwill
4,523

 
49,823

Impairment of other assets
6,127

 
7,143

Deferred income taxes
1,797

 
(1,687
)
Amortization of debt issuance costs
1,238

 
1,254

Amortization of debt discount
277

 
406

Stock-based compensation
137

 
97

Loss (gain) on sale of aircraft and other property and equipment
1,155

 
(271
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(1,111
)
 
(4,472
)
Prepaid expenses and other current assets
(1,103
)
 
210

Aircraft parts, net
(3,859
)
 
731

Aircraft held for sale
(3,683
)
 
—

Other assets
983

 
(1,615
)
Accounts payable
14,661

 
25

Accrued expenses and other current liabilities
3,355

 
(266
)
Other liabilities
1,825

 
138

Net cash used in operating activities
(19,309
)
 
(15,090
)
Cash flows from investing activities:
 
 
 
Purchases of aircraft and property, plant and equipment
(6,085
)
 
(11,839
)
Proceeds from sales of aircraft and other property and equipment
6,868

 
4,500

Restricted cash
155

 
124

Net cash provided by (used in) investing activities
938

 
(7,215
)
Cash flows from financing activities:
 
 
 
Credit facility borrowings
79,891

 
97,553

Credit facility payments
(56,643
)
 
(73,182
)
Long-term debt principal payments, including capital lease payments
(4,337
)
 
(3,340
)
Other long-term borrowings
—

 
(84
)
Debt issuance costs
(276
)
 
(137
)
Shares withheld for payment of taxes
—

 
(32
)
Net cash provided by financing activities
18,635

 
20,778

Effect of foreign currency exchange rates on cash and cash equivalents
890

 
(1,804
)
Net increase (decrease) in cash and cash equivalents
1,154

 
(3,331
)
Cash and cash equivalents at beginning of period
2,129

 
5,097

Cash and cash equivalents at end of period
$
3,283

 
$
1,766

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
16,695

 
$
18,097

Cash paid for income taxes, net
511

 
1,267

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Note payable incurred for the purchase of aircraft parts
—

 
9,356


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

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Table of Contents

ERICKSON INCORPORATED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—BASIS OF PRESENTATION

Nature of Business

Erickson Incorporated (“EI”) and its subsidiaries and affiliated companies (collectively referred to as “Erickson” or “the Company”) is a global provider of aviation services. We operate, maintain and manufacture utility aircraft to transport and place people and cargo around the world for commercial and governmental entities, with three distinct reportable segments consisting of Commercial Aviation Services, Global Defense and Security, and Manufacturing and Maintenance, Repair and Overhaul (“MRO”). Through our Commercial Aviation Services and Global Defense and Security segments, we provide aerial services that include critical supply and logistics for firefighting, timber harvesting, infrastructure construction, deployed military forces, humanitarian relief, and crewing. Through our Manufacturing and MRO segment, we provide manufacturing and maintenance, repair and overhaul services for our own fleet and third parties.

The Company’s fleet consisted of the following as of June 30, 2016:

Type:
 
Heavy lift helicopters, known as ‘Aircranes’
20

Rotor-wing aircraft:

Light lift helicopters
9

Medium lift helicopters
33

Fixed-wing aircraft
7

 
69


As of June 30, 2016, the Company’s aircraft fleet includes 4 idle aircraft and 11 aircraft that are held for sale.

The Company’s operations span the globe with a presence on six continents and 26 aircraft deployed outside of North America as of June 30, 2016. As a global provider of aviation services, a significant portion of its revenues are generated outside of North America and represented 61% and 63% of revenues for the three months ended June 30, 2016 and 2015, respectively.

Condensed Consolidated Financial Statements

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such regulations, although Erickson believes that the disclosures provided are adequate to make the interim information presented not misleading.

To conform with 2016 presentation, the Company made the following reclassifications to the 2015 condensed consolidated financial statements:

•
Reclassified deferred overhauls not installed on an aircraft in the amount of $30.2 million from aircraft, net to aircraft parts, net as of December 31, 2015;
•
Reclassified aircraft sales of $2.3 million from revenues, with cost of revenues of $2.5 million, to a loss on sale of aircraft of $0.2 million, which is included in general and administrative expense on the statement of operations for the three months ended June 30, 2015;
•
Reclassified aircraft sales of $4.5 million from revenues, with costs of revenues of $4.3 million, to a gain on sale of aircraft of $0.2 million, which is included in general and administrative expense on the statement of operations for the six months ended June 30, 2015.

In addition, the Company presented the note payable incurred during the first quarter of 2015 for the purchase of aircraft parts in the supplemental disclosure of non-cash investing and financing activities section of the statement of cash flows for the six months ended June 30, 2015. Such presentation is to conform with the classification of the note payable as long-term debt on the condensed consolidated balance sheets.

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The financial information included herein for the three and six month periods ended June 30, 2016 and 2015 is unaudited; however, such information reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary for a fair presentation of the condensed consolidated financial position, condensed consolidated results of operations, and condensed consolidated cash flows of the Company for these interim periods. Certain costs are estimated for the full year and allocated to interim periods based on estimates of operating time expired, benefit received, or activity associated with the interim period; accordingly, such costs may not be reflective of amounts to be recognized for a full year. Due to seasonal fluctuations in revenues, interim financial results do not necessarily represent those to be expected for the year. The financial information as of December 31, 2015 is derived from the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2015, included in Item 8 of Erickson’s Annual Report on Form 10-K, filed with the SEC on March 10, 2016, which should be read in conjunction with such condensed consolidated financial statements.

Liquidity Matters

These condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As a result of recurring losses, negative cash flow from operations and limited borrowing capacity under our existing revolving credit facility, we are experiencing constraints on our liquidity and, as of June 30, 2016, have negative working capital. The Company has retained an investment bank and a legal firm both of whom specialize in restructuring, and are evaluating various options with regard to its capital structure and other strategic alternatives. While management expects to successfully address the Company’s cost and liquidity challenges, there is risk that such efforts may not yield desired outcomes, which could have a significant adverse effect on its operations. As of June 30, 2016, the Company has $3.3 million of available liquidity. Absent a refinancing of the revolver and any other successful liquidity initiatives, there is a high probability that the company will not be able to fund the $14.6 million interest payment on the senior notes, due November 1, 2016. For additional information concerning liquidity matters, see Credit Facility and Long-term Debt sections in Note 2.

Use of Estimates

The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of gain or loss contingencies, as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results experienced by the Company could differ materially from those estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which creates a new Topic 606 and supersedes the revenue requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 provides a five-step analysis of transactions to determine when and how revenue is recognized that consists of: i) identifying the contract with the customer; ii) identifying the performance obligations in the contract; iii) determining the transaction price; iv) allocating the transaction price to the performance obligations, and v) recognizing revenue when or as each performance obligation is satisfied. Companies can transition to the requirements of this ASU either retrospectively or as a cumulative-effect adjustment as of the date of adoption, which was originally January 1, 2017 for the Company. Early adoption is not permitted. In August 2015, ASU 2015-14, Revenue from Contracts with Customers (Topic 606) was issued which defers by one year the effective date of ASU 2014-09. The effective date for the Company is January 1, 2018 for the adoption of the requirements of ASU 2014-09. The Company is in the process of evaluating the effect that the adoption of ASU 2014-09 will have on its consolidated financial position, consolidated results of operations, and consolidated statement of cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which will require organizations that lease assets, lessees, to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. A lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. The provisions of ASU 2016-02 are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, or January 1, 2019 for the Company. Early adoption is permitted. The Company has not yet determined the effect of the adoption of ASU 2016-02 will have on its consolidated financial position, consolidated results of operations, and consolidated statement of cash flows.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718) (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the provisions of ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim

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periods within those annual periods, or January 1, 2017 for the Company. Early adoption is permitted. The transition to the requirements of this ASU will be either i) modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, ii) retrospective application or iii) prospective application depending on the nature of amendment. The Company has not yet determined the effect of the adoption of ASU 2016-09 will have on its consolidated financial position, consolidated results of operations, and consolidated statement of cash flows.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASU 2014-15”), a new standard that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and to provide disclosures when certain criteria are met. The provisions of ASU 2014-15 are effective for public entities for fiscal periods beginning after December 15, 2016, or January 1, 2017 for the Company, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have an impact on the Company’s consolidated financial position, consolidated results of operations, or consolidated statement of cash flows, although there may be additional disclosures made pursuant to the requirements of this ASU.

NOTE 2—BALANCE SHEET COMPONENTS

Accounts receivable, net consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Trade accounts receivable
$
39,603

 
$
35,039

Other receivables
3,612

 
4,244

Costs in excess of billings
—

 
1,704

 
43,215

 
40,987

Less: allowance for doubtful accounts
(1,354
)
 
(467
)

$
41,861

 
$
40,520


Activity in the allowance for doubtful accounts was as follows (in thousands):
 
Six Months Ended June 30,
 
2016
 
2015
Balance as of beginning of period
$
467

 
$
739

Provisions
1,022

 
—

Amounts written-off, net of recoveries
(135
)
 
(548
)
Balance as of end of period
$
1,354

 
$
191


The Company had bad debt expense of $0.8 million and $1.0 million for the three and six month periods ended June 30, 2016, respectively, with zero for the three and six month periods ended June 30, 2015, respectively.

The following is a summary of customers that accounted for at least 10% of trade account receivable balance as of June 30, 2016 or December 31, 2015:
 
Segment
 
June 30, 2016
 
December 31, 2015
Customer A
Global Defense and Security
 
16.8
%
 
11.9
%
Customer B
Global Defense and Security
 
10.1

 
14.0

Customer C
Manufacturing and MRO
 
2.3

 
11.2

 
 
 
29.2
%
 
37.1
%


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Aircraft, Net and Property, Plant and Equipment, Net consist of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Aircraft:
 
 
 
Aircraft
$
129,381

 
$
132,530

Aircraft under capital lease
3,866

 
3,866

Construction-in-progress
10,711

 
10,056

 
143,958

 
146,452

Less: accumulated depreciation and amortization
(45,486
)
 
(41,401
)
Add: deferred overhauls, net
46,517

 
50,866

Aircraft, net
$
144,989

 
$
155,917

Property, plant and equipment:
 
 
 
Land and land improvements
$
192

 
$
308

Buildings
5,725

 
5,219

Vehicles and equipment
35,461

 
34,115

Assets under capital lease—hangar and vehicles
5,440

 
5,440

Construction-in-progress
3,376

 
4,323

 
50,194

 
49,405

Less: accumulated depreciation and amortization
(26,604
)
 
(23,852
)
Property, plant and equipment, net
$
23,590

 
$
25,553


We have aircraft under operating lease arrangements. The Company has continued efforts to rationalize its aircraft fleet, and has identified four aircraft that the Company has ceased to use in operations, known as ‘idle aircraft.’ As of June 30, 2016, the Company has recorded the remaining lease liability related to these leased idle aircraft, which is classified as a loss on idle aircraft in the condensed consolidated statement of operations for the three and six month periods ended June 30, 2016.

Depreciation and amortization expense consisted of the following (in thousands):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Depreciation expense
$
4,280

 
$
4,427

 
$
8,532

 
$
9,160

Amortization expense:
 
 
 
 
 
 
 
Deferred overhauls
4,586

 
4,807

 
9,282

 
8,252

Assets under capital lease
100

 
1

 
200

 
1

Total amortization expense
4,686

 
4,808

 
9,482

 
8,253

Total depreciation and amortization expense
$
8,966

 
$
9,235

 
$
18,014

 
$
17,413


Aircraft Parts, Net consisted of the following (in thousands):
 
June 30, 2016
 
December 31, 2015
Finished parts
$
133,394

 
$
134,410

Deferred overhauls
35,707

 
30,215

Work-in-process
11,576

 
10,405

Less: excess and obsolete reserve
(7,022
)
 
(5,206
)

$
173,655

 
$
169,824



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Activity for the excess and obsolete reserve was as follows (in thousands):
 
Six Months Ended June 30,
 
2016
 
2015
Balance as of beginning of period
$
5,206

 
$
5,640

Provision for excess and obsolete aircraft parts
3,249

 
164

Write-off of excess and obsolete aircraft parts
(1,433
)
 
(204
)
Balance as of end of period
$
7,022

 
$
5,600


For 2016, the provision for excess and obsolete aircraft parts includes $1.4 million for aircraft parts related to aircraft that have been classified as held for sale, which is included in the impairment of other assets on the condensed consolidated statements of operations for the three and six month periods ended June 30, 2016.

Aircraft Held for Sale activity was as follows (in thousands):
 
Six Months Ended June 30,

2016
 
2015
Balance as of beginning of period
$
12,348

 
$
—

Aircraft classified as held for sale
3,832

 
15,514

Aircraft reclassified from held for sale
(2,653
)
 
—

Impairment charge on aircraft held for sale
(3,381
)
 
(7,143
)
Book value of aircraft sold
(4,179
)
 
—

Fluctuations due to foreign currency translation adjustments
233

 
65

Balance as of end of period
$
6,200

 
$
8,436


During the second quarter of 2016, the Company recorded impairment charges totaling $3.4 million related to the write down of the carrying amount of certain aircraft held for sale to their estimated fair value less the costs to sell. These charges are included in impairment of other assets in the consolidated statements of operations for the three and six month periods ended June 30, 2016. Of the 17 aircraft in held for sale at the end of 2015, 11 of those aircraft were still held for sale at the end of the second quarter, and were further impaired due to ongoing declines in market values. One of our major competitors filed for Chapter 11 reorganization in the second quarter, which was a contributing factor to the decline in market values in our industry. The fair value of aircraft 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.

Other Intangible Assets, Net consisted of the following (in thousands):
 
Reportable Segment
 
Useful Life
(in years)
 
June 30,
2016
 
December 31,
2015
Customer Relationships
Global Defense and Security
 
9
 
$
19,300

 
$
19,300

Customer Relationships
Commercial Aviation Services
 
2
 
2,500

 
2,500

Type Certificate for Aircrane engines
Manufacturing and MRO
 
Indefinite
 
2,205

 
2,205

 
 
 
 
 
24,005

 
24,005

Less: accumulated amortization
 
 
 
 
(9,291
)
 
(8,218
)

 
 
 
 
$
14,714

 
$
15,787



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Amortization expense for intangible assets is recorded in cost of revenues and was $0.5 million and $0.7 million for the second quarter of 2016 and 2015, respectively, and $1.1 million and $1.3 million for the first half of 2016 and 2015, respectively. As of June 30, 2016, future estimated amortization expense is as follows (in thousands):
Six months ending December 31:
 
2016
$
1,071

Year ending December 31:
 
2017
2,144

2018
2,144

2019
2,144

2020
2,144

Thereafter
2,862

 
$
12,509


Goodwill, Net

The changes in the carrying amount of goodwill for the six months ended June 30, 2016 were as follows (in thousands):

Global Defense and Security
 
Commercial Aviation Services
 
Manufacturing and MRO
 
Total
Balance as of January 1, 2016:
 
 
 
 
 
 
 
Goodwill, gross
$
207,128

 
$
22,133

 
$
5,542

 
$
234,803

Accumulated impairment losses
(71,095
)
 
—

 
—

 
(71,095
)
Goodwill, net
136,033

 
22,133

 
5,542

 
163,708

Activity during 2016:
 
 
 
 
 
 
 
Impairment losses
—

 
(4,523
)
 
—

 
(4,523
)
Fluctuations due to foreign currency translation adjustments
—

 
585

 
—

 
585

Balance as of June 30, 2016:
 
 
 
 
 
 
 
Goodwill, gross
207,128

 
22,718

 
5,542

 
235,388

Accumulated impairment losses
(71,095
)
 
(4,523
)
 
—

 
(75,618
)
Goodwill, net
$
136,033

 
$
18,195

 
$
5,542

 
$
159,770


During the second quarter of 2016, the Company performed the annual goodwill impairment test for the Global Defense and Security, Commercial Aviation Services, and Manufacturing and 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 their respective carrying amounts. In the second quarter of 2016, several triggering events prompted the Company to perform step one of the goodwill impairment test for the Global Defense and Security reporting unit. The triggering events included declines in industry and market conditions, a sustained decrease in the Company’s share price, a decline in the Company’s overall financial performance, and a change in a senior management position. The Company’s last Step 1 analysis was performed as of the fourth quarter of 2015 for all three reporting units. The step one analysis for the Commercial Aviation Services and Manufacturing and MRO reporting units was not re-performed in the second quarter of 2016 given that no significant events or changes in internal forecasts have occurred that would result in a significantly different result. Only the Global Defense and Security reporting unit Step 1 analysis was performed, in light of the majority of the Company’s goodwill being associated with this reporting unit, and the asset impairments recorded in the second quarter of 2016. The outcome of the analysis revealed that the fair value of the Global Defense and Security reporting unit exceeded its carrying amount, and as a result, no goodwill impairment charge was recorded for that reporting unit in the second quarter of 2016.

During June 2016, the Company entered into an agreement to sell its wholly-owned Brazilian subsidiary. The subsidiary was originally purchased in September 2013, and while various integration efforts were attempted, the benefits of the acquired goodwill were never realized by the Commercial Aviation Services reporting unit. As a result, the carrying amount of the acquired goodwill is included in the carrying amount of the business to be disposed of, and reduces the amount of goodwill reported for the Commercial Aviation Services reporting unit. Accordingly, a goodwill impairment charge was recorded during the second quarter of 2016.


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Credit Facility
 
The Company has a $140.0 million revolving credit facility (“Credit Facility”), which consisted of the following (in thousands):


June 30, 2016
 
December 31, 2015
Borrowings outstanding under Credit Facility
$
121,330

 
$
97,997

Less: deferred debt issuance costs
(1,807
)
 
(1,832
)
 
$
119,523

 
$
96,165


The Credit Facility is primarily used for general corporate purposes and matures May 2, 2018. EI and each of the Company’s current and future, direct and indirect, material subsidiaries guarantee the indebtedness under the Credit Facility on a senior-secured first-lien basis. The Credit Facility includes mandatory prepayment requirements for certain types of transactions, including, but not limited to, requiring prepayment from proceeds that the Company receives as a result of certain asset sales, subject to re-investment provisions on terms to be determined, and proceeds from extraordinary receipts.

During 2016, the Company entered into numerous amendments to the Credit Facility. As a result, the terms of the Credit Facility contain, among other things, a requirement that a certain level of borrowing capacity be maintained, known as “Excess Availability,” which is as follows:

•
$10.0 million for the period from July 25, 2016 through August 15, 2016;
•
$12.0 million for the period from August 16, 2016 through August 22, 2016;
•
$13.5 million for the period from August 23, 2016 through August 29, 2016;
•
$17.5 million for the period from August 30, 2016 through October 2, 2016; and
•
$20.0 million for the period from October 3, 2016 through December 31, 2016.

In addition, the fixed charge financial covenant period commencement date was delayed to any period on or after January 1, 2017 on which Excess Availability is less than $20 million as of such date and the interest rate was set at 550 basis points, or 5.5%, over the prime base rate or 650 basis points, or 6.5% over the London Interbank Offered Rate, as applicable, resulting in an increase of 200 basis points, or 2%, over the highest chargeable rates prior to any amendments entered into during 2016.

The Company entered into an amendment fee letter with the lenders under the Credit Facility in July 2016, which formalizes a requirement that the Company agrees to seek a refinancing of its Credit Facility in its entirety (the “Refinancing”) and requires the Company to meet short term progress milestones related to the Refinancing. In the event the Company is unable to refinance the Credit Facility in its entirety, and otherwise satisfy in full in cash all outstanding amounts and other obligations under the Credit Facility, the Company will be responsible to pay the following incentive fees:

•
$3.5 million if the Refinancing has not occurred on or before August 29, 2016;
•
An additional $1.5 million if the Refinancing has not occurred on or before September 12, 2016; and
•
An additional $500,000 each two weeks thereafter if the Refinancing has not occurred on or before September 26, 2016 and each second Monday thereafter, as applicable.

The interest rate under the Credit Facility was a weighted average of 5.3% as of June 30, 2016 and 5.2% as of December 31, 2015. As of June 30, 2016, the Company had $2.4 million of outstanding standby letters of credit under the Credit Facility, with a maximum borrowing availability of $6.2 million.


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Long-term Debt

Long-term debt consisted of the following (in thousands):

 
June 30, 2016
 
December 31, 2015
Senior notes payable
$
355,000

 
$
355,000

Subordinated notes payable
9,778

 
11,478

Capital lease obligations
7,853

 
8,417

Other notes payable
4,179

 
6,254

Total long-term debt before unamortized debt discounts and deferred debt issuance costs
376,810

 
381,149

Unamortized debt discounts
(493
)
 
(770
)
Deferred debt issuance costs
(6,539
)
 
(7,392
)
Total long-term debt
369,778

 
372,987

Less: current portion of long-term debt
(8,421
)
 
(8,205
)
Long-term debt, less current portion
$
361,357

 
$
364,782


ZM EAC LLC beneficially owns approximately 33.6% of the Company’s outstanding capital stock. Q&U Investments LLC is the managing member of entities that beneficially own approximately 20.9% of the Company’s outstanding capital stock. Quinn Morgan, the managing member of ZM EAC and Q&U Investments, is a member of the Company’s Board of Directors. During May 2016, entities affiliated with ZM EAC and Q&U Investments acquired $1.2 million of the subordinated notes payable from third parties.

The senior notes payable have semi-annual interest payments due May 1 and November 1, with the next interest payment of $14.6 million due November 1, 2016.

NOTE 3—FAIR VALUE MEASUREMENTS

The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to their short-term maturities. The carrying value of borrowings under the Credit Facility approximate fair value due to the variable rate nature of the indebtedness.

Long-term debt is recorded at amortized cost in EI’s condensed consolidated balance sheets. The fair value of the Company’s senior notes is classified as a Level 1 fair value measurement and is estimated based on the quoted market prices for such instruments. The fair value of all other long-term notes is classified as Level 3 fair value measurement and is estimated based on the terms of the individual loans and the Company’s creditworthiness. These significant unobservable inputs to the Level 3 fair value measurement include the interest rate and the term of the loan. The estimated fair value of the Company’s other long-term notes, excluding the senior notes, approximates their carrying value.

As of June 30, 2016, the carrying amount of the Company’s long-term debt was $369.8 million and its estimated aggregate fair value was $240.9 million, consisting of $219.6 million and $21.3 million classified as Level 1 and Level 3, respectively, in the fair value hierarchy. As of December 31, 2015, the carrying amount of the Company’s long-term debt was $373.0 million and its estimated aggregate fair value was $256.9 million, consisting of $231.5 million and $25.4 million classified as Level 1 and Level 3, respectively, in the fair value hierarchy.

As of June 30, 2016, Erickson was a party to thirteen foreign currency forward contracts which will settle at various dates through December 2016, and had six foreign currency forward contracts as of December 31, 2015. The fair value of foreign currency contracts is considered a level 2 measurement in the fair value hierarchy as the measurement is based on observable rates or measurements to determine fair value and include rates, spreads, amounts and value dates for such contracts. As of June 30, 2016 and December 31, 2015, the fair value of such foreign currency forward contracts was $0.5 million and $0.2 million, respectively, which is included in Accrued expenses and other current liabilities on the condensed consolidated balance sheets.

The Level 3 assets measured at fair value on a nonrecurring basis consisted of goodwill.


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NOTE 4—EQUITY

The activity in equity during the six months ended June 30, 2016 and 2015 was as follows (dollars in thousands):
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
 
Noncontrolling Interests

Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2015
13,895,421

 
$
1

 
$
181,259

 
$
(84,901
)
 
$
(7,789
)
 
 
$
723

Stock-based compensation
—

 
—

 
137

 
—

 
—

 
 
—

Net loss
—

 
—

 
—

 
(64,982
)
 
—

 
 
263

Other comprehensive income(loss)—Foreign currency translation adjustment
—

 
—

 
—

 
—

 
1,246

 
 
(13
)
Balance at June 30, 2016
13,895,421

 
$
1

 
$
181,396

 
$
(149,883
)
 
$
(6,543
)
 
 
$
973

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
13,823,818

 
$
1

 
$
181,018

 
$
1,812

 
$
(2,544
)
 
 
$
726

Issuance of shares upon vesting of restricted stock units
16,213

 
—

 
—

 
—

 
—

 
 
—

Stock-based compensation
—

 
—

 
97

 
—

 
—

 
 
—

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

 
(32
)
 
—

 
—

 
 
—

Net loss
—

 
—

 
—

 
(85,091
)
 
—

 
 
(231
)
Other comprehensive loss—Foreign currency translation adjustment
—

 
—

 
—

 
—

 
(2,000
)
 
 
(89
)
Balance at June 30, 2015
13,833,174

 
$
1

 
$
181,083

 
$
(83,279
)
 
$
(4,544
)
 
 
$
406


NOTE 5—REPORTABLE SEGMENTS

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s operations by its three reportable segments are as follows:

Commercial Aviation Services segment revenues are derived from firefighting, timber harvesting, infrastructure construction, oil and gas services, and other commercial services.

Global Defense and Security segment revenues are derived primarily from contracts with the United States Department of Defense, international governments, and other government organizations, and third parties that contract with such governmental agencies and organizations, who use the Company’s services for defense and security, and transportation and other government-related activities.

Manufacturing and MRO segment revenues are derived from manufacturing and maintenance, repair, and overhaul services for certain aircraft, as well as aircraft sales.

Information about the Company’s revenues and gross profit by its three reportable segments, as well as a reconciliation of the Company’s reportable segment gross profit to operating loss, is as follows (in thousands):

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Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenues, net:
 
 
 
 
 
 
 
Commercial Aviation Services
$
20,991

 
$
34,319

 
$
40,937

 
$
60,572

Global Defense and Security
21,371

 
28,391

 
40,440

 
61,266

Manufacturing and MRO
8,476

 
4,309

 
14,290

 
9,143

Total net revenues
$
50,838

 
$
67,019

 
$
95,667

 
$
130,981

Gross (loss) profit:
 
 
 
 
 
 
 
Commercial Aviation Services
$
(5,447
)
 
$
3,686

 
(9,805
)
 
(1,001
)
Global Defense and Security
751

 
2,117

 
(208
)
 
6,479

Manufacturing and MRO
3,366

 
2,115

 
4,609

 
3,427

Total gross (loss) profit
(1,330
)
 
7,918

 
(5,404
)
 
8,905

Less: operating expenses
27,971

 
7,760

 
36,976

 
73,910

Operating (loss) income
$
(29,301
)
 
$
158

 
$
(42,380
)
 
$
(65,005
)

Customers that accounted for at least 10% of the Company’s net revenues were as follows:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Segment
 
2016
 
2015
 
2016
 
2015
Customer B
Global Defense and Security
 
22.1
%
 
15.4
%
 
22.3
%
 
21.3
%
Customer A
Global Defense and Security
 
16.6

 
9.0

 
16.2

 
10.5

 
 
 
38.7
%
 
24.4
%
 
38.5
%
 
31.8
%

Revenues, net by geographic area were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,

2016
 
2015
 
2016
 
2015
Revenues, net:
 
 
 
 
 
 
 
North America
$
19,917

 
$
24,898

 
$
32,661

 
$
39,555

Middle East
11,213

 
16,568

 
21,375

 
33,125

Africa
8,416

 
6,979

 
15,459

 
13,772

Europe
4,606

 
3,051

 
6,017

 
3,904

South America
3,188

 
10,066

 
7,023

 
21,103

Asia
3,464

 
5,379

 
5,816

 
10,994

Australia
34

 
78

 
7,316

 
8,528

 
$
50,838

 
$
67,019

 
$
95,667

 
$
130,981


For each operating segment, revenues are attributed to geographic area based on the country where the services were performed; for the Manufacturing and MRO reportable segment, revenues are attributed to geographic area based on the country in which the customer is located.

Assets by reportable segment was as follows (in thousands):

June 30, 2016
 
December 31, 2015
Assets:
 
 
 
Global Defense and Security
$
169,483

 
$
173,882

Commercial Aviation Services
41,191

 
41,857

Manufacturing and MRO
19,378

 
25,623

Corporate(1)
5,292

 
3,917

Aircraft held for sale
6,200

 
12,348

Fixed Assets(2)
342,235

 
344,026

 
$
583,779

 
$
601,653


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(1)
Comprised primarily of cash, prepaid expenses and other current assets, and deferred tax assets.
(2)
Comprised of the aircraft fleet and fleet support assets including: aircraft, net; aircraft parts, net; and property, plant, and equipment, net, which are primarily used to support the aircraft fleet, with minimal amounts allocated to the corporate function.

NOTE 6—LOSS PER SHARE

Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common shares outstanding and the effect of dilutive potential common shares outstanding during the period. Potential common shares consist of stock-based awards such as stock options.

For the three and six month periods ended June 30, 2016 and 2015, the net loss attributable to Erickson Incorporated common shareholders is the same for both basic and diluted loss per share computations. Due to the Company’s net loss position, shares of 313,500 were excluded from the computation of diluted loss per common share for the three and six month periods ended June 30, 2016 as their effect would have been anti-dilutive, with 20,500 excluded for the three and six month periods ended June 30, 2015.

NOTE 7—COMMITMENTS AND CONTINGENCIES

The Company is subject to ongoing litigation and claims as part of its normal business operations and makes a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company recognizes expenses for legal costs in connection with defending a loss contingency as those costs are incurred.

Arizona Environmental Matter

In August 2012, Erickson Helicopters, Inc. (formerly “Evergreen Helicopters, Inc.” and Erickson’s wholly-owned subsidiary, ‘‘EHI’’) received a request for information from the State of Arizona and has been served various petitions regarding the Broadway-Pantano Site in Tucson, Arizona, which is comprised of two landfills at which the State of Arizona has been conducting soil and groundwater investigations and cleanups related to site contamination. According to these documents, the State has identified approximately 101 parties that are potentially responsible for the contamination. It is possible that the State or other liable parties may assert that EHI is liable for the alleged contamination at the site. At this time, the Company is not able to determine the likelihood of any outcome in this matter, nor is it able to estimate the amount or range of loss or the impact on its financial condition in the event of an unfavorable outcome.

World Fuel Claim

In December 2013, World Fuel, a former fuel supplier of Evergreen International Aviation (‘‘EIA’’) and Evergreen Airlines (‘‘EA’’), filed suit in the Circuit Court of Yamhill County, Oregon (“Circuit Court”) against EIA, EA and other named parties claiming approximately $9 million of accounts payable, not including claimed accrued interest, due and owing to World Fuel for fuel purchases made by EIA and EA. EHI was a named party in the lawsuit since it was alleged that EHI signed a joint and several guaranty of payment in favor of World Fuel in 2012. In April 2014, the Company filed an answer, which included certain counterclaims against World Fuel and certain cross claims against Mr. Delford Smith. In January 2016, the Company agreed to accept an Offer of Judgment from the Estate of Mr. Delford Smith in connection with the Estate’s admission to certain factual issues in the lawsuit. In March 2016, World Fuel initiated the process to dismiss the suit filed in the Circuit Court in order to re-file the suit in the United States District Court for the District of Oregon. At this time, the Company is not able to determine the likelihood of any outcome in this matter, nor is it able to estimate the amount or range of loss or the impact on its financial condition in the event of an unfavorable outcome.

Stockholder Action

In August 2013, a stockholder class and derivative action was filed in the Court of Chancery for the State of Delaware against the Company, members of our board of directors, EAC Acquisition Corp., and entities associated with ZM Equity Partners, LLC and certain of their affiliates. The plaintiff asserted claims for breach of fiduciary duty and unjust enrichment in connection with the acquisition of Evergreen Helicopters, Inc. and requested an award of unspecified monetary damages, disgorgement and restitution, certain other equitable relief, and an award of plaintiff’s costs and disbursements, including legal fees. In June 2016, the parties entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Stipulation”). The Stipulation was entered into for the sole purpose of resolving contested claims and disputes, as well as

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avoiding the costs, risk and uncertainties inherent in litigation. The Stipulation does not contain any finding of fault or admission of wrongdoing or liability on the part of the Company or any of the individual defendants in the litigation.

The terms of the Stipulation (a) include the creation of a settlement fund in the amount of $18.5 million, a portion of which will be distributed to plaintiff’s counsel for attorneys’ fees and expenses, with 80% of the remaining funds to be distributed to the Class Members pursuant to the Plan of Allocation and 20% of the remaining funds to be distributed to the Company, and (b) require the Company to amend certain provisions of its Certificate of Incorporation with respect to certain change or control and related party transactions. In addition, under the terms of the Stipulation, the plaintiff and each stockholder of the Company shall be deemed to have released the defendants from any and all claims, including unknown claims, relating to the matters asserted or that could have been asserted in the litigation.

The portion of the settlement fund to be paid by the Company is expected to be covered by the Company’s existing directors and officers insurance policy and therefore, the Company does not expect any material impact on the Company’s financial condition. The Stipulation is subject to and conditioned upon final approval by the Court, after public notice of the proposed settlement.

NOTE 8—VARIABLE INTEREST ENTITIES

The Company has determined that it is the primary beneficiary of two variable interest entities (“VIEs”), EuAC and Costa Do Sol Taxi Aero Corporation (“Costa Do Sol”). An entity is generally considered a VIE that is subject to consolidation if the total equity investment at risk is not sufficient for the entity to finance its activities without additional subordinated financial support; or as a group, the holders of the equity investment at risk lack any one of the following characteristics: (a) the power, through voting rights or similar rights, to direct the activities that most significantly impact the entity’s economic performance; (b) the obligation to absorb expected losses of the entity; or (c) the right to receive the expected residual returns of the entity.

•
EuAC. This entity is 49% owned by EI; 49% owned by Grupo Inaer (“Inaer”); and 2% owned by Fiduciaria Centro Nord (“FCN”). EI provided FCN with the financial means to purchase and transfer the shares of EuAC, in exchange for the patrimonial and administrative rights derived from the shares. These rights include the right to decide whether and how to vote in shareholders’ meetings and the right to decide whether, when and to whom the shares should be transferred and endorsed.

•
Costa Do Sol. Air Amazonia, the Company’s Brazilian subsidiary, entered into a purchase agreement in 2014 to acquire 100% of the preferred non-voting stock and 20% of the common voting stock of Costa Do Sol and an employee of Air Amazonia, a Brazilian national, entered into a purchase agreement at the same time to acquire 80% of the common voting stock of Costa Do Sol. In connection with the purchase agreements, the selling shareholders of Costa Do Sol executed a power-of-attorney authorizing Air Amazonia to transact business on behalf of Costa, at which time, Air Amazonia began to manage the operations of Costa Do Sol. Although the purchase transaction is pending approval by the National Civil Aviation Agency of Brazil, Air Amazonia has the authority to operate and transact business on behalf of Cost Do Sol through the power-of-attorney.

Determining whether EI is the primary beneficiary of a VIE is complex, subjective and requires the use of judgments and assumptions. Significant judgments and assumptions made by the Company in determining that it is the primary beneficiary of EuAC and Costa Do Sol include the following: i) the Company has the experience to own and operate aviation services-type entities and has the ability to make decisions and has control over the VIEs’ most significant activities, ii) the Company bears the exposure to the expected losses of the VIE if they occur; and iii) the Company has the right to receive the expected residual returns of the entity if they occur. As such, as of June 30, 2016, the Company’s consolidated balance sheet includes EuAC and Costa Do Sol assets of $0.9 million and liabilities of $1.0 million, and EuAC and Costa Do Sol assets of $3.1 million and liabilities of $1.3 million as of December 31, 2015.

NOTE 9—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 “2020 Senior Notes”). In lieu of providing separate audited financial statements for each guarantor subsidiary, the Company has included the following condensed consolidating financial information in accordance with Rule 3-10 of SEC Regulation S-X for:
 
•
Erickson Incorporated (the ‘‘Parent Company’’), the issuer of the guaranteed obligations;


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Table of Contents

•
Subsidiaries of EI that guarantee the Company’s obligations under the 2020 Senior Notes, referred to as “Guarantor Subsidiaries;”

•
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 its 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 liability 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 amounts presented are in thousands.


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Table of Contents

 
Condensed Consolidating Balance Sheet 
 June 30, 2016

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
797

 
$
102

 
$
2,384

 
$
—

 
$
3,283

Restricted cash
—

 
—

 
222

 
—

 
222

Accounts receivable, net
17,680

 
14,354

 
9,789

 
38

 
41,861

Prepaid expenses and other current assets
4,615

 
837

 
752

 
—

 
6,204

Total current assets
23,092

 
15,293

 
13,147

 
38

 
51,570

Aircraft, net
105,503

 
38,598

 
888

 
—

 
144,989

Aircraft parts, net
126,616

 
46,897

 
187

 
(45
)
 
173,655

Aircraft held for sale
1,500

 
4,700

 
—

 
—

 
6,200

Property, plant and equipment, net
18,709

 
4,326

 
555

 
—

 
23,590

Other assets
311,813

 
7,329

 
619

 
(310,470
)
 
9,291

Other intangible assets, net
2,205

 
12,509

 
—

 
—

 
14,714

Goodwill, net
—

 
160,532

 
—

 
(762
)
 
159,770

Total assets
$
589,438

 
$
290,184

 
$
15,396

 
$
(311,239
)
 
$
583,779

Liabilities and equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
12,413

 
$
13,983

 
$
1,829

 
$
—

 
$
28,225

Current portion of long-term debt
7,451

 
970

 
—

 
—

 
8,421

Accrued expenses and other current liabilities
16,473

 
3,872

 
2,015

 
—

 
22,360

Total current liabilities
36,337

 
18,825

 
3,844

 
—

 
59,006

Credit facility
119,523

 
—

 
—

 
—

 
119,523

Long-term debt, less current portion
359,660

 
1,697

 
—

 
—

 
361,357

Other liabilities
(8,811
)
 
10,070

 
16,690

 
—

 
17,949

Total liabilities
506,709

 
30,592

 
20,534

 
—

 
557,835

Equity (deficit):
 
 
 
 
 
 
 
 
 
Erickson Incorporated shareholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
7,053

 
(7,053
)
 
1

Additional paid-in capital
181,396

 
297,994

 
5,785

 
(303,779
)
 
181,396

Accumulated deficit
(94,453
)
 
(38,402
)
 
(17,028
)
 
—

 
(149,883
)
Accumulated other comprehensive loss
(4,215
)
 
—

 
(1,581
)
 
(747
)
 
(6,543
)
Total Erickson Incorporated shareholders’ equity (deficit)
82,729

 
259,592

 
(5,771
)
 
(311,579
)
 
24,971

Noncontrolling interests
—

 
—

 
633

 
340

 
973

Total equity (deficit)
82,729

 
259,592

 
(5,138
)
 
(311,239
)
 
25,944

Total liabilities and equity (deficit)
$
589,438

 
$
290,184

 
$
15,396

 
$
(311,239
)
 
$
583,779


20
Table of Contents

 
Condensed Consolidating Balance Sheet 
 December 31, 2015

Parent
 Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
13

 
$
71

 
$
2,045

 
$
—

 
$
2,129

Restricted cash
—

 
—

 
373

 
—

 
373

Accounts receivable, net
18,053

 
15,887

 
6,542

 
38

 
40,520

Prepaid expenses and other current assets
3,637

 
1,028

 
568

 
—

 
5,233

Total current assets
21,703

 
16,986

 
9,528

 
38

 
48,255

Aircraft, net
108,792

 
46,589

 
536

 
—

 
155,917

Aircraft parts, net
128,038

 
41,543

 
288

 
(45
)
 
169,824

Aircraft held for sale
5,880

 
5,316

 
1,152

 
—

 
12,348

Property, plant and equipment, net
20,367

 
4,606

 
580

 
—

 
25,553

Other assets
311,798

 
8,309

 
624

 
(310,470
)
 
10,261

Other intangible assets, net
2,205

 
13,582

 
—

 
—

 
15,787

Goodwill, net
—

 
160,533

 
3,937

 
(762
)
 
163,708

Total assets
$
598,783

 
$
297,464

 
$
16,645

 
$
(311,239
)
 
$
601,653

Liabilities and equity (deficit)
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
6,165

 
$
6,270

 
$
1,225

 
$
—

 
$
13,660

Current portion of long-term debt
7,292

 
913

 
—

 
—

 
8,205

Accrued expenses and other current liabilities
15,524

 
1,588

 
716

 
—

 
17,828

Total current liabilities
28,981

 
8,771

 
1,941

 
—

 
39,693

Credit facility
96,165

 
—

 
—

 
—

 
96,165

Long-term debt, less current portion
362,585

 
2,197

 
—

 
—

 
364,782

Other long-term liabilities
(30,830
)
 
26,046

 
16,504

 
—

 
11,720

Total liabilities
456,901

 
37,014

 
18,445

 
—

 
512,360

Equity (deficit):
 
 
 
 
 
 
 
 
 
Erickson Incorporated shareholders’ equity (deficit):
 
 
 
 
 
 
 
 
 
Common stock
1

 
—

 
7,052

 
(7,052
)
 
1

Additional paid-in capital
181,259

 
297,994

 
33

 
(298,027
)
 
181,259

Accumulated deficit
(34,322
)
 
(37,544
)
 
(7,545
)
 
(5,490
)
 
(84,901
)
Accumulated other comprehensive loss
(5,056
)
 
—

 
(1,974
)
 
(759
)
 
(7,789
)
Total Erickson Incorporated shareholders’ equity (deficit)
141,882

 
260,450

 
(2,434
)
 
(311,328
)
 
88,570

Noncontrolling interests
—

 
—

 
634

 
89

 
723

Total equity (deficit)
141,882

 
260,450

 
(1,800
)
 
(311,239
)
 
89,293

Total liabilities and equity (deficit)
$
598,783

 
$
297,464

 
$
16,645

 
$
(311,239
)
 
$
601,653


21
Table of Contents

 
Condensed Consolidating Statement of Operations 
 Three Months June 30, 2016

Parent 
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Revenues, net
$
23,847

 
$
23,634

 
$
11,838

 
$
(8,481
)
 
$
50,838

Cost of revenues
31,549

 
17,261

 
11,669

 
(8,311
)
 
52,168

Gross (loss) profit
(7,702
)
 
6,373

 
169

 
(170
)
 
(1,330
)
Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
6,257

 
(192
)
 
96

 
—

 
6,161

Research and development
699

 
—

 
—

 
—

 
699

Selling and marketing
2,606

 
176

 
34

 
(170
)
 
2,646

Loss on idle aircraft
—

 
7,815

 
—

 
—

 
7,815

Impairment of goodwill
—

 
—

 
4,523

 
—

 
4,523

Impairment of other assets
1,480

 
4,647

 
—

 
—

 
6,127

Total operating expenses
11,042

 
12,446

 
4,653

 
(170
)
 
27,971

Operating loss
(18,744
)
 
(6,073
)
 
(4,484
)
 
—

 
(29,301
)
Interest expense, net
(9,302
)
 
(84
)
 
(89
)
 
—

 
(9,475
)
Other (expense) income, net
(717
)
 
7

 
682

 
—

 
(28
)
Net loss before income taxes
(28,763
)
 
(6,150
)
 
(3,891
)
 
—

 
(38,804
)
Income tax (benefit) expense
(320
)
 
—

 
228

 
—

 
(92
)
Net loss
(28,443
)
 
(6,150
)
 
(4,119
)
 
—

 
(38,712
)
Less: net income related to noncontrolling interests
—

 
—

 
—

 
(286
)
 
(286
)
Net loss attributable to Erickson Incorporated
$
(28,443
)
 
$
(6,150
)
 
$
(4,119
)
 
$
(286
)
 
$
(38,998
)

 
Condensed Consolidating Statement of Operations 
 Three Months June 30, 2015

Parent Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Entries and
Eliminations
 
Consolidated
Revenues, net
$
29,495

 
$
32,133

 
$
13,285

 
$
(7,894
)
 
$
67,019

Cost of revenues
23,264

 
31,687

 
11,999

 
(7,849
)
 
59,101

Gross profit
6,231

 
446

 
1,286

 
(45
)
 
7,918

Operating expenses:
 
 
 
 
 
 
 
 
 
General and administrative
4,742

 
337

 
768

 
—

 
5,847

Research and development
583

 
—

 
—

 
—

 
583

Selling and marketing
1,338

 
4

 
33

 
(45
)
 
1,330

Total operating expenses
6,663

 
341

 
801

 
(45
)
 
7,760

Operating (loss) income
(432
)
 
105

 
485

 
—

 
158

Interest expense, net
(9,172
)
 
(109
)
 
(94
)
 
—

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