Attached files
file | filename |
---|---|
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Bristow Group Inc | ex31w1-020310.htm |
EX-32.1 - CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER OF REGISTRANT - Bristow Group Inc | ex32w1-020310.htm |
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Bristow Group Inc | ex31w2-020310.htm |
EX-32.2 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER OF REGISTRANT - Bristow Group Inc | ex32w2-020310.htm |
EX-15.1 - LETTER FROM KPMG LLP DATED FEBRUARY 3, 2010 - Bristow Group Inc | ex15w1-020310.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
R
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended December 31, 2009
|
|
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 001-31617
Bristow
Group Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
72-0679819
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
Number)
|
2000
W. Sam Houston Pkwy. S.,
|
77042
|
Suite
1700
|
(Zip
Code)
|
Houston,
Texas
|
|
(Address
of principal executive offices)
|
Registrant’s
telephone number, including area code:
(713)
267-7600
None
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
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 R 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.
Large
accelerated filer R
|
Accelerated
filer £
|
Non-accelerated
filer £
|
Smaller
reporting company £
|
(Do
not check if a 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 R No
Indicate
the number shares outstanding of each of the issuer’s classes of Common Stock,
as of January 29, 2010.
35,934,392 shares
of Common Stock, $.01 par value
BRISTOW
GROUP INC.
INDEX
— FORM 10-Q
|
Page
|
||
PART
I – FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements
|
2
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
35
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
60
|
|
Item
4.
|
Controls
and Procedures
|
60
|
|
PART
II – OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
60
|
|
Item
1A.
|
Risk
Factors
|
60
|
|
Item
6.
|
Exhibits
|
61
|
|
Signatures
|
62
|
PART
I — FINANCIAL INFORMATION
Item
1. Financial
Statements.
BRISTOW
GROUP INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Income
(2008
As Adjusted – Notes 1 and 4)
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Unaudited)
(In
thousands, except per share amounts)
|
||||||||||||||||
Gross
revenue:
|
||||||||||||||||
Operating
revenue from non-affiliates
|
$
|
260,907
|
$
|
236,491
|
$
|
757,440
|
$
|
726,151
|
||||||||
Operating
revenue from affiliates
|
14,581
|
16,792
|
46,643
|
52,492
|
||||||||||||
Reimbursable
revenue from non-affiliates
|
27,615
|
28,617
|
78,214
|
76,196
|
||||||||||||
Reimbursable
revenue from affiliates
|
203
|
1,087
|
3,076
|
3,959
|
||||||||||||
303,306
|
282,987
|
885,373
|
858,798
|
|||||||||||||
Operating
expense:
|
||||||||||||||||
Direct
cost
|
189,456
|
176,038
|
543,525
|
551,404
|
||||||||||||
Reimbursable
expense
|
28,219
|
28,689
|
81,180
|
79,437
|
||||||||||||
Depreciation
and amortization
|
20,663
|
16,663
|
57,319
|
47,103
|
||||||||||||
General
and administrative
|
30,758
|
25,586
|
89,246
|
78,776
|
||||||||||||
269,096
|
246,976
|
771,270
|
756,720
|
|||||||||||||
Gain
on GOM Asset Sale
|
—
|
37,780
|
—
|
37,780
|
||||||||||||
Gain
(loss) on disposal of assets
|
2,448
|
(102
|
)
|
13,337
|
5,865
|
|||||||||||
Earnings
(losses) from unconsolidated affiliates, net
|
3,068
|
(1,417
|
)
|
10,625
|
8,277
|
|||||||||||
Operating
income
|
39,726
|
72,272
|
138,065
|
154,000
|
||||||||||||
Interest
income
|
365
|
1,087
|
797
|
5,739
|
||||||||||||
Interest
expense
|
(10,979
|
)
|
(8,276
|
)
|
(31,631
|
)
|
(25,943
|
)
|
||||||||
Other
income (expense), net
|
3,695
|
(1,522
|
)
|
4,023
|
2,240
|
|||||||||||
Income
from continuing operations before provision
for
income taxes
|
32,807
|
63,561
|
111,254
|
136,036
|
||||||||||||
Provision
for income taxes
|
(5,681
|
)
|
(15,861
|
)
|
(26,427
|
)
|
(36,494
|
)
|
||||||||
Net
income from continuing operations
|
27,126
|
47,700
|
84,827
|
99,542
|
||||||||||||
Loss
from discontinued operations, net of tax
|
—
|
—
|
—
|
(246
|
)
|
|||||||||||
Net
income
|
27,126
|
47,700
|
84,827
|
99,296
|
||||||||||||
Net
income attributable to noncontrolling interests
|
(448
|
)
|
(535
|
)
|
(1,256
|
)
|
(2,190
|
)
|
||||||||
Net
income attributable to Bristow Group
|
26,678
|
47,165
|
83,571
|
97,106
|
||||||||||||
Preferred
stock dividends
|
—
|
(3,162
|
)
|
(6,325
|
)
|
(9,487
|
)
|
|||||||||
Net
income available to common stockholders
|
$
|
26,678
|
$
|
44,003
|
$
|
77,246
|
$
|
87,619
|
||||||||
Basic
earnings per common share:
|
||||||||||||||||
Earnings
from continuing operations
|
$
|
0.74
|
$
|
1.51
|
$
|
2.43
|
$
|
3.18
|
||||||||
Loss
from discontinued operations
|
—
|
—
|
—
|
(0.01
|
)
|
|||||||||||
Net
earnings
|
$
|
0.74
|
$
|
1.51
|
$
|
2.43
|
$
|
3.17
|
||||||||
Diluted
earnings per common share:
|
||||||||||||||||
Earnings
from continuing operations
|
$
|
0.74
|
$
|
1.32
|
$
|
2.32
|
$
|
2.85
|
||||||||
Loss
from discontinued operations
|
—
|
—
|
—
|
(0.01
|
)
|
|||||||||||
Net
earnings
|
$
|
0.74
|
$
|
1.32
|
$
|
2.32
|
$
|
2.84
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
2
BRISTOW
GROUP INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(March
31 As Adjusted – Notes 1 and 4)
December
31,
|
March
31,
|
||||||||||
2009
|
2009
|
||||||||||
(Unaudited)
|
|||||||||||
(In
thousands)
|
|||||||||||
ASSETS
|
|||||||||||
Current
assets:
|
|||||||||||
Cash
and cash equivalents
|
$
|
107,059
|
$
|
300,969
|
|||||||
Accounts
receivable from non-affiliates, net of allowance for doubtful accounts of
$2.1 million
and
$0.6 million, respectively
|
196,927
|
194,030
|
|||||||||
Accounts
receivable from affiliates, net of allowance for doubtful accounts of $1.9
million
and
$3.4 million, respectively
|
34,710
|
22,644
|
|||||||||
Inventories
|
187,220
|
165,438
|
|||||||||
Prepaid
expenses and other current assets
|
26,582
|
20,226
|
|||||||||
Total
current assets
|
552,498
|
703,307
|
|||||||||
Investment
in unconsolidated affiliates
|
203,916
|
20,265
|
|||||||||
Property
and equipment – at cost:
|
|||||||||||
Land
and buildings
|
93,241
|
68,961
|
|||||||||
Aircraft
and equipment
|
2,014,147
|
1,823,011
|
|||||||||
2,107,388
|
1,891,972
|
||||||||||
Less
– Accumulated depreciation and amortization
|
(400,475
|
)
|
(350,515
|
)
|
|||||||
1,706,913
|
1,541,457
|
||||||||||
Goodwill
|
46,971
|
44,654
|
|||||||||
Other
assets
|
23,261
|
24,888
|
|||||||||
$
|
2,533,559
|
$
|
2,334,571
|
||||||||
LIABILITIES
AND STOCKHOLDERS’ INVESTMENT
|
|||||||||||
Current
liabilities:
|
|||||||||||
Accounts
payable
|
$
|
50,434
|
$
|
44,892
|
|||||||
Accrued
wages, benefits and related taxes
|
39,486
|
39,939
|
|||||||||
Income
taxes payable
|
3,429
|
—
|
|||||||||
Other
accrued taxes
|
2,528
|
3,357
|
|||||||||
Deferred
revenues
|
22,697
|
17,593
|
|||||||||
Accrued
maintenance and repairs
|
13,352
|
10,317
|
|||||||||
Accrued
interest
|
8,609
|
6,434
|
|||||||||
Other
accrued liabilities
|
18,406
|
20,164
|
|||||||||
Deferred
taxes
|
9,348
|
6,195
|
|||||||||
Short-term
borrowings and current maturities of long-term debt
|
19,211
|
8,948
|
|||||||||
Total
current liabilities
|
187,500
|
157,839
|
|||||||||
Long-term
debt, less current maturities
|
698,144
|
714,965
|
|||||||||
Accrued
pension liabilities
|
99,276
|
81,380
|
|||||||||
Other
liabilities and deferred credits
|
27,151
|
16,741
|
|||||||||
Deferred
taxes
|
149,389
|
127,266
|
|||||||||
Commitments
and contingencies (Note 7)
|
|||||||||||
Stockholders’
investment:
|
|||||||||||
5.50%
mandatory convertible preferred stock, $.01 par value, authorized and
outstanding
0
shares as of December 31 and 4,600,000 shares as of March 31; entitled in
liquidation
to
$230 million; net of offering costs of $7.4 million
|
—
|
222,554
|
|||||||||
Common
stock, $.01 par value, authorized 90,000,000 shares; outstanding:
35,904,636 as
of
December 31 (exclusive of 1,291,325 treasury shares) and
29,111,436 as of March 31
(exclusive
of 1,281,050 treasury shares)
|
359
|
291
|
|||||||||
Additional
paid-in capital
|
669,174
|
436,296
|
|||||||||
Retained
earnings
|
795,739
|
718,493
|
|||||||||
Noncontrolling
interests
|
10,261
|
11,200
|
|||||||||
Accumulated
other comprehensive loss
|
(103,434
|
)
|
(152,454
|
)
|
|||||||
1,372,099
|
1,236,380
|
||||||||||
$
|
2,533,559
|
$
|
2,334,571
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
BRISTOW
GROUP INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(2008
As Adjusted – Notes 1 and 4)
Nine
Months Ended
December
31,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
(In
thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net income
|
$
|
84,827
|
$
|
99,296
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
57,319
|
47,103
|
||||||
Deferred
income taxes
|
18,892
|
13,802
|
||||||
Loss
on disposal of discontinued operations
|
—
|
379
|
||||||
Discount
amortization on long-term debt
|
2,213
|
1,504
|
||||||
Gain
on disposal of assets
|
(13,337
|
)
|
(5,865
|
)
|
||||
Gain
on GOM Asset Sale
|
—
|
(37,780
|
)
|
|||||
Gain
on Heliservicio investment sale
|
—
|
(1,438
|
)
|
|||||
Stock-based
compensation expense
|
9,914
|
7,697
|
||||||
Earnings
from unconsolidated affiliates (in excess of) below dividends
received
|
(6,853
|
)
|
7,910
|
|||||
Tax
benefit related to stock-based compensation
|
(409
|
)
|
(242
|
)
|
||||
Increase
(decrease) in cash resulting from changes in:
|
||||||||
Accounts
receivable
|
794
|
(9,342
|
)
|
|||||
Inventories
|
(11,382
|
)
|
(16,600
|
)
|
||||
Prepaid
expenses and other assets
|
14,555
|
(22,887
|
)
|
|||||
Accounts
payable
|
4,638
|
5,657
|
||||||
Accrued
liabilities
|
3,216
|
20,855
|
||||||
Other
liabilities and deferred credits
|
(1,370
|
)
|
(6,177
|
)
|
||||
Net
cash provided by operating activities
|
163,017
|
103,872
|
||||||
Cash
flows from investing activities:
|
||||||||
Capital
expenditures
|
(250,272
|
)
|
(388,007
|
)
|
||||
Proceeds
from asset dispositions
|
74,973
|
86,681
|
||||||
Acquisitions,
net of cash received
|
(178,961
|
)
|
(15,590
|
)
|
||||
Net
cash used in investing activities
|
(354,260
|
)
|
(316,916
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from borrowings
|
—
|
115,000
|
||||||
Debt
issuance costs
|
—
|
(3,768
|
)
|
|||||
Repayment
of debt and debt redemption premiums
|
(10,068
|
)
|
(20,996
|
)
|
||||
Partial
prepayment of put/call obligation
|
(52
|
)
|
(184
|
)
|
||||
Preferred
Stock dividends paid
|
(6,325
|
)
|
(9,487
|
)
|
||||
Issuance
of common stock
|
1,336
|
225,260
|
||||||
Tax
benefit related to stock-based compensation
|
409
|
242
|
||||||
Net
cash (used in) provided by financing activities
|
(14,700
|
)
|
306,067
|
|||||
Effect
of exchange rate changes on cash and cash equivalents
|
12,033
|
(18,420
|
)
|
|||||
Net
(decrease) increase in cash and cash
equivalents
|
(193,910
|
)
|
74,603
|
|||||
Cash
and cash equivalents at beginning of period
|
300,969
|
290,050
|
||||||
Cash
and cash equivalents at end of period
|
$
|
107,059
|
$
|
364,653
|
||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
31,830
|
$
|
30,446
|
||||
Income
taxes
|
$
|
9,904
|
$
|
17,109
|
||||
Non-cash
investing activities:
|
||||||||
Contribution
of note receivable and aircraft to RLR
|
$
|
—
|
$
|
(6,551
|
)
|
|||
Aircraft
received for investment in Heliservicio
|
$
|
—
|
$
|
2,410
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 — BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
condensed consolidated financial statements include the accounts of Bristow
Group Inc. and its consolidated entities (“Bristow Group,” “the Company,” “we,”
“us,” or “our”) after elimination of all significant intercompany accounts and
transactions. Our fiscal year ends March 31, and we refer to fiscal
years based on the end of such period. Therefore, the fiscal year
ending March 31, 2010 is referred to as fiscal year 2010. Pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”), the information contained in the following notes to condensed
consolidated financial statements is condensed from that which would appear in
the annual consolidated financial statements; accordingly, the condensed
consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements and related notes thereto contained
in our fiscal year 2009 Annual Report (the “fiscal year 2009 Financial
Statements”). Operating results for the interim period presented are
not necessarily indicative of the results that may be expected for the entire
fiscal year.
The
condensed consolidated financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in the
opinion of management, are necessary for a fair presentation of the consolidated
financial position of the Company as of December 31, 2009, the consolidated
results of operations for the three and nine months ended December 31, 2009 and
2008, and the consolidated cash flows for the nine months ended December 31,
2009 and 2008.
The
following changes in presentation have been reflected in the condensed
consolidated statements of income:
·
|
Gain
on disposal of assets which was previously included within operating
expense has been reclassified to be included as a separate line below
operating expense, but still within operating income. We
believe this presentation is preferable as our disposals of assets
typically result in gains, which would reduce operating expense and not
provide a clear presentation of our costs incurred to generate our
revenue.
|
·
|
Earnings
(losses) from unconsolidated affiliates, net which were previously
excluded from operating income have been reclassified to be included
within operating income. We believe this presentation is
preferable as the operations of our unconsolidated affiliates are integral
to our operations as these entities are involved in aircraft operations
similar to ours in markets where governmental regulations limit foreign
ownership of aircraft companies or where conditions favor entering into
joint venture arrangement with local
partners.
|
Amounts
presented for the three and nine months ended December 31, 2008 have been
restated to conform to current period presentation.
We have
evaluated subsequent events through the time of filing these condensed
consolidated financial statements with the SEC on February 3,
2010.
5
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Foreign
Currency
See
“Foreign Currency” in Note 1 to the fiscal year 2009 Financial Statements for a
discussion of the related accounting policies. Other income
(expense), net, in our condensed consolidated statements of income includes
foreign currency transaction gains (losses) of $0.7 million and ($0.1) million
for the three and nine months ended December 31, 2009, respectively, and ($1.5)
million and $0.2 million, for the three and nine months ended December 31, 2008,
respectively. Additionally, other income (expense), net includes $2.8
million and $3.9 million of hedging gains realized during the three and nine
months ended December 31, 2009, respectively, resulting from termination of
forward contracts on euro-denominated aircraft purchase
commitments.
The
following table presents applicable exchange rates for the indicated
periods:
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||
One
British pound sterling into U.S. dollars
|
|||||||||||
High
|
1.68
|
1.78
|
1.70
|
2.01
|
|||||||
Average
|
1.63
|
1.57
|
1.61
|
1.81
|
|||||||
Low
|
1.58
|
1.44
|
1.44
|
1.44
|
|||||||
At
period-end
|
1.61
|
1.44
|
1.61
|
1.44
|
|||||||
One
euro into U.S. dollars
|
|||||||||||
High
|
1.51
|
1.45
|
1.51
|
1.60
|
|||||||
Average
|
1.48
|
1.32
|
1.42
|
1.46
|
|||||||
Low
|
1.42
|
1.24
|
1.29
|
1.24
|
|||||||
At
period-end
|
1.43
|
1.39
|
1.43
|
1.39
|
|||||||
One
Australian dollar into U.S. dollars
|
|||||||||||
High
|
0.94
|
0.79
|
0.94
|
0.98
|
|||||||
Average
|
0.91
|
0.67
|
0.84
|
0.83
|
|||||||
Low
|
0.87
|
0.61
|
0.69
|
0.61
|
|||||||
At
period-end
|
0.90
|
0.70
|
0.90
|
0.70
|
|||||||
One
Nigerian naira into U.S. dollars
|
|||||||||||
High
|
0.0069
|
0.0087
|
0.0069
|
0.0088
|
|||||||
Average
|
0.0067
|
0.0083
|
0.0067
|
0.0085
|
|||||||
Low
|
0.0066
|
0.0072
|
0.0063
|
0.0072
|
|||||||
At
period-end
|
0.0067
|
0.0072
|
0.0067
|
0.0072
|
Sources: Bank
of England and Oanda.com
6
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
We
estimate that the strengthening of these currencies and other currencies versus
the U.S. dollar compared to the average exchange rates for the three months
ended December 31, 2008 and the deterioration of most of these currencies and
other currencies versus the U.S. dollar compared to the average exchange rates
for the nine months ended December 31, 2008 had the following impact on our
results of operations, net of the effect of hedging gains (in
thousands):
Three
Months
Ended
December
31, 2009
|
Nine
Months
Ended
December
31, 2009
|
||||||
Revenue
|
$
|
15,642
|
$
|
(37,916
|
)
|
||
Operating
expense
|
(10,583
|
)
|
39,046
|
||||
Earnings
(losses) from unconsolidated affiliates,
net
|
115
|
(659
|
)
|
||||
Non-operating
expense
|
5,055
|
2,953
|
|||||
Income
before provision for income taxes
|
10,229
|
3,424
|
|||||
Provision
for income taxes
|
(1,735
|
)
|
(811
|
)
|
|||
Net
income
|
$
|
8,494
|
$
|
2,613
|
Recent
Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued a new
accounting standard for business combinations. This accounting
standard establishes principles and requirements for how the acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree and the
goodwill acquired in the business combination or a gain from a bargain purchase,
and also establishes disclosure requirements to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. This accounting standard became effective for business
combinations entered into after April 1, 2009. We applied the
provisions of this accounting standard to our acquisition of a 42.5% interest in
Líder Aviação Holding S.A. (“Líder”) to the extent applicable to the acquisition
of interests in equity method joint ventures. See Note 2 for further
details on the Líder acquisition.
On April
1, 2009, we adopted a newly issued accounting standard for noncontrolling
interests that establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This accounting standard changed the accounting and
reporting for minority interests by re-characterizing them as noncontrolling
interests and classifying them as a component of stockholders’ investment in our
condensed consolidated balance sheet and requires net income attributable to
both the parent and the noncontrolling interests to be disclosed separately on
the face of the condensed consolidated statement of income. The
presentation and disclosure requirements of this new accounting standard require
retrospective application to all prior periods presented and also requires
enhanced disclosures to clearly distinguish between our interests and the
interests of noncontrolling owners. Upon adoption of this new
accounting standard, we have presented the noncontrolling interest as
stockholders’
investment on our condensed consolidated balance sheets as of December 31
and March 31, 2009 and presented net income attributable to noncontrolling
interests separately on our condensed consolidated statements of income for the
three and nine months ended December 31, 2009 and 2008. Prior year
amounts were previously included in mezzanine stockholders’ investment and
minority interest expense on our consolidated balance sheets and consolidated
statements of income, respectively. The effect as of March 31, 2009
of the adoption of this accounting standard was a reduction in the reported
noncontrolling interest in mezzanine equity of $11.2 million, which was
subsequently reclassified as a component of stockholders’
investment. No changes in the ownership interests of these
subsidiaries occurred during the nine months ended December 31,
2009.
On April
1, 2009, we adopted a newly issued accounting standard regarding enhanced
disclosures about an entity’s derivative and hedging activities, which does not
impact the accounting for such activities. See Note 6 for further
discussion and disclosures.
7
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
On April
1, 2009, we adopted a newly issued accounting standard regarding convertible
debt instruments that may be settled in cash upon conversion. This
accounting standard requires entities with cash settled convertibles to
bifurcate the securities into a debt component and an equity component and
accrete the debt component to par over the expected life of the
convertible. This accounting standard must be applied retrospectively
to all instruments. In June 2008, we issued 3% Convertible Senior
Notes due 2038 (the “3% Convertible Senior Notes”) which are subject to this
accounting standard. See Note 5 to the fiscal year 2009 Annual Report
for further discussion of the 3% Convertible Senior Notes. Effective April 1, 2009,
we applied the provisions of this accounting standard, on a retrospective basis,
to our consolidated financial statements. The impact of this
accounting standard is provided in Note 4.
In
April 2009, the FASB issued a new accounting standard regarding interim
fair value disclosures for financial instruments. This accounting
standard increases the frequency of fair value disclosures required by previous
fair value accounting standards from annual only to quarterly reporting
periods. The requirements of this accounting standard are effective
for financial statements issued for interim and annual periods ending after
June 15, 2009. We adopted this accounting standard as of June
30, 2009. The impact of this accounting standard is provided in Note
5.
In
June 2009, the FASB issued a new accounting standard regarding subsequent
events which requires entities to disclose the date through which they have
evaluated subsequent events and whether the date corresponds with the release of
their financial statements. The requirements of this accounting
standard are effective for interim and annual periods ending after June 15,
2009. We adopted this accounting standard as of June 30,
2009.
In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets. This amendment requires greater
transparency and additional disclosures for transfers of financial assets and
the entity’s continuing involvement with them and changes the requirements for
derecognizing financial assets. In addition, this amendment
eliminates the concept of a qualifying special-purpose entity. This
amendment is effective for us on April 1, 2010 on a prospective
basis. We are currently evaluating the impact of this amendment, if
any, on our financial position, cash flows and results of
operations.
In June
2009, the FASB issued an amendment to the accounting and disclosure requirements
for the consolidation of variable interest entities (“VIEs”). This
amendment changes how a reporting entity identifies a controlling financial
interest in a VIE from the current quantitative risk and rewards approach to a
qualitative approach and requires ongoing assessment of whether an entity is a
VIE and whether an interest in a VIE makes the entity the primary beneficiary of
the VIE. This amendment is effective for us on April 1, 2010 on a
prospective basis. We are currently evaluating the impact of this
amendment, if any, on our financial position, cash flows and results of
operations.
NOTE
2 — ACQUISITIONS AND DISPOSITION
In
January 2010, we acquired an additional 29% interest in Rotorwing Leasing
Resources, L.L.C (“RLR”) for $7.6 million and as a result own 99% of RLR.
We have the option to purchase the remaining 1% of RLR on January 18, 2015, or
earlier if the current 1% interest holder ceases to be a guarantor of 30% of
RLR’s outstanding debt to Whitney National Bank. Additionally, in January
2010, we and our partners contributed $4.1 million and $13.1 million,
respectively, to Heliservicio Campeche S.A. de C.V. (“Heliservicio”), in which
we have a 24% equity method investment. This recent contribution did not
change our ownership percentage in Heliservicio. RLR has leased all
of its aircraft to Heliservicio. As of December 31, 2009, Heliservicio owed
RLR and other Bristow Group subsidiaries $29.7 million. Subsequent to the
January 2010 contributions to Heliservicio, Heliservicio settled a portion of
the amounts due to us and our partners for services provided to Heliservicio in
prior periods. Heliservicio has remaining outstanding amounts due to us
totaling $16.8 million as of February 3, 2010; we have provided an allowance for
doubtful accounts of $0.9 million and will continue to monitor closely the
appropriateness of using accrual basis accounting for revenue earned from
Heliservicio.
On May
26, 2009, we acquired a 42.5% interest in Líder, the largest provider of
helicopter and executive aviation services in Brazil, for $179.9 million,
including transaction costs incurred in fiscal years 2010 and
2009. The acquisition was accounted for under the equity method of
accounting. In connection with this transaction, Líder purchased one
large and four medium aircraft from us for $55.0 million, resulting in a net
cash outlay of $124.9 million. For the next five years, Bristow Group
has the right to provide 100% of Líder’s helicopter lease requirements as well
as the right to lease 50% of Líder’s total medium and large helicopter
requirements that it would otherwise fulfill through purchase or finance
lease.
8
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Additionally,
the terms of the purchase agreement include incremental earn-out payments of
$8.5 million for each year in the three-year period ending December 31, 2011 and
a cumulative earn-out payment up to an additional $27.6 million based on the
achievement of growth targets over the three-year period ending December 31,
2011. If fully earned, these payments would total $53.1
million. Based on Líder’s preliminary unaudited financial results for
the period ended December 31, 2009, the initial $8.5 million earn-out payment
was not earned, leaving a maximum possible total of earn-out payments of $44.6
million. In connection with the acquisition of our interest in Líder,
we entered into a shareholders’ agreement that defines certain rights held by
shareholders of Líder. Pursuant to the shareholders’ agreement, we are entitled
to appoint one of the five members of Líder’s board of directors and our
approval is required for certain actions. The shareholders’ agreement also
includes provisions relating to the transfer of Líder shares, including
provisions that restrict the sale by us of our Líder shares for three years,
provide us with a right of first refusal on certain secondary sales and a tag
along right for transfers of shares and require our consent for an initial
public offering by Líder in specified circumstances.
On
October 30, 2008, we sold 53 small aircraft operating in the U.S. Gulf of Mexico
and related inventory, spare parts, and offshore fuel equipment (the “GOM Asset
Sale”). The buyer entered into agreements with our former customers
that were supported by the aircraft included in the GOM Asset
Sale. The transfer to the buyer of legal title to all 53 aircraft was
processed by the U.S. Federal Aviation Administration (“FAA”) during October and
November 2008.
The
following table summarizes the after-tax gain on the GOM Asset Sale recorded in
our condensed consolidated statements of income for the three and nine months
ended December 31, 2008 (in thousands):
Sale
price
|
$
|
65,000
|
||
Net
assets sold
|
(23,311
|
)
|
||
Transaction
expenses
|
(3,909
|
)
|
||
Pre-tax
gain on sale
|
37,780
|
|||
Provision
for income taxes
|
(13,363
|
)
|
||
After-tax
gain on GOM Asset Sale
|
$
|
24,417
|
||
Diluted
earnings per share:
|
||||
Three
months ended December 31, 2008
|
$
|
0.69
|
||
Nine
months ended December 31, 2008
|
$
|
0.71
|
On
October 31, 2008, we acquired the remaining 51% interest in Bristow Norway from
the other Bristow Norway shareholders. We consolidated Bristow Norway
effective October 31, 2008 upon our acquisition of 100% of this
entity. We previously accounted for Bristow Norway as an equity
method investment.
NOTE
3 — PROPERTY AND EQUIPMENT
During
the nine months ended December 31, 2009, we received proceeds of $75.0 million
from the disposal of 20 aircraft and certain other equipment, resulting in a net
gain of $13.3 million. As of December 31 and March 31, 2009,
respectively, we had 11 and 10 aircraft held for sale totaling $9.5 million and
$4.4 million, which were classified in prepaid expenses and other current assets
in our condensed consolidated balance sheets.
Additionally,
during the nine months ended December 31, 2009, we made final payments in
connection with the delivery of four small, eight medium, seven large and one
fixed wing aircraft, and made progress payments on the construction of new
aircraft to be delivered in future periods in conjunction with our aircraft
commitments (see Note 7) for a total of $201.7 million. Also, during
the nine months ended December 31, 2009, we spent $34.6 million to upgrade
aircraft within our existing fleet and to customize new aircraft delivered for
our operations, $10.2 million for additions to land and buildings and $3.8
million for various other infrastructure enhancements.
9
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
NOTE
4 — DEBT
Debt as
of December 31 and March 31, 2009 consisted of the following:
December 31,
2009
|
March 31,
2009
|
|||||
7 ½% Senior Notes due 2017, including $0.5 million of
unamortized premium
|
$
|
350,490
|
$
|
350,537
|
||
6 ⅛% Senior
Notes due 2013
|
230,000
|
230,000
|
||||
3%
Convertible Senior Notes due 2038, including $19.7 million and $21.9
million of unamortized discount, respectively
|
95,280
|
93,067
|
||||
Bristow
Norway Debt
|
12,465
|
18,348
|
||||
RLR
Note
|
16,379
|
17,215
|
||||
Term
loans
|
12,656
|
14,382
|
||||
Other
debt
|
85
|
364
|
||||
Total
debt
|
717,355
|
723,913
|
||||
Less
short-term borrowings and current maturities of long-term
debt
|
(19,211
|
)
|
(8,948
|
)
|
||
Total
long-term debt
|
$
|
698,144
|
$
|
714,965
|
In June
2008, we completed the sale of $115 million of 3% Convertible Senior
Notes. The notes are convertible, under certain circumstances, using
a net share settlement process, into a combination of cash and our common
stock. In general, upon conversion of a note, the holder will receive
cash equal to the principal amount of the note and common stock to the extent of
the note’s conversion value in excess of such principal amount. The
following table sets forth the stock price and additional shares by which the
applicable conversion rate will be increased upon conversion, subject to the
terms discussed above.
Market
Value of Common Stock
|
Number
of Shares of Common
Stock
Issued for Each $1,000 Principal Amount of 3%
Convertible
Senior Notes
|
Total
Number of Shares of
Common
Stock Issued for 3%
Convertible
Senior Notes
|
|||
$46.87
or less
|
21.3356
|
2,453,594
|
|||
Between
$46.87 and $169.99
|
12.9308
to 21.3344
|
1,487,032
to 2,453,593
|
|||
$170.00
and above
|
12.9307
|
1,487,031
|
The notes
will mature on June 15, 2038 and may not be redeemed by us prior to June 15,
2015, after which they may be redeemed at 100% of principal amount plus accrued
and unpaid interest. Holders of the 3% Convertible Senior Notes may
require us to repurchase any or all of their notes for cash on June 15, 2015,
2020, 2025, 2030 and 2035, or in the event of a fundamental change, as defined
in the indenture for the 3% Convertible Senior Notes (including the delisting of
our common stock and certain change of control transactions), at a price equal
to 100% of the principal amount plus accrued and unpaid interest. If
a holder elects to convert its notes in connection with certain fundamental
changes occurring prior to June 15, 2015, we will increase the applicable
conversion rate by a specified number of additional shares of common
stock.
Prior to
April 1, 2009, accounting standards required that we not separately account for
the embedded conversion option in the 3% Convertible Senior Notes. As
discussed in Note 1, effective April 1, 2009, we adopted a newly issued
accounting standard regarding convertible debt
instruments that may be settled in cash upon conversion. This
accounting standard requires that convertible debt instruments that may be
settled in cash upon conversion (including partial cash settlement) be accounted
for with a liability component based on the fair value of a similar
nonconvertible debt instrument and an equity component based on the excess of
the initial proceeds from the convertible debt instrument over the liability
component. Such excess represents proceeds related to the conversion
option and is recorded as additional paid-in capital. The liability
is recorded at a discount, which is then amortized as additional non-cash
interest expense over the convertible debt instrument’s remaining
life. Additionally, this accounting standard requires bifurcation of
the debt issuance costs into a component of debt and equity. Our
adoption of this accounting standard has been applied retrospectively to all
past periods presented for our 3% Convertible Senior
Notes issued in June 2008 which are subject to this accounting
standard.
10
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Under the
provisions of this accounting standard, the following assumptions were made for
our 3% Convertible Senior Notes upon adoption:
Date
of issue
|
June
2008
|
||
Expected
maturity date
|
June
2015
|
||
Remaining
life
|
7
years
|
||
Effective
interest rate
|
6.9%
|
||
Tax
rate over term of debt
|
35%
|
The
effect of the adoption of this accounting standard on our consolidated balance
sheet as of March 31, 2009 was as follows (in thousands):
As
Previously Reported
|
Effect
of Change
|
As
Currently Reported
|
|||||||
Other
assets
|
$
|
25,590
|
$
|
(702
|
)
|
$
|
24,888
|
||
Total
debt
|
745,846
|
(21,933
|
)
|
723,913
|
|||||
Deferred
income tax liability
|
119,589
|
7,677
|
127,266
|
||||||
Additional
paid-in capital
|
421,391
|
14,905
|
436,296
|
||||||
Retained
earnings
|
719,844
|
(1,351
|
)
|
718,493
|
The
following information is presented for comparative purposes and illustrates the
effect of this accounting standard on our 3% Convertible Senior
Notes. The balances of the debt and equity components as of each
period presented are as follows (in thousands):
December
31,
2009
|
March
31,
2009
|
|||||
Equity
component – net carrying value
|
$
|
14,905
|
$
|
14,905
|
||
Debt
component:
|
||||||
Face
amount due at maturity
|
$
|
115,000
|
$
|
115,000
|
||
Unamortized
discount
|
(19,720
|
)
|
(21,933
|
)
|
||
Debt
component – net carrying value
|
$
|
95,280
|
$
|
93,067
|
The
effect of the adoption of this accounting standard on our condensed consolidated
statements of income for the three and nine months ended December 31, 2008 was
as follows (in thousands, except per share amounts):
Three
Months Ended
December
31, 2008
|
Nine
Months Ended
December
31, 2008
|
|||||||||||||||||
As
Previously Reported
|
Effect
of Change
|
As
Currently Reported
|
As
Previously Reported
|
Effect
of Change
|
As
Currently Reported
|
|||||||||||||
Interest
expense
|
$
|
7,603
|
$
|
673
|
$
|
8,276
|
$
|
24,500
|
$
|
1,443
|
$
|
25,943
|
||||||
Income
tax expense
|
16,106
|
(245
|
)
|
15,861
|
37,020
|
(526
|
)
|
36,494
|
||||||||||
Net
income from continuing operations
|
48,128
|
(428
|
)
|
47,700
|
100,459
|
(917
|
)
|
99,542
|
||||||||||
Net
income
|
48,128
|
(428
|
)
|
47,700
|
100,213
|
(917
|
)
|
99,296
|
||||||||||
Diluted
earnings per share
|
1.34
|
(0.02
|
)
|
1.32
|
2.86
|
(0.02
|
)
|
2.84
|
11
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
The
remaining debt discount is being amortized into interest expense over the
expected remaining life of the 3% Convertible Senior Notes using the effective
interest rate. The effective interest rate for the three and nine
months ended December 31, 2009 and 2008 was 6.9%. Interest expense
related to our 3% Convertible Senior Notes for the three and nine months ended
December 31, 2009 and 2008 was as follows (in thousands):
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
Contractual
coupon interest
|
$
|
862
|
$
|
862
|
$
|
2,588
|
$
|
1,859
|
||||
Amortization
of debt discount
|
751
|
701
|
2,213
|
1,504
|
||||||||
Total
interest expense
|
$
|
1,613
|
$
|
1,563
|
$
|
4,801
|
$
|
3,363
|
NOTE
5 — FAIR VALUE DISCLOSURES
Effective
April 1, 2009, we adopted a newly issued accounting standard for fair value
measurements relating to our nonfinancial assets and liabilities measured on a
nonrecurring basis which primarily consist of goodwill, intangible assets and
other long-lived assets and assets acquired and liabilities assumed in a
business combination. During the three and nine months ended December
31, 2009, there were no triggering events that required fair value measurements
of our nonfinancial assets and liabilities.
Assets
and liabilities subject to fair value are categorized into one of three
different levels depending on the observability of the inputs employed in the
measurement, as follows:
·
|
Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets.
|
·
|
Level
2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs are observable for
the asset or liability, either directly or indirectly, for substantially
the full term of the financial
instrument.
|
·
|
Level
3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
|
The
following table summarizes the financial instruments we held as of December 31,
2009 which are valued at fair value (in thousands):
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
Significant
Other Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Balance
as of
December
31, 2009
|
Balance
Sheet
Classification
|
||||||||||||||
Rabbi
trust investments
|
$
|
2,994
|
$
|
—
|
$
|
—
|
$
|
2,994
|
Other
assets
|
|||||||||
Derivative
financial instrument
liability
|
—
|
(75
|
)
|
—
|
(75
|
)
|
Other
accrued liabilities
|
|||||||||||
Net
assets
|
$
|
2,994
|
$
|
(75
|
)
|
$
|
—
|
$
|
2,919
|
The rabbi
trust investments consist of money market and mutual funds whose fair value is
based on quoted prices in active markets for identical assets, and are
designated as Level 1 within the valuation hierarchy. The rabbi trust
investments relate to our non-qualified deferred compensation plan for our
senior executives as discussed in Note 9 to the fiscal year 2009 Financial
Statements. The methods and assumptions used to estimate the fair
values of the derivative financial instrument liability in the table above
include the mark-to-market statements from the counterparties, which can be
validated using modeling techniques that include market inputs such as publicly
available forward market rates, and is designated as Level 2 within the
valuation hierarchy.
12
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
The fair
value of our financial instruments has been estimated in accordance with the
accounting standard regarding fair value. The estimated fair value of
our total debt as of December 31, 2009 was $728 million based on quoted market
prices for our 7 ½% Senior Notes due 2017, 6 ⅛% Senior Notes due 2013 and 3%
Convertible Senior Notes and the carrying value for our other debt, which
approximates fair value. The fair values of our cash and cash
equivalents, accounts receivable and accounts payable approximate their carrying
value due to the short-term nature of these items.
NOTE
6 — DERIVATIVES
As
discussed in Note 1, effective April 1, 2009, we adopted a newly issued
accounting standard regarding enhanced disclosures about an entity’s derivative
and hedging activities, which requires enhanced disclosure of derivatives and
hedging activities on: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under the accounting standard regarding accounting for derivative
instruments and hedging activities and its related interpretations; and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows.
The
designation of a derivative instrument as a hedge and its ability to meet
relevant hedge accounting criteria determines how the change in fair value of
the derivative instrument will be reflected in the condensed consolidated
financial statements. A derivative qualifies for hedge accounting if,
at inception, the derivative is expected to be highly effective in offsetting
the hedge’s underlying cash flows or fair value and the documentation standards
of the accounting standard regarding accounting for derivative instruments and
hedging activities are fulfilled at the time we enter into the derivative
contract. A hedge is designated as a cash flow hedge, fair value
hedge, or a net investment in foreign operations hedge based on the exposure
being hedged. The asset or liability value of the derivative will
change in tandem with its fair value. Changes in fair value, for the
effective portion of qualifying hedges, are recorded in accumulated other
comprehensive loss. The derivative’s gain or loss is released from
accumulated other comprehensive loss to match the timing of the effect on
earnings of the hedge’s underlying cash flows.
We review
the effectiveness of our hedging instruments on a quarterly basis. We
recognize current period hedge ineffectiveness immediately in earnings, and we
discontinue hedge accounting for any hedge that we no longer consider to be
highly effective. Changes in fair value for derivatives not
designated as hedges or those not qualifying for hedge accounting are recognized
in current period earnings. Upon termination of cash flow hedges, we
release gains and losses from accumulated other comprehensive loss based on the
timing of the underlying cash flows, unless the termination results from the
failure of the intended transaction to occur in the expected
timeframe. Such an untimely occurrence requires us to immediately
recognize in earnings gains and losses previously recorded in accumulated other
comprehensive loss.
None of
our derivative instruments contain credit-risk-related contingent
features. Counterparties to our derivative contracts are high credit
quality financial institutions.
We
entered into forward contracts during the nine months ended December 31, 2009
and fiscal year 2009 to mitigate our exposure to exchange rate fluctuations on
our euro-denominated aircraft purchase commitments, which have been designated
as cash flow hedges for accounting purposes. We had no open forward
contracts relating to euro-denominated aircraft purchase commitments as of
December 31, 2009. We had eight open forward contracts as of March
31, 2009, which had rates ranging from 1.30 U.S. dollars per euro to 1.54 U.S.
dollars per euro. These contracts had an underlying nominal value of
between €614,625 and €13,217,175, for a total of €86,894,175, with the first
contract expiring in April 2009 and the last in January 2010. The
hedge expiring in January 2010 was settled in November 2009. As of
March 31, 2009, the fair value of these contracts was a liability of $8.5
million. As of March 31, 2009, an unrecognized loss of $5.5 million,
net of tax, on these contracts is included as a component of accumulated other
comprehensive loss. The derivative liability is included in other
accrued liabilities in our condensed consolidated balance sheets. For
the three and nine months ended December 31, 2009, we recognized gains of $2.8
million and $3.9 million, respectively, relating to settlements of these forward
contracts in our condensed consolidated statements of income as a component of
other income (expense), net. No gains or losses relating to forward
contracts are recognized in our condensed consolidated statements of income for
the three and nine months ended December 31, 2008.
13
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
During
the three months ended December 31, 2009, we entered into participating forward
derivative contracts to mitigate our exposure to exchange rate fluctuations on
our euro-denominated third party maintenance contracts. As of
December 31, 2009, the fair value of the three open contracts was a liability of
$0.1 million with strike/call prices ranging from 0.9251 British pound sterling
per euro to 0.9298 British pound sterling per euro and underlying notional
values totaling €2,455,000, expiring in January, February and March
2010. The related strike/put prices and the expiration dates are the
same as the calls but have underlying notional values totaling
€1,227,500. These contracts were designated as hedges for accounting
purposes, and as such, any changes to the fair value of the derivative
instruments are recorded in accumulated other comprehensive loss if the hedge is
deemed to be effective.
NOTE
7 — COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Contracts —
As of December 31, 2009, we had 11 aircraft on order and options to acquire an
additional 54 aircraft.
Three
Months
Ending March 31,
|
Fiscal
Year Ending March 31,
|
||||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
Total
|
||||||||||||||||||
Commitments
as of December 31, 2009:
|
|||||||||||||||||||||||
Number
of aircraft:
|
|||||||||||||||||||||||
Medium
|
6
|
—
|
—
|
—
|
—
|
6
|
|||||||||||||||||
Large
|
—
|
2
|
(1)
|
3
|
—
|
—
|
5
|
||||||||||||||||
6
|
2
|
3
|
—
|
—
|
11
|
|
|||||||||||||||||
Related
expenditures (in thousands) (2)
|
$
|
24,901
|
$
|
43,344
|
$
|
48,456
|
$
|
—
|
—
|
$
|
116,701
|
||||||||||||
Options
as of December 31, 2009:
|
|||||||||||||||||||||||
Number
of aircraft:
|
|||||||||||||||||||||||
Medium
|
—
|
6
|
11
|
12
|
12
|
41
|
|||||||||||||||||
Large
|
—
|
—
|
9
|
4
|
—
|
13
|
|||||||||||||||||
—
|
6
|
20
|
16
|
12
|
54
|
||||||||||||||||||
Related
expenditures (in thousands) (2)
|
$
|
11,838
|
$
|
122,257
|
$
|
215,975
|
$
|
258,847
|
$
|
232,110
|
$
|
841,027
|
_________
(1)
|
We
have agreements which allow us to cancel two large aircraft with delivery
dates in fiscal year 2011 and commitments totaling $40.9 million
without a termination fee through February 15, 2010 and February 28,
2010.
|
(2)
|
Includes
progress payments on aircraft scheduled to be delivered in future
periods.
|
14
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
The
following chart presents an analysis of our aircraft orders and options during
fiscal year 2010:
Three
Months Ended
|
|||||||||||||||||||||||
December
31, 2009
|
September
30, 2009
|
June
30, 2009
|
|||||||||||||||||||||
Orders
|
Options
|
Orders
|
Options
|
Orders
|
Options
|
||||||||||||||||||
Beginning
of quarter
|
12
|
47
|
17
|
47
|
24
|
47
|
|||||||||||||||||
Aircraft
delivered
|
(6
|
)
|
—
|
(4
|
)
|
—
|
(10
|
)
|
—
|
||||||||||||||
Aircraft
ordered
|
5
|
—
|
—
|
—
|
3
|
—
|
|||||||||||||||||
Cancelled
orders
|
(2
|
)
|
—
|
(1
|
)
|
—
|
—
|
—
|
|||||||||||||||
New
options
|
—
|
14
|
—
|
—
|
—
|
—
|
|||||||||||||||||
Exercised
options
|
2
|
(2
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||
Expired
options
|
—
|
(5
|
)
|
—
|
—
|
—
|
—
|
||||||||||||||||
End
of quarter
|
11
|
54
|
12
|
47
|
17
|
47
|
As was
the case in prior years, we periodically order aircraft for which we have no
options.
Employee Agreements — Certain
of our employees are represented by collective bargaining agreements and/or
unions. These agreements generally include annual escalations of up
to 6%. Periodically, certain groups of our employees who are not
covered by a collective bargaining agreement consider entering into such an
agreement.
During
August 2009, the unions representing our national staff in Nigeria were on
strike, but have since returned to work.
As a
result of recently enacted legislation in Australia, effective July 1, 2009, the
engineering workforce in Australia gained the right to be represented by a
union. We are currently in consultations about representation
arrangements.
In March
2009, we announced that in response to the recent worldwide economic downturn we
were freezing management salaries and reviewing staffing levels and compensation
structures to properly position the Company to meet changing market conditions
while maintaining operational safety. After union consultations in
various countries, we have completed staffing changes as part of an overall plan
to reduce our work force by 5% to 10%.
Effective
April 30, 2009, an officer departed the Company. Additionally, during
December 2009, two other officers departed the Company. In connection
with these departures, we extended the expiration dates of options to purchase
common stock held by two of the officers to November 17, 2009 and July 1,
2010.
During
the three and nine months ended December 31, 2009, we recognized approximately
$2.3 million and $7.4 million, respectively, in compensation expense (inclusive
of the expenses recorded for the acceleration of unvested stock options and
restricted stock) related to the work force reductions that have occurred to
date and the separation between the Company and the three officers.
Internal Review — In February
2005, we voluntarily advised the staff of the SEC that the Audit Committee of
our board of directors had engaged special outside counsel to undertake a review
of certain payments made by two of our affiliated entities in
Nigeria. The review of these payments, which initially focused on
Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit
Committee to cover operations in other countries and other issues (the “Internal
Review”). As a result of the findings of the Internal Review (which
was completed in late 2005), our quarter ended December 31, 2004 and prior
financial statements were restated. We also provided the SEC with
documentation resulting from the Internal Review which eventually resulted in a
formal SEC investigation. In September 2007, we consented to the
issuance of an administrative cease-and-desist order by the SEC, in final
settlement of the SEC investigation. The SEC did not impose any fine
or other monetary sanction upon the Company. Without admitting or
denying the SEC’s findings, we consented to be ordered not to engage in future
violations of certain provisions of the federal securities laws involving
improper foreign payments, internal controls and books and
records. For further information on the restatements, see our Annual
Report on Form 10-K for the fiscal year ended March 31, 2005.
15
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Following
the settlement with the SEC regarding improper payments made by foreign
affiliates of the Company in Nigeria, outside counsel to the Company was
contacted by the U.S. Department of Justice (the “DOJ”) and was asked to provide
certain information regarding the Internal Review. We intend to
continue to be responsive to the DOJ’s requests. At this time, it is
not possible to predict what the outcome of the DOJ’s investigation into these
matters will be for the Company.
As a
result of the disclosure and remediation of a number of activities identified in
the Internal Review, we may encounter difficulties conducting business in
certain foreign countries and retaining and attracting additional business with
certain customers. We cannot predict the extent of these
difficulties; however, our ability to continue conducting business in these
countries and with these customers and through agents may be significantly
impacted. We could still face legal and administrative proceedings,
the institution of administrative, civil injunctive or criminal proceedings
involving us and/or current or former employees, officers and/or directors who
are within the jurisdictions of such authorities, the imposition of fines and
other penalties, remedies and/or sanctions, including precluding us from
participating in business operations in such countries. It is also
possible that we may become subject to claims by third parties, possibly
resulting in litigation.
In
November 2005, two of our consolidated foreign affiliates were named in a
lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita
Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly
acted as agents of our affiliates in Nigeria. The claimants allege
that an agreement between the parties was terminated without justification and
seek damages of $16.3 million. We responded to this claim in early
2006. There has been minimal activity on this claim since
then. We may face further legal action of this type in the
future. The matters identified in the Internal Review and their
effects could have a material adverse effect on our business, financial
condition or results of operations.
As we
continue to operate our compliance program, other situations involving foreign
operations, similar to those matters disclosed to the SEC in February 2005 and
described above, could arise that warrant further investigation and subsequent
disclosures. As a result, new issues may be identified that may
impact our financial statements and lead us to take other remedial actions or
otherwise adversely impact us.
During
prior fiscal years, we incurred a total of $13.6 million in legal and other
professional fees related to the Internal Review and related
matters. We have incurred no legal or other professional fees in
connection with the Internal Review since fiscal year 2007. During
the three and nine months ended December 31, 2009, we incurred approximately
$0.1 million and $0.9 million, respectively, in legal and other professional
fees in connection with the DOJ investigation relating to the Internal
Review. During the three and nine months ended December 31, 2008, we
incurred approximately $0.1 million and $0.4 million, respectively, in legal and
other professional fees in connection with the DOJ investigation relating to the
Internal Review.
Document Subpoena Relating to DOJ
Antitrust Investigation — In June 2005, one of our subsidiaries received
a document subpoena from the Antitrust Division of the DOJ. The
subpoena related to a grand jury investigation of potential antitrust violations
among providers of helicopter transportation services in the U.S. Gulf of
Mexico. The subpoena focused on activities during the period from
January 1, 2000 to June 13, 2005. We believe we have
submitted to the DOJ substantially all documents responsive to the
subpoena. We have had discussions with the DOJ and provided documents
related to our operations in the U.S. as well as internationally. We
intend to continue to provide additional information as required by the DOJ in
connection with the investigation. There is no assurance that, after
review of any information furnished by us or by third parties, the DOJ will not
ultimately conclude that violations of U.S. antitrust laws have
occurred. The period of time necessary to resolve the DOJ antitrust
investigation is uncertain, and this matter could require significant management
and financial resources that could otherwise be devoted to the operation of our
business.
The
outcome of the DOJ antitrust investigation and any related legal proceedings in
other countries could include civil injunctive or criminal proceedings involving
us and/or our current or former employees, officers and/or directors, the
imposition of fines and other penalties, remedies and/or sanctions, including
potential disbarments, and referrals to other governmental
agencies. In addition, in cases where anti-competitive conduct is
found by the government, there is greater likelihood for civil litigation to be
brought by third parties seeking recovery. Any such civil litigation
could have serious consequences for our Company, including the costs of the
litigation and potential orders to pay restitution or other damages or
penalties, including potentially treble damages, to any parties that were
determined to be injured as a result of any impermissible anti-competitive
conduct. Any of these adverse consequences could have a material
adverse effect on our business, financial condition or results of
operations. The DOJ antitrust investigation, any related proceedings
in other countries and any third-party litigation, as well as any negative
outcome that may result from the investigation, proceedings or litigation, could
also negatively impact our relationships with customers and our ability to
generate revenue.
16
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
During
prior fiscal years, we incurred a total of $5.2 million in legal and other
professional fees related to this matter. We have incurred no legal
or other professional fees in connection with this matter since fiscal year
2008; however, significant expenditures may continue to be incurred in the
future.
Civil Class Action Lawsuit —
On June 12, 2009, Superior
Offshore International, Inc. v. Bristow Group Inc., et al, Case No.
1:09-cv-00438, was filed in the U.S. District Court for the District of
Delaware. The purported class action complaint, which also names other
providers of offshore helicopter services in the Gulf of Mexico as defendants,
alleges violations of Section 1 of the Sherman Act. Among other things,
the complaint alleges that the defendants unlawfully conspired to raise and
maintain the price of offshore helicopter services between January 1, 2001 and
December 31, 2005. The plaintiff seeks to represent a purported class of
direct purchasers of offshore helicopter services and is asking for, among other
things, unspecified treble monetary damages and injunctive relief. The
Company intends to defend against this lawsuit vigorously. As this
lawsuit is in its initial stage, we are currently unable to determine whether it
could have a material affect on our business, financial condition or results of
operations. During the nine months ended December 31, 2009, we
incurred approximately $0.2 million in legal and other professional fees in
connection with the class action suit.
Environmental Contingencies —
The U.S. Environmental Protection Agency, also referred to as the EPA, has in
the past notified us that we are a potential responsible party, or PRP, at four
former waste disposal facilities that are on the National Priorities List of
contaminated sites. Under the federal Comprehensive Environmental
Response, Compensation, and Liability Act, also known as the Superfund law,
persons who are identified as PRPs may be subject to strict, joint and several
liability for the costs of cleaning up environmental contamination resulting
from releases of hazardous substances at National Priorities List
sites. We were identified by the EPA as a PRP at the Western Sand and
Gravel Superfund site in Rhode Island in 1984, at the Sheridan Disposal Services
Superfund site in Waller County, Texas, in 1989, at the Gulf Coast Vacuum
Services Superfund site near Abbeville, Louisiana, in 1989, and at the Operating
Industries, Inc. Superfund site in Monterey Park, California, in
2003. We have not received any correspondence from the EPA with
respect to the Western Sand and Gravel Superfund sites since February 1991, nor
with respect to the Sheridan Disposal Services Superfund site since
1989. Remedial activities at the Gulf Coast Vacuum Services Superfund
site were completed in September 1999 and the site was removed from the National
Priorities List in July 2001.
The EPA
has offered to submit a settlement offer to us in return for which we would be
recognized as a de minimis party in regard to the Operating Industries, Inc.
Superfund site, but we have not yet received this settlement
proposal. Although we have not obtained a formal release of liability
from the EPA with respect to any of these sites, we believe that our potential
liability in connection with these sites is not likely to have a material
adverse effect on our business, financial condition or results of
operations.
Guarantees — We have
guaranteed the repayment of up to £10 million ($16.1 million) of the debt of FBS
Limited, an unconsolidated affiliate. See discussion of this
commitment in Note 3 to our fiscal year 2009 Financial
Statements. Additionally, we provided an indemnity agreement to
Afianzadora Sofimex, S.A. to support issuance of surety bonds on behalf of
Heliservicio, another unconsolidated affiliate, from time to time. As
of December 31, 2009, surety bonds with an aggregate value of 311 million
Mexican pesos ($23.9 million) and surety bonds denominated in U.S. dollars with
an aggregate value of $1.2 million were outstanding. Furthermore, we
have received a counter-guarantee from our partner in Heliservicio for 76%
($19.1 million) of the surety bonds outstanding. Bristow Norway is
also the guarantor under two aircraft leases taken out by a previous subsidiary
of Bristow Norway prior to Bristow Norway disposing of that subsidiary and prior
to Bristow Group’s acquisition of the additional 51% of Bristow Norway in
October 2008 for the sum of $5.6 million. The purchaser of that
subsidiary is legally subject to an obligation to reimburse Bristow Norway for
these guarantees under the terms of the Sale and Purchase Agreement by which
that subsidiary was sold.
17
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
The
following table summarizes our commitments under these guarantees, before the
benefit of the counter-guarantee from our partner in Heliservicio, as of
December 31, 2009 (in thousands):
Amount
of Commitment Expiration Per Period
|
|||||||||||||||||
Total
|
Remainder
of Fiscal Year 2010
|
Fiscal
Year 2011
|
Fiscal
Years 2012-2013
|
Fiscal
Year 2014 and Thereafter
|
|||||||||||||
$
|
46,909
|
$
|
2,364
|
$
|
1,612
|
$
|
25,132
|
$
|
17,801
|
Other Matters — Although
infrequent, aircraft accidents have occurred in the past, and the related losses
and liability claims have been covered by insurance, subject to a
deductible. We are a defendant in certain claims and litigation
arising out of operations in the normal course of business. In the
opinion of management, uninsured losses, if any, will not be material to our
financial position, results of operations or cash flows.
NOTE
8 — TAXES
Our
effective income tax rates from continuing operations were 17.3% and 25.0% for
the three months ended December 31, 2009 and 2008, respectively, and 23.8% and
26.8% for the nine months ended December 31, 2009 and 2008,
respectively. The overall effective tax rates for the three and nine
months ended December 31, 2008 were impacted by a $2.6 million benefit related
to tax elections filed in the three months ended December 31, 2008 as part of
the internal reorganization discussed in Note 8 to the fiscal year 2009
Financial Statements. Excluding these benefits, as well as the impact
of the GOM Asset Sale, our overall effective tax rates for the three and nine
months ended December 31, 2008 were 25.5% and 28.5%, respectively.
During
the three months ended December 31, 2009, we accrued tax contingency related
items totaling $0.5 million, and during the three months ended December 31,
2008, we benefited from tax contingency related items totaling $0.6
million. During the nine months ended December 31, 2009, we accrued
tax contingency related items totaling $3.7 million, and during the nine months
ended December 31, 2008, we benefited from the contingency related items
totaling $1.3 million. Our effective tax rate was also impacted by
the indefinite reinvestment outside the U.S. of foreign earnings, upon which no
U.S. tax has been provided, and by our ability to realize foreign tax
credits.
As of
December 31, 2009, there were $8.5 million of unrecognized tax benefits, all of
which would have an impact on our effective tax rate, if
recognized. For both the nine months ended December 31, 2009 and
2008, we accrued interest and penalties of $0.3 million in connection with
uncertain tax positions.
U.S.
President Barack Obama recently announced a broad outline of his
administration’s proposals to modify certain aspects of the rules governing the
U.S. taxation of certain non-U.S. subsidiaries. Many details of the
various proposals remain unknown at this time and any legislation enacting such
proposed modifications would require Congressional approval. However,
changes to the U.S. tax law related to taxation of non-U.S. subsidiaries could
increase our effective tax rate.
18
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
NOTE
9 — EMPLOYEE BENEFIT PLANS
Pension
Plans
We have a
defined benefit plan for all full-time employees of Bristow Aviation Holdings
Limited (“Bristow Aviation”) and Bristow International Aviation (Guernsey)
Limited employed on or before December 31, 2007, both of which are closed to
future accrual. Additionally, Bristow Norway has a final salary
defined benefit pension plan. Further details of these plans are
described in Note 9 to our fiscal year 2009 Financial Statements.
The
following table provides a detail of the components of net periodic pension cost
of these plans:
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
(In
thousands)
|
|||||||||||||||
Service
cost for benefits earned during the period
|
$
|
58
|
$
|
57
|
$
|
170
|
$
|
197
|
|||||||
Interest
cost on pension benefit obligation
|
6,142
|
6,145
|
18,154
|
21,267
|
|||||||||||
Expected
return on assets
|
(4,814
|
)
|
(5,551
|
)
|
(14,227
|
)
|
(19,212
|
)
|
|||||||
Amortization
of unrecognized losses
|
1,143
|
1,022
|
3,377
|
3,537
|
|||||||||||
Net
periodic pension cost
|
$
|
2,529
|
$
|
1,673
|
$
|
7,474
|
$
|
5,789
|
We
pre-funded our contributions of $14.3 million to our U.K. staff pension plan for
the fiscal year ending March 31, 2010 in March 2009. We intend to
pre-fund our contributions of $16.1 million to our U.K. staff pension plan for
the fiscal year ending March 31, 2011 in March 2010. The
current estimate of our cash contributions to our U.K. expatriate and Norwegian
pension plans for fiscal year 2010 is $7.6 million, $6.8 million of which was
paid during the nine months ended December 31, 2009.
Incentive
Compensation
We have a
number of incentive and stock option plans which are described in Note 9 to our
fiscal year 2009 Financial Statements.
Stock-based
compensation expense, which includes stock options, restricted stock units and
restricted stock, totaled $3.3 million and $2.8 million for the three months
ended December 31, 2009 and 2008, respectively, and totaled $9.9 million and
$7.7 million for the nine months ended December 31, 2009 and 2008,
respectively. Stock-based compensation expense has been allocated to
our various business units.
During
the three months ended June 30, 2009, we awarded 288,788 stock options at an
average exercise price of $32.90 per share. The key input variables
used in valuing these options under the Black Scholes model were: risk-free
interest rate of 2.56%; dividend yield of zero; stock price volatility of 52.2%;
and expected option lives of 6 years. Also during the three months
ended June 30, 2009, we awarded 187,115 shares of restricted stock at an average
grant date fair value of $32.90 per share. During the three months
ended September 30, 2009, we awarded 14,000 shares of restricted stock at an
average grant date fair value of $33.11 per share and we awarded no stock
options. We awarded no stock options or restricted stock during the
three months ended December 31, 2009.
Compensation
expense related to performance cash awards during the three and nine months
ended December 31, 2009 was $0.8 million. No compensation expense was
recorded related to performance cash awards during the three and nine months
ended December 31, 2008.
19
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
NOTE
10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
Preferred Stock — On
September 15, 2009 each outstanding share of our 5.50% mandatory convertible
preferred stock was converted into 1.418 shares of common
stock. There were 4,600,000 shares of mandatory convertible preferred
stock outstanding on the conversion date, and we issued 6,522,800 shares of
common stock upon conversion of such preferred stock. For further details, see
Note 10 in our fiscal year 2009 Financial Statements.
Earnings Per Share — Basic
earnings per common share was computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per common share for
the three and nine months ended December 31, 2009, respectively, excluded
options to purchase 473,609 and 414,974 shares at the weighted average exercise
prices of $39.92 and $41.15 and 231,581 and 241,071 restricted stock units at
weighted average prices of $40.02 and $40.22 and zero and 974 restricted stock
awards at weighted average prices of zero and $20.22, which were outstanding
during the periods but were anti-dilutive. Diluted earnings per
common share for the three and nine months ended December 31, 2008,
respectively, excluded options to purchase 415,386 and 348,868 shares at the
weighted average exercise price of $47.94 and $47.67 and 399,898 and 412,405
restricted stock units at weighted average prices of $37.40 and $37.33 and
139,572 and 425 restricted stock awards at weighted average prices of $50.04 and
$53.36 which were outstanding during the periods but were
anti-dilutive. The following table sets forth the computation of
basic and diluted earnings per share:
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
Earnings
(in thousands):
|
||||||||||||
Continuing
operations:
|
||||||||||||
Income
available to common stockholders – basic
|
$
|
26,678
|
$
|
44,003
|
$
|
77,246
|
$
|
87,865
|
||||
Preferred
stock dividends
|
—
|
3,162
|
6,325
|
9,487
|
||||||||
Interest
expense on assumed conversion of 3% Convertible Senior Notes, net of tax
benefit (1)
|
—
|
—
|
—
|
—
|
||||||||
Income
available to common stockholders – diluted
|
$
|
26,678
|
$
|
47,165
|
$
|
83,571
|
$
|
97,352
|
||||
Discontinued
operations:
|
||||||||||||
Loss
available to common stockholders – basic and diluted
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
(246
|
)
|
|||
Net
earnings:
|
||||||||||||
Income
available to common stockholders – basic
|
$
|
26,678
|
$
|
44,003
|
$
|
77,246
|
$
|
87,619
|
||||
Preferred
stock dividends
|
—
|
3,162
|
6,325
|
9,487
|
||||||||
Interest
expense on assumed conversion of 3% Convertible Senior Notes, net of tax
benefit
(1)
|
—
|
—
|
—
|
—
|
||||||||
Income
available to common stockholders – diluted
|
$
|
26,678
|
$
|
47,165
|
$
|
83,571
|
$
|
97,106
|
||||
Shares:
|
||||||||||||
Weighted
average number of common shares outstanding – basic
|
35,896,054
|
29,101,198
|
31,732,633
|
27,634,829
|
||||||||
Assumed
conversion of preferred stock outstanding during the period (2)
|
—
|
6,522,800
|
3,961,119
|
6,522,800
|
||||||||
Assumed
conversion of 3% Convertible Senior Notes outstanding during the
period
(1)
|
—
|
—
|
—
|
—
|
||||||||
Net
effect of dilutive stock options, restricted stock units and restricted
stock awards based on the treasury stock method
|
374,697
|
4,237
|
375,939
|
27,604
|
||||||||
Weighted
average number of common shares outstanding – diluted
|
36,270,751
|
35,628,235
|
36,069,691
|
34,185,233
|
||||||||
Basic
earnings per common share:
|
||||||||||||
Earnings
from continuing operations
|
$
|
0.74
|
$
|
1.51
|
$
|
2.43
|
$
|
3.18
|
||||
Loss
from discontinued operations
|
—
|
—
|
—
|
(0.01
|
)
|
|||||||
Net
earnings
|
$
|
0.74
|
$
|
1.51
|
$
|
2.43
|
$
|
3.17
|
||||
Diluted
earnings per common share:
|
||||||||||||
Earnings
from continuing operations
|
$
|
0.74
|
$
|
1.32
|
$
|
2.32
|
$
|
2.85
|
||||
Loss
from discontinued operations
|
—
|
—
|
—
|
(0.01
|
)
|
|||||||
Net
earnings
|
$
|
0.74
|
$
|
1.32
|
$
|
2.32
|
$
|
2.84
|
20
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
________
(1)
|
Diluted
earnings per common share for each of the three and nine months ended
December 31, 2009 and 2008 excludes approximately 1.5 million potentially
dilutive shares initially issuable upon the conversion of our 3%
Convertible Senior Notes. The 3% Convertible Senior Notes will
be convertible, under certain circumstances, using a net share settlement
process, into a combination of cash and our common stock. The
initial base conversion price of the notes is approximately $77.34
(subject to adjustment in certain circumstances), based on the initial
base conversion rate of 12.9307 shares of common stock per $1,000
principal amount of convertible notes. In general, upon
conversion of a note, the holder will receive cash equal to the principal
amount of the note and common stock to the extent of the note's conversion
value in excess of such principal amount. In addition, if at
the time of conversion the applicable price of our common stock exceeds
the base conversion price, holders will receive up to an additional 8.4049
shares of our common stock per $1,000 principal amount of notes, as
determined pursuant to a specified formula. Such shares did not
impact our calculation of diluted earnings per share for the three and
nine months ended December 31, 2009 or 2008 as our stock price did not
meet or exceed $77.34 per share.
|
(2)
|
For
the nine months ended December 31, 2009 and the three and nine months
ended December 31, 2008, diluted earnings per common share included
weighted average shares resulting from the assumed conversion of our
preferred stock at the conversion rate that results in the most
dilution: 1.4180 shares of common stock for each share of
preferred stock. On September 15, 2009, we converted our
preferred stock into 6,522,800 shares of common stock at this conversion
rate as previously discussed.
|
NOTE
11 — SEGMENT INFORMATION
We
conduct our business in one segment: Helicopter Services. The
Helicopter Services segment’s operations are conducted through three divisions:
Western Hemisphere, Eastern Hemisphere and Global Training, and ten
business units within those divisions. Western Hemisphere and Eastern
Hemisphere operate through nine of the business units: U.S. Gulf of
Mexico, Arctic, Latin America and Western Hemisphere (“WH”) Centralized
Operations within the Western Hemisphere, and Europe, West Africa, Australia,
Other International and Eastern Hemisphere (“EH”) Centralized Operations within
the Eastern Hemisphere. Our WH and EH Centralized Operations business
units are comprised of our technical services business and other non-flight
services business (e.g., provision of maintenance and supply chain parts and
services to other Western and Eastern Hemisphere business units) and division
level expenses. Bristow Academy is the only business unit within our
Global Training division.
Beginning
on April 1, 2009, there was no longer a Southeast Asia business
unit. Australia is now a separate business unit and Malaysia, China
and Vietnam are now included in the Other International business
unit. Amounts presented below for the three and nine months ended
December 31, 2008 and as of March 31, 2009 have been restated to conform to
current period presentation.
Additionally,
we previously recorded certain cost reimbursement intercompany transactions
between the EH Centralized Operations business unit and other business units as
intrasegment revenue. We have reclassified these cost reimbursements
from revenue to a reduction in expense. Amounts presented below for
the three and nine months ended December 31, 2008 have been restated to conform
to current period presentation.
As
discussed in Note 1, earnings (losses) from unconsolidated affiliates, net which
were previously excluded from operating income have been reclassified to be
included within operating income and have been allocated to our business units
herein. Amounts presented below for the three and nine months ended
December 31, 2008 have been restated to conform to current period
presentation.
In
December 2009, we announced changes in our organizational structure and business
units that will be finalized by March 31, 2010. The Eastern and
Western Hemisphere divisional boundaries will be eliminated, and Centralized
Operations will be managed under a single global organization. The
Other International and Latin America business units will be merged into a
single International business unit. The U.S. Gulf of Mexico and
Arctic business units will be combined into a single North America business
unit.
The
tables that follow show reportable segment information for the three and nine
months ended December 31, 2009 and 2008, reconciled to consolidated totals, and
prepared on the same basis as our condensed consolidated financial
statements.
21
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Segment
gross revenue from external customers:
|
||||||||||||||||
U.S.
Gulf of Mexico
|
$
|
42,352
|
$
|
53,695
|
$
|
130,338
|
$
|
177,695
|
||||||||
Arctic
|
3,228
|
3,005
|
13,746
|
14,088
|
||||||||||||
Latin
America
|
19,076
|
20,707
|
59,421
|
59,964
|
||||||||||||
WH
Centralized Operations
|
542
|
2,584
|
1,538
|
6,317
|
||||||||||||
Europe
|
118,980
|
102,388
|
346,798
|
295,639
|
||||||||||||
West
Africa
|
58,736
|
50,478
|
165,005
|
140,788
|
||||||||||||
Australia
|
38,188
|
24,998
|
96,684
|
87,337
|
||||||||||||
Other
International
|
14,268
|
17,035
|
43,816
|
51,420
|
||||||||||||
EH
Centralized Operations
|
1,910
|
2,598
|
7,557
|
8,300
|
||||||||||||
Bristow
Academy
|
6,026
|
5,499
|
20,470
|
17,222
|
||||||||||||
Corporate
|
—
|
—
|
—
|
28
|
||||||||||||
Total
segment gross revenue
|
$
|
303,306
|
$
|
282,987
|
$
|
885,373
|
$
|
858,798
|
Intrasegment
gross revenue:
|
||||||||||||||||
U.S.
Gulf of Mexico
|
$
|
104
|
$
|
—
|
$
|
193
|
$
|
—
|
||||||||
Arctic
|
—
|
—
|
—
|
—
|
||||||||||||
Latin
America
|
—
|
—
|
—
|
—
|
||||||||||||
WH
Centralized Operations
|
919
|
550
|
2,199
|
1,986
|
||||||||||||
Europe
|
287
|
89
|
1,402
|
571
|
||||||||||||
West
Africa
|
—
|
—
|
—
|
—
|
||||||||||||
Australia
|
—
|
31
|
—
|
31
|
||||||||||||
Other
International
|
1
|
41
|
109
|
814
|
||||||||||||
EH
Centralized Operations
|
743
|
199
|
3,314
|
869
|
||||||||||||
Bristow
Academy
|
—
|
64
|
—
|
64
|
||||||||||||
Total
intrasegment gross revenue
|
$
|
2,054
|
$
|
974
|
$
|
7,217
|
$
|
4,335
|
Consolidated
gross revenue reconciliation:
|
||||||||||||||||
U.S.
Gulf of Mexico
|
$
|
42,456
|
$
|
53,695
|
$
|
130,531
|
$
|
177,695
|
||||||||
Arctic
|
3,228
|
3,005
|
13,746
|
14,088
|
||||||||||||
Latin
America
|
19,076
|
20,707
|
59,421
|
59,964
|
||||||||||||
WH
Centralized Operations
|
1,461
|
3,134
|
3,737
|
8,303
|
||||||||||||
Europe
|
119,267
|
102,477
|
348,200
|
296,210
|
||||||||||||
West
Africa
|
58,736
|
50,478
|
165,005
|
140,788
|
||||||||||||
Australia
|
38,188
|
25,029
|
96,684
|
87,368
|
||||||||||||
Other
International
|
14,269
|
17,076
|
43,925
|
52,234
|
||||||||||||
EH
Centralized Operations
|
2,653
|
2,797
|
10,871
|
9,169
|
||||||||||||
Bristow
Academy
|
6,026
|
5,563
|
20,470
|
17,286
|
||||||||||||
Intrasegment
eliminations
|
(2,054
|
)
|
(974
|
)
|
(7,217
|
)
|
(4,335
|
)
|
||||||||
Corporate
|
—
|
—
|
—
|
28
|
||||||||||||
Total
consolidated gross revenue
|
$
|
303,306
|
$
|
282,987
|
$
|
885,373
|
$
|
858,798
|
22
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Consolidated
operating income (loss) reconciliation:
|
||||||||||||||||
U.S.
Gulf of Mexico
|
$
|
4,488
|
$
|
8,721
|
$
|
16,237
|
$
|
24,973
|
||||||||
Arctic
|
22
|
184
|
2,712
|
2,603
|
||||||||||||
Latin
America
|
4,695
|
5,501
|
16,788
|
19,175
|
||||||||||||
WH
Centralized Operations
|
(4,216
|
)
|
(2,509
|
)
|
(11,581
|
)
|
(2,281
|
)
|
||||||||
Europe
|
15,968
|
13,757
|
48,918
|
55,434
|
||||||||||||
West
Africa
|
15,092
|
13,167
|
43,796
|
27,707
|
||||||||||||
Australia
|
9,727
|
2,850
|
22,771
|
3,777
|
||||||||||||
Other
International
|
1,695
|
5,429
|
11,593
|
12,672
|
||||||||||||
EH
Centralized Operations
|
(422
|
)
|
(4,705
|
)
|
(1,068
|
)
|
(12,370
|
)
|
||||||||
Bristow
Academy
|
(385
|
)
|
(168
|
)
|
1,269
|
219
|
||||||||||
Gain
on GOM Asset Sale
|
—
|
37,780
|
—
|
37,780
|
||||||||||||
Gain
(loss) on disposal of assets
|
2,448
|
(102
|
)
|
13,337
|
5,865
|
|||||||||||
Corporate
|
(9,386
|
)
|
(7,633
|
)
|
(26,707
|
)
|
(21,554
|
)
|
||||||||
Total
consolidated operating income (1)
|
$
|
39,726
|
$
|
72,272
|
$
|
138,065
|
$
|
154,000
|
December
31,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(In
thousands)
|
||||||||
Identifiable assets:
|
||||||||
U.S.
Gulf of Mexico
|
$
|
386,530
|
$
|
345,522
|
||||
Arctic
|
15,148
|
15,584
|
||||||
Latin
America
|
398,849
|
214,490
|
||||||
WH
Centralized Operations
|
11,685
|
12,480
|
||||||
Europe
|
802,130
|
683,191
|
||||||
West
Africa
|
332,075
|
269,618
|
||||||
Australia
|
298,897
|
175,031
|
||||||
Other
International
|
101,809
|
110,429
|
||||||
EH
Centralized Operations
|
32,579
|
30,241
|
||||||
Bristow
Academy
|
38,075
|
37,961
|
||||||
Corporate
|
115,782
|
440,024
|
||||||
Total
identifiable assets (2)
|
$
|
2,533,559
|
$
|
2,334,571
|
__________
(1)
|
Operating
income includes depreciation and amortization expense in the following
amounts for the periods presented:
|
Three
Months Ended
December
31,
|
Nine
Months Ended
December
31,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
(In
thousands)
|
|||||||||||||||
U.S.
Gulf of Mexico
|
$
|
3,731
|
$
|
3,050
|
$
|
10,389
|
$
|
8,952
|
|||||||
Arctic
|
196
|
190
|
580
|
616
|
|||||||||||
Latin
America
|
2,027
|
2,264
|
6,595
|
6,218
|
|||||||||||
WH
Centralized Operations
|
335
|
169
|
955
|
418
|
|||||||||||
Europe
|
7,391
|
5,899
|
20,500
|
15,799
|
|||||||||||
West
Africa
|
2,626
|
2,056
|
7,064
|
6,112
|
|||||||||||
Australia
|
2,442
|
1,298
|
5,775
|
3,881
|
|||||||||||
Other
International
|
878
|
967
|
2,602
|
2,909
|
|||||||||||
EH
Centralized Operations
|
223
|
133
|
604
|
435
|
|||||||||||
Bristow
Academy
|
725
|
563
|
1,993
|
1,492
|
|||||||||||
Corporate
|
89
|
74
|
262
|
271
|
|||||||||||
Consolidated
total
|
$
|
20,663
|
$
|
16,663
|
$
|
57,319
|
$
|
47,103
|
(2)
|
Includes
$127.0 million and $230.1 million of construction in progress within
property and equipment on our condensed consolidated balance sheets as of
December 31 and March 31, 2009, respectively, which primarily represents
progress payments on aircraft to be delivered in future
periods.
|
23
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
NOTE
12 — COMPREHENSIVE INCOME
Comprehensive
income (loss) is as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Net
income
|
$
|
27,126
|
$
|
47,700
|
$
|
84,827
|
$
|
99,296
|
||||||||
Other
comprehensive income (loss):
|
||||||||||||||||
Currency
translation adjustments (1)
|
1,927
|
(47,640
|
)
|
40,926
|
(91,258
|
)
|
||||||||||
Income
tax effect attributable to pension liability adjustment as a result of
internal reorganization (2)
|
—
|
—
|
—
|
(9,371
|
)
|
|||||||||||
Change
of interest gain – Bristow Norway (3)
|
—
|
12,300
|
—
|
12,300
|
||||||||||||
Unrealized
gain (loss) on cash flow hedges (4)
|
(668
|
)
|
283
|
8,094
|
(7,425
|
)
|
||||||||||
Comprehensive
income
|
$
|
28,385
|
$
|
12,643
|
$
|
133,847
|
$
|
3,542
|
__________
(1)
|
During
the nine months ended December 31, 2009, the U.S. dollar weakened against
the British pound sterling and other currencies, resulting in translation
gains recorded as a component of stockholders’ investment as of December
31, 2009. During the three and nine months ended December 31,
2008, the U.S. dollar strengthened against the British pound sterling and
other currencies, resulting in translation losses recorded as a component
of stockholders’ investment as of December 31, 2008.
|
(2)
|
On
April 1, 2008, we completed an internal reorganization that restructured
our holdings in Bristow Aviation in an effort to simplify our legal entity
structure and reduce administrative costs associated with our ownership in
Bristow Aviation. In late March 2008, we completed part of this
overall restructuring that resulted in the release of $3.5 million of
previously provided U.S. deferred tax on the assets subject to the
restructuring. The additional transactions completed on April
1, 2008 resulted in a charge to other comprehensive income as a result of
a reduction of $9.4 million in deferred tax assets associated with our net
pension liability; however, these transactions did not result in a
material impact on net income.
|
(3)
|
On
October 31, 2008, we acquired the remaining interest in Bristow Norway
from the other Bristow Norway shareholders. The Bristow Norway
acquisition resulted in a change of interest gain of $12.3 million in
accumulated other comprehensive income in stockholders’ investment on our
consolidated balance sheet. For further details, see Note 2 to
the fiscal year 2009 Financial Statements.
|
(4)
|
Net
of income tax effect of $(0.4) million and $4.4 million for the three and
nine months ended December 31, 2009, respectively, and $(0.2) million and
$4.0 million for the three and nine months ended December 31, 2008,
respectively.
|
24
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
NOTE
13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In
connection with the sale of our 7 ½% Senior Notes due 2017, 6 ⅛% Senior Notes
due 2013 and 3% Convertible Senior Notes, certain of our U.S. subsidiaries (the
“Guarantor Subsidiaries”) jointly, severally and unconditionally guaranteed the
payment obligations under these notes. The following supplemental
financial information sets forth, on a consolidating basis, the balance sheet,
statement of income and cash flow information for Bristow Group Inc. (“Parent
Company Only”), for the Guarantor Subsidiaries and for our other subsidiaries
(the “Non-Guarantor Subsidiaries”). We have not presented separate
financial statements and other disclosures concerning the Guarantor Subsidiaries
because management has determined that such information is not material to
investors.
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,
although we believe that the disclosures made are adequate to make the
information presented not misleading. The principal eliminating
entries eliminate investments in subsidiaries, intercompany balances and
intercompany revenue and expense.
The
allocation of the consolidated income tax provision was made using the with and
without allocation method.
25
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Income
Three
Months Ended December 31, 2009
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Gross
revenue
|
$
|
—
|
$
|
66,407
|
$
|
236,899
|
$
|
—
|
$
|
303,306
|
||||||||||
Intercompany
revenue
|
—
|
9,449
|
2,365
|
(11,814
|
)
|
—
|
||||||||||||||
—
|
75,856
|
239,264
|
(11,814
|
)
|
303,306
|
|||||||||||||||
Operating
expense:
|
||||||||||||||||||||
Direct
cost
|
(385
|
)
|
44,941
|
173,119
|
—
|
217,675
|
||||||||||||||
Intercompany
expenses
|
71
|
2,200
|
9,543
|
(11,814
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
484
|
7,215
|
12,964
|
—
|
20,663
|
|||||||||||||||
General
and administrative
|
12,156
|
3,741
|
14,861
|
—
|
30,758
|
|||||||||||||||
12,326
|
58,097
|
210,487
|
(11,814
|
)
|
269,096
|
|||||||||||||||
Gain
on disposal of assets
|
—
|
1,374
|
1,074
|
—
|
2,448
|
|||||||||||||||
Earnings
from unconsolidated affiliates,
net
|
45,718
|
—
|
4,407
|
(47,057
|
)
|
3,068
|
||||||||||||||
Operating
income
|
33,392
|
19,133
|
34,258
|
(47,057
|
)
|
39,726
|
||||||||||||||
Interest
income
|
5,268
|
20
|
348
|
(5,271
|
)
|
365
|
||||||||||||||
Interest
expense
|
(10,842
|
)
|
—
|
(5,408
|
)
|
5,271
|
(10,979
|
)
|
||||||||||||
Other
income (expense), net
|
6
|
(17
|
)
|
3,706
|
—
|
3,695
|
||||||||||||||
Income
before provision for
income
taxes
|
27,824
|
19,136
|
32,904
|
(47,057
|
)
|
32,807
|
||||||||||||||
Allocation
of consolidated income taxes
|
(969
|
)
|
(2,067
|
)
|
(2,645
|
)
|
—
|
(5,681
|
)
|
|||||||||||
Net
income
|
26,855
|
17,069
|
30,259
|
(47,057
|
)
|
27,126
|
||||||||||||||
Net
income attributable to noncontrolling
interests
|
(177
|
)
|
—
|
(271
|
)
|
—
|
(448
|
)
|
||||||||||||
Net
income attributable to Bristow Group
|
$
|
26,678
|
$
|
17,069
|
$
|
29,988
|
$
|
(47,057
|
)
|
$
|
26,678
|
26
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Income
Nine
Months Ended December 31, 2009
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Gross
revenue
|
$
|
—
|
$
|
209,856
|
$
|
675,517
|
$
|
—
|
$
|
885,373
|
||||||||||
Intercompany
revenue
|
—
|
25,722
|
8,669
|
(34,391
|
)
|
—
|
||||||||||||||
—
|
235,578
|
684,186
|
(34,391
|
)
|
885,373
|
|||||||||||||||
Operating
expense:
|
||||||||||||||||||||
Direct
cost
|
(649
|
)
|
137,094
|
488,260
|
—
|
624,705
|
||||||||||||||
Intercompany
expenses
|
78
|
8,678
|
25,635
|
(34,391
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
943
|
20,852
|
35,524
|
—
|
57,319
|
|||||||||||||||
General
and administrative
|
35,268
|
11,730
|
42,248
|
—
|
89,246
|
|||||||||||||||
35,640
|
178,354
|
591,667
|
(34,391
|
)
|
771,270
|
|||||||||||||||
Gain
on disposal of assets
|
—
|
3,789
|
9,548
|
—
|
13,337
|
|||||||||||||||
Earnings
from unconsolidated affiliates,
net
|
100,390
|
—
|
11,274
|
(101,039
|
)
|
10,625
|
||||||||||||||
Operating
income
|
64,750
|
61,013
|
113,341
|
(101,039
|
)
|
138,065
|
||||||||||||||
Interest
income
|
56,271
|
47
|
656
|
(56,177
|
)
|
797
|
||||||||||||||
Interest
expense
|
(31,885
|
)
|
—
|
(55,923
|
)
|
56,177
|
(31,631
|
)
|
||||||||||||
Other
income (expense), net
|
960
|
(550
|
)
|
3,613
|
—
|
4,023
|
||||||||||||||
Income
before provision for income
taxes
|
90,096
|
60,510
|
61,687
|
(101,039
|
)
|
111,254
|
||||||||||||||
Allocation
of consolidated income taxes
|
(5,994
|
)
|
(8,046
|
)
|
(12,387
|
)
|
—
|
(26,427
|
)
|
|||||||||||
Net
income
|
84,102
|
52,464
|
49,300
|
(101,039
|
)
|
84,827
|
||||||||||||||
Net
income attributable to noncontrolling
interests
|
(531
|
)
|
—
|
(725
|
)
|
—
|
(1,256
|
)
|
||||||||||||
Net
income attributable to Bristow Group
|
$
|
83,571
|
$
|
52,464
|
$
|
48,575
|
$
|
(101,039
|
)
|
$
|
83,571
|
27
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Income
Three
Months Ended December 31, 2008
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Gross
revenue
|
$
|
93
|
$
|
82,609
|
$
|
200,285
|
$
|
—
|
$
|
282,987
|
||||||||||
Intercompany
revenue
|
—
|
7,407
|
5,288
|
(12,695
|
)
|
—
|
||||||||||||||
93
|
90,016
|
205,573
|
(12,695
|
)
|
282,987
|
|||||||||||||||
Operating
expense:
|
||||||||||||||||||||
Direct
cost
|
(105
|
)
|
52,731
|
152,101
|
—
|
204,727
|
||||||||||||||
Intercompany
expenses
|
—
|
5,418
|
7,277
|
(12,695
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
179
|
6,058
|
10,426
|
—
|
16,663
|
|||||||||||||||
General
and administrative
|
9,191
|
3,371
|
13,024
|
—
|
25,586
|
|||||||||||||||
9,265
|
67,578
|
182,828
|
(12,695
|
)
|
246,976
|
|||||||||||||||
Gain
(loss) on GOM Asset Sale
|
(3,354
|
)
|
41,134
|
—
|
—
|
37,780
|
||||||||||||||
Gain
(loss) on disposal of assets
|
—
|
126
|
(228
|
)
|
—
|
(102
|
)
|
|||||||||||||
Earnings
(losses) from unconsolidated affiliates,
net
|
59,586
|
—
|
(832
|
)
|
(60,171
|
)
|
(1,417
|
)
|
||||||||||||
Operating
income
|
47,060
|
63,698
|
21,685
|
(60,171
|
)
|
72,272
|
||||||||||||||
Interest
income
|
17,507
|
16
|
917
|
(17,353
|
)
|
1,087
|
||||||||||||||
Interest
expense
|
(8,863
|
)
|
—
|
(16,766
|
)
|
17,353
|
(8,276
|
)
|
||||||||||||
Other
income (expense), net
|
604
|
509
|
(2,635
|
)
|
—
|
(1,522
|
)
|
|||||||||||||
Income
before provision for income
taxes
|
56,308
|
64,223
|
3,201
|
(60,171
|
)
|
63,561
|
||||||||||||||
Allocation
of consolidated income taxes
|
(8,901
|
)
|
(2,551
|
)
|
(4,409
|
)
|
—
|
(15,861
|
)
|
|||||||||||
Net
income (loss) from continuing operations
|
47,407
|
61,672
|
(1,208
|
)
|
(60,171
|
)
|
47,700
|
|||||||||||||
Net
income attributable to noncontrolling
interests
|
(242
|
)
|
—
|
(293
|
)
|
—
|
(535
|
)
|
||||||||||||
Net
income (loss) attributable to Bristow Group
|
$
|
47,165
|
$
|
61,672
|
$
|
(1,501
|
)
|
$
|
(60,171
|
)
|
$
|
47,165
|
28
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Income
Nine
Months Ended December 31, 2008
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Revenue:
|
||||||||||||||||||||
Gross
revenue
|
$
|
166
|
$
|
263,466
|
$
|
595,166
|
$
|
—
|
$
|
858,798
|
||||||||||
Intercompany
revenue
|
—
|
19,996
|
17,094
|
(37,090
|
)
|
—
|
||||||||||||||
166
|
283,462
|
612,260
|
(37,090
|
)
|
858,798
|
|||||||||||||||
Operating
expense:
|
||||||||||||||||||||
Direct
cost
|
491
|
167,945
|
462,405
|
—
|
630,841
|
|||||||||||||||
Intercompany
expenses
|
—
|
17,361
|
19,729
|
(37,090
|
)
|
—
|
||||||||||||||
Depreciation
and amortization
|
352
|
17,464
|
29,287
|
—
|
47,103
|
|||||||||||||||
General
and administrative
|
21,695
|
12,298
|
44,783
|
—
|
78,776
|
|||||||||||||||
22,538
|
215,068
|
556,204
|
(37,090
|
)
|
756,720
|
|||||||||||||||
Gain
on GOM Asset Sale
|
(3,354
|
)
|
41,134
|
—
|
—
|
37,780
|
||||||||||||||
Gain
on disposal of assets
|
—
|
1,658
|
22,551
|
(18,344
|
)
|
5,865
|
||||||||||||||
Earnings
(losses) from unconsolidated
affiliates,
net
|
155,357
|
3,454
|
6,269
|
(156,803
|
)
|
8,277
|
||||||||||||||
Operating
income
|
129,631
|
114,640
|
84,876
|
(175,147
|
)
|
154,000
|
||||||||||||||
Interest
income
|
60,427
|
106
|
2,079
|
(56,873
|
)
|
5,739
|
||||||||||||||
Interest
expense
|
(27,045
|
)
|
—
|
(55,771
|
)
|
56,873
|
(25,943
|
)
|
||||||||||||
Other
income (expense), net
|
3,860
|
778
|
(2,398
|
)
|
—
|
2,240
|
||||||||||||||
Income
before provision for income
taxes
|
166,873
|
115,524
|
28,786
|
(175,147
|
)
|
136,036
|
||||||||||||||
Allocation
of consolidated income taxes
|
(69,073
|
)
|
(10,091
|
)
|
42,670
|
—
|
(36,494
|
)
|
||||||||||||
Net
income from continuing operations
|
97,800
|
105,433
|
71,456
|
(175,147
|
)
|
99,542
|
||||||||||||||
Net
income attributable to noncontrolling
interests
|
(694
|
)
|
—
|
(1,496
|
)
|
—
|
(2,190
|
)
|
||||||||||||
Net
income attributable to Bristow Group
from
continuing operations
|
97,106
|
105,433
|
69,960
|
(175,147
|
)
|
97,352
|
||||||||||||||
Discontinued
operations:
|
||||||||||||||||||||
Loss
from discontinued operations before
provision
for income taxes
|
—
|
(379
|
)
|
—
|
—
|
(379
|
)
|
|||||||||||||
Benefits
for income taxes on
discontinued
operations
|
—
|
133
|
—
|
—
|
133
|
|||||||||||||||
Loss
from discontinued operations
|
—
|
(246
|
)
|
—
|
—
|
(246
|
)
|
|||||||||||||
Net
income attributable to Bristow Group
|
$
|
97,106
|
$
|
105,187
|
$
|
69,960
|
$
|
(175,147
|
)
|
$
|
97,106
|
29
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Balance Sheet
As
of December 31, 2009
Parent
|
Non-
|
|||||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||
ASSETS
|
||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
18,192
|
$
|
3,786
|
$
|
85,081
|
$
|
—
|
$
|
107,059
|
||||||||||||
Accounts
receivable
|
9,829
|
71,293
|
172,869
|
(22,354
|
)
|
231,637
|
||||||||||||||||
Inventories
|
—
|
86,404
|
100,816
|
—
|
187,220
|
|||||||||||||||||
Prepaid
expenses and other current assets
|
744
|
7,731
|
49,874
|
(31,767
|
)
|
26,582
|
||||||||||||||||
Total
current assets
|
28,765
|
169,214
|
408,640
|
(54,121
|
)
|
552,498
|
||||||||||||||||
Intercompany
investment
|
992,230
|
104,482
|
135,568
|
(1,232,280
|
)
|
—
|
||||||||||||||||
Investment
in unconsolidated affiliates
|
—
|
7,835
|
196,081
|
—
|
203,916
|
|||||||||||||||||
Intercompany
notes receivable
|
1,116,666
|
—
|
(184,534
|
)
|
(932,132
|
)
|
—
|
|||||||||||||||
Property
and equipment – at cost:
|
||||||||||||||||||||||
Land
and buildings
|
211
|
54,232
|
38,798
|
—
|
93,241
|
|||||||||||||||||
Aircraft
and equipment
|
10,734
|
760,713
|
1,242,700
|
—
|
2,014,147
|
|||||||||||||||||
10,945
|
814,945
|
1,281,498
|
—
|
2,107,388
|
||||||||||||||||||
Less: Accumulated
depreciation and amortization
|
(1,796
|
)
|
(139,784
|
)
|
(258,895
|
)
|
—
|
(400,475
|
)
|
|||||||||||||
9,149
|
675,161
|
1,022,603
|
—
|
1,706,913
|
||||||||||||||||||
Goodwill
|
—
|
4,486
|
42,485
|
—
|
46,971
|
|||||||||||||||||
Other
assets
|
112,365
|
1,184
|
184,022
|
(274,310
|
)
|
23,261
|
||||||||||||||||
$
|
2,259,175
|
$
|
962,362
|
$
|
1,804,865
|
$
|
(2,492,843
|
)
|
$
|
2,533,559
|
||||||||||||
LIABILITIES
AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||
Accounts
payable
|
$
|
1,850
|
$
|
10,561
|
$
|
50,758
|
$
|
(12,735
|
)
|
$
|
50,434
|
|||||||||||
Accrued
liabilities
|
17,218
|
22,655
|
110,020
|
(41,386
|
)
|
108,507
|
||||||||||||||||
Deferred
taxes
|
(1,591
|
)
|
—
|
10,939
|
—
|
9,348
|
||||||||||||||||
Short-term
borrowings and current maturities
of
long-term debt
|
5,487
|
—
|
13,724
|
—
|
19,211
|
|||||||||||||||||
Total
current liabilities
|
22,964
|
33,216
|
185,441
|
(54,121
|
)
|
187,500
|
||||||||||||||||
Long-term
debt, less current maturities
|
670,283
|
—
|
27,861
|
—
|
698,144
|
|||||||||||||||||
Intercompany
notes payable
|
—
|
357,056
|
675,076
|
(1,032,132
|
)
|
—
|
||||||||||||||||
Accrued
pension liabilities
|
—
|
—
|
99,276
|
—
|
99,276
|
|||||||||||||||||
Other
liabilities and deferred credits
|
4,587
|
8,174
|
188,700
|
(174,310
|
)
|
27,151
|
||||||||||||||||
Deferred
taxes
|
114,870
|
7,266
|
27,253
|
—
|
149,389
|
|||||||||||||||||
Stockholders’
investment:
|
||||||||||||||||||||||
Common
stock
|
359
|
4,996
|
34,479
|
(39,475
|
)
|
359
|
||||||||||||||||
Additional
paid-in-capital
|
669,174
|
17,888
|
473,242
|
(491,130
|
)
|
669,174
|
||||||||||||||||
Retained
earnings
|
795,739
|
533,766
|
45,706
|
(579,472
|
)
|
795,739
|
||||||||||||||||
Noncontrolling
interests
|
5,304
|
—
|
4,957
|
—
|
10,261
|
|||||||||||||||||
Accumulated
other comprehensive income
(loss)
|
(24,105
|
)
|
—
|
42,874
|
(122,203
|
)
|
(103,434
|
)
|
||||||||||||||
1,446,471
|
556,650
|
601,258
|
(1,232,280
|
)
|
1,372,099
|
|||||||||||||||||
$
|
2,259,175
|
$
|
962,362
|
$
|
1,804,865
|
$
|
(2,492,843
|
)
|
$
|
2,533,559
|
30
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Balance Sheet
As
of March 31, 2009
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||
Cash
and cash equivalents
|
$
|
226,691
|
$
|
5,445
|
$
|
68,833
|
$
|
—
|
$
|
300,969
|
||||||||||
Accounts
receivable
|
11,931
|
67,047
|
172,974
|
(35,278
|
)
|
216,674
|
||||||||||||||
Inventories
|
—
|
82,422
|
83,016
|
—
|
165,438
|
|||||||||||||||
Prepaid
expenses and other current assets
|
1,000
|
6,200
|
30,676
|
(17,650
|
)
|
20,226
|
||||||||||||||
Total
current assets
|
239,622
|
161,114
|
355,499
|
(52,928
|
)
|
703,307
|
||||||||||||||
Intercompany
investment
|
924,815
|
62,990
|
251,960
|
(1,239,765
|
)
|
—
|
||||||||||||||
Investment
in unconsolidated affiliates
|
1,631
|
150
|
18,484
|
—
|
20,265
|
|||||||||||||||
Intercompany
notes receivable
|
835,439
|
—
|
(8,709
|
)
|
(826,730
|
)
|
—
|
|||||||||||||
Property
and equipment – at cost:
|
||||||||||||||||||||
Land
and buildings
|
212
|
48,770
|
19,979
|
—
|
68,961
|
|||||||||||||||
Aircraft
and equipment
|
7,280
|
768,709
|
1,047,022
|
—
|
1,823,011
|
|||||||||||||||
7,492
|
817,479
|
1,067,001
|
—
|
1,891,972
|
||||||||||||||||
Less: Accumulated
depreciation and amortization
|
(1,511
|
)
|
(129,675
|
)
|
(219,329
|
)
|
—
|
(350,515
|
)
|
|||||||||||
5,981
|
687,804
|
847,672
|
—
|
1,541,457
|
||||||||||||||||
Goodwill
|
—
|
4,486
|
40,168
|
—
|
44,654
|
|||||||||||||||
Other
assets
|
113,735
|
1,151
|
186,726
|
(276,724
|
)
|
24,888
|
||||||||||||||
$
|
2,121,223
|
$
|
917,695
|
$
|
1,691,800
|
$
|
(2,396,147
|
)
|
$
|
2,334,571
|
||||||||||
LIABILITIES
AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||
Accounts
payable
|
$
|
938
|
$
|
20,772
|
$
|
50,230
|
$
|
(27,048
|
)
|
$
|
44,892
|
|||||||||
Accrued
liabilities
|
11,458
|
22,703
|
90,594
|
(26,951
|
)
|
97,804
|
||||||||||||||
Deferred
taxes
|
(1,575
|
)
|
—
|
7,770
|
—
|
6,195
|
||||||||||||||
Short-term
borrowings and current maturities
of
long-term debt
|
3,040
|
—
|
5,908
|
—
|
8,948
|
|||||||||||||||
Total
current liabilities
|
13,861
|
43,475
|
154,502
|
(53,999
|
)
|
157,839
|
||||||||||||||
Long-term
debt, less current maturities
|
670,565
|
—
|
44,400
|
—
|
714,965
|
|||||||||||||||
Intercompany
notes payable
|
—
|
355,150
|
572,148
|
(927,298
|
)
|
—
|
||||||||||||||
Accrued
pension liabilities
|
—
|
—
|
81,380
|
—
|
81,380
|
|||||||||||||||
Other
liabilities and deferred credits
|
3,340
|
8,567
|
181,964
|
(177,130
|
)
|
16,741
|
||||||||||||||
Deferred
taxes
|
97,503
|
6,299
|
23,464
|
—
|
127,266
|
|||||||||||||||
Stockholders’
investment:
|
||||||||||||||||||||
Preferred
stock
|
222,554
|
—
|
—
|
—
|
222,554
|
|||||||||||||||
Common
stock
|
291
|
4,996
|
9,646
|
(14,642
|
)
|
291
|
||||||||||||||
Additional
paid-in-capital
|
436,296
|
17,906
|
542,992
|
(560,898
|
)
|
436,296
|
||||||||||||||
Retained
earnings
|
718,493
|
481,302
|
12,860
|
(494,162
|
)
|
718,493
|
||||||||||||||
Noncontrolling
interests
|
7,107
|
—
|
4,093
|
—
|
11,200
|
|||||||||||||||
Accumulated
other comprehensive income
(loss)
|
(48,787
|
)
|
—
|
64,351
|
(168,018
|
)
|
(152,454
|
)
|
||||||||||||
1,335,954
|
504,204
|
633,942
|
(1,237,720
|
)
|
1,236,380
|
|||||||||||||||
$
|
2,121,223
|
$
|
917,695
|
$
|
1,691,800
|
$
|
(2,396,147
|
)
|
$
|
2,334,571
|
31
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Cash Flows
Nine
Months Ended December 31, 2009
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$
|
(42,032
|
)
|
$
|
38,772
|
$
|
166,277
|
$
|
—
|
$
|
163,017
|
|||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||
Capital
expenditures
|
(4,024
|
)
|
(104,115
|
)
|
(142,133
|
)
|
—
|
(250,272
|
)
|
|||||||||||
Proceeds
from asset dispositions
|
—
|
60,588
|
14,385
|
—
|
74,973
|
|||||||||||||||
Acquisition,
net of cash received
|
—
|
—
|
(178,961
|
)
|
—
|
(178,961
|
)
|
|||||||||||||
Net
cash used in investing activities
|
(4,002
|
)
|
(43,527
|
)
|
(306,709
|
)
|
—
|
(354,260
|
)
|
|||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||
Repayment
of debt and debt redemption premiums
|
(1,726
|
)
|
—
|
(8,342
|
)
|
—
|
(10,068
|
)
|
||||||||||||
Increases
(decreases) in cash related to intercompany
advances
and debt
|
(170,278
|
)
|
3,096
|
167,182
|
—
|
—
|
||||||||||||||
Dividends
paid
|
15,729
|
—
|
(15,729
|
)
|
—
|
—
|
||||||||||||||
Partial
prepayment of put/call obligation
|
(52
|
)
|
—
|
—
|
—
|
(52
|
)
|
|||||||||||||
Preferred
Stock dividends paid
|
(6,325
|
)
|
—
|
—
|
—
|
(6,325
|
)
|
|||||||||||||
Issuance
of common stock
|
1,336
|
—
|
—
|
—
|
1,336
|
|||||||||||||||
Tax
benefit related to stock-based compensation
|
409
|
—
|
—
|
—
|
409
|
|||||||||||||||
Net
cash provided by (used in) financing activities
|
(160,907
|
)
|
3,096
|
143,111
|
—
|
(14,700
|
)
|
|||||||||||||
Effect
of exchange rate changes on cash and cash
equivalents
|
(1,536
|
)
|
—
|
13,569
|
—
|
12,033
|
||||||||||||||
Net
increase (decrease) in cash and cash
equivalents
|
(208,499)
|
(1,659
|
)
|
16,248
|
—
|
(193,910
|
)
|
|||||||||||||
Cash
and cash equivalents at beginning of
period
|
226,691
|
5,445
|
68,833
|
—
|
300,969
|
|||||||||||||||
Cash
and cash equivalents at end of period
|
$
|
18,192
|
$
|
3,786
|
$
|
85,081
|
$
|
—
|
$
|
107,059
|
32
BRISTOW
GROUP INC. AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
Supplemental
Condensed Consolidating Statement of Cash Flows
Nine
Months Ended December 31, 2008
Parent
|
Non-
|
|||||||||||||||||||
Company
|
Guarantor
|
Guarantor
|
||||||||||||||||||
Only
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Net
cash provided by (used in) operating activities
|
$
|
(110,090
|
)
|
$
|
(81,511
|
)
|
$
|
197,310
|
$
|
98,163
|
$
|
103,872
|
||||||||
Cash
flows from investing activities:
|
||||||||||||||||||||
Capital
expenditures
|
(1,241
|
)
|
(135,321
|
)
|
(251,445
|
)
|
—
|
(388,007
|
)
|
|||||||||||
Proceeds
from asset dispositions
|
—
|
72,434
|
14,247
|
—
|
86,681
|
|||||||||||||||
Acquisitions,
net of cash received
|
—
|
356
|
(15,946
|
)
|
—
|
(15,590
|
)
|
|||||||||||||
Net
cash used in investing activities
|
(1,241
|
)
|
(62,531
|
)
|
(253,144
|
)
|
—
|
(316,916
|
)
|
|||||||||||
Cash
flows from financing activities:
|
||||||||||||||||||||
Proceeds
from borrowings
|
115,000
|
—
|
—
|
—
|
115,000
|
|||||||||||||||
Debt
issuance costs
|
(3,768
|
)
|
—
|
—
|
—
|
(3,768
|
)
|
|||||||||||||
Repayment
of debt and debt redemption premiums
|
(1,725
|
)
|
—
|
(19,271
|
)
|
—
|
(20,996
|
)
|
||||||||||||
Increases
(decreases) in cash related to intercompany
advances
and debt
|
(190,325
|
)
|
155,535
|
132,953
|
(98,163
|
)
|
—
|
|||||||||||||
Partial
prepayment of put/call obligation
|
(184
|
)
|
—
|
—
|
—
|
(184
|
)
|
|||||||||||||
Dividends
paid
|
12,900
|
—
|
(12,900
|
)
|
—
|
—
|
||||||||||||||
Preferred
Stock dividends paid
|
(9,487
|
)
|
—
|
—
|
—
|
(9,487
|
)
|
|||||||||||||
Issuance
of common stock
|
225,260
|
—
|
—
|
—
|
225,260
|
|||||||||||||||
Tax
benefit related to stock-based compensation
|
242
|
—
|
—
|
—
|
242
|
|||||||||||||||
Net
cash provided by financing activities
|
147,913
|
155,535
|
100,782
|
(98,163
|
)
|
306,067
|
||||||||||||||
Effect
of exchange rate changes on cash and cash
equivalents
|
3,630
|
—
|
(22,050
|
)
|
—
|
(18,420
|
)
|
|||||||||||||
Net
increase in cash and cash
equivalents
|
40,212
|
11,493
|
22,898
|
—
|
74,603
|
|||||||||||||||
Cash
and cash equivalents at beginning of
period
|
226,494
|
361
|
63,195
|
—
|
290,050
|
|||||||||||||||
Cash
and cash equivalents at end of period
|
$
|
266,706
|
$
|
11,854
|
$
|
86,093
|
$
|
—
|
$
|
364,653
|
33
Report of Independent
Registered Public Accounting Firm
The Board
of Directors and Shareholders
Bristow
Group Inc.:
We have
reviewed the condensed consolidated balance sheet of Bristow Group Inc. and
subsidiaries (the Company) as of December 31, 2009, and the related condensed
consolidated statements of income for the three- and nine-month periods ended
December 31, 2009 and 2008, and the related condensed consolidated statements of
cash flows for the nine-month periods ended December 31, 2009 and
2008. These condensed consolidated financial statements are the
responsibility of the Company’s management.
We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on
our reviews, we are not aware of any material modifications that should be made
to the condensed consolidated financial statements referred to above for them to
be in conformity with U.S. generally accepted accounting
principles.
We have
previously audited, in accordance with standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of March 31, 2009, and the related consolidated statements
of income, stockholders’ investment, and cash flows for the year then ended (not
presented herein); and in our report dated May 21, 2009 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of March 31, 2009 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
/s/ KPMG
LLP
Houston,
Texas
February
3, 2010
34
Item
2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations, or
MD&A, should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and the notes thereto as well as our
Annual Report on Form 10-K for the fiscal year ended March 31, 2009 (the “fiscal
year 2009 Annual Report”) and the MD&A contained therein. In the
discussion that follows, the terms “Current Quarter” and “Comparable Quarter”
refer to the three months ended December 31, 2009 and 2008, respectively, and
the terms “Current Period” and “Comparable Period” refer to the nine months
ended December 31, 2009 and 2008, respectively. Our fiscal year ends
March 31, and we refer to fiscal years based on the end of such
period. Therefore, the fiscal year ending March 31, 2010 is referred
to as “fiscal year 2010.”
Forward-Looking
Statements
This
Quarterly Report contains “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements
are statements about our future business, strategy, operations, capabilities and
results; financial projections; plans and objectives of our management; expected
actions by us and by third parties, including our customers, vendors,
competitors and regulators; and other matters. Some of the
forward-looking statements can be identified by the use of words such as
“believes”, “belief”, “expects”, “plans”, “anticipates”, “intends”, “projects”,
“estimates”, “may”, “might”, “would”, “could” or other similar words; however,
all statements in this Quarterly Report, other than statements of historical
fact or historical financial results are forward-looking
statements.
Our
forward-looking statements reflect our views and assumptions on the date we are
filing this Quarterly Report regarding future events and operating
performance. We believe that they are reasonable, but they involve
known and unknown risks, uncertainties and other factors, many of which may be
beyond our control, that may cause actual results to differ materially from any
future results, performance or achievements expressed or implied by the
forward-looking statements. Accordingly, you should not put undue
reliance on any forward-looking statements. Factors that could cause
our forward-looking statements to be incorrect and actual events or our actual
results to differ from those that are anticipated include all of the
following:
·
|
the
risks and uncertainties described under “Item 1A. Risk Factors” in our
fiscal year 2009 Annual Report;
|
·
|
the
level of activity in the oil and natural gas industry is lower than
anticipated;
|
·
|
production-related
activities become more sensitive to variances in commodity
prices;
|
·
|
the
major oil companies do not continue to expand
internationally;
|
·
|
market
conditions are weaker than
anticipated;
|
·
|
we
are unable to acquire additional aircraft due to limited availability or
unable to exercise aircraft purchase
options;
|
·
|
we
are unable to obtain financing or we are unable to draw on our credit
facilities;
|
·
|
we
are not able to re-deploy our aircraft to regions with greater
demand;
|
·
|
we
do not achieve the anticipated benefit of our fleet renewal and growth
strategy; and
|
·
|
the
outcome of the U.S. Department of Justice (“DOJ”)
investigations, which are ongoing, have a greater than
anticipated financial or business
impact.
|
All
forward-looking statements in this Quarterly Report are qualified by these
cautionary statements and are only made as of the date of this Quarterly
Report. We do not undertake any obligation, other than as required by
law, to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
35
Executive
Overview
This
Executive Overview only includes what management considers to be the most
important information and analysis for evaluating our financial condition and
operating performance. It provides the context for the discussion and
analysis of the financial statements which follows and does not disclose every
item impacting our financial condition and operating performance.
General
We are a
leading provider of helicopter services to the worldwide offshore energy
industry and one of two helicopter service providers to the offshore energy
industry with global operations. We have significant operations in
most major offshore oil and gas producing regions of the world, including the
North Sea, the U.S. Gulf of Mexico, Nigeria, Australia and Latin America, and we
generated 81% of our revenue from international operations during the Current
Period. We have a long history in the helicopter services industry,
with our two principal legacy companies, Bristow Helicopters Ltd. and Offshore
Logistics, Inc., having been founded in 1955 and 1969,
respectively.
We
conduct our business in one segment: Helicopter
Services. The Helicopter Services segment’s operations are conducted
through three divisions, Western Hemisphere, Eastern Hemisphere and Global
Training, and through ten business units within those divisions:
·
|
Western
Hemisphere
|
−
|
U.S.
Gulf of Mexico
|
−
|
Arctic
|
−
|
Latin
America
|
−
|
Western
Hemisphere (“WH”) Centralized
Operations
|
·
|
Eastern
Hemisphere
|
−
|
Europe
|
−
|
West
Africa
|
−
|
Australia
|
−
|
Other
International
|
−
|
Eastern
Hemisphere (“EH”) Centralized
Operations
|
·
|
Global
Training
|
−
|
Bristow
Academy
|
We
provide helicopter services to a broad base of major integrated, national and
independent oil and gas companies. Customers charter our helicopters
to transport personnel between onshore bases and offshore platforms, drilling
rigs and installations. A majority of our helicopter revenue is
attributable to oil and gas production activities, which have historically
provided a more stable source of revenue than exploration and development
related activities. As of December 31, 2009, we operated 379 aircraft
(including 340 owned aircraft, 33 leased aircraft and 6 aircraft operated for
one of our customers; 11 of the owned aircraft are held for sale) and our
unconsolidated affiliates operated or managed 196 aircraft in addition to those
aircraft leased from us. Our Global Training division is approved to
provide helicopter flight training to the commercial pilot and flight instructor
level by both the U.S. Federal Aviation Administration and the European
Joint Aviation Authority. Bristow Academy, which forms the central
core of our Global Training division, operates 74 aircraft (including 55 owned
and 19 leased aircraft) and employs 183 people, including 86 flight instructors
and 8 ground instructors. The Global Training division supports,
coordinates, standardizes, and in the case of the Bristow Academy schools,
directly manages our flight training activities.
36
The chart
below presents (1) the number of helicopters in our fleet and their
distribution among the business units of our Helicopter Services segment as of
December 31, 2009; (2) the number of helicopters we had on order or under
option as of December 31, 2009; and (3) the percentage of gross revenue
each of our business units provided during the Current Period. For
additional information regarding our commitments and options to acquire
aircraft, see Note 7 in the “Notes to Condensed Consolidated Financial
Statements” included elsewhere in this Quarterly Report.
Percentage
of Current Period Revenue
|
Aircraft
in Consolidated Fleet
|
||||||||||||||||||
Helicopters
|
|||||||||||||||||||
Small
|
Medium
|
Large
|
Training
|
Fixed Wing
|
Total
(1)
|
Unconsolidated Affiliates
(2)
|
Total
|
||||||||||||
U.S.
Gulf of Mexico
|
15
|
%
|
62
|
26
|
7
|
—
|
—
|
95
|
—
|
95
|
|||||||||
Arctic
|
1
|
%
|
13
|
2
|
—
|
—
|
1
|
16
|
—
|
16
|
|||||||||
Latin
America
|
7
|
%
|
5
|
32
|
2
|
—
|
—
|
39
|
89
|
128
|
|||||||||
WH
Centralized Operations
|
—
|
%
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||
Europe
|
39
|
%
|
—
|
11
|
40
|
—
|
—
|
51
|
—
|
51
|
|||||||||
West
Africa
|
19
|
%
|
12
|
32
|
5
|
—
|
4
|
53
|
—
|
53
|
|||||||||
Australia
|
11
|
%
|
2
|
10
|
18
|
—
|
—
|
30
|
—
|
30
|
|||||||||
Other
International
|
5
|
%
|
—
|
11
|
10
|
—
|
—
|
21
|
44
|
65
|
|||||||||
EH
Centralized Operations
|
1
|
%
|
—
|
—
|
—
|
—
|
—
|
—
|
63
|
63
|
|||||||||
Bristow
Academy
|
2
|
%
|
—
|
—
|
—
|
74
|
—
|
74
|
—
|
74
|
|||||||||
Total
|
100
|
%
|
94
|
124
|
82
|
74
|
5
|
379
|
196
|
575
|
|||||||||
Aircraft
not currently in fleet: (3)
|
|||||||||||||||||||
On
order
|
—
|
6
|
5
|
—
|
—
|
11
|
|||||||||||||
Under
option
|
—
|
41
|
13
|
—
|
—
|
54
|
_________
(1)
|
Includes
11 aircraft held for sale.
|
(2)
|
The
196 aircraft operated or managed by our unconsolidated affiliates are in
addition to those aircraft leased from us.
|
(3)
|
This
table does not reflect aircraft which our unconsolidated affiliates may
have on order or under option.
|
In
December 2009, we announced that the following key changes in our organizational
structure will be made to improve operations and financial
performance. These changes will not be finalized until March 31,
2010.
·
|
The
Eastern and Western Hemisphere divisional boundaries will be eliminated,
and Centralized Operations will be managed under a single global
organization.
|
·
|
The
Other International and Latin America business units will be merged into a
single International business unit.
|
·
|
The
U.S. Gulf of Mexico and Arctic business units will be combined into a
single North America business unit.
|
·
|
A
global shared services organization will be created to support finance,
accounting, human resources and information
technology.
|
Our
Strategy
Our goal
is to advance our position as a leading helicopter services provider to the
offshore energy industry. We intend to employ the following
strategies to achieve this goal:
·
|
Grow our
business. We plan to continue to grow our business
globally and increase our revenue and profitability, subject to managing
through cyclical downturns in the energy industry. We have a
footprint in most major oil and gas producing regions of the world, and we
expect to have the opportunity to expand and deepen our presence in many
of these markets. We anticipate this growth will result
primarily from the deployment of new aircraft into markets where we expect
they will be most profitably employed, as well as by executing
opportunistic acquisitions and investments. Through our
relationships with our existing customers, we are aware of future business
opportunities in the markets we currently serve that would allow us to
grow through fleet additions. Our acquisition-related growth
may include increasing our role and participation with existing
unconsolidated affiliates or investing in new companies, and may include
increasing our position in existing markets or expanding into new
markets.
|
37
·
|
Be the preferred provider of
helicopter services. We position our business as the
preferred provider of helicopter services by maintaining strong
relationships with our customers and providing safe and high-quality
service. We focus on maintaining relationships with our
customers’ field operations and corporate management. We
believe that this focus helps us better anticipate customer needs and
provide our customers with the right aircraft in the right place at the
right time, which in turn allows us to better manage our existing fleet
and capital investment program. We also leverage our close
relationships with our customers to establish mutually beneficial
operating practices and safety standards worldwide. By applying
standard operating and safety practices across our global operations, we
are able to provide our customers with consistent, high-quality service in
each of their areas of operation. By better understanding our
customers’ needs and by virtue of our global operations and safety
standards, we have effectively competed against other helicopter service
providers based on aircraft availability, customer service, safety and
reliability, and not just price.
|
·
|
Integrate our global
operations. We are an integrated global operator, and we
intend to continue to identify and implement further opportunities to
integrate our global organization. We have integrated our
operations among previously independently managed businesses, created a
global flight and maintenance standards group, improved our global asset
allocation and made other changes in our corporate and field
operations.
|
Market
Outlook
Our core
business is providing helicopter services to the worldwide oil and gas
industry. Our customers’ operating expenditures in the production
sector are the principal source of our revenue, while their exploration and
development capital expenditures provide a lesser portion of our
revenue. Our customers typically base their capital expenditure
budgets on their long-term commodity price expectations and not exclusively on
the current spot price. In 2009, the credit, equity and commodity
markets were volatile causing many of our oil company customers to reduce
capital spending plans and defer projects. Thus far in 2010, oil
prices have stabilized in the $70-$80 range. We believe that the
continued stability of oil prices may lead to confidence among our customers and
increased capital expenditure budgets.
While we
are cautiously optimistic that the economic conditions will gradually recover,
we continue to implement our cost reduction efforts and work with our customers
to improve the efficiency of their operations. Our global operations
and critical mass of helicopters provide us with diversity of geographic and
customer focus to help mitigate risks associated with single markets or
customers and allows us to respond to increased demand in certain markets
through redeployment of assets.
Although
some of the global demand for our services has softened, the fundamental
long-term challenge for our industry is the limited availability of new aircraft
and the need throughout the industry to retire many of the older aircraft in
the worldwide fleet. Currently manufacturers have some available
aircraft; however, we expect constraints on supply of new large aircraft to
resume. The aftermarket for sales of our older aircraft has softened,
reflecting fewer buyers with available capital, and sale prices have also
declined, but to a lesser extent.
We
continue to expect to grow our business through the delivery of aircraft on
order and potentially through acquisitions and investments, subject to managing
through cyclical downturns in the energy industry. Additionally,
during this fiscal year we have invested in Brazil, an emerging market and
potential growth area through our acquisition of a 42.5% interest in Líder
Aviação Holding S.A. (“Líder”). See Note 2 in the “Notes to Condensed
Consolidated Financial Statements” included elsewhere in this Quarterly
Report.
Since the
beginning of fiscal year 2007, we have raised approximately $1.0 billion of
capital in a mix of debt and equity with both public and private
financings. During this same period we have spent $1.3 billion on
capital expenditures to grow our business. We expect that our cash on
deposit as of December 31, 2009 of $107.1 million, cash flow from operations and
aircraft sales as well as the $100 million borrowing capacity under our
revolving credit facility will be sufficient to satisfy our capital commitments,
including our remaining aircraft purchase commitments of $116.7 million as of
December 31, 2009. We plan to continue to be disciplined in our
capital commitment program. Therefore, we do not foresee an immediate
need to raise capital through new financings. However, we currently
see an active bid market for new helicopter contract work for clients and our
view on capital needs may vary based on the success of bids in the
marketplace. See “Items 1A. Risk Factors” in Part II of our fiscal
year 2009 Annual Report for a discussion of some of the risks associated with
the financial and credit crisis and worldwide economic downturn.
38
Results
of Operations
The
following tables present our operating results and other income statement
information for the applicable periods:
Three
Months Ended
December 31,
|
Favorable
|
||||||||||||||||
2009
|
2008
|
(Unfavorable)
|
|||||||||||||||
(Unaudited)
(In
thousands, except per share
amounts,
percentages and flight hours)
|
|||||||||||||||||
Gross
revenue:
|
|||||||||||||||||
Operating
revenue
|
$
|
275,488
|
$
|
253,283
|
$
|
22,205
|
8.8
|
%
|
|||||||||
Reimbursable
revenue
|
27,818
|
29,704
|
(1,886
|
)
|
(6.3
|
)%
|
|||||||||||
Total
gross revenue
|
303,306
|
282,987
|
20,319
|
7.2
|
%
|
||||||||||||
Operating
expense:
|
|||||||||||||||||
Direct
cost
|
189,456
|
176,038
|
(13,418
|
)
|
(7.6
|
)%
|
|||||||||||
Reimbursable
expense
|
28,219
|
28,689
|
470
|
1.6
|
%
|
||||||||||||
Depreciation
and amortization
|
20,663
|
16,663
|
(4,000
|
)
|
(24.0
|
)%
|
|||||||||||
General
and administrative
|
30,758
|
25,586
|
(5,172
|
)
|
(20.2
|
)%
|
|||||||||||
269,096
|
246,976
|
(22,120
|
)
|
(9.0
|
)%
|
||||||||||||
Gain
on GOM Asset Sale (1)
|
—
|
37,780
|
(37,780
|
)
|
*
|
||||||||||||
Gain
(loss) on disposal of assets (2)
|
2,448
|
(102
|
)
|
2,550
|
*
|
||||||||||||
Earnings
(losses) from unconsolidated affiliates, net (2)
|
3,068
|
(1,417
|
)
|
4,485
|
316.5
|
% | |||||||||||
Operating
income
|
39,726
|
72,272
|
(32,546
|
)
|
(45.0
|
)%
|
|||||||||||
Interest
income (expense), net
|
(10,614
|
)
|
(7,189
|
)
|
(3,425
|
)
|
(47.6
|
)%
|
|||||||||
Other
income (expense), net
|
3,695
|
(1,522
|
)
|
5,217
|
342.8
|
%
|
|||||||||||
Income
before provision for income taxes
|
32,807
|
63,561
|
(30,754
|
)
|
(48.4
|
)%
|
|||||||||||
Provision
for income taxes
|
(5,681
|
)
|
(15,861
|
)
|
10,180
|
64.2
|
%
|
||||||||||
Net
income
|
27,126
|
47,700
|
(20,574
|
)
|
(43.1
|
)%
|
|||||||||||
Net
income attributable to noncontrolling interests
|
(448
|
)
|
(535
|
)
|
87
|
16.3
|
%
|
||||||||||
Net
income attributable to Bristow Group
|
$
|
26,678
|
$
|
47,165
|
$
|
(20,487
|
)
|
(43.4
|
)%
|
||||||||
Diluted
earnings per common share
|
$
|
0.74
|
$
|
1.32
|
$
|
(0.58
|
)
|
(43.9
|
)%
|
||||||||
Operating
margin (3)
|
13.1
|
%
|
25.5
|
%
|
(12.4
|
)
|
%
|
(48.6
|
)%
|
||||||||
Flight
hours (4)
|
54,522
|
67,127
|
(12,605
|
)
|
(18.8
|
)%
|
_________
*
percentage change not meaningful
39
Nine
Months Ended
December 31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(Unaudited)
(In
thousands, except per share
amounts,
percentages and flight hours)
|
||||||||||||||||
Gross
revenue:
|
||||||||||||||||
Operating
revenue
|
$
|
804,083
|
$
|
778,643
|
$
|
25,440
|
3.3
|
%
|
||||||||
Reimbursable
revenue
|
81,290
|
80,155
|
1,135
|
1.4
|
%
|
|||||||||||
Total
gross revenue
|
885,373
|
858,798
|
26,575
|
3.1
|
%
|
|||||||||||
Operating
expense:
|
||||||||||||||||
Direct
cost
|
543,525
|
551,404
|
7,879
|
1.4
|
%
|
|||||||||||
Reimbursable
expense
|
81,180
|
79,437
|
(1,743
|
)
|
(2.2
|
)%
|
||||||||||
Depreciation
and amortization
|
57,319
|
47,103
|
(10,216
|
)
|
(21.7
|
)%
|
||||||||||
General
and administrative
|
89,246
|
78,776
|
(10,470
|
)
|
(13.3
|
)%
|
||||||||||
771,270
|
756,720
|
(14,550
|
)
|
(1.9
|
)%
|
|||||||||||
Gain
on GOM Asset Sale (1)
|
—
|
37,780
|
(37,780
|
)
|
*
|
|||||||||||
Gain
on disposal of assets (2)
|
13,337
|
5,865
|
7,472
|
127.4
|
%
|
|||||||||||
Earnings
(losses) from unconsolidated affiliates,
net (2)
|
10,625
|
8,277
|
2,348
|
28.4
|
%
|
|||||||||||
Operating
income
|
138,065
|
154,000
|
(15,935
|
)
|
(10.3
|
)%
|
||||||||||
Interest
income (expense), net
|
(30,834
|
)
|
(20,204
|
)
|
(10,630
|
)
|
(52.6
|
)%
|
||||||||
Other
income (expense), net
|
4,023
|
2,240
|
1,783
|
79.6
|
%
|
|||||||||||
Income
before provision for income taxes
|
111,254
|
136,036
|
(24,782
|
)
|
(18.2
|
)%
|
||||||||||
Provision
for income taxes
|
(26,427)
|
(36,494
|
)
|
10,067
|
27.6
|
%
|
||||||||||
Net
income from continuing operations
|
84,827
|
99,542
|
(14,715
|
)
|
(14.8
|
)%
|
||||||||||
Loss
from discontinued operations
|
—
|
(246
|
)
|
246
|
100.0
|
%
|
||||||||||
Net
income
|
84,827
|
99,296
|
(14,469
|
)
|
(14.6
|
)%
|
||||||||||
Net
income attributable to noncontrolling interests
|
(1,256
|
)
|
(2,190
|
)
|
934
|
42.6
|
%
|
|||||||||
Net
income attributable to Bristow Group
|
$
|
83,571
|
$
|
97,106
|
$
|
(13,535
|
)
|
(13.9
|
)%
|
|||||||
Diluted
earnings per common share
|
$
|
2.32
|
$
|
2.84
|
$
|
(0.52
|
)
|
(18.3
|
)%
|
|||||||
Operating
margin (3)
|
15.6
|
%
|
17.9
|
%
|
(2.3
|
)
|
%
|
(12.8
|
)%
|
|||||||
Flight
hours (4)
|
172,980
|
217,338
|
(44,358
|
)
|
(20.4
|
)%
|
_________
*
percentage change not meaningful
(1)
|
On
October 30, 2008, we sold 53 small aircraft and related assets operating
in the U.S. Gulf of Mexico for $65 million (the “GOM Asset
Sale”). For further details, see Note 2 in “Notes to
Consolidated Financial Statements” included elsewhere in this Quarterly
Report.
|
(2)
|
Gain
on disposal of assets which was previously included within operating
expense has been reclassified in this Quarterly Report to be included as a
separate line below operating expense, but still within operating
income. Earnings (losses) from unconsolidated affiliates, net
which were previously included in non-operating income have been
reclassified in this Quarterly Report to be included within operating
income. Amounts presented for the Comparable Quarter and
Comparable Period have been restated to conform to Current Quarter and
Current Period presentation. See Note 1 in the “Notes to
Condensed Consolidated Financial Statements” included elsewhere in this
Quarterly Report for further discussion of these changes in
presentation.
|
(3)
|
Operating
margin is calculated as operating income divided by gross
revenue.
|
(4)
|
Excludes
flight hours from Bristow Academy and unconsolidated
affiliates.
|
40
Current
Quarter Compared to Comparable Quarter
Gross
revenue in the Current Quarter increased from the Comparable Quarter primarily
as a result of the inclusion of a full quarter of revenue during the Current
Quarter from the consolidation of Bristow Norway following our October 31, 2008
acquisition of the 51% interest in Bristow Norway that we did not previously
own, which added $17.7 million in revenue, and increases in rates charged to
customers. Additionally, the Current Quarter includes the favorable
impact of $15.6 million on revenue primarily within our Europe and Australia
business units resulting from changes in exchange rates. The increase
in gross revenue was partially offset by a decrease in revenue in the U.S. Gulf
of Mexico as a result of the GOM Asset Sale and lower demand for our services in
that market.
Operating
expense increased primarily due to the addition of $15.1 million in expense from
Bristow Norway, increases in depreciation expense resulting from the addition of
new aircraft, increases in insurance premiums and increases in salaries and
benefits primarily due to increased incentive compensation as well as $1.7
million in additional compensation expense in connection with the departure of
two of the Company’s officers during the Current Quarter. Also during
the Current Quarter, we recorded charges of $2.9 million to reduce the carrying
value of obsolete inventory. Additionally, the Current Quarter
includes an increase in operating expense of $10.6 million resulting from
changes in exchange rates, which increased operating expense in our Europe and
Australia business units, and decreased operating expense in our West Africa
business unit. The increase in operating expense was partially offset
by a reduction in operating costs in the U.S. Gulf of Mexico resulting from the
GOM Asset Sale and a decrease in global fuel costs. During the
Current Quarter, an aircraft was damaged when a controlled landing was performed
in West Africa as part of emergency procedures employed by the
crew. This incident resulted in a charge across all of our business
units during the Current Quarter of $2.0 million.
Operating
income in the Comparable Quarter includes $37.8 million in gains generated from
the GOM Asset Sale. Excluding the impact of the GOM Asset Sale in the
Comparable Quarter, operating income and operating margin would have been $34.5
million and 12.2%, respectively. Operating income improved, when
taking out the effect of the GOM Asset Sale, as a result of the Bristow Norway
acquisition, improved results in West Africa, Australia and EH Centralized
Operations, an increase in gain on sale of assets of $2.6 million and a $4.5
million increase in earnings (losses) from unconsolidated affiliates, net,
partially offset by decreased operating income in certain other business units,
including the U.S. Gulf of Mexico and Other International. The
changes in exchange rates discussed above had a favorable impact on operating
income of $5.2 million in the Current Quarter.
The
Current Quarter includes earnings from our recent investment in Líder of $1.8
million partially offset by an increase in equity losses from Heliservicio
Campeche S.A. de C.V. (“Heliservicio”) of $0.8 million. The
Comparable Quarter includes pre-acquisition equity losses from Bristow Norway of
$2.6 million. See further discussion of Líder and Heliservicio
included in “– Business Unit Operating Results – Current Quarter Compared to
Comparable Quarter – Latin America” and Bristow Norway included in “– Business
Unit Operating Results – Current Quarter Compared to Comparable Quarter –
Europe.”
Net
income and diluted earnings per common share for the Current Quarter were
affected by the items discussed above affecting operating income, a $3.4 million
increase in interest expense, net, a $5.2 million increase in other income
(expense), net, and a $10.2 million decrease in our provision for income
taxes. Other income (expense), net includes hedging gains of $2.8
million in the Current Quarter. Our provision for income taxes was
unfavorably impacted in the Current Quarter by tax contingency items and
changes in our expected foreign tax credit utilization totaling $1.0
million. Our provision for income taxes in the Comparable Quarter was
favorably impacted by a benefit related to tax elections filed in the Comparable
Quarter as part of an internal reorganization and the resolution of uncertain
tax positions totaling $4.0 million. See further discussion in “–
Business Unit Operating Results – Current Quarter Compared to Comparable Quarter
– Interest Expense, Net,” “– Business Unit Operating Results – Current Quarter
Compared to Comparable Quarter – Other Income (Expense), Net ”and in “– Business
Unit Operating Results – Current Quarter Compared to Comparable Quarter –
Taxes.”
Excluding
the impact of the compensation expense associated with the departure of two
officers, the aircraft incident charge, the hedging gains and the tax items
discussed above, diluted earnings per share would have been $0.80 in the Current
Quarter. Excluding the gains generated from the GOM Asset Sale and
the tax items discussed above, diluted earnings per share would have been $0.54
in the Comparable Quarter.
41
As
discussed above, our results for the Current Quarter were favorably impacted by
the changes in exchange rates, which resulted in an increase in net income of
$6.1 million and diluted earnings per common share of $0.17. These
increases are reflected in our results for Europe, West Africa and Australia,
and in other income (expense), net. See further discussion in “–
Business Unit Operating Results – Current Period Compared to Comparable Period –
Other Income (Expense), Net.”
Current
Period Compared to Comparable Period
The
increase in gross revenue is primarily due to our October 31, 2008 acquisition
of the 51% interest in Bristow Norway that we did not previously own, increased
rates charged to customers and increased reimbursable revenue. The
acquisition of Bristow Norway increased revenue by $82.4 million from the
Comparable Period to the Current Period. These increases were
partially offset by decreases in revenue in the U.S. Gulf of Mexico resulting
from the GOM Asset Sale and lower demand for services in that market, a decrease
in fuel costs rebilled to our customers and the favorable impact of $37.9
million from changes in exchange rates, primarily on revenue for our Europe
business unit.
Operating
expense increased primarily due to the addition of $74.8 million in expense from
Bristow Norway and increases in depreciation expense as a result of new aircraft
purchased. The increase was partially offset by a reduction in
operating costs in the U.S. Gulf of Mexico resulting from the GOM Asset Sale, a
decrease in global fuel costs, a decrease in costs within our Australia business
unit and a $39.0 million decrease in operating expense resulting from changes in
exchange rates (which primarily reduced operating expense in Europe and West
Africa). General and administrative expense increased primarily from
an increase in salaries and benefits including increased incentive compensation
expense during the Current Period and the separation between the Company and
three officers that resulted in $4.8 million of additional compensation expense
during the Current Period.
Operating
income during the Comparable Period includes $37.8 million relating to the GOM
Asset Sale. Excluding the impact of the GOM Asset Sale in the
Comparable Period, operating income and operating margin would have been $116.2
million and 13.5%, respectively. Excluding the impact of the GOM
Asset Sale, operating income improved $21.8 million in the Current Period
primarily as a result of improved results in West Africa and Australia and an
increase in gain on disposal of assets of $7.5 million, partially offset by
decreased operating income in certain other business units, including WH
Centralized Operations, the U.S. Gulf of Mexico and Europe as well as increased
general and administrative expenses discussed above.
Net
income and diluted earnings per common share for the Current Period were
affected by the items affecting operating income, a $10.6 million increase in
interest expense, net and a $10.1 million decrease in our provision for income
taxes. Other income (expense), net includes hedging gains of $3.9
million in the Current Period. Our provision for income taxes was
favorably impacted in the Current Period by tax contingency items and changes in
our expected foreign tax credit utilization totaling $5.2
million. Our provision for income taxes was favorably impacted in the
Comparable Period by a benefit related to tax elections filed in the Comparable
Quarter as part of an internal reorganization and the resolution of uncertain
tax positions totaling $4.7 million. See further discussion in “–
Business Unit Operating Results – Current Period Compared to Comparable Period –
Interest Expense, Net” and in “– Business Unit Operating Results – Current
Period Compared to Comparable Period – Taxes.”
Excluding
the impact of the compensation expense associated with the departure of the
three officers, the hedging gains and taxes items discussed above, diluted
earnings per share would have been $2.48 in the Current
Period. Excluding the gains generated from the GOM Asset Sale and the
tax items discussed above, diluted earnings per share would have been $2.01 in
the Comparable Period.
42
Business
Unit Operating Results
The
following discussion sets forth certain operating information for the ten
business units comprising our Helicopter Services
segment. Intercompany lease revenue and expense are eliminated from
our segment reporting, and depreciation expense of aircraft is presented in the
segment that operates the aircraft.
Beginning
on April 1, 2009, there was no longer a Southeast Asia business
unit. Australia is now a separate business unit and Malaysia, China
and Vietnam are now included in the Other International business
unit. Amounts presented below for the Comparable Quarter and
Comparable Period have been restated to conform to Current Quarter and Current
Period presentation.
Additionally,
we previously recorded certain cost reimbursement intercompany transactions
between the EH Centralized Operations business unit and other business units as
intrasegment revenue. We have reclassified these cost reimbursements
from revenue to a reduction in expense. Amounts presented below for
the Comparable Quarter and Comparable Period have been restated to conform to
Current Quarter and Current Period presentation.
As
discussed in Note 1 in the “Notes to Condensed Consolidated Financial
Statements” included elsewhere in this Quarterly Report, earnings (losses) from
unconsolidated affiliates, net which were previously included in non-operating
income have been reclassified to be included within operating income and have
been allocated to our business units herein. Amounts presented below
for the Comparable Quarter and Comparable Period have been restated to conform
to Current Quarter and Current Period presentation.
As
discussed above, in December 2009 we announced changes in our organizational
structure and business units that will be finalized by March 31,
2010. The Eastern and Western Hemisphere divisional boundaries will
be eliminated, and Centralized Operations will be managed under a single global
organization. The Other International and Latin America business
units will be merged into a single International business unit. The
U.S. Gulf of Mexico and Arctic business units will be combined into a single
North America business unit.
Current
Quarter Compared to Comparable Quarter
Set forth
below is a discussion of the operations of our business units. Our
consolidated results are discussed under “Results of Operations”
above.
U.S.
Gulf of Mexico
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
42,456
|
$
|
53,695
|
$
|
(11,239
|
)
|
(20.9
|
)%
|
|||||||
Operating
expense
|
$
|
37,968
|
$
|
44,974
|
$
|
7,006
|
15.6
|
%
|
||||||||
Operating
margin
|
10.6
|
%
|
16.2
|
%
|
(5.6
|
)%
|
|
(34.6
|
)%
|
|||||||
Flight
hours
|
16,452
|
25,445
|
(8,993
|
)
|
(35.3
|
)%
|
The
decrease in flight hours, gross revenue and operating expense is primarily due
to the GOM Asset Sale as well as an overall decline in the demand for aircraft
in this market resulting from decreased drilling activity. The GOM
Asset Sale resulted in a decrease in revenue and flight hours of $3.3 million
and 4,171, respectively. In connection with this sale, we entered
into a Transition Services Agreement (“TSA”) with the buyer under which we
agreed to operate the aircraft included in the GOM Asset Sale until operational
control was transferred to the buyer’s FAA operating
certificate. During the Comparable Quarter we generated $1.8 million
of revenue under the TSA. Although we took measures to reduce
operating expense in response to the decline in demand for aircraft in this
market, we were not able to fully protect our operating margins which
deteriorated from the Comparable Quarter.
43
Arctic
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
3,228
|
$
|
3,005
|
$
|
223
|
7.4
|
%
|
||||||||
Operating
expense
|
$
|
3,206
|
$
|
2,821
|
$
|
(385
|
)
|
(13.6
|
)%
|
|||||||
Operating
margin
|
0.7
|
%
|
6.1
|
%
|
(5.4
|
)%
|
|
(88.5
|
)%
|
|||||||
Flight
hours
|
1,260
|
1,279
|
(19
|
)
|
(1.5
|
)%
|
Although
Arctic flight hours decreased 1.5% from the Comparable Quarter, gross revenue
increased primarily due to a shift in fleet mix to aircraft earning higher
rates.
Operating
expense increased primarily due to increases in maintenance, salaries, insurance
and travel expenses. The operating margin decreased from the
Comparable Quarter due to the increased costs in the Current
Quarter. As in prior fiscal years, we anticipate the results of this
business unit to be lower during the three months ending March 31, 2010 as a
result of lower winter activity levels.
Latin
America
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
19,076
|
$
|
20,707
|
$
|
(1,631
|
)
|
(7.9
|
)%
|
|||||||
Operating
expense
|
$
|
14,833
|
$
|
14,566
|
$
|
(267
|
)
|
(1.8
|
)%
|
|||||||
Earnings
(losses) from unconsolidated
affiliates,
net
|
$
|
452
|
|
$
|
(640
|
)
|
$
|
1,092
|
170.6
|
%
|
||||||
Operating
margin
|
24.6
|
%
|
26.6
|
%
|
(2.0
|
)%
|
|
(7.5
|
)%
|
|||||||
Flight
hours
|
7,906
|
10,836
|
(2,930
|
)
|
(27.0
|
)%
|
Flight
hours and gross revenue decreased primarily due to decreased activity in Mexico
and Trinidad and our exit from Peru and Columbia, partially offset by an
increase in aircraft maintenance support provided on aircraft in
Brazil.
Operating
margin declined from the Comparable Quarter due to the decrease in activity in
Mexico and Trinidad while we continue to incur fixed costs, partially offset by
increases in earnings (losses) from unconsolidated affiliates,
net. We are in the process of implementing cost savings to offset
lost revenue in Mexico and Trinidad. Earnings (losses) from
unconsolidated affiliates, net improved primarily due to the addition of $1.8
million of earnings in the Current Quarter from our investment in Líder on May
26, 2009. Partially offsetting this was $0.8 million of additional
losses generated in the Current Quarter versus the Comparable Quarter from our
investment in Heliservicio. Equity in earnings from our investment in
Líder included $1.0 million attributable to foreign currency transaction
gains.
In
January 2010, we acquired an additional 29% interest in Rotorwing Leasing
Resources, L.L.C (“RLR”) for $7.6 million and as a result own 99% of RLR.
We have the option to purchase the remaining 1% of RLR on January 18, 2015, or
earlier if the current 1% interest holder ceases to be a guarantor of 30% of
RLR’s outstanding debt to Whitney National Bank. Additionally, in January
2010, we and our partners contributed $4.1 million and $13.1 million,
respectively, to Heliservicio in which we have a 24% equity method
investment. This recent contribution did not change our ownership
percentage in Heliservicio. RLR has leased all of its aircraft
to Heliservicio. As of December 31, 2009, Heliservicio owed RLR and other
Bristow Group subsidiaries $29.7 million. Subsequent to the January 2010
contributions to Heliservicio, Heliservicio settled a portion of the amounts due
to us and our partners for services provided to Heliservicio in prior
periods. Heliservicio has remaining outstanding amounts due to us totaling
$16.8 million as of February 3, 2010; we have provided an allowance for doubtful
accounts of $0.9 million and will continue to monitor closely the
appropriateness of using accrual basis accounting for revenue earned from
Heliservicio.
44
WH
Centralized Operations
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
1,461
|
$
|
3,134
|
$
|
(1,673
|
)
|
(53.4
|
)%
|
|||||||
Operating
expense
|
5,677
|
5,643
|
(34
|
)
|
(0.6
|
)%
|
||||||||||
Operating
loss
|
$
|
(4,216
|
)
|
$
|
(2,509
|
)
|
$
|
(1,707
|
)
|
(68.0
|
)%
|
Our WH
Centralized Operations business unit is comprised of our technical services
business, other non-flight services business (e.g., provision of maintenance and
supply chain parts and services to other Western Hemisphere business units) and
division level expenses. Operating expense reflects costs associated
with other support services net of the related charges to the other Western
Hemisphere business units.
Gross
revenue for WH Centralized Operations, which consists entirely of technical
services revenue, decreased as a result of a reduction in part
sales.
Operating
expense for WH Centralized Operations increased due to lower recovery of
maintenance expense from our other Western Hemisphere business units as a result
of reduced flight activity.
Europe
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
119,267
|
$
|
102,477
|
$
|
16,790
|
16.4
|
%
|
||||||||
Operating
expense
|
$
|
103,307
|
$
|
86,137
|
$
|
(17,170
|
)
|
(19.9
|
)%
|
|||||||
Earnings
(losses) from unconsolidated
affiliates,
net
|
$
|
8
|
$
|
(2,583
|
)
|
$
|
2,591
|
100.3
|
%
|
|||||||
Operating
margin
|
13.4
|
%
|
13.4
|
%
|
—
|
% |
|
—
|
%
|
|||||||
Flight
hours
|
13,597
|
13,241
|
356
|
2.7
|
%
|
Gross
revenue and flight hours for Europe increased during the Current Quarter
primarily as a result of the consolidation of Bristow Norway ($17.7 million and
1,556 hours, respectively), an increase of $0.7 million in revenue in the
Current Quarter related to contractual rate escalations and retroactive rate
adjustments applicable to services performed in prior periods, and a favorable
impact from changes in exchange rates, partially offset by a reduction in flight
activity. During the Current Quarter, we were awarded two contract
renewals. The first contract renewal has expected revenue of
approximately $500 million over five years starting July 1, 2010, with the
opportunity to earn an additional $500 million in revenue in connection with
five one-year renewal options. The second contract renewal has
expected revenue of approximately $180 million over five years starting April 1,
2010. These contracts will utilize eight of our large
aircraft.
Operating
expense for Europe increased primarily due to the consolidation of Bristow
Norway ($15.1 million) and the impact of changes in exchange
rates. Earnings (losses) from unconsolidated affiliates, net was a
loss of $2.6 million in the Comparable Quarter related to equity losses in
Norway that were not incurred in the Current Quarter because we now consolidate
Bristow Norway. Operating income improved by $2.2 million during the
Current Quarter as a result of the consolidation of Bristow Norway, a favorable
impact from changes in exchange rates and additional revenue from contractual
rate escalations and retroactive rate adjustments. Despite the
improvement in operating income, operating margin remained flat due to the
reduction in flight activity in the Current Quarter compared to the Comparable
Quarter. Additionally, our operating margin for Bristow Norway is
lower than the remainder of Europe, reducing overall margins for this business
unit.
45
West
Africa
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
58,736
|
$
|
50,478
|
$
|
8,258
|
16.4
|
%
|
||||||||
Operating
expense
|
$
|
43,644
|
$
|
37,311
|
$
|
(6,333
|
)
|
(17.0
|
)%
|
|||||||
Operating
margin
|
25.7
|
%
|
26.1
|
%
|
(0.4
|
)%
|
|
(1.5
|
)%
|
|||||||
Flight
hours
|
9,175
|
9,884
|
(709
|
)
|
(7.2
|
)%
|
Flight
hours for West Africa decreased as a result of a decrease in demand for aircraft
in this market by certain existing customers, partially offset by the addition
of one new contract and additional ad hoc work. Despite the decrease
in flight hours, gross revenue increased due to rate escalations under existing
contracts and higher rates earned on the new contract and on the ad hoc work,
partially offset by an unfavorable impact from changes in exchange
rates.
Operating
expense increased due to an increase in salaries, maintenance, insurance and
freight. Also, during the Current Quarter we recorded a charge of
$1.8 million to reduce the carrying value of obsolete inventory. The
increase in operating expense was partially offset by a favorable impact from
changes in exchange rates. Excluding the impact of changes in
exchange rates, the operating margin for West Africa was 22.4% in the Current
Quarter, which was reduced from the Comparable Quarter primarily due to the
charge for obsolete inventory in the Current Quarter.
We
experience periodic disruption to our operations related to civil unrest and
violence. During August 2009, the unions representing our national
staff in Nigeria were on strike, but have since returned to work while
discussions are ongoing. These factors have made and are expected to
continue to make our operating results from Nigeria unpredictable.
Australia
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
38,188
|
$
|
25,029
|
$
|
13,159
|
52.6
|
%
|
||||||||
Operating
expense
|
$
|
28,461
|
$
|
22,179
|
$
|
(6,282
|
)
|
(28.3
|
)%
|
|||||||
Operating
margin
|
25.5
|
%
|
11.4
|
%
|
14.1
|
% |
|
123.7
|
%
|
|||||||
Flight
hours
|
3,304
|
3,649
|
(345
|
)
|
(9.5
|
)%
|
Flight
hours for Australia decreased primarily due to a reduction in flying by a major
customer, partially offset by new contracts. Despite the decrease in
flight hours, gross revenue increased due to higher rates earned on the new
contracts and a favorable impact from changes in exchange
rates. During the Current Quarter, we were awarded a contract renewal
with additional aircraft with expected revenue of approximately $180 million
over six and a half years commencing in January 2010, with the opportunity of
four one-year extensions. This contract will utilize two of our
existing large aircraft, plus an anticipated two new medium
aircraft.
Operating
expense increased primarily due to the impact of changes in exchange
rates. The increase in operating margin is a result of an increase in
aircraft on contract, some of which are new aircraft at higher rates, and the
unfavorable impact on operating margins in the Comparable Quarter of salary,
maintenance and other costs on aircraft that were not fully operational as a
result of delays in planned contracts, unscheduled maintenance and
re-positioning of aircraft.
46
Other
International
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
14,269
|
$
|
17,076
|
$
|
(2,807
|
)
|
(16.4
|
)%
|
|||||||
Operating
expense
|
$
|
12,647
|
$
|
11,697
|
$
|
(950
|
)
|
(8.1
|
)%
|
|||||||
Earnings
(losses) from unconsolidated
affiliates,
net
|
$
|
73
|
$
|
50
|
$
|
23
|
46.0
|
%
|
||||||||
Operating
margin
|
11.9
|
%
|
31.8
|
%
|
(19.9
|
)%
|
|
(62.6
|
)%
|
|||||||
Flight
hours
|
2,828
|
2,793
|
35
|
1.3
|
%
|
Gross
revenue for Other International decreased primarily due to a decrease in revenue
in Kazakhstan (due to our aircraft in Kazakhstan being grounded since
mid-October 2009), Mauritania (due to the non renewal of a contract) and Ghana
(as this was a short-term contract in the Comparable Quarter), partially offset
by increases in revenue in Libya (due to a new contract), Malaysia and Russia
(due to increased reimbursable revenue).
We
currently lease two aircraft to our Kazakhstan joint venture, Atyrau Bristow Air
Services (“ABAS”). These aircraft have previously been operated in
Kazakhstan by ABAS on the air operating certificate (“AOC”) of our partner in
this joint venture. Our partner’s AOC expired in mid-October 2009 and was
not renewed. As a result, our aircraft have been grounded in Kazakhstan
since mid-October 2009. Since discussions with other AOC holders in
Kazakhstan under whose AOC we were seeking to operate our aircraft were
unsuccessful, neither we nor ABAS are operating in this market, which will
result in a reduction in revenue and operating income. During the Current
Period, we had revenue from our operations in Kazakhstan totaling $7.8 million
and operating income totaling $3.7 million (including $2.5 million of reversal
of bad debt reserve during the three months ended September 30, 2009) versus
$8.9 million of revenue and $1.0 million of operating income in the Comparable
Period.
Operating
expense increased due to the increase in activity in Libya, Malaysia and Russia
resulting in increases in maintenance, salaries, training and travel
expenses. These increases were partially offset by a reduction in
costs in Mauritania and Ghana. Additionally, we continued to incur
operating expenses in Kazakhstan while our aircraft have been
grounded. The decrease in revenue in Kazakhstan was the primary
driver behind the decrease in operating margin for Other
International.
EH
Centralized Operations
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
2,653
|
$
|
2,797
|
$
|
(144
|
)
|
(5.1
|
)%
|
|||||||
Operating
expense
|
5,610
|
9,258
|
3,648
|
39.4
|
%
|
|||||||||||
Earnings
(losses) from unconsolidated
affiliates,
net
|
2,535
|
1,756
|
779
|
44.4
|
%
|
|||||||||||
Operating
income (loss)
|
$
|
(422
|
)
|
$
|
(4,705
|
)
|
$
|
4,283
|
91.0
|
%
|
Our EH
Centralized Operations business unit is comprised of our technical services
business, other non-flight services business (e.g., provision of maintenance and
supply chain parts and services to other Eastern Hemisphere business units) and
division level expenses. Operating expense reflects costs associated
with other support services net of the related charge to the other Eastern
Hemisphere business units.
Gross
revenue for EH Centralized Operations decreased slightly as a result of a
decrease in spare part and technical design sales.
Operating
expense decreased from the Comparable Quarter primarily due to an increase in
maintenance and overhead allocations to other business units as well as less
exposure to the impact of changes in foreign exchange rates as the result of
allocating these foreign exchange exposures to the other business units,
partially offset by a $1.1 million charge recorded during the Current Quarter to
reduce the carrying value of obsolete inventory.
47
Bristow
Academy
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
|
2008
|
(Unfavorable)
|
|||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
6,026
|
$
|
5,563
|
$
|
463
|
8.3
|
%
|
||||||||
Operating
expense
|
$
|
6,411
|
$
|
5,731
|
$
|
(680
|
)
|
(11.9
|
)%
|
|||||||
Operating
margin
|
(6.4
|
)%
|
(3.0
|
)%
|
(3.4
|
)
|
%
|
(113.3
|
)%
|
Gross
revenue for Bristow Academy increased primarily as a result of increased
military training since the Comparable Quarter.
Operating
expense increased primarily due to increased business volume as well as costs of
operating additional aircraft. The operating margin declined due the
holiday break in the military training program as we continued to incur fixed
operating expenses over that time period.
Corporate
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
—
|
%
|
||||||||
Operating
expense
|
9,386
|
7,633
|
(1,753
|
)
|
(23.0
|
)%
|
||||||||||
Operating
loss
|
$
|
(9,386
|
)
|
$
|
(7,633
|
)
|
$
|
(1,753
|
)
|
(23.0
|
)%
|
Corporate
operating expense primarily represents costs of our corporate office and other
general and administrative costs not allocated to our business
units. Corporate operating expense increased from the Comparable
Quarter primarily due to compensation costs of $1.7 million resulting from the
departure of two officers during the Current Quarter and higher expense recorded
for incentive compensation during the Current Quarter.
Interest
Expense, Net
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Interest
income
|
$
|
365
|
$
|
1,087
|
$
|
(722
|
)
|
(66.4
|
)%
|
|||||||
Interest
expense
|
(11,405
|
)
|
(11,649
|
)
|
244
|
2.1
|
%
|
|||||||||
Amortization
of debt discount
|
(751
|
)
|
(701
|
)
|
(50
|
)
|
(7.1
|
)%
|
||||||||
Amortization
of debt fees
|
(496
|
)
|
(496
|
)
|
—
|
—
|
%
|
|||||||||
Capitalized
interest
|
1,673
|
4,570
|
(2,897
|
) |
(63.4
|
)%
|
||||||||||
Interest
expense, net
|
$
|
(10,614
|
)
|
$
|
(7,189
|
)
|
$
|
(3,425
|
)
|
(47.6
|
)%
|
Interest
income decreased as a result of our shift in cash from higher yielding
investments to lower yielding, U.S. government investments in response to the
condition of global financial markets as well as lower levels of cash and cash
equivalents available for investment. Capitalized interest decreased
due to a decrease in the average amount of construction in progress during the
Current Quarter.
48
Other
Income (Expense), Net
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Foreign
currency gains (losses)
|
$
|
731
|
$
|
(1,522
|
)
|
$
|
2,253
|
*
|
||||||||
Other
|
2,964
|
—
|
2,964
|
100.0
|
%
|
|||||||||||
Total
|
$
|
3,695
|
$
|
(1,522
|
)
|
$
|
5,217
|
342.8
|
%
|
_____
*
percentage change not meaningful
The
increase in foreign currency gains primarily resulted from the revaluation of
intercompany loans denominated in currencies other than the functional
currencies of certain subsidiaries as certain exchange rates shifted during the
Current Quarter. Foreign currency transaction losses for the
Comparable Quarter primarily resulted from the impact of the strengthening U.S.
dollar against the Nigerian naira on the revaluation of Nigerian naira
intercompany receivable balances on the books of a subsidiary with a U.S. dollar
functional currency and the strengthening euro against the British pound
sterling on the revaluation of euro-denominated obligations on the books of a
subsidiary with a British pound sterling functional currency. Other
income (expense), net also includes $2.8 million of hedging gains realized
during the Current Quarter due to termination of forward contracts on
euro-denominated aircraft purchase commitments. For further details
on our derivative contracts, see Note 6 in the “Notes to Condensed Consolidated
Financial Statements” included elsewhere in this Quarterly Report.
Taxes
Three
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Effective
tax rate for continuing operations
|
17.3
|
%
|
25.0
|
%
|
7.7
|
%
|
30.8
|
%
|
||||||||
Net
foreign tax on non-U.S. earnings
|
$
|
2,636
|
$
|
4,324
|
$
|
1,688
|
39.0
|
%
|
||||||||
Tax
on foreign earnings indefinitely reinvested
abroad
|
(10,304
|
)
|
(10,484
|
)
|
(180
|
)
|
*
|
|||||||||
Increase
(decrease) in valuation allowance
for foreign
tax
credit
utilization
|
456
|
(25
|
)
|
(481
|
)
|
*
|
|
|||||||||
Expense
(benefit) from change in tax contingency
|
461
|
(587
|
)
|
(1,048
|
)
|
*
|
||||||||||
Tax
expense on GOM Asset Sale
|
—
|
13,363
|
13,363
|
100.0
|
%
|
_____
*
percentage change not meaningful
Our
effective tax rate for the Current Quarter and Comparable Quarter was reduced by
the permanent reinvestment outside the U.S. of foreign earnings, upon which no
U.S. tax has been provided, and by the amount of our foreign source income and
our ability to realize foreign tax credits.
49
Current
Period Compared to Comparable Period
Set forth
below is a discussion of operations of our business units. Our
consolidated results are discussed under “Results of Operations”
above.
U.S.
Gulf of Mexico
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
130,531
|
$
|
177,695
|
$
|
(47,164
|
)
|
(26.5
|
)%
|
|||||||
Operating
expense
|
$
|
114,294
|
$
|
152,722
|
$
|
38,428
|
25.2
|
%
|
||||||||
Operating
margin
|
12.4
|
%
|
14.1
|
%
|
(1.7
|
)%
|
|
(12.1
|
)%
|
|||||||
Flight
hours
|
54,593
|
97,975
|
(43,382
|
)
|
(44.3
|
)%
|
The
decrease in flight hours, gross revenue and operating expense is primarily due
to the GOM Asset Sale as well as an overall decline in the demand for aircraft
in this market resulting from decreased drilling activity. The GOM
Asset Sale resulted in a decrease in revenue and flight hours of $24.8 million
and 29,875, respectively. Additionally, both revenue and operating
expense decreased as a result of a decrease in fuel costs, which are generally
recovered from our customers, due to a combination of a decrease in fuel price
and lower flight hours. Operating margin has deteriorated due to the
decline in demand in this market discussed above.
Arctic
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
13,746
|
$
|
14,088
|
$
|
(342
|
)
|
(2.4
|
)%
|
|||||||
Operating
expense
|
$
|
11,034
|
$
|
11,485
|
$
|
451
|
3.9
|
%
|
||||||||
Operating
margin
|
19.7
|
%
|
18.5
|
%
|
1.2
|
%
|
6.5
|
%
|
||||||||
Flight
hours
|
6,451
|
7,411
|
(960
|
)
|
(13.0
|
)%
|
Although
Arctic flight hours decreased 13.0% from the Comparable Period, gross revenue
remained relatively flat due to a shift in fleet mix to aircraft with higher
billing rates.
Operating
expense decreased due to decreases in maintenance, fuel, salaries and
reimbursable expenses as a result of the reduction in flight
activity. The operating margin improvement related to the fleet mix
shift coupled with several cost savings initiatives implemented during the
Current Period.
Latin
America
Nine
Months Ended
December
31
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
59,421
|
$
|
59,964
|
$
|
(543
|
)
|
(0.9
|
)%
|
|||||||
Operating
expense
|
$
|
46,776
|
$
|
42,795
|
$
|
(3,981
|
)
|
(9.3
|
)%
|
|||||||
Earnings
(losses) from unconsolidated affiliates,
net
|
$
|
4,143
|
$
|
2,006
|
$
|
2,137
|
106.5
|
%
|
||||||||
Operating
margin
|
28.3
|
%
|
32.0
|
%
|
(3.7
|
)%
|
|
(11.6
|
)%
|
|||||||
Flight
hours
|
25,766
|
28,970
|
(3,204
|
)
|
(11.1
|
)%
|
Gross
revenue for Latin America decreased slightly due to decreased demand for
services in Trinidad and exit from Peru and Columbia, partially offset by
additional contracts in Mexico and increased revenue in Brazil (due to a
combination of additional flight hours and an increase in aircraft maintenance
support provided on aircraft in Brazil). During the Comparable
Period, we restructured our ownership interests in certain joint ventures which
resulted in several changes effective April 1, 2008, including the consolidation
of RLR, return to the accrual basis of accounting for revenue recognition with
Heliservicio and application of the equity method of accounting to our
investment in Heliservicio. Collectively these transactions are
referred to as the Mexico Reorganization.
50
Operating
expense for Latin America increased primarily due to increased activity in
Mexico and Brazil offset by a decrease in operating expense for Peru and
Columbia as we have exited these markets and Trinidad as a result of decreased
activity in that market. The decrease in operating margin is
primarily due to the Mexico Reorganization in the Comparable Period, which
resulted in additional operating income during that period, and reduced equity
earnings in Mexico in the Current Period compared to the Comparable
Period.
Earnings
(losses) from unconsolidated affiliates, net increased primarily due to the
addition of $4.0 million of earnings from our investment in Líder on May 26,
2009 and a decrease in equity losses of $0.9 million from our investment in
Heliservicio in the Current Period, partially offset by the collection of past
due receivables of RLR resulting in $3.6 million of additional equity earnings
during the Comparable Period.
For
discussion of additional matters related to operations in Latin America, see “—
Current Quarter Compared to Comparable Quarter — Latin America” included
elsewhere in this Quarterly Report.
WH
Centralized Operations
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
3,737
|
$
|
8,303
|
$
|
(4,566
|
)
|
(55.0
|
)%
|
|||||||
Operating
expense
|
15,318
|
10,584
|
(4,734
|
)
|
(44.7
|
)%
|
||||||||||
Operating
income (loss)
|
$
|
(11,581
|
)
|
$
|
(2,281
|
)
|
$
|
(9,300
|
)
|
*
|
______
*
percentage change not meaningful
Gross
revenue for WH Centralized Operations, which consists entirely of technical
services revenue, decreased as a result of a reduction in part
sales.
Operating
expense for WH Centralized Operations increased primarily due to lower recovery
of maintenance expense from our other Western Hemisphere business units as a
result of reduced flight activity.
Europe
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
348,200
|
$
|
296,210
|
$
|
51,990
|
17.6
|
%
|
||||||||
Operating
expense
|
$
|
299,351
|
$
|
240,425
|
$
|
(58,926
|
)
|
(24.5
|
)%
|
|||||||
Earnings
(losses) from unconsolidated affiliates,
net
|
$
|
69
|
$
|
(351
|
)
|
$
|
420
|
119.7
|
%
|
|||||||
Operating
margin
|
14.0
|
%
|
18.7
|
%
|
(4.7
|
)%
|
(25.1
|
)%
|
||||||||
Flight
hours
|
42,694
|
33,812
|
8,882
|
26.3
|
%
|
Gross
revenue and flight hours for Europe increased primarily as a result of the
consolidation of Bristow Norway effective October 31, 2008 resulting in an
increase of $82.4 million and 9,997 hours, respectively, new contracts in the
North Sea and an increase in reimbursable revenue, partially offset by the
unfavorable impact of changes in exchange rates and a lower level of contractual
escalation billings in the Current Period.
Operating
expense for Europe increased primarily due to the consolidation of Bristow
Norway ($74.8 million). The increase in operating expense was
partially offset by reduced operating expense resulting from the impact of
changes in exchange rates. As a result of the consolidation of
Bristow Norway, which earned a lower operating margin than the remainder of the
Europe business unit and a lower level of contractual escalation billings,
operating margin for Europe decreased compared to the Comparable
Period.
For
discussion of additional matters related to operations in Europe, see “— Current
Quarter Compared to Comparable Quarter — Europe” included elsewhere in this
Quarterly Report.
51
West
Africa
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
165,005
|
$
|
140,788
|
$
|
24,217
|
17.2
|
%
|
||||||||
Operating
expense
|
$
|
121,209
|
$
|
113,081
|
$
|
(8,128
|
)
|
(7.2
|
)%
|
|||||||
Operating
margin
|
26.5
|
%
|
19.7
|
%
|
6.8
|
%
|
34.5
|
%
|
||||||||
Flight
hours
|
26,595
|
29,129
|
(2,534
|
)
|
(8.7
|
)%
|
Flight
hours for West Africa decreased as a result of a decrease in demand for aircraft
in this market by certain existing customers, partially offset by the addition
of one new contract and ad hoc work. Despite the decrease in flight
hours, gross revenue increased due to rate escalations under existing contracts
and higher rates earned on the new contract and on ad hoc flying.
The
increase in operating expense was primarily a result of increases in salaries
and benefits, freight, training and travel and meals. Also, during
the Current Period we recorded a charge of $1.8 million to reduce the carrying
value of obsolete inventory. The increase in operating expense was
partially offset by a favorable impact from changes in exchange
rates. Excluding the impact of changes in exchange rates, the
operating margin for West Africa was 21.2% in the Current Quarter, which was
improved over the Comparable Period due to rate escalations under existing
contracts and higher rates earned on the new contract and ad hoc
work.
For
discussion of additional matters related to operations in West Africa, see “—
Current Quarter Compared to Comparable Quarter — West Africa” included elsewhere
in this Quarterly Report.
Australia
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
96,684
|
$
|
87,368
|
$
|
9,316
|
10.7
|
%
|
||||||||
Operating
expense
|
$
|
73,913
|
$
|
83,591
|
$
|
9,678
|
11.6
|
%
|
||||||||
Operating
margin
|
23.6
|
%
|
4.3
|
%
|
19.3
|
%
|
*
|
|||||||||
Flight
hours
|
8,978
|
11,502
|
(2,524
|
)
|
(21.9
|
)%
|
_____
*
percentage change not meaningful
Flight
hours for Australia decreased due to a decrease in activity in this market since
the Comparable Period. Despite the decrease in flight hours, gross
revenue increased due to an increase in aircraft on contract, some of which are
new aircraft earning higher rates, and an increase in reimbursable
revenue.
Operating
expense decreased primarily due to decreased activity and cost reduction
initiatives including decreases in salaries and benefits, maintenance expense,
fuel, travel and training expenses. Operating expense was also
decreased as a result of the reversal of costs previously accrued in fiscal year
2009 for tax items as favorable rulings were obtained from the tax authorities
in these matters during the Current Period. During the Comparable
Period, we incurred salary, maintenance and other costs on aircraft that were
not fully operational as a result of delays in planned contracts, unscheduled
maintenance and re-positioning of aircraft. Additionally,
compensation costs for the Comparable Period included adjustments to employee
and expatriate taxes related to prior periods totaling $2.2 million resulting
from clarification of tax regulations in certain
jurisdictions. Operating margin improved due to both an increase in
aircraft on contract, some of which are new aircraft earnings higher rates, and
the decrease in costs discussed above.
For
discussion of additional matters related to operations in Australia, see “—
Current Quarter Compared to Comparable Quarter — Australia” included elsewhere
in this Quarterly Report.
52
Other
International
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages and flight hours)
|
||||||||||||||||
Gross
revenue
|
$
|
43,925
|
$
|
52,234
|
$
|
(8,309
|
)
|
(15.9
|
)%
|
|||||||
Operating
expense
|
$
|
32,413
|
$
|
39,757
|
$
|
7,344
|
18.5
|
%
|
||||||||
Earnings
(losses) from unconsolidated affiliates,
net
|
$
|
81
|
$
|
195
|
$
|
(114
|
)
|
(58.5
|
)%
|
|||||||
Operating
margin
|
26.4
|
%
|
24.3
|
%
|
2.1
|
%
|
8.6
|
%
|
||||||||
Flight
hours
|
7,903
|
8,539
|
(636
|
)
|
(7.4
|
)%
|
Gross
revenue for Other International decreased primarily due to a decrease in revenue
in Kazakhstan (due to our aircraft in Kazakhstan being grounded since
mid-October 2009), Russia (due to the inclusion in the Comparable Period of $1.2
million in escalation charges to a customer and increased rates), Mauritania,
Egypt and Turkmenistan (due to ending of short-term contracts), and a decrease
in revenue resulting from changes in exchange rates, partially offset by
increases in revenue in Libya (due to a new contract) and Malaysia (due to
increased activity).
Operating
expense decreased primarily due to a reduction in activity in Russia, a
reduction in maintenance costs and reversal of bad debt expense of $2.5 million
in Kazakhstan, a reduction in costs in Mauritania and Egypt and the impact of
changes in exchange rates. These decreases were partially offset by an
increase in costs in Libya (due to a new contract) and Malaysia (due to
increased activity). The decrease in operating expense in these markets
resulted in the increase in operating margin for this business unit, which was
partially offset by lost operating income since October 2009 in
Kazakhstan.
For
discussion of additional matters related to operations in Other International,
see “— Current Quarter Compared to Comparable Quarter — Other International”
included elsewhere in this Quarterly Report.
EH
Centralized Operations
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
10,871
|
$
|
9,169
|
$
|
1,702
|
18.6
|
%
|
||||||||
Operating
expense
|
18,271
|
28,018
|
9,747
|
34.8
|
%
|
|||||||||||
Earnings
(losses) from unconsolidated affiliates,
net
|
6,332
|
6,479
|
(147
|
)
|
(2.3
|
)%
|
||||||||||
Operating
loss
|
$
|
(1,068
|
)
|
$
|
(12,370
|
)
|
$
|
11,302
|
91.4
|
%
|
Gross
revenue for EH Centralized Operations increased as a result of an increase in
spare part and technical design sales.
Operating
expense decreased primarily due to an increase in maintenance and overhead
allocations to other business units as well as less exposure to the impact of
changes in foreign exchange rates as the result of allocating these foreign
exchange exposures to the other business units, a higher charge taken in the
Comparable Period versus the Current Period to reduce the carrying value of
obsolete inventory and unusually high heavy maintenance expense incurred in the
Comparable Period.
Earnings
(losses) from unconsolidated affiliates, net decreased due to the stronger U.S.
dollar during the Current Period compared to the Comparable Period.
53
Bristow
Academy
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
20,470
|
$
|
17,286
|
$
|
3,184
|
18.4
|
%
|
||||||||
Operating
expense
|
$
|
19,201
|
$
|
17,067
|
$
|
(2,134
|
)
|
(12.5
|
)%
|
|||||||
Operating
margin
|
6.2
|
%
|
1.3
|
%
|
4.9
|
%
|
376.9
|
%
|
Gross
revenue for Bristow Academy increased as a result of increased military training
and the acquisition of additional training aircraft.
Operating
expense increased primarily due to increased business volume as well as costs of
operating additional aircraft. The operating margin improved due to
the fact that the military training contracts yield a higher margin of
return. During the Current Period, approximately 150 pilots graduated
from Bristow Academy; we hired 4 graduates as instructors at Bristow Academy and
15 graduates as pilots (mostly former instructors) into our other business
units.
Corporate
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Gross
revenue
|
$
|
—
|
$
|
28
|
$
|
(28
|
)
|
(100.0
|
)%
|
|||||||
Operating
expense
|
26,707
|
21,530
|
(5,177
|
)
|
(24.0
|
)%
|
||||||||||
Losses
from unconsolidated affiliates
|
—
|
52
|
52
|
100.0
|
%
|
|||||||||||
Operating
loss
|
$
|
(26,707
|
)
|
$
|
(21,554
|
)
|
$
|
(5,153
|
)
|
(23.9
|
)%
|
Corporate
operating expense primarily represents costs of our corporate office and other
general and administrative costs not allocated to our business
units. Corporate operating expense increased from the Comparable
Period due to $3.1 million of compensation costs from an Executive Officer’s
departure during April 2009, $1.7 million of compensation costs from the
departure of two additional officers during December 2009 and higher expense
recorded for incentive compensation during the Current Period.
Interest
Expense, Net
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Interest
income
|
$
|
797
|
$
|
5,739
|
$
|
(4,942
|
)
|
(86.1
|
)%
|
|||||||
Interest
expense
|
(34,129
|
)
|
(33,872
|
)
|
(257
|
)
|
(0.8
|
)%
|
||||||||
Amortization
of debt discount
|
(2,213
|
)
|
(1,504
|
)
|
(709
|
)
|
(47.1
|
)%
|
||||||||
Amortization
of debt fees
|
(1,489
|
)
|
(1,408
|
)
|
(81
|
)
|
(5.8
|
)%
|
||||||||
Capitalized
interest
|
6,200
|
10,841
|
(4,641
|
)
|
(42.8
|
)%
|
||||||||||
Interest
expense, net
|
$
|
(30,834
|
)
|
$
|
(20,204
|
)
|
$
|
(10,630
|
)
|
(52.6
|
)%
|
Interest
income decreased as a result of our shift in cash from higher yielding
investments to lower yielding U.S. government investments in response to the
condition of global financial markets as well as a decrease in cash invested
during the Current Period. Capitalized interest decreased due to a
decrease in the average amount of construction in progress during the Current
Period.
54
Other
Income (Expense), Net
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Foreign
currency (losses)
|
$
|
(74
|
)
|
$
|
160
|
$
|
(234
|
)
|
(146.3
|
)%
|
||||||
Other
|
4,097
|
2,080
|
2,017
|
97.0
|
%
|
|||||||||||
Total
|
$
|
4,023
|
$
|
2,240
|
$
|
1,783
|
79.6
|
%
|
Other
income (expense), net includes $3.9 million of hedging gains realized during the
Current Period due to termination of forward contracts on a euro-denominated
aircraft purchase commitments. During the Comparable Period, we
realized $1.4 million in gains from the Mexico Reorganization, which represented
the majority of other income (expense), net in that period.
Taxes
Nine
Months Ended
December
31,
|
Favorable
|
|||||||||||||||
2009
|
2008
|
(Unfavorable)
|
||||||||||||||
(In
thousands, except percentages)
|
||||||||||||||||
Effective
tax rate for continuing operations
|
23.8
|
%
|
26.8
|
%
|
3.0
|
%
|
11.2
|
%
|
||||||||
Net
foreign tax on non-U.S. earnings
|
$
|
12,266
|
$
|
17,100
|
$
|
4,834
|
28.3
|
%
|
||||||||
Tax
on foreign earnings indefinitely reinvested
abroad
|
(31,895
|
)
|
(27,637
|
)
|
4,258
|
*
|
||||||||||
Increase
(decrease) in valuation allowance for
foreign
tax credit
utilization
|
1,503
|
(46
|
)
|
(1,549
|
)
|
*
|
||||||||||
Expense
(benefit) from change in tax contingency
|
3,720
|
(1,329
|
)
|
(5,049
|
)
|
*
|
||||||||||
Tax
expense on GOM Asset Sale
|
—
|
13,363
|
13,363
|
100.0
|
%
|
________
*
percentage change not meaningful
Our
effective tax rate for the Current Period and Comparable Period was reduced by
the permanent reinvestment outside the U.S. of foreign earnings, upon which no
U.S. tax has been provided, and by the amount of our foreign source income and
our ability to realize foreign tax credits.
Discontinued
operations
Discontinued
operations for the Comparable Period incurred $0.2 million after-tax
loss. The $0.2 million after-tax loss resulted from purchase price
adjustments from the sale of Grasso Production Management.
Liquidity
and Capital Resources
Financial
Condition and Sources of Liquidity
See
“Market Outlook” included elsewhere in this Quarterly Report for further
discussion.
Cash and
cash equivalents were $107.1 million and $301.0 million as of December 31 and
March 31, 2009, respectively. Working capital as of December 31 and
March 31, 2009 was $365.0 million and $545.5 million,
respectively. The decrease in cash and cash equivalents and working
capital was primarily a result of the $179.0 million in cash paid (including
transaction costs incurred in fiscal year 2010) to acquire the 42.5% interest in
Líder as discussed in Note 2 in the “Notes to Condensed Consolidated Financial
Statements” included elsewhere in this Quarterly Report.
55
Cash
Flows
Operating
Activities
Net cash
flows provided by operating activities totaled $163.0 million during the Current
Period compared to $103.9 million during the Comparable
Period. Changes in non-cash working capital used $11.8 million in
cash flows from operating activities for the Current Period compared to $22.3
million used in cash flows from operating activities in the Comparable
Period.
Investing
Activities
Cash
flows used in investing activities totaled $354.3 million and $316.9 million for
the Current Period and Comparable Period, respectively. Cash was used
for capital expenditures as follows:
Nine
Months Ended
December
31,
|
||||||
2009
|
2008
|
|||||
Number
of aircraft delivered:
|
||||||
Small
|
4
|
4
|
||||
Medium
|
8
|
11
|
||||
Large
|
7
|
9
|
||||
Fixed
wing
|
1
|
—
|
||||
Training
|
—
|
4
|
||||
Total
aircraft
|
20
|
28
|
||||
Capital
expenditures (in thousands):
|
||||||
Aircraft
and related equipment
|
$
|
236,248
|
$
|
383,351
|
||
Other
|
14,024
|
4,656
|
||||
Total
capital expenditures
|
$
|
250,272
|
$
|
388,007
|
Included
in aircraft and related equipment in the table above are final payments in
connection with the delivery of aircraft and progress payments on the
construction of new aircraft to be delivered in future periods in conjunction
with our aircraft commitments (discussed in additional detail in Note 7 in the
“Notes to Condensed Consolidated Financial Statements” included elsewhere in
this Quarterly Report) of $201.7 million and an additional $34.6 million to
upgrade aircraft within our existing aircraft fleet and to customize new
aircraft delivered for our operations during the Current
Period. Also, during the Current Period, we acquired a 42.5%
investment in Líder for $179.0 million.
Included
in aircraft and related equipment in the table above are final payments in
connection with the delivery of aircraft and progress payments on the
construction of new aircraft to be delivered in future periods of $188.9 million
and $20.1 million to upgrade aircraft within our existing aircraft fleet and to
customize new aircraft delivered for our operations during the Comparable
Period.
During
the Current Period we received proceeds of $75.0 million primarily from the
disposal of 20 aircraft and certain other equipment, which together resulted in
a net gain of $13.3 million. During the Comparable Period, we sold 53
small aircraft and related assets operating in the U.S. Gulf of Mexico in the
GOM Asset Sale for $65 million resulting in a pre-tax gain of $37.8
million. See Note 2 in the “Notes to Condensed Consolidated Financial
Statements” included elsewhere in this Quarterly Report. In addition
to the GOM Asset Sale, during the Comparable Period we received proceeds of
$21.7 million primarily from the disposal of 12 aircraft and certain other
equipment, which together resulted in a net gain of $6.3
million. Also, during the Comparable Period we recorded a $0.4
million loss related to non-recoverable deductibles under our insurance policies
for hurricane damage.
56
Due to
the significant investment in aircraft made in both the Current Period and
Comparable Period, net capital expenditures exceeded cash flow from operations,
and we expect this will continue to be the case through the end of fiscal year
2010. Also in fiscal year 2010, we expect to invest approximately $40
million in various infrastructure enhancements, including aircraft facilities,
training centers and technology. Through December 31, 2009, we had
incurred $31.3 million towards these projects.
Financing
Activities
Cash
flows used in financing activities was $14.7 million during the Current Period
compared to $306.1 million provided by financing activities during the
Comparable Period. During the Current Period, cash was used for the
payment of preferred stock dividends of $6.3 million and repayment of debt
totaling $10.1 million and cash was provided by issuance of common stock upon
exercise of stock options of $1.3 million. Preferred stock dividends
on our 5.5% mandatory convertible preferred stock will not be paid in future
periods because on September 15, 2009 each outstanding share of the preferred
stock was converted into 1.418 shares of common stock resulting in the issuance
of 6,522,800 shares of common stock. During the Comparable Period,
cash was provided by our issuance of the 3% Convertible Senior Notes resulting
in net proceeds of $111.2 million, by our issuance of 4,996,900 shares of common
stock in a public offering and private placement in June 2008 resulting in net
proceeds of $224.2 million and by our receipt of proceeds of $1.1 million from
the exercise of options to acquire shares of our common stock by our
employees. Additionally, during the Comparable Period, cash was used
for the payment of preferred stock dividends of $9.5 million and the repayment
of debt totaling $21.0 million.
Future
Cash Requirements
Contractual
Obligations, Commercial Commitments and Off Balance Sheet
Arrangements
We have
various contractual obligations which are recorded as liabilities in our
condensed consolidated balance sheet. Other items, such as certain
purchase commitments, interest payments and other executory contracts are not
recognized as liabilities in our condensed consolidated balance sheet but are
included in the table below. For example, we are contractually
committed to make certain minimum lease payments for the use of property and
equipment under operating lease agreements.
57
The
following tables summarize our significant contractual obligations and other
commercial commitments on an undiscounted basis as of December 31, 2009 and the
future periods in which such obligations are expected to be settled in
cash. In addition, the table reflects the timing of principal and
interest payments on outstanding borrowings. Additional details
regarding these obligations are provided in Note 7 in the “Notes to Consolidated
Financial Statements” included in the fiscal year 2009 Annual Report and in Note
7 in the “Notes to Condensed Consolidated Financial Statements” included
elsewhere in this Quarterly Report:
Payments
Due by Period
|
||||||||||||||||||||||||
Three
Months
Ending
|
Fiscal
Year Ending March 31,
|
|||||||||||||||||||||||
Total
|
March
31,
2010
|
2011
|
2012
–
2013
|
2014
and
beyond
|
Other
|
|||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||
Contractual
obligations:
|
||||||||||||||||||||||||
Long-term
debt and short-term borrowings:
|
||||||||||||||||||||||||
Principal (1)
|
$
|
736,586
|
$
|
1,214
|
$
|
15,693
|
$
|
7,186
|
$
|
712,493
|
$
|
—
|
||||||||||||
Interest
|
365,278
|
14,385
|
45,179
|
89,652
|
216,062
|
—
|
||||||||||||||||||
Aircraft
operating leases (2)
|
66,259
|
2,330
|
7,586
|
9,559
|
46,784
|
—
|
||||||||||||||||||
Other
operating leases (3)
|
65,306
|
5,799
|
18,233
|
11,105
|
30,169
|
—
|
||||||||||||||||||
Capital
lease obligation
|
12,063
|
142
|
1,025
|
2,356
|
8,540
|
—
|
||||||||||||||||||
Pension
obligations (4)
|
196,234
|
17,031
|
24,000
|
48,946
|
106,257
|
—
|
||||||||||||||||||
Aircraft
purchase obligations (5)
|
116,701
|
24,901
|
43,344
|
48,456
|
—
|
—
|
||||||||||||||||||
Other
purchase obligations (6)
|
21,904
|
21,597
|
102
|
205
|
—
|
—
|
||||||||||||||||||
Tax
reserves (7)
|
8,494
|
—
|
—
|
—
|
—
|
8,494
|
||||||||||||||||||
Total
contractual cash obligations
|
$
|
1,588,825
|
$
|
87,399
|
$
|
155,162
|
$
|
217,465
|
$
|
1,120,305
|
$
|
8,494
|
||||||||||||
Other
commercial commitments:
|
||||||||||||||||||||||||
Debt
guarantees (8)
|
$
|
16,148
|
$
|
—
|
$
|
—
|
$
|
16,148
|
$
|
—
|
$
|
—
|
||||||||||||
Other
guarantees (9)
|
30,761
|
2,364
|
1,612
|
8,984
|
17,801
|
—
|
||||||||||||||||||
Letters
of credit
|
1,657
|
1,392
|
265
|
—
|
—
|
—
|
||||||||||||||||||
Contingent
consideration (10)
|
44,625
|
—
|
8,500
|
36,125
|
—
|
—
|
||||||||||||||||||
Other
commitments
(11)
|
84,107
|
—
|
18,883
|
19,224
|
46,000
|
—
|
||||||||||||||||||
Total
commercial commitments
|
$
|
177,298
|
$
|
3,756
|
$
|
29,260
|
$
|
80,481
|
$
|
63,801
|
$
|
—
|
_________
(1)
|
Excludes
unamortized premium on the 7½% Senior Notes due 2017 of $0.5 million and
unamortized discount on the 3% Senior Convertible Notes of $19.7
million.
|
(2)
|
Primarily
represents separate operating leases for nine aircraft with a subsidiary
of General Electric Capital Corporation with terms of fifteen years
expiring in August 2023.
|
(3)
|
Represents
minimum rental payments required under operating leases that have initial
or remaining non-cancelable lease terms in excess of one
year.
|
(4)
|
Represents
expected funding for pension benefits in future periods. These
amounts are undiscounted and are based on the expectation that the U.K.
and Norway pension plans will be fully funded in approximately ten
years. As of December 31, 2009, we had recorded on our
condensed consolidated balance sheet a $99.3 million pension liability
associated with these obligations. Also, the timing of the
funding is dependent on actuarial valuations and resulting negotiations
with the plan trustees.
|
(5)
|
For
further details on our aircraft purchase obligations, see Note 7 in the
“Notes to Condensed Consolidated Financial Statements” included elsewhere
in this Quarterly Report.
|
(6)
|
Other
purchase obligations primarily represent unfilled purchase orders for
aircraft parts and commitments associated with upgrading facilities at our
bases.
|
(7)
|
Represents
gross unrecognized tax benefits (see discussion in Note 7 in the “Notes to
Consolidated Financial Statements” included in the fiscal year 2009 Annual
Report) that may
result in cash payments being made to certain tax
authorities. We are not able to reasonably estimate in which
future periods this amount will ultimately be settled and
paid.
|
58
(8)
|
We
have guaranteed the repayment of up to £10 million ($16.1 million) of the
debt of FBS, an unconsolidated affiliate. This amount is not
included in the “Contractual Obligations” section of the table
above.
|
(9)
|
Relates
to an indemnity agreement between us and Afianzadora Sofimex, S.A. to
support issuance of surety bonds on behalf of Heliservicio from time to
time. As of December 31, 2009, surety bonds denominated in
Mexican pesos with an aggregate value of 311 million Mexican pesos ($23.9
million) were outstanding and surety bonds denominated in U.S. dollars
with an aggregate value of $1.2 million were
outstanding. Furthermore, we have received a counter-guarantee
from our partner in Heliservicio, for 76% ($19.1 million) of the surety
bonds outstanding. Bristow Norway is also the guarantor under
two aircraft leases taken out by a previous subsidiary of Bristow Norway
prior to Bristow Norway disposing of that subsidiary and prior to Bristow
Group’s acquisition of the additional 51% of Bristow Norway in October
2008 for the sum of $5.6 million. The purchaser of that
subsidiary is legally subject to an obligation to reimburse Bristow Norway
for these guarantees under the terms of the Sale and Purchase Agreement by
which that subsidiary was sold.
|
(10)
|
The
Líder purchase agreement includes incremental and cumulative earn-out
payments based upon the achievement of growth targets over the three-year
period ending December 31, 2011. Based on Líder’s preliminary
unaudited results for the period ended December 31, 2009, the initial $8.5
million earn-out payment was not earned, leaving a maximum possible total
earn-out payments of $44.6 million.
|
(11)
|
In
connection with the Bristow Norway acquisition (see Note 2 in the “Notes
to Condensed Consolidated Financial Statements” included elsewhere in this
Quarterly Report), we granted the former partner in this joint venture an
option that if exercised would require us to acquire up to five aircraft
from them at fair value upon the expiration of the lease terms for such
aircraft. One of the options was exercised in December
2009. Two of these aircraft are not currently operated by
Bristow Norway, but our former partner has agreed to purchase the aircraft
and lease the aircraft to Bristow Norway for an initial period of five
years, with three one-year options for extension, as soon as
practicable. The remaining two aircraft leases expire in June
2010 and August 2011.
|
We do not
expect the guarantees shown in the table above to become obligations that we
will have to fund.
Capital
Commitments
We have
commitments and options to make capital expenditures over the next five fiscal
years to purchase additional aircraft, including aircraft associated with the
commitments reflected in the table above. Although a similar number
of our existing aircraft may be sold during the same period, the additional
aircraft on order are expected to provide incremental fleet capacity in terms of
revenue and operating margin. See Note 7 in the “Notes to Condensed
Consolidated Financial Statements” included elsewhere in this Quarterly Report
for a detail of the number of aircraft under commitments and the number of
aircraft under options expected to be delivered in the current and subsequent
five fiscal years by aircraft size along with the related expenditures, and for
a rollforward of aircraft commitments and options for the Current
Period.
Critical
Accounting Policies and Estimates
See Item
7. “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Critical Accounting Policies and Estimates” in the
fiscal year 2009 Annual Report for a discussion of our critical accounting
policies. There have been no material changes to our critical
accounting policies and estimates provided in the fiscal year 2009 Annual
Report.
Recent
Accounting Pronouncements
See Note
1 in the “Notes to Condensed Consolidated Financial Statements” included
elsewhere in this Quarterly Report for discussion of recent accounting
pronouncements.
59
Item
3. Quantitative and
Qualitative Disclosures about Market Risk.
We may be
exposed to certain market risks arising from the use of financial instruments in
the ordinary course of business. This risk arises primarily as a
result of potential changes in the fair market value of financial instruments
that would result from adverse fluctuations in foreign currency exchange rates,
credit risk, and interest rates as discussed in “Item
7A. Quantitative and Qualitative Disclosures about Market Risk” in
the fiscal year 2009 Annual Report and Note 1 in the “Notes to Condensed
Consolidated Financial Statements” included elsewhere in this Quarterly
Report.
Item
4. Controls and
Procedures.
Evaluation
of Disclosure Controls and Procedures
As of
December 31, 2009, we carried out an evaluation, under the supervision of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2009 to provide
reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Exchange Act was (i) accumulated and communicated
to our management, including our Chief Executive Officer and our Chief Financial
Officer, to allow timely decisions regarding required disclosure and (ii)
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms.
Changes
in Internal Control Over Financial Reporting
There
were no changes during the three months ended December 31, 2009 in our internal
control over financial reporting that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.
PART
II — OTHER INFORMATION
Item
1. Legal
Proceedings.
On June
12, 2009, Superior Offshore
International, Inc. v. Bristow Group Inc., et al, Case No.
1:09-cv-00438, was filed in the U.S. District Court for the District of
Delaware. The purported class action complaint, which also names other
providers of offshore helicopter services in the Gulf of Mexico as defendants,
alleges violations of Section 1 of the Sherman Act. Among other things,
the complaint alleges that the defendants unlawfully conspired to raise and
maintain the price of offshore helicopter services between January 1, 2001 and
December 31, 2005. The plaintiff seeks to represent a purported class of
direct purchasers of offshore helicopter services and is asking for, among other
things, unspecified treble monetary damages and injunctive relief. The
Company intends to defend against this lawsuit vigorously. As this
lawsuit is in its initial stage, we are currently unable to determine whether it
could have a material affect on our business, financial condition or results of
operations.
We have
certain other actions or claims pending that have been discussed and previously
reported in Part I. Item 3. “Legal Proceedings” in the fiscal year
2009 Annual Report. Developments in these previously reported matters
are described in Note 7 in the “Notes to Condensed Consolidated Financial
Statements” included elsewhere in this Quarterly Report.
Item
1A. Risk
Factors.
There
have been no material changes during the nine months ended December 31, 2009 in
our “Risk Factors” as discussed in our fiscal year 2009 Annual Report on Form
10-K.
60
Item
6. Exhibits.
The
following exhibits are filed as part of this Quarterly Report:
Exhibit
Number
|
Description
of Exhibit
|
10.1
|
Indemnity
Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated November 10, 2009).
|
15.1*
|
Letter
from KPMG LLP dated February 3, 2010 regarding unaudited interim
information.
|
31.1**
|
Rule
13a-14(a) Certification by Chief Executive Officer of
Registrant.
|
31.2**
|
Rule
13a-14(a) Certification by Chief Financial Officer of
Registrant.
|
32.1**
|
Certification
of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2**
|
Certification
of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
____________
*
|
Filed
herewith.
|
**
|
Furnished
herewith.
|
61
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BRISTOW GROUP INC.
By: /s/ Elizabeth D.
Brumley
Elizabeth D. Brumley
Vice
President, Finance and Chief Financial Officer
By: /s/ Brian J.
Allman
Brian J. Allman
Chief Accounting Officer and Corporate
Controller
February
3, 2010
62
Index
to Exhibits
Exhibit
Number
|
Description
of Exhibit
|
10.1
|
Indemnity
Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated November 10, 2009).
|
15.1*
|
Letter
from KPMG LLP dated February 3, 2010 regarding unaudited interim
information.
|
31.1**
|
Rule
13a-14(a) Certification by Chief Executive Officer of
Registrant.
|
31.2**
|
Rule
13a-14(a) Certification by Chief Financial Officer of
Registrant.
|
32.1**
|
Certification
of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2**
|
Certification
of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
____________
*
|
Filed
herewith.
|
**
|
Furnished
herewith.
|