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EX-32.2 - EXHIBIT 32.2 - Bristow Group Incbrsq210-q09302015ex322.htm
EX-31.1 - EXHIBIT 31.1 - Bristow Group Incbrsq210-q09302015ex311.htm
EX-31.2 - EXHIBIT 31.2 - Bristow Group Incbrsq210-q09302015ex312.htm
EX-32.1 - EXHIBIT 32.1 - Bristow Group Incbrsq210-q09302015ex321.htm
EX-15.1 - EXHIBIT 15.1 - Bristow Group Incbrsq210-q09302015ex151.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
OR
o
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
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
2103 City West Blvd.,
4th Floor
Houston, Texas
 
77042
(Zip Code)
(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  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    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 þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
 
(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).
 
o  Yes    þ  No
 
Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of October 30, 2015.
34,941,839 shares of Common Stock, $.01 par value
 




BRISTOW GROUP INC.
INDEX — FORM 10-Q
 



PART I — FINANCIAL INFORMATION
 
Item 1.     Financial Statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
 
  
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
 
 
 
 
 
 
 
 
Operating revenue from non-affiliates
 
$
398,010

 
$
418,169

 
$
818,023

 
$
834,074

Operating revenue from affiliates
 
21,001

 
22,289

 
41,099

 
43,719

Reimbursable revenue from non-affiliates
 
27,900

 
35,178

 
54,785

 
70,381

 
 
446,911

 
475,636

 
913,907

 
948,174

Operating expense:
 
 
 
 
 
 
 
 
Direct cost
 
307,564

 
302,195

 
638,243

 
596,058

Reimbursable expense
 
26,695

 
33,309

 
52,862

 
65,917

Depreciation and amortization
 
37,387

 
28,205

 
74,533

 
53,539

General and administrative
 
53,457

 
61,724

 
114,789

 
122,156

 
 
425,103

 
425,433

 
880,427

 
837,670

 
 
 
 
 
 
 
 
 
Loss on impairment
 
(22,274
)
 
(3,362
)
 
(27,713
)
 
(3,362
)
Gain (loss) on disposal of assets
 
(14,007
)
 
127

 
(21,702
)
 
737

Earnings from unconsolidated affiliates, net of losses
 
(15,360
)
 
(2,904
)
 
(9,064
)
 
1,377

Operating income (loss)
 
(29,833
)
 
44,064

 
(24,999
)
 
109,256

 
 
 
 
 
 
 
 
 
Interest expense, net
 
(7,179
)
 
(7,572
)
 
(14,848
)
 
(14,699
)
Other income (expense), net
 
(11,424
)
 
(2,681
)
 
(7,585
)
 
(3,920
)
Income (loss) before provision for income taxes
 
(48,436
)
 
33,811

 
(47,432
)
 
90,637

Benefit (provision) for income taxes
 
2,756

 
(5,986
)
 
123

 
(17,809
)
Net income (loss)
 
(45,680
)
 
27,825

 
(47,309
)
 
72,828

Net income attributable to noncontrolling interests
 
(1,452
)
 
(1,743
)
 
(3,080
)
 
(2,637
)
Net income (loss) attributable to Bristow Group
 
(47,132
)
 
26,082

 
(50,389
)
 
70,191

Accretion of redeemable noncontrolling interest
 
4,803

 

 
(1,498
)
 

Net income (loss) attributable to common stockholders
 
$
(42,329
)
 
$
26,082

 
$
(51,887
)
 
$
70,191

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(1.21
)
 
$
0.74

 
$
(1.49
)
 
$
1.98

Diluted
 
$
(1.21
)
 
$
0.73

 
$
(1.49
)
 
$
1.96

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.34

 
$
0.32

 
$
0.68

 
$
0.64


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

1


BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
 
  
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Net income (loss)
 
$
(45,680
)
 
$
27,825

 
$
(47,309
)
 
$
72,828

Other comprehensive income:
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(16,950
)
 
(19,507
)
 
(4,342
)
 
(10,516
)
Total comprehensive income (loss)
 
(62,630
)
 
8,318

 
(51,651
)
 
62,312

 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(1,452
)
 
(1,743
)
 
(3,080
)
 
(2,637
)
Currency translation adjustments attributable to noncontrolling interests
 
(1,535
)
 
(183
)
 
571

 
34

Total comprehensive income attributable to noncontrolling interests
 
(2,987
)
 
(1,926
)
 
(2,509
)
 
(2,603
)
Total comprehensive income (loss) attributable to Bristow Group
 
(65,617
)
 
6,392

 
(54,160
)
 
59,709

Accretion of redeemable noncontrolling interests
 
4,803

 

 
(1,498
)
 

Total comprehensive income (loss) attributable to common stockholders
 
$
(60,814
)
 
$
6,392

 
$
(55,658
)
 
$
59,709

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

2


BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
 
September 30, 
 2015
 
March 31,  
 2015
 
 
(Unaudited)
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
139,341

 
$
104,146

Accounts receivable from non-affiliates
 
227,109

 
250,610

Accounts receivable from affiliates
 
4,676

 
8,008

Inventories
 
145,731

 
147,169

Assets held for sale
 
41,242

 
57,827

Prepaid expenses and other current assets
 
75,906

 
70,091

Total current assets
 
634,005

 
637,851

Investment in unconsolidated affiliates
 
196,350

 
216,376

Property and equipment – at cost:
 
 
 
 
Land and buildings
 
237,704

 
171,959

Aircraft and equipment
 
2,445,026

 
2,493,869

 
 
2,682,730

 
2,665,828

Less – Accumulated depreciation and amortization
 
(527,140
)
 
(508,727
)
 
 
2,155,590

 
2,157,101

Goodwill
 
52,404

 
75,628

Other assets
 
162,703

 
143,764

Total assets
 
$
3,201,052

 
$
3,230,720

 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
Accounts payable
 
$
108,678

 
$
84,193

Accrued wages, benefits and related taxes
 
59,041

 
81,648

Income taxes payable
 
16,357

 
7,926

Other accrued taxes
 
12,797

 
13,335

Deferred revenue
 
26,889

 
36,784

Accrued maintenance and repairs
 
26,393

 
23,316

Accrued interest
 
11,858

 
12,831

Other accrued liabilities
 
73,967

 
82,605

Deferred taxes
 
15,108

 
17,704

Short-term borrowings and current maturities of long-term debt
 
30,041

 
18,730

Deferred sale leaseback advance
 

 
55,934

Total current liabilities
 
381,129

 
435,006

Long-term debt, less current maturities
 
973,339

 
845,692

Accrued pension liabilities
 
91,908

 
99,576

Other liabilities and deferred credits
 
26,942

 
39,782

Deferred taxes
 
150,172

 
165,655

Commitments and contingencies (Note 5)
 


 

Redeemable noncontrolling interests
 
30,527

 
26,223

Stockholders’ investment:
 
 
 
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 34,932,143 as of September 30 and 34,838,374 as of March 31 (exclusive of 1,291,441 treasury shares)
 
377

 
376

Additional paid-in capital
 
788,672

 
781,837

Retained earnings
 
1,208,809

 
1,284,442

Accumulated other comprehensive loss
 
(274,100
)
 
(270,329
)
Treasury shares, at cost (2,756,419 shares)
 
(184,796
)
 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,538,962

 
1,611,530

Noncontrolling interests
 
8,073

 
7,256

Total stockholders’ investment
 
1,547,035

 
1,618,786

Total liabilities, redeemable noncontrolling interests and stockholders’ investment
 
$
3,201,052

 
$
3,230,720

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
  
 
Six Months Ended 
 September 30,
 
 
2015
 
2014
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
(47,309
)
 
$
72,828

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
74,533

 
53,539

Deferred income taxes
 
(22,545
)
 
(329
)
Write-off of deferred financing fees
 

 
437

Discount amortization on long-term debt
 
946

 
2,130

(Gain) loss on disposal of assets
 
21,702

 
(737
)
Loss on impairment
 
27,713

 
3,362

Stock-based compensation
 
10,380

 
8,407

Equity in earnings from unconsolidated affiliates less than dividends received
 
9,876

 
2,362

Tax benefit related to stock-based compensation
 
(203
)
 
(1,642
)
Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
33,490

 
(2,587
)
Inventories
 
(3,061
)
 
(11,865
)
Prepaid expenses and other assets
 
(21,667
)
 
(2,664
)
Accounts payable
 
25,395

 
(1,794
)
Accrued liabilities
 
(41,488
)
 
(10,176
)
Other liabilities and deferred credits
 
(9,502
)
 
(10,104
)
Net cash provided by operating activities
 
58,260

 
101,167

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(146,989
)
 
(302,119
)
Proceeds from asset dispositions
 
16,107

 
397,644

Net cash provided by (used in) investing activities
 
(130,882
)
 
95,525

Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings
 
461,581

 
219,354

Repayment of debt
 
(323,569
)
 
(282,838
)
Partial prepayment of put/call obligation
 
(28
)
 
(30
)
Acquisition of noncontrolling interest
 
(2,000
)
 
(3,170
)
Payment of contingent consideration
 
(8,000
)
 

Repurchase of common stock
 

 
(43,423
)
Common stock dividends paid
 
(23,746
)
 
(22,689
)
Issuance of common stock
 

 
1,398

Tax benefit related to stock-based compensation
 
203

 
1,642

Net cash provided by (used in) financing activities
 
104,441

 
(129,756
)
Effect of exchange rate changes on cash and cash equivalents
 
3,376

 
(7,367
)
Net increase in cash and cash equivalents
 
35,195

 
59,569

Cash and cash equivalents at beginning of period
 
104,146

 
204,341

Cash and cash equivalents at end of period
 
$
139,341

 
$
263,910

Cash paid during the period for:
 
 
 
 
Interest
 
$
19,751

 
$
14,442

Income taxes
 
$
14,245

 
$
15,322

Supplemental disclosure of non-cash investing activities:
 
 
 
 
Deferred sale leaseback advance
 
$
18,285

 
$
42,747

Completion of deferred sale leaseback
 
$
(74,480
)
 
$
(73,104
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Equity and Redeemable Noncontrolling Interests
(Unaudited)
(In thousands, except share amounts)
 
 
 
Total Bristow Group Stockholders’ Investment
 
 
 
 
 
Redeemable Noncontrolling Interests
 
Common
Stock
 
Common
Stock
(Shares)
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Treasury
Stock
 
Noncontrolling
Interests
 
Total
Stockholders’
Investment
March 31, 2015
$
26,223

 
$
376

 
34,838,374

 
$
781,837

 
$
1,284,442

 
$
(270,329
)
 
$
(184,796
)
 
$
7,256

 
$
1,618,786

Issuance of common stock

 
1

 
93,769

 
8,835

 

 

 

 

 
8,836

Acquisition of noncontrolling interests

 

 

 
(2,000
)
 

 

 

 

 
(2,000
)
Distributions paid to noncontrolling interests

 

 

 

 

 

 

 
(28
)
 
(28
)
Common stock dividends ($0.68 per share)

 

 

 

 
(23,746
)
 

 

 

 
(23,746
)
Currency translation adjustments
102

 

 

 

 

 

 

 
469

 
469

Net income (loss)
2,704

 

 

 

 
(50,389
)
 

 

 
376

 
(50,013
)
Accretion of redeemable noncontrolling interests
1,498

 

 

 

 
(1,498
)
 

 

 

 
(1,498
)
Other comprehensive income

 

 

 

 

 
(3,771
)
 

 

 
(3,771
)
September 30, 2015
$
30,527

 
$
377

 
34,932,143

 
$
788,672

 
$
1,208,809

 
$
(274,100
)
 
$
(184,796
)
 
$
8,073

 
$
1,547,035


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


5

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, 2016 is referred to as “fiscal year 2016”. Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, 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 2015 Annual Report (the “fiscal year 2015 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 balance sheet of the Company as of September 30, 2015, the consolidated statements of operations and comprehensive income for the three and six months ended September 30, 2015 and 2014, and the consolidated cash flows for the six months ended September 30, 2015 and 2014.
Certain reclassifications to prior period information have been made to conform to the presentation of the current period information. These reclassifications had no effect on net income as previously reported.



6

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Foreign Currency
During the three and six months ended September 30, 2015 and 2014, our primary foreign currency exposure was to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira. The value of these currencies has fluctuated relative to the U.S. dollar as indicated in the following table:
 
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
One British pound sterling into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
1.57

 
1.72

 
1.59

 
1.72

 
 
Average
 
1.55

 
1.67

 
1.54

 
1.68

 
 
Low
 
1.51

 
1.61

 
1.46

 
1.61

 
 
At period-end
 
1.51

 
1.62

 
1.51

 
1.62

 
 
One euro into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
1.16

 
1.37

 
1.16

 
1.39

 
 
Average
 
1.11

 
1.33

 
1.11

 
1.35

 
 
Low
 
1.09

 
1.26

 
1.06

 
1.26

 
 
At period-end
 
1.12

 
1.26

 
1.12

 
1.26

 
 
One Australian dollar into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.77

 
0.95

 
0.81

 
0.95

 
 
Average
 
0.73

 
0.93

 
0.75

 
0.93

 
 
Low
 
0.69

 
0.87

 
0.69

 
0.87

 
 
At period-end
 
0.70

 
0.88

 
0.70

 
0.88

 
 
One Norwegian kroner into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.1272

 
0.1721

 
0.1370

 
0.1753

 
 
Average
 
0.1220

 
0.1670

 
0.1255

 
0.1694

 
 
Low
 
0.1171

 
0.1601

 
0.1171

 
0.1601

 
 
At period-end
 
0.1176

 
0.1671

 
0.1176

 
0.1671

 
 
One Nigerian naira into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.0051

 
0.0062

 
0.0051

 
0.0063

 
 
Average
 
0.0051

 
0.0061

 
0.0051

 
0.0062

 
 
Low
 
0.0050

 
0.0060

 
0.0050

 
0.0060

 
 
At period-end
 
0.0051

 
0.0060

 
0.0051

 
0.0060

 
______
Source: Bank of England and Oanda.com
Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction losses of $11.4 million and $1.7 million for the three months ended September 30, 2015 and 2014, respectively, and foreign currency losses of $7.6 million and $2.1 million for the six months ended September 30, 2015 and 2014, respectively. The losses for the three and six months ended September 30, 2015 were primarily driven by the strengthening of the U.S. dollar against the currencies reflected in the table above.

7

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Our earnings from unconsolidated affiliates, net of losses, are also affected by the impact of changes in foreign currency exchange rates on the reported results of our unconsolidated affiliates. During the three months ended September 30, 2015 and 2014, earnings from unconsolidated affiliates, net of losses, decreased by $19.9 million and $8.7 million, respectively, and during the six months ended September 30, 2015 and 2014, earnings from unconsolidated affiliates, net of losses, decreased by $18.2 million and $8.3 million, respectively, as a result of the impact of changes in foreign currency exchange rates on the earnings of our unconsolidated affiliates, primarily the impact of changes in the Brazilian real to U.S. dollar exchange rate on earnings for our affiliate in Brazil. The value of the Brazilian real has fluctuated relative to the U.S. dollar as indicated in the following table:
 
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
One Brazilian real into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.3217

 
0.4534

 
0.3435

 
0.4572

 
 
Average
 
0.2858

 
0.4398

 
0.3057

 
0.4445

 
 
Low
 
0.2406

 
0.4066

 
0.2406

 
0.4066

 
 
At period-end
 
0.2441

 
0.4102

 
0.2441

 
0.4102

 
______
Source: Oanda.com
We estimate that the fluctuation of currencies versus the same period in the prior fiscal year had the following effect on our financial condition and results of operations (in thousands):
 
 
 
Three Months Ended 
 September 30, 2015
 
Six Months Ended 
 September 30, 2015
 
 
Revenue
 
$
(34,205
)
 
$
(69,889
)
 
 
Operating expense
 
40,378

 
70,423

 
 
Earnings from unconsolidated affiliates, net of losses
 
(11,226
)
 
(9,840
)
 
 
Non-operating expense
 
(9,711
)
 
(5,456
)
 
 
Income before provision for income taxes
 
(14,764
)
 
(14,762
)
 
 
Provision for income taxes
 
4,031

 
4,030

 
 
Net income
 
(10,733
)
 
(10,732
)
 
 
Cumulative translation adjustment
 
(18,485
)
 
(3,771
)
 
 
Total stockholders’ investment
 
$
(29,218
)
 
$
(14,503
)
 
Revenue Recognition
In general, we recognize revenue when it is both realized or realizable and earned. We consider revenue to be realized or realizable and earned when the following conditions exist: there is persuasive evidence of an arrangement, generally a client contract exists; the services or products have been performed or delivered to the client; the sales price is fixed or determinable; and collection has occurred or is probable. More specifically, revenue from helicopter services is recognized based on contractual rates as the related services are performed. The charges under these contracts are generally based on a two-tier rate structure consisting of a daily or monthly fixed fee plus additional fees for each hour flown. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term. We also provide services to clients on an “ad hoc” basis, which usually entails a shorter contract notice period and duration. The charges for ad hoc services are based on an hourly rate or a daily or monthly fixed fee plus additional fees for each hour flown. In order to offset potential increases in operating costs, our long-term contracts may provide for periodic increases in the contractual rates charged for our services. We recognize the impact of these rate increases when the criteria outlined above have been met. This generally includes written recognition from our clients that they are in agreement with the amount of the rate escalation. Cost reimbursements from clients are recorded as reimbursable revenue with the related reimbursed costs recorded as reimbursable expense on our condensed consolidated statements of operations.
Bristow Academy, our helicopter training unit, primarily earns revenue from military training, flight training provided to individual students and ground school courses. We recognize revenue from these sources using the same revenue recognition principles described above as services are provided. We consider revenue to be realized or realizable and earned when the following conditions exist: there is persuasive evidence of an arrangement (generally a contract exists); the services have been performed or delivered to the client or student; the sales price is fixed and determinable; and collection has occurred or is probable.

8

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Eastern Airways International Limited (“Eastern Airways”) and Capiteq Limited, operating under the name Airnorth, primarily earn revenue through charter and scheduled airline services and provision of airport services (Eastern Airways only). Both chartered and scheduled revenue is recognized net of passenger taxes and discounts. Revenue is recognized at the earlier of the period in which the service is provided or the period in which the right to travel expires, which is determined by the terms and conditions of the ticket. Ticket sales are recorded within deferred revenue in accordance with the above policy. Airport services revenue is recognized when earned.
Interest Expense, Net
During the three and six months ended September 30, 2015 and 2014, interest expense, net consisted of the following (in thousands):
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Interest income
$
217

 
$
386

 
$
438

 
$
622

 
 
Interest expense
(7,396
)
 
(7,958
)
 
(15,286
)
 
(15,321
)
 
 
Interest expense, net
$
(7,179
)
 
$
(7,572
)
 
$
(14,848
)
 
$
(14,699
)
 
Interest expense for the three and six months ended September 30, 2014, respectively, includes the write-off of deferred financing fees of $0.3 million and $0.4 million related to the repurchase of $20.0 million and $31.2 million principal amount of our 6 ¼% Senior Notes due 2022 (the “6 ¼% Senior Notes”). For further details on the repurchase of the 6 ¼% Senior Notes, see Note 5 to the fiscal year 2015 Financial Statements.
Other Income (Expense), Net
In addition to foreign currency transaction gains (losses) discussed above, other income (expense), net includes expense of $1.0 million and $1.9 million related to premiums paid for the repurchase of a portion of the 6 ¼% Senior Notes during the three and six months ended September 30, 2014, respectively.
Accretion of Redeemable Noncontrolling Interests
Accretion of redeemable noncontrolling interests of $(4.8) million and $1.5 million for the three and six months ended September 30, 2015, respectively, relates to put arrangements whereby the noncontrolling interest holders may require us to redeem the remaining shares of Airnorth and Eastern Airways at a formula-based amount that is not considered fair value (the “redemption amount”). Redeemable noncontrolling interest is adjusted each period for comprehensive income, dividends attributable to the noncontrolling interest and changes in ownership interest, if any, such that the noncontrolling interest represents the proportionate share of Airnorth’s and Eastern Airways’ equity (the “carrying value”) . Additionally, at each period end we are required to compare the redemption amount to the carrying value and the redeemable noncontrolling interest and record the redeemable noncontrolling interest at the higher of the two amounts, with a corresponding charge or credit directly to retained earnings. While this charge does not impact net income (loss), it does result in a reduction of income (loss) available to common shareholders in the calculation of diluted earnings (loss) per share (see Note 8). During the three months ended June 30, 2015, we adjusted the carrying values to the redemption amount for Airnorth and Eastern Airways as the redemption amounts were in excess of the carrying values and recorded adjustments of $1.2 million and $5.1 million, respectively, as an increase in redeemable noncontrolling interest and a decrease in retained earnings. As of September 30, 2015, the redemption amount for Airnorth was above the carrying value and we recorded adjustments of $0.3 million and $1.5 million for the three and six months ended September 30, 2015, respectively, as an increase in redeemable noncontrolling interest and a decrease in retained earnings. As of September 30, 2015, the redemption amount for Eastern Airways was less than the carrying value and we recorded $(5.1) million for the three months ended September 30, 2015, as a decrease in redeemable noncontrolling interest and an increase in retained earnings to bring the amounts back to carrying value.
Accounts Receivable
As of September 30 and March 31, 2015, the allowance for doubtful accounts for non-affiliates was $3.8 million and $0.9 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of September 30 and March 31, 2015. The increase in the allowance for doubtful accounts for non-affiliates related to $4.1 million due from two clients in Nigeria where we no longer believed collection was probable as of June 30, 2015. During the three months ended September 30, 2015, $1.1 million was received from one of these clients resulting in a reversal of the allowance recorded in the prior quarter.

9

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Inventories
As of September 30 and March 31, 2015, inventories were net of allowances of $42.6 million and $45.4 million, respectively. During the six months ended September 30, 2015, we increased our inventory allowance by $5.4 million as a result of our review of excess inventory on aircraft model types we plan to exit by the end of the fiscal year. During the three and six months ended September 30, 2014, we increased our inventory allowance by $3.4 million related to excess inventory identified for an older large aircraft model we planned to remove from our operational fleet. The inventory allowance is reduced by sales of inventory and adjusted for foreign exchange effects.
Prepaid Expenses and Other Current Assets
As of September 30 and March 31, 2015, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $13.0 million and $8.9 million, respectively, related to the search and rescue (“SAR”) contracts in the U.K. and a client contract in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three and six months ended September 30, 2015, we have expensed $2.3 million and $3.8 million, respectively, due to the start-up of some of these contracts.
Other Assets
As of September 30 and March 31, 2015, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $52.8 million and $42.4 million, respectively, related to the SAR contracts in the U.K. and a client contract in Norway, which are recoverable under the contract and will be expensed over the terms of the contracts.
Property and Equipment and Assets Held for Sale

During the three and six months ended September 30, 2015 and 2014, we made capital expenditures as follows:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2015

2014
 
2015

2014
 
Number of aircraft delivered:
 
 
 
 
 
 
 
 
Medium

 

 
1

 
3

 
Large
1

 
2

 
2

 
8

 
Total aircraft
1

 
2

 
3

 
11

 
Capital expenditures (in thousands):
 
 
 
 
 
 
 
 
Aircraft and related equipment (1)
$
70,691

 
$
65,386

 
$
111,153

 
$
237,484

 
Other
8,521

 
36,286

 
35,836

 
64,635

 
Total capital expenditures
$
79,212

 
$
101,672

 
$
146,989

 
$
302,119

_____________ 
(1) 
During the three months ended September 30, 2015 and 2014, we spent $36.0 million and $48.0 million, respectively, and during the six months ended September 30, 2015 and 2014, we spent $64.3 million and $211.3 million, respectively, on construction in progress, which primarily represents progress payments on aircraft to be delivered in future periods.


10

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

The following table presents details on the aircraft sold or disposed of and impairments on assets held for sale during the three months ended September 30, 2015 and 2014:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except for number of aircraft)
 
 
 
 
 
 
 
 
 
 
Number of aircraft sold or disposed of (1)
4

 
21

 
13

 
25

 
Proceeds from sale or disposal of assets (1)
$
6,806

 
$
391,001

 
$
16,107

 
$
397,644

 
Gain (loss) from sale or disposal of assets
$
(1,838
)
 
$
685

 
$
329

 
$
3,874

 
 
 
 
 
 
 
 
 
 
Number of aircraft impaired
10

 
2

 
11

 
6

 
Impairment charges on aircraft held for sale
$
12,169

 
$
558

 
$
22,031

 
$
3,137

_____________ 
(1) 
During the three and six months ended September 30, 2014, 14 of these aircraft were leased back, and we received $380.7 million in proceeds for these aircraft. We did not enter into any sale leaseback transactions during the three and six months ended September 30, 2015.
During the three and six months ended September 30, 2015, we recorded accelerated depreciation of $10.5 million and $19.3 million, respectively, on 16 medium, four large and one fixed wing aircraft operating in our Americas, Africa and Asia Pacific regions as management made the decision to exit these model types earlier than originally anticipated. In certain instances the salvage values of aircraft were also adjusted to reflect our expectation of sales values in the current market. We expect to record an additional $7.6 million in depreciation expense over the remainder of fiscal year 2016 relating to changes in fleet exit timing and changes in expected salvage values.
Loss on Impairment
Our business consists of one segment: Helicopter Services, with five reporting units within that segment: Europe Caspian region, Africa region, Americas region, Asia Pacific region, and Corporate and other. For the purposes of performing an analysis of goodwill, we evaluate whether there are reporting units below the reporting units we disclose for segment reporting purposes by assessing whether our regional management typically reviews results and whether discrete financial information exists at a lower level. Based on this review, we performed our analysis of goodwill for the following reporting units as of September 30, 2015, with goodwill as reflected below prior to any impairment recorded:    
The Africa region, which included $5.9 million of goodwill;
Bristow Academy, within Corporate and other, which included $10.2 million of goodwill;
Bristow Norway, within our Europe Caspian region, which included $12.1 million of goodwill;
Eastern Airways, within our Europe Caspian region, which included $24.6 million of goodwill; and
Airnorth, within our Asia Pacific region, which included $21.9 million of goodwill.
We test goodwill for impairment on an annual basis or when events or changes in circumstances indicate that a potential impairment exists. During the three months ended September 30, 2015, we noted rapid and significant declines in the market value of our stock and an overall reduction in expected operating results resulting from the downturn in the oil and gas market driven by reduced crude oil prices. The impact on our results is reflected in an increase in the number of idle aircraft and reduction in forecasted results across our global oil and gas helicopter operations, and is reflected in reduced operating revenue for our business for the three months ended September 30, 2015, when excluding growth from the U.K. SAR contract and the addition of Airnorth. The reduction in demand for aircraft in the offshore energy market led to further impairment of older model aircraft as discussed under Property and Equipment and Assets Held for Sale above. Based on these factors, we concluded that the fair value of our goodwill could have fallen below its carrying value and that an interim period analysis of goodwill was required.
We performed the interim impairment test of goodwill across the reporting units discussed above, noting that the estimated fair values of the Eastern Airways and Airnorth exceeded the carrying values. The estimated fair value of our Africa region was approximately 8% more than the carrying value for the Africa region. The estimated fair values of Bristow Academy and Bristow

11

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Norway were below their carrying values, resulting in an impairment of all of the goodwill for those reporting units and a loss of $22.3 million reflected in our results for the three and six months ended September 30, 2015.
We estimated the implied fair value of the reporting units using a variety of valuation methods, including the income and market approaches. The determination of estimated fair value required us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of the reporting units, such as projected demand for our services and rates.
The income approach was based on a discounted cash flow model, which utilized present values of cash flows to estimate fair value. The future cash flows were projected based on our estimates of future rates for our services, utilization, operating costs, capital requirements, growth rates and terminal values. Forecasted rates and utilization take into account current market conditions and our anticipated business outlook, both of which have been impacted by the adverse changes in the offshore energy business environment from the current downturn. Operating costs were forecasted using a combination of our historical average operating costs and expected future costs, including ongoing cost reduction initiatives. Capital requirements in the discounted cash flow model were based on management's estimates of future capital costs driven by expected market demand in future periods. The estimated capital requirements included cash outflows for new aircraft, infrastructure and improvements. A terminal period was used to reflect our estimate of stable, perpetual growth. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital (“WACC”) for each of the reporting units and in total. These assumptions were derived from unobservable inputs and reflect management's judgments and assumptions.
The market approach was based upon the application of price-to-earnings multiples to management's estimates of future earnings adjusted for a control premium. Management's earnings estimates were derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.
For purposes of the goodwill impairment test, we calculated the reporting units’ estimated fair values as the average of the values calculated under the income approach and the market approach.
We evaluated the estimated fair value of our reporting units compared to our market capitalization. The aggregate fair values of our reporting units exceeded our market capitalization, and we believe the resulting implied control premium was reasonable based on recent market transactions within our industry or other relevant benchmark data.
The estimates used to determine the fair value of the reporting units discussed above reflect management's best estimates, and we believe they are reasonable. Future declines in the reporting units’ operating performance or our anticipated business outlook may reduce the estimated fair value of these reporting units and result in additional impairments. Factors that could have a negative impact on the fair value include, but are not limited to:
decreases in estimated rates and utilization due to greater-than-expected market pressures, downtime and other risks associated with offshore energy operations;
sustained declines in our stock price;
decreases in revenue due to our inability to attract and retain skilled personnel;
changes in worldwide offshore energy transportation supply and demand, competition or technology;
changes in future levels of drilling activity and expenditures, whether as a result of global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause our clients to further reduce offshore production and drilling activities;
possible cancellation or suspension of contracts as a result of mechanical difficulties, performance or other reasons;
inability to manage cost during the current downturn and in future periods;
increases in the market-participant risk-adjusted WACC; and
declines in anticipated growth rates.
Adverse changes in one or more of these factors could result in additional goodwill impairments in future periods.


12

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Additionally, included in loss on impairment are impairment charges for inventory of $5.4 million during the six months of September 30, 2015 and $3.4 million during the three and six months ended September 30, 2014. For further details on inventory impairments, see Inventory discussed above.
Deferred Sale Leaseback Advance
As of March 31, 2015, we had a total deferred sale leaseback advance asset of $55.9 million, which was included in deferred sale leaseback advance on our condensed consolidated balance sheet. During fiscal year 2014, we received payment of approximately $106.1 million for progress payments we had made on seven aircraft under construction, and we assigned any future payments due on these construction agreements to the purchaser. As we had the obligation and intent to lease the aircraft back from the purchaser upon completion, we recorded a liability equal to the cash received and additional payments made by the purchaser totaling $147.4 million, with a corresponding increase to construction in progress. During fiscal year 2015, we took delivery and entered into leases for five of the aircraft and removed a total of $183.7 million and $182.6 million, respectively, from construction in progress and deferred sale leaseback advance on our condensed consolidated balance sheet. During the three months ended June 30, 2015, we took delivery and entered into leases for the remaining two aircraft and removed a total of $75.8 million and $74.3 million, respectively, from construction in progress and deferred sale leaseback advance on our consolidated balance sheet. As of June 30, 2015, the construction in progress and deferred sale leaseback advance liability related to these deferred sale leaseback transactions were removed from our condensed consolidated balance sheet.
Recent Accounting Pronouncements
We consider the applicability and impact of all accounting standard updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. This new standard is effective for annual reporting periods beginning after December 15, 2016. However, in July 2015, the FASB approved the deferral of the effective date of the revenue recognition standard permitting public entities to apply the new revenue standard to annual reporting periods beginning after December 15, 2017. Early application is permitted, but not before the original effective date of December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this standard will have on our financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In February 2015, the FASB issued accounting guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance amends the criteria for determining which entities are considered VIEs and amends the criteria for determining if a service provider possesses a variable interest in a VIE. This pronouncement is effective for annual and interim periods in fiscal years beginning after December 15, 2015.  Early adoption is permitted, including adoption in an interim period.  A reporting entity may apply the amendments using a modified retrospective approach or a full retrospective application.  We have not yet determined the effect, if any, of the standard on our consolidated financial statements.
In April 2015, the FASB issued accounting guidance relating to the presentation of debt issuance costs. The intent is to simplify the presentation of debt issuance costs by requiring entities to record debt issuance costs on the balance sheet as a direct deduction from the carrying amount of the related debt liability, similar to debt discounts or premiums. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and early adoption is permitted. As of September 30, and March 31, 2015, we had debt issuance costs of $12.0 million and $10.0 million, respectively, which are included in other assets on the condensed consolidated balance sheets. We have not yet adopted this accounting guidance but we believe the adoption of this guidance would reduce other assets and long-term debt by such amounts.

13

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Note 2 — VARIABLE INTEREST ENTITIES AND INVESTMENTS IN OTHER SIGNIFICANT AFFILIATES
VIEs
A Variable Interest Entity (“VIE”) is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate.
As of September 30, 2015, we had interests in four VIEs of which we were the primary beneficiary, which are described below, and had no interests in VIEs of which we were not the primary beneficiary. See Note 3 to the fiscal year 2015 Financial Statements for a description of other investments in significant affiliates.
Bristow Aviation Holdings Limited — We own 49% of Bristow Aviation Holdings Limited’s (“Bristow Aviation”) common stock and a significant amount of its subordinated debt. Bristow Aviation is incorporated in England and holds all of the outstanding shares in Bristow Helicopters Limited (“Bristow Helicopters”). Bristow Aviation’s subsidiaries provide helicopter services to clients primarily in the U.K, Norway, Australia, Nigeria and Trinidad. Bristow Aviation is organized with three different classes of ordinary shares having disproportionate voting rights. The Company, Caledonia Investments plc (“Caledonia”) and a European Union investor (the “E.U. Investor”) own 49%, 46% and 5%, respectively, of Bristow Aviation’s total outstanding ordinary shares, although Caledonia has voting control over the E.U. Investor’s shares.
In addition to our ownership of 49% of Bristow Aviation’s outstanding ordinary shares, in May 2004, we acquired eight million shares of deferred stock, essentially a subordinated class of stock with no voting rights, from Bristow Aviation for £1 per share ($14.4 million in total). We also have £91.0 million ($137.8 million) principal amount of subordinated unsecured loan stock (debt) of Bristow Aviation bearing interest at an annual rate of 13.5% and payable semi-annually. Payment of interest on such debt has been deferred since its incurrence in 1996. Deferred interest accrues at an annual rate of 13.5% and aggregated $1.6 billion as of September 30, 2015.
The Company, Caledonia, the E.U. Investor and Bristow Aviation have entered into a shareholder agreement respecting, among other things, the composition of the board of directors of Bristow Aviation. On matters coming before Bristow Aviation’s board, Caledonia’s representatives have a total of three votes and the two other directors have one vote each. In addition, Caledonia has the right to nominate two persons to our board of directors and to replace any such directors so nominated.
Caledonia, the Company and the E.U. Investor also have entered into a put/call agreement under which, upon giving specified prior notice, we have the right to buy all the Bristow Aviation shares held by Caledonia and the E.U. Investor, who, in turn, each have the right to require us to purchase such shares. Under current English law, we would be required, in order for Bristow Aviation to retain its operating license, to find a qualified E.U. investor to own any Bristow Aviation shares we have the right to acquire under the put/call agreement. The only restriction under the put/call agreement limiting our ability to exercise the put/call option is a requirement to consult with the Civil Aviation Authority (the “CAA”) in the U.K. regarding the suitability of the new holder of the Bristow Aviation shares. The put/call agreement does not contain any provisions should the CAA not approve the new E.U. investor. However, we would work diligently to find an E.U. investor suitable to the CAA. The amount by which we could purchase the shares of the other investors holding 51.0% of the equity of Bristow Aviation is fixed under the terms of the call option, and we have reflected this amount on our condensed consolidated balance sheets in noncontrolling interest.

14

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Furthermore, the call option provides a mechanism whereby the economic risk for the other investors is limited should the financial condition of Bristow Aviation deteriorate. The call option price is the nominal value of the ordinary shares held by the noncontrolling shareholders (£1.0 million as of September 30, 2015) plus an annual guaranteed rate of return less any prepayments of such call option price and any dividends paid on the shares concerned. We can elect to pre-pay the guaranteed return element of the call option price wholly or in part without exercising the call option. No dividends have been paid by Bristow Aviation. We have accrued the annual return due to the other shareholders at a rate of sterling LIBOR plus 3% (prior to May 2004, the rate was fixed at 12%) by recognizing noncontrolling interest expense on our condensed consolidated statements of operations, with a corresponding increase in noncontrolling interests on our condensed consolidated balance sheets. Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interests on our condensed consolidated balance sheets. The other investors have an option to put their shares in Bristow Aviation to us. The put option price is calculated in the same way as the call option price except that the guaranteed rate for the period to April 2004 was 10% per annum. If the put option is exercised, any pre-payments of the call option price are set off against the put option price.
Bristow Aviation and its subsidiaries are exposed to similar operational risks and are therefore monitored and evaluated on a similar basis by management. Accordingly, the financial information reflected on our condensed consolidated balance sheets and statements of operations for Bristow Aviation and subsidiaries is presented in the aggregate, including intercompany amounts with other consolidated entities, as follows (in thousands):
 
 
 
September 30, 
 2015
 
March 31,  
 2015
 
 
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
109,507

 
$
91,190

 
 
Accounts receivable
 
539,509

 
521,989

 
 
Inventories
 
102,497

 
100,065

 
 
Prepaid expenses and other current assets
 
82,828

 
42,659

 
 
Total current assets
 
834,341

 
755,903

 
 
Investment in unconsolidated affiliates
 
273

 
64

 
 
Property and equipment, net
 
252,819

 
243,357

 
 
Goodwill
 
46,460

 
61,242

 
 
Other assets
 
89,277

 
78,637

 
 
Total assets
 
$
1,223,170

 
$
1,139,203

 
 
Liabilities
 
 
 
 
 
 
Accounts payable
 
$
523,943

 
$
379,357

 
 
Accrued liabilities
 
145,466

 
154,306

 
 
Accrued interest
 
1,592,456

 
1,489,369

 
 
Deferred taxes
 

 
1,128

 
 
Current maturities of long-term debt
 
9,041

 
9,643

 
 
Total current liabilities
 
2,270,906

 
2,033,803

 
 
Long-term debt, less current maturities
 
164,234

 
168,245

 
 
Accrued pension liabilities
 
91,908

 
99,576

 
 
Other liabilities and deferred credits
 
8,114

 
11,948

 
 
Deferred taxes
 
13,301

 
14,457

 
 
Temporary equity
 
30,527

 
26,223

 
 
Total liabilities
 
$
2,578,990

 
$
2,354,252

 
 
 
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Revenue
 
$
377,362

 
$
391,615

 
$
764,133

 
$
775,432

 
 
Operating income (loss)
 
(9,829
)
 
7,018

 
(27,573
)
 
23,718

 
 
Net loss
 
(78,938
)
 
(47,767
)
 
(143,715
)
 
(85,348
)
 

15

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Bristow Helicopters Nigeria Ltd. — Bristow Helicopters Nigeria Ltd. (“BHNL”) is a joint venture in Nigeria in which Bristow Helicopters owned a 48% interest, a Nigerian company owned 100% by Nigerian employees owned a 50% interest and an employee trust fund owned the remaining 2% interest as of September 30, 2015. BHNL provides helicopter services to clients in Nigeria.
In order to be able to bid competitively for our services in the Nigerian market, we were required to identify local citizens to participate in the ownership of entities domiciled in the region. However, these owners do not have extensive knowledge of the aviation industry and have historically deferred to our expertise in the overall management and day-to-day operation of BHNL (including the establishment of operating and capital budgets and strategic decisions regarding the potential expansion of BHNL’s operations). We have also historically provided subordinated financial support to BHNL and will need to continue to do so unless and until BHNL acquires sufficient equity to permit itself to finance its activities without that additional support from us. As we have the power to direct the most significant activities affecting the economic performance and ongoing success of BHNL and hold a variable interest in the entity in the form of our equity investment and working capital infusions, we consolidate BHNL as the primary beneficiary. The employee-owned Nigerian entity referenced above purchased a 19% interest in BHNL in December 2013 with proceeds from a loan received from BGI Aviation Technical Services Nigeria Limited (“BATS”). In July 2014, the employee-owned Nigerian entity purchased an additional 29% interest with proceeds from a loan received from Bristow Helicopters (International) Limited (“BHIL”). In April 2015, Bristow Helicopters purchased an additional 8% interest in BHNL and the employee-owned Nigerian entity purchased an additional 2% interest with proceeds from a loan received from BHIL. Both BATS and BHIL are wholly-owned subsidiaries of Bristow Aviation. The employee-owned Nigerian entity is also a VIE that we consolidate as the primary beneficiary and we eliminate the loans discussed above in consolidation.
BHNL is an indirect subsidiary of Bristow Aviation; therefore, financial information for this entity is included within the amounts for Bristow Aviation and its subsidiaries presented above.
Pan African Airlines Nigeria Ltd. — Pan African Airlines Nigeria Ltd. (“PAAN”) is a joint venture in Nigeria with local partners, in which we own a 50.17% interest. PAAN provides helicopter services to clients in Nigeria.
The activities that most significantly impact PAAN’s economic performance relate to the day-to-day operation of PAAN, setting the operating and capital budgets, and strategic decisions regarding the potential expansion of PAAN’s operations. Throughout the history of PAAN, our representation on the board and our secondment to PAAN of its managing director has enabled us to direct the key operational decisions of PAAN (without objection from the other board members). We have also historically provided subordinated financial support to PAAN. As we have the power to direct the most significant activities affecting the economic performance and ongoing success of PAAN and hold a variable interest in the form of our equity investment and working capital infusions, we consolidate PAAN as the primary beneficiary. However, as long as we own a majority interest in PAAN, the separate presentation of financial information in a tabular format for PAAN is not required.
Note 3 — DEBT
Debt as of September 30 and March 31, 2015 consisted of the following (in thousands):
 
 
 
September 30, 
 2015
 
March 31,  
 2015
 
 
6¼% Senior Notes due 2022
 
$
401,535

 
$
401,535

 
 
Term Loan
 
342,611

 
222,179

 
 
Revolving Credit Facility
 
223,800

 
83,800

 
 
Airnorth debt
 
20,839

 
23,119

 
 
Eastern Airways debt
 
14,595

 
19,680

 
 
3% Convertible Senior Notes due 2038, including zero and $0.9 million of unamortized discount, respectively
 

 
114,109

 
 
Total debt
 
1,003,380

 
864,422

 
 
Less short-term borrowings and current maturities of long-term debt
 
(30,041
)
 
(18,730
)
 
 
Total long-term debt
 
$
973,339

 
$
845,692

 
Term Loan Credit Facility On November 5, 2015, we entered into a senior secured term loan credit agreement (“Term Loan Credit Agreement”) which provides for $200 million of term loan commitments (the “Term Loan Credit Facility”). Proceeds from the Term Loan Credit Facility were initially used to repay loans outstanding under our $400 million Revolving Credit Facility as discussed below and related fees and expenses and to finance working capital needs. The additional liquidity is for capital expenditures, working capital needs and general corporate purposes. The maturity date of the Term Loan Credit Facility is November 5, 2017 and the interest rate at closing was LIBOR plus a borrowing margin of 2.0%.

16

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

The Term Loan Credit Facility is guaranteed by the certain of our U.S. subsidiaries (“Guarantor Subsidiaries”) and secured by the U.S. cash and cash equivalents, accounts receivable, inventories, non-aircraft equipment, prepaid expenses and other current assets, intangible assets and intercompany promissory notes held Bristow Group Inc. and the Guarantor Subsidiaries, and 100% and 65% of the capital stock of certain of our principal domestic and foreign subsidiaries, respectively. In addition, the Term Loan Credit Facility includes customary covenants, including certain financial covenants and restrictions on our ability to enter into certain transactions, including those that could result in the incurrence of additional indebtedness and liens; the making of loans, guarantees or investments; sale of assets; payments of dividends or repurchases of our capital stock; and entering into transactions with affiliates.
3% Convertible Senior Notes due 2038 — During June 2015, we repurchased $113.1 million of the $115.0 million principal amount of our 3% Convertible Senior Notes due 2038 (the “3% Convertible Senior Notes”) from holders that exercised their right to require us to repurchase their notes on the first put date of June 15, 2015. We funded this repurchase using borrowings on our Revolving Credit Facility. On July 13, 2015, we issued a notice to the holders of the remaining $1.9 million principal amount of notes that we were redeeming the remaining notes at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date of August 14, 2015. The notes were convertible at any time before the close of business on August 13, 2015, the business day immediately preceding the redemption date at a rate of 13.8373 shares per $1,000 principal amount of notes. However, prior to the redemption of the remaining notes that occurred on August 14, 2015, the conversion value of the 3% Convertible Senior Notes did not exceed the principal balance so we satisfied our conversion obligation by delivering cash of $1.9 million.
The balances of the debt and equity components of the 3% Convertible Senior Notes as of each period are as follows (in thousands):
 
 
 
September 30, 
 2015
 
March 31,  
 2015
 
 
Equity component – net carrying value
 
$
14,905

 
$
14,905

 
 
Debt component:
 
 
 
 
 
 
Face amount due at maturity
 
$

 
$
115,000

 
 
Unamortized discount
 

 
(891
)
 
 
Debt component – net carrying value
 
$

 
$
114,109

 
The debt discount was amortized into interest expense over the expected remaining life of the 3% Convertible Senior Notes to June 2015 (the first put date) using the effective interest rate. The effective interest rate for the six months ended September 30, 2015 and the three and six months ended September 30, 2014 was 6.9%. Interest expense related to our 3% Convertible Senior Notes for the three and six months ended September 30, 2015 and 2014 was as follows (in thousands):
 
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Contractual coupon interest
 
$
7

 
$
863

 
$
725

 
$
1,726

 
 
Amortization of debt discount
 

 
1,048

 
891

 
2,067

 
 
Total interest expense
 
$
7

 
$
1,911

 
$
1,616

 
$
3,793

 
Term Loan and Revolving Credit Facility — On April 17, 2015, we entered into the fifth amendment to the Amended and Restated Revolving Credit and Term Loan Agreement (the “Fifth Amendment”). The Fifth Amendment, among other things (a) increased the commitments under the Revolving Credit Facility from $350 million to $400 million, (b) increased the Term Loan borrowings from approximately $222.6 million to $350.0 million and (c) permitted us to incur additional credit facility debt to refinance the existing 3% Convertible Senior Notes. On September 29, 2015, we entered into the sixth amendment to the Amended and Restated Revolving Credit and Term Loan Agreement (the “Sixth Amendment”). The Sixth Amendment, among other things amended the maximum leverage ratio from 4.00:1.00 for all periods to 4.75:1.00 for the fiscal quarters ending from the date of the Sixth Amendment through December 31, 2016, to 4.50:1.00 for the fiscal quarters ending March 31, 2017 through December 31, 2017, and to 4.25:1.00 for the fiscal quarters ending March 31, 2018 through June 30, 2018, after which period the maximum leverage ratio will revert to 4.00:1.00 through maturity, (b) amended the interest coverage ratio from 2.75:1.00 for all periods to 2.00:1.00 for the fiscal quarters ending from the date of the Sixth Amendment through December 31, 2016, to 2.25:1.00 for the fiscal quarters ending March 31, 2017 through December 31, 2017, and to 2.50:1.00 for the fiscal quarters ending March 31, 2018 through June 30, 2018, after which period the minimum interest coverage ratio will revert to 2.75:1.00 through maturity and (c) increased the applicable margin on loans and the commitment fee on unused amounts of revolving commitments if the leverage ratio is greater than 4.25:1.00. Simultaneously with the closing of the Term Loan Credit Facility, we entered into the

17

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

seventh amendment to the Amended and Restated Revolving Credit and Term Loan Agreement (“Seventh Amendment”) which permits, among other things: (i) entry into the Term Loan Credit Facility and the incurrence of indebtedness thereunder and (ii) the granting of liens by the Company and the Guarantor Subsidiaries in favor of the lenders under the Term Loan Credit Facility on a pari passu secured basis with the liens granted in favor of the lenders under the Amended and Restated Revolving Credit and Term Loan Agreement, dated as of November 22, 2010. For further details on the Revolving Credit Facility and Term Loan, see Note 5 to the fiscal year 2015 Financial Statements. During the six months ended September 30, 2015, we had borrowings of $334.2 million and made payments of $194.2 million under the Revolving Credit Facility. Additionally, we paid $7.0 million to reduce our borrowings under the Term Loan. As of September 30, 2015, we had $0.6 million in letters of credit outstanding under the Revolving Credit Facility.
Note 4 — FAIR VALUE DISCLOSURES
Assets and liabilities subject to fair value measurement are categorized into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs that reflect quoted prices for identical assets or liabilities in markets which are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 – unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
Non-recurring Fair Value Measurements
The majority of our non-financial assets, which include inventories, property and equipment, assets held for sale, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial asset is required to be evaluated for impairment and deemed to be impaired, the impaired non-financial asset is recorded at its fair value.
The following table summarizes the assets as of September 30, 2015, valued at fair value on a non-recurring basis (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
September 30,
2015
 
Total
Loss for the
Three Months
Ended
September 30,
2015
 
Total
Loss for the
Six Months
Ended
September 30,
2015
Inventories
 
$

 
$
12,118

 
$

 
$
12,118

 
$

 
$
(5,439
)
Assets held for sale
 

 
33,647

 

 
33,647

 
(12,169
)
 
(22,031
)
Goodwill
 

 

 
52,404

 
52,404

 
(22,274
)
 
(22,274
)
Total assets
 
$

 
$
45,765

 
$
52,404

 
$
98,169

 
$
(34,443
)
 
$
(49,744
)
The following table summarizes the assets as of September 30, 2014, valued at fair value on a non-recurring basis (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
September 30,
2014
 
Total
Loss for the
Three Months
Ended
September 30,
2014
 
Total
Loss for the
Six Months
Ended
September 30,
2014
Inventories
 
$

 
$
19,446

 
$

 
$
19,446

 
$
(3,362
)
 
$
(3,362
)
Assets held for sale
 

 
4,650

 

 
4,650

 
(558
)
 
(3,137
)
Total assets
 
$

 
$
24,096

 
$

 
$
24,096

 
$
(3,920
)
 
$
(6,499
)
The fair value of inventories using Level 2 inputs is determined by evaluating the current economic conditions for sale and disposal of spare parts, which includes estimates as to the recoverability of the carrying value of the parts based on historical

18

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

experience with sales and disposal of similar spare parts, the expected timeframe of sales or disposals, the location of the spare parts to be sold and the condition of the spare parts to be sold or otherwise disposed of.
The fair value of assets held for sale using Level 2 inputs is determined through evaluation of expected sales proceeds for aircraft. This analysis includes estimates based on historical experience with sales, recent transactions involving similar assets, quoted market prices for similar assets and condition and location of aircraft to be sold or otherwise disposed of. The loss for the three and six months ended September 30, 2015 related to 10 and 11 aircraft held for sale, respectively, and the loss for the three and six months ended September 30, 2014 related to two and six aircraft held for sale, respectively.
The fair value of goodwill and other intangible assets is estimated using a variety of valuation methods, including the income and market approaches. These estimates of fair value include unobservable inputs, representative of Level 3 fair value measurement, including assumptions related to future performance, such as projected demand for our services and rates. For further details on our goodwill and other intangible assets, see Note 1.
Recurring Fair Value Measurements
The following table summarizes the financial instruments we had as of September 30, 2015, valued at fair value on a recurring basis (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
September 30,
2015
 
Balance  Sheet
Classification
Rabbi Trust investments
 
$
2,219

 
$

 
$

 
$
2,219

 
Other assets
Total assets
 
$
2,219

 
$

 
$

 
$
2,219

 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration: (1)
 
 
 
 
 
 
 
 
 
 
      Current
 
$

 
$

 
$
28,727

 
$
28,727

 
Other accrued liabilities
      Long-term
 

 

 
2,444

 
2,444

 
Other liabilities and deferred credits
Total liabilities
 
$

 
$

 
$
31,171

 
$
31,171

 
 
______________

(1) 
Relates to our investment in Cougar Helicopters Inc. (“Cougar”) totaling $25.0 million and the acquisition of Airnorth totaling $6.2 million. For further details on Cougar and Airnorth, see Notes 2 and 3 to the fiscal year 2015 Financial Statements.
The following table summarizes the financial instruments we had as of March 31, 2015, valued at fair value on a recurring basis (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
March 31,
2015
 
Balance  Sheet
Classification
Rabbi Trust investments
 
$
2,379

 
$

 
$

 
$
2,379

 
Other assets
Total assets
 
$
2,379

 
$

 
$

 
$
2,379

 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration: (1)
 
 
 
 
 
 
 
 
 
 
      Current
 
$

 
$

 
$
33,938

 
$
33,938

 
Other accrued liabilities
      Long-term
 

 

 
4,967

 
4,967

 
Other liabilities and deferred credits
Total liabilities
 
$

 
$

 
$
38,905

 
$
38,905

 
 
______________

(1) 
Relates to our investment in Cougar totaling $32.5 million and Airnorth totaling $6.4 million. For further details on Cougar and Airnorth, see Notes 2 and 3 to the fiscal year 2015 Financial Statements.

19

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

The rabbi trust investments consist of cash and mutual funds whose fair value are based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy. The rabbi trust holds investments related to our non-qualified deferred compensation plan for our senior executives.
The following table provides a rollforward of the contingent consideration liability Level 3 fair value measurements during the six months ended September 30, 2015 (in thousands):
 
 
Significant
Unobservable
Inputs (Level 3)
    Balance as of March 31, 2015
 
$
38,905
 
        Change in fair value of contingent consideration
 
266
 
Payment of Cougar second year earn-out
 
(8,000
)
    Balance as of September 30, 2015
 
$
31,171
 
We assess the estimated fair value of the contractual obligation to pay the contingent consideration on a quarterly basis and any changes in estimated fair value are recorded as accretion expense included in depreciation and amortization on our condensed consolidated statements of operations. Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability of Cougar or Airnorth achieving certain agreed performance targets and the estimated discount rate. As of September 30 and March 31, 2015, the discount rate approximated 4% for the contingent consideration related to Cougar and 2% for the contingent consideration related to Airnorth.
Fair Value of Debt
The fair value of our debt has been estimated in accordance with the accounting standard regarding fair value. The fair value of our fixed rate long-term debt is estimated based on quoted market prices. The carrying and fair value of our long-term debt, including the current portion, are as follows (in thousands):
 
 
September 30, 2015
 
March 31, 2015
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
6¼% Senior Notes
 
$
401,535

 
$
345,320

 
$
401,535

 
$
381,458

Term Loan
 
342,611

 
342,611

 
222,179

 
222,179

Revolving Credit Facility
 
223,800

 
223,800

 
83,800

 
83,800

Airnorth debt
 
20,839

 
20,839

 
23,119

 
23,119

Eastern Airways debt
 
14,595

 
14,595

 
19,680

 
19,680

3% Convertible Senior Notes
 

 

 
114,109

 
115,288

 
 
$
1,003,380

 
$
947,165

 
$
864,422

 
$
845,524

Other
The fair values of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these items.

20

BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

Note 5 — COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase additional aircraft. As of September 30, 2015, we had 41 aircraft on order and options to acquire an additional 21 aircraft. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order will provide incremental fleet capacity in terms of revenue and operating income.
 
 
Six Months Ending March 31, 2016
 
Fiscal Year Ending March 31,
 
 
 
 
2017
 
2018
 
2019
 
2020 and thereafter
 
Total
Commitments as of September 30, 2015: (1) (2)