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 June 30, 2013              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)
281-606-4900
(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  ¨
 
Non-accelerated filer  x
(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 July 31, 2013 was 20,181,286. 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 6.


1

Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
ERA GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
June 30, 2013
 
December 31, 2012
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
27,345

 
$
11,505

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts of $3,010 and $2,668 in 2013 and 2012, respectively
40,362

 
48,527

Other
14,890

 
4,713

Inventories, net
26,223

 
26,650

Deferred income taxes
3,642

 
3,642

Prepaid expenses and other
2,854

 
1,803

Escrow deposits
16,010

 

Total current assets
131,326

 
96,840

Property and Equipment
1,012,661

 
1,030,276

Accumulated depreciation
(251,613
)
 
(242,471
)
Net property and equipment
761,048

 
787,805

Investments, at Equity, and Advances to 50% or Less Owned Companies
35,529

 
34,696

Goodwill
352

 
352

Other Assets
17,300

 
17,871

Total Assets
$
945,555

 
$
937,564

LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable and accrued expenses
$
15,796

 
$
15,703

Accrued wages and benefits
6,976

 
4,576

Accrued interest
770

 
1,401

Current portion of long-term debt
2,787

 
2,787

Other current liabilities
5,253

 
5,232

Total current liabilities
31,582

 
29,699

Long-Term Debt
275,667

 
276,948

Deferred Income Taxes
204,487

 
203,536

Deferred Gains and Other Liabilities
5,947

 
7,864

Total liabilities
517,683

 
518,047

Series A Preferred Stock, at redemption value; $0.01 par value, 10,000,000 shares authorized; none issued and outstanding in 2013; 1,400,000 shares issued and outstanding in 2012

 
144,232

Equity:
 
 
 
Era Group Inc. stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,181,559 outstanding in 2013 (exclusive of 2,500 treasury shares); none issued and outstanding in 2012
202

 

Class B common stock, $0.01 par value, 60,000,000 shares authorized; none issued and outstanding in 2013; 24,500,000 issued and outstanding in 2012

 
245

Additional paid-in capital
420,056

 
278,838

Retained earnings (accumulated deficit)
7,724

 
(4,025
)
Treasury shares, at cost (2,500 and nil in 2013 and 2012, respectively)
(63
)
 

Accumulated other comprehensive income (loss), net of tax
(44
)
 
20

 
427,875

 
275,078

Noncontrolling interest in subsidiary
(3
)
 
207

Total equity
427,872

 
275,285

Total Liabilities and Stockholders’ Equity
$
945,555

 
$
937,564



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

2

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ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
Operating Revenues
$
74,237

 
$
62,985

 
$
141,964

 
$
124,037

Costs and Expenses:
 
 
 
 
 
 
 
Operating
46,945

 
39,002

 
90,061

 
78,678

Administrative and general
9,545

 
7,195

 
18,679

 
16,872

Depreciation
11,431

 
10,464

 
23,092

 
20,094

 
67,921

 
56,661

 
131,832

 
115,644

Gains on Asset Dispositions, Net
4,476

 
1,077

 
15,277

 
2,842

Operating Income
10,792

 
7,401

 
25,409

 
11,235

Other Income (Expense):
 
 
 
 
 
 
 
Interest income
150

 
249

 
297

 
581

Interest expense
(4,613
)
 
(2,380
)
 
(9,345
)
 
(4,348
)
SEACOR management fees

 
(500
)
 
(168
)
 
(1,000
)
Derivative gains (losses), net
21

 
(180
)
 
18

 
(304
)
Foreign currency gains (losses), net
315

 
(12
)
 
56

 
905

Other, net
9

 

 
12

 
30

 
(4,118
)
 
(2,823
)
 
(9,130
)
 
(4,136
)
Income Before Income Tax Expense and Equity in Earnings (Losses) of 50% or Less Owned Companies
6,674

 
4,578

 
16,279

 
7,099

Income Tax Expense
2,398

 
1,686

 
5,976

 
2,420

Income Before Equity in Earnings (Losses) of 50% or Less Owned Companies
4,276

 
2,892

 
10,303

 
4,679

Equity in Earnings (Losses) of 50% or Less Owned Companies, Net of Tax
674

 
757

 
1,236

 
(5,663
)
Net Income (Loss)
4,950

 
3,649

 
11,539

 
(984
)
Net Loss Attributable to Noncontrolling Interest in Subsidiary
105

 

 
210

 

Net Income (Loss) Attributable to Era Group Inc.
5,055

 
3,649

 
11,749

 
(984
)
Accretion of Redemption Value on Series A Preferred Stock

 
2,135

 
721

 
4,235

Net Income (Loss) Attributable to Common Shares
$
5,055

 
$
1,514

 
$
11,028

 
$
(5,219
)
 
 
 
 
 
 
 
 
Earnings (Loss) Per Common Share:
 
 
 
 
 
 
 
Basic and Diluted
$
0.25

 
$
0.06

 
$
0.53

 
$
(0.21
)
Weighted Average Common Shares Outstanding:
 
 
 
 
 
 
 
Basic and Diluted
20,140,105

 
24,500,000

 
20,793,529

 
24,500,000








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

3

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ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
Net Income (Loss)
 
$
4,950

 
$
3,649

 
$
11,539

 
$
(984
)
Other Comprehensive Income (Loss):
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
64

 
(294
)
 
(98
)
 
686

Income tax benefit (expense)
 
(23
)
 
103

 
34

 
(240
)
 
 
41

 
(191
)
 
(64
)
 
446

Comprehensive Income (Loss)
 
4,991

 
3,458

 
11,475

 
(538
)
Comprehensive Loss attributable to Noncontrolling Interest in Subsidiary
 
105

 

 
210

 

Comprehensive Income (Loss) attributable to Era Group Inc.
 
$
5,096

 
$
3,458

 
$
11,685

 
$
(538
)





















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

4

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ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited, in thousands)
 
 
 
 
 
Era Group Inc. Stockholders’ Equity
 
Non-
controlling
Interest In
Subsidiary
 
Total
Equity
 
 
Series A Convertible Preferred Stock
 
 
Class B Common
Stock
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained Earnings (Accumulated Deficit)
 
Shares
Held In
Treasury
 
Accumulated
Other
Comprehensive
Income (Loss)
 
December 31, 2012
 
$
144,232

 
 
$
245

 
$

 
$
278,838

 
$
(4,025
)
 
$

 
$
20

 
$
207

 
$
275,285

Accretion of redemption value on Series A preferred stock
 
721

 
 

 

 
(721
)
 

 

 

 

 
(721
)
Preferred stock dividend
 
(4,953
)
 
 

 

 

 

 

 

 

 

Recapitalization of Era Group by SEACOR
 
(140,000
)
 
 
(245
)
 
199

 
140,046

 

 

 

 

 
140,000

Issuance of Era Group stock options in settlement of SEACOR stock options
 

 
 

 

 
706

 

 

 

 

 
706

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Restricted stock grants
 

 
 

 
3

 
(3
)
 

 

 

 

 

Proceeds and tax benefits from share award plans
 

 
 

 

 
535

 

 

 

 

 
535

Share award amortization
 

 
 

 

 
592

 

 

 

 

 
592

Cancellation of restricted stock
 

 
 

 

 
63

 

 
(63
)
 

 

 

Net income (loss)
 

 
 

 

 

 
11,749

 

 

 
(210
)
 
11,539

Currency translation adjustments, net of tax
 

 
 

 

 

 

 

 
(64
)
 

 
(64
)
June 30, 2013
 
$

 
 
$

 
$
202

 
$
420,056

 
$
7,724

 
$
(63
)
 
$
(44
)
 
$
(3
)
 
$
427,872


















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

5

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ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2013
 
2012
 
 
Net Cash Provided by (Used in) Operating Activities
$
27,774

 
$
(24,966
)
Cash Flows from Investing Activities:
 
 
 
Purchases of property and equipment
(30,643
)
 
(87,034
)
Proceeds from disposition of property and equipment
38,492

 
4,526

Cash settlements on derivative transactions, net

 
(202
)
Investments in and advances to 50% or less owned companies

 
(825
)
Principal payments on notes due from equity investees
713

 
780

Principal payments on third party notes receivable, net
551

 
566

Net increase in escrow deposits
(16,010
)
 

Net cash used in investing activities
(6,897
)
 
(82,189
)
Cash Flows from Financing Activities:
 
 
 
Issuance of Series B preferred stock

 
30,000

Payments on long-term debt
(16,394
)
 
(31,394
)
Proceeds from issuance of long-term debt
15,000

 
38,000

Dividends paid on Series A preferred stock
(4,953
)
 

Proceeds and tax benefits from share award plans
535

 

Proceeds from SEACOR on the settlement of stock options
706

 

Net cash (used in) provided by financing activities
(5,106
)
 
36,606

Effects of Exchange Rate Changes on Cash and Cash Equivalents
69

 
548

Net Increase (Decrease) in Cash and Cash Equivalents
15,840

 
(70,001
)
Cash and Cash Equivalents, Beginning of Period
11,505

 
79,122

Cash and Cash Equivalents, End of Period
$
27,345


$
9,121

Supplemental Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amounts capitalized
$
9,578

 
$
3,836





















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

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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 (collectively referred to as the “Company”). The condensed consolidated financial information for the three and six months ended June 30, 2013 and 2012 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 June 30, 2013, its results of operations for the three and six months ended June 30, 2013 and 2012, its comprehensive income (loss) for the three and six months ended June 30, 2013 and 2012, its changes in equity for the six months ended June 30, 2013, and its cash flows for the six months ended June 30, 2013 and 2012. 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 in the 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q to the “Company” refers to Era Group Inc. and its consolidated subsidiaries and any reference in this Quarterly Report on Form 10-Q to “Era Group” refers to Era Group Inc.
Prior to January 31, 2013, the Company was wholly owned by SEACOR Holdings Inc. (along with its other majority-owned subsidiaries being collectively referred to as “SEACOR”) and represented SEACOR’s aviation services business segment. On January 31, 2013, SEACOR recapitalized the Company through the exchange of all of its Class B common stock and $140.0 million of its Series A preferred stock for 19,883,583 shares of newly-issued Era Group common stock, par value $0.01 per share (the “Recapitalization”).  Following the Recapitalization, the Company had only one class of common stock issued and outstanding and no preferred stock outstanding. On January 31, 2013, SEACOR then completed a spin-off by means of a dividend to SEACOR’s stockholders of all of the Company’s issued and outstanding common stock (the “Spin-off”). The Company filed a Registration Statement on Form 10 with the Securities and Exchange Commission (“SEC”) that was declared effective on January 15, 2013. Prior to the Spin-off, SEACOR and the Company entered into a distribution agreement and several other agreements that govern their post-Spin-off relationship. Era Group is now an independent company with its common stock listed on the New York Stock Exchange under the symbol “ERA.”     
In connection with the Spin-off, the Company entered into an Amended and Restated Transition Services Agreement with SEACOR. Under the terms of the Amended and Restated Transition Services Agreement, SEACOR continues to provide the Company with certain support services, for up to two years from the effective date of the Spin-off, including payroll processing, information systems support, benefit plan management, cash disbursement support, cash receipt processing and treasury management.
Revenue Recognition. The Company recognizes revenue when it is realized or realizable and earned. Revenue is 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. Revenue that does not meet these criteria is deferred until the criteria are met. Deferred revenues and related activity for the three and six months ended June 30, were as follows (in thousands): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Balance at beginning of period
$
12,733

 
$
2,964

 
$
8,953

 
$
123

Revenues deferred during the period
9,277

 
7,949

 
18,209

 
10,904

Revenues recognized during the period
(6,390
)
 
(1,608
)
 
(11,542
)
 
(1,722
)
Balance at end of period
$
15,620

 
$
9,305

 
$
15,620

 
$
9,305

As of June 30, 2013, deferred revenues included $12.2 million related to contract-lease revenues for certain helicopters leased by the Company to Aeróleo Taxi Aero S/A (“Aeróleo”), its Brazilian joint venture. The deferral originated from difficulties experienced by Aeróleo following Petróleo Brasileiro S.A.’s (“Petrobras Brazil”) cancellation of certain contract awards for a number of AW139 helicopters under contract-lease from the Company, and the deferral continues as a result of ongoing operating and financial difficulties at Aeróleo including Petrobras Brazil's efforts to suspend contracts for three EC225 helicopters under

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contract-lease from the Company. The Company will recognize revenues as cash is received or earlier should future collectability become reasonably assured. All costs and expenses related to these contract-leases were recognized as incurred.
As of June 30, 2013, deferred revenues also included $3.4 million related to contract-lease revenues for certain helicopters leased by the Company to a customer in India. The deferral resulted from the customer having its operating certificate revoked for a period of time and therefore being unable to operate. The certificate has since been reinstated but uncertainty still remains regarding the collectability of the contract-lease revenues due to the customer's short-term liquidity issues. The Company will recognize revenues as cash is received or earlier should future collectability become reasonably assured. All costs and expenses related to these contract-leases were recognized as incurred.
Reclassifications. Certain reclassifications of prior period information have been made to conform to the presentation of the current period information. These reclassifications had no effect on net income, equity or the components of cash flow as previously reported.
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 observable 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.
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis were as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
December 31, 2012
 
 
 
 
 
LIABILITIES
 
 
 
 
 
Derivative instruments (included in other current liabilities) (1)
$

 
$
1,025

 
$

 
 
 
 
 
 
June 30, 2013
 
 
 
 
 
ASSETS
 
 
 
 
 
Marketable securities (included in other receivables)
$
76

 
$

 
$

LIABILITIES
 
 
 
 
 
Derivative instruments (included in other current liabilities) (1)

 
765

 

____________________
(1) The fair value of the Company's derivative instruments was estimated using market data gathered by a third party financial institution, adjusted for market and credit risks applicable to the Company.

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The estimated fair values of the Company’s other financial assets and liabilities were as follows (in thousands): 
 
 
 
Estimated Fair Value
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
December 31, 2012
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,505

 
$
11,505

 
$

 
$

Notes receivable from other business ventures (included in other
 receivables and other assets)
925

 
925

 

 

LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
279,735

 

 
283,120

 

 
 
 
 
 
 
 
 
June 30, 2013
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
27,345

 
$
27,345

 
$

 
$

Notes receivable from other business ventures (included in other
  receivables and other assets)
677

 
677

 

 

LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
278,454

 

 
281,731

 

The carrying values of cash and cash equivalents, accounts receivable, escrow deposits, 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 analysis 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 maturing in 2014 and 2015 that call for the Company to pay fixed interest rates of 1.67% and 1.83% on an aggregate notional value of $31.8 million and receive a variable interest rate based on the London Interbank Offered Rate (“LIBOR”) on these notional values. The general purpose of these interest rate swap agreements is to provide protection against increases in interest rates, which might lead to higher interest costs for the Company. The fair value of these derivative instruments at June 30, 2013 and December 31, 2012 was a liability of $0.8 million and $1.0 million, respectively. The unrealized change in fair market value was gains of $0.1 million and losses of less than $0.1 million on these derivative instruments for the three months ended June 30, 2013 and 2012, respectively, and gains of $0.3 million and losses of $0.1 million for the six months ended June 30, 2013 and 2012, respectively.
4.
ESCROW DEPOSITS
In February 2013, the Company entered into agreements for the sale of two S76C++ medium helicopters for cash proceeds totaling $18.0 million. The sales transactions closed in May 2013 and were each treated as a tax-free like-kind exchange under Section 1031 for tax purposes whereby $16.0 million of the proceeds were held by a qualified intermediary and thus reflected as an escrow deposit in the consolidated balance sheet. Qualified properties were not identified (purchased) to complete the like-kind exchanges under Section 1031 prior to expiration of the 45-day period subsequent to the closing date. As a result, the Company has classified the escrow deposit of $16.0 million as a current asset at June 30, 2013.
5.
EQUIPMENT ACQUISITIONS AND DISPOSITIONS
During the six months ended June 30, 2013, capital expenditures were $30.6 million and consisted primarily of helicopter acquisitions and deposits on future helicopter deliveries. The Company records helicopter acquisitions in Property and Equipment and places helicopters in service once all completion work has been finalized and the helicopters are ready for use. As of June 30, 2013, the Company had one medium helicopter that was delivered in May 2013 but not placed in service until July 2013. A summary of changes to our operating helicopter fleet during the six months ended June 30, 2013 is as follows:
Equipment Additions. During the six months ended June 30, 2013, the Company placed two medium helicopters in service, one of which was delivered in the prior year.

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Equipment Dispositions. Major equipment dispositions for the six months ended June 30, 2013 were as follows:
Light helicopters — twin engine (1)
 
2

Medium helicopters
 
5

Heavy helicopters
 
1

 
 
8

________________________
(1)    Includes two light-twin helicopters that had previously been removed from service.

During the first quarter of 2013, the Company recognized a $5.4 million gain on the sale of an EC225 helicopter. The helicopter was previously on contract-lease to a customer and was damaged in an incident in May 2012, and it was subsequently sold to that customer in March 2013 for cash proceeds of $13.1 million and a note receivable of $11.5 million.
During the first quarter of 2013, the Company recognized $2.1 million in insurance proceeds on a S76A helicopter involved in an incident in March 2013, resulting in a gain of $1.2 million.
During the three months ended June 30, 2013, the Company sold or otherwise disposed of property and equipment for proceeds of $18.1 million and recognized gains of $4.5 million. During the six months ended June 30, 2013, the Company sold or otherwise disposed of property and equipment, including the transactions described above, for cash proceeds of $38.5 million and net receivables of $11.4 million, of which $10.7 million was received in July 2013, resulting in gains of $15.2 million. In addition, the Company recognized previously deferred gains of $0.1 million.

6.
INVESTMENTS, AT EQUITY, AND ADVANCES TO 50% OR LESS OWNED COMPANIES
Combined Condensed Financials. Summarized financial information for Dart Holding Company Ltd. ("Dart"), in which the Company has a 50% ownership interest was as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Operating Revenues
$
10,873

 
$
13,130

 
$
21,649

 
$
24,712

Costs and Expenses:
 
 
 
 
 
 
 
Operating and administrative
8,348

 
8,645

 
16,107

 
17,196

Depreciation
1,284

 
1,359

 
2,582

 
2,709

 
9,632

 
10,004

 
18,689

 
19,905

Operating Income
$
1,241

 
$
3,126

 
$
2,960

 
$
4,807

Net Income
$
929

 
$
3,563

 
$
2,104

 
$
1,469

7.
INCOME TAXES
The following table shows the effective income tax rate on continuing operations:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Statutory rate
 
35.0
%
 
35.0
%
 
35.0
%
 
35.0
 %
Non-deductible expenses (1)
 
0.2
%
 
0.6
%
 
%
 
(1.4
)%
Minority interest
 
0.6
%
 
%
 
0.5
%
 
 %
State taxes
 
0.1
%
 
1.2
%
 
1.2
%
 
0.5
 %
Effective Tax Rate
 
35.9
%
 
36.8
%
 
36.7
%
 
34.1
 %
____________________
(1) Non-deductible expenses are related primarily to share-based payments.

10

Table of Contents

8.
LONG-TERM DEBT
The Company’s borrowings as of the periods indicated were as follows (in thousands):
 
 
June 30, 2013
 
December 31, 2012
7.750% Senior Notes (excluding unamortized discount of $3.3 million)
 
$
200,000

 
$
200,000

Senior Secured Revolving Credit Facility
 
50,000

 
50,000

Promissory Notes
 
31,704

 
33,098

 
 
281,704

 
283,098

Less: Portion due with one year
 
(2,787
)
 
(2,787
)
Less: Debt discount, net
 
(3,250
)
 
(3,363
)
Total Long-Term Debt
 
$
275,667

 
$
276,948

7.750% Senior Notes. On December 7, 2012, the Company 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.
Senior Secured Revolving Credit Facility. As of June 30, 2013, the Company had $50.0 million of outstanding borrowings under its senior secured revolving credit facility (“Revolving Credit Facility”). As of June 30, 2013, the remaining availability under this facility was $149.3 million, net of issued letters of credit of $0.7 million. During the six months ended June 30, 2013, the Company had borrowings of $15.0 million and made repayments of $15.0 million. In July 2013, we repaid $15.0 million outstanding under the Revolving Credit Facility resulting in available capacity of $164.3 million at July 31, 2013.
Promissory Notes. During the six months ended June 30, 2013, the Company made scheduled payments on other long-term debt of $1.4 million.
9.
COMMITMENTS AND CONTINGENCIES
Fleet
The Company’s unfunded capital commitments as of June 30, 2013 consisted primarily of agreements to purchase helicopters and totaled $205.6 million, of which $10.6 million is payable during the remainder of 2013 with the balance payable through 2017. The Company also had $1.1 million of deposits paid on options not yet exercised. The Company may terminate $174.6 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than liquidated damages of $11.8 million in the aggregate.
Included in these commitments are orders to purchase ten AW189 heavy helicopters and five AW169 light twin helicopters. The AW189 heavy helicopters are scheduled to be delivered in 2014 through 2017. Delivery dates for the AW169 light twin helicopters have yet to be determined. In addition, the Company had outstanding options to purchase up to an additional eight AW139 medium helicopters and ten AW189 heavy helicopters. If these options were exercised, the helicopters would be delivered beginning in 2013 through 2017.
Subsequent to June 30, 2013, the Company exercised options to acquire three AW139 helicopters. Two of the AW139 helicopters are scheduled to be delivered by year-end 2013, and one is scheduled for delivery in mid-2014. Upon exercise of these options, the unfunded capital commitments for these three AW139 helicopters were $35.9 million.
Matters that Could Impact the Company's Investments
In July 2011, the Company acquired an interest in Aeróleo which was reflected in the Company's financial statements as an equity investment. Subsequently, Aeróleo has experienced operating and financial difficulties arising from, among other matters, the following:
in August 2011, Petrobras Brazil cancelled its AW139 award with Aeróleo, and, as a result, these helicopters remained idle from August 2011 until late November 2012;
suspension from flight operations of the EC225 on a global basis;
effective April 1, 2013, suspension of and non-payment by Petrobras Brazil of all EC225 contracts through the duration of the EC225 helicopter suspension; and
financial difficulties experienced by another customer which could impair its ability to pay its receivables owed to Aeróleo.

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Table of Contents

In March 2012, the Company recorded an impairment charge of $5.9 million, net of tax, on its investment in and advances to Aeróleo resulting in a write-down of the investment to nil in 2012. As of June 30, 2013, the Company had deferred the recognition of $12.2 million of revenues owed by Aeróleo as a result of Aeróleo's operating difficulties, and Aeróleo's partners have contributed $9.2 million of shareholder debt to Aeróleo since March 2012 to address Aeróleo's financial challenges. In addition to these operating and financial difficulties, the Company is currently in a dispute with its partner in Aeróleo with respect to the Company's contractual shareholder rights in connection with any attempted sale or transfer of the partner's interests, which is being resolved through arbitration. A continuation of any combination of these operating and financial difficulties or the ongoing dispute with the Company's partner, taken separately or together, may impede Aeróleo's ability to pay for equipment leased from the Company, necessitate an infusion of capital from the Company to allow Aeróleo to continue to operate and adversely impact the Company's results of operations.
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 has used 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 of that exposure could occur, but the Company does not expect such changes in estimated costs would have a material effect on the Company's consolidated financial position, results of operations or cash flows.
10.
SERIES A PREFERRED STOCK
On January 31, 2013, as part of the Recapitalization, SEACOR exchanged its 1,400,000 shares of Series A preferred stock, which represented all of the Company's Series A preferred stock then outstanding, for shares of newly-issued Era Group common stock. During the first quarter of 2013, the Company paid outstanding accrued dividends of $5.0 million to SEACOR (See Note 1).
11.
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) 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 (loss) 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 assumes all common shares have been issued and outstanding during the relevant periods pursuant to the conversion of all outstanding Series A preferred stock, restricted stock grants have vested and common shares have been issued pursuant to the exercise of outstanding stock options.
Computations of basic and diluted earnings per common share of the Company were as follows (in thousands, except share data):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Net Income (Loss) Attributable to Common Shares
 
$
5,055

 
$
1,514

 
$
11,028

 
$
(5,219
)
Shares:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding—basic
 
20,140,105

 
24,500,000

 
20,793,529

 
24,500,000

Assumed conversion of Series A Preferred Stock (1)
 

 

 

 

Net effect of dilutive stock options and restricted stock awards based on the treasury stock method(2)
 

 

 

 

Weighted average number of common shares outstanding—diluted
 
20,140,105

 
24,500,000

 
20,793,529

 
24,500,000

 
 
 
 
 
 
 
 
 
Basic and Diluted Earnings (Loss) per Common Share
 
$
0.25

 
$
0.06

 
$
0.53

 
$
(0.21
)
____________________

12

Table of Contents

(1) Excludes nil and 1,209,315 for the three and six month periods ending June 30, 2013, respectively, and 6,445,883 and 6,283,654 for the three and six months ending June 30, 2012, respectively, weighted average common shares for the conversion of Series A preferred stock as the effect of their inclusion would have been antidilutive.
(2) Excludes 339,258 and 194,122 for the three and six month periods ending June 30, 2013, respectively, weighted average common shares for certain share awards as the effect of their inclusion would have been antidilutive. No share awards existed in the respective periods in 2012.
12.
RELATED PARTY TRANSACTIONS
Prior to the Spin-off, as part of a consolidated group, certain costs and expenses of the Company were borne by SEACOR and charged to the Company. These costs and expenses are included in both operating expenses and administrative and general expenses in the accompanying consolidated statements of operations. The Company entered into various agreements with SEACOR in connection with the separation, including an Amended and Restated Transition Services Agreement, Distribution Agreement, Tax Matters Agreement, Employee Matters Agreement and the Series B Preferred Stock Exchange Agreement. These costs are summarized as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Payroll costs for SEACOR personnel assigned to the Company and participation in SEACOR employee benefit plans, defined contribution plan and share award plans
 
$

 
$
1,865

 
$
5

 
$
3,838

Shared services allocation for administrative support
 

 
684

 
299

 
1,248

Shared services under the Amended and Restated Transition Services Agreement
 
843

 

 
1,405

 

 
 
$
843

 
$
2,549

 
$
1,709

 
$
5,086

During the first quarter of 2013, the Company also paid outstanding accrued dividends of $5.0 million on the Series A preferred stock to SEACOR.
As of June 30, 2013, the Company recorded a payable due to SEACOR of $0.2 million. As of December 31, 2012, the Company recorded a receivable due from SEACOR of $1.0 million.
13.
SHARE-BASED COMPENSATION
Transactions in connection with the Company’s share-based compensation plans during the six months ended June 30, 2013 were as follows:
Director stock awards granted
45,510

Restricted stock awards granted
221,800

Restricted stock awards canceled
2,500

Stock option activities:
 
Outstanding as of December 31, 2012

Converted stock options
169,058

Granted
200,000

Exercised
(33,166
)
Forfeited

Expired

Outstanding as of June 30, 2013
335,892

Effective January 14, 2013, the Company adopted the Era Group Inc. 2012 Incentive Plan (“2012 Plan”) under which a maximum of 4,000,000 shares of common stock, par value $0.01 per share, are reserved for issuance. Awards granted under the 2012 Plan may be in the form of stock options, stock appreciation rights, shares of restricted stock, other share-based awards (payable in cash or common stock) or performance awards, or any combination thereof, and may be made to outside directors, employees or consultants. As of June 30, 2013, 3,363,632 shares remained available for grant under the 2012 Plan.

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Table of Contents

Total share-based compensation expense, which includes stock options and restricted stock, totaled $0.5 million and $0.8 million for the three and six months ended June 30, 2013, respectively. A portion of the restricted stock awards are performance- based. The Company has assessed the probability of meeting the criteria and has recorded the appropriate expense.
During the six months ended June 30, 2013, the Company awarded 267,310 shares of restricted stock at an average grant date fair value of $21.23 per share, granted 200,000 stock options and converted 37,900 options to purchase SEACOR common stock held by Era Group employees and directors prior to the Spin-off into 169,058 options to purchase Era Group common stock. The fair value used for the converted stock options was evaluated before and after the Spin-off and there was no change. The following table shows the assumptions used to compute the share-based compensation expense for stock options granted during the six months ended June 30, 2013:
Risk free interest rate
 
0.81
%
Expected life (years)
 
5

Volatility
 
50
%
Dividend yield
 
%
Weighted average exercise price of options granted
 
$18.95 per option

Weighted average grant-date fair value of options granted
 
$7.87 per option

14.
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On December 7, 2012, the Company issued $200.0 million aggregate principal amount of its 7.750% Senior Notes. The Company’s payment obligations under the 7.750% Senior Notes are jointly and severally guaranteed by all of the Company’s existing wholly-owned U.S. subsidiaries that guarantee the Revolving Credit Facility and its future U.S. subsidiaries that guarantee the Revolving Credit Facility or other material indebtedness the Company may incur in the future (the “Guarantors”). All the Guarantors currently guarantee the Revolving Credit Facility. The guarantees of the Guarantors are full and unconditional.
As a result of the guarantee arrangements, the Company is presenting the following condensed consolidating balance sheets, statements of operations, comprehensive income and cash flows for Era Group Inc. (“Parent Company Only”), for the Guarantors and for our other subsidiaries (“Non-Guarantor Subsidiaries”).

14

Table of Contents

Supplemental Condensed Consolidating Balance Sheet as of June 30, 2013
 
 
Parent Company Only
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
16,437

 
$
9,547

 
$
1,361

 
$

 
$
27,345

Receivables:
 
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $3,010
 

 
40,362

 

 

 
40,362

Other
 
131

 
14,814

 

 
(55
)
 
14,890

Intercompany receivables
 
558,767

 

 

 
(558,767
)
 

Inventories, net
 

 
26,223

 

 

 
26,223

Deferred income taxes
 
6,043

 

 

 
(2,401
)
 
3,642

Prepaid expenses and other
 
47

 
2,807

 

 

 
2,854

Escrow deposits
 


 
16,010

 

 

 
16,010

Total current assets
 
581,425

 
109,763

 
1,361

 
(561,223
)
 
131,326

Property and Equipment
 

 
1,001,161

 
11,500

 

 
1,012,661

Accumulated depreciation
 

 
(250,233
)
 
(1,380
)
 

 
(251,613
)
Net property and equipment
 

 
750,928

 
10,120

 

 
761,048

Investments, at Equity, and Advances to 50% or Less Owned Companies
 

 
35,529

 

 

 
35,529

Investments, at Equity in Consolidated Subsidiaries
 
100,308

 

 

 
(100,308
)
 

Goodwill
 

 
352

 

 

 
352

Other Assets
 
5,832

 
11,468

 

 

 
17,300

Total Assets
 
$
687,565

 
$
908,040

 
$
11,481

 
$
(661,531
)
 
$
945,555

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$
217

 
$
15,376

 
$
203

 
$

 
$
15,796

Accrued wages and benefits
 

 
6,976

 

 

 
6,976

Accrued interest
 
752

 
18

 

 

 
770

Intercompany payables
 
10,739

 
535,018

 
11,284

 
(557,041
)
 

Current portion of long-term debt
 

 
2,787

 

 

 
2,787

Other current liabilities
 
1,232

 
4,075

 

 
(54
)
 
5,253

Total current liabilities
 
12,940

 
564,250

 
11,487

 
(557,095
)
 
31,582

Long-Term Debt
 
246,750

 
28,917

 

 

 
275,667

Deferred Income Taxes
 

 
207,460

 

 
(2,973
)
 
204,487

Deferred Gains and Other Liabilities
 

 
4,384

 

 
1,563

 
5,947

Total liabilities
 
259,690

 
805,011

 
11,487

 
(558,505
)
 
517,683

 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
 
Era Group Inc. stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,181,559 issued and outstanding in 2013 (exclusive of 2,500 treasury shares)
 
202

 

 

 

 
202

Additional paid-in capital
 
420,056

 
99,845

 
496

 
(100,341
)
 
420,056

Retained earnings (accumulated deficit)
 
7,724

 
3,187

 
(502
)
 
(2,685
)
 
7,724

Treasury shares, at cost (2,500 in 2013)
 
(63
)
 

 

 

 
(63
)
Accumulated other comprehensive loss, net of tax
 
(44
)
 

 


 

 
(44
)
 
 
427,875

 
103,032

 
(6
)
 
(103,026
)
 
427,875

Noncontrolling interest in subsidiary
 

 
(3
)
 

 

 
(3
)
Total equity
 
427,875

 
103,029

 
(6
)
 
(103,026
)
 
427,872

Total Liabilities and Stockholders’ Equity
 
$
687,565

 
$
908,040

 
$
11,481

 
$
(661,531
)
 
$
945,555



15

Table of Contents

Supplemental Condensed Consolidating Balance Sheet as of December 31, 2012
 
 
Parent Company Only
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,258

 
$
8,558

 
$
689

 
$

 
$
11,505

Receivables:
 
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $2,668
 

 
48,217

 
310

 

 
48,527

Other
 
971

 
3,742

 

 

 
4,713

Due from SEACOR and affiliates
 
560,327

 

 

 
(560,327
)
 

Inventories, net
 

 
26,650

 

 

 
26,650

Deferred income taxes
 
4,625

 

 

 
(983
)
 
3,642

Prepaid expenses and other
 

 
1,803

 

 

 
1,803

Total current assets
 
568,181

 
88,970

 
999

 
(561,310
)
 
96,840

Property and Equipment
 

 
1,018,776

 
11,500

 

 
1,030,276

Accumulated depreciation
 

 
(241,436
)
 
(1,035
)
 

 
(242,471
)
Net property and equipment
 

 
777,340

 
10,465

 

 
787,805

Investments, at Equity, and Advances to 50% or Less Owned Companies
 

 
34,696

 

 

 
34,696

Investments, at Equity in Consolidated Subsidiaries
 
100,101

 
9,782

 

 
(109,883
)
 

Goodwill
 

 
352

 

 

 
352

Other Assets
 
5,958

 
24,374

 

 
(12,461
)
 
17,871

Total Assets
 
$
674,240

 
$
935,514

 
$
11,464

 
$
(683,654
)
 
$
937,564

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
 
$

 
$
15,618

 
$
85

 
$

 
$
15,703

Accrued wages and benefits
 

 
4,576

 

 

 
4,576

Accrued interest
 
1,357

 
44

 

 

 
1,401

Intercompany payables
 
5,491

 
560,323

 
10,965

 
(576,779
)
 

Current portion of long-term debt
 

 
2,787

 

 

 
2,787

Other current liabilities
 
1,445

 
3,787

 

 

 
5,232

Total current liabilities
 
8,293

 
587,135

 
11,050

 
(576,779
)
 
29,699

Long-Term Debt
 
246,637

 
30,311

 

 

 
276,948

Deferred Income Taxes
 

 
204,520

 

 
(984
)
 
203,536

Deferred Gains and Other Liabilities
 

 
7,864

 

 

 
7,864

Total liabilities
 
254,930

 
829,830

 
11,050

 
(577,763
)
 
518,047

Series A Preferred Stock, at redemption value; $0.01 par value, 10,000,000 shares authorized; none issued and outstanding in 2013; 1,400,000 shares issued and outstanding in 2012
 
144,232

 

 

 

 
144,232

Equity:
 
 
 
 
 
 
 
 
 
 
Era Group Inc. stockholders' equity:
 
 
 
 
 
 
 
 
 
 
Class B common stock, $0.01 par value, 60,000,000 shares authorized; 24,500,000 issued and outstanding
 
245

 

 

 

 
245

Additional paid-in capital
 
278,838

 
109,674

 
496

 
(110,170
)
 
278,838

Accumulated deficit
 
(4,025
)
 
(4,217
)
 
(82
)
 
4,299

 
(4,025
)
Accumulated other comprehensive income, net of tax
 
20

 
20

 

 
(20
)
 
20

 
 
275,078

 
105,477

 
414

 
(105,891
)
 
275,078

Noncontrolling interest in subsidiary
 

 
207

 

 

 
207

Total equity
 
275,078

 
105,684

 
414

 
(105,891
)
 
275,285

Total Liabilities and Stockholders’ Equity
 
$
674,240

 
$
935,514

 
$
11,464

 
$
(683,654
)
 
$
937,564



16

Table of Contents

Supplemental Condensed Consolidating Statement of Operations for the Three Months Ended June 30, 2013
 
 
Parent Company Only
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating Revenues
 
$

 
$
73,913

 
$
324

 
$

 
$
74,237

Costs and Expenses:
 
 
 
 
 
 
 
 
 
 
Operating
 

 
46,742

 
203

 

 
46,945

Administrative and general
 
1,602

 
7,942

 
1

 

 
9,545

Depreciation
 

 
11,259

 
172

 

 
11,431

 
 
1,602

 
65,943

 
376

 

 
67,921

Gains on Asset Dispositions, Net
 

 
4,476

 

 

 
4,476

Operating Income (Loss)
 
(1,602
)
 
12,446

 
(52
)
 

 
10,792

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
Interest income
 
19

 
130

 
1

 

 
150

Interest expense
 
(4,384
)
 
(229
)
 

 

 
(4,613
)
Intercompany interest
 
8,102

 
(7,944
)
 
(158
)
 

 

Derivative gains, net
 

 
21

 

 

 
21

Foreign currency gains, net
 

 
315

 

 

 
315

Other, net
 
6

 
2

 
1

 

 
9

 
 
3,743

 
(7,705
)
 
(156
)
 

 
(4,118
)
Income (Loss) Before Income Tax Expense and Equity in Earnings of 50% or Less Owned Companies and Subsidiaries
 
2,141

 
4,741

 
(208
)
 

 
6,674

Income Tax Expense
 
778

 
1,620

 

 

 
2,398

Income (Loss) Before Equity in Earnings of 50% or Less Owned Companies and Subsidiaries
 
1,363

 
3,121

 
(208
)
 

 
4,276

Equity in Earnings of 50% or Less Owned Companies, Net of Tax
 

 
674

 

 

 
674

Equity in Earnings (Losses) of Subsidiaries
 
3,587

 

 

 
(3,587
)
 

Net Income (Loss)
 
4,950

 
3,795

 
(208
)
 
(3,587
)
 
4,950

Net Loss attributable to Noncontrolling Interest in Subsidiary
 

 
105