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Bristow Group Inc. - Quarter Report: 2016 September (Form 10-Q)

Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 2016              or             
¨
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 1-35701
Era Group Inc.
(Exact Name of Registrant as Specified in Its Charter)
________________________________________ 
Delaware
 
72-1455213
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
818 Town & Country Blvd., Suite 200
 
 
Houston, Texas
 
77024
(Address of Principal Executive Offices)
 
(Zip Code)
713-369-4700
(Registrant’s Telephone Number, Including Area Code)

________________________________________ 
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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
The total number of shares of common stock, par value $0.01 per share, outstanding as of October 28, 2016 was 20,940,372. The Registrant has no other class of common stock outstanding.

Table of Contents

ERA GROUP INC.
Table of Contents
 
Part I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
Part II.
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.


1
Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
ERA GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share amounts)
 
September 30,
2016
 
December 31,
 2015(1)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (including $1,680 and $3,192 from VIEs in 2016 and 2015, respectively)
$
32,144

 
$
14,370

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts of $1,214 and $2,103 in 2016 and 2015, respectively (including $6,254 and $8,240 from VIEs in 2016 and 2015, respectively)
34,300

 
48,639

Tax receivables
—

 
6,085

Other (including $1,008 and $179 from VIEs in 2016 and 2015, respectively)
6,490

 
3,305

Inventories, net (including $61 and $2,240 from VIEs in 2016 and 2015, respectively)
26,615

 
27,994

Prepaid expenses (including $129 and $0 from VIEs in 2016 and 2015, respectively)
1,799

 
1,963

Other current assets
190

 
191

Total current assets
101,538

 
102,547

Property and equipment (including $821 and $730 from VIEs in 2016 and 2015, respectively)
1,175,131

 
1,175,909

Accumulated depreciation (including $67 and $30 from VIEs in 2016 and 2015, respectively)
(347,113
)
 
(316,693
)
Property and equipment, net
828,018

 
859,216

Equity investments and advances
29,595

 
28,898

Intangible assets
1,141

 
1,158

Other assets (including $4,210 and $3,367 from VIEs in 2016 and 2015, respectively)
11,177

 
12,532

Total assets
$
971,469

 
$
1,004,351

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST
 AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses (including $1,444 and $1,709 from VIEs in 2016 and 2015, respectively)
$
9,132

 
$
12,000

Accrued wages and benefits (including $2,452 and $2,108 from VIEs in 2016 and 2015, respectively)
9,077

 
9,012

Accrued interest
3,363

 
562

Accrued income taxes
550

 
—

Accrued other taxes (including $1,172 and $1,701 from VIEs in 2016 and 2015, respectively)
2,311

 
2,520

Accrued contingencies (including $1,543 and $2,410 from VIEs in 2016 and 2015, respectively)
1,543

 
2,410

Current portion of long-term debt (including $0 and $1,524 from VIEs in 2016 and 2015, respectively)
1,539

 
3,278

Other current liabilities (including $8 and $450 from VIEs in 2016 and 2015, respectively)
2,470

 
2,300

Total current liabilities
29,985

 
32,082

Long-term debt (including $0 and $5,259 from VIEs in 2016 and 2015, respectively)
232,655

 
263,698

Deferred income taxes
227,417

 
229,848

Other liabilities (including $3,032 and $729 from VIEs in 2016 and 2015, respectively)
4,280

 
2,616

Total liabilities
494,337

 
528,244

Commitments and contingencies (see Note 9)

 

Redeemable noncontrolling interest
4,331

 
4,804

Equity:
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,940,372 and 20,495,694 outstanding in 2016 and 2015, respectively, exclusive of treasury shares
211

 
207

Additional paid-in capital
437,291

 
433,175

Retained earnings
38,062

 
40,502

Treasury shares, at cost, 171,614 and 154,549 shares in 2016 and 2015, respectively
(2,855
)
 
(2,673
)
Accumulated other comprehensive income, net of tax
92

 
92

Total equity
472,801

 
471,303

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
971,469

 
$
1,004,351

____________________
(1)
Adjusted for the adoption of Accounting Standards Update (“ASU”) 2015-03 on January 1, 2016 whereby $2,740 of debt issuance costs previously included in other assets are now included in long-term debt.
The accompanying notes are an integral part of these condensed consolidated financial statements.

2
Table of Contents

ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Operating revenues
$
65,006

 
$
69,741

 
$
190,939

 
$
207,894

Costs and expenses:
 
 
 
 
 
 
 
Operating
40,371

 
43,007

 
132,074

 
126,396

Administrative and general
9,504

 
11,238

 
26,871

 
31,760

Depreciation and amortization
12,519

 
12,186

 
37,976

 
35,186

Total costs and expenses
62,394

 
66,431

 
196,921

 
193,342

Gains (losses) on asset dispositions, net
(246
)
 
1,813

 
4,034

 
4,959

Operating income (loss)
2,366

 
5,123

 
(1,948
)
 
19,511

Other income (expense):
 
 
 
 
 
 
 
Interest income
466

 
232

 
1,170

 
800

Interest expense
(4,003
)
 
(3,121
)
 
(12,881
)
 
(9,547
)
Derivative gains (losses), net
—

 
8

 
—

 
(14
)
Foreign currency gains (losses), net
(33
)
 
146

 
577

 
(2,271
)
Gain (loss) on debt extinguishment
—

 
(16
)
 
518

 
248

Gain on sale of FBO (see Note 5)
—

 
—

 
—

 
12,946

Other, net
34

 
—

 
63

 
(9
)
Total other income (expense)
(3,536
)
 
(2,751
)
 
(10,553
)
 
2,153

Income (loss) before income taxes and equity earnings
(1,170
)
 
2,372

 
(12,501
)
 
21,664

Income tax expense (benefit)
69

 
1,343

 
(2,177
)
 
9,426

Income (loss) before equity earnings
(1,239
)
 
1,029

 
(10,324
)
 
12,238

Equity earnings (losses), net of tax
437

 
(376
)
 
1,062

 
(719
)
Net income (loss)
(802
)
 
653

 
(9,262
)
 
11,519

Net loss attributable to noncontrolling interest in subsidiary
242

 
208

 
6,822

 
633

Net income (loss) attributable to Era Group Inc.
$
(560
)
 
$
861

 
$
(2,440
)
 
$
12,152

 
 
 
 
 
 
 
 
Income (loss) per common share:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
0.04

 
$
(0.12
)
 
$
0.59

Diluted
$
(0.03
)
 
$
0.04

 
$
(0.12
)
 
$
0.59

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
20,384,348

 
20,260,514

 
20,322,167

 
20,243,653

Diluted
20,384,348

 
20,287,069

 
20,322,167

 
20,292,782














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

3
Table of Contents

ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in thousands)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss)
 
$
(802
)
 
$
653

 
$
(9,262
)
 
$
11,519

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
—

 
136

 
—

 
(4
)
Income tax benefit
 
—

 
—

 
—

 
1

Total other comprehensive income (loss)
 
—

 
136

 
—

 
(3
)
Comprehensive income (loss)
 
(802
)
 
789

 
(9,262
)
 
11,516

Comprehensive loss attributable to noncontrolling interest in subsidiary
 
242

 
208

 
6,822

 
633

Comprehensive income (loss) attributable to Era Group Inc.
 
$
(560
)
 
$
997

 
$
(2,440
)
 
$
12,149








































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

4
Table of Contents

ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
(unaudited, in thousands)
 
 
 
 
 
Era Group Inc. Stockholders’ Equity
 
 
Redeemable Noncontrolling Interest
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings
 
Treasury
Shares
 
Accumulated
Other
Comprehensive
Income
 
Total
Equity
December 31, 2015
 
$
4,804

 
 
$
207

 
$
433,175

 
$
40,502

 
$
(2,673
)
 
$
92

 
$
471,303

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Restricted stock grants
 
—

 
 
3

 
(3
)
 
—

 
—

 
—

 
—

Employee Stock Purchase Plan
 
—

 
 
1

 
835

 
—

 
—

 
—

 
836

Tax deficit from share award plans
 
—

 
 
—

 
(216
)
 
—

 
—

 
—

 
(216
)
Share award amortization
 
—

 
 
—

 
3,479

 
—

 
—

 
—

 
3,479

Cancellation of restricted stock
 
—

 
 
—

 
21

 
—

 
(21
)
 
—

 
—

Purchase of treasury shares
 
—

 
 
—

 
—

 
—

 
(161
)
 
—

 
(161
)
Net loss
 
—

 
 
—

 
—

 
(9,262
)
 
—

 
—

 
(9,262
)
Net loss attributable to redeemable noncontrolling interest
 
(473
)
 
 
—

 
—

 
473

 
—

 
—

 
473

Contribution of capital from joint venture partner
 
6,349

 
 
—

 
—

 
—

 
—

 
—

 
—

Adjustment to carrying value of redeemable noncontrolling interest
 
(6,349
)
 
 
—

 
—

 
6,349

 
—

 
—

 
6,349

September 30, 2016
 
$
4,331

 
 
$
211

 
$
437,291

 
$
38,062

 
$
(2,855
)
 
$
92

 
$
472,801





























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

5
Table of Contents

ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended 
 September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(9,262
)
 
$
11,519

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
37,976

 
35,186

Share-based compensation
3,479

 
2,674

Bad debt expense, net
324

 
60

Gains on asset dispositions, net
(4,034
)
 
(4,959
)
Debt discount amortization
133

 
191

Amortization of deferred financing costs
684

 
773

Derivative losses, net
—

 
14

Foreign currency losses (gains), net
(842
)
 
2,693

Cash settlements on derivative transactions, net
—

 
(274
)
Gain on debt extinguishment, net
(518
)
 
(248
)
Gain on sale of FBO
—

 
(12,946
)
Deferred income tax benefit
(2,822
)
 
(5,279
)
Equity losses (earnings), net of tax
(1,062
)
 
719

Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in receivables
11,174

 
(7,500
)
Decrease in prepaid expenses and other assets
2,228

 
2,558

Increase in accounts payable, accrued expenses and other liabilities
9,025

 
10,662

Net cash provided by operating activities
46,483

 
35,843

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(10,712
)
 
(47,260
)
Proceeds from disposition of property and equipment
6,138

 
20,631

Cash settlements on forward contracts, net
—

 
(1,103
)
Return of helicopter deposits
544

 
—

Business acquisitions, net of cash acquired
—

 
(3,165
)
Proceeds from sale of FBO
—

 
14,252

Principal payments on notes due from equity investees
539

 
514

Principal payments on third party notes receivable
212

 
25

Escrow deposits, net
—

 
(340
)
Escrow deposits on like-kind exchanges, net
—

 
(1,857
)
Net cash used in investing activities
(3,279
)
 
(18,303
)
Cash flows from financing activities:
 
 
 
Proceeds from Revolving Credit Facility
7,000

 
35,000

Payments on long-term debt
(29,538
)
 
(52,149
)
Extinguishment of long-term debt
(4,331
)
 
(24,335
)
Proceeds from share award plans
836

 
1,096

Tax expense on vested restricted stock
—

 
(114
)
Purchase of treasury shares
(161
)
 
(2,069
)
Net cash used in financing activities
(26,194
)
 
(42,571
)
Effects of exchange rate changes on cash and cash equivalents
764

 
(2,028
)
Net increase (decrease) in cash and cash equivalents
17,774

 
(27,059
)
Cash and cash equivalents, beginning of period
14,370

 
40,867

Cash and cash equivalents, end of period
$
32,144


$
13,808

Supplemental cash flow information:
 
 
 
Cash paid for interest
$
8,847

 
$
10,983

Cash paid (refunded) for income taxes
(5,974
)
 
5,990

Supplemental disclosure of non-cash financing activities:
 
 
 
Notes payable contributed to subsidiary
6,349

 
—


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

6
Table of Contents

ERA GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICY
The condensed consolidated financial statements include the accounts of Era Group Inc. and its consolidated subsidiaries. Unless the context otherwise indicates, any reference in the Quarterly Report on Form 10-Q to the “Company” refers to Era Group Inc. and its consolidated subsidiaries, and any reference to “Era Group” refers to Era Group Inc. without its subsidiaries. The condensed consolidated financial information for the three and nine months ended September 30, 2016 and 2015 has been prepared by the Company and has not been audited by its independent registered public accounting firm. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made to fairly present the Company’s financial position as of September 30, 2016, its results of operations for the three and nine months ended September 30, 2016 and 2015, its comprehensive income for the three and nine months ended September 30, 2016 and 2015, its changes in equity for the nine months ended September 30, 2016, and its cash flows for the nine months ended September 30, 2016 and 2015. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2015.
Certain of the Company’s operations are subject to seasonal factors. Operations in the U.S. Gulf of Mexico are often at their highest levels from April to September, as daylight hours increase, and are at their lowest levels from November to February, as daylight hours decrease. The Company’s Alaskan operations also see an increase during May to September, as its firefighting and flightseeing operations occur during this time and daylight hours are significantly longer.
Basis of Consolidation. The consolidated financial statements include the accounts of Era Group Inc., its wholly and majority-owned subsidiaries and entities that meet the criteria of Variable Interest Entities (“VIEs”) of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation. Aeróleo Taxi Aereo S/A (“Aeróleo”) is a VIE of which the Company is the primary beneficiary.
Reclassifications. Certain amounts reported for prior years in the consolidated financial statements have been reclassified to conform with the current year's presentation.
Revenue Recognition. The Company recognizes revenues when they are realized or realizable and earned. Revenues are realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Revenues that do not meet these criteria are deferred until the criteria are met. The unrecognized revenues and related activity for the periods indicated below were as follows (in thousands): 
 
Three Months Ended 
 September 30, 2015
 
Nine Months Ended 
 September 30, 2015
Balance at beginning of period
$
37,084

 
$
31,047

Revenues deferred during the period
12,381

 
32,531

Revenues recognized during the period
(7,333
)
 
(21,446
)
Balance at end of period
$
42,132

 
$
42,132

The deferred revenues noted above originated from Aeróleo, which became a consolidated entity on October 1, 2015, and for which subsequent collections of these deferred amounts are recorded as a settlement of an intercompany receivable and eliminated in consolidation.
Receivables. Customers are primarily major integrated and independent exploration and production companies, national oil companies, hospitals, international helicopter operators and the U.S. government. Customers are typically granted credit on a short-term basis, and related credit risks are considered minimal. The Company routinely reviews its receivables and makes provisions for probable doubtful accounts; however, those provisions are estimates and actual results could differ from those estimates and those differences may be material. Receivables are deemed uncollectible and removed from receivables and the allowance for doubtful accounts when collection efforts have been exhausted.
Business Combinations. The Company recognizes, with certain exceptions, 100% of the acquisition-date fair value of assets acquired, liabilities assumed, and noncontrolling interests in a business combination when the acquisition constitutes a change in control of the acquired entity. All non-cash consideration, including contingent consideration arrangements and pre-

7
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acquisition loss and gain contingencies, are measured and recorded at their acquisition-date fair value. Any goodwill resulting from the acquisition is measured as the difference between the consideration given and the recognized bases of the identifiable net assets acquired. Subsequent changes to the fair value of contingent consideration arrangements are generally reflected in earnings. Acquisition-related transaction costs are expensed as incurred and any changes in the acquiring entity’s existing income tax valuation allowances and tax uncertainty accruals are recorded as an adjustment to income tax expense.
The operating results of entities acquired are included in the accompanying consolidated statements of income from the date of acquisition. Operating profits and losses of consolidated subsidiaries that are less than 100% owned are allocated to the owners based on their equity interests, or another method if the ownership documents prescribe such a method. Generally, noncontrolling interests are initially valued at fair value with any deficits resulting from accumulated losses of a subsidiary allocated to the Company. Subsequent profits recorded by the subsidiary are allocated to the Company to the extent that any losses attributable to noncontrolling interests were previously allocated to the Company.
New Accounting Standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09 - Revenue From Contracts With Customers, which will base revenue recognition on the contract between a vendor and customer and will require reporting entities to allocate the transaction price to various performance obligations in a contract and recognize revenues when those performance obligations are satisfied. In March 2016, the FASB issued ASU 2016-08 - Revenue from Contracts With Customers, in April 2016, the FASB issued ASU 2016-10 - Revenue from Contracts With Customers, and in May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts With Customers, all of which provide guidance on the application of certain principles in ASU 2014-09. Each of ASU 2014-09, 2016-08, 2016-10 and 2016-12 will be effective for annual reporting periods beginning after December 15, 2017 and any interim periods within that period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016 and any interim periods within that period. The Company is currently evaluating the potential impact and the method of the adoption of each of ASU 2014-09, ASU 2016-08, ASU 2016-10 and ASU 2016-12 on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15 - Presentation of Financial Statements - Going Concern, which modifies existing guidance on when and how to disclose going-concern uncertainties in the financial statements and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within a year of the date the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter, and early adoption is permitted. The Company has not adopted ASU 2014-15 and believes such adoption will not have a material impact on its consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02 - Consolidation, which amends the guidance for evaluating whether certain entities should be consolidated, particularly for general partner and limited partner relationships and VIEs that have fee arrangements or related party relationships with a reporting entity. The Company adopted ASU 2015-02 effective January 1, 2016, and such adoption did not have an impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03 - Interest - Imputation of Interest, which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct reduction of the carrying amount of that liability. The recognition and measurement guidance for debt issuance costs is not affected by this ASU. In September 2015, the FASB issued ASU 2015-15 - Interest - Imputation of Interest, which amends ASU 2015-03 to allow issuers to continue to recognize debt issuance costs related to line-of-credit arrangements as an asset and amortize that asset over the term of the credit agreement. The Company adopted ASU 2015-03 and ASU 2015-15 effective on January 1, 2016. As of September 30, 2016 and December 31, 2015, the Company had debt issuance costs of $2.5 million and $2.7 million, respectively, exclusive of debt issuance costs associated with its amended and restated senior secured revolving credit facility (the “Revolving Credit Facility”). The adoption of ASU 2015-03 and ASU 2015-15 reduced other assets and long-term debt by these amounts for both condensed consolidated balance sheets presented.
In July 2015, the FASB issued ASU 2015-11 - Inventory, which is intended to simplify the way reporting entities account for inventory by requiring it to be valued at the lower of cost and net realizable value unless that entity uses the last-in, first-out or the retail inventory valuation method. ASU 2015-11 is effective for annual reporting periods beginning after December 15, 2016 and any interim periods within that period, and early adoption is permitted as of the beginning of an interim or annual reporting period. The Company has not adopted ASU 2015-11 and believes adoption will not have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02 - Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is still evaluating the potential impact of the adoption of ASU 2016-02 on its consolidated financial statements.

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In March 2016, the FASB issued ASU 2016-07 - Investments - Equity Method and Joint Ventures, which eliminates the requirement to retroactively apply the equity method of accounting for an investment when an increase in the level of ownership or degree of influence causes the investment to qualify for equity method treatment and instead requires the entity to add the cost (if any) of acquiring the additional ownership or degree of influence to the current basis of the investment and apply equity method accounting as of the date the investment qualifies for such treatment. ASU 2016-07 is effective for annual reporting periods beginning after December 15, 2016, and early adoption is permitted as of the beginning of an interim or annual reporting period. The Company has not adopted ASU 2016-07 and believes adoption will not have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09 - Compensation - Stock Compensation, which simplifies several aspects of accounting for share-based payment transactions including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. ASU 2016-09 will be effective for annual reporting periods beginning after December 15, 2016 including interim periods within that period. Early adoption is permitted as of the beginning of an interim or annual period provided that all adjustments are applied as of the beginning of the annual period in which the statement is adopted. The Company has not adopted ASU 2016-09 and believes such adoption will not have a material impact on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15 - Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in reporting certain transactions on the statement of cash flows by clarifying current GAAP where it may be unclear or does not include adequate explanation. ASU 2016-15 will be effective for annual reporting periods beginning after December 15, 2017 including interim periods within that period. Early adoption is permitted as of the beginning of an interim or annual period provided that all amendments included in ASU 2016-15 are adopted in the same period and applied as of the beginning of the annual period in which the statement is adopted. The Company has not adopted ASU 2016-15 and believes such adoption will not have a material impact on its consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16 - Income Taxes, which requires entities to recognize income tax consequences of intra-entity transfers of assets, other than inventory, when the transfer occurs rather than when the asset is sold to a third party as is the case under current GAAP. ASU 2016-16 will be effective for annual reporting periods beginning after December 15, 2017 including interim periods within that period. Early adoption is permitted as of the beginning of an annual reporting period for which neither interim nor annual financial statements have been made available. The Company has not adopted ASU 2016-16 and believes such adoption will not have a material impact on its consolidated financial statements.
2.
FAIR VALUE MEASUREMENTS
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs derived from observable market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.
As of September 30, 2016 and December 31, 2015, the Company did not have any assets or liabilities that are measured at fair value on a recurring basis.
The estimated fair values of the Company’s other financial assets and liabilities as of September 30, 2016 and December 31, 2015 were as follows (in thousands): 
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
September 30, 2016
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
234,194

 
$
—

 
$
213,765

 
$
—

 
 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
266,976

 
$
—

 
$
243,817

 
$
—


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The carrying values of cash and cash equivalents, receivables, notes receivable from other business ventures and accounts payable approximate fair value. The fair value of the Company’s long-term debt was estimated using discounted cash flow analyses based on estimated current rates for similar types of arrangements. Considerable judgment was required in developing certain of the estimates of fair value and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
3.
DERIVATIVE INSTRUMENTS
In 2011, the Company entered into two interest rate swap agreements that matured in December 2015 and called for the Company to pay fixed interest rates of 1.29% and 1.76% on an aggregate notional value equal to the principal balance on the underlying promissory notes and receive a variable interest rate based on LIBOR on these notional values. The general purpose of these interest rate swap agreements was to provide protection against increases in interest rates and higher interest costs for the Company. The interest rate swaps were not renewed upon maturity. The Company recognized gains of $0.1 million and $0.2 million for the three and nine months ended September 30, 2015, respectively, which are included in derivative losses, net on the condensed consolidated statements of operations. The Company had no interest rate swap agreements in place as of September 30, 2016 or December 31, 2015.
From time to time, the Company enters into forward exchange option contracts to hedge against foreign currency payment commitments and anticipated transaction exposures. All derivatives are recognized as assets or liabilities and marked to fair value each period. The Company does not use financial instruments for trading or speculative purposes. None of the Company’s derivative instruments contain credit-risk-related contingent features, and counterparties to the derivative contracts are high credit quality financial institutions.
The Company entered into forward contracts during the second quarter of 2014 to mitigate its exposure to exchange rate fluctuations on euro-denominated aircraft purchase commitments. The Company did not designate these contracts as hedges for accounting purposes. The Company recorded a loss of $0 and $0.3 million on these derivative instruments during the three and nine months ended September 30, 2015, respectively. This loss is recorded in foreign currency gains (losses), net in the condensed consolidated statements of operations. The Company had no open forward contracts as of September 30, 2016 or December 31, 2015.
4.
ESCROW DEPOSITS
From time to time, the Company enters into Qualified Exchange Accommodation Agreements with third parties to meet the like-kind exchange requirements of Section 1031 of the Internal Revenue Code (“IRC”) and the provisions of Revenue Procedure 2000-37. In accordance with these provisions, the Company is permitted to deposit proceeds from the sale of assets into escrow accounts for the purpose of acquiring other assets and qualifying for the temporary deferral of realized taxable gains. Consequently, the Company establishes escrow accounts with financial institutions for the deposit of funds received on sales of equipment, which are designated for replacement property within a specified period of time. As of September 30, 2016 and December 31, 2015, the Company had no deposits in like-kind exchange escrow accounts.
During the nine months ended September 30, 2015, the Company sold one light twin helicopter for cash proceeds of $2.8 million, net of fees. The sale transaction was treated as a tax-free like-kind exchange for tax purposes under Section 1031 of the IRC whereby proceeds are held by a qualified intermediary until qualified assets are delivered. The Company was unable to purchase a qualifying asset prior to the expiration of the 180-day period subsequent to the closing date of the sale. As a result, the proceeds of $2.8 million were returned to the Company during the third quarter of 2015, and the sale was treated as a taxable event.
Also during the nine months ended September 30, 2015, the Company transferred title of one medium helicopter to Hauser Investments Limited (“Hauser”) in connection with its acquisition of Hauser (see Note 5). This transfer was also treated as a tax-free like-kind exchange whereby Hauser deposited $11.8 million into an escrow account with a qualified intermediary for the benefit of the Company. The Company used these funds to purchase a qualifying asset in 2015.
5.
ACQUISITIONS AND DISPOSITIONS
Sicher Helicopters SAS (“Sicher”). On April 9, 2015, the Company contributed $3.2 million in cash for a 75% interest in Hauser, which owns 100% of Sicher, a Colombian entity. In connection with the acquisition, the Company also transferred title of an AW139 medium helicopter to Hauser to be used in Sicher’s operations.
The Company recorded all identifiable assets acquired and liabilities assumed at the estimated acquisition date fair value in accordance with Accounting Standards Codification 805 - Business Combinations (“ASC 805”). This acquisition did not represent a material business combination under ASC 805. The acquisition of the 75% interest in Hauser resulted in the recognition

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of intangible assets, comprised primarily of a Colombian air operator certificate, of $1.2 million. The fair value of the noncontrolling interest was determined using a discounted cash flow analysis.
The noncontrolling interest partner has a right to put its interest to the Company, and the Company has a right to call its partner’s 25% ownership interest, each upon the occurrence of certain events and at fair value at the time of exercise as determined by an independent accounting firm. As a result of this put right, the noncontrolling interest related to Hauser is recorded in the mezzanine section of the condensed consolidated balance sheet as it does not meet the definition of a liability or equity under U.S. GAAP.
Capital Expenditures. During the nine months ended September 30, 2016, capital expenditures were $10.7 million and consisted primarily of deposits on future helicopter deliveries, spare helicopter parts, equipment and building improvements. In connection with the deferral of helicopter deliveries, the Company ceased capitalizing interest on helicopter deposits in the fourth quarter of 2015. During the three and nine months ended September 30, 2015, the Company capitalized interest of $1.8 million and $5.4 million, respectively. As of September 30, 2016 and December 31, 2015, construction in progress, which is a component of property and equipment, included capitalized interest of $4.5 million and $4.7 million, respectively. A summary of changes to our operating helicopter fleet is as follows:
Equipment Additions - The Company had no helicopter acquisitions during the nine months ended September 30, 2016. The Company acquired three BO105 light twin helicopters and one AS350 single engine helicopter in connection with the acquisition of Hauser during the nine months ended September 30, 2015.
Equipment Dispositions - During the nine months ended September 30, 2016, the Company sold or otherwise disposed of property and equipment for proceeds of $6.1 million and recognized gains of $4.0 million. During the nine months ended September 30, 2015, the Company sold or otherwise disposed of property and equipment for proceeds of $18.5 million and recognized gains of $3.1 million. Additionally, a dry-leasing customer exercised a purchase option for three helicopters from which the Company recognized a gain of $1.2 million and investments in sales-type leases of $2.3 million. Subsequent to exercising the purchase option, the customer opted for an early buy-out of two of the three sales type leases, resulting in cash proceeds of $2.1 million and additional gains of $0.6 million. The customer opted for an early buy-out of the remaining sales-type lease in the fourth quarter of 2015.
Fixed Base Operations (“FBO”) Sale. On May 1, 2015, the Company sold its FBO business at Ted Stevens Anchorage International Airport to Piedmont Hawthorne Aviation, LLC. Pursuant to a membership interests purchase agreement, Piedmont Hawthorne Aviation, LLC acquired 100% of Era Group’s wholly-owned subsidiary, Era FBO LLC, for cash proceeds of $14.3 million. The Company recognized a pre-tax gain of $12.9 million on the sale.
6.
VARIABLE INTEREST ENTITIES
Aeróleo. In certain jurisdictions, local statutory requirements limit the amount of foreign ownership in aviation companies. To satisfy Brazilian ownership requirements, the Company acquired a 50% economic and 20% voting interest in Aeróleo in 2011. As a result of liquidity issues experienced by Aeróleo, it is unable to adequately finance its activities without additional financial support from the Company, making it a VIE. On October 1, 2015, the Company’s partner in Aeróleo transfered its 50% economic and 80% voting interest in Aeróleo to a third party. Following this transaction, the Company has the ability to direct the activities that most significantly affect Aeróleo’s financial performance, making the Company the primary beneficiary.
The Company’s condensed consolidated balance sheets at September 30, 2016 and December 31, 2015 include assets of Aeróleo totaling $14.1 million and $17.9 million, respectively. The distribution of these assets to Era Group and its subsidiaries other than Aeróleo is subject to restrictions. The Company’s condensed consolidated balance sheets at September 30, 2016 and December 31, 2015 include liabilities of Aeróleo of $9.7 million and $15.9 million, respectively. The creditors for such liabilities do not have recourse to Era Group or its subsidiaries other than Aeróleo.
The Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2016 include operating revenues of $7.5 million and $21.6 million, respectively, and a net loss of $2.4 million and $4.5 million, respectively, as a result of the consolidation of Aeróleo, including the effects of intercompany eliminations. The table below represents the Company’s pro forma results of operations for the three and nine months ended September 30, 2015 assuming the consolidation of Aeróleo began on January 1, 2015 (in thousands):

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Historical Results
 
Pro Forma Adjustments
 
Pro Forma Results
Three Months Ended September 30, 2015
 
 
 
 
 
Operating revenues
$
69,741

 
$
12,932

 
$
82,673

Net income attributable to Era Group Inc.
861

 
(4
)
 
857

 
 
 
 
 
 
Nine Months Ended September 30, 2015
 
 
 
 
 
Operating revenues
$
207,894

 
$
35,523

 
$
243,417

Net income attributable to Era Group Inc.
12,152

 
(4,037
)
 
8,115

7.
INCOME TAXES
During the three months ended September 30, 2016 and 2015, the Company recorded income tax expense of $0.1 million and $1.3 million, respectively, resulting in effective tax rates of (5.9)% and 56.6%, respectively. During the nine months ended September 30, 2016 and 2015, the Company recorded income tax benefit of $2.2 million and expense of $9.4 million, respectively, resulting in effective tax rates of 17.4% and 43.5%, respectively. The decrease in tax rates is primarily due to losses at the Company’s foreign affiliates.
Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in other expense on the condensed consolidated statements of operations. As of September 30, 2016 and December 31, 2015, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $0.5 million and $0.6 million, respectively.
8.
LONG-TERM DEBT
The Company’s borrowings as of September 30, 2016 and December 31, 2015 were as follows (in thousands):
 
 
September 30, 2016
 
December 31, 2015
7.750% Senior Notes (excluding unamortized discount)
 
$
144,828

 
$
149,828

Senior secured revolving credit facility
 
70,000

 
90,000

Promissory notes
 
23,582

 
24,968

Other
 
15

 
9,509

 
 
238,425

 
274,305

Less: portion due within one year
 
(1,539
)
 
(3,278
)
Less: debt discount, net
 
(1,758
)
 
(4,589
)
Less: unamortized debt issuance costs
 
(2,473
)
 
(2,740
)
Total long-term debt
 
$
232,655

 
$
263,698

7.750% Senior Notes. On December 7, 2012, Era Group issued $200.0 million aggregate principal amount of its 7.750% senior unsecured notes due December 15, 2022 (the “7.750% Senior Notes”) and received net proceeds of $191.9 million. Interest on the 7.750% Senior Notes is payable semi-annually in arrears on June 15 and December 15 of each year. During the nine months ended September 30, 2016, the Company repurchased $5.0 million of the 7.750% Senior Notes and recognized a gain on extinguishment of $0.5 million. During the nine months ended September 30, 2015, the Company repurchased $24.9 million of the 7.750% Senior Notes and recognized a gain on extinguishment of $0.2 million.
Amended and Restated Senior Secured Revolving Credit Facility. On March 31, 2014, Era Group entered into the Revolving Credit Facility that matures in March 2019. The Revolving Credit Facility provides Era Group with the ability to borrow up to $300.0 million, with a sub-limit of up to $50.0 million for letters of credit. Subject to the satisfaction of certain conditions precedent and the agreement by the lenders, the Revolving Credit Facility includes an “accordion” feature which, if exercised, will increase total commitments by up to $100.0 million. Era Group’s availability under the Revolving Credit Facility may be limited by the terms of the 7.750% Senior Notes.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at Era Group’s election, either a base rate or LIBOR, each as defined, plus an applicable margin. The applicable margin is based on the Company’s ratio of funded debt to EBITDA, as defined, and ranges from 75 to 200 basis points on the base rate margin and 175 to 300 basis points on the LIBOR margin. The applicable margin as of September 30, 2016 was 125 basis points on the base rate margin and 225

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basis points on the LIBOR margin. In addition, the Company is required to pay a quarterly commitment fee based on the average unfunded portion of the committed amount at a rate based on the Company’s ratio of funded debt to EBITDA, as defined, that ranges from 37.5 to 50 basis points. As of September 30, 2016, the commitment fee was 50 basis points.
The obligations under the Revolving Credit Facility are secured by a portion of the Company’s helicopter fleet and the Company’s other tangible and intangible assets and are guaranteed by Era Group’s wholly owned U.S. subsidiaries. The Revolving Credit Facility contains various restrictive covenants including interest coverage, total leverage and asset coverage ratios, as well as other customary covenants including certain restrictions on the Company’s ability to enter into certain transactions, including those that could result in the incurrence of additional indebtedness and liens, the making of loans, guarantees or investments, sales of assets, payments of dividends or repurchases of capital stock, and entering into transactions with affiliates.
As of September 30, 2016, Era Group had $70.0 million of outstanding borrowings under the Revolving Credit Facility and issued letters of credit of $1.2 million. In connection with the amendment of the Revolving Credit Facility in 2014, Era Group incurred debt issuance costs of $2.4 million. Such costs are included in other assets on the condensed consolidated balance sheets and are amortized to interest expense in the condensed consolidated statements of operations over the life of the Revolving Credit Facility.
Aeróleo Debt. During the nine months ended September 30, 2016, the Company prepaid a $1.0 million loan issued by Aeróleo due to a third party in Brazil. Also during the nine months ended September 30, 2016, the Company and its partner in Aeróleo each contributed notes payable to them by Aeróleo as a contribution of additional capital into Aeróleo. As a result, $6.3 million of debt due to the Company’s partner in Aeróleo was recorded in net loss attributable to noncontrolling interest in subsidiary on the condensed consolidated statements of operations.
Promissory Notes. During the nine months ended September 30, 2016, the Company made scheduled payments on other long-term debt of $1.4 million. During the third quarter of 2016, these notes were amended to, among other things, provide for cross-collateralization such that the helicopters now secure both promissory notes.
9.
COMMITMENTS AND CONTINGENCIES
Fleet. The Company’s unfunded capital commitments as of September 30, 2016 consisted primarily of agreements to purchase helicopters and totaled $150.3 million, of which $35.6 million is expected to become payable during the remainder of 2016 with the balance payable through 2018. The Company also had $1.3 million of deposits paid on options not yet exercised. The Company may terminate $107.7 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than aggregate liquidated damages of $2.5 million.
Included in these commitments are orders to purchase seven AW189 heavy helicopters, two S92 heavy helicopters and five AW169 light twin helicopters. The AW189 and S92 helicopters are scheduled to be delivered in 2016 through 2018. Delivery dates for the AW169 helicopters have yet to be determined. In addition, the Company had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery beginning in 2017 through 2018.
Brazilian Tax Disputes. The Company is disputing assessments of approximately $7.1 million in taxes, penalties and interest levied by the municipal authorities of Rio de Janeiro (for the period between 2000 to 2005) and Macae (for the period between 2001 to 2006) (collectively, the “Municipal Assessments”). The Company believes that, based on its interpretation of tax legislation supported by clarifying guidance provided by the Supreme Court of Brazil with respect to the issue in a 2006 ruling, it is in compliance with all applicable tax legislation, has paid all applicable taxes, penalties and interest and plans to defend these claims vigorously at the administrative levels in each jurisdiction. In the event the Municipal Assessments are upheld at the last administrative level, it may be necessary for the Company to deposit the amounts at issue as security to pursue further appeals. The Company received a final, unfavorable ruling with respect to a similar assessment levied by the Rio de Janeiro State Treasury for the periods between 1994 to 1998 (the “1998 Assessments”). The 1998 Assessments were upheld without taking into consideration the benefit of the clarifying guidance issued by the Supreme Court following the assertion of the claims. The final adjudication of the 1998 Assessments requires payment of amounts that are within the established accruals, will be paid in multiple installments over time and are not expected to have a material effect on our financial position or results of operations. At September 30, 2016, it is not possible to determine the outcome of the Municipal Assessments, but the Company does not expect that an adverse outcome would have a material effect on its business, financial position or results of operations. In addition, it is not possible to reasonably estimate the likelihood or potential amount of assessments that may be issued for any subsequent periods.
The Company is also disputing challenges raised by the Brazilian tax authorities with respect to certain tax credits applied by Aeróleo between 1995 to 2009. The tax authorities are seeking $2.2 million in additional taxes, interest and penalties. The Company believes that, based on its interpretation of tax legislation, it is in compliance with all applicable tax legislation and plans to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but the

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Company does not expect that an adverse outcome would have a material effect on its business, financial position or results of operations.
The Company is disputing responsibility for $2.7 million of employer social security contributions required to have been remitted by one of its customers relating to the period from 1995 to 1998. Although the Company may be deemed co-responsible for such remittances under the local regulatory regime, the customer’s payments to the Company against presented invoices were made net of the specific remittances required to have been made by the customer and at issue in the claim. As such, the Company plans to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but the Company does not expect that an adverse outcome would have a material effect on its business, financial position or results of operations.
The Company is disputing certain penalties that are being assessed by the State of Rio de Janeiro in respect of the Company’s alleged failure to submit accurate documentation and to fully comply with filing requirements with respect to certain value-added taxes.  The Company elected to make payment of $0.2 million in installments over time to satisfy a portion of these penalties.  Upon confirming with the asserting authority that the originally proposed penalties of $1.6 million with respect to the balance of the assessments were calculated based on amounts containing a typographical error, the aggregate penalties that remain in dispute total $0.4 million. At September 30, 2016, it is not possible to determine the outcome of this matter.
The Company is also disputing claims from the Brazilian tax authorities with respect to federal customs taxes levied upon the helicopters leased by the Company and imported into Brazil under a temporary regime and subject to re-export. In order to dispute such assessments and pursue its available legal remedies within the judicial system, the Company deposited the amounts at issue into an escrow account that serves as security and with the presiding judge in the matter controlling the release of such funds. The Company believes that, based on its interpretation of tax legislation and well established aviation industry practice, it is not required to pay such taxes and plans to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but the Company does not expect that an adverse outcome would have a material effect on its business, financial position or results of operations.
As it relates to the specific cases referred to above, the Company currently anticipates that any administrative fine or penalty ultimately would not have a material effect on its financial position or results of operations. The Company has deposited $7.5 million into escrow accounts controlled by the court with respect to certain of the cases described above and has fully reserved such amounts subject to final determination and the judicial release of such escrow deposits. These estimated liabilities are based on the Company’s assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s intentions and experience.
Other. In the normal course of its business, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. Management uses estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its financial statements related thereto where appropriate. It is possible that a change in the Company’s estimates related to such exposure could occur, but the Company does not expect such changes in estimated costs would have a material effect on its consolidated financial position, results of operations or cash flows.
In April 2014, the Company entered into a settlement agreement with Airbus Helicopters (formerly Eurocopter), a division of Airbus Group (formerly European Aeronautic Defense and Space Company), with respect to the extended suspension of operations of H225 heavy helicopters in 2012 and 2013. The settlement agreement provided for certain service and product credit discounts available to the Company to be applied against support services available from Airbus Helicopters covering spare parts, repair and overhaul, service bulletins, technical assistance or other services. During the three and nine months ended September 30, 2016, the Company utilized credits in the amount of $0 and $1.7 million, respectively. During the three and nine months ended September 30, 2015, the Company utilized credits in the amount of $1.4 million and $3.9 million, respectively. As of September 30, 2016, the Company has utilized all credits available under the agreement.
10.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings per common share of the Company are computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per common share of the Company are computed based on the weighted average number of common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the if-converted method and/or treasury method. Dilutive securities for this purpose assume all common shares have been issued pursuant to the exercise of outstanding stock options.

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Computations of basic and diluted earnings per common share of the Company for the three and nine months ended September 30, 2016 and 2015 were as follows (in thousands, except share and per share data):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss) attributable to Era Group Inc.
 
$
(560
)
 
$
861

 
$
(2,440
)
 
$
12,152

Net income attributable to participating securities
 
—

 
13

 
—

 
163

Net income (loss) attributable to fully vested common stock
 
$
(560
)
 
$
848

 
$
(2,440
)
 
$
11,989

Shares:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
20,384,348

 
20,260,514

 
20,322,167

 
20,243,653

Net effect of dilutive stock options and restricted stock awards based on the treasury stock method(1)
 
—

 
26,555

 
—

 
49,129

Weighted average common shares outstanding - diluted
 
20,384,348

 
20,287,069

 
20,322,167

 
20,292,782

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.03
)
 
$
0.04

 
$
(0.12
)
 
$
0.59

Diluted
 
$
(0.03
)
 
$
0.04

 
$
(0.12
)
 
$
0.59

____________________
(1)
Excludes weighted average common shares of 290,887 and 331,145 for the three months ended September 30, 2016 and 2015, respectively, and 292,189 and 163,048 for the nine months ended September 30, 2016 and 2015, respectively, for certain share awards as the effect of their inclusion would have been antidilutive.
11.
RELATED PARTY TRANSACTIONS
The Company terminated its Amended and Restated Transition Services Agreement (“TSA”) with SEACOR Holdings Inc. (“SEACOR”) effective June 30, 2015. The Company incurred no costs under the TSA during the three or nine months ended September 30, 2016 and costs of $0 and $0.6 million during the three and nine months ended September 30, 2015, respectively. Such costs are classified as administrative and general expenses in the condensed consolidated statements of operations. As of both September 30, 2016 and December 31, 2015, the Company had a payable due to SEACOR of less than $0.1 million.
The Company purchased products from its Dart Holding Company Ltd. (“Dart”) joint venture totaling $0.5 million during each of the three months ended September 30, 2016 and 2015 and $1.6 million and $1.7 million during the nine months ended September 30, 2016 and 2015, respectively. The Company also has a note receivable from Dart which had balances of $3.3 million and $3.6 million as of September 30, 2016 and December 31, 2015, respectively.
During the three months ended September 30, 2016 and 2015, the Company incurred fees of $0.1 million and $0, respectively, for simulator services from its Era Training Center, LLC (“ETC”) joint venture and provided helicopter, management and other services to ETC totaling less than $0.1 million and $0.1 million, respectively. During the nine months ended September 30, 2016 and 2015, the Company incurred fees of $0.4 million and $0.3 million, respectively, for simulator services from ETC, and provided helicopter, management and other services to ETC totaling $0.2 million and $0.3 million, respectively. The Company also has a note receivable from ETC which had balances of $4.1 million and $4.4 million as of September 30, 2016 and December 31, 2015, respectively.
During the nine months ended September 30, 2016, the Company and its partner in Aeróleo each contributed notes payable to them by Aeróleo as a contribution of additional capital into Aeróleo. In connection with the contributions, the Company recorded $6.3 million to net loss attributable to noncontrolling interest in subsidiary on the condensed consolidated statements of operations, representing the carrying value of the note contributed by its partner in Aeróleo.

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12.
SHARE-BASED COMPENSATION
Restricted Stock Awards. The number of shares and weighted average grant price of restricted stock awards during the nine months ended September 30, 2016 were as follows:
 
Number of Shares
 
Weighted Average Grant Price
Non-vested as of December 31, 2015
311,372

 
$
22.58

Restricted stock awards granted:
 
 
 
Non-employee directors
40,663

 
$
10.59

Employees
302,250

 
$
10.56

Vested
(143,527
)
 
$
22.15

Forfeited
(2,120
)
 
$
24.23

Non-vested as of September 30, 2016
508,638

 
$
14.59

The total fair value of shares vested during the nine months ended September 30, 2016 and 2015 was $3.2 million and $1.8 million, respectively.
Stock Options. The Company did not grant any stock options during the nine months ended September 30, 2016.
Employee Stock Purchase Plan (“ESPP”). During the nine months ended September 30, 2016, the Company issued 118,830 shares under the ESPP. On September 15, 2016, the ESPP was amended to, among other things, increase the number of shares reserved for issuance under the ESPP. As of September 30, 2016, 461,811 shares remain available for issuance under the ESPP.
Total share-based compensation expense, which includes stock options, restricted stock and the ESPP, was $3.5 million and $2.7 million for the nine months ended September 30, 2016 and 2015, respectively.
13.
GUARANTORS OF SECURITIES
On December 7, 2012, Era Group issued the 7.750% Senior Notes. Era Group’s payment obligations under the 7.750% Senior Notes are jointly and severally guaranteed by all of its existing 100% owned U.S. subsidiaries that guarantee the Revolving Credit Facility and any future U.S. subsidiaries that guarantee the Revolving Credit Facility or other material indebtedness Era Group may incur in the future (the “Guarantors”). All the Guarantors currently guarantee the Revolving Credit Facility, and the guarantees of the Guarantors are full and unconditional and joint and several.
As a result of the agreement by these subsidiaries to guarantee the 7.750% Senior Notes, the Company is presenting the following condensed consolidating balance sheets and statements of operations, comprehensive income and cash flows for Era Group (“Parent”), the Guarantors and the Company’s other subsidiaries (“Non-guarantors”). These statements should be read in conjunction with the unaudited condensed consolidated financial statements of the Company. The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements.

16
Table of Contents


Supplemental Condensed Consolidating Balance Sheet as of September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
28,692

 
$
1,602

 
$
1,850

 
$
—

 
$
32,144

Receivables:
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $1,214
39

 
27,871

 
6,390

 
—

 
34,300

Other
—

 
5,362

 
1,128

 
—

 
6,490

Inventories, net
—

 
26,352

 
263

 
—

 
26,615

Prepaid expenses
439

 
1,231

 
129

 
—

 
1,799

Other current assets
190

 
—

 
—

 
—

 
190

Total current assets
29,360

 
62,418

 
9,760

 
—

 
101,538

Property and equipment
—

 
1,159,147

 
15,984

 
—

 
1,175,131

Accumulated depreciation
—

 
(345,877
)
 
(1,236
)
 
—

 
(347,113
)
Property and equipment, net
—

 
813,270

 
14,748

 
—

 
828,018

Equity investments and advances
—

 
29,595

 
—

 
—

 
29,595

Investments in consolidated subsidiaries
181,394

 
—

 
—

 
(181,394
)
 
—

Intangible assets
—

 
—

 
1,141

 
—

 
1,141

Deferred taxes
5,771

 
—

 
—

 
(5,771
)
 
—

Intercompany receivables
469,301

 
—

 
—

 
(469,301
)
 
—

Other assets
1,659

 
5,308

 
4,210

 
—

 
11,177

Total assets
$
687,485

 
$
910,591

 
$
29,859

 
$
(656,466
)
 
$
971,469

LIABILITIES, REDEEMABLE NONCONTROLLING INTREST AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
139

 
$
7,207

 
$
1,786

 
$
—

 
$
9,132

Accrued wages and benefits
—

 
6,583

 
2,494

 
—

 
9,077

Accrued interest
3,363

 
—

 
—

 
—

 
3,363

Accrued income taxes
—

 
536

 
14

 
—

 
550

Accrued other taxes
30

 
1,109

 
1,172

 
—

 
2,311

Accrued contingencies
—

 
—

 
1,543

 
—

 
1,543

Current portion of long-term debt
—

 
1,524

 
15

 
—

 
1,539

Other current liabilities
647

 
1,789

 
34

 
—

 
2,470

Total current liabilities
4,179

 
18,748

 
7,058

 
—

 
29,985

Long-term debt
210,597

 
22,058

 
—

 
—

 
232,655

Deferred income taxes
—

 
232,510

 
678

 
(5,771
)
 
227,417

Intercompany payables
—

 
436,996

 
32,305

 
(469,301
)
 
—

Other liabilities
—

 
1,246

 
3,034

 
—

 
4,280

Total liabilities
214,776

 
711,558

 
43,075

 
(475,072
)
 
494,337

Redeemable noncontrolling interest
—

 
4

 
4,327

 
—

 
4,331

Equity:
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,940,372 outstanding, exclusive of treasury shares
211

 
—

 
—

 
—

 
211

Additional paid-in capital
437,291

 
100,306

 
4,562

 
(104,868
)
 
437,291

Retained earnings
38,062

 
98,631

 
(22,105
)
 
(76,526
)
 
38,062

Treasury shares, at cost, 171,614 shares
(2,855
)
 
—

 
—

 
—

 
(2,855
)
Accumulated other comprehensive income, net of tax
—

 
92

 
—

 
—

 
92

Total equity
472,709

 
199,029

 
(17,543
)
 
(181,394
)
 
472,801

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
687,485

 
$
910,591

 
$
29,859

 
$
(656,466
)
 
$
971,469


17
Table of Contents

Supplemental Condensed Consolidating Balance Sheet as of December 31, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7,565

 
$
3,334

 
$
3,471

 
$
—

 
$
14,370

Receivables:
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $2,103
39

 
40,345

 
8,255

 
—

 
48,639

Tax receivables
6,013

 
72

 
—

 
—

 
6,085

Other
—

 
3,089

 
216

 
—

 
3,305

Inventories, net
—

 
25,557

 
2,437

 
—

 
27,994

Prepaid expenses
458

 
1,411

 
94

 
—

 
1,963

Other current assets
190

 
1

 
—

 
—

 
191

Total current assets
14,265

 
73,809

 
14,473

 
—

 
102,547

Property and equipment
—

 
1,159,441

 
16,468

 
—

 
1,175,909

Accumulated depreciation
—

 
(316,090
)
 
(603
)
 
—

 
(316,693
)
Net property and equipment
—

 
843,351

 
15,865

 
—

 
859,216

Equity investments and advances
—

 
28,898

 
—

 
—

 
28,898

Investments in consolidated subsidiaries
172,335

 
—

 
—

 
(172,335
)
 
—

Intangible assets
—

 
—

 
1,158

 
—

 
1,158

Deferred income taxes
3,823

 
—

 
—

 
(3,823
)
 
—

Intercompany receivables
515,255

 
—

 
—

 
(515,255
)
 
—

Other assets
2,166

 
6,999

 
3,367

 
—

 
12,532

Total assets
$
707,844

 
$
953,057

 
$
34,863

 
$
(691,413
)
 
$
1,004,351

LIABILITIES, REDEEMABLE NONCONTROLLING INTREST AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
386

 
$
9,635

 
$
1,979

 
$
—

 
$
12,000

Accrued wages and benefits
—

 
6,875

 
2,137

 
—

 
9,012

Accrued interest
549

 
13

 
—

 
—

 
562

Current portion of long-term debt
—

 
1,663

 
1,615

 
—

 
3,278

Accrued other taxes
30

 
789

 
1,701

 
—

 
2,520

Accrued contingencies
—

 
—

 
2,410

 
—

 
2,410

Other current liabilities
534

 
1,311

 
455

 
—

 
2,300

Total current liabilities
1,499

 
20,286

 
10,297

 
—

 
32,082

Long-term debt
235,134

 
23,305

 
5,259

 
—

 
263,698

Deferred income taxes
—

 
232,994

 
677

 
(3,823
)
 
229,848

Intercompany payables
—

 
501,512

 
13,743

 
(515,255
)
 
—

Other liabilities
—

 
1,887

 
729

 
—

 
2,616

Total liabilities
236,633

 
779,984

 
30,705

 
(519,078
)
 
528,244

Redeemable noncontrolling interest
—

 
4

 
4,800

 
—

 
4,804

Equity:
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,495,694 outstanding, exclusive of treasury shares
207

 
—

 
—

 
—

 
207

Additional paid-in capital
433,175

 
95,543

 
9,325

 
(104,868
)
 
433,175

Retained earnings
40,502

 
77,434

 
(9,967
)
 
(67,467
)
 
40,502

Treasury shares, at cost, 154,549 shares
(2,673
)
 
—

 
—

 
—

 
(2,673
)
Accumulated other comprehensive income, net of tax
—

 
92

 
—

 
—

 
92

Total equity
471,211

 
173,069

 
(642
)
 
(172,335
)
 
471,303

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
707,844

 
$
953,057

 
$
34,863

 
$
(691,413
)
 
$
1,004,351



18
Table of Contents


Supplemental Condensed Consolidating Statements of Operations for the Three Months Ended September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Operating revenues
$
—

 
$
59,130

 
$
15,786

 
$
(9,910
)
 
$
65,006

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating
—

 
31,759

 
18,522

 
(9,910
)
 
40,371

Administrative and general
738

 
7,274

 
1,492

 
—

 
9,504

Depreciation
—

 
12,244

 
275

 
—

 
12,519

Total costs and expenses
738

 
51,277

 
20,289

 
(9,910
)
 
62,394

Gains on asset dispositions, net
—

 
2

 
(248
)
 
—

 
(246
)
Operating income (loss)
(738
)
 
7,855

 
(4,751
)
 
—

 
2,366

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
24

 
116

 
326

 
—

 
466

Interest expense
(3,581
)
 
(387
)
 
(35
)
 
—

 
(4,003
)
Foreign currency gains (losses), net
28

 
82

 
(143
)
 
—

 
(33
)
Other, net
—

 
1

 
33

 
—

 
34

Total other income (expense)
(3,529
)
 
(188
)
 
181

 
—

 
(3,536
)
Income (loss) before income taxes and equity earnings
(4,267
)
 
7,667

 
(4,570
)
 
—

 
(1,170
)
Income tax expense (benefit)
(604
)
 
673

 
—

 
—

 
69

Income (loss) before equity earnings
(3,663
)
 
6,994

 
(4,570
)
 
—

 
(1,239
)
Equity earnings, net of tax
—

 
437

 
—

 
—

 
437

Equity in earnings (losses) of subsidiaries
3,103

 
—

 
—

 
(3,103
)
 
—

Net income (loss)
(560
)
 
7,431

 
(4,570
)
 
(3,103
)
 
(802
)
Net loss attributable to noncontrolling interest in subsidiary
—

 
—

 
242

 
—

 
242

Net income (loss) attributable to Era Group Inc.
$
(560
)
 
$
7,431

 
$
(4,328
)
 
$
(3,103
)
 
$
(560
)

19
Table of Contents

Supplemental Condensed Consolidating Statements of Operations for the Three Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Operating revenues
$
—

 
$
69,491

 
$
655

 
$
(405
)
 
$
69,741

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating
—

 
42,812

 
600

 
(405
)
 
43,007

Administrative and general
1,773

 
9,329

 
136

 
—

 
11,238

Depreciation
—

 
11,674

 
512

 
—

 
12,186

Total costs and expenses
1,773

 
63,815

 
1,248

 
(405
)
 
66,431

Gains on asset dispositions, net
—

 
1,813

 
—

 
—

 
1,813

Operating income
(1,773
)
 
7,489

 
(593
)
 
—

 
5,123

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
4

 
228

 
—

 
—

 
232

Interest expense
(2,801
)
 
(298
)
 
(22
)
 
—

 
(3,121
)
Intercompany interest income (expense)
—

 
165

 
(165
)
 
—

 
—

Derivative losses, net
—

 
8

 
—

 
—

 
8

Foreign currency gains (losses), net
4

 
75

 
67

 
—

 
146

Gain on debt extinguishment
(16
)
 
—

 
—

 
—

 
(16
)
Total other income (expense)
(2,809
)
 
178

 
(120
)
 
—

 
(2,751
)
Income (loss) before income taxes and equity earnings
(4,582
)
 
7,667

 
(713
)
 
—

 
2,372

Income tax expense (benefit)
(2,593
)
 
4,340

 
(404
)
 
—

 
1,343

Income (loss) before equity earnings
(1,989
)
 
3,327

 
(309
)
 
—

 
1,029

Equity losses, net of tax
—

 
(376
)
 
—

 
—

 
(376
)
Equity in earnings (losses) of subsidiaries
2,850

 
—

 
—

 
(2,850
)
 
—

Net income (loss)
861

 
2,951

 
(309
)
 
(2,850
)
 
653

Net loss attributable to noncontrolling interest in subsidiary
—

 
49

 
159

 
—

 
208

Net income (loss) attributable to Era Group Inc.
$
861

 
$
3,000

 
$
(150
)
 
$
(2,850
)
 
$
861


20
Table of Contents


Supplemental Condensed Consolidating Statements of Operations for the Nine Months Ended September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Operating revenues
$
—

 
$
175,607

 
$
47,669

 
$
(32,337
)
 
$
190,939

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating
—

 
107,127

 
57,284

 
(32,337
)
 
132,074

Administrative and general
2,657

 
21,233

 
2,981

 
—

 
26,871

Depreciation
—

 
37,144

 
832

 
—

 
37,976

Total costs and expenses
2,657

 
165,504

 
61,097

 
(32,337
)
 
196,921

Gains on asset dispositions, net
—

 
4,282

 
(248
)
 
—

 
4,034

Operating income (loss)
(2,657
)
 
14,385

 
(13,676
)
 
—

 
(1,948
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
37

 
358

 
775

 
—

 
1,170

Interest expense
(11,765
)
 
(671
)
 
(445
)
 
—

 
(12,881
)
Foreign currency gains (losses), net
45

 
(142
)
 
674

 
—

 
577

Gain on debt extinguishment
518

 
—

 
—

 
—

 
518

Other, net
—

 
2

 
61

 
—

 
63

Total other income (expense)
(11,165
)
 
(453
)
 
1,065

 
—

 
(10,553
)
Income (loss) before income taxes and equity earnings
(13,822
)
 
13,932

 
(12,611
)
 
—

 
(12,501
)
Income tax expense (benefit)
(2,323
)
 
146

 
—

 
—

 
(2,177
)
Income (loss) before equity earnings
(11,499
)
 
13,786

 
(12,611
)
 
—

 
(10,324
)
Equity earnings, net of tax
—

 
1,062

 
—

 
—

 
1,062

Equity in earnings (losses) of subsidiaries
9,059

 
—

 
—

 
(9,059
)
 
—

Net income (loss)
(2,440
)
 
14,848

 
(12,611
)
 
(9,059
)
 
(9,262
)
Net loss attributable to noncontrolling interest in subsidiary
—

 
6,349

 
473

 
—

 
6,822

Net income (loss) attributable to Era Group Inc.
$
(2,440
)
 
$
21,197

 
$
(12,138
)
 
$
(9,059
)
 
$
(2,440
)

21
Table of Contents

Supplemental Condensed Consolidating Statements of Operations for the Nine Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Operating revenues
$
—

 
$
207,550

 
$
1,087

 
$
(743
)
 
$
207,894

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating
—

 
125,886

 
1,253

 
(743
)
 
126,396

Administrative and general
4,889

 
26,582

 
289

 
—

 
31,760

Depreciation
—

 
34,341

 
845

 
—

 
35,186

Total costs and expenses
4,889

 
186,809

 
2,387

 
(743
)
 
193,342

Gains on asset dispositions, net
—

 
7,564

 
(2,605
)
 
—

 
4,959

Operating income
(4,889
)
 
28,305

 
(3,905
)
 
—

 
19,511

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
12

 
786

 
2

 
—

 
800

Interest expense
(8,909
)
 
(605
)
 
(33
)
 
—

 
(9,547
)
Intercompany interest income (expense)
—

 
489

 
(489
)
 
—

 
—

Derivative losses, net
—

 
(14
)
 
—

 
—

 
(14
)
Foreign currency gains (losses), net
620

 
(2,958
)
 
67

 
—

 
(2,271
)
Gain on debt extinguishment
248

 
—

 
—

 
—

 
248

Gain on sale of FBO
12,946

 
—

 
—

 
—

 
12,946

Other, net
—

 
—

 
(9
)
 
—

 
(9
)
Total other income (expense)
4,917

 
(2,302
)
 
(462
)
 
—

 
2,153

Income (loss) before income taxes and equity earnings
28

 
26,003

 
(4,367
)
 
—

 
21,664

Income tax expense (benefit)
12

 
11,314

 
(1,900
)
 
—

 
9,426

Income (loss) before equity earnings
16

 
14,689

 
(2,467
)
 
—

 
12,238

Equity losses, net of tax
—

 
(719
)
 
—

 
—

 
(719
)
Equity in earnings (losses) of subsidiaries
12,136

 
—

 
—

 
(12,136
)
 
—

Net income (loss)
12,152

 
13,970

 
(2,467
)
 
(12,136
)
 
11,519

Net loss attributable to noncontrolling interest in subsidiary
—

 
376

 
257

 
—

 
633

Net income (loss) attributable to Era Group Inc.
$
12,152

 
$
14,346

 
$
(2,210
)
 
$
(12,136
)
 
$
12,152


22
Table of Contents


Supplemental Condensed Consolidating Statements of Comprehensive Income for the Three Months Ended September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(560
)
 
$
7,431

 
$
(4,570
)
 
$
(3,103
)
 
$
(802
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

Income tax benefit
—

 
—

 
—

 
—

 
—

Total other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

Comprehensive income (loss)
(560
)
 
7,431

 
(4,570
)
 
(3,103
)
 
(802
)
Comprehensive loss attributable to noncontrolling interest in subsidiary
—

 
—

 
242

 
—

 
242

Comprehensive income (loss) attributable to Era Group Inc.
$
(560
)
 
$
7,431

 
$
(4,328
)
 
$
(3,103
)
 
$
(560
)

Supplemental Condensed Consolidating Statements of Comprehensive Income for the Three Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
861

 
$
2,951

 
$
(309
)
 
$
(2,850
)
 
$
653

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
(1
)
 
137

 
—

 
136

Income tax benefit
—

 
—

 
—

 
—

 
—

Total other comprehensive loss
—

 
(1
)
 
137

 
—

 
136

Comprehensive income (loss)
861

 
2,950

 
(172
)
 
(2,850
)
 
789

Comprehensive income attributable to noncontrolling interest in subsidiary
—

 
49

 
159

 
—

 
208

Comprehensive income (loss) attributable to Era Group Inc.
$
861

 
$
2,999

 
$
(13
)
 
$
(2,850
)
 
$
997


23
Table of Contents


Supplemental Condensed Consolidating Statements of Comprehensive Income for the Nine Months Ended September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
(2,440
)
 
$
14,848

 
$
(12,611
)
 
$
(9,059
)
 
$
(9,262
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
—

 
—

 
—

Income tax benefit
—

 
—

 
—

 
—

 
—

Total other comprehensive loss
—

 
—

 
—

 
—

 
—

Comprehensive income (loss)
(2,440
)
 
14,848

 
(12,611
)
 
(9,059
)
 
(9,262
)
Comprehensive loss attributable to noncontrolling interest in subsidiary
—

 
6,349

 
473

 
—

 
6,822

Comprehensive income (loss) attributable to Era Group Inc.
$
(2,440
)
 
$
21,197

 
$
(12,138
)
 
$
(9,059
)
 
$
(2,440
)

Supplemental Condensed Consolidating Statements of Comprehensive Income for the Nine Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
12,152

 
$
13,970

 
$
(2,467
)
 
$
(12,136
)
 
$
11,519

Other comprehensive loss:
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
(4
)
 
—

 
—

 
(4
)
Income tax benefit
—

 
1

 
—

 
—

 
1

Total other comprehensive loss
—

 
(3
)
 
—

 
—

 
(3
)
Comprehensive income (loss)
12,152

 
13,967

 
(2,467
)
 
(12,136
)
 
11,516

Comprehensive loss attributable to noncontrolling interest in subsidiary
—

 
376

 
257

 
—

 
633

Comprehensive income (loss) attributable to Era Group Inc.
$
12,152

 
$
14,343

 
$
(2,210
)
 
$
(12,136
)
 
$
12,149


24
Table of Contents


Supplemental Condensed Consolidating Statements of Cash Flows for the Nine Months Ended September 30, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net cash provided by (used in) operating activities
$
21,127

 
$
26,296

 
$
(940
)
 
$
—

 
$
46,483

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
—

 
(10,537
)
 
(175
)
 
—

 
(10,712
)
Proceeds from disposition of property and equipment
—

 
5,910

 
228

 
—

 
6,138

Return of helicopter deposit
—

 
544

 
—

 
—

 
544

Principal payments on notes due from equity investees
—

 
539

 
—

 
—

 
539

Principal payments on third party notes receivable
—

 
212

 
—

 
—

 
212

Net cash provided by (used in) investing activities
—

 
(3,332
)
 
53

 
—

 
(3,279
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Payments on long-term debt
—

 
(1,386
)
 
(1,152
)
 
(27,000
)
 
(29,538
)
Proceeds from Revolving Credit Facility
—

 
—

 
—

 
7,000

 
7,000

Extinguishment of long-term debt
—

 
—

 
—

 
(4,331
)
 
(4,331
)
Proceeds from share award plans
—

 
—

 
—

 
836

 
836

Purchase of treasury shares
—

 
—

 
—

 
(161
)
 
(161
)
Borrowings and repayments of intercompany debt
—

 
(23,656
)
 
—

 
23,656

 
—

Net cash used in financing activities
—

 
(25,042
)
 
(1,152
)
 
—

 
(26,194
)
Effects of exchange rate changes on cash and cash equivalents
—

 
346

 
418

 
—

 
764

Net increase (decrease) in cash and cash equivalents
21,127

 
(1,732
)
 
(1,621
)
 
—

 
17,774

Cash and cash equivalents, beginning of period
7,565

 
3,334

 
3,471

 
—

 
14,370

Cash and cash equivalents, end of period
$
28,692

 
$
1,602

 
$
1,850

 
$
—

 
$
32,144



25
Table of Contents

Supplemental Condensed Consolidating Statements of Cash Flows for the Nine Months Ended September 30, 2015
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Net cash provided by (used in) operating activities
$
(5,604
)
 
$
25,718

 
$
15,729

 
$
—

 
$
35,843

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
—

 
(47,257
)
 
(11,773
)
 
11,770

 
(47,260
)
Proceeds from disposition of property and equipment
—

 
32,401

 
—

 
(11,770
)
 
20,631

Cash settlements on forward contracts, net
—

 
—

 
—

 
(1,103
)
 
(1,103
)
Business acquisitions, net of cash acquired
—

 
—

 
(3,165
)
 
—

 
(3,165
)
Proceeds from sale of FBO
—

 
—

 
—

 
14,252

 
14,252

Principal payments on notes due from equity investees
—

 
514

 
—

 
—

 
514

Principal payments on third party notes receivable
—

 
25

 
—

 
—

 
25

Escrow deposits, net
—

 
(150
)
 
—

 
(190
)
 
(340
)
Escrow deposits on like-kind exchanges, net
—

 
(1,857
)
 
—

 
—

 
(1,857
)
Borrowings and repayments of intercompany debt
—

 
12,959

 
—

 
(12,959
)
 
—

Net cash used in investing activities
—

 
(3,365
)
 
(14,938
)
 
—

 
(18,303
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Payments on long-term debt
—

 
(2,091
)
 
(58
)
 
(50,000
)
 
(52,149
)
Proceeds from Revolving Credit Facility
—

 
—

 
—

 
35,000

 
35,000

Extinguishment of long-term debt
—

 
—

 
—

 
(24,335
)
 
(24,335
)
Proceeds from share award plans
—

 
—

 
—

 
1,096

 
1,096

Purchase of treasury shares
—

 
—

 
—

 
(2,069
)
 
(2,069
)
Tax expense on vested restricted stock
—

 
—

 
—

 
(114
)
 
(114
)
Borrowings and repayments of intercompany debt
—

 
(40,422
)
 
—

 
40,422

 
—

Net cash used in financing activities
—

 
(42,513
)
 
(58
)
 
—

 
(42,571
)
Effects of exchange rate changes on cash and cash equivalents
—

 
(2,028
)
 
—

 
—

 
(2,028
)
Net increase (decrease) in cash and cash equivalents
(5,604
)
 
(22,188
)
 
733

 
—

 
(27,059
)
Cash and cash equivalents, beginning of period
16,481

 
22,188

 
2,198

 
—

 
40,867

Cash and cash equivalents, end of period
$
10,877

 
$
—

 
$
2,931

 
$
—

 
$
13,808


26
Table of Contents


14.
SUBSEQUENT EVENTS
On October 27, 2016, Era Group entered into a Consent and Amendment No. 3 to Amended and Restated Senior Secured Revolving Credit Facility Agreement to its Revolving Credit Facility that, among other things, (a) reduced the aggregate principal amount of revolving loan commitments from $300.0 million to $200.0 million, (b) replaced the total leverage ratio maintenance covenant with a senior secured leverage ratio maintenance covenant defined as the ratio of senior secured debt as of the date of determination to EBITDA for the most recently ended four consecutive fiscal quarters, which ratio may not be greater than 3.00:1.00 for each fiscal quarter ending during the period from September 30, 2016 to March 31, 2017, 3.25:1.00 for the fiscal quarter ending June 30, 2017 and 3.50:1.00 for each fiscal quarter ending thereafter, (c) revised the definition of EBITDA to permit an add-back for non-cash charges and expenses and limit the add-back for cash proceeds received from the sale of assets during the applicable test period to $20 million (provided that, when calculating EBITDA for the purposes of determining the applicable margin under the Revolving Credit Facility, all cash proceeds may be added back), (d) reduced the minimum interest coverage ratio to 1.75:1.00 for each fiscal quarter ending during the period from September 30, 2016 to September 30, 2017 and 1.50:1:00 for each fiscal quarter ending thereafter, (e) increased the minimum asset coverage ratio with respect to the fair market value of our mortgaged helicopters and secured accounts receivable and inventory to 2.00:1.00 and replaced the denominator of total funded debt with committed secured debt, excluding the Company’s promissory notes, (f) included the requirement that we comply with a total leverage ratio of 5.00:1.00 when incurring certain indebtedness or completing acquisitions and (g) added the requirements that the consolidated cash and cash equivalents of the loan parties under the Revolving Credit Facility after giving effect to any advance or letter of credit issuance cannot exceed $40.0 million (excluding cash proceeds from asset sales and equity issuances, cash required for certain capital expenditures and other customary carve-outs, among other items) and any such excess cash and cash equivalents must be applied to repay any outstanding borrowing under the Revolving Credit Facility. For purposes of determining the minimum interest coverage ratio, the add-back for asset sale proceeds is excluded from the EBITDA calculation.

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Table of Contents

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited consolidated financial statements as of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015, included elsewhere herein, and with our annual report on Form 10-K/A for the year ended December 31, 2015.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements concerning management’s expectations, strategic objectives, business prospects, anticipated performance and financial condition and other similar matters involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others:

•
the Company’s dependence on, and the cyclical and volatile nature of, offshore oil and gas exploration, development and production activity, and the impact of general economic conditions and fluctuations in worldwide prices of and demand for oil and natural gas on such activity levels;
•
the Company’s reliance on a small number of customers and the reduction of its customer base resulting from consolidation;
•
cost savings initiatives implemented by the Company’s customers;
•
risks inherent in operating helicopters;
•
the Company’s ability to maintain an acceptable safety record;
•
the Company’s ability to successfully expand into other geographic and helicopter service markets;
•
the impact of increased United States (“U.S.”) and foreign government regulation and legislation, including potential government implemented moratoriums on drilling activities;
•
risks of engaging in competitive processes or expending significant resources, with no guaranty of recoupment;
•
risks of a grounding of all or a portion of the Company’s fleet for extended periods of time or indefinitely;
•
risks that the Company’s customers reduce or cancel contracted services or tender processes;
•
the Company’s reliance on a small number of helicopter manufacturers and suppliers;
•
risks associated with political instability, governmental action, war, acts of terrorism and changes in the economic condition in any foreign country where the Company does business, which may result in expropriation, nationalization, confiscation or deprivation of the Company’s assets or result in claims of a force majeure situation;
•
the impact of declines in the global economy and financial markets;
•
the impact of fluctuations in foreign currency exchange rates on the Company’s cost to purchase helicopters, spare parts and related services and on asset values;
•
the Company’s credit risk exposure;
•
the Company’s ongoing need to replace aging helicopters;
•
the Company’s reliance on the secondary helicopter market to dispose of older helicopters and related equipment;
•
the Company’s reliance on information technology;
•
the impact of allocation of risk between the Company and its customers;
•
the liability, legal fees and costs in connection with providing emergency response services;
•
risks associated with the Company’s debt structure;
•
the impact of operational and financial difficulties of the Company’s joint ventures and partners;
•
conflict with the other owners of the Company’s non-wholly owned subsidiaries and other equity investees;
•
adverse results of legal proceedings;
•
adverse weather conditions and seasonality;
•
the Company’s ability to obtain insurance coverage and the adequacy and availability of such coverage;
•
the possibility of labor problems;
•
the attraction and retention of qualified personnel;
•
restrictions on the amount of foreign ownership of the Company’s common stock; and
•
various other matters and factors, many of which are beyond the Company’s control.

It is not possible to predict or identify all such factors. Consequently, the foregoing should not be considered a complete discussion of all potential risks or uncertainties. The words “estimate,” “project,” “intend,” “believe,” “plan” and similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date of the

28
Table of Contents

document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. The forward-looking statements in this Quarterly Report on Form 10-Q should be evaluated together with the many uncertainties and risks that affect the Company’s businesses, particularly those discussed in greater detail elsewhere herein and in Part I, Item 1A, “Risk Factors” of Era Group’s Annual Report on Form 10-K/A for the year ended December 31, 2015 and Era Group’s subsequent Quarterly Reports on Form 10-Q and periodic reporting on Form 8-K (if any).
Overview
We are one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the U.S., which is our primary area of operations. Our helicopters are primarily used to transport personnel to, from and between offshore oil and gas production platforms, drilling rigs and other installations. In addition to serving the oil and gas industry, we provide search and rescue, air medical services, utility services and Alaska flightseeing tours, among other activities. We also provide helicopters and related services to third-party helicopter operators. We currently have customers in the U.S., Argentina, Brazil, Colombia, the Dominican Republic, India, Suriname and the United Kingdom.
We charter the majority of our helicopters through master service agreements, subscription agreements, long-term contracts, day-to-day charter arrangements and dry-leases. Master service agreements and subscription agreements typically require a fixed monthly fee plus incremental payments based on hours flown. These agreements have fixed terms ranging from one month to five years and generally may be canceled without penalty upon 30-90 days’ notice. Generally, these contracts do not commit our customers to acquire specific amounts of services or minimum flight hours and permit our customers to decrease the number of helicopters under contract with a corresponding decrease in the fixed monthly payments without penalty. Day-to-day charter arrangements call for either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged. Dry-leases require a fixed monthly fee for the customer’s right to use the helicopter and, where applicable, a charge based on hours flown as compensation for any maintenance, parts, and/or personnel support that we may provide to the customer. Dry-leases generally run from two to five years but can also be for periods less than one year. Air medical services are provided under contracts with hospitals that typically include a fixed monthly and hourly rate structure. With respect to flightseeing operations, we allocate block space to cruise lines and seats are sold directly to customers.
Certain of our operations are subject to seasonal factors. Operations in the U.S. Gulf of Mexico are often at their highest levels from April to September, as daylight hours increase, and are at their lowest levels from November to February, as daylight hours decrease. Our Alaskan operations also see an increase during May to September, as our firefighting and flightseeing operations occur during this time and daylight hours are significantly longer. 
Recent Developments
Competitor Bankruptcy
In May 2016, a global competitor filed for Chapter 11 bankruptcy protection and, to date, has rejected leases resulting in the return to lessors of 71 helicopters, including 34 H225 heavy helicopters (one of which was leased from the Company) and 13 AS332 L2 heavy helicopters. As of October 28, 2016, this competitor has requested court approval to reject additional leases with respect to an incremental 24 helicopters (none of which is leased from us). In addition, this competitor seeks to abandon five helicopters, including four H225 helicopters, that would result in their transfer to the secured lenders. The return by this competitor of the helicopters subject to rejected leases and the transfer of the abandoned helicopters to the secured lenders could potentially increase the available supply of helicopters. These changes in supply could impact helicopter rates and pricing of helicopters in the secondary market. It is too early to estimate the extent of such an impact on us.
Suspension of H225 and AS332 L2 Operations
In April 2016, an Airbus Helicopters H225 (also known as a EC225LP) model helicopter operated by the global competitor referenced above was involved in an accident in Norway. The helicopter was carrying eleven passengers and two crew members at the time of the accident. The accident resulted in thirteen fatalities. The Accident Investigation Board Norway (“AIBN”) published preliminary reports that contained findings from the investigation into the accident in May and June 2016. Pursuant to a safety recommendation published by the AIBN, a number of regulatory authorities issued safety directives suspending operations, with limited exceptions, of all Airbus H225 and AS332 L2 model helicopters registered in their jurisdictions, and a number of customers and operators voluntarily suspended operations of those two helicopter models. On October 7, 2016, the European Aviation Safety Agency issued an Airworthiness Directive which provides for additional maintenance and inspection requirements to allow these helicotpers to return to service. It is unknown at this time if other jurisdictions such as Norway, the United Kingdom and the U.S. will allow the aircraft to return to service. As of October 28, 2016, we believe there are no H225 or AS332 L2 helicopters operating in offshore oil and gas missions.
We own nine H225 helicopters, including five that are currently located in the U.S., three that are currently located in Brazil and one that was operating in Norway under a lease that was rejected in the Chapter 11 bankruptcy case referenced above.

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Table of Contents

As of September 30, 2016, the net book value of our H225 helicopters and related inventory of parts and equipment was $162.4 million. During this suspension of H225 helicopter operations, we expect to utilize other heavy and medium helicopters to service our operations.  Although we do not expect the near-term impact of the suspension to be material to our financial condition or results of operations, at this time we cannot anticipate how long the suspension of H225 helicopter operations will last, the market receptivity of the H225 helicopter for future oil and gas operations, the potential impact on residual values of these helicopters and the impact a long-term suspension could have on our operating results or financial condition.
Fleet Update
The current excess capacity of our medium and heavy helicopters is higher than in the period preceding the current market downturn, which commenced in the latter part of 2014. Our fleet’s excess helicopters include those that are not otherwise under customer contracts, undergoing maintenance, dedicated for charter activity or models subject to operational suspension. Although we take actions to minimize excess capacity, we expect a certain level of excess capacity at any given time in an aviation logistics business as a result of the evolving nature of customers’ needs. Our operating revenues have been negatively impacted as a result of the higher excess capacity, which began during the fourth quarter of 2014, increased throughout 2015 and persists in 2016 primarily as a result of the significant decline in oil and natural gas prices and the related reduction in oil and gas exploration and production activity. Through fleet management initiatives, participation in competitive bids and pursuit of additional opportunities, we are focused on maximizing the utilization of our fleet and reducing the excess capacity in our medium and heavy helicopters. If we are not successful in securing sufficient new projects, we may experience a decline in the near-term utilization of our medium and heavy helicopters which may impact our financial results in 2016 and thereafter.
As of September 30, 2016, we had unfunded capital commitments consisting primarily of agreements to purchase helicopters totaling $150.3 million, including seven AW189 heavy helicopters, two S92 heavy helicopters and five AW169 light twin helicopters. The AW189 and S92 helicopters are scheduled to be delivered in 2016 through 2018. Delivery dates for the AW169 helicopters have yet to be determined. In addition, we have outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery beginning in 2017 through 2018. Approximately $107.7 million of these commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability other than aggregate liquidated damages of $2.5 million.
We took delivery of one AW189 helicopter in October 2016 and, pursuant to a contractual agreement, expect to take delivery of another AW189 helicopter during the fourth quarter of 2016. After giving effect to these deliveries, our remaining agreements to purchase AW189 helicopters are reduced from seven to five helicopters. We sold two medium helicopters in October and, pursuant to a contractual agreement, expect to sell another medium helicopter during the fourth quarter of 2016.

30
Table of Contents

Results of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
 
%
 
(in thousands)
 
%
 
(in thousands)
 
%
 
(in thousands)
 
%
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
45,036

 
69

 
$
57,879

 
83

 
133,432

 
70

 
171,796

 
83

Foreign
19,970

 
31

 
11,862

 
17

 
57,507

 
30

 
36,098

 
17

Total operating revenues
65,006

 
100

 
69,741

 
100

 
190,939

 
100

 
207,894

 
100

Costs and Expenses:
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Operating:
 
 

 
 
 
 
 
 
 
 
 
 
 
 
Personnel
17,810

 
27

 
16,382

 
24

 
53,662

 
28

 
49,693

 
24

Repairs and maintenance
6,938

 
11

 
14,732

 
21

 
35,767

 
19

 
40,304

 
19

Insurance and loss reserves
1,588

 
2

 
1,321

 
2

 
4,659

 
2

 
5,445

 
3

Fuel
4,077

 
6

 
3,174

 
5

 
10,117

 
5

 
9,573

 
5

Leased-in equipment
355

 
1

 
234

 
—

 
875

 
1

 
726

 
—

Other
9,603

 
15

 
7,164

 
10

 
26,994

 
14

 
20,655

 
10

Total operating expenses
40,371

 
62

 
43,007

 
62

 
132,074

 
69

 
126,396

 
61

Administrative and general
9,504

 
15

 
11,238

 
16

 
26,871

 
14

 
31,760

 
15

Depreciation and amortization
12,519

 
19

 
12,186

 
18

 
37,976

 
20

 
35,186

 
17

Total costs and expenses
62,394

 
96

 
66,431

 
96

 
196,921

 
103

 
193,342

 
93

Gains (losses) on asset dispositions, net
(246
)
 
—

 
1,813

 
3

 
4,034

 
2

 
4,959

 
2

Operating income (loss)
2,366

 
4

 
5,123

 
7

 
(1,948
)
 
(1
)
 
19,511

 
9

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
466

 
1

 
232

 
—

 
1,170

 
1

 
800

 
—

Interest expense
(4,003
)
 
(6
)
 
(3,121
)
 
(4
)
 
(12,881
)
 
(7
)
 
(9,547
)
 
(4
)
Derivative gains (losses), net
—

 
—

 
8

 
—

 
—

 
—

 
(14
)
 
—

Foreign currency gains (losses), net
(33
)
 
—

 
146

 
—

 
577

 
—

 
(2,271
)
 
(1
)
Gain (loss) on debt extinguishment
—

 
—

 
(16
)
 
—

 
518

 
—

 
248

 
—

Gain on sale of FBO
—

 
—

 
—

 
—

 
—

 
—

 
12,946

 
6

Other, net
34

 
—

 
—

 
—

 
63

 
—

 
(9
)
 
—

Total other income (expense)
(3,536
)
 
(5
)
 
(2,751
)
 
(4
)
 
(10,553
)
 
(6
)
 
2,153

 
1

Income (loss) before income taxes and equity earnings
(1,170
)
 
(1
)
 
2,372

 
3

 
(12,501
)
 
(7
)
 
21,664

 
10

Income tax expense (benefit)
69

 
—

 
1,343

 
2

 
(2,177
)
 
(1
)
 
9,426

 
5

Income (loss) before equity earnings
(1,239
)
 
(1
)
 
1,029

 
1

 
(10,324
)
 
(6
)
 
12,238

 
5

Equity earnings (losses), net of tax
437

 
1

 
(376
)
 
(1
)
 
1,062

 
1

 
(719
)
 
—

Net income (loss)
(802
)
 
—

 
653

 
—

 
(9,262
)
 
(5
)
 
11,519

 
5

Net loss attributable to noncontrolling interest in subsidiary
242

 
—

 
208

 
—

 
6,822

 
4

 
633

 
—

Net income (loss) attributable to Era Group Inc.
$
(560
)
 
—

 
$
861

 
—

 
$
(2,440
)
 
(1
)
 
$
12,152

 
5


31
Table of Contents


Operating Revenues by Service Line. The table below sets forth the operating revenues earned by service line for the three and nine months ended September 30, 2016 and 2015.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
 
%
 
(in thousands)
 
%
 
(in thousands)
 
%
 
(in thousands)
 
%
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil and gas: (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Gulf of Mexico
$
33,638

 
52
 
$
42,132

 
60
 
103,762

 
55
 
125,866

 
61

Alaska
2,323

 
3
 
5,429

 
8
 
4,528

 
2
 
15,239

 
7

International
17,306

 
27
 
60

 
—
 
48,208

 
25
 
107

 
—

Total oil and gas
53,267

 
82
 
47,621

 
68
 
156,498

 
82
 
141,212

 
68

Dry-leasing
2,664

 
4
 
11,925

 
17
 
9,486

 
5
 
36,114

 
18

Search and rescue
3,877

 
6
 
4,418

 
6
 
13,358

 
7
 
14,645

 
7

Air medical services
1,977

 
3
 
1,854

 
3
 
5,882

 
3
 
6,135

 
3

Flightseeing
3,221

 
5
 
3,923

 
6
 
5,715

 
3
 
7,041

 
3

Fixed base operations (“FBO”)
—

 
—
 
—

 
—
 
—

 
—
 
2,760

 
1

Eliminations
—

 
—
 
—

 
—
 
—

 
—
 
(13
)
 
—

 
$
65,006

 
100
 
$
69,741

 
100
 
190,939

 
100
 
207,894

 
100

____________________
(1)
Primarily oil and gas services, but also includes revenues from activities such as firefighting, utility support and unmanned aerial solutions.



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Current Quarter compared to Prior Year Quarter
Operating Revenues. Operating revenues were $4.7 million lower in the three months ended September 30, 2016 (the "Current Quarter") compared to the three months ended September 30, 2015 (the "Prior Year Quarter").
Operating revenues from oil and gas operations in the U.S. Gulf of Mexico were $8.5 million lower in the Current Quarter. Operating revenues from medium and heavy helicopters were $4.1 million and $2.0 million lower, respectively, primarily due to lower utilization and lower average rates. Operating revenues from light twin and single engine helicopters were $1.6 million lower and $0.5 million lower, respectively, primarily due to lower utilization. Miscellaneous revenues were $0.3 million lower primarily due to fewer part sales.
Operating revenues from operations in Alaska were $3.1 million lower in the Current Quarter. Operating revenues from medium helicopters were $2.8 million lower due to lower utilization. Operating revenues from single engine helicopters were $0.2 million lower due to reduced fleet count. Miscellaneous revenues were $0.6 million lower due to reduced rebillable expenses. Operating revenues from light twin helicopters were $0.6 million higher due to higher utilization.
Operating revenues from international oil and gas operations were $17.2 million higher in the Current Quarter. International revenues increased by $15.2 million due to the consolidation of our Brazilian subsidiary, Aeróleo Taxi Aero S/A ("Aeróleo"), which was effective October 1, 2015, by $1.9 million due to new contracts in Suriname and by $0.1 million due to higher utilization in Colombia.
Revenues from dry-leasing activities were $9.3 million lower in the Current Quarter. Dry-leasing revenues decreased by $7.3 million due to the consolidation of Aeróleo, by $1.7 million due to contracts that ended subsequent to the Prior Year Quarter and by $0.9 million due to the bankruptcy of a customer. These decreases were partially offset by $0.3 million of revenue from a new, short-term lease and $0.3 million primarily due to increased part sales.
Operating revenues from search and rescue (“SAR”) activities were $0.5 million lower in the Current Quarter primarily due to fewer subscribers.
Operating revenues from air medical services were $0.1 million higher in the Current Quarter primarily due to increased part sales.
Operating revenues from flightseeing activities were $0.7 million lower in the Current Quarter primarily due to unfavorable weather conditions which led to an increased number of weather cancellations and an earlier end to the flightseeing season.
Operating Expenses. Operating expenses were $2.6 million lower in the Current Quarter. Repairs and maintenance expenses were $7.8 million lower due to credits of $5.7 million resulting from the removal of our H225 heavy helicopters from power-by-the-hour ("PBH") programs, an additional reduction in PBH expense of $1.5 million resulting from reduced flight hours and a decrease of $1.9 million due to the timing of repairs, partially offset by an increase of $1.3 million due to the absence of the benefit from certain vendor credits received in the Prior Year Quarter. Personnel costs were $1.4 million higher primarily due to an increase of $3.0 million resulting from the consolidation of Aeroleo, partially offset by a decrease of $1.6 million resulting from reduced headcount in the U.S. Fuel expense was $0.9 million higher primarily due to an increase of $1.9 million resulting from the consolidation of Aeróleo, partially offset by a decrease of $1.1 million resulting from reduced flight hours and average fuel cost in the U.S. Insurance and loss reserves were $0.3 million higher primarily due to the absence of the benefit from credits received in the Prior Year Quarter. Other operating expenses were $2.4 million higher primarily due to $3.3 million of costs resulting from the consolidation of Aeróleo, partially offset by a reduction of $0.8 million in the U.S.
Administrative and General. Administrative and general expenses were $1.7 million lower in the Current Quarter. Compensation expenses were $0.8 million lower due to a $1.5 million decrease related to reduced headcount and incentive compensation in the U.S., partially offset by an increase of $0.6 million resulting from the consolidation of Aeróleo. Professional service expenses were $0.8 million lower.
Depreciation and Amortization. Depreciation and amortization expense was $0.3 million higher in the Current Quarter due to the addition of new heavy helicopters in the fourth quarter of 2015, which more than offset reductions related to the sale of certain medium and light helicopters.
Gains (Losses) on Asset Dispositions, Net.  In the Current Quarter, we sold or otherwise disposed of one helicopter and related equipment for proceeds of $0.2 million resulting in losses of $0.2 million. In the Prior Year Quarter, we sold or otherwise disposed of four helicopters for proceeds of $8.9 million resulting in gains of $0.5 million. In addition, we recognized gains of $0.6 million related to the early buy-out of two helicopter leases by a customer and $0.7 million related to other equipment sales.
Operating Income. Operating income as a percentage of revenues was 4% in the Current Quarter compared to 7% in the Prior Year Quarter. Excluding gains (losses) on asset dispositions, operating income as a percentage of revenues was 4% in the Current Quarter compared to 5% in the Prior Year Quarter. The decrease in operating income as a percentage of revenues was primarily due to the decrease in oil and gas revenues in the U.S. and the increase in depreciation and amortization expense.

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Interest Expense. Interest expense was $0.9 million higher in the Current Quarter primarily due to decreased capitalized interest on helicopter deposits of $1.8 million, partially offset by savings of $0.6 million due to the cumulative repurchases of our 7.750% senior unsecured notes due 2022 (the “7.750% Senior Notes”) subsequent to the Prior Year Quarter and $0.2 million due to reduced balances on our Revolving Credit Facility.
Income Tax Expense. Income tax expense was $1.3 million lower in the Current Quarter primarily due to lower taxable income.
Equity Earnings (Losses), Net of Tax. Equity earnings, net of tax, were $0.4 million in the Current Quarter compared to losses of $0.4 million in the Prior Year Quarter. The increase in equity earnings was primarily due to earnings from our Dart Holding Company Ltd. (“Dart”) joint venture in the Current Quarter.
Current Nine Months compared to Prior Nine Months
Operating Revenues. Operating revenues were $17.0 million lower in the nine months ended September 30, 2016 (the "Current Nine Months") compared to the nine months ended September 30, 2015 (the "Prior Nine Months").
Operating revenues from oil and gas operations in the U.S. Gulf of Mexico were $22.1 million lower in the Current Nine Months. Operating revenues from medium, light twin and single engine helicopters were $12.9 million, $1.8 million and $1.1 million lower, respectively, primarily due to lower utilization. Operating revenues from heavy helicopters were $5.8 million lower primarily due to lower utilization and lower average rates. Miscellaneous revenues were $0.3 million lower primarily due to fewer part sales.
Operating revenues from oil and gas operations in Alaska were $10.7 million lower in the Current Nine Months. Operating revenues from medium, light twin and single engine helicopters were $8.0 million, $0.9 million and $0.4 million lower, respectively, primarily due to lower utilization. Miscellaneous revenues were $1.3 million lower due to reduced rebillable expenses.
Operating revenues from international oil and gas operations were $48.1 million higher in the Current Nine Months. International revenues increased by $44.2 million due to the consolidation of Aeróleo, by $3.5 million due to new contracts in Suriname and by $0.4 million due to higher utilization in Colombia.
Revenues from dry-leasing activities were $26.6 million lower in the Current Nine Months. Dry-leasing revenues decreased by $21.4 million due to the consolidation of Aeróleo, by $4.5 million due to contracts that ended subsequent to the Prior Nine Months and by $1.5 million due to the bankruptcy of a customer. These decreases were partially offset by an increase of $0.5 million primarily due to increased part sales and $0.3 million due to a new, short-term lease.
Operating revenues from SAR activities were $1.3 million lower in the Current Nine Months primarily due to fewer subscribers.
Operating revenues from air medical services were $0.3 million lower in the Current Nine Months primarily due to a $0.7 million decrease as a result of a contract that ended in March 2015, partially offset by a $0.5 million increase due to part sales.
Operating revenues from flightseeing activities were $1.3 million lower in the Current Nine Months primarily due to unfavorable weather conditions which led to a shorter flightseeing season and increased flight cancellations.
Operating revenues from our fixed base operations ("FBO") were $2.7 million lower in the Current Nine Months due to the sale of the FBO on May 1, 2015.
Operating Expenses. Operating expenses were $5.7 million higher in the Current Nine Months. Personnel costs were $4.0 million higher primarily due to an increase of $9.3 million resulting from the consolidation of Aeróleo, partially offset by a decrease of $5.3 million resulting from reduced headcount and cost-control initiatives in the U.S. Repairs and maintenance expenses were $4.5 million lower due to a net increase of $4.5 million in PBH buyout credits and a $1.5 million decrease in PBH expense resulting from reduced flight hours, partially offset by net decreases of $1.5 million in other vendor credits. Other operating expenses were $6.3 million higher primarily due to $10.0 million of costs resulting from the consolidation of Aeróleo, partially offset by a reduction of $3.4 million in the U.S.
Administrative and General. Administrative and general expenses were $4.9 million lower in the Current Nine Months. Compensation expenses were $2.4 million lower due to a $4.3 million decrease resulting from reduced headcount and incentive compensation in the U.S., partially offset by an increase of $1.8 million resulting from the consolidation of Aeróleo. Professional service expenses and communication expenses were $0.8 million and $0.5 million lower, respectively, due to reductions of $1.5 million and $0.7 million, respectively, in the U.S., partially offset by an aggregate increase of $0.9 million due to the consolidation of Aeróleo. Shared service expenses were $0.6 million lower due to the end of the Amended and Restated Transition Services Agreement with SEACOR. Other administrative and general expenses were $0.5 million lower primarily due to a $0.8 million recovery of a previously reserved receivable, partially offset by additional bad debt reserves of $0.3 million in the Current Nine Months.

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Depreciation and Amortization. Depreciation and amortization expense was $2.8 million higher in the Current Nine Months due to the addition of new heavy helicopters, a base expansion project and additional information technology infrastructure required as a result of the transition of related services from SEACOR.
Gains (Losses) on Asset Dispositions, Net.  Gains on asset dispositions were $0.9 million lower in the Current Nine Months. During the Current Nine Months, we sold or otherwise disposed of a hangar in Alaska, five helicopters and related equipment for total proceeds of $6.1 million resulting in net gains of $4.0 million. During the Prior Nine Months, we sold 14 helicopters and related equipment for total proceeds of $20.6 million resulting in net gains of $5.0 million, including $0.6 million related to the early buy-out of two helicopter leases by a customer.
Operating Income (Loss). Operating loss as a percentage of revenues was 1% in the Current Nine Months compared to operating income of 9% in the Prior Nine Months. Excluding gains on asset sales, operating loss as a percentage of revenues was 3% in the Current Nine Months compared to operating income of 7% in the Prior Nine Months. The decrease in operating income as a percentage of revenues was driven primarily by reduced oil and gas revenues in the U.S., the consolidation of Aeróleo and increased depreciation due to assets, including helicopters, being placed in service.
Interest Income. Interest income was $0.4 million higher in the Current Nine Months due to an increase of $0.8 million resulting from the consolidation of Aeróleo, partially offset by a reduction of $0.4 million resulting from the early buy-out of helicopter leases by a customer.
Interest Expense. Interest expense was $3.3 million higher in the Current Nine Months primarily due to decreased capitalized interest of $5.6 million, partially offset by savings of $2.3 million due to the cumulative repurchases of our 7.750% Senior Notes.
Gain on Debt Extinguishment. Gains on debt extinguishment were $0.5 million in the Current Nine Months due to the repurchase of $5.0 million of our 7.750% Senior Notes. Gains on debt extinguishment were $0.2 million in the Prior Nine Months due to the repurchase of $24.9 million of our 7.750% Senior Notes.
Foreign Currency Gains (Losses), net. Foreign currency gains were $0.6 million in the Current Nine Months primarily due to the strengthening of the Brazilian real resulting in gains on our real-denominated balances. Foreign currency losses were $2.3 million in the Prior Nine Months primarily due to the strengthening of the U.S. dollar resulting in losses on our euro-denominated balances and realized losses on settled forward currency contracts.
Gain on Sale of FBO. The sale of the FBO in the Prior Nine Months resulted in cash proceeds of $14.3 million and a pre-tax gain of $12.9 million.
Income Tax Expense (Benefit). Income tax benefit was $2.2 million in the Current Nine Months compared to expense of $9.4 million in the Prior Nine Months. The decrease in expense is primarily due to lower taxable income in the Current Nine Months and a nonrecurring charge to deferred taxes resulting from the acquisition of Hauser Investments Limited in the Prior Nine Months.
Equity Earnings (Losses), Net of Tax. Equity earnings, net of tax, were $1.1 million in the Current Nine Months compared to losses of $0.7 million in the Prior Nine Months. The increase in equity earnings was primarily due to increased earnings from our Dart joint venture in the Current Nine Months.
Net Loss Attributable to Noncontrolling Interest in Subsidiary. During the Current Nine Months, we and our partner in Aeróleo each contributed notes payable to each of us by Aeróleo as a contribution of additional capital into Aeróleo. As a result of this transaction, we reduced total debt by the $6.3 million of notes that were contributed by our partner in Aeróleo and recorded a $6.3 million loss attributable to noncontrolling interest in subsidiary.

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Fleet Count
The following shows details of our helicopter fleet as of September 30, 2016.
 
 
Owned
 
Leased-in
 
Managed
 
Total
 
Max.
Pass.(1)
 
Cruise
Speed
(mph)
 
Approx.
Range
(miles)
 
Average
  Age(2) (years)
Heavy:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
H225
 
9

 
—

 
—

 
9

 
19

 
162

 
582

 
6

S92
 
2

 
—

 
—

 
2

 
19

 
175

 
620

 
1

AW189
 
2

 
—

 
—

 
2

 
16

 
173

 
490

 
1

 
 
13

 
—

 
—

 
13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Medium:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AW139
 
38

 
—

 
—

 
38

 
12

 
173

 
426

 
7

S76 C+/C++
 
5

 
—

 
1

 
6

 
12

 
161

 
348

 
10

B212
 
7

 
—

 
—

 
7

 
11

 
115

 
299

 
37

B412
 
1

 
—

 
—

 
1

 
11

 
138

 
352

 
35

 
 
51

 
—

 
1

 
52

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Light—twin engine:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A109
 
7

 
—

 
—

 
7

 
7

 
161

 
405

 
10

EC135
 
14

 
2

 
1

 
17

 
7

 
138

 
288

 
8

EC145
 
3

 
—

 
2

 
5

 
9

 
150

 
336

 
8

BK117
 
—

 
2

 
1

 
3

 
9

 
150

 
336

 
N/A

BO105
 
3

 
—

 
—

 
3

 
4

 
138

 
276

 
27

 
 
27

 
4

 
4

 
35

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Light—single engine:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A119
 
14

 
—

 
—

 
14

 
7

 
161

 
270

 
10

AS350
 
27

 
—

 
—

 
27

 
5

 
138

 
361

 
20

 
 
41

 
—

 
—

 
41

 
 
 
 
 
 
 
 
Total Fleet
 
132

 
4

 
5

 
141

 
 
 
 
 
 
 
12

____________________
(1)
In typical configuration for our operations.
(2)
Reflects the average age of helicopters that are owned by us.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from working capital needs, meeting our capital commitments (including the purchase of helicopters and other equipment) and the repayment of debt obligations. In addition, we may use our liquidity to fund acquisitions, repurchase shares or debt securities or make other investments. Sources of liquidity are cash balances and cash flows from operations and, from time to time, we may obtain additional liquidity through the issuance of equity or debt or through borrowings under the Consent and Amendment No. 3 to Amended and Restated Senior Secured Revolving Credit Facility (the “Revolving Credit Facility”). For more information on recent amendments to our Revolving Credit Facility, see more information below and in Note 14 of the Notes to Condensed Consolidated Financial Statements.
As of September 30, 2016, we had unfunded capital commitments of $150.3 million, consisting primarily of agreements to purchase helicopters, including seven AW189 heavy helicopters, two S92 heavy helicopters and five AW169 light twin helicopters. The AW189 and S92 helicopters are scheduled to be delivered in 2016 through 2018. Delivery dates for the AW169 helicopters have yet to be determined. Of these commitments, $35.6 million are payable in 2016, with the remaining commitments payable through 2018, and $107.7 million of the commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability to us other than aggregate liquidated damages of $2.5 million. In addition, we had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery beginning in 2017 through 2018.

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We took delivery of one AW189 helicopter in October 2016 and, pursuant to a contractual agreement, expect to take delivery of another AW189 helicopter during the fourth quarter of 2016. After giving effect to these deliveries, our remaining agreements to purchase AW189 helicopters are reduced from seven to five helicopters. We sold two medium helicopters in October and, pursuant to a contractual agreement, expect to sell another medium helicopter during the fourth quarter of 2016.
We expect to finance the remaining acquisition costs for these helicopters through a combination of cash on hand, cash provided by operating activities, asset sales and borrowings under our Revolving Credit Facility.
Summary of Cash Flows
 
Nine Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Cash flows provided by or (used in):
 
 
 
Operating activities
$
46,483

 
$
35,843

Investing activities
(3,279
)
 
(18,303
)
Financing activities
(26,194
)
 
(42,571
)
Effect of exchange rate changes on cash and cash equivalents
764

 
(2,028
)
Net increase (decrease) in cash and cash equivalents
$
17,774

 
$
(27,059
)
Operating Activities
Cash flows provided by operating activities increased by $10.6 million in the Current Nine Months compared to the Prior Nine Months. The components of cash flows provided by operating activities during the Current Nine Months and Prior Nine Months were as follows (in thousands):
 
Nine Months Ended September 30,
 
2016
 
2015
Operating income before depreciation and gains on asset dispositions, net
$
31,994

 
$
49,738

Changes in operating assets and liabilities before interest and income taxes
12,791

 
(6,152
)
Interest paid, net of capitalized interest of $0 and $5,443 in 2016 and 2015, respectively
(8,847
)
 
(5,540
)
Income taxes refunded (paid)
5,974

 
(5,990
)
Other
4,571

 
3,787

Total cash flows provided by operating activities
$
46,483

 
$
35,843

Operating income before depreciation and gains on asset dispositions, net was $17.7 million lower in the Current Nine Months compared to the Prior Nine Months primarily due to a decrease in operating revenues of $17.0 million and an increase in operating expenses of $5.7 million, partially offset by a decrease in administrative and general expenses of $4.9 million. See “Results of Operations” above for an explanation of the primary causes of these variances.
During the Current Nine Months, changes in operating assets and liabilities before interest and income taxes provided cash flows of $12.8 million primarily due to a decrease in receivables and prepaid expenses and other assets. During the Prior Nine Months, changes in operating assets and liabilities before interest and income taxes used cash flows of $6.2 million primarily due to an increase in receivables partially offset by an decrease in prepaid expenses and other assets.
Interest paid, net of capitalized interest, was $3.3 million higher as we ceased capitalizing interest on helicopter deposits in December 2015, partially offset by interest savings due to cumulative repurchases of a portion of our 7.750% Senior Notes.
Non-cash expenses consisted primarily of share-based compensation, which was $0.8 million higher in the Current Nine Months.
Investing Activities
During the Current Nine Months, net cash used in investing activities was $3.3 million primarily as follows:
•
Capital expenditures were $10.7 million, which consisted primarily of deposits on future helicopter deliveries and the purchase of spare helicopter parts, equipment and building improvements.
•
Proceeds from the disposition of property and equipment were $6.1 million.

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Table of Contents

•
Net principal payments received from equity investees and third parties were $0.8 million.
•
Returns of helicopter deposits were $0.5 million.
During the Prior Nine Months, net cash used in investing activities was $18.3 million primarily as follows:
•
Capital expenditures were $47.3 million, which consisted primarily of a base expansion project and deposits on future helicopter deliveries.
•
Proceeds from the disposition of property and equipment were $20.6 million.
•
Proceeds from the sale of the FBO were $14.3 million.
•
Cash outflows for business acquisitions, net of cash acquired, were $3.2 million.
•
Deposits into escrow accounts, including for like-kind exchanges, were $2.2 million.
•
Net cash outflows for the settlement of derivative transactions were $1.1 million.
•
Net principal payments received from equity investees and third parties were $0.5 million.
Financing Activities
During the Current Nine Months, net cash used in financing activities was $26.2 million primarily as follows:
•
Principal payments on long-term debt were $29.5 million.
•
Proceeds from additional borrowings under our Revolving Credit Facility were $7.0 million.
•
Cash used for the repurchase of a portion of our 7.750% Senior Notes was $4.3 million.
•
Proceeds from share award plans were $0.8 million.
•
Cash used for the repurchase of treasury shares was $0.2 million.
During the Prior Nine Months, net cash used in financing activities was $42.6 million primarily as follows:
•
Principal payments on long-term debt were $52.1 million.
•
Proceeds from additional borrowings under our Revolving Credit Facility were $35.0 million.
•
Cash used for the repurchase of a portion of our 7.750% Senior Notes was $24.3 million.
•
Cash used for the repurchase of treasury shares was $2.1 million.
•
Proceeds from share award plans were $1.1 million.
Amendment to Revolving Credit Facility
As of September 30, 2016, our Revolving Credit Facility provided us with the ability to borrow up to $300.0 million, subject to certain conditions. On October 27, 2016, we entered into the Consent and Amendment No. 3 to our Revolving Credit Facility to, among other things, decrease the total amount that can be borrowed thereunder to $200.0 million, with a sub-limit of up to $50.0 million for letters of credit. The Revolving Credit Facility includes an “accordion” feature which, if exercised and subject to agreement by the lenders and the satisfaction of certain conditions, will increase total commitments by up to $100.0 million. Our availability under the Amended Revolving Credit Facility may be limited by the terms of the 7.750% Senior Notes and certain maintenance covenants specified under the Amended Revolving Credit Facility. As of, and based on our operating results through, September 30, 2016, we have the ability to borrow an additional $124.3 million under the Revolving Credit Facility. After giving effect to the Consent and Amendment No. 3 to the Revolving Credit Facility, we had the ability to borrow an additional $128.8 million under the Revolving Credit Facility.
Senior Notes
On December 7, 2012, we completed an offering of $200.0 million aggregate principal amount of our 7.750% Senior Notes due December 15, 2022. Interest on the notes is payable semi-annually in arrears on June 15 and December 15 of each year. From time to time, we may opportunistically repurchase our 7.750% Senior Notes in open market or privately negotiated transactions on terms we believe to be favorable. During the nine months ended September 30, 2016, we repurchased $5.0 million of the 7.750% Senior Notes for total cash of $4.5 million including accrued interest of $0.2 million. During the nine months ended September 30, 2015, we repurchased $24.9 million of the 7.750% Senior Notes for total cash of $24.3 million including accrued interest of $0.4 million. As of September 30, 2016, $144.8 million in aggregate principal amount of the 7.750% Senior Notes remains outstanding. We may also redeem the 7.750% Senior Notes at any time and from time to time at a premium as specified in the indenture governing the 7.750% Senior Notes.

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Table of Contents

Aeróleo Debt
During the nine months ended September 30, 2016, we prepaid a $1.0 million loan due to a third party in Brazil. Also during the nine months ended September 30, 2016, we and our partner in Aeróleo each contributed notes payable to us by Aeróleo as a contribution of additional capital into Aeróleo. As a result, $6.3 million of debt due to our partner in Aeróleo was recorded in net loss attributable to noncontrolling interest in subsidiary on the accompanying condensed consolidated statements of operations.
Short and Long-Term Liquidity Requirements
We anticipate that we will generate positive cash flows from operating activities and that these cash flows will be adequate to meet our working capital requirements. During the nine months ended September 30, 2016, our cash provided by operating activities was $46.5 million. To support our capital expenditure program and/or other liquidity requirements, we may use operating cash flow, cash balances or proceeds from sales of assets, issue debt or equity, borrow under our Revolving Credit Facility or undertake any combination of the foregoing.
Our availability of long-term financing is dependent upon our ability to generate operating profits sufficient to meet our requirements for working capital, capital expenditures and a reasonable return on investment. Management will continue to closely monitor our liquidity as well as the capital and other financing markets.
Off-Balance Sheet Arrangements
On occasion, we and our partners will guarantee certain obligations on behalf of our joint ventures. As of September 30, 2016, we had no such guarantees in place.
Contingencies
Brazilian Tax Disputes
We are disputing assessments of approximately $7.1 million in taxes, penalties and interest levied by the municipal authorities of Rio de Janeiro (for the period between 2000 to 2005) and Macae (for the period between 2001 to 2006) (collectively, the “Municipal Assessments”). We believe that, based on our interpretation of tax legislation supported by clarifying guidance provided by the Supreme Court of Brazil with respect to the issue in a 2006 ruling, we are in compliance with all applicable tax legislation and plan to defend this claim vigorously at the administrative levels in each jurisdiction. In the event the Municipal Assessments are upheld at the last administrative level, it may be necessary for us to deposit the amounts at issue as security to pursue further appeals. We received a final, unfavorable ruling with respect to a similar assessment levied by the Rio de Janeiro State Treasury for the periods between 1994 to 1998 (the “1998 Assessments”). The 1998 Assessments were upheld without taking into consideration the benefit of the clarifying guidance issued by the Supreme Court following the assertion of the claims. The final adjudication of the 1998 Assessments requires payment of amounts that are within the established accruals, will be paid in multiple installments over time and are not expected to have a material effect on our financial position or results of operations. At September 30, 2016, it is not possible to determine the outcome of the Municipal Assessments, but we do not expect that an adverse outcome would have a material effect on our business, financial position or results of operations. In addition, it is not possible to reasonably estimate the likelihood or potential amount of assessments that may be issued for any subsequent periods.
We are also disputing challenges raised by the Brazilian tax authorities with respect to certain tax credits applied by Aeróleo between 1995 to 2009. The tax authorities are seeking $2.2 million in additional taxes, interest and penalties. We believe that, based on our interpretation of tax legislation, we are in compliance with all applicable tax legislation and plan to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but we do not expect that an adverse outcome would have a material effect on our business, financial position or results of operations.
We are disputing responsibility for $2.7 million of employer social security contributions required to have been remitted by one of our customers relating to the period from 1995 to 1998. Although we may be deemed co-responsible for such remittances under the local regulatory regime, the customer’s payments to us against presented invoices were made net of the specific remittances required to have been made by the customer and at issue in the claim. As such, we plan to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but we do not expect that an adverse outcome would have a material effect on our business, financial position or results of operations.
We are disputing certain penalties that are being assessed by the State of Rio de Janeiro in respect of our alleged failure to submit accurate documentation and to fully comply with filing requirements with respect to certain value-added taxes.  We elected to make payment of $0.2 million in installments over time to satisfy a portion of these penalties.  Upon confirming with the asserting authority that the originally proposed penalties of $1.6 million with respect to the balance of the assessments were calculated based on amounts containing a typographical error, the aggregate penalties that remain in dispute total $0.4 million. At September 30, 2016, it is not possible to determine the outcome of this matter, but we do not expect that an adverse outcome would have a material effect on our business, financial position or results of operations.

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We are also disputing claims from the Brazilian tax authorities with respect to federal customs taxes levied upon the helicopters leased by us and imported into Brazil under a temporary regime and subject to re-export. In order to dispute such assessments and pursue its available legal remedies within the judicial system, we deposited the amounts at issue into an escrow account that serves as security and with the presiding judge in the matter controlling the release of such funds. We believe that, based on our interpretation of tax legislation and well established aviation industry practice, we are not required to pay such taxes and plan to defend this claim vigorously. At September 30, 2016, it is not possible to determine the outcome of this matter, but we do not expect that an adverse outcome would have a material effect on our business, financial position or results of operations.
Other
In the normal course of our business, we become involved in various litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. Management uses estimates in determining our potential exposure to these matters and has recorded reserves in our financial statements as appropriate. It is possible that a change in our estimates related to these exposures could occur, but we do not expect such changes in estimated costs would have a material effect on our consolidated financial position, results of operations or cash flows.
For additional information about our contractual obligations and commercial commitments, refer to “Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments” contained in our Annual Report on Form 10-K/A for the year ended December 31, 2015. There have been no material changes since such date.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For additional information about our exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our Annual Report on Form 10-K/A for the year ended December 31, 2015. There has been no material change in our exposure to market risk during the Current Quarter, except as described below.
As of September 30, 2016, we had non-U.S. dollar denominated capital purchase commitments of €112.3 million ($126.2 million). An adverse change of 10% in the underlying foreign currency exchange rate would increase the U.S. dollar equivalent of the non-hedged purchase commitment by $12.6 million. As of September 30, 2016, we maintained non-U.S. dollar denominated cash balances of €1.6 million ($1.8 million) and a receivable balance of €2.4 million ($2.7 million). An adverse change of 10% in the underlying foreign currency exchange rate would reduce net income by $0.1 million and $0.2 million, respectively. As of September 30, 2016, our Brazilian subsidiary maintained a non-U.S. dollar denominated working capital balance of R$11.4 million ($3.5 million). An adverse change of 10% in the underlying foreign currency exchange rate would reduce our working capital balance by $0.3 million.
ITEM 4.
CONTROLS AND PROCEDURES

With the participation of our Chief Executive Officer and Chief Financial Officer, management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2016. Based on their evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective and operating to provide reasonable assurance that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, as of September 30, 2016.
During the quarter ended September 30, 2016, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1A.     RISK FACTORS
Our business, results of operations, financial condition, liquidity, cash flow and prospects may be materially and adversely affected by numerous risks and uncertainties. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the risks and uncertainties described below. These risks and uncertainties, along with those presented in our Annual Report on Form 10-K/A for the year ended December 31, 2015, represent some of the more critical risk factors that affect us. Our business operations or actual results could also be similarly impacted by additional risks and uncertainties that are not currently known to us or that we currently deem immaterial to our operations.
We are exposed to credit risks.
We are exposed to credit risk on trade receivables from the unexpected loss in cash and earnings when a customer cannot meet its obligation to us or when the value of security provided declines. Customer credit risk is further enhanced during times of depressed oil prices, like that we are currently experiencing. In addition to collection risk, we are exposed to the risk of potential contractual termination in the event that a customer voluntarily or involuntarily seeks relief from creditors upon becoming insolvent or unable to repay its debts as they become due and the risk of customers seeking to renegotiate contracts on terms more beneficial to the customer. To mitigate trade credit risk, we have developed credit policies and procedures that are designed to monitor and limit exposure to credit risk on our receivables. Such policies include the review, approval and monitoring of new customers, annual credit evaluations and credit limits. However, there can be no assurance that such procedures will effectively limit our credit risk and avoid losses and, if not effective, such credit risks could have a material adverse effect on our business, financial condition and results of operations. 
In addition, we are exposed to credit risk on our financial investments and instruments that are dependent upon the ability of our counterparties to fulfill their obligations to us. We manage credit risk by entering into arrangements with established counterparties that possess investment grade credit ratings and by monitoring our concentration risk with counterparties on an ongoing basis and through the establishment of credit policies and limits, which are applied in the selection of counterparties.
We rely on the secondary market to dispose of our older helicopters and related equipment as part of our on-going fleet management activities.
We manage our fleet by evaluating expected demand for helicopter services across global markets, including the type of helicopter needed to meet this demand. As offshore oil and gas drilling and production globally moves to deeper water, more heavy and medium helicopters and newer technology helicopters may be required. As helicopters come off of current contracts or are replaced by newer models, our management evaluates future cash flow potential for such helicopters against our ability to recover our remaining investments in these helicopters through sales into the aftermarket. We are dependent upon the secondary market to dispose of our helicopters and related equipment as our fleet continues to evolve to address changes in demand driven by customer needs. The number of helicopter sales and the amount of gains and losses recorded on these sales is unpredictable. The loss of our ability to dispose of helicopters and related equipment in the secondary market could have a material adverse effect on our business, financial condition and results of operations.
The book value of our owned helicopters as reflected on our balance sheet is based on our practice of depreciating our helicopters over their expected useful life to the expected salvage value to be received for such helicopter at the end of that life.  From time to time, we disclose our net asset value, which is based, in large part, on the fair market value of our helicopters obtained from third party valuation specialists. There is no assurance that either the book value, net asset value or the fair market value of any helicopter represents the amount that we could obtain from an unaffiliated third party in an arm’s length sale of such helicopter, and market factors may impact the need for any impairments of book value, any recorded gains or losses on helicopter sales and our ability to achieve the estimated fair market value of such helicopter.
Any changes in the supply of, or demand for, helicopters could impact the secondary market. Industry conditions, including the global oil and gas market downturn we are currently experiencing, could result in a decline in demand for helicopters in that end market and a corresponding increase in idle helicopters. In May 2016, a global competitor filed for Chapter 11 bankruptcy protection and has received court approval to reject leases resulting in the return to lessors of 71 helicopters. As of October 28, 2016, this global competitor has requested approval to reject leases that could result in the return of an additional 24 leased helicopters to lessors and to abandon helicopters that could result in the transfer to its secured lenders of an additional five helicopters. In addition, this competitor seeks to restructure the terms of certain of its existing leases. The rejection and abandonment of these helicopters are expected to increase the number of idle helicopters and could potentially increase the supply of helicopters available for sale. These changes in supply could adversely impact helicopter rates and pricing of helicopters in the secondary market.

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In April 2016, an Airbus Helicopters H225 (also known as a EC225LP) model helicopter operated by the global competitor referenced above was involved in an accident in Norway. The helicopter was carrying eleven passengers and two crew members at the time of the accident. The accident resulted in thirteen fatalities. The cause of the accident is not yet known and is under investigation by the relevant authorities. The Accident Investigation Board Norway (“AIBN”) published preliminary reports that contained findings from the investigation into the accident in May and June 2016. Pursuant to a safety recommendation published by the AIBN, a number of regulatory authorities issued safety directives suspending operations, with limited exceptions, of all Airbus H225 and AS332L2 model helicopters registered in their jurisdictions, and a number of customers and operators voluntarily suspended operations of those two helicopter models. Any extended suspension or grounding of a particular helicopter model, such as the H225 and AS332L2, could increase the number of idle helicopters of such model, increase the supply of helicopters of such model available for sale and negatively impact the market value of that helicopter model. As of September 30, 2016, the net book value of our H225 helicopters and related inventory of parts and equipment was $162.4 million. Any negative impact on the demand for helicopters or increase in the supply of helicopters available for sale could impair our ability to dispose of helicopters and related equipment in the secondary market or reduce the amounts that we could obtain therefrom, reduce the market value of our owned helicopter fleet, or affect our ability to effectively manage the size and mix of our fleet, any of which could have a material adverse effect on our business, financial condition and results of operations.
The concentration of certain helicopter models in our fleet could materially adversely affect our business, financial condition or results of operations should any problems specific to these particular models occur.
As of September 30, 2016, two helicopter models - the H225 heavy helicopter model and AW139 medium helicopter model - comprised approximately 66% of the net book value of our helicopter fleet.   If the market demand for either of these models declines, if either of these models experiences technical difficulties or if either of these models is involved in an operational incident, it could cause a diminution in value of the affected model.  In addition, the bankruptcy or shutdown of a helicopter operator or lessor with a large fleet of such helicopter models may result in an oversupply of such model being made available to the market, which could reduce the rates earned by, and/or the value of, such helicopter model.  Due to the high concentration of these models in our fleet, a significant decline in value of any of these models that is other than temporary could result in an impairment to the carrying value of our helicopter fleet. The occurrence of any of these events could materially adversely affect our business, financial condition or results of operations.
For example, the operation of our 9 H225 helicopters is currently suspended following a recent accident involving this helicopter model operated by a competitor.  We cannot anticipate how long the suspension of H225 helicopter operations will last, the market receptivity of the H225 helicopter for future oil and gas operations, the potential impact on residual values of these helicopters or how the suspension may affect the secondary market for this model.   Even if the suspension is lifted, our customers, their employees or the unions to which our customer’s employees belong may refuse to use such model. 
Our industry is subject to intense competition.
The helicopter industry is highly competitive. Contracting for helicopter services is often done through a competitive bidding process among those operators having an acceptable safety record, demonstrated reliability, requisite equipment for the job and sufficient resources to provide coverage when primary equipment comes out of service for maintenance. Customers typically make their final choice based on aircraft availability, quality and location of facilities and price. If we are unable to satisfy the criteria to participate in bids or are otherwise unable to compete effectively, our business, financial condition and results of operations could be materially and adversely affected.
In certain of our international markets where foreign regulations may require that contracts be awarded to local companies owned or controlled by nationals, we may participate in bids as a subcontractor or vendor to the local bidding company. These third parties may not be able to win these bids for reasons unrelated to us or our safety record, reliability, or equipment. Accordingly, we may lose potential business, which may be significant, for reasons beyond our control.
We compete against a number of helicopter operators, including other major global helicopter operators such as Bristow Group Inc. (“Bristow”) and CHC Group Ltd. In the U.S., we face competition for business in the oil and gas industry from three major operators: Bristow, PHI, Inc. (“PHI”) and Rotorcraft Leasing Company, LLC. In our international markets, we also face competition from local operators in countries where foreign regulations require that contracts be awarded to local companies owned or controlled by nationals or from operators that are more recognized in some of those markets. There can be no assurance that our competitors will not be successful in capturing a share of our present or potential customer base. We also face potential competition from customers that establish their own flight departments and smaller operators with access to capital that can expand their fleets and operate more sophisticated and costly equipment. In providing air medical transport services, we face competition from Air Medical Group Holdings, Air Methods Corporation, PHI and many other operators. In addition, helicopter leasing companies, such as Element Financial Corporation, Lease Corporation International (Aviation) Limited, Macquarie Rotocraft Leasing, Milestone Aviation Group Limited and Waypoint Leasing Limited, provide offerings that compete with, and could capture a share of, our dry-leasing opportunities to third parties. Our competitors, including those that may enter bankruptcy and emerge with a more effective capital structure and lower operating costs, and those helicopter leasing companies that may have a lower

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cost of capital, may benefit from a competitive advantage permitting them to offer lease rates for helicopters and/or services that are more attractive than those we can be offer. For example, Milestone Aviation Group was acquired in January 2015 by GE Capital Aviation Services, a company with significant resources. We also compete with other providers of search and rescue, utility and flightseeing services in various markets.
If our intangible assets or investments in unconsolidated affiliates become impaired we may be required to record a significant charge to earnings.
We acquire other companies and intangible assets and make investments in unconsolidated affiliates and may not realize all of the economic benefit from those acquisitions or investments which could cause an impairment of our intangible assets or investments in unconsolidated affiliates. We test our indefinite-lived intangibles for impairment at least annually and review our investments in unconsolidated affiliates and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. We may be required to record charges in our consolidated financial statements during the period in which any impairment of our intangible assets or investments in unconsolidated affiliates is determined, which could adversely affect our results of operations.
For additional information about our risk factors, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K/A for the year ended December 31, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information regarding our repurchases of shares of our Common Stock on a monthly basis during the three months ended September 30, 2016:
 
Total Number of Shares Repurchased
 
Average Price Paid Per
Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2016 - July 31, 2016
—

 
$
—

 
—

 
$
22,934,076

August 1, 2016 - August 31, 2016
—

 
$
—

 
—

 
$
22,934,076

September 1, 2016 - September 30, 2016
—

 
$
—

 
—

 
$
22,934,076

ITEM 6.
EXHIBITS
The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
Era Group Inc. (Registrant)
 
 
 
 
 
 
 
 
 
 
 
 
 
DATE:
November 1, 2016
By:
 
/s/ Andrew L. Puhala
 
 
 
 
 
Andrew L. Puhala, Senior Vice President, Chief Financial Officer
 
 
 
 
 
 
DATE:
November 1, 2016
By:
 
/s/ Jennifer Whalen
 
 
 
 
 
Jennifer Whalen, Vice President, Chief Accounting Officer
 
 
 
 
 
 


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EXHIBIT INDEX

10.1
 
Consent and Amendment No. 2 to Amended and Restated Senior Secured Revolving Credit Facility
10.2
 
Consent and Amendment No. 3 to Amended and Restated Senior Secured Revolving Credit Facility
31.1
 
Certification by the Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act.
31.2
 
Certification by the Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act.
32.1
 
Certification by the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification by the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase



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