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

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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

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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

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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.

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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. 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-

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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