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, 2017              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,” “smaller reporting company” and “emerging growth 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
¨
 
Emerging growth company
ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
ý
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 November 3, 2017 was 21,328,653. 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

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PART I—FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
ERA GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
September 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents (including $1,275 and $1,448 from VIEs in 2017 and 2016, respectively)
$
26,896

 
$
26,950

Receivables:
 
 
 
Trade, net of allowance for doubtful accounts of $1,227 and $1,219 in 2017 and 2016, respectively (including $6,155 and $5,989 from VIEs in 2017 and 2016, respectively)
38,608

 
32,470

Tax receivables (including $2,795 and $3,448 from VIEs in 2017 and 2016, respectively)
2,811

 
3,461

Other (including $823 and $1,019 from VIEs in 2017 and 2016, respectively)
2,486

 
2,716

Inventories, net (including $38 and $46 from VIEs in 2017 and 2016, respectively)
21,985

 
25,417

Prepaid expenses (including $34 and $158 from VIEs in 2017 and 2016, respectively)
2,439

 
1,579

Escrow deposits

 
3,777

Total current assets
95,225

 
96,370

Property and equipment (including $869 and $844 from VIEs in 2017 and 2016, respectively)
983,798

 
1,154,028

Accumulated depreciation (including $216 and $98 from VIEs in 2017 and 2016, respectively)
(299,294
)
 
(332,219
)
Property and equipment, net
684,504

 
821,809

Equity investments and advances
29,894

 
29,266

Intangible assets
1,126

 
1,137

Other assets (including $68 and $48 from VIEs in 2017 and 2016, respectively)
5,021

 
6,591

Total assets
$
815,770

 
$
955,173

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST
 AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued expenses (including $2,233 and $1,788 from VIEs in 2017 and 2016, respectively)
$
15,326

 
$
8,876

Accrued wages and benefits (including $2,034 and $2,009 from VIEs in 2017 and 2016, respectively)
8,350

 
8,507

Accrued interest
3,325

 
529

Accrued income taxes
38

 
666

Accrued other taxes (including $528 and $773 from VIEs in 2017 and 2016, respectively)
2,098

 
1,447

Accrued contingencies (including $1,288 and $1,237 from VIEs in 2017 and 2016, respectively)
1,288

 
1,237

Current portion of long-term debt (including $667 and $615 from VIEs in 2017 and 2016, respectively)
2,191

 
2,139

Other current liabilities (including $9 and $8 from VIEs in 2017 and 2016, respectively)
2,406

 
2,222

Total current liabilities
35,022

 
25,623

Long-term debt (including $2,483 and $2,767 from VIEs in 2017 and 2016, respectively)
215,025

 
230,139

Deferred income taxes
177,704

 
225,472

Other liabilities
1,069

 
1,301

Total liabilities
428,820

 
482,535

Commitments and contingencies (see Note 9)

 

Redeemable noncontrolling interest
4,002

 
4,221

Equity:
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,328,653 and 20,936,636 outstanding in 2017 and 2016, respectively, exclusive of treasury shares
215

 
211

Additional paid-in capital
442,948

 
438,489

Retained earnings
(57,331
)
 
32,524

Treasury shares, at cost, 180,430 and 175,350 shares in 2017 and 2016, respectively
(2,974
)
 
(2,899
)
Accumulated other comprehensive income, net of tax
90

 
92

Total equity
382,948

 
468,417

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
815,770

 
$
955,173



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 
 September 30,
 
Nine Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Operating revenues
$
61,385

 
$
65,006

 
$
173,790

 
$
190,939

Costs and expenses:
 
 
 
 
 
 
 
Operating
43,987

 
40,371

 
123,079

 
132,074

Administrative and general
10,928

 
9,504

 
31,211

 
26,871

Depreciation and amortization
12,103

 
12,519

 
35,635

 
37,976

Total costs and expenses
67,018

 
62,394

 
189,925

 
196,921

Gains (losses) on asset dispositions, net
(122
)
 
(246
)
 
5,048

 
4,034

Loss on impairment
(117,018
)
 

 
(117,018
)
 

Operating income (loss)
(122,773
)
 
2,366

 
(128,105
)
 
(1,948
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
206

 
466

 
641

 
1,170

Interest expense
(4,097
)
 
(4,003
)
 
(11,620
)
 
(12,881
)
Foreign currency gains (losses), net
12

 
(33
)
 
(96
)
 
577

Gain on debt extinguishment

 

 

 
518

Other, net
(33
)
 
34

 
(29
)
 
63

Total other income (expense)
(3,912
)
 
(3,536
)
 
(11,104
)
 
(10,553
)
Loss before income taxes and equity earnings
(126,685
)
 
(1,170
)
 
(139,209
)
 
(12,501
)
Income tax expense (benefit)
(45,237
)
 
69

 
(48,066
)
 
(2,177
)
Loss before equity earnings
(81,448
)
 
(1,239
)
 
(91,143
)
 
(10,324
)
Equity earnings, net of tax
233

 
437

 
1,069

 
1,062

Net loss
(81,215
)
 
(802
)
 
(90,074
)
 
(9,262
)
Net loss (income) attributable to noncontrolling interest in subsidiary
(233
)
 
242

 
219

 
6,822

Net loss attributable to Era Group Inc.
$
(81,448
)
 
$
(560
)
 
$
(89,855
)
 
$
(2,440
)
 
 
 
 
 
 
 
 
Loss per common share, basic and diluted:
$
(3.91
)
 
$
(0.03
)
 
$
(4.34
)
 
$
(0.12
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding, basic and diluted:
20,844,376

 
20,384,348

 
20,715,686

 
20,322,167



















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

3

Table of Contents

ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited, in thousands)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss
 
$
(81,215
)
 
$
(802
)
 
$
(90,074
)
 
$
(9,262
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 

 

 
(2
)
 

Income tax benefit
 

 

 

 

Total other comprehensive loss
 

 

 
(2
)
 

Comprehensive loss
 
(81,215
)
 
(802
)
 
(90,076
)
 
(9,262
)
Comprehensive loss (income) attributable to noncontrolling interest in subsidiary
 
(233
)
 
242

 
219

 
6,822

Comprehensive loss attributable to Era Group Inc.
 
$
(81,448
)
 
$
(560
)
 
$
(89,857
)
 
$
(2,440
)







































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, 2016
 
$
4,221

 
 
$
211

 
$
438,489

 
$
32,524

 
$
(2,899
)
 
$
92

 
$
468,417

Issuance of common stock:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Restricted stock grants
 

 
 
3

 
(3
)
 

 

 

 

Employee Stock Purchase Plan
 

 
 
1

 
835

 

 

 

 
836

Share award amortization
 

 
 

 
3,604

 

 

 

 
3,604

Cancellation of restricted stock
 

 
 

 
23

 

 
(23
)
 

 

Purchase of treasury shares
 

 
 

 

 

 
(52
)
 

 
(52
)
Net loss
 

 
 

 

 
(90,074
)
 

 

 
(90,074
)
Net loss attributable to redeemable noncontrolling interest
 
(219
)
 
 

 

 
219

 

 

 
219

Currency translation adjustments, net of tax
 
 
 
 

 

 

 

 
(2
)
 
(2
)
September 30, 2017
 
$
4,002


 
$
215

 
$
442,948

 
$
(57,331
)
 
$
(2,974
)
 
$
90

 
$
382,948

































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

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ERA GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
Nine Months Ended 
 September 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net loss
$
(90,074
)
 
$
(9,262
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
35,635

 
37,976

Share-based compensation
3,604

 
3,479

Bad debt expense, net
47

 
324

Gains on asset dispositions, net
(5,048
)
 
(4,034
)
Debt discount amortization
174

 
133

Amortization of deferred financing costs
850

 
684

Foreign currency losses (gains), net
47

 
(842
)
Gain on debt extinguishment, net

 
(518
)
Loss on impairment
117,018

 

Deferred income tax benefit
(48,057
)
 
(2,822
)
Equity earnings, net of tax
(1,069
)
 
(1,062
)
Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in receivables
(5,107
)
 
11,174

Decrease in prepaid expenses and other assets
828

 
2,228

Increase in accounts payable, accrued expenses and other liabilities
9,080

 
9,025

Net cash provided by operating activities
17,928

 
46,483

Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(13,121
)
 
(10,712
)
Proceeds from disposition of property and equipment
5,690

 
6,138

Return of helicopter deposits

 
544

Investments in and advances to equity investees
(126
)
 

Principal payments on notes due from equity investees
564

 
539

Principal payments on third party notes receivable
94

 
212

Escrow deposits on like-kind exchanges, net
3,777

 

Net cash used in investing activities
(3,122
)
 
(3,279
)
Cash flows from financing activities:
 
 
 
Proceeds from Revolving Credit Facility
9,000

 
7,000

Payments on long-term debt
(24,745
)
 
(29,538
)
Extinguishment of long-term debt

 
(4,331
)
Proceeds from share award plans
836

 
836

Purchase of treasury shares
(52
)
 
(161
)
Net cash used in financing activities
(14,961
)
 
(26,194
)
Effects of exchange rate changes on cash and cash equivalents
101

 
764

Net increase (decrease) in cash and cash equivalents
(54
)
 
17,774

Cash and cash equivalents, beginning of period
26,950

 
14,370

Cash and cash equivalents, end of period
$
26,896


$
32,144

Supplemental cash flow information:
 
 
 
Cash paid for interest, net of capitalized interest of $451 and $0 in 2017 and 2016, respectively
$
7,798

 
$
8,847

Cash paid (refunded) for income taxes
427

 
(5,974
)
Supplemental disclosure of non-cash financing activities:
 
 
 
Notes payable contributed to subsidiary

 
6,349








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

6

Table of Contents

ERA GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
1.
BASIS OF PRESENTATION AND ACCOUNTING POLICY
The condensed consolidated financial statements include the accounts of Era Group Inc. and its consolidated subsidiaries. Unless the context otherwise indicates, any reference in this 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, 2017 and 2016 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, 2017, its results of operations for the three and nine months ended September 30, 2017 and 2016, its comprehensive income for the three and nine months ended September 30, 2017 and 2016, its changes in equity for the nine months ended September 30, 2017, and its cash flows for the nine months ended September 30, 2017 and 2016. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
During the three months ended September 30, 2017, the Company identified and corrected adjustments which increased operating expense by $0.2 million, administrative and general expense by $0.7 million, loss on impairment by $0.3 million and income tax benefit by $0.9 million. The adjustments relate to the years ended December 31, 2016, 2015 and 2014 and prior years and the three months ended March 31, 2017 and June 30, 2017 and were immaterial individually and in the aggregate to each of the prior periods. The effect of correcting the errors in the current year is also expected to be immaterial to the 2017 annual financial statements. The Company does not believe the adjustments are material to its consolidated financial statements.
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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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.
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 Company did not defer any revenue during the nine months ended September 30, 2017 and 2016.
Receivables. Customers are primarily international, independent and major integrated oil and gas exploration, development and production 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.
New Accounting Standards. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, in May 2016, the FASB issued ASU 2016-12 - Revenue from Contracts With Customers, in December 2016, the FASB issued ASU 2016-20 - Technical Corrections and Improvements to Topic 606, 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 intends to adopt each of ASU 2014-09, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 in 2018 using the modified retrospective application. The Company has reviewed its contracts with customers and

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evaluated its performance obligations under each contract and does not expect the adoption of these updates to have a material impact on its consolidated financial statements.
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 or 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 adopted ASU 2015-11 effective January 1, 2017, and such adoption did 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.
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. The Company adopted ASU 2016-07 effective January 1, 2017 and such adoption did not have an 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 on the statement of cash flows and treatment of forfeitures. The main differences between current GAAP and ASU 2016-09 are (i) tax consequences from changes in fair value of equity awards between the grant date and vesting date will be charged to income tax expense and reported in the operating section of the statement of cash flows in the period in which the award vests and (ii) entities will have the option to estimate award forfeitures as previously prescribed under GAAP or record forfeitures as an adjustment to expense as they occur. The Company adopted ASU 2016-09 effective January 1, 2017 and has elected to record forfeitures of equity awards as an adjustment to expense as they occur and in the period in which they occur. Such adoption and election did not have a material impact on the Company’s 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.
In January 2017, the FASB issued ASU 2017-01 - Business Combinations: Clarifying the Definition of a Business, which narrows the reach of the definition of a business to exclude transactions that are more akin to asset acquisitions or dispositions. ASU 2017-01 will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that period. Early adoption is permitted provided that any transactions affected by the adoption have not been previously disclosed under current GAAP. The Company adopted ASU 2017-01 effective January 1, 2017, and such adoption did not have a material impact on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09 - Compensation - Stock Compensation: Scope of Modification Accounting, which is designed to reduce diversity in practice and complexity when accounting for changes in the terms of a share-based payment award. ASU 2017-09 will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that period, and early adoption is permitted for any interim period for which financial statements have not yet been issued. The Company has not adopted ASU 2017-09 and believes such adoption will not have a material impact on its consolidated financial statements.

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In September 2017, the FASB issued ASU 2017-13 - Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments, which clarifies the adoption date of Topics 606 and 842 for public business entities that would not otherwise meet the definition of a public business entity except for the inclusion of its financial statements in another public entity’s filings. It states that such entities are not required to comply with the adoption dates for public entities. The Company’s joint venture investments do not intend to adopt Topics 606 and 842 with public business entities; this is not expected to have a material impact on the Company’s 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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016 were as follows (in thousands): 
 
Carrying
Amount
 
Level 1
 
Level 2
 
Level 3
September 30, 2017
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
217,216

 
$

 
$
207,328

 
$

 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Long-term debt, including current portion
$
232,278

 
$

 
$
221,808

 
$

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.
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 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 December 31, 2016, the Company had $3.8 million deposited in a like-kind exchange escrow account. During the second quarter of 2017, the Company used $2.8 million of the balance to make a final payment on a S92 heavy helicopter which completed the like-kind exchange transaction, and the remaining $1.0 million was returned to the Company.
4.
ACQUISITIONS AND DISPOSITIONS
Capital Expenditures. During the nine months ended September 30, 2017, capital expenditures were $13.1 million and consisted primarily of helicopter acquisitions, deposits on future helicopter deliveries, spare helicopter parts and capitalized interest. In connection with the deferral of helicopter deliveries, the Company ceased capitalizing interest on helicopter deposits in the fourth quarter of 2015. The Company resumed capitalizing interest on deposits for certain helicopters in the fourth quarter of 2016. The Company did not capitalize any interest during the three months ended September 30, 2017 and 2016. During the nine months ended September 30, 2017 and 2016, the Company capitalized interest of $0.5 million and $0, respectively. As of September 30, 2017 and December 31, 2016, construction in progress, which is a component of property and equipment, included capitalized interest of $1.8 million and $4.5 million, respectively. A summary of changes to our operating helicopter fleet is as follows:
Equipment Additions - During the nine months ended September 30, 2017, the Company placed two AW189 heavy helicopters and one S92 heavy helicopter into service. The Company had no helicopter acquisitions during the nine months ended

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September 30, 2016. The Company places helicopters in service once completion work has been finalized and the helicopters are ready for use.
Equipment Dispositions - During the nine months ended September 30, 2017, the Company sold or otherwise disposed of two helicopters and other property and equipment for proceeds of $5.7 million and recognized gains of $5.0 million. 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.
5.
IMPAIRMENT OF LONG-LIVED ASSETS
In April 2016, an Airbus Helicopters H225 model helicopter (also known as an EC225LP) operated by a global competitor was involved in an accident in Norway resulting in thirteen fatalities. The Accident Investigation Board Norway (“AIBN”) published preliminary reports that contained findings from the investigation into the accident in May and June 2016. Pursuant to a safety recommendation published by the AIBN, a number of regulatory authorities issued safety directives suspending operations, with limited exceptions, of all Airbus H225 and AS332 L2 model helicopters registered in their jurisdictions, and a number of customers and operators voluntarily suspended operations of those two helicopter models. On October 7, 2016, the European Aviation Safety Agency (“EASA”) issued an Airworthiness Directive which provides for additional maintenance and inspection requirements to allow these helicopters to return to service. On December 9, 2016, the Federal Aviation Administration in the United States issued an Alternative Means of Compliance (“AMOC”) that also provides for additional maintenance and inspection requirements to allow these helicopters to return to service in the United States. In February and April 2017, the AIBN published additional preliminary reports that updated and expanded findings from the investigation into the accident. On July 7, 2017, the civil aviation authorities in each of Norway and the United Kingdom, the major European markets for H225 helicopters, announced plans to remove the restrictions on the operations of Airbus H225 and AS332 L2 model helicopters subject to the implementation of modifications and enhanced safety measures developed by Airbus and the execution of a plan of checks, modifications and inspections. On July 20, 2017, the civil aviation authorities in each of Norway and the United Kingdom published directives that set forth the requirements with respect to the return to service of these helicopter models. Prior to a return to service, an operator must develop a return to service plan for the applicable helicopter model that must be approved by the relevant regulatory authority. Such a plan would need to include a detailed safety case, outlining specific maintenance processes, tooling and training requirements. In addition, these directives mandate that an operator must comply with an EASA directive issued on June 23, 2017 that requires the replacement of, and prescribes reduced service limits and inspections with respect to, identified parts and the installation of, and prescribes maintenance protocols with respect to, a new EASA-approved full flow magnetic plug device to support the inspection of the main gearbox oil system particle detection.
These and other events led the Company to conclude that the cash flows associated with its H225 heavy helicopters are largely independent from the cash flows associated with the remainder of the fleet and should be evaluated separately for impairment. The Company performed an impairment analysis on the H225 helicopters, capital parts and related inventory and determined that the projected undiscounted cash flows over the remaining useful life were less than the carrying amount. In determining the fair value, the Company used a cost approach, which begins with the replacement cost of a new asset and adjusts for age and functional and economic obsolescence. The inputs used in the Company’s fair value estimate were from Level 3 of the fair value hierarchy discussed in Note 2 above. The Company determined that the book value exceeded the fair value and recorded a $117 million impairment charge in the three months ended September 30, 2017.
6.
VARIABLE INTEREST ENTITIES
Aeróleo. 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. The Company has the ability to direct the activities that most significantly affect Aeróleo’s financial performance, making the Company the primary beneficiary. As a result, the Company consolidates Aeróleo’s financial results.
The Company’s condensed consolidated balance sheets at September 30, 2017 and December 31, 2016 include assets of Aeróleo totaling $11.8 million and $12.9 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, 2017 and December 31, 2016 each include liabilities of Aeróleo of $9.2 million. 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 months ended September 30, 2017 and 2016 include operating revenues of $9.3 million and $7.5 million, respectively, and net income of $0.4 million and net loss of $2.4 million, respectively, as a result of the consolidation of Aeróleo, including the effects of intercompany eliminations. The

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Company’s condensed consolidated statements of operations for the nine months ended September 30, 2017 and 2016 include operating revenues of $26.5 million and $21.6 million, respectively, and net loss of $1.3 million and $4.5 million, respectively, as a result of the consolidation of Aeróleo, including the effects of intercompany eliminations.
7.
INCOME TAXES
During the three months ended September 30, 2017 and 2016, the Company recorded income tax benefit of $45.2 million and expense of $0.1 million, respectively, resulting in effective tax rates of 35.7% and (5.9)%, respectively. The increase in effective tax rates is primarily due to the impairment charge related to the Company’s H225 helicopters and smaller losses in the Company’s foreign affiliates in which certain tax benefits are not recognized. During the nine months ended September 30, 2017 and 2016, the Company recorded income tax benefit of $48.1 million and $2.2 million, respectively, resulting in effective tax rates of 34.5% and 17.4%, respectively. The increase in effective tax rates is primarily due to the impairment charge related to the Company’s H225 helicopters, the release of deferred state tax liabilities related to jurisdictions in which the Company’s air medical contracts ended and smaller losses in the Company’s foreign affiliates in which certain tax benefits are not recognized.
During the nine months ended September 30, 2017 and 2016, there were no new uncertain tax positions identified. The Company’s 2015 federal income tax return is currently under examination by the Internal Revenue Service.
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, 2017 and December 31, 2016, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was $0.3 million.
8.
LONG-TERM DEBT
The Company’s borrowings as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
 
 
September 30, 2017
 
December 31, 2016
7.750% Senior Notes (excluding unamortized discount)
 
$
144,828

 
$
144,828

Senior secured revolving credit facility
 
51,000

 
65,000

Promissory notes
 
21,919

 
23,166

Other
 
3,150

 
3,382

 
 
220,897

 
236,376

Less: portion due within one year
 
(2,191
)
 
(2,139
)
Less: debt discount, net
 
(1,529
)
 
(1,703
)
Less: unamortized debt issuance costs
 
(2,152
)
 
(2,395
)
Total long-term debt
 
$
215,025

 
$
230,139

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 15th and December 15th of each year.
Revolving Credit Facility. On March 31, 2014, Era Group entered into the amended and restated senior secured revolving credit facility (the “Amended and Restated Revolving Credit Facility”), and on October 27, 2016, the Company entered into the Consent and Amendment No. 3 to the Amended and Restated Revolving Credit Facility (the “Amendment No. 3” and the Amended and Restated Revolving Credit Facility, as amended, is referred to herein as the “Revolving Credit Facility”). The Revolving Credit Facility provides Era Group with the ability to borrow up to $200.0 million, with a sub-limit of up to $50.0 million for letters of credit, and matures in March 2019. 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.
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 in the Revolving Credit Facility, plus an applicable margin. The applicable margin is based on the Company’s ratio of funded debt to EBITDA, as defined in the Revolving Credit Facility, 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, 2017 was 125 basis points on the base rate margin and 225 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 in the Revolving Credit Facility, that ranges from 37.5 to 50 basis points. As of September 30, 2017, the commitment fee was 50 basis points.

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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 an interest coverage ratio, a senior secured leverage ratio and an asset coverage ratio, each as defined in the Revolving Credit Facility, 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, 2017, Era Group had $51.0 million of outstanding borrowings under the Revolving Credit Facility and issued letters of credit of $1.3 million. In connection with the amendment of the Revolving Credit Facility in 2014, Era Group incurred debt issuance costs of $2.4 million. In connection with Amendment No. 3 entered into in 2016, which reduced the total commitment amount to $200.0 million, the Company wrote off previously incurred debt issuance costs of $0.5 million and incurred additional debt issuance costs of $0.9 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, 2017 and 2016, the Company settled certain tax disputes in Brazil totaling $0.2 million and $2.5 million, respectively. Such amounts are included in other debt in the table above and bear interest at a rate equal to the overnight rate as published by the Central Bank of Brazil. During the nine months ended September 30, 2016, the Company prepaid a $1.0 million loan to a third party in Brazil.
On October 31, 2017, the Company made an election to settle certain existing and disputed Brazilian tax obligations included in other debt in the table above pursuant to a recently introduced Tax Regularization Settlement Special Program (known as Programa Especial de Regularização Tributária or “PERT”) with a combination of cash payments totaling 24% of the aggregate obligation and utilization of accumulated net operating losses.  The cash payments will be made in monthly installments through August 2019.  The settlement is not expected to have a negative impact on the Company’s financial statements.
Promissory Notes. During the nine months ended September 30, 2017 and 2016, the Company made scheduled payments on other long-term debt of $1.2 million and $1.4 million, respectively.
9.
COMMITMENTS AND CONTINGENCIES
Fleet. The Company’s unfunded capital commitments as of September 30, 2017 consisted primarily of agreements to purchase helicopters and totaled $118.6 million, of which $7.4 million is expected to become payable during the remainder of 2017 with the balance payable through 2019. The noncancellable portion of the Company’s commitments payable during the remainder of 2017 is $2.8 million. The Company also had $1.3 million of deposits paid on options not yet exercised. The Company may terminate $114.3 million of its total commitments (inclusive of deposits paid on options not yet exercised) without further liability other than aggregate liquidated damages of $2.6 million.
Included in these commitments are orders to purchase five AW189 heavy helicopters, one S92 heavy helicopter and five AW169 light twin helicopters. The AW189 and S92 helicopters are scheduled to be delivered in 2018 and 2019. 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 2019 through 2020.
Brazilian Tax Disputes. The Company is disputing assessments of approximately $7.4 million in unaccrued taxes, penalties and interest levied by the municipal authorities of Rio de Janeiro (for the period between 2000 to 2005) and Macaé (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. In 2015, 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 the Company’s financial position or results of operations. At September 30, 2017, it is not possible to determine the outcomes of the Municipal Assessments, but the Company does not expect that the outcomes would have a material adverse 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.

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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 $2.5 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, 2017, it is not possible to determine the outcome of this matter, but the Company does not expect that the outcome would have a material adverse effect on its business, financial position or results of operations. On October 31, 2017, the Company made an election to settle certain existing and disputed Brazilian tax obligations included in other debt in the table above pursuant to the recently introduced PERT with a combination of cash payments totaling 24% of the aggregate obligation and utilization of accumulated net operating losses.  The cash payments will be made in monthly installments through August 2019.  See Note 7.
The Company is disputing responsibility for $3.0 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, 2017, it is not possible to determine the outcome of this matter, but the Company does not expect that the outcome would have a material adverse 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, 2017, it is not possible to determine the outcome of this matter, but the Company does not expect that the outcome would have a material adverse effect on its business, financial position or results of operations.
The Company is disputing the imposition of $1.0 million in fines levied by the Brazilian customs authorities. These fines relate to the Company’s alleged failure to comply with certain deadlines under the temporary regime pursuant to which it imports helicopters into Brazil. In order to dispute such fines and pursue its legal remedies within the judicial system, the Company deposited certain amounts at issue as security into an escrow account with the presiding judge in the matters who controls the release of such funds pending the outcome. The Company believes its documentation evidences its timely compliance with the relevant deadlines. As such, the Company plans to defend these claims vigorously. At September 30, 2017, it is not possible to determine the outcome of these matters, but the Company does not expect that the outcome would have a material adverse effect on its business, financial position or results of operations.
The Company is disputing fines of $0.3 million sought by taxing authorities in Brazil following the final adjudication to disallow certain tax credits applied by the Company to offset certain social tax liabilities.  The fine is calculated as 50% of the incremental tax liability resulting from the disallowance of the tax credits and has been applied without taking into account the circumstances relating to the disallowance of such tax credits.  The constitutionality of such fines is under review by the Supreme Court in Brazil.  There are a number of cases in which taxpayers have received favorable rulings due to the unconstitutionality of the law.  As such, the Company plans to defend this claim vigorously.  At September 30, 2017, it is not possible to determine the outcome, but the Company does not expect that it would have a material adverse impact on its business, financial position or results of operations. 
The Company is disputing contingent fees of $0.5 million sought by its former tax consultant that have been calculated based on unrealized tax savings attributed to the consultant’s suggested tax strategies. The Company contends that fees are due only upon realized tax savings. At September 30, 2017, it is not possible to determine the outcome of these matters, but the Company does not expect that the outcome would have a material adverse effect on its business, financial position or results of operations.
In the normal course of business, the Company may become involved in various employment-related litigation matters.   At September 30, 2017, it is not possible to determine the outcome of several claims wherein claimants are seeking judgments that are, in the aggregate, $0.1 million above the Company’s established accruals.  The Company does not expect that the outcome with respect to such claims would have a material adverse effect on its business, financial position or results of operations.
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 as security into an escrow account that serves as security and with the presiding judge in the matters 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 these claims vigorously. At September 30, 2017, it is not possible

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to determine the outcome of this matter, but the Company does not expect that the outcome would have a material adverse 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 $10.2 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 nine months ended September 30, 2016, the Company utilized credits in the amount of $1.7 million. As of September 30, 2016, the Company had 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.
Computations of basic and diluted earnings per common share of the Company for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands, except share and per share data):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss attributable to Era Group Inc.
 
$
(81,448
)
 
$
(560
)
 
$
(89,855
)
 
$
(2,440
)
Net income attributable to participating securities
 

 

 

 

Net income (loss) attributable to fully vested common stock
 
$
(81,448
)
 
$
(560
)
 
$
(89,855
)
 
$
(2,440
)
Shares:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
20,844,376

 
20,384,348

 
20,715,686

 
20,322,167

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

 

 

 

Weighted average common shares outstanding - diluted
 
20,844,376

 
20,384,348

 
20,715,686

 
20,322,167

Loss per common share, basic and diluted:
 
$
(3.91
)
 
$
(0.03
)
 
$
(4.34
)
 
$
(0.12
)
____________________
(1)
Excludes weighted average common shares of 275,824 and 290,887 for the three months ended September 30, 2017 and 2016, respectively, and 278,740 and 292,189 for the nine months ended September 30, 2017 and 2016, respectively, for certain share awards as the effect of their inclusion would have been antidilutive.

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11.
RELATED PARTY TRANSACTIONS
The Company leases office space from SEACOR Holdings Inc. (“SEACOR”). During each of the three months ended September 30, 2017 and 2016, the Company incurred $0.1 million in rent and utilities, and during each of the nine months ended September 30, 2017 and 2016, the Company incurred $0.3 million in rent and utilities. Such costs are included in administrative and general expense in the condensed consolidated statements of operations. As of both September 30, 2017 and December 31, 2016, 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 $0.1 million and $0.5 million during the three months ended September 30, 2017 and 2016, respectively. The Company purchased products from Dart totaling $0.4 million and $1.6 million during the nine months ended September 30, 2017 and 2016, respectively. The Company also has a note receivable from Dart which had balances of $2.9 million and $3.2 million as of September 30, 2017 and December 31, 2016, respectively.
During each of the three months ended September 30, 2017 and 2016, the Company incurred fees of $0.1 million for simulator services from its Era Training Center, LLC (“ETC”) joint venture, and during each of the three months ended September 30, 2017 and 2016, the Company provided helicopter, management and other services to ETC of less than $0.1 million. During the nine months ended September 30, 2017 and 2016, the Company incurred fees of $0.5 million and $0.4 million, respectively, for simulator services from ETC, and during each of the nine months ended September 30, 2017 and 2016, the Company provided helicopter, management and other services to ETC of $0.2 million. The Company also has a note receivable from ETC which had a balance of $3.8 million and $4.0 million as of September 30, 2017 and December 31, 2016, 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.
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, 2017 were as follows:
 
Number of Shares
 
Weighted Average Grant Price
Non-vested as of December 31, 2016
503,407

 
$
14.60

Restricted stock awards granted:
 
 
 
Non-employee directors
30,853

 
$
11.67

Employees
241,195

 
$
11.55

Vested
(323,420
)
 
$
14.40

Forfeited
(2,062
)
 
$
13.29

Non-vested as of September 30, 2017
449,973

 
$
12.92

The total fair value of shares vested during the nine months ended September 30, 2017 and 2016, determined using the closing price on the grant date, was $4.7 million and $3.2 million, respectively.
Stock Options. The Company did not grant any stock options during the nine months ended September 30, 2017.
Employee Stock Purchase Plan (“ESPP”). During the nine months ended September 30, 2017, the Company issued 125,049 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, 2017, 336,763 shares remain available for issuance under the ESPP.
Total share-based compensation expense, which includes stock options, restricted stock and the ESPP, was $3.6 million and $3.5 million for the nine months ended September 30, 2017 and 2016, 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

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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.

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Supplemental Condensed Consolidating Balance Sheet as of September 30, 2017
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
25,234

 
$

 
$
1,662

 
$

 
$
26,896

Receivables:
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $1,227

 
30,794

 
7,814

 

 
38,608

Tax receivable
9

 
7

 
2,795

 

 
2,811

Other

 
1,602

 
884

 

 
2,486

Inventories, net

 
21,676

 
309

 

 
21,985

Prepaid expenses
397

 
1,904

 
138

 

 
2,439

Escrow deposits

 

 

 

 

Total current assets
25,640

 
55,983

 
13,602

 

 
95,225

Property and equipment

 
967,801

 
15,997

 

 
983,798

Accumulated depreciation

 
(297,096
)
 
(2,198
)
 

 
(299,294
)
Property and equipment, net

 
670,705

 
13,799

 

 
684,504

Equity investments and advances

 
29,894

 

 

 
29,894

Investments in consolidated subsidiaries
95,442

 

 

 
(95,442
)
 

Intangible assets

 

 
1,126

 

 
1,126

Deferred taxes
17,558

 

 

 
(17,558
)
 

Intercompany receivables
439,952

 

 

 
(439,952
)
 

Other assets
1,213

 
3,740

 
68

 

 
5,021

Total assets
$
579,805

 
$
760,322

 
$
28,595

 
$
(552,952
)
 
$
815,770

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
562

 
$
12,034

 
$
2,730

 
$

 
$
15,326

Accrued wages and benefits

 
6,241

 
2,109

 

 
8,350

Accrued interest
3,325

 

 

 

 
3,325

Accrued income taxes

 

 
38

 

 
38

Accrued other taxes
214

 
1,356

 
528

 

 
2,098

Accrued contingencies

 

 
1,288

 

 
1,288

Current portion of long-term debt

 
1,524

 
667

 

 
2,191

Other current liabilities
699

 
1,665

 
42

 

 
2,406

Total current liabilities
4,800

 
22,820

 
7,402

 

 
35,022

Long-term debt
192,147

 
20,395

 
2,483

 

 
215,025

Deferred income taxes

 
194,012

 
1,250

 
(17,558
)
 
177,704

Intercompany payables

 
396,905

 
43,047

 
(439,952
)
 

Other liabilities

 
1,069

 

 

 
1,069

Total liabilities
196,947

 
635,201

 
54,182

 
(457,510
)
 
428,820

Redeemable noncontrolling interest

 
4

 
3,998

 

 
4,002

Equity:
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,328,653 outstanding, exclusive of treasury shares
215

 

 

 

 
215

Additional paid-in capital
442,948

 
100,306

 
4,562

 
(104,868
)
 
442,948

Retained earnings
(57,331
)
 
24,721

 
(34,147
)
 
9,426

 
(57,331
)
Treasury shares, at cost, 180,430 shares
(2,974
)
 

 

 

 
(2,974
)
Accumulated other comprehensive income, net of tax

 
90

 

 

 
90

Total equity
382,858

 
125,117

 
(29,585
)
 
(95,442
)
 
382,948

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
579,805

 
$
760,322

 
$
28,595

 
$
(552,952
)
 
$
815,770


17

Table of Contents

Supplemental Condensed Consolidating Balance Sheet as of December 31, 2016
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands, except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
25,474

 
$

 
$
1,476

 
$

 
$
26,950

Receivables:
 
 
 
 
 
 
 
 
 
Trade, net of allowance for doubtful accounts of $1,219
39

 
26,118

 
6,313

 

 
32,470

Tax receivables
9

 
4

 
3,448

 

 
3,461

Other

 
1,658

 
1,058

 

 
2,716

Inventories, net

 
25,156

 
261

 

 
25,417

Prepaid expenses
359

 
976

 
244

 

 
1,579

Escrow deposits

 
3,777

 

 

 
3,777

Total current assets
25,881

 
57,689

 
12,800

 

 
96,370

Property and equipment

 
1,138,020

 
16,008

 

 
1,154,028

Accumulated depreciation

 
(330,735
)
 
(1,484
)
 

 
(332,219
)
Net property and equipment

 
807,285

 
14,524

 

 
821,809

Equity investments and advances

 
29,266

 

 

 
29,266

Investments in consolidated subsidiaries
174,830

 

 

 
(174,830
)
 

Intangible assets

 

 
1,137

 

 
1,137

Deferred income taxes
12,262

 

 

 
(12,262
)
 

Intercompany receivables
460,623

 

 

 
(460,623
)
 

Other assets
1,820

 
4,723

 
48

 

 
6,591

Total assets
$
675,416

 
$
898,963

 
$
28,509

 
$
(647,715
)
 
$
955,173

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
322

 
$
6,273

 
$
2,281

 
$

 
$
8,876

Accrued wages and benefits

 
6,446

 
2,061

 

 
8,507

Accrued interest
529

 

 

 

 
529

Accrued income taxes

 
653

 
13

 

 
666

Current portion of long-term debt

 
1,524

 
615

 

 
2,139

Accrued other taxes
29

 
645

 
773

 

 
1,447

Accrued contingencies

 

 
1,237

 

 
1,237

Other current liabilities
481

 
1,525

 
216

 

 
2,222

Total current liabilities
1,361

 
17,066

 
7,196

 

 
25,623

Long-term debt
205,730

 
21,642

 
2,767

 

 
230,139

Deferred income taxes

 
237,067

 
667

 
(12,262
)
 
225,472

Intercompany payables

 
426,410

 
34,213

 
(460,623
)
 

Other liabilities

 
1,301

 

 

 
1,301

Total liabilities
207,091

 
703,486

 
44,843

 
(472,885
)
 
482,535

Redeemable noncontrolling interest

 
4

 
4,217

 

 
4,221

Equity:
 
 
 
 
 
 
 
 
 
Common stock, $0.01 par value, 60,000,000 shares authorized; 20,936,636 shares outstanding, exclusive of treasury shares
211

 

 

 

 
211

Additional paid-in capital
438,489

 
100,306

 
4,562

 
(104,868
)
 
438,489

Retained earnings
32,524

 
95,075

 
(25,113
)
 
(69,962
)
 
32,524

Treasury shares, at cost, 175,350 shares
(2,899
)
 

 

 

 
(2,899
)
Accumulated other comprehensive income, net of tax

 
92

 

 

 
92

Total equity
468,325

 
195,473

 
(20,551
)
 
(174,830
)
 
468,417

Total liabilities, redeemable noncontrolling interest and stockholders’ equity
$
675,416

 
$
898,963

 
$
28,509

 
$
(647,715
)
 
$
955,173



18

Table of Contents

Supplemental Condensed Consolidating Statements of Operations for the Three Months Ended September 30, 2017
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated
 
(in thousands)
Operating revenues
$

 
$
51,919

 
$
16,729

 
$
(7,263
)
 
$
61,385

Costs and expenses:
 
 
 
 
 
 
 
 
 
Operating

 
35,826

 
15,424

 
(7,263
)
 
43,987

Administrative and general
2,305

 
7,306

 
1,317

 

 
10,928

Depreciation

 
11,851

 
252

 

 
12,103

Total costs and expenses
2,305

 
54,983

 
16,993

 
(7,263
)
 
67,018

Gains on asset dispositions, net

 
(122
)
 

 

 
(122
)
Loss on impairment

 
(116,586
)
 
(432
)
 

 
(117,018
)
Operating loss
(2,305
)
 
(119,772
)
 
(696
)
 

 
(122,773
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
47

 
102

 
57

 

 
206

Interest expense
(3,838
)
 
(170
)
 
(89
)
 

 
(4,097
)
Foreign currency gains (losses), net
66

 
85

 
(139
)
 

 
12

Other, net

 
(1
)
 
(32
)
 

 
(33
)
Total other income (expense)
(3,725
)
 
16

 
(203
)
 

 
(3,912
)
Loss before income taxes and equity earnings
(6,030
)
 
(119,756
)
 
(899
)
 

 
(126,685
)
Income tax expense (benefit)
(2,114
)
 
(43,276
)
 
153

 

 
(45,237
)
Loss before equity earnings
(3,916
)
 
(76,480
)
 
(1,052
)
 

 
(81,448
)
Equity earnings, net of tax

 
233

 

 

 
233

Equity in earnings (losses) of subsidiaries
(77,532
)
 

 

 
77,532

 

Net income (loss)
(81,448
)
 
(76,247
)
 
(1,052
)
 
77,532

 
(81,215
)
Net loss attributable to noncontrolling interest in subsidiary

 

 
(233
)
 

 
(233
)
Net income (loss) attributable to Era Group Inc.
$
(81,448
)
 
$
(76,247
)
 
$
(1,285
)
 
$
77,532

 
$
(81,448
)

19

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
)


20

Table of Contents

Supplemental Condensed Consolidating Statements of Operations for the Nine Months Ended September 30, 2017
 
Parent
 
Guarantors
 
Non-guarantors
 
Eliminations
 
Consolidated