Bristow Group Inc - FORM 10-Q - November 8, 2017

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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, 2017
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Emerging growth 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
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of November 3, 2017.
35,365,418 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,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
 
 
 
 
 
 
 
 
Operating revenue from non-affiliates
 
$
340,593

 
$
325,315

 
$
662,711

 
$
663,990

Operating revenue from affiliates
 
17,399

 
18,347

 
35,010

 
35,856

Reimbursable revenue from non-affiliates
 
15,684

 
13,805

 
28,064

 
27,019

 
 
373,676

 
357,467

 
725,785

 
726,865

Operating expense:
 
 
 
 
 
 
 
 
Direct cost
 
284,713

 
281,630

 
570,264

 
571,173

Reimbursable expense
 
15,414

 
13,276

 
27,640

 
25,890

Depreciation and amortization
 
31,381

 
28,592

 
62,437

 
63,286

General and administrative
 
48,622

 
51,274

 
95,329

 
103,869

 
 
380,130

 
374,772

 
755,670

 
764,218

 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(7,572
)
 
(1,192
)
 
(7,572
)
Loss on disposal of assets
 
(8,526
)
 
(2,186
)
 
(7,827
)
 
(12,203
)
Earnings from unconsolidated affiliates, net of losses
 
2,063

 
181

 
1,398

 
4,011

Operating loss
 
(12,917
)
 
(26,882
)
 
(37,506
)
 
(53,117
)
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(18,563
)
 
(11,468
)
 
(34,584
)
 
(22,354
)
Other income (expense), net
 
2,558

 
3,003

 
913

 
(3,186
)
Loss before provision for income taxes
 
(28,922
)
 
(35,347
)
 
(71,177
)
 
(78,657
)
Benefit (provision) for income taxes
 
(2,474
)
 
5,240

 
(15,965
)
 
7,478

Net loss
 
(31,396
)
 
(30,107
)
 
(87,142
)
 
(71,179
)
Net loss attributable to noncontrolling interests
 
187

 
310

 
658

 
610

Net loss attributable to Bristow Group
 
$
(31,209
)
 
$
(29,797
)
 
$
(86,484
)
 
$
(70,569
)
 
 
 
 
 
 
 
 
 
Loss per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.88
)
 
$
(0.85
)
 
$
(2.45
)
 
$
(2.02
)
Diluted
 
$
(0.88
)
 
$
(0.85
)
 
$
(2.45
)
 
$
(2.02
)
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
—

 
$
0.07

 
$
0.07

 
$
0.14

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

1

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
  
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Net loss
 
$
(31,396
)
 
$
(30,107
)
 
$
(87,142
)
 
$
(71,179
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Currency translation adjustments
 
10,691

 
(5,439
)
 
20,451

 
(12,574
)
Total comprehensive loss
 
(20,705
)
 
(35,546
)
 
(66,691
)
 
(83,753
)
 
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
 
187

 
310

 
658

 
610

Currency translation adjustments attributable to
   noncontrolling interests
 
237

 
(523
)
 
547

 
(4,965
)
    Total comprehensive (income) loss attributable to
       noncontrolling interests
 
424

 
(213
)
 
1,205

 
(4,355
)
Total comprehensive loss attributable to Bristow Group
 
$
(20,281
)
 
$
(35,759
)
 
$
(65,486
)
 
$
(88,108
)
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, 
 2017
 
March 31,  
 2017
 
 
(Unaudited)
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
97,343

 
$
96,656

Accounts receivable from non-affiliates
 
225,940

 
198,129

Accounts receivable from affiliates
 
11,932

 
8,786

Inventories
 
131,616

 
124,911

Assets held for sale
 
34,934

 
38,246

Prepaid expenses and other current assets
 
44,089

 
41,143

Total current assets
 
545,854

 
507,871

Investment in unconsolidated affiliates
 
211,499

 
210,162

Property and equipment – at cost:
 
 
 
 
Land and buildings
 
243,355

 
231,448

Aircraft and equipment
 
2,617,835

 
2,622,701

 
 
2,861,190

 
2,854,149

Less – Accumulated depreciation and amortization
 
(664,450
)
 
(599,785
)
 
 
2,196,740

 
2,254,364

Goodwill
 
20,364

 
19,798

Other assets
 
114,066

 
121,652

Total assets
 
$
3,088,523

 
$
3,113,847

 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
Accounts payable
 
$
97,762

 
$
98,215

Accrued wages, benefits and related taxes
 
51,390

 
59,077

Income taxes payable
 
14,064

 
15,145

Other accrued taxes
 
9,610

 
9,611

Deferred revenue
 
21,889

 
19,911

Accrued maintenance and repairs
 
29,651

 
22,914

Accrued interest
 
12,456

 
12,909

Other accrued liabilities
 
55,837

 
46,679

Deferred taxes
 
—

 
830

Short-term borrowings and current maturities of long-term debt
 
113,519

 
131,063

Total current liabilities
 
406,178

 
416,354

Long-term debt, less current maturities
 
1,198,587

 
1,150,956

Accrued pension liabilities
 
57,928

 
61,647

Other liabilities and deferred credits
 
31,873

 
28,899

Deferred taxes
 
154,927

 
154,873

Commitments and contingencies (Note 5)
 


 

Redeemable noncontrolling interest
 
6,002

 
6,886

Stockholders’ investment:
 
 
 
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 35,361,536 as of September 30 and 35,213,991 as of March 31 (exclusive of 1,291,441 treasury shares)
 
381

 
379

Additional paid-in capital
 
815,990

 
809,995

Retained earnings
 
902,957

 
991,906

Accumulated other comprehensive loss
 
(307,279
)
 
(328,277
)
Treasury shares, at cost (2,756,419 shares)
 
(184,796
)
 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,227,253

 
1,289,207

Noncontrolling interests
 
5,775

 
5,025

Total stockholders’ investment
 
1,233,028

 
1,294,232

Total liabilities, redeemable noncontrolling interest and stockholders’ investment
 
$
3,088,523

 
$
3,113,847

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,
 
 
2017
 
2016
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(87,142
)
 
$
(71,179
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
62,437

 
63,286

Deferred income taxes
 
1,197

 
(20,060
)
Write-off of deferred financing fees
 
621

 
—

Discount amortization on long-term debt
 
101

 
989

Loss on disposal of assets
 
7,827

 
12,203

Loss on impairment
 
1,192

 
7,572

Stock-based compensation
 
6,542

 
6,244

Equity in earnings from unconsolidated affiliates in excess of dividends received
 
(1,190
)
 
(3,528
)
Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
(25,222
)
 
24,395

Inventories
 
(1,848
)
 
(797
)
Prepaid expenses and other assets
 
7,320

 
(4,910
)
Accounts payable
 
(4,581
)
 
18,169

Accrued liabilities
 
(2,635
)
 
1,939

Other liabilities and deferred credits
 
47

 
(5,528
)
Net cash provided by (used in) operating activities
 
(35,334
)
 
28,795

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(24,317
)
 
(101,866
)
Proceeds from asset dispositions
 
42,244

 
11,819

Net cash provided by (used in) investing activities
 
17,927

 
(90,047
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings
 
338,018

 
195,954

Debt issuance costs
 
(6,695
)
 
(2,925
)
Repayment of debt
 
(318,130
)
 
(120,966
)
Partial prepayment of put/call obligation
 
(23
)
 
(25
)
Payment of contingent consideration
 
—

 
(10,000
)
Common stock dividends paid
 
(2,465
)
 
(4,910
)
Repurchases for tax withholdings on vesting of equity awards
 
(548
)
 
(757
)
Net cash provided by financing activities
 
10,157

 
56,371

Effect of exchange rate changes on cash and cash equivalents
 
7,937

 
1,239

Net increase (decrease) in cash and cash equivalents
 
687

 
(3,642
)
Cash and cash equivalents at beginning of period
 
96,656

 
104,310

Cash and cash equivalents at end of period
 
$
97,343

 
$
100,668

Cash paid during the period for:
 
 
 
 
Interest
 
$
33,669

 
$
24,240

Income taxes
 
$
13,237

 
$
8,401

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 Interest
(Unaudited)
(In thousands, except share amounts)
 
 
 
Total Bristow Group Stockholders’ Investment
 
 
 
 
 
Redeemable Noncontrolling Interest
 
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, 2017
$
6,886

 
$
379

 
35,213,991

 
$
809,995

 
$
991,906

 
$
(328,277
)
 
$
(184,796
)
 
$
5,025

 
$
1,294,232

Issuance of common stock
—

 
2

 
147,545

 
5,995

 
—

 
—

 
—

 
—

 
5,997

Distributions paid to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(23
)
 
(23
)
Common stock dividends ($0.07 per share)
—

 
—

 
—

 
—

 
(2,465
)
 
—

 
—

 
—

 
(2,465
)
Currency translation adjustments
452

 
—

 
—

 
—

 
—

 
—

 
—

 
95

 
95

Net loss
(1,336
)
 
—

 
—

 
—

 
(86,484
)
 
—

 
—

 
678

 
(85,806
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
20,998

 
—

 
—

 
20,998

September 30, 2017
$
6,002

 
$
381

 
35,361,536

 
$
815,990

 
$
902,957

 
$
(307,279
)
 
$
(184,796
)
 
$
5,775

 
$
1,233,028

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, 2018 is referred to as “fiscal year 2018”. 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 2017 Annual Report (the “fiscal year 2017 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, 2017, the consolidated statements of operations and comprehensive loss for the three and six months ended September 30, 2017 and 2016, the consolidated cash flows for the six months ended September 30, 2017 and 2016, and the consolidated statements of changes in equity and redeemable noncontrolling interest for the six months ended September 30, 2017.

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, 2017 and 2016, 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,
 
 
2017
 
2016
 
2017
 
2016
One British pound sterling into U.S. dollars
 
 
 
 
 
 
 
 
High
 
1.36

 
1.34

 
1.36

 
1.48

Average
 
1.31

 
1.31

 
1.29

 
1.37

Low
 
1.28

 
1.29

 
1.24

 
1.29

At period-end
 
1.34

 
1.30

 
1.34

 
1.30

One euro into U.S. dollars
 
 
 
 
 
 
 
 
High
 
1.20

 
1.13

 
1.20

 
1.15

Average
 
1.17

 
1.12

 
1.14

 
1.12

Low
 
1.13

 
1.10

 
1.06

 
1.10

At period-end
 
1.18

 
1.12

 
1.18

 
1.12

One Australian dollar into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.81

 
0.77

 
0.81

 
0.78

Average
 
0.79

 
0.76

 
0.77

 
0.75

Low
 
0.76

 
0.74

 
0.74

 
0.72

At period-end
 
0.78

 
0.77

 
0.78

 
0.77

One Norwegian kroner into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.1294

 
0.1251

 
0.1294

 
0.1251

Average
 
0.1257

 
0.1201

 
0.1216

 
0.1206

Low
 
0.1190

 
0.1163

 
0.1152

 
0.1163

At period-end
 
0.1256

 
0.1251

 
0.1256

 
0.1251

One Nigerian naira into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.0032

 
0.0036

 
0.0033

 
0.0050

Average
 
0.0029

 
0.0032

 
0.0031

 
0.0040

Low
 
0.0027

 
0.0029

 
0.0027

 
0.0029

At period-end
 
0.0028

 
0.0032

 
0.0028

 
0.0032

_____________ 
Source: FactSet
Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction gains of $2.5 million and $2.9 million for the three months ended September 30, 2017 and 2016, respectively, and foreign currency transaction gains of $0.8 million and foreign currency transaction losses of $3.4 million for the six months ended September 30, 2017 and 2016, respectively. Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The gains for the three and six months ended September 30, 2017 were primarily driven by U.S. dollar net assets on Nigerian naira legal entities while the naira weakened against the U.S. dollar. The gains recorded for the three months ended September 30, 2016 were primarily driven by amounts owed in British pound sterling on U.S. dollar legal entities while the pound sterling depreciated against the U.S. dollar, which was in excess of U.S. dollar liabilities revalued on pound sterling legal entities. The losses for the six months ended September 30, 2016 were primarily driven by U.S. dollar net liabilities on Nigerian naira legal entities while the naira devalued against the U.S. dollar.

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, 2017 and 2016, earnings from unconsolidated affiliates, net of losses, increased $0.3 million and decreased $1.3 million, respectively, and during the six months ended September 30, 2017 and 2016, earnings from unconsolidated affiliates, net of losses, decreased by $0.9 million and $1.3 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,
 
 
2017
 
2016
 
2017
 
2016
One Brazilian real into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.3244

 
0.3191

 
0.3244

 
0.3191

Average
 
0.3162

 
0.3083

 
0.3138

 
0.2966

Low
 
0.3009

 
0.2991

 
0.2995

 
0.2702

At period-end
 
0.3161

 
0.3078

 
0.3161

 
0.3078

_____________ 
Source: FactSet
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, 2017
 
Six Months Ended 
 September 30, 2017
Revenue
 
$
3,129

 
$
(15,675
)
Operating expense
 
(4,090
)
 
9,621

Earnings from unconsolidated affiliates, net of losses
 
1,514

 
424

Non-operating expense
 
(332
)
 
4,247

Income before provision for income taxes
 
221

 
(1,383
)
Provision for income taxes
 
673

 
1,874

Net income
 
894

 
491

Cumulative translation adjustment
 
10,928

 
20,998

Total stockholders’ investment
 
$
11,822

 
$
21,489

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.
Revenue from helicopter services, including search and rescue (“SAR”) 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 the 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.

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 airline service 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.
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.
Interest Expense, Net
During the three and six months ended September 30, 2017 and 2016, interest expense, net consisted of the following (in thousands):
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
Interest income
$
154

 
$
235

 
$
368

 
$
469

Interest expense
(18,717
)
 
(11,703
)
 
(34,952
)
 
(22,823
)
Interest expense, net
$
(18,563
)
 
$
(11,468
)
 
$
(34,584
)
 
$
(22,354
)
Accounts Receivable
As of both September 30 and March 31, 2017, the allowance for doubtful accounts for non-affiliates was $4.5 million. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of September 30 and March 31, 2017. The allowance for doubtful accounts for non-affiliates as of September 30, 2017 primarily relates to amounts due from clients in Nigeria for which we no longer believe collection is probable.
Inventories
As of September 30 and March 31, 2017, inventories were net of allowances of $22.8 million and $21.5 million, respectively. During the six months ended September 30, 2017, as a result of changes in expected future utilization of aircraft within our training fleet we recorded a $1.2 million charge to impair inventory used on our training fleet, which is included in loss on impairment on our condensed consolidated statement of operations.
Prepaid Expenses and Other Current Assets
As of September 30 and March 31, 2017, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $11.3 million and $9.7 million, respectively, related to the SAR contracts in the U.K. and two client contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three months ended September 30, 2017 and 2016, we expensed $2.8 million and $3.5 million, respectively, and for both the six months ended September 30, 2017 and 2016, we expensed $5.7 million, related to these contracts.
Goodwill
Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Goodwill has an indefinite useful life and is not amortized, but is assessed for impairment annually or when events or changes in circumstances indicate that a potential impairment exists.
Goodwill of $20.4 million and $19.8 million as of September 30 and March 31, 2017, respectively, related to our Asia Pacific reporting unit was as follows (in thousands):
 
Asia Pacific
 
Total
March 31, 2017
$
19,798

 
$
19,798

Foreign currency translation
566

 
566

September 30, 2017
$
20,364

 
$
20,364


9
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Accumulated goodwill impairment of $50.9 million as of both September 30 and March 31, 2017 related to our reporting units were as follows (in thousands):
 
Europe Caspian
 
Africa
 
Americas
 
Corporate and other
 
Total
March 31, 2017
$
(33,883
)
 
$
(6,179
)
 
$
(576
)
 
$
(10,223
)
 
$
(50,861
)
Impairments
—

 
—

 
—

 
—

 
—

September 30, 2017
$
(33,883
)
 
$
(6,179
)
 
$
(576
)
 
$
(10,223
)
 
$
(50,861
)
Other Intangible Assets
Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values. Intangible assets by type were as follows (in thousands):
 
Client
contracts
 
Client
relationships
 
Trade name and trademarks
 
Internally developed software
 
Licenses
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Carrying Amount
March 31, 2017
$
8,169

 
$
12,752

 
$
4,483

 
$
1,062

 
$
746

 
$
27,212

Foreign currency translation
1

 
56

 
245

 
28

 
7

 
337

September 30, 2017
$
8,170

 
$
12,808

 
$
4,728

 
$
1,090

 
$
753

 
$
27,549

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
March 31, 2017
$
(8,155
)
 
$
(11,071
)
 
$
(908
)
 
$
(685
)
 
$
(657
)
 
$
(21,476
)
Amortization expense
(10
)
 
(152
)
 
(146
)
 
(110
)
 
(30
)
 
(448
)
September 30, 2017
$
(8,165
)
 
$
(11,223
)
 
$
(1,054
)
 
$
(795
)
 
$
(687
)
 
$
(21,924
)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average remaining contractual life, in years
0.1

 
3.6

 
13.1

 
1.8

 
1.6

 
5.2

Future amortization expense of intangible assets for each of the years ending March 31 is as follows (in thousands):
                 
2018
$
440

2019
762

2020
467

2021
467

2022
467

Thereafter
3,022

 
$
5,625

The Bristow Norway AS and Eastern Airways acquisitions, included in our Europe Caspian region, resulted in intangible assets for client contracts, client relationships, trade names and trademarks, internally developed software and licenses. The Airnorth acquisition, included in our Asia Pacific region, resulted in intangible assets for client contracts, client relationships and trade name and trademarks.
Other Assets
In addition to the other intangible assets described above, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $53.5 million and $51.1 million, respectively, as of September 30 and March 31, 2017, related to the SAR contracts in the U.K. and two client contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts.

10
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Property and Equipment and Assets Held for Sale
During the three and six months ended September 30, 2017 and 2016, we made capital expenditures as follows:
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
2017

2016
 
2017

2016
Number of aircraft delivered:
 
 
 
 
 
 
 
Medium
2

 
5

 
5

 
5

SAR aircraft
—

 
1

 
—

 
1

Total aircraft
2

 
6

 
5

 
6

Capital expenditures (in thousands):
 
 
 
 
 
 
 
Aircraft and equipment (1)
$
5,679

 
$
78,087

 
$
16,489

 
$
95,574

Land and buildings
6,085

 
2,716

 
7,828

 
6,292

Total capital expenditures
$
11,764

 
$
80,803

 
$
24,317

 
$
101,866

_____________ 
(1)
During the three months ended September 30, 2017 and 2016, we spent $1.0 million and $63.7 million, respectively, and during the six months ended September 30, 2017 and 2016, we spent $2.3 million and $66.8 million, respectively, on progress payments for aircraft to be delivered in future periods.
The following table presents details on the aircraft sold or disposed of and impairments on assets held for sale during the three and six months ended September 30, 2017 and 2016:
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(In thousands, except for number of aircraft)
Number of aircraft sold or disposed of
—

 
—

 
6

 
6
Proceeds from sale or disposal of assets
$
269

 
$
329

 
$
42,244

 
$
11,819

Gain (loss) from sale or disposal of assets (1)
$
(343
)
 
$
(1,175
)
 
$
1,920

 
$
(1,043
)
 
 
 
 
 
 
 
 
Number of aircraft impaired
2

 
6

 
4

 
13

Impairment charges on assets held for sale (1)(2)
$
8,183

 
$
1,011

 
$
9,747

 
$
11,160

_____________ 
(1) 
Included in gain (loss) on disposal of assets on our condensed consolidated statements of operations.
(2) 
Includes a $6.5 million impairment of the Bristow Academy disposal group for the three and six months ended September 30, 2017.
On November 1, 2017, we sold our 100% interest in Bristow Academy. As of September 30, 2017, we concluded the disposal group, comprised of the Bristow Academy, assets and liabilities met the assets held for sale criteria under ASC 360, but did not meet the requirements for classification as discontinued operations. We evaluated the carrying value of the Bristow Academy disposal group and determined an impairment of $6.5 million, recorded within loss on disposal of assets on our condensed consolidated statement of operations, was necessary to record the disposal group at fair value based on the terms of the sale. The condensed consolidated balance sheet as of September 30, 2017, includes amounts attributable to the Bristow Academy disposal group of current assets of $1.4 million, $1.2 million and $0.3 million included within Accounts Receivable from non-affiliates, Inventories, and Prepaid expenses and other current assets, respectively, and $1.4 million and $0.4 million included within Other accrued liabilities and Accounts payable, respectively. The Bristow Academy disposal group is included in Corporate and other in Note 9 - Segment Information.
During the three and six months ended September 30, 2016, we recorded accelerated depreciation of $1.3 million and $8.2 million on six and 11 aircraft, respectively, as our management decided to exit these model types earlier than originally anticipated.

11
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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 accounting 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 is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the balance sheet. We have not adopted this standard yet but expect to adopt the new revenue standard using the modified retrospective transition approach. We are continuing to evaluate the effect this accounting guidance will have on our financial statements and related disclosures and are still assessing the differences between the new revenue standard and current accounting practices.
In November 2015, the FASB issued accounting guidance that changed how deferred taxes are classified on an entity’s balance sheet. The accounting guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and early adoption is permitted. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively. If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. We adopted this accounting guidance using the prospective adjustment option effective April 1, 2017 and prior periods were not retrospectively adjusted. As of March 31, 2017, we had $0.1 million in current deferred tax assets and $0.8 million in current deferred tax liabilities. As a result of this adoption, as of April 1, 2017 and going forward we will classify all current deferred taxes as non-current.
In February 2016, the FASB issued accounting guidance which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. We have not yet adopted this standard and are currently evaluating the effect this standard will have on our financial statements.
In March 2016, the FASB issued accounting guidance related to accounting for employee share-based payments. The accounting guidance is intended to simplify several aspects of accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and early adoption is permitted. We adopted this standard effective April 1, 2017. The requirements related to the tax consequences of share-based payments were applied prospectively and resulted in $2.2 million recorded as an increase to the income tax provision during the six months ended September 30, 2017. We elected to record forfeitures of share-based awards based on actual forfeitures which did not have a material effect on our financial statements. The provisions related to the presentation of excess tax benefits on the condensed consolidated statements of cash flows did not impact our financial statements as there was no excess tax benefit recorded for the periods presented. The provisions related to employee taxes paid for withheld shares are presented as a cash flow financing activity required us to revise our prior period condensed consolidated statement of cash flows by $0.8 million as a decrease in net cash used in operating activities and a corresponding decrease in net cash provided by financing activities for the six months ended September 30, 2016. None of the other provisions of the pronouncement had a material effect on our consolidated financial statements.
In October 2016, the FASB issued accounting guidance related to current and deferred income taxes for intra-entity transfer of assets other than inventory. This accounting guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

12
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



In January 2017, the FASB issued accounting guidance which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides criteria for determining when a transaction involves the acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction does not involve the acquisition of a business. If the criteria are not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The amendments should be applied prospectively, and no disclosures are required at the effective date. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.
In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The accounting guidance requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount of net benefit cost that is included in the statement of operations or capitalized in assets, by line item. The accounting guidance requires employers to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets) separately and exclude them from the subtotal of operating income. The accounting guidance also allows only the service cost component to be eligible for capitalization when applicable. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted as of the first interim period of an annual period for which interim or annual financial statements have not been issued. The accounting guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the statement of operations and on a prospective basis for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.
In May 2017, the FASB issued accounting guidance on determining which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.
In August 2017, the FASB issued new accounting guidance on derivatives and hedging, which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. This accounting guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and earlier adoption is permitted. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.


13
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 2 — VARIABLE INTEREST ENTITIES
A 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, 2017, 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 2017 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 industrial aviation services to clients primarily in the U.K., Norway, Australia, Nigeria and Trinidad and fixed wing services primarily in the U.K. and Australia. 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 ($122.1 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 $2.0 billion as of September 30, 2017.
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% 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 as noncontrolling interest.
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, 2017) 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 interest on our condensed consolidated balance sheets. Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interest 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.

14
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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, 
 2017
 
March 31,  
 2017
 
Assets
 
 
 
 
 
Cash and cash equivalents
 
$
94,068

 
$
92,409

 
Accounts receivable
 
296,145

 
222,560

 
Inventories
 
98,460

 
90,190

 
Prepaid expenses and other current assets
 
57,008

 
50,016

 
Total current assets
 
545,681

 
455,175

 
Investment in unconsolidated affiliates
 
3,476

 
3,513

 
Property and equipment, net
 
316,980

 
306,831

 
Goodwill
 
20,364

 
19,798

 
Other assets
 
205,483

 
203,228

 
Total assets
 
$
1,091,984

 
$
988,545

 
Liabilities
 
 
 
 
 
Accounts payable
 
$
275,440

 
$
146,841

 
Accrued liabilities
 
137,719

 
122,130

 
Accrued interest
 
2,004,408

 
1,891,305

 
Current maturities of long-term debt
 
20,296

 
18,578

 
Total current liabilities
 
2,437,863

 
2,178,854

 
Long-term debt, less current maturities
 
480,835

 
501,782

 
Accrued pension liabilities
 
57,928

 
61,647

 
Other liabilities and deferred credits
 
7,907

 
8,138

 
Deferred taxes
 
14,195

 
20,264

 
Redeemable noncontrolling interest
 
6,002

 
6,886

 
Total liabilities
 
$
3,004,730

 
$
2,777,571

 
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue
 
$
321,956

 
$
310,325

 
$
623,926

 
$
628,779

Operating loss
 
(2,978
)
 
(20,773
)
 
(22,632
)
 
(40,516
)
Net loss
 
(62,081
)
 
(80,794
)
 
(141,250
)
 
(169,337
)

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, 2017. BHNL provides industrial aviation 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 industrial aviation 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.


16
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 3 — DEBT
Debt as of September 30 and March 31, 2017 consisted of the following (in thousands):
 
 
September 30, 
 2017
 
March 31,  
 2017
6¼% Senior Notes due 2022
 
$
401,535

 
$
401,535

Term Loan
 
150,835

 
261,907

Term Loan Credit Facility
 
28,929

 
45,900

Revolving Credit Facility
 
89,100

 
139,100

Lombard Debt
 
207,153

 
196,832

Macquarie Debt
 
192,028

 
200,000

PK Air Debt
 
230,000

 
—

Airnorth Debt
 
15,193

 
16,471

Eastern Airways Debt
 
14,597

 
15,326

Other Debt
 
—

 
16,293

Unamortized debt issuance costs
 
(17,264
)
 
(11,345
)
Total debt
 
1,312,106

 
1,282,019

Less short-term borrowings and current maturities of long-term debt
 
(113,519
)
 
(131,063
)
Total long-term debt
 
$
1,198,587

 
$
1,150,956

Term Loan and Revolving Credit Facility — During the six months ended September 30, 2017, we had borrowings of $107.8 million and made payments of $157.8 million under our $400 million revolving credit facility (the “Revolving Credit Facility”). Additionally, we paid $111.2 million to reduce our borrowings under the $350 million term loan (the “Term Loan”). As of September 30, 2017, we had $18.9 million in letters of credit outstanding under the Revolving Credit Facility.
Term Loan Credit Facility — During the six months ended September 30, 2017, we paid $17.0 million under our $200 million of term loan commitments (the “Term Loan Credit Facility”). Additionally, in October 2017, we paid off the remaining $28.9 million of the Term Loan Credit Facility and terminated the facility.
PK Air Debt — On July 17, 2017, a wholly-owned subsidiary entered into a term loan credit agreement with PK AirFinance S.à r.l., as agent, and PK Transportation Finance Ireland Limited, as lender, and other lenders from time to time party thereto, which provided for commitments in an aggregate amount of up to $230 million to make up to 24 term loans, each of which shall be made in respect of an aircraft to be pledged as collateral for all of the term loans. The term loans are also secured by a pledge of all shares of the borrower and any other assets of the borrower, and will be guaranteed by the Company. The financing funded in two tranches in September 2017 and proceeds were used to repay $17.0 million of the Term Loan Credit Facility, $93.7 million of the Term Loan and $103.0 million of the Revolving Credit Facility.
Each term loan bears interest at an interest rate equal to, at the borrower’s option, a floating rate of one-month LIBOR plus a margin of 5% per annum (the “Margin”), subject to certain costs of funds adjustments, determined two business days before the borrowing date of each term loan, or a fixed rate based on a notional interest rate swap of twelve 30-day months in respect of such term loan with a floating rate of interest based on one-month LIBOR, plus the Margin.
The borrower is required to repay each term loan on an annuity basis, payable monthly in arrears starting on the seventh month following the date of the borrowing of such term loan, with a final payment of 53% of the initial amount of such term loan due on the 70th month following the date of the borrowing of such term loan.
In connection with the credit agreement, the borrower will guarantee certain of its direct parent’s obligations under existing aircraft operating leases up to a capped amount.
Other Debt — Other Debt as of March 31, 2017 primarily included amounts payable relating to the third year earn-out payment of $16.0 million for our investment in Cougar Helicopters Inc. (“Cougar”), which was paid in April 2017.


17
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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, 2017, 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,
2017
 
Total
Loss for the
Three Months
Ended
September 30,
2017
 
Total
Loss for the
Six Months
Ended
September 30,
2017
Inventories
 
$
—

 
$
1,218

 
$
—

 
$
1,218

 
$
—

 
$
(1,192
)
Assets held for sale
 
—

 
36,167

 
—

 
36,167

 
(8,183
)
 
(9,747
)
Total assets
 
$
—

 
$
37,385

 
$
—

 
$
37,385

 
$
(8,183
)
 
$
(10,939
)
The following table summarizes the assets as of September 30, 2016, 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,
2016
 
Total
Loss for the
Three Months
Ended
September 30,
2016
 
Total
Loss for the
Six Months
Ended
September 30,
2016
Inventories
 
$
—

 
$
56,355

 
$
—

 
$
56,355

 
$
(7,572
)
 
$
(7,572
)
Assets held for sale
 
—

 
40,338

 
—

 
40,338

 
(1,011
)
 
(11,160
)
Total assets
 
$
—

 
$
96,693

 
$
—

 
$
96,693

 
$
(8,583
)
 
$
(18,732
)
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 experience with sales and disposal of similar spare parts, the expected time frame 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, 2017 related to two and four aircraft held for sale, respectively, and the loss for the three and six months ended September 30, 2016 related to six and 13 aircraft held for sale, respectively. Additionally, the loss for the three and six months ended September 30, 2017 includes a $6.5 million impairment relating to the Bristow Academy disposal group. For further details on Bristow Academy disposal group, see Note 1.

18
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Recurring Fair Value Measurements
The following table summarizes the financial instruments we had as of September 30, 2017, 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,
2017
 
Balance  Sheet
Classification
Rabbi Trust investments
 
$
2,695

 
$
—

 
$
—

 
$
2,695

 
Other assets
Total assets
 
$
2,695

 
$
—

 
$
—

 
$
2,695

 
 
The following table summarizes the financial instruments we had as of March 31, 2017, 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,
2017
 
Balance  Sheet
Classification
Rabbi Trust investments
 
$
3,075

 
$
—

 
$
—

 
$
3,075

 
Other assets
Total assets
 
$
3,075

 
$
—

 
$
—

 
$
3,075

 
 
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.
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 and excluding unamortized debt issuance costs, are as follows (in thousands):
 
 
September 30, 2017
 
March 31, 2017
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
6¼% Senior Notes
 
$
401,535

 
$
281,075

 
$
401,535

 
$
323,236

Term Loan
 
150,835

 
150,835

 
261,907

 
261,907

Term Loan Credit Facility
 
28,929

 
28,929

 
45,900

 
45,900

Revolving Credit Facility
 
89,100

 
89,100

 
139,100

 
139,100

Lombard Debt
 
207,153

 
207,153

 
196,832

 
196,832

Macquarie Debt
 
192,028

 
192,028

 
200,000

 
200,000

PK Air Debt
 
230,000

 
230,000

 
—

 
—

Airnorth Debt
 
15,193

 
15,193

 
16,471

 
16,471

Eastern Airways Debt
 
14,597

 
14,597

 
15,326

 
15,326

Other Debt
 
—

 
—

 
16,293

 
16,293

 
 
$
1,329,370

 
$
1,208,910

 
$
1,293,364

 
$
1,215,065

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.


19
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 seven fiscal years to purchase additional aircraft. As of November 8, 2017, we had 27 aircraft on order and options to acquire an additional four 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, 2018
 
Fiscal Year Ending March 31,
 
 
 
 
2019
 
2020
 
2021
 
2022 and thereafter(1)
 
Total
Commitments as of November 8, 2017: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
—

 
1

 
—

 
4

 
18

 
23

U.K. SAR
 
—

 
—

 
4

 
—

 
—

 
4

 
 
—

 
1

 
4

 
4

 
18

 
27

Related commitment expenditures (in thousands) (2)(3)
 
 
 
 
 
 
 
 
 
 
 
 
Medium and large
 
$
—

 
$
19,820

 
$
25,140

 
$
77,507

 
$
280,876

 
$
403,343

U.K. SAR
 
3,192

 
—

 
61,994

 
—

 
—

 
65,186

 
 
$
3,192

 
$
19,820

 
$
87,134

 
$
77,507

 
$
280,876

 
$
468,529

Options as of November 8, 2017: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
—

 
2

 
2

 
—

 
—

 
4

 
 
—

 
2

 
2

 
—

 
—

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Related option expenditures (in thousands) (3)
 
$
—

 
$
44,181

 
$
31,536

 
$
—

 
$
—

 
$
75,717

_____________ 
(1) 
Includes $86.0 million for five aircraft orders that can be cancelled prior to delivery dates. As of September 30, 2017, we made non-refundable deposits of $4.5 million related to these aircraft.
(2) 
In October and November 2017, through discussions with helicopter manufacturers we: (i) reached an agreement to defer payments of approximately $130 million in capital expenditures out of fiscal years 2019 and 2020 and into future periods and (ii) have a non-binding letter of understanding to defer payment of approximately $62 million in capital expenditures out of fiscal year 2018 and into future periods. These agreements are reflected in the table above.
(3) 
Includes progress payments on aircraft scheduled to be delivered in future periods only if options are exercised.

The following chart presents an analysis of our aircraft orders and options during fiscal year 2018:
     
 
 
 
Three Months Ended
 
 
 
September 30, 2017
 
June 30, 2017
 
 
 
Orders
 
Options
 
Orders
 
Options
 
Beginning of period
 
29

 
4

 
32

 
4

 
Aircraft delivered
 
(2
)
 
—

 
(3
)
 
—

 
End of period
 
27

 
4

 
29

 
4

We periodically purchase aircraft for which we have no orders.
Operating Leases — We have non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities. Rent expense incurred under all operating leases was $57.2 million and $51.9 million for the three months ended September 30, 2017 and 2016, respectively, and $115.9 million and $103.2 million for the six months ended September 30, 2017 and 2016, respectively. Rent expense incurred under operating leases for aircraft was $49.7 million and $46.1 million for the three months ended September 30, 2017 and 2016, respectively, and $101.4 million and $90.8 million for the six months ended September 30, 2017 and 2016, respectively.

20
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



The aircraft leases range from base terms of up to 180 months with renewal options of up to 240 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and require us to pay a stipulated amount if we default on our obligations under the agreements. The following is a summary of the terms related to aircraft leased under operating leases with original or remaining terms in excess of one year as of September 30, 2017:
 
End of Lease Term
 
Number of Aircraft
 
Six months ending March 31, 2018 to fiscal year 2019
 
26

 
Fiscal year 2020 to fiscal year 2022
 
48

 
Fiscal year 2023 to fiscal year 2024
 
17

 
 
 
91

 
We lease six S-92 model aircraft and one AW139 model aircraft from VIH Aviation Group, which is a related party due to common ownership of Cougar; we paid lease fees of $5.2 million and $9.7 million during the three and six months ended September 30, 2017, respectively. Additionally, in July 2016, we began leasing a facility in Galliano, Louisiana from VIH Helicopters USA, Inc., another related party due to common ownership of Cougar; we paid $0.1 million in lease fees during the six months ended September 30, 2017.
Employee Agreements — Approximately 51% of our employees are represented by collective bargaining agreements and/or unions with 85% of these employees being represented by collective bargaining agreements and/or unions that have expired or will expire in one year. These agreements generally include annual escalations of up to 3%. Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement. We also have employment agreements with members of senior management.
Separation Programs — In March 2015 and May 2016, we offered voluntary separation programs (“VSPs”) to certain employees as part of our ongoing efforts to improve efficiencies and reduce costs. Additionally, beginning in March 2015, we initiated involuntary separation programs (“ISPs”) in certain regions. Also, during June 2017, two named executive officers and the principal operating officer, and during fiscal year 2018 other employees across various regions, departed from the Company as part of an organizational restructuring. In April 2016, one named executive officer, along with other employees across various regions, departed from the Company as part of a previous restructuring. We recognized compensation expense related to the departure of these officers and other employees included in the table below. The expense related to the VSPs and ISPs for the three and six months ended September 30, 2017 and 2016 is as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
2017
 
2016
 
2017
 
2016
VSP:
 
 
 
 
 
 
 
Direct cost
$
—

 
$
590

 
$
—

 
$
1,445

General and administrative
—

 
—

 
—

 
23

Total
$
—

 
$
590

 
$
—

 
$
1,468

ISP:
 
 
 
 
 
 
 
Direct cost
$
1,477

 
$
4,398

 
$
2,547

 
$
4,896

General and administrative
933

 
4,565

 
8,542

 
8,595

Total
$
2,410

 
$
8,963

 
$
11,089

 
$
13,491

Environmental Contingencies — The U.S. Environmental Protection Agency (the “EPA”), has in the past notified us that we are a potential responsible party (“PRP”) at three 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. Although we have not yet obtained a formal release of liability from the EPA with respect to any of the sites, we believe that our potential liability in connection with the sites is not likely to have a material adverse effect on our business, financial condition or results of operations.
Other Purchase Obligations — As of September 30, 2017, we had $41.1 million of other purchase obligations representing unfilled purchase orders for aircraft parts, commitments associated with upgrading facilities at our bases and non-cancelable power-by-the-hour maintenance commitments.

21
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



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 deductible, self-insured retention and loss sensitive factors.
As previously reported, on April 29, 2016, another company’s EC 225LP (also known as a H225LP) model helicopter crashed near Turøy outside of Bergen, Norway resulting in the European Aviation Safety Agency (“EASA”) issuing airworthiness directives prohibiting flight of H225LP and AS332L2 model aircraft. On July 20, 2017, the U.K. CAA and NCAA issued safety and operational directives which detail the conditions to apply for safe return to service of H225LP and AS332L2 model aircraft, where operators wish to do so. We continue not to operate for commercial purposes our sole H225LP model aircraft in Norway, our thirteen H225LP model aircraft in the U.K. or our six H225LP model aircraft in Australia, or for search and rescue purposes, including training and missions, any of our other four H225LP model aircraft in Norway or our other three H225LP model aircraft in Australia. We are carefully evaluating next steps and demand for the H225LP model aircraft in our oil and gas and search and rescue operations worldwide, with the safety of passengers and crews remaining our highest priority.
Separately, our efforts to successfully integrate AW189 aircraft into service for the U.K. SAR contract have been delayed due to a product improvement plan with the aircraft. As a result, the delivery of four AW189 aircraft will be pushed to later dates. We continue to meet our contractual obligations under the U.K. SAR contract through the utilization of other aircraft.
Subsequent to September 30, 2017, we reached agreement with an original equipment manufacturer and have a non-binding letter of understanding with another to recover $130 million during the second half of fiscal year 2018 related to ongoing aircraft issues mentioned above.
We operate in jurisdictions internationally where we are subject to risks that include government action to obtain additional tax revenue. In a number of these jurisdictions, political unrest, the lack of well-developed legal systems and legislation that is not clear enough in its wording to determine the ultimate application, can make it difficult to determine whether legislation may impact our earnings until such time as a clear court or other ruling exists. We operate in jurisdictions currently where amounts may be due to governmental bodies that we are not currently recording liabilities for as it is unclear how broad or narrow legislation may ultimately be interpreted. We believe that payment of amounts in these instances is not probable at this time, but is reasonably possible.
A loss contingency is reasonably possible if the contingency has a more than remote but less than probable chance of occurring. Although management believes that there is no clear requirement to pay amounts at this time and that positions exist suggesting that no further amounts are currently due, it is reasonably possible that a loss could occur for which we have estimated a maximum loss at September 30, 2017 to be approximately $4 million to $6 million.
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.


22
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 6 — TAXES
In accordance with GAAP, we estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impacts of such unusual or infrequent items are treated discretely in the quarter in which they occur. During the three months ended September 30, 2017 and 2016, our effective tax rate was (8.6)% and 14.8%, respectively, and (22.4)% and 9.5% during the six months ended September 30, 2017 and 2016, respectively. The effective tax rate for the three and six months ended September 30, 2017 and 2016 were both impacted by valuation allowances against future realization of foreign tax credits. For the three and six months ended September 30, 2017, our effective tax rate also includes the impact of $4.7 million of unrecognized tax benefits in certain foreign jurisdictions. Additionally, we continue to value against net operating losses in certain foreign jurisdictions.
The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our geographical blend of pre-tax book income. Consequently, our income tax expense does not change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The increase in our effective tax rate excluding discrete items for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily related to an increase in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions. Additionally, we increased our valuation allowance by $0.2 million and $2.5 million for the three months ended September 30, 2017 and 2016, respectively, and $11.3 million and $15.7 million for the six months ended September 30, 2017 and 2016, respectively, which also increased our effective tax rate.
As of September 30, 2017, there were $6.0 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate if recognized.
Note 7 — EMPLOYEE BENEFIT PLANS
Pension Plans
The following table provides a detail of the components of net periodic pension cost (in thousands):
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Service cost for benefits earned during the period
 
$
157

 
$
1,794

 
$
311

 
$
3,754

Interest cost on pension benefit obligation
 
3,838

 
4,377

 
7,589

 
9,158

Expected return on assets
 
(5,432
)
 
(5,920
)
 
(10,741
)
 
(12,391
)
Amortization of unrecognized losses
 
1,819

 
1,793

 
3,597

 
3,755

Net periodic pension cost
 
$
382

 
$
2,044

 
$
756

 
$
4,276

The current estimates of our cash contributions to our defined benefit pension plans to be paid in fiscal year 2018 are $15.3 million, of which $8.2 million was paid during the six months ended September 30, 2017. The weighted-average expected long-term rate of return on assets for our U.K. pension plans as of March 31, 2017 was 4.4%.
Incentive Compensation
Stock-based awards are currently made under the Bristow Group Inc. 2007 Long-Term Incentive Plan (the “2007 Plan”). A maximum of 10,646,729 shares of common stock, par value $0.01 per share (“Common Stock”), are reserved. Awards granted under the 2007 Plan may be in the form of stock options, stock appreciation rights, shares of restricted stock, other stock-based awards (payable in cash or Common Stock) or performance awards, or any combination thereof, and may be made to outside directors, employees or consultants. As of September 30, 2017, 2,309,469 shares remained available for grant under the 2007 Plan.
We have a number of other incentive and stock option plans which are described in Note 9 to our fiscal year 2017 Financial Statements.

23
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Total stock-based compensation expense, which includes stock options and restricted stock, totaled $2.4 million and $2.0 million for the three months ended September 30, 2017 and 2016, respectively, and $6.5 million and $6.2 million for the six months ended September 30, 2017 and 2016. Stock-based compensation expense has been allocated to our various regions.
During the six months ended September 30, 2017, we awarded 600,618 shares of restricted stock at an average grant date fair value of $7.15 per share. Also during the six months ended September 30, 2017, 1,256,043 stock options were granted. The following table shows the assumptions used to compute the stock-based compensation expense for stock options granted during the six months ended September 30, 2017:
Risk free interest rate
1.78
%
Expected life (years)
5

Volatility
56.1
%
Dividend yield
3.98
%
Weighted average exercise price of options granted
$7.03 per option

Weighted average grant-date fair value of options granted
$2.53 per option

During June 2017, we awarded certain members of management phantom restricted stock which will be paid out in cash after three years. We account for these awards as liability awards. As of September 30, 2017, we had $0.4 million included in other liabilities and deferred credits on our condensed consolidated balance sheet and recognized $0.4 million in general and administrative expense on our condensed consolidated statement of operations during the six months ended September 30, 2017 related to these awards.
Performance cash awards granted in June 2017 have two components. One half of each performance cash award will vest and pay out in cash three years after the date of grant at varying levels depending on our performance in Total Shareholder Return against a peer group of companies. The other half of each performance cash award will be earned based on absolute performance in respect of improved average adjusted earnings per share for the Company over the three-year performance period beginning on April 1, 2017. Performance cash awards granted in June 2015 and June 2016 vest and pay out in cash three years after the date of grant at varying levels depending on our performance in Total Shareholder Return against a peer group of companies. These awards were designed to tie a significant portion of total compensation to performance. One of the effects of this type of compensation is that it requires liability accounting which can result in volatility in earnings. The liability recorded for these awards as of September 30 and March 31, 2017 was $7.7 million and $14.2 million, respectively, and represents an accrual based on the fair value of the awards on those dates. The decrease in the liability during the six months ended September 30, 2017 resulted from the payout in June 2017 of the awards granted in June 2014, partially offset by the value of the new awards granted in June 2017. Any changes in fair value of the awards in future quarters will increase or decrease the liability and impact results in those periods. The effect, either positive or negative, on future period earnings can vary based on factors including changes in our stock price or the stock prices of the peer group companies, as well as changes in other market and company-specific assumptions that are factored into the calculation of fair value of the performance cash awards.
Compensation expense related to the performance cash awards recorded during the three months ended September 30, 2017 and 2016 was $4.4 million and $3.6 million, respectively, and during the six months ended September 30, 2017 and 2016 was $1.4 million and $2.5 million, respectively.

24
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 8 — EARNINGS PER SHARE AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Earnings per Share
Basic earnings per common share is 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 excludes options to purchase shares and restricted stock awards, which were outstanding during the period but were anti-dilutive, as follows:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Options:
 
 
 
 
 
 
 
 
Outstanding
 
3,761,830

 
1,950,289

 
2,688,049

 
1,522,304

Weighted average exercise price
 
$
29.89

 
$
30.07

 
$
41.27

 
$
36.23

Restricted stock awards:
 
 
 
 
 
 
 
 
Outstanding
 
735,648

 
442,217

 
567,396

 
577,737

Weighted average price
 
$
15.07

 
$
26.81

 
$
18.88

 
$
24.59

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Earnings (in thousands):
 
 
 
 
 
 
 
 
Loss available to common stockholders
 
$
(31,209
)
 
$
(29,797
)
 
$
(86,484
)
 
$
(70,569
)
Shares:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
35,317,935

 
35,070,047

 
35,253,688

 
35,012,014

Net effect of dilutive stock options and restricted stock awards based on the treasury stock method
 
—

 
—

 
—

 
—

Weighted average number of common shares outstanding – diluted
 
35,317,935

 
35,070,047

 
35,253,688

 
35,012,014

 
 
 
 
 
 
 
 
 
Basic loss per common share
 
$
(0.88
)
 
$
(0.85
)
 
$
(2.45
)
 
$
(2.02
)
Diluted loss per common share
 
$
(0.88
)
 
$
(0.85
)
 
$
(2.45
)
 
$
(2.02
)
 
Accumulated Other Comprehensive Income
The following table sets forth the changes in the balances of each component of accumulated other comprehensive income:
 
 
Currency Translation Adjustments
 
Pension Liability Adjustments (1)
 
Total
Balance as of March 31, 2017
 
$
(149,721
)
 
$
(178,556
)
 
$
(328,277
)
Other comprehensive income before reclassification
 
20,998

 
—

 
20,998

Reclassified from accumulated other comprehensive income
 
—

 
—

 
—

Net current period other comprehensive income
 
20,998

 
—

 
20,998

Foreign exchange rate impact
 
16,431

 
(16,431
)
 
—

Balance as of September 30, 2017
 
$
(112,292
)
 
$
(194,987
)
 
$
(307,279
)
_____________ 
(1) 
Reclassification of amounts related to pension liability adjustments are included as a component of net periodic pension cost.


25
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 9 — SEGMENT INFORMATION
We conduct our business in one segment: industrial aviation services. The industrial aviation services global operations are conducted primarily through two hubs that include four regions as follows: Europe Caspian, Africa, Americas and Asia Pacific. The Europe Caspian region comprises all our operations and affiliates in Europe and Central Asia, including Norway, the U.K. and Turkmenistan. The Africa region comprises all our operations and affiliates on the African continent, including Nigeria and Egypt. The Americas region comprises all our operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico. The Asia Pacific region comprises all our operations and affiliates in Australia and Southeast Asia, including Malaysia and Sakhalin. Additionally, as of September 30, 2017, we operated a training unit, Bristow Academy, which is included in Corporate and other.
The following tables show region information for the three and six months ended September 30, 2017 and 2016 and as of September 30 and March 31, 2017, where applicable, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements (in thousands):
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Region gross revenue from external clients:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
203,923

 
$
191,834

 
$
395,322

 
$
386,658

Africa
 
49,787

 
51,644

 
100,577

 
105,906

Americas
 
59,201

 
56,092

 
114,963

 
114,289

Asia Pacific
 
59,284

 
55,255

 
111,730

 
114,399

Corporate and other
 
1,481

 
2,642

 
3,193

 
5,613

Total region gross revenue
 
$
373,676

 
$
357,467

 
$
725,785

 
$
726,865

Intra-region gross revenue:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,483

 
$
1,891

 
$
2,519

 
$
4,030

Africa
 
—

 
—

 
—

 
—

Americas
 
1,950

 
1,115

 
4,244

 
1,962

Asia Pacific
 
—

 
1

 
—

 
1

Corporate and other
 
—

 
34

 
22

 
279

Total intra-region gross revenue
 
$
3,433

 
$
3,041

 
$
6,785

 
$
6,272

Consolidated gross revenue:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
205,406

 
$
193,725

 
$
397,841

 
$
390,688

Africa
 
49,787

 
51,644

 
100,577

 
105,906

Americas
 
61,151

 
57,207

 
119,207

 
116,251

Asia Pacific
 
59,284

 
55,256

 
111,730

 
114,400

Corporate and other
 
1,481

 
2,676

 
3,215

 
5,892

Intra-region eliminations
 
(3,433
)
 
(3,041
)
 
(6,785
)
 
(6,272
)
Total consolidated gross revenue
 
$
373,676

 
$
357,467

 
$
725,785

 
$
726,865




26
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
Earnings from unconsolidated affiliates, net of losses – equity method investments:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
61

 
$
65

 
$
91

 
$
116

Americas
 
2,150

 
260

 
1,615

 
4,123

Corporate and other
 
(148
)
 
(187
)
 
(308
)
 
(271
)
Total earnings from unconsolidated affiliates, net of losses – equity method investments
 
$
2,063

 
$
138

 
$
1,398

 
$
3,968

 
 
 
 
 
 
 
 
 
Consolidated operating loss:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
9,891

 
$
5,741

 
$
14,298

 
$
18,771

Africa
 
7,835

 
7,942

 
17,883

 
9,513

Americas
 
7,483

 
2,643

 
6,227

 
3,564

Asia Pacific
 
(5,903
)
 
(9,575
)
 
(18,433
)
 
(15,468
)
Corporate and other
 
(23,697
)
 
(31,447
)
 
(49,654
)
 
(57,294
)
Loss on disposal of assets
 
(8,526
)
 
(2,186
)
 
(7,827
)
 
(12,203
)
Total consolidated operating loss
 
$
(12,917
)
 
$
(26,882
)
 
$
(37,506
)
 
$
(53,117
)
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
12,196

 
$
11,220

 
$
24,018

 
$
22,409

Africa
 
3,590

 
3,220

 
6,666

 
8,673

Americas
 
6,998

 
7,228

 
13,997

 
18,609

Asia Pacific
 
5,058

 
4,377

 
10,868

 
8,613

Corporate and other
 
3,539

 
2,547

 
6,888

 
4,982

Total depreciation and amortization (1)
 
$
31,381

 
$
28,592

 
$
62,437

 
$
63,286

 
 
September 30, 
 2017
 
March 31,  
 2017
Identifiable assets:
 
 
 
 
Europe Caspian
 
$
1,060,635

 
$
1,091,536

Africa
 
431,588

 
325,719

Americas
 
869,584

 
809,071

Asia Pacific
 
360,157

 
433,614

Corporate and other (2)
 
366,559

 
453,907

Total identifiable assets
 
$
3,088,523

 
$
3,113,847

Investments in unconsolidated affiliates – equity method investments:
 
 
 
 
Europe Caspian
 
$
309

 
$
257

Americas
 
201,737

 
200,362

Corporate and other
 
3,167

 
3,257

Total investments in unconsolidated affiliates – equity method investments
 
$
205,213

 
$
203,876

_____________ 
(1) 
Includes accelerated depreciation expense of $1.3 million during the three months ended September 30, 2016 related to aircraft where management made the decision to exit these model types earlier than originally anticipated in our Europe Caspian and Africa regions of $0.2 million and $1.1 million, respectively. Includes accelerated depreciation expense of $8.2 million during the six months ended September 30, 2016 related to aircraft where management made the decision to exit these model types earlier than originally anticipated in our Europe Caspian, Americas and Africa regions of $0.4 million, $3.9 million and $3.9 million, respectively. For further details, see Note 1.
(2) 
Includes $68.4 million and $199.3 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of September 30 and March 31, 2017, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.



27
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Note 10 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the issuance of the 61/4% Senior Notes due 2022 (the “61/4% Senior Notes”), certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”) fully, unconditionally, jointly and severally guaranteed the payment obligations under these notes. The following supplemental financial information sets forth, on a consolidating basis, the balance sheet, statement of operations, comprehensive 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.


 

28
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
46,952

 
$
326,724

 
$
—

 
$
373,676

Intercompany revenue
 
—

 
31,719

 
—

 
(31,719
)
 
—

 
 
—

 
78,671

 
326,724

 
(31,719
)
 
373,676

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
3,263

 
45,955

 
250,909

 
—

 
300,127

Intercompany expenses
 
—

 
—

 
31,719

 
(31,719
)
 
—

Depreciation and amortization
 
3,016

 
13,237

 
15,128

 
—

 
31,381

General and administrative
 
17,880

 
5,623

 
25,119

 
—

 
48,622

 
 
24,159

 
64,815

 
322,875

 
(31,719
)
 
380,130

 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on disposal of assets
 
—

 
10,597

 
(19,123
)
 
—

 
(8,526
)
Earnings from unconsolidated affiliates, net of losses
 
9,642

 
—

 
2,063

 
(9,642
)
 
2,063

Operating income (loss)
 
(14,517
)
 
24,453

 
(13,211
)
 
(9,642
)
 
(12,917
)
Interest expense, net
 
(10,636
)
 
(6,023
)
 
(1,904
)
 
—

 
(18,563
)
Other income (expense), net
 
(97
)
 
(399
)
 
3,054

 
—

 
2,558

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(25,250
)
 
18,031

 
(12,061
)
 
(9,642
)
 
(28,922
)
Allocation of consolidated income taxes
 
(5,946
)
 
(1,945
)
 
5,417

 
—

 
(2,474
)
Net income (loss)
 
(31,196
)
 
16,086

 
(6,644
)
 
(9,642
)
 
(31,396
)
Net (income) loss attributable to noncontrolling interests
 
(13
)
 
—

 
200

 
—

 
187

Net income (loss) attributable to Bristow Group
 
$
(31,209
)
 
$
16,086

 
$
(6,444
)
 
$
(9,642
)
 
$
(31,209
)



29
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Operations
Three Months Ended September 30, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
42,543

 
$
314,924

 
$
—

 
$
357,467

Intercompany revenue
 
—

 
24,323

 
—

 
(24,323
)
 
—

 
 
—

 
66,866

 
314,924

 
(24,323
)
 
357,467

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
(374
)
 
47,858

 
247,422

 
—

 
294,906

Intercompany expenses
 
—

 
—

 
24,323

 
(24,323
)
 
—

Depreciation and amortization
 
2,223

 
10,805

 
15,564

 
—

 
28,592

General and administrative
 
17,487

 
6,490

 
27,297

 
—

 
51,274

 
 
19,336

 
65,153

 
314,606

 
(24,323
)
 
374,772

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(4,761
)
 
(2,811
)
 
—

 
(7,572
)
Loss on disposal of assets
 
—

 
(1,348
)
 
(838
)
 
—

 
(2,186
)
Earnings from unconsolidated affiliates, net of losses
 
(9,647
)
 
—

 
138

 
9,690

 
181

Operating loss
 
(28,983
)
 
(4,396
)
 
(3,193
)
 
9,690

 
(26,882
)
Interest expense, net
 
(10,347
)
 
(371
)
 
(750
)
 
—

 
(11,468
)
Other income (expense), net
 
206

 
411

 
2,386

 
—

 
3,003

 
 
 
 
 
 
 
 
 
 
 
Loss before (provision) benefit for income taxes
 
(39,124
)
 
(4,356
)
 
(1,557
)
 
9,690

 
(35,347
)
Allocation of consolidated income taxes
 
9,339

 
(1,510
)
 
(2,589
)
 
—

 
5,240

Net loss
 
(29,785
)
 
(5,866
)
 
(4,146
)
 
9,690

 
(30,107
)
Net (income) loss attributable to noncontrolling interests
 
(12
)
 
—

 
322

 
—

 
310

Net loss attributable to Bristow Group
 
$
(29,797
)
 
$
(5,866
)
 
$
(3,824
)
 
$
9,690

 
$
(29,797
)


30
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Operations
Six Months Ended September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
92,727

 
$
633,058

 
$
—

 
$
725,785

Intercompany revenue
 
—

 
63,910

 
—

 
(63,910
)
 
—

 
 
—

 
156,637

 
633,058

 
(63,910
)
 
725,785

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
3,269

 
98,289

 
496,346

 
—

 
597,904

Intercompany expenses
 
—

 
—

 
63,910

 
(63,910
)
 
—

Depreciation and amortization
 
5,933

 
25,720

 
30,784

 
—

 
62,437

General and administrative
 
36,987

 
11,385

 
46,957

 
—

 
95,329

 
 
46,189

 
135,394

 
637,997

 
(63,910
)
 
755,670

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(1,192
)
 
—

 
—

 
(1,192
)
Gain (loss) on disposal of assets
 
—

 
11,013

 
(18,840
)
 
—

 
(7,827
)
Earnings from unconsolidated affiliates, net of losses
 
(11,003
)
 
—

 
1,398

 
11,003

 
1,398

Operating income (loss)
 
(57,192
)
 
31,064

 
(22,381
)
 
11,003

 
(37,506
)
Interest expense, net
 
(19,694
)
 
(11,803
)
 
(3,087
)
 
—

 
(34,584
)
Other income (expense), net
 
(126
)
 
(756
)
 
1,795

 
—

 
913

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(77,012
)
 
18,505

 
(23,673
)
 
11,003

 
(71,177
)
Allocation of consolidated income taxes
 
(9,448
)
 
(6,105
)
 
(412
)
 
—

 
(15,965
)
Net income (loss)
 
(86,460
)
 
12,400

 
(24,085
)
 
11,003

 
(87,142
)
Net (income) loss attributable to noncontrolling interests
 
(24
)
 
—

 
682

 
—

 
658

Net income (loss) attributable to Bristow Group
 
$
(86,484
)
 
$
12,400

 
$
(23,403
)
 
$
11,003

 
$
(86,484
)


31
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Operations
Six Months Ended September 30, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
87,856

 
$
639,009

 
$
—

 
$
726,865

Intercompany revenue
 
—

 
48,614

 
—

 
(48,614
)
 
—

 
 
—

 
136,470

 
639,009

 
(48,614
)
 
726,865

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
(631
)
 
96,476

 
501,218

 
—

 
597,063

Intercompany expenses
 
—

 
—

 
48,614

 
(48,614
)
 
—

Depreciation and amortization
 
4,316

 
27,786

 
31,184

 
—

 
63,286

General and administrative
 
37,746

 
13,080

 
53,043

 
—

 
103,869

 
 
41,431

 
137,342

 
634,059

 
(48,614
)
 
764,218

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(4,761
)
 
(2,811
)
 
—

 
(7,572
)
Loss on disposal of assets
 
—

 
(11,575
)
 
(628
)
 
—

 
(12,203
)
Earnings from unconsolidated affiliates, net of losses
 
(22,423
)
 
—

 
3,968

 
22,466

 
4,011

Operating income (loss)
 
(63,854
)
 
(17,208
)
 
5,479

 
22,466

 
(53,117
)
Interest expense, net
 
(20,232
)
 
(1,028
)
 
(1,094
)
 
—

 
(22,354
)
Other income (expense), net
 
752

 
1,646

 
(5,584
)
 
—

 
(3,186
)
 
 
 
 
 
 
 
 
 
 
 
Loss before (provision) benefit for income taxes
 
(83,334
)
 
(16,590
)
 
(1,199
)
 
22,466

 
(78,657
)
Allocation of consolidated income taxes
 
12,792

 
(3,732
)
 
(1,582
)
 
—

 
7,478

Net loss
 
(70,542
)
 
(20,322
)
 
(2,781
)
 
22,466

 
(71,179
)
Net (income) loss attributable to noncontrolling interests
 
(27
)
 
—

 
637

 
—

 
610

Net loss attributable to Bristow Group
 
$
(70,569
)
 
$
(20,322
)
 
$
(2,144
)
 
$
22,466

 
$
(70,569
)


32
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(31,196
)
 
$
16,086

 
$
(6,644
)
 
$
(9,642
)
 
$
(31,396
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
306

 
14,218

 
(3,833
)
 
10,691

Total comprehensive loss
 
(31,196
)
 
16,392

 
7,574

 
(13,475
)
 
(20,705
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(13
)
 
—

 
200

 
—

 
187

Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
237

 
—

 
237

Total comprehensive (income) loss attributable to noncontrolling interests
 
(13
)
 
—

 
437

 
—

 
424

Total comprehensive loss attributable to Bristow Group
 
$
(31,209
)
 
$
16,392

 
$
8,011

 
$
(13,475
)
 
$
(20,281
)



33
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended September 30, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(29,785
)
 
$
(5,866
)
 
$
(4,146
)
 
$
9,690

 
$
(30,107
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
—

 
(9,558
)
 
4,119

 
(5,439
)
Total comprehensive loss
 
(29,785
)
 
(5,866
)
 
(13,704
)
 
13,809

 
(35,546
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(12
)
 
—

 
322

 
—

 
310

Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
(523
)
 
—

 
(523
)
Total comprehensive income attributable to noncontrolling interests
 
(12
)
 
—

 
(201
)
 
—

 
(213
)
Total comprehensive loss attributable to Bristow Group
 
$
(29,797
)
 
$
(5,866
)
 
$
(13,905
)
 
$
13,809

 
$
(35,759
)


34
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Six Months Ended September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(86,460
)
 
$
12,400

 
$
(24,085
)
 
$
11,003

 
$
(87,142
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
644

 
28,570

 
(8,763
)
 
20,451

Total comprehensive loss
 
(86,460
)
 
13,044

 
4,485

 
2,240

 
(66,691
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(24
)
 
—

 
682

 
—

 
658

Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
547

 
—

 
547

Total comprehensive (income) loss attributable to noncontrolling interests
 
(24
)
 
—

 
1,229

 
—

 
1,205

Total comprehensive loss attributable to Bristow Group
 
$
(86,484
)
 
$
13,044

 
$
5,714

 
$
2,240

 
$
(65,486
)


35
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Six Months Ended September 30, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(70,542
)
 
$
(20,322
)
 
$
(2,781
)
 
$
22,466

 
$
(71,179
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
—

 
208,234

 
(220,808
)
 
(12,574
)
Total comprehensive income (loss)
 
(70,542
)
 
(20,322
)
 
205,453

 
(198,342
)
 
(83,753
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(27
)
 
—

 
637

 
—

 
610

Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
(4,965
)
 
—

 
(4,965
)
Total comprehensive income attributable to noncontrolling interests
 
(27
)
 
—

 
(4,328
)
 
—

 
(4,355
)
Total comprehensive income (loss) attributable to Bristow Group
 
$
(70,569
)
 
$
(20,322
)
 
$
201,125

 
$
(198,342
)
 
$
(88,108
)


36
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Balance Sheet
As of September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
591

 
$
771

 
$
95,981

 
$
—

 
$
97,343

Accounts receivable
 
159,210

 
457,131

 
367,921

 
(746,390
)
 
237,872

Inventories
 
—

 
33,156

 
98,460

 
—

 
131,616

Assets held for sale
 
—

 
29,692

 
5,242

 
—

 
34,934

Prepaid expenses and other current assets
 
2,248

 
5,827

 
39,422

 
(3,408
)
 
44,089

Total current assets
 
162,049

 
526,577

 
607,026

 
(749,798
)
 
545,854

Intercompany investment
 
2,399,726

 
104,435

 
135,507

 
(2,639,668
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
211,499

 
—

 
211,499

Intercompany notes receivable
 
263,032

 
36,358

 
26,265

 
(325,655
)
 
—

Property and equipment—at cost:
 
 
 
 
 
 
 
 
 
 
Land and buildings
 
4,806

 
62,128

 
176,421

 
—

 
243,355

Aircraft and equipment
 
157,311

 
1,138,701

 
1,321,823

 
—

 
2,617,835

 
 
162,117

 
1,200,829

 
1,498,244

 
—

 
2,861,190

Less: Accumulated depreciation and amortization
 
(35,027
)
 
(256,871
)
 
(372,552
)
 
—

 
(664,450
)
 
 
127,090

 
943,958

 
1,125,692

 
—

 
2,196,740

Goodwill
 
—

 
—

 
20,364

 
—

 
20,364

Other assets
 
8,584

 
2,147

 
103,356

 
(21
)
 
114,066

Total assets
 
$
2,960,481

 
$
1,613,475

 
$
2,229,709

 
$
(3,715,142
)
 
$
3,088,523

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
440,137

 
$
163,449

 
$
219,558

 
$
(725,382
)
 
$
97,762

Accrued liabilities
 
52,547

 
17,534

 
147,947

 
(23,131
)
 
194,897

Short-term borrowings and current maturities of long-term debt
 
66,973

 
19,050

 
27,496

 
—

 
113,519

Total current liabilities
 
559,657

 
200,033

 
395,001

 
(748,513
)
 
406,178

Long-term debt, less current maturities
 
599,973

 
281,587

 
317,027

 
—

 
1,198,587

Intercompany notes payable
 
62,532

 
209,840

 
54,385

 
(326,757
)
 
—

Accrued pension liabilities
 
—

 
—

 
57,928

 
—

 
57,928

Other liabilities and deferred credits
 
13,272

 
7,156

 
11,445

 
—

 
31,873

Deferred taxes
 
110,900

 
44,048

 
—

 
(21
)
 
154,927

Redeemable noncontrolling interest
 
—

 
—

 
6,002

 
—

 
6,002

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
381

 
20,028

 
131,317

 
(151,345
)
 
381

Additional paid-in-capital
 
815,990

 
46,234

 
284,048

 
(330,282
)
 
815,990

Retained earnings
 
902,957

 
803,517

 
683,482

 
(1,486,999
)
 
902,957

Accumulated other comprehensive loss
 
78,306

 
1,032

 
284,608

 
(671,225
)
 
(307,279
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,612,838

 
870,811

 
1,383,455

 
(2,639,851
)
 
1,227,253

Noncontrolling interests
 
1,309

 
—

 
4,466

 
—

 
5,775

Total stockholders’ investment
 
1,614,147

 
870,811

 
1,387,921

 
(2,639,851
)
 
1,233,028

Total liabilities, redeemable noncontrolling interest and stockholders’ investment
 
$
2,960,481

 
$
1,613,475

 
$
2,229,709

 
$
(3,715,142
)
 
$
3,088,523


37
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,382

 
$
299

 
$
92,975

 
$
—

 
$
96,656

Accounts receivable
 
76,383

 
288,235

 
212,900

 
(370,603
)
 
206,915

Inventories
 
—

 
34,721

 
90,190

 
—

 
124,911

Assets held for sale
 
—

 
30,716

 
7,530

 
—

 
38,246

Prepaid expenses and other current assets
 
3,237

 
4,501

 
43,856

 
(10,451
)
 
41,143

Total current assets
 
83,002

 
358,472

 
447,451

 
(381,054
)
 
507,871

Intercompany investment
 
2,491,631

 
104,435

 
126,296

 
(2,722,362
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
210,162

 
—

 
210,162

Intercompany notes receivable
 
306,641

 
37,633

 
39,706

 
(383,980
)
 
—

Property and equipment—at cost:
 
 
 
 
 
 
 
 
 
 
Land and buildings
 
4,806

 
62,114

 
164,528

 
—

 
231,448

Aircraft and equipment
 
151,005

 
1,199,073

 
1,272,623

 
—

 
2,622,701

 
 
155,811

 
1,261,187

 
1,437,151

 
—

 
2,854,149

Less: Accumulated depreciation and amortization
 
(29,099
)
 
(258,225
)
 
(312,461
)
 
—

 
(599,785
)
 
 
126,712

 
1,002,962

 
1,124,690

 
—

 
2,254,364

Goodwill
 
—

 
—

 
19,798

 
—

 
19,798

Other assets
 
18,770

 
2,139

 
100,743

 
—

 
121,652

Total assets
 
$
3,026,756

 
$
1,505,641

 
$
2,068,846

 
$
(3,487,396
)
 
$
3,113,847

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
231,841

 
$
70,434

 
$
151,382

 
$
(355,442
)
 
$
98,215

Accrued liabilities
 
61,791

 
17,379

 
132,704

 
(25,628
)
 
186,246

Current deferred taxes
 
(1,272
)
 
2,102

 
—

 
—

 
830

Short-term borrowings and current maturities of long-term debt
 
79,053

 
17,432

 
34,578

 
—

 
131,063

Total current liabilities
 
371,413

 
107,347

 
318,664

 
(381,070
)
 
416,354

Long-term debt, less current maturities
 
763,325

 
284,710

 
102,921

 
—

 
1,150,956

Intercompany notes payable
 
70,689

 
226,091

 
87,200

 
(383,980
)
 
—

Accrued pension liabilities
 
—

 
—

 
61,647

 
—

 
61,647

Other liabilities and deferred credits
 
11,597

 
6,229

 
11,073

 
—

 
28,899

Deferred taxes
 
112,716

 
40,344

 
1,813

 
—

 
154,873

Redeemable noncontrolling interest
 
—

 
—

 
6,886

 
—

 
6,886

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
379

 
20,028

 
115,317

 
(135,345
)
 
379

Additional paid-in-capital
 
809,995

 
29,387

 
284,048

 
(313,435
)
 
809,995

Retained earnings
 
991,906

 
791,117

 
819,987

 
(1,611,104
)
 
991,906

Accumulated other comprehensive loss
 
78,306

 
388

 
255,491

 
(662,462
)
 
(328,277
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,695,790

 
840,920

 
1,474,843

 
(2,722,346
)
 
1,289,207

Noncontrolling interests
 
1,226

 
—

 
3,799

 
—

 
5,025

Total stockholders’ investment
 
1,697,016

 
840,920

 
1,478,642

 
(2,722,346
)
 
1,294,232

Total liabilities, redeemable noncontrolling interest and stockholders’ investment
 
$
3,026,756

 
$
1,505,641

 
$
2,068,846

 
$
(3,487,396
)
 
$
3,113,847


38
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(78,756
)
 
$
32,581

 
$
10,841

 
$
—

 
$
(35,334
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(6,306
)
 
(5,814
)
 
(89,677
)
 
77,480

 
(24,317
)
Proceeds from asset dispositions
 
—

 
80,210

 
39,514

 
(77,480
)
 
42,244

Net cash provided by (used in) investing activities
 
(6,306
)
 
74,396

 
(50,163
)
 
—

 
17,927

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
107,800

 
—

 
230,218

 
—

 
338,018

Debt issuance costs
 
—

 
(552
)
 
(6,143
)
 
—

 
(6,695
)
Repayment of debt
 
(285,946
)
 
(9,073
)
 
(23,111
)
 
—

 
(318,130
)
Dividends paid
 
110,637

 
—

 
(113,102
)
 
—

 
(2,465
)
Increases (decreases) in cash related to intercompany advances and debt
 
150,351

 
(96,880
)
 
(53,471
)
 
—

 
—

Partial prepayment of put/call obligation
 
(23
)
 
—

 
—

 
—

 
(23
)
Repurchases for tax withholdings on vesting of equity awards
 
(548
)
 
—

 
—

 
—

 
(548
)
Net cash provided by (used in) financing activities
 
82,271

 
(106,505
)
 
34,391

 
—

 
10,157

Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
7,937

 
—

 
7,937

Net increase (decrease) in cash and cash equivalents
 
(2,791
)
 
472

 
3,006

 
—

 
687

Cash and cash equivalents at beginning of period
 
3,382

 
299

 
92,975

 
—

 
96,656

Cash and cash equivalents at end of period
 
$
591

 
$
771

 
$
95,981

 
$
—

 
$
97,343


 





39
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)



Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(35,861
)
 
$
56,788

 
$
8,499

 
$
(631
)
 
$
28,795

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(11,958
)
 
(20,411
)
 
(69,497
)
 
—

 
(101,866
)
Proceeds from asset dispositions
 
—

 
10,374

 
1,445

 
—

 
11,819

Net cash used in investing activities
 
(11,958
)
 
(10,037
)
 
(68,052
)
 
—

 
(90,047
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
191,501

 
—

 
4,453

 
—

 
195,954

Debt issuance costs
 
(2,925
)
 
—

 
—

 
—

 
(2,925
)
Repayment of debt
 
(116,051
)
 
—

 
(4,915
)
 
—

 
(120,966
)
Dividends paid
 
(4,554
)
 
4

 
(360
)
 
—

 
(4,910
)
Increases (decreases) in cash related to intercompany advances and debt
 
(54,611
)
 
(49,136
)
 
103,747

 
—

 
—

Partial prepayment of put/call obligation
 
(25
)
 
—

 
—

 
—

 
(25
)
Payment of contingent consideration
 
—

 
—

 
(10,000
)
 
—

 
(10,000
)
Repurchases for tax withholdings on vesting of equity awards
 
(757
)
 
—

 
—

 
—

 
(757
)
Net cash provided by (used in) financing activities
 
12,578

 
(49,132
)
 
92,925

 
—

 
56,371

Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
1,239

 
—

 
1,239

Net increase (decrease) in cash and cash equivalents
 
(35,241
)
 
(2,381
)
 
34,611

 
(631
)
 
(3,642
)
Cash and cash equivalents at beginning of period
 
35,241

 
3,393

 
65,676

 
—

 
104,310

Cash and cash equivalents at end of period
 
$
—

 
$
1,012

 
$
100,287

 
$
(631
)
 
$
100,668



40

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Bristow Group Inc.:
We have reviewed the condensed consolidated balance sheets of Bristow Group Inc. and subsidiaries as of September 30, 2017, the related condensed consolidated statements of operations, and comprehensive loss, for the three-month and six-month periods ended September 30, 2017 and 2016, and the related condensed consolidated statements of cash flows for the six-month periods ended September 30, 2017 and 2016, and the condensed consolidated statements of changes in equity and redeemable noncontrolling interest for the six-month period ended September 30, 2017. 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 sheets of Bristow Group Inc. and subsidiaries as of March 31, 2017, and the related consolidated statements of operations, comprehensive loss, cash flows and stockholders’ investment and redeemable noncontrolling interests for the year then ended (not presented herein); and in our report dated May 23, 2017, 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, 2017 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
November 8, 2017

41

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, 2017 (the “fiscal year 2017 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 September 30, 2017 and 2016, respectively, and the terms “Current Period” and “Comparable Period” refer to the six months ended September 30, 2017 and 2016, 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, 2018 is referred to as “fiscal year 2018”.
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 clients, competitors, vendors 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.
You should consider the following key factors when evaluating these forward-looking statements:
•
fluctuations in levels of oil and natural gas exploration, development and production activities;
•
fluctuations in the demand for our services;
•
the possibility that the major oil companies do not continue to expand internationally and offshore;
•
the possibility that we may be unable to obtain financing or draw on our credit facilities on terms that are favorable to us;
•
the possibility that we may lack sufficient liquidity or access to additional financing sources to continue to finance contractual commitments;
•
the possibility that we may be unable to dispose of older aircraft through sales into the aftermarket;
•
the possibility that we may be unable to re-deploy our aircraft to regions with greater demand;
•
general economic conditions, including the capital and credit markets;
•
fluctuations in worldwide prices of and demand for oil and natural gas;
•
the possibility that segments of our fleet may be grounded for extended periods of time or indefinitely;
•
the possibility that we may impair our long-lived assets, including goodwill, property and equipment and investments in unconsolidated affiliates;
•
the possibility of significant changes in foreign exchange rates and controls, including as a result of Brexit;
•
the possibility that we may be unable to maintain compliance with debt covenants;
•
the possibility that we may be unable to obtain recoveries from original equipment manufacturers, defer payment on certain aircraft into future fiscal years or take delivery of certain aircraft later than initially scheduled;
•
the existence of competitors;
•
the existence of operating risks inherent in our business, including the possibility of declining safety performance;

42

•
the possibility of political instability, war or acts of terrorism in any of the countries where we operate;
•
the possibility of changes in tax and other laws and regulations;
•
the possibility that reductions in spending on aviation services by governmental agencies could lead to modifications of search and rescue (“SAR”) contract terms or delays in receiving payments;
•
the possibility that we or our suppliers may be unable to deliver new aircraft on time or on budget;
•
the possibility that we may be unable to acquire additional aircraft due to limited availability or unable to exercise aircraft purchase options;
•
the possibility that clients may reject our aircraft due to late delivery or unacceptable aircraft design or operability; and
•
the possibility that we do not achieve the anticipated benefits from the addition of new-technology aircraft to our fleet.
The above description of risks and uncertainties is by no means all-inclusive, but is designed to highlight what we believe are important factors to consider. For a more detailed description of risk factors, please see the risks and uncertainties described under Item 1A. “Risk Factors” included in the fiscal year 2017 Annual Report.
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.

43

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 information that follows and does not disclose every item impacting our financial condition and operating performance.
General
We are the leading global industrial aviation services provider based on the number of aircraft operated. We have a long history in industrial aviation services through Bristow Helicopters Ltd. (“Bristow Helicopters”) and Offshore Logistics, Inc., which were founded in 1955 and 1969, respectively. We have major transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore energy producing regions of the world, including Australia, Brazil, Canada, Russia and Trinidad. We provide private sector SAR services in Australia, Canada, Norway, Russia, Trinidad and the United States. We provide public sector SAR services in the U.K. on behalf of the Maritime & Coastguard Agency. We also provide regional fixed wing scheduled and charter services in the U.K., Nigeria and Australia through our consolidated affiliates, Eastern Airways International Limited (“Eastern Airways”) and Capiteq Limited, operating under the name of Airnorth, respectively. These operations support our primary industrial aviation services operations in those markets, creating a more integrated logistics solution for our clients.
In fiscal year 2013, Bristow Helicopters was awarded a contract with the U.K. Department for Transport (the “DfT”) to provide public sector SAR services for all of the U.K. (the “U.K. SAR contract”). The U.K. SAR contract has a phased-in transition period that began in April 2015 and continued to July 2017 and a contract length of approximately ten years. We are currently operational at all ten bases as follows: Humberside and Inverness (April 2015), Caernarfon (July 2015), Lydd (August 2015), St. Athan (October 2015), Prestwick and Newquay (January 2016), Lee-on-Solent (March 2017), and two previously awarded Gap SAR bases of Sumburgh (June 2013) and Stornoway (July 2013). One Gap SAR base transitioned to the U.K. SAR contract on March 31, 2017 and the remaining Gap SAR base transitioned to the U.K. SAR contract on July 1, 2017.
During the Current Period, we generated approximately 69% of our consolidated operating revenue from external clients from oil and gas operations, approximately 16% from SAR operations and approximately 15% from fixed wing services that support our global helicopter operations.
We conduct our business in one segment: industrial aviation services. The industrial aviation services segment operations are conducted primarily through two hubs that includes four regions:
•
Europe Caspian,
•
Africa,
•
Americas, and
•
Asia Pacific.
We primarily provide industrial aviation services to a broad base of major integrated, national and independent offshore energy companies. Our clients charter our helicopters primarily to transport personnel between onshore bases and offshore production platforms, drilling rigs and other installations. To a lesser extent, our clients also charter our helicopters to transport time-sensitive equipment to these offshore locations. These clients’ 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. The clients for SAR services include both the oil and gas industry, where our revenue is primarily dependent on our clients’ operating expenditures, and governmental agencies, where our revenue is dependent on a country’s desire to privatize SAR and enter into long-term contracts. In addition to our primary industrial aviation services operations, as of September 30, 2017 we also operated a training unit, Bristow Academy. On November 1, 2017, we sold Bristow Academy. As of September 30, 2017, we operated 344 aircraft (including 224 owned aircraft and 120 leased aircraft; 15 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 116 aircraft in addition to those aircraft leased from us.


44

The chart below presents (1) the number of aircraft in our fleet and their distribution among the regions of our industrial aviation services segment as of September 30, 2017; (2) the number of helicopters which we had on order or under option as of September 30, 2017; and (3) the percentage of operating revenue which each of our regions provided during the Current Period. For additional information regarding our commitments and options to acquire aircraft, see Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Percentage
of Current
Period
Operating
Revenue
 
Aircraft in Consolidated Fleet
 
 
 
 
 
 
Helicopters
 
Fixed
Wing (1)
 
 
 
Unconsolidated
Affiliates (4)
 
 
 
 
Small
 
Medium
 
Large
 
Training
Total (2)(3)
 
Total
Europe Caspian
 
54
%
 
—

 
16

 
80

 
—

 
32

 
128

 
—

 
128

Africa
 
14
%
 
9

 
32

 
5

 
—

 
5

 
51

 
48

 
99

Americas
 
17
%
 
14

 
42

 
16

 
—

 
—

 
72

 
68

 
140

Asia Pacific
 
15
%
 
—

 
10

 
23

 
—

 
14

 
47

 
—

 
47

Corporate and other (5)
 
—
%
 
—

 
—

 
—

 
45

 
1

 
46

 
—

 
46

Total
 
100
%
 
23

 
100

 
124

 
45

 
52

 
344

 
116

 
460

Aircraft not currently in fleet: (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On order
 
 
 
—

 
—

 
27

 
—

 
—

 
27

 
 
 
 
Under option
 
 
 
—

 
—

 
4

 
—

 
—

 
4

 
 
 
 
_____________ 
(1) 
Eastern Airways operates a total of 32 fixed wing aircraft in the Europe Caspian region and provides technical support for three fixed wing aircraft in the Africa region. Additionally, Airnorth operates a total of 14 fixed wing aircraft, which are included in the Asia Pacific region.  
(2) 
Includes 15 aircraft held for sale and 120 leased aircraft as follows:
 
 
Held for Sale Aircraft in Consolidated Fleet
 
 
Helicopters
 
 
 
 
Small
 
Medium
 
Large
 
Training(7)
 
Fixed
Wing
 
Total
Europe Caspian
 
—

 
2

 
—

 
—

 
—

 
2

Africa
 
—

 
5

 
—

 
—

 
—

 
5

Americas
 
—

 
5

 
—

 
—

 
—

 
5

Asia Pacific
 
—

 
—

 
—

 
—

 
1

 
1

Corporate and other
 
—

 
—

 
—

 
2

 
—

 
2

Total
 
—

 
12

 
—

 
2

 
1

 
15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leased Aircraft in Consolidated Fleet
 
 
Helicopters
 
 
 
 
 
 
Small
 
Medium
 
Large
 
Training
 
Fixed
Wing
 
Total
Europe Caspian
 
—

 
6

 
41

 
—

 
14

 
61

Africa
 
—

 
1

 
2

 
—

 
2

 
5

Americas
 
1

 
14

 
6

 
—

 
—

 
21

Asia Pacific
 
—

 
3

 
9

 
—

 
4

 
16

Corporate and other
 
—

 
—

 
—

 
17

 
—

 
17

Total
 
1

 
24

 
58

 
17

 
20

 
120

(3) 
The average age of our commercial helicopter fleet, which excludes training aircraft, was approximately nine years as of September 30, 2017.
(4) 
The 116 aircraft operated by our unconsolidated affiliates do not include those aircraft leased from us. Includes 44 helicopters (primarily medium) and 24 fixed wing aircraft owned and managed by Líder Táxi Aéreo S.A. (“Líder”), our unconsolidated affiliate in Brazil included in the Americas region, and 41 helicopters and seven fixed wing aircraft owned by Petroleum Air Services (“PAS”), our unconsolidated affiliate in Egypt included in the Africa region.
(5) 
The aircraft presented for Corporate and other represent the aircraft operated by Bristow Academy as of September 30, 2017. On November 1, 2017, we sold Bristow Academy including all of their aircraft.  
(6) 
This table does not reflect aircraft which our unconsolidated affiliates may have on order or under option.
(7) 
This table does not include the Bristow Academy aircraft as held for sale which are part of the Bristow Academy disposal group.

45

The commercial aircraft in our consolidated fleet represented in the above chart are our primary source of revenue. To normalize the consolidated operating revenue of our commercial helicopter fleet for the different revenue productivity and cost, we developed a common weighted factor that combines large, medium and small commercial helicopters into a combined standardized number of revenue producing commercial aircraft assets. We call this measure Large AirCraft Equivalent (“LACE”). Our commercial large, medium and small helicopters, including owned and leased helicopters, are weighted as 100%, 50%, and 25%, respectively, to arrive at a single LACE number, which excludes Bristow Academy aircraft, fixed wing aircraft, unconsolidated affiliate aircraft, aircraft held for sale and aircraft construction in progress. We divide our operating revenue from commercial contracts relating to LACE aircraft, which excludes operating revenue from affiliates and reimbursable revenue, by LACE to develop a LACE rate, which is a standardized rate. Our historical LACE and LACE rate is as follows:
     
 
 
 
Current
Period (1)
 
Fiscal Year Ended March 31,
 
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
LACE
 
174

 
174

 
162

 
166

 
158

 
158

 
LACE Rate (in millions)
 
$
6.76

 
$
6.63

 
$
8.85

 
$
9.33

 
$
9.34

 
$
8.35

_____________ 
(1) 
LACE rate is annualized.
The following table presents the distribution of LACE helicopters owned and leased, and the percentage of LACE leased as of September 30, 2017. The percentage of LACE leased is calculated by taking the total LACE for leased commercial helicopters divided by the total LACE for all commercial helicopters we operate, including both owned and leased.
 
 
LACE
 
 
 
 
Owned Aircraft
 
Leased Aircraft
 
Percentage
of LACE
leased
 
Europe Caspian
43

 
44

 
51
%
 
Africa
18

 
3

 
12
%
 
Americas
25

 
13

 
35
%
 
Asia Pacific
18

 
11

 
38
%
 
Total
104

 
70

 
40
%

46

Our Strategy
Our goal is to strengthen our position as the leading industrial aviation services provider to the offshore energy industry and a leading industrial aviation services provider for civilian SAR and to pursue additional business opportunities that leverage our strengths in these markets. Our vision is to be a safe, financially strong, diversified global leader, succeeding no matter how challenging market conditions may be. To achieve this goal and vision, we intend to employ our “STRIVE” strategy as follows:
•
Sustain Target Zero Safety Culture. Safety will always be our number one focus. The best approach to be Target Zero is continuously improve our safety systems and processes to allow us to become even safer and to build confidence in our industry and among our regulators with respect to the safety of helicopter transportation globally.
•
Train and Develop our People. We continue to invest in employee training to ensure that we have the best workforce in the industry. We believe that the skills, talent and dedication of our employees are our most important assets, and we plan to continue to invest in them, especially in entry level learning, the continued control and ownership of our training assets, and creation of leadership programming.
•
Renew Commercial Strategy and Operational Excellence. We are in the process of renewing both our commercial strategy to improve revenue productivity across our global markets and our operational strategy to serve our clients safely, reliably and efficiently. We believe that we need to renew these strategies in order to thrive in an economy that is undergoing long-term structural change.
•
Improve Balance Sheet and Return on Capital. We seek to continue to improve our balance sheet and liquidity and reduce our capital costs, with a near term goal of debt reduction and profitability. To achieve this we have historically practiced the principal of prudent balance sheet management and have proactively managed our liquidity position with cash flows from operations, as well as external financings. These external financings have included the use of operating leases for a target of approximately 35% of our LACE. The target recognizes that we will have variability above or below the target of approximately 5% of our LACE due to timing of leases, purchases, disposals and lease terminations. As of September 30, 2017, commercial helicopters under operating leases accounted for 40% of our LACE. See “Liquidity and Capital Resources — Financial Condition and Sources of Liquidity” included elsewhere in this Quarterly Report for further discussion of our capital structure and liquidity. In August 2017, we suspended our quarterly dividend as part of a broader plan of reducing costs and improving liquidity. By suspending what has been a $0.07 per share quarterly dividend, we will preserve approximately $10 million of cash annually.
•
Value Added Acquisitions and Divestitures. We intend to pursue value-added acquisitions that not just make us bigger but better; that improve our competitive posture to thrive in an economy that is undergoing long-term structural change. We may also divest portions of our business or assets to narrow our product lines and reduce our operational footprint to reduce leverage and improve return on capital.
•
Execute on Bristow Transformation. We intend to sustain our strategy and the effective transformation of our business by focusing on execution globally.
Fiscal year 2018 STRIVE priorities — During fiscal year 2018, we will employ the following priorities in furtherance of the STRIVE strategy: (1) maintaining safety as the Company’s first priority; (2) achieving cost efficiencies, including reduced corporate general and administrative expenses to approximately 12% of revenues, while also implementing lean processes and improving productivity; (3) utilizing portfolio and fleet optimization, combined with pursuing original equipment manufacturers (“OEM”) cost recoveries and capital expenditure reduction to improve liquidity and reduce debt; and (4) achieving revenue growth through contract wins in our primary geographical hubs with a focus on delivering greater efficiencies to our core oil and gas clients.


47

Market Outlook
Our core business is providing industrial aviation services to the worldwide oil and gas industry. We also provide public and private sector SAR services and fixed wing transportation services. Our global operations and critical mass of helicopters provide us with geographic and client diversity which helps mitigate risks associated with a single market or client.
The oil and gas business environment experienced a significant downturn beginning during fiscal year 2015. Brent crude oil prices declined from approximately $106 per barrel at July 1, 2014 to a low of approximately $26 per barrel in February 2016 with an increase to approximately $52 per barrel as of September 30, 2017. The decrease in oil prices was driven by increased global supply and forecasts of reduced demand for crude oil resulting from weaker global economic growth in many regions of the world. The oil price decline negatively impacted the cash flow of our clients and resulted in their implementation of measures to reduce operational and capital costs in calendar years 2015 and 2016 compared to 2014 levels, negatively impacting activity during fiscal years 2015, 2016 and 2017. These cost reductions have continued into calendar year 2017 and have impacted both the offshore production and the offshore exploration activity of our clients, with offshore production activity being impacted to a lesser extent, continuing to negatively impact activity during fiscal year 2018. Although the largest share of our revenue relates to oil and gas production and our largest contract, the U.K. SAR contract, is not directly impacted by declining oil prices, the significant drop in the price of crude oil resulted in the rescaling, delay or cancellation of planned offshore projects which has negatively impacted our operations and could continue to negatively impact our operations in future periods. The oil price environment is beginning to show signs of stabilizing, but we are uncertain as to when a recovery in offshore spending will occur. An extended period of reduced crude oil prices and related offshore spending may have a material impact on our financial position, cash flow and results of operations.
The SAR market is continuing to evolve and we believe further outsourcing of public SAR services to the private sector will continue in the future, although the timing of these opportunities is uncertain. The clients for our SAR services include both the oil and gas industry and governmental agencies. We are pursuing other public and oil and gas SAR opportunities for multiple aircraft in various jurisdictions around the globe and other non-SAR government aircraft logistics opportunities.
As discussed above, we continue to seek ways to operate more efficiently and work with our clients to improve the efficiency of their operations within our STRIVE strategy. We have achieved savings during fiscal years 2016, 2017 and 2018 by implementing operating cost reduction initiatives. Further cost reductions and cash savings are anticipated across our business through the remainder of fiscal year 2018.
Recent Events
Bristow Academy sale — On November 1, 2017, we sold our 100% interest in Bristow Academy, as we continue to execute on our priority to optimize our business portfolio to improve its competitive position during the market downturn. The sales price will be a minimum of $1.5 million to be received over a maximum of four years with potential additional consideration based on Bristow Academy’s financial performance.
The sale includes Bristow Academy’s entire operation, including training facilities, helicopters and related personnel, at Titusville, Florida, and Minden, Nevada. The sale does not impact recurrent training of Bristow flight crews for ongoing commercial operations. Initial type rating and recurrent pilot training for commercial operations will continue at Bristow’s flight-simulator training facilities located in Aberdeen, Scotland, and New Iberia, Louisiana, supplemented with the use of other globally located training centers.
The sale of this non-core business resulted in an impairment of assets of $6.5 million, included in loss on disposal of assets on our condensed consolidated statement of operations, for the Current Quarter and Current Period.
With the completion of this sale and similar dispositions of non-core assets in prior fiscal years, we have streamlined our business to focus on our core oil and gas, SAR and fixed wing businesses globally. No significant non-core assets outside of these key areas of concentration remain upon completion of this sale.
Aircraft incident — As previously reported, on April 29, 2016, another company’s EC 225LP (also known as a H225LP) model helicopter crashed near Turøy outside of Bergen, Norway resulting in the European Aviation Safety Agency (“EASA”) issuing airworthiness directives prohibiting flight of H225LP and AS332L2 model aircraft. On July 20, 2017, the U.K. CAA and NCAA issued safety and operational directives which detail the conditions to apply for safe return to service of H225LP and AS332L2 model aircraft, where operators wish to do so. We continue not to operate for commercial purposes our sole H225LP model aircraft in Norway, our thirteen H225LP model aircraft in the U.K. or our six H225LP model aircraft in Australia, or for search and rescue purposes, including training and missions, any of our other four H225LP model aircraft in Norway or our other three H225LP model aircraft in Australia. We are carefully evaluating next steps and demand for the H225LP model aircraft in our oil and gas and search and rescue operations worldwide, with the safety of passengers and crews remaining our highest priority.

48

Separately, our efforts to successfully integrate AW189 aircraft into service for the U.K. SAR contract have been delayed due to a product improvement plan with the aircraft. As a result, the delivery of four AW189 aircraft will be pushed to later dates. We continue to meet our contractual obligations under the U.K. SAR contract through the utilization of other aircraft.
Subsequent to September 30, 2017, we reached agreement with an original equipment manufacturer and have a non-binding letter of understanding with another to recover $130 million during the second half of fiscal year 2018 related to ongoing aircraft issues mentioned above.
PK Air Debt — On July 17, 2017, a wholly-owned subsidiary entered into a term loan credit agreement with PK AirFinance S.à r.l., as agent, and PK Transportation Finance Ireland Limited, as lender, and other lenders from time to time party thereto, which provided for commitments in an aggregate amount of up to $230 million to make up to 24 term loans, each of which term loans shall be made in respect of an aircraft to be pledged as collateral for all of the term loans. The term loans also will be secured by a pledge of all shares of the borrower and any other assets of the borrower, and will be guaranteed by the Company. The financing funded in September 2017 and proceeds from the financing were used to repay $17.0 million of the $200 million of term loan commitments (“Term Loan Credit Facility”), $93.7 million of the $350 million term loan and $103 million of the $400 million revolving credit facility (“Revolving Credit Facility”). Additionally, in October 2017, we paid off the remaining $28.9 million of the Term Loan Credit Facility.
Structural and leadership changes — On June 8, 2017, we announced structural and leadership changes intended to create a strategically realigned and profitable company in an unprecedented downturn. The new Bristow will have two primary geographical hubs in key areas of business, Europe and the Americas, resulting in a more regionally focused, cost efficient and competitive business positioned to win more contracts. We believe these changes will result in a smaller, more nimble company, with the same intense focus on delivering safe, reliable service to customers, and positioned for future growth and profitability.
Our Europe hub includes Africa, Asia, Australia, Norway, U.K., Turkmenistan and the Middle East. Our Americas hub includes Bristow Academy, U.S. Gulf of Mexico, Guyana, Trinidad, Canada and Brazil. Despite these structural changes, we are still operating primarily out of the four operating regions previously discussed and therefore have not made any changes to the regional disclosure of results for our industrial aviation services segment operations in this Quarterly Report.
The structural change into two primary hubs is expected to generate significant cost savings, in part through lower general and administrative costs. In conjunction with this announcement, we also announced a number of leadership changes, which included the elimination of certain management roles and other corporate positions.
Brexit — In a referendum held on June 23, 2016, voters in the U.K. approved the exit of the U.K. (“Brexit”) from the E.U. On March 29, 2017, the U.K. government commenced the exit process under Article 50 of the Treaty of the European Union by notifying the European Council of the U.K.’s intention to leave the E.U. This notification starts a two-year time period for the U.K. and the remaining E.U. Member States to negotiate a withdrawal agreement.
For the Current Period and the year ended March 31, 2017, approximately 36% of our revenue was derived from contracts with customers in the U.K. and approximately 18% and 16% of our revenue was derived from contracts with customers in other European markets, respectively.
The consequences of Brexit, together with what may be protracted negotiations around the terms of Brexit, could introduce significant uncertainties into global financial markets and adversely impact the regions in which we and our customers operate. In the long term, Brexit could also create uncertainty with respect to the legal and regulatory requirements to which we and our customers in the U.K. are subject and lead to divergent national laws and regulations as the U.K. government determines which E.U. laws to modify or replace. Brexit also exacerbates the potential for additional referendums within the U.K., such as Scotland, which could lead to a breakup of the U.K., creating further legal and regulatory uncertainty.
The Brexit vote has resulted in a significant decline in the value of British pound sterling and volatility in exchange rates is expected to continue as the terms of Brexit are negotiated. If the British pound sterling remains weak or continues to weaken, revenue under contracts denominated in British pound sterling will translate into fewer U.S. dollars. For the Current Period, revenue denominated in British pound sterling represented 34% of our revenue. The uncertainties surrounding Brexit and risks associated with the commencement of Brexit could have a material adverse effect on our current business and future growth. For discussion of the impact of changes in foreign currency exchange rates, including the British pound sterling, on our results, see “— Results of Operations — Current Quarter Compared to Comparable Quarter” and “— Results of Operations — Current Period Compared to Comparable Period” included elsewhere in this Quarterly Report.

49

The decision by Nigeria’s central bank to move to market-driven foreign currency trading — On June 20, 2016, Nigeria’s central bank abandoned its 16-month peg to the U.S. dollar, which resulted in a 38% devaluation of the naira versus the U.S. dollar from June 20 to June 30, 2016 and an additional 21% devaluation of the naira versus the U.S. dollar from June 30, 2016 to September 30, 2017. For discussion of the impact of changes in foreign currency exchange rates, including the naira, on our results, see “— Results of Operations — Current Quarter Compared to Comparable Quarter” and “— Results of Operations — Current Period Compared to Comparable Period” included elsewhere in this Quarterly Report.
Impact of fleet changes — The management of our global aircraft fleet involves a careful evaluation of the expected demand for industrial aviation services across global energy markets, including the type of aircraft needed to meet this demand. As offshore oil and gas drilling and production globally moves to deeper water, more medium and large aircraft and newer technology aircraft may be required. As older aircraft models come off of current contracts and are replaced by new aircraft, our management evaluates our future needs for these aircraft models and ultimately the ability to recover our remaining investments in these aircraft through sales into the aftermarket. We depreciate our aircraft over their expected useful life to the expected salvage value to be received for the aircraft at the end of that life. Depending on the market for aircraft or changes in the expected future use of aircraft within our fleet, we may record gains or losses on aircraft sales, impairment charges for aircraft operating or held for sale, or accelerate or increase depreciation on aircraft used in our operations. In certain instances where a cash return can be made on newer aircraft in excess of the expected return available through the provision of industrial aviation services, we may sell newer aircraft. The number of aircraft sales and the amount of gains and losses recorded on these sales is unpredictable. While aircraft sales are common in our business and are reflected in our operating results, gains and losses on aircraft sales may result in our operating results not reflecting the ordinary operating performance of our primary business, which is providing industrial aviation services to our clients. The gains and losses on aircraft sales and any impairment charges are not included in the calculation of adjusted EBITDA, adjusted net income (loss) or adjusted earnings per share.
Selected Regional Perspectives
Brazil represents a significant part of our long term helicopter growth outlook due to its concentration and size of its offshore oil reserves. However, in the short term, Brazil and specifically, Petrobras, continues to evidence uncertainty as the price of oil and Petrobras’ restructuring efforts have impacted the helicopter industry. Petrobras did not release any new tenders for multiple medium and large aircraft that were expected to commence in calendar year 2016. While this represents a contraction in short-term demand, Brazil’s impact on long-term helicopter demand is expected to be material. Petrobras represented 62% of Líder’s operating revenue in fiscal year 2017. As of September 30, 2017, we have no aircraft on lease to Líder.
The Brazilian government has revisited the regulations on the oil and gas industry and made significant changes to the Brazilian market, including removing the requirement that Petrobras have 30% participation on all exploratory blocks, removing the requirement that Petrobras be the operator of all pre-salt blocks and approving the next round of licensing for new exploration blocks (six years after the last successful round). In addition, the Brazilian government is currently reviewing local content requirements, which has led other operators to request information and/or proposals. Petrobras’ new management has implemented a five-year business and management plan focused on divestment, mostly of its non-core businesses. Overall, the Brazilian market outlook has improved compared to the prior year for Líder with opportunities for growth.
Currency fluctuations continue to make it difficult to predict the earnings from our Líder investment. These currency fluctuations, which primarily do not impact Líder’s cash flow from operations, had a significant negative impact on Líder’s results in fiscal years 2015, 2016 and 2017, impacting our earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates, net of losses, on our consolidated statements of operations, is included in calculating adjusted EBITDA, adjusted net income (loss) and adjusted diluted earnings (loss) per share.
We are subject to competition and the political environment in the countries where we operate. In Nigeria, we have seen an increase in competitive pressure and the application of existing local content regulations that could impact our ability to win future work at levels previously anticipated. In order to properly and fully embrace new regulations, we have made a number of key changes to our operating model in Nigeria, while maintaining safety as our number one priority at all times. The objectives of these changes being (a) enhancing the level of continued compliance by each of Bristow Helicopters Nigeria Ltd. (“BHNL”) and Pan African Airlines Nigeria Ltd. (“PAAN”) with local content regulations, (b) providing technical aviation maintenance services through a wholly-owned Bristow Group entity, BGI Aviation Technical Services Nigeria Limited (“BATS”), and (c) each of BHNL, PAAN and BATS committing to continue to apply and use all key Bristow Group standards and policies, including without limitation our Target Zero safety program, our Code of Business Integrity and our Operations Manuals. As a result of these changes, our ability to continue to consolidate BHNL and PAAN under the current accounting requirements could change.

50

We conduct business in various foreign countries, and as such, our cash flows and earnings are subject to fluctuations and related risks from changes in foreign currency exchange rates. During the Current Period, our primary foreign currency exposure was related to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira and our unconsolidated affiliates foreign currency exposure is primarily related to the Brazilian real. The Brexit event discussed elsewhere in this Quarterly Report is an example of this exposure and possible impact on our results of operations.

51

Results of Operations
The following table presents our operating results and other statement of operations information for the applicable periods:
 
 
Three Months Ended 
 September 30,
 
 
Favorable
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
 
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
357,992

 
$
343,662

 
 
$
14,330

 
 
4.2
 %
 
Reimbursable revenue
 
15,684

 
13,805

 
 
1,879

 
 
13.6
 %
 
Total gross revenue
 
373,676

 
357,467

 
 
16,209

 
 
4.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
284,713

 
281,630

 
 
(3,083
)
 
 
(1.1
)%
 
Reimbursable expense
 
15,414

 
13,276

 
 
(2,138
)
 
 
(16.1
)%
 
Depreciation and amortization
 
31,381

 
28,592

 
 
(2,789
)
 
 
(9.8
)%
 
General and administrative
 
48,622

 
51,274

 
 
2,652

 
 
5.2
 %
 
Total operating expense
 
380,130

 
374,772

 
 
(5,358
)
 
 
(1.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(7,572
)
 
 
7,572

 
 
100.0
 %
 
Loss on disposal of assets
 
(8,526
)
 
(2,186
)
 
 
(6,340
)
 
 
(290.0
)%
 
Earnings from unconsolidated affiliates, net of losses
 
2,063

 
181

 
 
1,882

 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(12,917
)
 
(26,882
)
 
 
13,965

 
 
51.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(18,563
)
 
(11,468
)
 
 
(7,095
)
 
 
(61.9
)%
 
Other income (expense), net
 
2,558

 
3,003

 
 
(445
)
 
 
(14.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before provision for income taxes
 
(28,922
)
 
(35,347
)
 
 
6,425

 
 
18.2
 %
 
Benefit (provision) for income taxes
 
(2,474
)
 
5,240

 
 
(7,714
)
 
 
(147.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(31,396
)
 
(30,107
)
 
 
(1,289
)
 
 
(4.3
)%
 
Net loss attributable to noncontrolling interests
 
187

 
310

 
 
(123
)
 
 
(39.7
)%
 
Net loss attributable to Bristow Group
 
$
(31,209
)
 
$
(29,797
)
 
 
$
(1,412
)
 
 
(4.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(0.88
)
 
$
(0.85
)
 
 
$
(0.03
)
 
 
(3.5
)%
 
Operating margin (1)
 
(3.6
)%
 
(7.8
)%
 
 
4.2
%
 
 
53.8
 %
 
Flight hours (2)
 
46,449

 
42,604

 
 
3,845

 
 
9.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
32,378

 
$
25,399

 
 
$
6,979

 
 
27.5
 %
 
Adjusted EBITDA margin (1)
 
9.0
 %
 
7.4
 %
 
 
1.6
%
 
 
21.6
 %
 
Adjusted net loss
 
$
(11,607
)
 
$
(12,314
)
 
 
$
707

 
 
5.7
 %
 
Adjusted diluted loss per share
 
$
(0.33
)
 
$
(0.35
)
 
 
$
0.02

 
 
5.7
 %
 


52

 
 
Six Months Ended 
 September 30,
 
 
Favorable
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
 
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
697,721

 
$
699,846

 
 
$
(2,125
)
 
 
(0.3
)%
 
Reimbursable revenue
 
28,064

 
27,019

 
 
1,045

 
 
3.9
 %
 
Total gross revenue
 
725,785

 
726,865

 
 
(1,080
)
 
 
(0.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
570,264

 
571,173

 
 
909

 
 
0.2
 %
 
Reimbursable expense
 
27,640

 
25,890

 
 
(1,750
)
 
 
(6.8
)%
 
Depreciation and amortization
 
62,437

 
63,286

 
 
849

 
 
1.3
 %
 
General and administrative
 
95,329

 
103,869

 
 
8,540

 
 
8.2
 %
 
Total operating expense
 
755,670

 
764,218

 
 
8,548

 
 
1.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
(1,192
)
 
(7,572
)
 
 
6,380

 
 
84.3
 %
 
Loss on disposal of assets
 
(7,827
)
 
(12,203
)
 
 
4,376

 
 
35.9
 %
 
Earnings from unconsolidated affiliates, net of losses
 
1,398

 
4,011

 
 
(2,613
)
 
 
(65.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(37,506
)
 
(53,117
)
 
 
15,611

 
 
29.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(34,584
)
 
(22,354
)
 
 
(12,230
)
 
 
(54.7
)%
 
Other income (expense), net
 
913

 
(3,186
)
 
 
4,099

 
 
128.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before provision for income taxes
 
(71,177
)
 
(78,657
)
 
 
7,480

 
 
9.5
 %
 
Benefit (provision) for income taxes
 
(15,965
)
 
7,478

 
 
(23,443
)
 
 
(313.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(87,142
)
 
(71,179
)
 
 
(15,963
)
 
 
(22.4
)%
 
Net loss attributable to noncontrolling interests
 
658

 
610

 
 
48

 
 
7.9
 %
 
Net loss attributable to Bristow Group
 
$
(86,484
)
 
$
(70,569
)
 
 
$
(15,915
)
 
 
(22.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(2.45
)
 
$
(2.02
)
 
 
$
(0.43
)
 
 
(21.3
)%
 
Operating margin (1)
 
(5.4
)%
 
(7.6
)%
 
 
2.2
%
 
 
28.9
 %
 
Flight hours (2)
 
90,172

 
85,741

 
 
4,431

 
 
5.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
47,581

 
$
44,479

 
 
$
3,102

 
 
7.0
 %
 
Adjusted EBITDA margin (1)
 
6.8
 %
 
6.4
 %
 
 
0.4
%
 
 
6.3
 %
 
Adjusted net loss
 
$
(40,746
)
 
$
(24,322
)
 
 
$
(16,424
)
 
 
(67.5
)%
 
Adjusted diluted loss per share
 
$
(1.16
)
 
$
(0.69
)
 
 
$
(0.47
)
 
 
(68.1
)%
 
_____________ 
 * percentage change too large to be meaningful or not applicable.

(1) 
Operating margin is calculated as operating income divided by operating revenue. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by operating revenue.
(2) 
Excludes flight hours from Bristow Academy and unconsolidated affiliates. Includes flight hours from Eastern Airways and Airnorth fixed wing operations in the U.K., Nigeria and Australia for the three months ended September 30, 2017 and 2016 totaling 11,298 and 10,430, respectively, and 21,677 and 20,764, respectively, for the six months ended September 30, 2017 and 2016.

53

(3) 
These financial measures have not been prepared in accordance with generally accepted accounting principles (“GAAP”) and have not been audited or reviewed by our independent registered public accounting firm. These financial measures are therefore considered non-GAAP financial measures. Adjusted EBITDA is calculated by taking our net income and adjusting for interest expense, depreciation and amortization, benefit (provision) for income taxes, gain (loss) on disposal of assets and any special items during the reported periods. See further discussion of our use of the adjusted EBITDA metric below. Adjusted net income (loss) and adjusted diluted earnings (loss) per share are each adjusted for gain (loss) on disposal of assets and any special items during the reported periods. As discussed below, management believes these non-GAAP financial measures provide meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures is as follows:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages and per share amounts)
Net loss
 
$
(31,396
)
 
$
(30,107
)
 
$
(87,142
)
 
$
(71,179
)
Loss on disposal of assets
 
8,526

 
2,186

 
7,827

 
12,203

Special items (i)
 
2,676

 
18,265

 
13,542

 
24,824

Depreciation and amortization
 
31,381

 
28,592

 
62,437

 
63,286

Interest expense
 
18,717

 
11,703

 
34,952

 
22,823

Provision (benefit) for income taxes
 
2,474

 
(5,240
)
 
15,965

 
(7,478
)
Adjusted EBITDA
 
$
32,378

 
$
25,399

 
$
47,581

 
$
44,479

 
 
 
 
 
 
 
 
 
(Provision) benefit for income taxes
 
$
(2,474
)
 
$
5,240

 
$
(15,965
)
 
$
7,478

Tax provision (benefit) on loss on disposal of
   assets
 
5,618

 
(699
)
 
10,191

 
(3,905
)
Tax provision (benefit) on special items
 
2,782

 
(3,554
)
 
14,178

 
4,972

Adjusted benefit for income taxes
 
$
5,926

 
$
987

 
$
8,404

 
$
8,545

 
 
 
 
 
 
 
 
 
Effective tax rate (ii)
 
(8.6
)%
 
14.8
%
 
(22.4
)%
 
9.5
%
Adjusted effective tax rate (ii)
 
33.4
 %
 
7.3
%
 
16.9
 %
 
25.5
%
 
 
 
 
 
 
 
 
 
Net loss attributable to Bristow Group
 
$
(31,209
)
 
$
(29,797
)
 
$
(86,484
)
 
$
(70,569
)
Loss on disposal of assets (iii)
 
14,144

 
1,487

 
18,018

 
8,298

Special items (i) (iii)
 
5,458

 
15,996

 
27,720

 
37,949

Adjusted net loss
 
$
(11,607
)
 
$
(12,314
)
 
$
(40,746
)
 
$
(24,322
)
 
 
 
 
 
 
 
 
 
Diluted loss per share
 
$
(0.88
)
 
$
(0.85
)
 
$
(2.45
)
 
$
(2.02
)
Loss on disposal of assets (iii)
 
0.40

 
0.04

 
0.51

 
0.24

Special items (i) (iii)
 
0.15

 
0.46

 
0.79

 
1.08

Adjusted diluted loss per share (iv)
 
(0.33
)
 
(0.35
)
 
(1.16
)
 
(0.69
)
_____________ 
(i) 
See information about special items during the Current Quarter and Comparable Quarter under “— Current Quarter Compared to Comparable Quarter” and Current Period and Comparable Period under “— Current Period Compared to Comparable Period” below.
(ii) 
Effective tax rate is calculated by dividing benefit (provision) for income tax by pretax net loss. Adjusted effective tax rate is calculated by dividing adjusted benefit (provision) for income tax by adjusted pretax net loss. Tax expense (benefit) on loss on disposal of asset and tax expense (benefit) on special items is calculated using the statutory rate of the entity recording the loss on disposal of asset or special item.  
(iii) 
These amounts are presented after applying the appropriate tax effect to each item and dividing by the weighted average shares outstanding during the related period to calculate the earnings per share impact.
(iv) 
Adjusted diluted earnings per share is calculated using the diluted weighted average number of shares outstanding of 35,317,935 and 35,070,047 during the Current Quarter and Comparable Quarter, respectively, and of 35,253,688 and 35,012,014 during the Current Period and the Comparable Period, respectively.
Management believes that adjusted EBITDA, adjusted benefit for income taxes, adjusted net loss and adjusted diluted loss per share (collectively, the “Non-GAAP measures”) provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and regional performance.

54

Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing transactions and income taxes. Adjusted EBITDA should not be considered a measure of discretionary cash available to us for investing in the growth of our business. In prior periods we presented adjusted EBITDAR, which was calculated by taking our net income and adjusting for interest expense, depreciation and amortization, rent expense (included as a component of direct cost and general and administrative expense), provision for income taxes, gain (loss) on disposal of assets and any special items during the reported periods. We believed that adjusted EBITDAR provided us with a useful supplemental measure of our operational performance by excluding the financing decisions we make regarding aircraft purchases or leasing.  However, we have revised our disclosures to present adjusted EBITDA rather than adjusted EBITDAR consistent with recent interpretations regarding Non-GAAP measures issued by the Securities and Exchange Commission.
Adjusted net loss and adjusted diluted loss per share present our consolidated results excluding asset dispositions and special items that do not reflect the ordinary earnings of our operations. Adjusted benefit (provision) for income taxes excludes the tax impact of these items. We believe that these measures are useful supplemental measures because net loss and diluted loss per share include asset disposition effects and special items and benefit (provision) for income taxes include the tax impact of these items, and inclusion of these items does not reflect the ongoing operational earnings of our business.
The Non-GAAP measures are not calculated or presented in accordance with GAAP and other companies in our industry may calculate these measures differently than we do. As a result, these financial measures have limitations as analytical and comparative tools and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP. In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to be inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of the Non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or special items.
Some of the additional limitations of adjusted EBITDA are:
•
Adjusted EBITDA does not reflect our current or future cash requirements for capital expenditures;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debts; and
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.
The following tables present region adjusted EBITDA and adjusted EBITDA margin discussed in “— Region Operating Results,” and consolidated adjusted EBITDA and adjusted EBITDA margin for the three and six months ended September 30, 2017 and 2016:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Europe Caspian
 
$
23,950

 
$
16,551

 
$
40,102

 
$
34,150

Africa
 
12,617

 
15,566

 
26,000

 
22,338

Americas
 
14,565

 
10,242

 
20,741

 
24,278

Asia Pacific
 
1,425

 
(2,363
)
 
(4,295
)
 
(5,486
)
Corporate and other
 
(20,179
)
 
(14,597
)
 
(34,967
)
 
(30,801
)
Consolidated adjusted EBITDA
 
$
32,378

 
$
25,399

 
$
47,581

 
$
44,479

 
 
 
 
 
 
 
 
 
Europe Caspian
 
12.2
%
 
8.9
 %
 
10.5
 %
 
9.1
 %
Africa
 
25.9
%
 
30.9
 %
 
26.4
 %
 
21.6
 %
Americas
 
24.0
%
 
18.0
 %
 
17.5
 %
 
21.0
 %
Asia Pacific
 
2.6
%
 
(4.6
)%
 
(4.2
)%
 
(5.2
)%
Consolidated adjusted EBITDA margin
 
9.0
%
 
7.4
 %
 
6.8
 %
 
6.4
 %

55

The following tables present region depreciation and amortization and rent expense for the three and six months ended September 30, 2017 and 2016:
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
12,196

 
$
11,220

 
$
24,018

 
$
22,409

Africa
 
3,590

 
3,220

 
6,666

 
8,673

Americas
 
6,998

 
7,228

 
13,997

 
18,609

Asia Pacific
 
5,058

 
4,377

 
10,868

 
8,613

Corporate and other
 
3,539

 
2,547

 
6,888

 
4,982

Total depreciation and amortization
 
$
31,381

 
$
28,592

 
$
62,437

 
$
63,286

 
 
 
 
 
 
 
 
 
Rent expense:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
36,851

 
$
33,604

 
$
73,304

 
$
65,892

Africa
 
2,176

 
2,066

 
4,376

 
4,334

Americas
 
5,191

 
5,058

 
12,185

 
10,620

Asia Pacific
 
10,595

 
9,272

 
21,549

 
18,556

Corporate and other
 
2,411

 
1,955

 
4,485

 
3,836

 Total rent expense
 
$
57,224

 
$
51,955

 
$
115,899

 
$
103,238

Current Quarter Compared to Comparable Quarter
Operating revenue from external clients by line of service was as follows:
 
Three Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
243,754

 
$
238,233

 
$
5,521

 
2.3
 %
Fixed wing services
56,721

 
51,972

 
4,749

 
9.1
 %
U.K. SAR services
56,060

 
50,850

 
5,210

 
10.2
 %
Corporate and other
1,457

 
2,607

 
(1,150
)
 
(44.1
)%
Total operating revenue
$
357,992

 
$
343,662

 
$
14,330

 
4.2
 %
The increase in operating revenue in the Current Quarter from the Comparable Quarter was primarily driven by an increase in operating revenue for our oil and gas services in our Europe Caspian, Asia Pacific and Americas regions due to an increase in activity as well as an increase in U.K. SAR services revenue due to additional bases coming online in fiscal years 2017 and 2018. Additionally, our fixed wing services in our Asia Pacific, Africa and Europe Caspian regions have contributed to the increase in operating revenue. See further discussion of operating revenue improvements by region under “—Region Operating Results.”
For the Current Quarter, we reported a net loss of $31.2 million and a diluted loss per share of $0.88 compared to a net loss of $29.8 million and a diluted loss per share of $0.85 for the Comparable Quarter. The year-over-year change in net loss and diluted loss per share was primarily driven by higher income tax, rent and interest expense and higher loss on disposal of assets in the Current Quarter. These unfavorable changes were partially offset by higher revenue in the Current Quarter as discussed above and impairment charges on inventory recorded in the Comparable Quarter that did not recur in the Current Quarter.

56

The net loss for the Current Quarter was significantly impacted by the following items:
•
A loss on disposal of assets of $8.5 million ($14.1 million net of tax) primarily related to $8.2 million for impairment charges on assets held for sale (including $6.5 million impairment related to the Bristow Academy disposal group),
•
Organizational restructuring costs of $2.7 million ($2.2 million net of tax) included in direct costs and general and administrative expense, which includes severance expense of $2.4 million related to separation programs across our global organization designed to increase efficiency and reduce costs and other restructuring costs of $0.3 million, and
•
Tax items of $3.2 million that include non-cash adjustments related to the ongoing impact of valuation of deferred tax assets of $2.5 million and a one-time non-cash tax effect from repositioning of certain aircraft from one tax jurisdiction to another related to recent financing transactions resulting in additional income tax expense of $0.7 million.
Excluding these items, adjusted net loss and adjusted diluted loss per share were $11.6 million and $0.33, respectively, for the Current Quarter. These adjusted results compare to adjusted net loss and adjusted diluted loss per share of $12.3 million and $0.35, respectively, for the Comparable Quarter. Additionally, adjusted EBITDA improved to $32.4 million in the Current Quarter from $25.4 million in the Comparable Quarter.
The year-over-year change in adjusted net loss, diluted loss per share and adjusted EBITDA was primarily driven by the increase in oil and gas, fixed wing and U.K. SAR revenue discussed above. Results for the Current Quarter were also positively impacted by $1.9 million in higher earnings from unconsolidated affiliates, which was primarily driven by a $1.5 million favorable foreign currency exchange rate impact from our investment in Líder in Brazil.
Direct costs increased 1.1%, or $3.1 million, year-over-year primarily due to a $4.5 million increase in rent expense and $3.9 million increase in fuel costs, partially offset by the benefit of organizational restructuring efforts reflected in a $3.7 million decrease in salaries and benefits and a $1.6 million decrease in training costs.
Reimbursable expense increased 16.1%, or $2.1 million, primarily due to new contracts in Norway.
Depreciation and amortization expense increased 9.8%, or $2.8 million, to $31.4 million for the Current Quarter from $28.6 million for the Comparable Quarter. The increase in depreciation and amortization expense is primarily due to additional new aircraft and information technology costs being capitalized and depreciated in the Current Quarter.
General and administrative expense decreased 5.2%, or $2.7 million, in the Current Quarter, as compared to the Comparable Quarter primarily due to a decrease in compensation expense of $2.5 million primarily resulting from a reduction in severance costs and a decrease in professional fees of $1.8 million, partially offset by an increase of $1.6 million primarily related to information technology costs.
Loss on impairment for the Comparable Quarter includes $7.6 million of inventory impairments.
Loss on disposal of assets increased $6.3 million to a loss of $8.5 million for the Current Quarter from a loss of $2.2 million for the Comparable Quarter. The loss on disposal of assets in the Current Quarter included impairment charges totaling $8.2 million related to assets held for sale (including $6.5 million impairment related to the Bristow Academy disposal group) and a loss of $0.3 million from the sale or disposal of aircraft and other equipment. During the Comparable Quarter, the loss on disposal of assets included impairment charges totaling $1.0 million related to assets held for sale and a loss of $1.2 million from the sale or disposal of aircraft and other equipment.
Earnings from unconsolidated affiliates, net of losses, increased $1.9 million to earnings of $2.1 million for the Current Quarter from earnings of $0.2 million in the Comparable Quarter. The increase in earnings from unconsolidated affiliates, net of losses, primarily resulted from an increase in earnings from our investment in Líder in Brazil to $2.1 million of earnings in the Current Quarter from $0.9 million in earnings in the Comparable Quarter primarily due to a favorable impact of foreign currency exchange rates of $0.3 million in the Current Quarter compared to an unfavorable impact of foreign currency exchange rates of $1.3 million in the Comparable Quarter.
Interest expense, net, increased 61.9%, or $7.1 million, year-over-year primarily due to an increase in interest resulting from an increase in borrowings and a decrease in capitalized interest resulting from lower average construction in progress. Additionally, during the Current Quarter we wrote-off $0.6 million of deferred financing fees related to early extinguishment of debt.
For further details on income tax expense, see “— Region Operating Results — Taxes” included elsewhere in this Quarterly Report.

57

As discussed above, our results for the Current Quarter were impacted by a number of special items. During the Comparable Quarter, special items that impacted our results included organizational restructuring costs, accelerated depreciation expense, impairment of inventories and tax valuation allowances. The items noted in the Current Quarter and Comparable Quarter have been identified as special items as they are not considered by management to be part of our ongoing operations when assessing and measuring the operational and financial performance of the organization. The impact of these items on our adjusted EBITDA, adjusted net income and adjusted diluted earnings per share is as follows:
 
 
Three Months Ended 
 September 30, 2017
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(2,676
)
 
$
(2,237
)
 
$
(0.06
)
Tax items
 
—

 
(3,221
)
 
(0.09
)
Total special items
 
$
(2,676
)
 
$
(5,458
)
 
(0.15
)
 
 
 
 
 
 
 
 
 
Three Months Ended 
 September 30, 2016
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(10,693
)
 
$
(7,296
)
 
$
(0.21
)
Additional depreciation expense resulting from fleet changes
 
—

 
(871
)
 
(0.02
)
Inventory impairment
 
(7,572
)
 
(5,344
)
 
(0.15
)
Tax valuation allowances
 
—

 
(2,485
)
 
(0.07
)
Total special items
 
$
(18,265
)
 
$
(15,996
)
 
(0.46
)
Current Period Compared to Comparable Period
Operating revenue from external clients by line of service was as follows:
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
478,529

 
$
490,609

 
$
(12,080
)
 
(2.5
)%
Fixed wing services
107,398

 
103,300

 
4,098

 
4.0
 %
U.K. SAR services
108,647

 
100,399

 
8,248

 
8.2
 %
Corporate and other
3,147

 
5,538

 
(2,391
)
 
(43.2
)%
Total operating revenue
$
697,721

 
$
699,846

 
$
(2,125
)
 
(0.3
)%
The decrease in revenue in the Current Period was primarily driven by an unfavorable impact from changes in foreign currency exchange rates compared to the Comparable Period of $15.7 million mostly related to the depreciation of the British pound sterling resulting from Brexit as discussed under “Recent Events” above. The decline in revenue from unfavorable foreign exchange rate changes was partially offset by the increase in U.K. SAR services revenue due to additional bases coming online in fiscal years 2017 and 2018 and increase in operating revenue from our fixed wing services in Asia Pacific and Africa regions.
For the Current Period, we reported a net loss of $86.5 million and a diluted loss per share of $2.45 compared to a net loss of $70.6 million and a diluted loss per share of $2.02 for the Comparable Period. The year-over-year change in net loss and diluted loss per share was primarily driven by the decline in oil and gas revenue discussed above, higher income tax, rent and interest expense and lower earnings from unconsolidated affiliates. These unfavorable changes were partially offset by higher impairment of inventory and asset charges recorded in the Comparable Period and a decrease in general and administrative expense and direct costs primarily from lower salaries and benefits in the Current Period. The year-over-year impact of changes in foreign currency exchange rates on revenue in the Current Period was offset by a positive impact on operating expenses and transaction gains in the Current Period compared to transaction losses in the Comparable Period.

58

The net loss for the Current Period was significantly impacted by the following items:
•
A loss on disposal of assets of $7.8 million ($18.0 million net of tax) primarily related to $9.7 million for impairment charges on assets held for sale (including $6.5 million impairment related to the Bristow Academy disposal group),
•
Organizational restructuring costs of $12.4 million ($8.8 million net of tax) included in general and administrative expense, which includes severance expense of $11.1 million related to separation programs across our global organization designed to increase efficiency and reduce costs and other restructuring costs of $1.3 million,
•
Impairment of inventories of $1.2 million ($0.8 million net of tax) included in loss on impairment, and
•
Tax items of $18.1 million that include non-cash adjustments related to the ongoing impact of valuation of deferred tax assets of $16.3 million and a one-time non-cash tax effect from repositioning of certain aircraft from one tax jurisdiction to another related to recent financing transactions resulting in additional income tax expense of $1.8 million.
Excluding these items, adjusted net loss and adjusted diluted loss per share were $40.7 million and $1.16, respectively, for the Current Period. These adjusted results compare to adjusted net loss and adjusted diluted loss per share of $24.3 million and $0.69, respectively, for the Comparable Period. Additionally, adjusted EBITDA improved to $47.6 million in the Current Period from $44.5 million in the Comparable Period.
The year-over-year change in adjusted net loss and diluted earnings per share was primarily driven by the decline in oil and gas revenue, higher adjusted income tax expense, rent expense and interest expense and lower earnings from unconsolidated affiliates. However, adjusted EBITDA improved due to lower direct and general and administrative expenses driven by organizational restructuring efforts.
The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Six Months Ended 
 September 30,
 
Favorable (Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Transaction gains (losses)
$
846

 
$
(3,401
)
 
$
4,247

Líder foreign exchange impact
(880
)
 
(1,304
)
 
424

Total
$
(34
)
 
$
(4,705
)
 
4,671

 
 
 
 
 
 
Revenue impact
 
 
 
 
(15,675
)
Operating expense impact
 
 
 
 
9,621

Year-over-year income statement translation
 
 
 
 
(6,054
)
 
 
 
 
 
 
Pre-tax income statement impact
 
 
 
 
(1,383
)
Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
5

Adjusted EBITDA impact
 
 
 
 
$
(1,378
)
 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
491

Earnings per share impact
 
 
 
 
$
0.01

The most significant foreign exchange impact was related to a $6.1 million unfavorable impact from changes in foreign currency exchange rates in the Current Period driven by the impact of the depreciating British pound sterling resulting from Brexit on the translation of our results in our Europe Caspian region, partially offset by a favorable impact of the devalued naira in our Africa region. During the Current Period, we benefited from the devaluation of the naira as a majority of our revenue in our Africa region is contracted at fixed U.S. dollar values, despite being billed in a mix of U.S. dollar and naira, while the expenses incurred in this region are more evenly split between U.S. dollars and naira, resulting in a significant net expense exposure to the naira that translates into higher U.S. dollar earnings for reporting purposes. This is contrary to our position in our Europe Caspian region, where a majority of our revenue is contracted in British pound sterling with our expense being more evenly split between U.S. dollars and British pound sterling, resulting in a significant net revenue exposure to the British pound sterling that translates into lower U.S. dollar earnings for reporting purposes. Partially offsetting these unfavorable impacts was a $4.2 million favorable impact from transaction gains (losses) in the Current Period compared to the Comparable Period. Additionally, results for the Current Period were impacted by a $0.4 million decrease in unfavorable foreign currency exchange rate impact from our investment in Líder in Brazil.

59

Direct costs decreased 0.2%, or $0.9 million, year-over-year primarily due to the benefit of organizational restructuring efforts reflected in a $14.3 million decrease in salaries and benefits due to lower headcount across all regions, partially offset by an $11.8 million increase in rent expense.
Reimbursable expense increased 6.8%, or $1.8 million, primarily due to new contracts in Norway.
Depreciation and amortization expense decreased 1.3%, or $0.8 million, to $62.4 million for the Current Period from $63.3 million for the Comparable Period. The decrease in depreciation and amortization expense is primarily due to accelerated depreciation of $8.2 million recorded in the Comparable Period as a result of fleet changes for older aircraft, partially offset by additional new aircraft and information technology costs being capitalized and depreciated in the Current Period.
General and administrative expense decreased 8.2%, or $8.5 million, in the Current Period, as compared to the Comparable Period primarily due to a decrease in compensation expense of $6.0 million primarily related to lower salaries and benefits due to a reduction in headcount across all regions and a decrease in professional fees of $2.9 million.
Loss on impairment for the Current Period includes a $1.2 million impairment charge on inventory used on our training fleet. Loss on impairment for the Comparable Period includes $7.6 million of inventory impairments.
Loss on disposal of assets decreased $4.4 million, to a loss of $7.8 million for the Current Period from a loss of $12.2 million for the Comparable Period. The loss on disposal of assets in the Current Period included impairment charges totaling $9.7 million related to assets held for sale (including $6.5 million impairment related to the Bristow Academy disposal group), partially offset by a gain of $1.9 million from the sale or disposal of aircraft and other equipment. During the Comparable Period, the loss on disposal of assets included impairment charges totaling $11.2 million related to assets held for sale and a loss of $1.0 million related to the sale of aircraft and other equipment.
Earnings from unconsolidated affiliates, net of losses, decreased $2.6 million to earnings of $1.4 million for the Current Period from earnings of $4.0 million in the Comparable Period. The decrease in earnings from unconsolidated affiliates, net of losses, primarily resulted from a decrease in earnings from our investment in Líder in Brazil to $3.0 million in the Current Period from $5.5 million in earnings in the Comparable Period primarily due to a decrease in activity. Our earnings from Líder in the Current Period were also impacted by less of an unfavorable impact of foreign currency exchange rate changes of $0.4 million.
Interest expense, net, increased 54.7%, or $12.2 million, year-over-year primarily due to an increase in interest resulting from an increase in borrowings and a decrease in capitalized interest resulting from lower average construction in progress. Additionally, during the Current Period we wrote-off $0.6 million of deferred financing fees related to early extinguishment of debt.
For further details on income tax expense, see “— Region Operating Results — Taxes” included elsewhere in this Quarterly Report.

60

As discussed above, our results for the Current Period were impacted by a number of special items. During the Comparable Period, special items that impacted our results included organizational restructuring costs, accelerated depreciation expense, impairment of inventories and tax valuation allowances. The items noted in the Current Period and Comparable Period have been identified as special items as they are not considered by management to be part of our ongoing operations when assessing and measuring the operational and financial performance of the organization. The impact of these items on our adjusted EBITDA, adjusted net income and adjusted diluted earnings per share is as follows:
 
 
Six Months Ended 
 September 30, 2017
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(12,350
)
 
$
(8,838
)
 
$
(0.25
)
Tax items
 
—

 
(18,107
)
 
(0.51
)
Inventory impairment
 
(1,192
)
 
(775
)
 
(0.02
)
Total special items
 
$
(13,542
)
 
$
(27,720
)
 
(0.79
)
 
 
 
 
 
 
 
 
 
Six Months Ended 
 September 30, 2016
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(17,252
)
 
$
(11,588
)
 
$
(0.33
)
Additional depreciation expense resulting from fleet changes
 
—

 
(5,361
)
 
(0.15
)
Inventory impairment
 
(7,572
)
 
(5,344
)
 
(0.15
)
Tax valuation allowances
 
—

 
(15,656
)
 
(0.45
)
Total special items
 
$
(24,824
)
 
$
(37,949
)
 
(1.08
)

61

Region Operating Results
The following tables set forth certain operating information for the regions comprising our industrial aviation services segment. Intercompany lease revenue and expense are eliminated from our segment reporting, and depreciation expense of aircraft is presented in the region that operates the aircraft.
Set forth below is a discussion of the operations of our regions. Our consolidated results are discussed under “Results of Operations” above.
Europe Caspian
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
196,595

 
$
186,098

 
$
381,073

 
$
375,226

 
$
10,497

 
5.6
 %
 
$
5,847

 
1.6
 %
Operating income
 
$
9,891

 
$
5,741

 
$
14,298

 
$
18,771

 
$
4,150

 
72.3
 %
 
$
(4,473
)
 
(23.8
)%
Operating margin
 
5.0
%
 
3.1
%
 
3.8
%
 
5.0
%
 
1.9
%
 
61.3
 %
 
(1.2
)%
 
(24.0
)%
Adjusted EBITDA
 
$
23,950

 
$
16,551

 
$
40,102

 
$
34,150

 
$
7,399

 
44.7
 %
 
$
5,952

 
17.4
 %
Adjusted EBITDA margin
 
12.2
%
 
8.9
%
 
10.5
%
 
9.1
%
 
3.3
%
 
37.1
 %
 
1.4
 %
 
15.4
 %
Rent expense
 
$
36,851

 
$
33,604

 
$
73,304

 
$
65,892

 
$
(3,247
)
 
(9.7
)%
 
$
(7,412
)
 
(11.2
)%
The Europe Caspian region comprises all of our operations and affiliates in Europe, including oil and gas operations in the U.K. and Norway, Eastern Airways fixed wing operations and public sector SAR operations in the U.K. and our operations in Turkmenistan.
Current Quarter Compared to Comparable Quarter
The increase in operating revenue in the Current Quarter resulted primarily from an increase of $12.9 million in Norway primarily due to an increase in activity and short-term contracts and an increase of $5.0 million from the start-up of U.K. SAR bases compared to the Comparable Quarter. Partially offsetting these increases was a decrease in U.K. oil and gas revenue of $8.1 million. Eastern Airways contributed $30.5 million and $29.8 million in operating revenue and $0.2 million and $0.3 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin increased in the Current Quarter primarily due to the year-over-year increase in operating revenue, as well as ongoing cost reduction initiatives and less of a negative impact from foreign currency exchange rate changes. These benefits were partially offset by increased rent expense year-over-year.
A substantial portion of our operations in the Europe Caspian region are contracted in the British pound sterling, which depreciated significantly against the U.S. dollar at the end of the Comparable Quarter as a result of Brexit. We recorded a foreign exchange gain of $1.9 million in the Current Quarter and a foreign exchange loss of $1.3 million in the Comparable Quarter from the revaluation of assets and liabilities on British pound sterling functional currency entities as of September 30, 2017 and 2016, respectively, which is recorded in other income (expense), net and included in adjusted EBITDA. Net of the translation and revaluation impacts, adjusted EBITDA was negatively impacted by $0.9 million and $4.7 million resulting from the change in exchange rates during the Current Quarter and Comparable Quarter, respectively. A further weakening or strengthening of the British pound sterling could result in additional foreign exchange volatility in future quarters.
Current Period Compared to Comparable Period
The increase in operating revenue in the Current Period resulted primarily from an increase of $18.9 million in Norway primarily due to an increase in activity and short-term contracts and an increase of $14.3 million from the start-up of U.K. SAR bases compared to the Comparable Period. Partially offsetting these increases was a decrease in U.K. oil and gas revenue of $8.5 million as a result of the industry downturn and the unfavorable impact of foreign currency exchange rates during the Current Period of $16.6 million. Eastern Airways contributed $58.4 million and $60.7 million in operating revenue and $0.4 million and $1.8 million in adjusted EBITDA for the Current Period and Comparable Period, respectively.

62

Operating income and operating margin decreased in the Current Period as a result of increased salaries expense related to severance payments and an increase in rent expense. Adjusted EBITDA and adjusted EBITDA margin increased in the Current Quarter primarily due to less of an impact from changes in foreign currency exchange rates and from cost reduction activities, in addition to the increase in operating revenue. These benefits were only partially offset by the increase in rent expense in the Current Period.
A substantial portion of our operations in the Europe Caspian region are contracted in the British pound sterling, which depreciated significantly against the U.S. dollar at the end of the Comparable Period as a result of Brexit. We recorded a foreign exchange gain of $1.4 million in the Current Period and foreign exchange loss of $8.0 million in the Comparable Period from the revaluation of assets and liabilities on British pound sterling functional currency entities as of September 30, 2017 and 2016, respectively, which is recorded in other income (expense), net and included in adjusted EBITDA. Net of the translation and revaluation impacts, adjusted EBITDA was positively impacted by $1.5 million and $13.4 million resulting from the change in exchange rates during the Current Period and Comparable Period, respectively. A further weakening or strengthening of the British pound sterling could result in additional foreign exchange volatility in future quarters.
Africa
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
48,627

 
$
50,344

 
$
98,608

 
$
103,468

 
$
(1,717
)

(3.4
)%
 
$
(4,860
)
 
(4.7
)%
Operating income
 
$
7,835

 
$
7,942

 
$
17,883

 
$
9,513

 
$
(107
)
 
(1.3
)%
 
$
8,370

 
88.0
 %
Operating margin
 
16.1
%
 
15.8
%
 
18.1
%
 
9.2
%
 
0.3
 %
 
1.9
 %
 
8.9
%
 
96.7
 %
Adjusted EBITDA
 
$
12,617

 
$
15,566

 
$
26,000

 
$
22,338

 
$
(2,949
)
 
(18.9
)%
 
$
3,662

 
16.4
 %
Adjusted EBITDA margin
 
25.9
%
 
30.9
%
 
26.4
%
 
21.6
%
 
(5.0
)%
 
(16.2
)%
 
4.8
%
 
22.2
 %
Rent expense
 
$
2,176

 
$
2,066

 
$
4,376

 
$
4,334

 
$
(110
)
 
(5.3
)%
 
$
(42
)
 
(1.0
)%
_____________ 
 * percentage change too large to be meaningful or not applicable.
The Africa region comprises all our operations and affiliates on the African continent, including Nigeria and Egypt.
Current Quarter Compared to Comparable Quarter
Operating revenue for Africa decreased in the Current Quarter due to an overall decrease in activity resulting from the downturn of the oil and gas industry compared to the Comparable Quarter. Activity declined with certain clients and certain contracts ended, reducing revenue by $4.1 million, which was only partially offset by an increase in activity with other clients increasing revenue by $1.5 million. Additionally, fixed wing services in Africa generated $1.6 million and $0.7 million of operating revenue for the Current Quarter and Comparable Quarter, respectively.
Operating income, adjusted EBITDA and adjusted EBITDA margin decreased in the Current Quarter primarily due to the decrease in revenue discussed above, partially offset by a decline in direct costs (including a $4.5 million decrease in salaries and benefits). During the Current and Comparable Quarters, we recorded $0.2 million and $4.1 million, respectively, in severance expense resulting from voluntary and involuntary separation programs as part of our organizational restructuring, which is excluded from adjusted EBITDA and adjusted EBITDA margin. The year-over-year devaluation of the Nigerian naira also benefited our results by $1.5 million compared to the Comparable Quarter as expenses denominated in naira translated into less U.S. dollars for reporting purposes.
As previously discussed, we have seen recent changes in the Africa region as a result of increased competition entering the Nigerian market. Additionally, changing regulations and political environment have made, and are expected to continue to make, our operating results for Nigeria unpredictable. Market uncertainty related to the oil and gas downturn has continued in this region putting smaller clients under increasing pressure as their activity declined, which reduced our activity levels and overall pricing. We implemented cost reduction measures in advance of these reductions and expect additional efficiencies in the future.

63

Current Period Compared to Comparable Period
Operating revenue for Africa decreased in the Current Period due to an overall decrease in activity resulting from the downturn of the oil and gas industry compared to the Comparable Period. Activity declined with certain clients and certain contracts ended, reducing revenue by $10.1 million, which was only partially offset by an increase in activity with other clients increasing revenue by $3.1million. Additionally, fixed wing services in Africa generated $3.5 million and $1.2 million of operating revenue for the Current Period and Comparable Period, respectively.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin increased in the Current Period primarily due to a decline in direct costs (including an $8.8 million decrease in salaries and benefits and a $3.2 million decrease in freight costs), partially offset by the decrease in revenue discussed above. Additionally, operating income and operating margin improved in the Current Period due to lower depreciation expense. During the Comparable Period, we recorded $3.9 million of accelerated depreciation expense related to aircraft where management made the decision to exit these model types earlier than originally anticipated. The year-over-year devaluation of the Nigerian naira also benefited our results by $3.6 million compared to the Comparable Period as expenses denominated in naira translated into less U.S. dollars for reporting purposes.
Additionally, during the Current and Comparable Periods, we recorded $0.2 million and $4.1 million, respectively, in severance expense resulting from voluntary and involuntary separation programs as part of our restructuring efforts, which is excluded from adjusted EBITDA and adjusted EBITDA margin.
Americas
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
60,756

 
$
56,800

 
$
118,539

 
$
115,554

 
$
3,956

 
7.0
 %
 
$
2,985

 
2.6
 %
Earnings from unconsolidated affiliates, net of losses
 
$
2,150

 
$
260

 
$
1,615

 
$
4,123

 
$
1,890

 
*

 
$
(2,508
)
 
(60.8
)%
Operating income
 
$
7,483

 
$
2,643

 
$
6,227

 
$
3,564

 
$
4,840

 
183.1
 %
 
$
2,663

 
74.7
 %
Operating margin
 
12.3
%
 
4.7
%
 
5.3
%
 
3.1
%
 
7.6
%
 
161.7
 %
 
2.2
 %
 
71.0
 %
Adjusted EBITDA
 
$
14,565

 
$
10,242

 
$
20,741

 
$
24,278

 
$
4,323

 
42.2
 %
 
$
(3,537
)
 
(14.6
)%
Adjusted EBITDA margin
 
24.0
%
 
18.0
%
 
17.5
%
 
21.0
%
 
6.0
%
 
33.3
 %
 
(3.5
)%
 
(16.7
)%
Rent expense
 
$
5,191

 
$
5,058

 
$
12,185

 
$
10,620

 
$
(133
)
 
(2.6
)%
 
$
(1,565
)
 
(14.7
)%
_____________ 
 * percentage change too large to be meaningful or not applicable.
The Americas region comprises all our operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico.
Current Quarter Compared to Comparable Quarter
Operating revenue increased in the Current Quarter primarily due to an increase in activity from our U.S. Gulf of Mexico oil and gas operations which increased operating revenue by $2.1 million, $2.2 million in additional revenue from the search and rescue consortium in the U.S. Gulf of Mexico and $0.8 million in additional revenue in Canada, partially offset by a decrease of operating revenue of $1.5 million from Brazil due to no aircraft being leased to Líder in the Current Quarter.
Earnings from unconsolidated affiliates, net of losses, increased $1.9 million primarily due to an increase in earnings from our investment in Líder in Brazil related to a favorable change in exchange rates which increased our earnings from our investment in Líder by $0.3 million in the Current Quarter and decreased our earnings from our investment in Líder by $1.3 million in the Comparable Quarter. See further discussion about our investment in Líder and the Brazil market in “— Executive Overview — Market Outlook” included elsewhere in this Quarterly Report.
The increases in operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were driven by the increase in revenue discussed above and increase in earnings from unconsolidated affiliates.

64

Current Period Compared to Comparable Period
Operating revenue increased in the Current Period primarily due to $4.5 million in additional revenue for the search and rescue consortium in the U.S. Gulf of Mexico and $2.0 million in additional revenue in Canada, partially offset by a decrease of $2.4 million of operating revenue in Trinidad and a decrease of $2.1 million of operating revenue in Brazil due to no aircraft being leased to Líder in the Current Period.
Earnings from unconsolidated affiliates, net of losses, decreased $2.5 million in the Current Period primarily due to a decrease in earnings from our investment in Líder in Brazil resulting from a decrease in activity, partially offset by less of an unfavorable impact of foreign currency exchange rates. Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were negatively impacted by unfavorable foreign currency exchange rate changes which decreased our earnings from our investment in Líder by $0.9 million in the Current Period and $1.3 million in the Comparable Period. See further discussion about our investment in Líder and the Brazil market in “— Executive Overview — Market Outlook” included elsewhere in this Quarterly Report.
The increases in operating income and operating margin and resulted primarily from the increase in revenue discussed above and decrease in depreciation expense of $4.6 million, partially offset by a decrease in earnings from unconsolidated affiliates and an increase in rent expense of $1.6 million. During the Comparable Period, we recorded accelerated depreciation expense on aircraft exiting our fleet of $3.9 million. Additionally, we recorded severance expense related to organizational restructuring efforts of $0.3 million and $1.1 million for the Current Period and Comparable Period, respectively. Depreciation and amortization, including accelerated depreciation, and severance expense recorded during the Current Period and Comparable Period, were excluded from adjusted EBITDA and adjusted EBITDA margin. The decrease in adjusted EBITDA and adjusted EBITDA margin is primarily due to the decrease in earnings from unconsolidated affiliates and increase in rent expense, partially offset by the increase in revenue.
Asia Pacific
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
53,990

 
$
50,820

 
$
103,117

 
$
106,052

 
$
3,170

 
6.2
 %
 
$
(2,935
)
 
(2.8
)%
Operating income
 
$
(5,903
)
 
$
(9,575
)
 
$
(18,433
)
 
$
(15,468
)
 
$
3,672

 
38.3
 %
 
$
(2,965
)
 
(19.2
)%
Operating margin
 
(10.9
)%
 
(18.8
)%
 
(17.9
)%
 
(14.6
)%
 
7.9
%
 
42.0
 %
 
(3.3
)%
 
(22.6
)%
Adjusted EBITDA
 
$
1,425

 
$
(2,363
)
 
$
(4,295
)
 
$
(5,486
)
 
$
3,788

 
160.3
 %
 
$
1,191

 
21.7
 %
Adjusted EBITDA margin
 
2.6
 %
 
(4.6
)%
 
(4.2
)%
 
(5.2
)%
 
7.2
%
 
156.5
 %
 
1.0
 %
 
19.2
 %
Rent expense
 
$
10,595

 
$
9,272

 
$
21,549

 
$
18,556

 
$
(1,323
)
 
(14.3
)%
 
$
(2,993
)
 
(16.1
)%
The Asia Pacific region comprises all our operations and affiliates in Australia and Southeast Asia, including Malaysia, Sakhalin, and our fixed wing operations through Airnorth in Australia.
Current Quarter Compared to Comparable Quarter
Operating revenue increased in the Current Quarter primarily due to an increase of $3.1 million from our fixed-wing operations. Airnorth contributed $24.6 million and $21.5 million in operating revenue and $5.6 million and $3.2 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.
Operating income, operating margin, adjusted EBTIDA and adjusted EBITDA margin increased in the Current Quarter primarily due to the increase in revenue discussed above and decreased maintenance expense.
During the Current Quarter and Comparable Quarter, we recorded $1.4 million and $1.8 million in severance expense related to organizational restructuring efforts, respectively. The severance expense is not included in adjusted EBITDA or adjusted EBITDA margin for the Current Quarter and Comparable Quarter.

65

Current Period Compared to Comparable Period
Operating revenue decreased in the Current Period by $9.9 million due to the end of short-term contracts in Australia, partially offset by an increase of $4.4 million from our fixed-wing operations and an increase of $2.6 million in Russia. Airnorth contributed $45.6 million and $41.2 million in operating revenue and $6.4 million and $6.6 million in adjusted EBITDA for the Current Period and Comparable Period, respectively.
Operating income and operating margin decreased in the Current Period primarily due to reduced revenue discussed above, an increase in rent expense of $3.0 million and increased depreciation and amortization expense of $2.3 million, which was only partially offset by a decrease in salaries and benefits of $2.4 million due to organizational restructuring efforts.
During both the Current Period and Comparable Period, we recorded $2.2 million in severance expense related to organizational restructuring efforts. The severance expense is not included in adjusted EBITDA or adjusted EBITDA margin for the Current Period and Comparable Period. Adjusted EBITDA and adjusted EBITDA margin increased primarily due to the decrease in salaries and benefits as a result of organizational restructuring efforts.
Corporate and Other
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
1,457

 
$
2,641

 
$
3,169

 
$
5,818

 
$
(1,184
)
 
(44.8
)%
 
$
(2,649
)
 
(45.5
)%
Operating loss
 
$
(23,697
)
 
$
(31,447
)
 
$
(49,654
)
 
$
(57,294
)
 
$
7,750

 
24.6
 %
 
$
7,640

 
13.3
 %
Adjusted EBITDA
 
$
(20,179
)
 
$
(14,597
)
 
$
(34,967
)
 
$
(30,801
)
 
$
(5,582
)
 
(38.2
)%
 
$
(4,166
)
 
(13.5
)%
Rent expense
 
$
2,411

 
$
1,955

 
$
4,485

 
$
3,836

 
$
(456
)
 
(23.3
)%
 
$
(649
)
 
(16.9
)%
Corporate and other includes our Bristow Academy operations, supply chain management and corporate costs that have not been allocated out to other regions.
Current Quarter Compared to Comparable Quarter
Operating revenue decreased in the Current Quarter primarily due to a decrease in third-party part sales of $1.0 million and a decline in Bristow Academy revenue of $0.2 million.
Operating loss was lower for the Current Quarter as a result of reduced organizational restructuring costs and the inclusion of $7.6 million of inventory impairment charges in the Comparable Quarter. Adjusted EBITDA decreased primarily due to foreign currency transaction losses of $1.2 million recorded in the Current Quarter versus foreign currency transaction gains of $2.8 million for the Comparable Quarter.
During the Current and Comparable Quarters, we recorded $1.1 million and $3.8 million related to organizational restructuring costs, respectively, which along with the $7.6 million of inventory impairment charges in the Comparable Quarter, are excluded from adjusted EBITDA.
Current Period Compared to Comparable Period
Operating revenue decreased in the Current Period primarily due to a decrease in third-party part sales of $1.4 million and Bristow Academy revenue of $1.3 million.
Operating loss for the Current and Comparable Periods were most significantly impacted by $1.2 million and $7.6 million, respectively, of inventory impairment charges in addition to a decline in revenue, partially offset by a reduction in general and administrative expenses. Adjusted EBITDA decreased primarily due to foreign currency transaction losses of $3.0 million for the Current Period versus foreign currency transaction gains of $4.7 million for the Comparable Period. Also impacting adjusted EBITDA in the Current Period was a decline in revenue discussed above, partially offset by overall cost reduction activities that decreased general and administrative expenses.

66

During the Current and Comparable Periods, we recorded $9.4 million and $8.9 million related to organizational restructuring costs, respectively, which along with the $1.2 million and $7.6 million of inventory impairment charges in the Current and Comparable Period, respectively, are excluded from adjusted EBITDA.
Interest Expense, Net
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Interest income
 
$
154

 
$
235

 
$
368

 
$
469

 
$
(81
)
 
(34.5
)%
 
$
(101
)
 
(21.5
)%
Interest expense
 
(17,728
)
 
(12,700
)
 
(33,867
)
 
(25,019
)
 
(5,028
)
 
(39.6
)%
 
(8,848
)
 
(35.4
)%
Amortization of debt discount
 
(78
)
 
(962
)
 
(101
)
 
(989
)
 
884

 
91.9
 %
 
888

 
89.8
 %
Amortization of debt fees
 
(1,793
)
 
(1,146
)
 
(2,940
)
 
(2,487
)
 
(647
)
 
(56.5
)%
 
(453
)
 
(18.2
)%
Capitalized interest
 
882

 
3,105

 
1,956

 
5,672

 
(2,223
)
 
(71.6
)%
 
(3,716
)
 
(65.5
)%
Interest expense, net
 
$
(18,563
)
 
$
(11,468
)
 
$
(34,584
)
 
$
(22,354
)
 
$
(7,095
)
 
(61.9
)%
 
$
(12,230
)
 
(54.7
)%
Interest expense, net increased in the Current Quarter compared to the Comparable Quarter and Current Period compared to the Comparable Period primarily due to an increase in borrowings and lower capitalized interest resulting from lower average construction in progress. Additionally, during the Current Quarter and Current Period we wrote-off $0.6 million of deferred financing fees related to early extinguishment of debt.
Other Income (Expense), Net
 
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Foreign currency gains (losses) by region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,851

 
$
(1,272
)
 
$
1,445

 
$
(8,003
)
 
$
3,123

 
245.5
 %
 
$
9,448

 
118.1
 %
Africa
 
1,031

 
171

 
1,162

 
(143
)
 
860

 
*

 
1,305

 
*

Americas
 
(12
)
 
195

 
195

 
957

 
(207
)
 
(106.2
)%
 
(762
)
 
(79.6
)%
Asia Pacific
 
827

 
999

 
1,065

 
(953
)
 
(172
)
 
(17.2
)%
 
2,018

 
211.8
 %
Corporate and other
 
(1,173
)
 
2,763

 
(3,021
)
 
4,741

 
(3,936
)
 
(142.5
)%
 
(7,762
)
 
(163.7
)%
Foreign currency gains (losses)
 
2,524

 
2,856

 
846

 
(3,401
)
 
(332
)
 
(11.6
)%
 
4,247

 
124.9
 %
Other
 
34

 
147

 
67

 
215

 
(113
)
 
(76.9
)%
 
(148
)
 
(68.8
)%
Other income (expense), net
 
$
2,558

 
$
3,003

 
$
913

 
$
(3,186
)
 
$
(445
)
 
(14.8
)%
 
$
4,099

 
128.7
 %
_____________ 
 * percentage change too large to be meaningful or not applicable.
Other income (expense), net for the Current and Comparable Quarters and Current and Comparable Periods were most significantly impacted by foreign currency gains (losses). The foreign currency gains (losses) within other income (expense), net are reflected within the results (below operating income) of the regions shown in the table above.

67

Taxes
 
Three Months Ended 
 September 30,
 
Six Months Ended 
 September 30,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Effective tax rate
(8.6
)%
 
14.8
%
 
(22.4
)%
 
9.5
%
 
23.4
%
 
158.1
 %
 
31.9
%
 
335.8
 %
Net foreign tax on non-U.S. earnings
$
5,009

 
$
485

 
$
5,180

 
$
715

 
$
(4,524
)
 
*

 
$
(4,465
)
 
*

Expense of foreign earnings indefinitely reinvested abroad
$
(19,246
)
 
$
2,475

 
$
(13,995
)
 
$
4,145

 
$
21,721

 
*

 
$
18,140

 
*

Expense (benefit) from change in tax contingency
$
4,678

 
$
40

 
$
4,694

 
$
(370
)
 
$
(4,638
)
 
*

 
$
(5,064
)
 
*

Impact of stock based compensation
$
591

 
$
—

 
$
2,236

 
$
—

 
$
(591
)
 
*

 
$
(2,236
)
 
*

Foreign statutory rate reduction
$
—

 
$
(730
)
 
$
—

 
$
(1,234
)
 
$
(730
)
 
*

 
$
(1,234
)
 
*

Deduction for foreign taxes
$
(406
)
 
$
(698
)
 
$
(1,144
)
 
$
(1,202
)
 
$
(292
)
 
(41.8
)%
 
$
(58
)
 
(4.8
)%
Change in valuation allowance
$
151

 
$
2,485

 
$
11,317

 
$
15,656

 
$
2,334

 
93.9
 %
 
$
4,339

 
27.7
 %
_____________ 
 * percentage change too large to be meaningful or not applicable
In accordance with GAAP, we estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impact of such unusual or infrequent items is treated discretely in the quarter in which they occur.
The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our geographical blend of pre-tax book income. Consequently, our income tax expense does not change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The increase in our effective tax rate excluding discrete items for the Current Quarter compared to the Comparable Quarter primarily related to an increase in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions. Additionally, during the Current and Comparable Quarters, we increased our valuation allowance by $0.2 million and $2.5 million, respectively, which also increased our effective tax rate. During the Current and Comparable Periods, we increased our valuation allowance by $11.3 million and $15.7 million, respectively.
Valuation allowances represent the reduction of our deferred tax assets. We evaluate our deferred tax assets quarterly which requires significant management judgment to determine the recoverability of these deferred tax assets by assessing whether it is more likely than not that some or all of the deferred tax asset will be realized before expiration. After considering all available positive and negative evidence using a “more likely than not” standard, we believe it is appropriate to value against deferred tax assets related to foreign tax credits and certain foreign net operating losses. As a result, for the Current and Comparable Quarters, we recorded a valuation allowance of $0.2 million and $2.5 million against net operating losses in certain foreign jurisdictions. For the Current and Comparable Periods, we recorded a valuation allowance of $7.6 million and $11.0 million, respectively, against foreign tax credits and $3.7 million and $4.7 million, respectively, against net operating losses in certain foreign jurisdictions. These valuation allowances recorded in the Current Quarter and Current Period combined with the impact of ongoing valuation allowances on our overall effective tax rate for fiscal year 2018 resulted in additional non-cash tax expense of $2.5 million in the Current Quarter and $16.3 million in the Current Period. Additionally, we recorded a one-time non-cash tax effect from repositioning of certain aircraft from one tax jurisdiction to another related to recent financing transactions resulting in additional tax expense of $0.7 million in the Current Quarter and $1.8 million in the Current Period.

68

Liquidity and Capital Resources
Cash Flows
Operating Activities
Net cash flows used by operating activities were $35.3 million and $28.8 million during the Current Period and Comparable Period, respectively. The decrease in net cash flows from operating activities in the Current Period resulted from a combination of an increased net loss and lower cash flow from working capital changes. Changes in non-cash working capital used $27.0 million and generated $38.8 million in cash flows from operating activities for the Current Period and Comparable Period, respectively. This increased cash use primarily resulted from the timing of receivable collections and payment of accounts payable.
Investing Activities
Cash flows provided by investing activities were $17.9 million during the Current Period and cash flows used by investing activities was $90.0 million during the Comparable Period. Cash was used primarily for capital expenditures as follows:
 
 
 
Six Months Ended 
 September 30,
 
 
 
2017
 
2016
 
 
Number of aircraft delivered:
 
 
 
 
 
Medium
5

 
5

 
 
SAR aircraft
—

 
1

 
 
Total aircraft
5

 
6

 
 
Capital expenditures (in thousands):
 
 
 
 
 
Aircraft and equipment
$
16,489

 
$
95,574

 
 
Land and building
7,828

 
6,292

 
 
Total capital expenditures
$
24,317

 
$
101,866

 
In addition to these capital expenditures, investing cash flows were impacted by aircraft sales. During the Current Period, we received proceeds of $42.2 million primarily from the sale or disposal of six aircraft and certain other equipment. During the Comparable Period, we received $11.8 million in proceeds from the sale or disposal of six aircraft and certain other equipment.
Financing Activities
Cash flows provided by financing activities were $10.2 million and $56.4 million during the Current Period and Comparable Period, respectively. During the Current Period, we received $107.8 million from borrowings on our Revolving Credit Facility and $230 million from borrowings on our PK Air Debt. During the Current Period, we used cash to repay debt of $318.1 million (including $157.8 million related to our Revolving Credit Facility and $160.3 million related to other principal payments on debt) and pay dividends of $2.5 million on our Common Stock. During the Comparable Period, we received $191.5 million from borrowings on our Revolving Credit Facility. During the Comparable Period, we used cash to repay debt of $121.0 million, pay contingent consideration of $10.0 million and pay dividends of $4.9 million on our Common Stock.

Future Cash Requirements
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
We have various contractual obligations that are recorded as liabilities on our condensed consolidated balance sheet. Other items, such as certain purchase commitments, interest payments and other executory contracts are not recognized as liabilities on 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.

69

The following table summarizes our significant contractual obligations and other commercial commitments on an undiscounted basis as of September 30, 2017 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 as of September 30, 2017. Additional details regarding these obligations are provided in Notes 5, 6, 7, and 9 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2017 Annual Report and in Notes 3, 4, 5 and 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Payments Due by Period
 
 
 
 
Six
Months
Ending
March 31,
2018
 
Fiscal Year Ending March 31,
 
 
Total
 
2019—
2020
 
2021—
2022
 
2023 and
beyond
 
 
(In thousands)
Contractual obligations:
 
 
 
 
 
 
 
 
 
 
Long-term debt and short-term borrowings:
 
 
 
 
 
 
 
 
 
 
Principal (1)
 
$
1,329,461

 
$
69,597

 
$
324,267

 
$
229,985

 
$
705,612

Interest (2)
 
298,216

 
34,944

 
121,050

 
100,104

 
42,118

Aircraft operating leases (3)
 
442,441

 
85,561

 
268,316

 
74,869

 
13,695

Other operating leases (4)
 
73,435

 
6,152

 
19,040

 
14,698

 
33,545

Pension obligations (5)
 
57,683

 
7,113

 
30,563

 
20,007

 
—

Aircraft purchase obligations (6)(7)(8)
 
446,919

 
65,186

 
174,450

 
155,696

 
51,587

Other purchase obligations (9)
 
41,111

 
40,286

 
825

 
—

 
—

Total contractual cash obligations
 
$
2,689,266

 
$
308,839

 
$
938,511

 
$
595,359

 
$
846,557

Other commercial commitments:
 
 
 
 
 
 
 
 
 
 
Letters of credit
 
$
20,962

 
$
20,962

 
$
—

 
$
—

 
$
—

Contingent consideration (10)
 
3,139

 
—

 
3,139

 
—

 
—

Total commercial commitments
 
$
24,101

 
$
20,962

 
$
3,139

 
$
—

 
$
—

_____________
(1) 
Excludes unamortized discount of $0.1 million on the Term Loan and unamortized debt issuance costs of $17.3 million.
(2) 
Interest payments for variable interest debt are based on interest rates as of September 30, 2017.
(3) 
Represents separate operating leases for aircraft.
(4) 
Represents minimum rental payments required under non-aircraft operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
(5) 
Represents expected funding for defined benefit pension plans in future periods. These amounts are undiscounted and are based on the expectation that the U.K. pension plan will be fully funded in approximately five years. As of September 30, 2017, we had recorded on our balance sheet a $57.9 million pension liability associated with these obligations. The timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
(6) 
In October and November 2017, through discussions with helicopter manufacturers we: (i) reached an agreement to defer payments of approximately $130 million in capital expenditures out of fiscal years 2019 and 2020 and into future periods and (ii) have a non-binding letter of understanding to defer payment of approximately $62 million in capital expenditures out of fiscal year 2018 and into future periods. These agreements are not reflected in the table above. For further details on our aircraft purchase obligations, see Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
(7) 
Includes $4.4 million for final payments for aircraft delivered during fiscal year 2017 that is included in accounts payable as of September 30, 2017.
(8) 
Includes $86.0 million for five aircraft orders that can be cancelled prior to delivery dates. As of September 30, 2017, we made non-refundable deposits of $4.5 million related to these aircraft.
(9) 
Other purchase obligations primarily represent unfilled purchase orders for aircraft parts, commitments associated with upgrading facilities at our bases and non-cancelable power-by-the-hour maintenance commitments. For further details on the non-cancelable power-by-the-hour maintenance commitments, see Note 1 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2017 Annual Report.
(10) 
Includes $3.1 million related to Airnorth as of September 30, 2017. The Airnorth purchase agreement includes a potential earn-out of A$17 million ($13.0 million) to be paid over four years. During fiscal year 2016, a portion of the first year earn-out payment of A$2 million ($1.5 million) was paid as Airnorth achieved agreed performance targets. The remaining Airnorth earn-out, which is contingent upon both the achievement of agreed performance targets and the continued employment of the selling shareholders, will be included as general and administrative expense in our condensed consolidated statements of operations as earned. The earn-out for Airnorth is remeasured to fair value at each reporting date until the contingency is resolved and any changes in estimated fair value are recorded as accretion expense included in interest expense on our condensed consolidated statements of operations.

70

Capital Commitments and Other Uses of Cash
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, operating margin and adjusted EBITDA margin. See Note 5 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 options expected to be delivered in the current and subsequent seven fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options through September 30, 2017.
As discussed under “— Executive Overview — Our Strategy”, cash may also be used in future periods to repurchase or otherwise retire debt, including our 6 ¼% Senior Notes due 2022, or for any acquisition opportunities we believe are aligned with our long-term strategy.
Financial Condition and Sources of Liquidity
We manage our liquidity through generation of cash from operations while assessing our funding needs on an ongoing basis. Historically, while we have generated cash from operations, financing cash flows also have been a significant source of liquidity over the past several years. The significant factors that affect our overall liquidity include cash from or used to fund operations, capital expenditure commitments, debt service, pension funding, adequacy of bank lines of credit and our ability to attract capital on satisfactory terms.
Substantially all of our cash balances are held outside the U.S. and are generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the U.S. could be repatriated to the U.S., but under current law, any such repatriation would be subject to U.S. federal income tax, as adjusted for applicable foreign tax credits. We have provided for U.S. federal income taxes on undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested. We expect to meet the continuing funding requirements of our U.S. operations with cash generated by such U.S. operations, cash from earnings generated by non-U.S. operations that are not indefinitely reinvested and our existing Revolving Credit Facility. If cash held by non-U.S. operations is required for funding operations in the U.S., and if U.S. tax has not previously been provided on the earnings of such operations, we would make a provision for additional U.S. tax in connection with repatriating this cash, which may be material to our cash flow and results of operations.
We expect that our cash on deposit as of November 3, 2017 of approximately $88.2 million, proceeds from aircraft sales and available borrowing capacity under our Revolving Credit Facility ($253.5 million as of November 3, 2017), as well as any future financings (which may include additional equipment financings and capital market transactions), will be sufficient to satisfy our operating needs, existing capital commitments and other contractual cash obligations, including our debt obligations. However, we may need to pursue financings or capital market transactions, complete aircraft sales or defer capital expenditures in order to have sufficient liquidity to satisfy existing capital commitments and other contractual obligations, including debt obligations due in April 2019. The available borrowing capacity under our Revolving Credit Facility was $292.0 million as of September 30, 2017. While we plan to continue to be disciplined concerning future capital commitments, we also intend to continue managing our capital structure and liquidity position with external financings, as needed. Our strategy will involve funding our short-term liquidity requirements with borrowings under our Revolving Credit Facility and funding our long-term capital needs with operating leases, bank debt, private and public debt and equity offerings.


71

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 2017 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 2017 Annual Report.
Recent Accounting Pronouncements
See Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a discussion of recent accounting pronouncements.
Item 3.    Quantitative and Qualitative Disclosures about Market Risk.
We are subject 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 2017 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
We carried out an evaluation, under the supervision of and with the participation of our management, including Jonathan E. Baliff, our Chief Executive Officer (“CEO”), and L. Don Miller, our Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2017. Based on that evaluation, our CEO and CFO concluded that such disclosure controls and procedures were effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to our management as appropriate to allow for timely decisions regarding required disclosure under the Exchange Act.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

72

PART II — OTHER INFORMATION
 
Item 1.    Legal Proceedings.
We have certain actions or claims pending that have been discussed and previously reported in Part I. Item 3. “Legal Proceedings” in the fiscal year 2017 Annual Report. Developments in these previously reported matters, if any, are described in Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Item 1A. Risk Factors.
Except as discussed below, there have been no material changes during the three and six months ended September 30, 2017 in our “Risk Factors” as discussed in the fiscal year 2017 Annual Report.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Not applicable.
Item 3.    Defaults Upon Senior Securities
Not applicable.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.

73

Item 6.    Exhibits
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit
Number
 
Description of Exhibit
 
 
 
 
Letter from KPMG LLP dated November 8, 2017, regarding unaudited interim information.
 
 
 
Rule 13a-14(a) Certification by Chief Executive Officer of Registrant.
 
 
 
Rule 13a-14(a) Certification by Chief Financial Officer of Registrant
 
 
 
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.
 
 
 
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.
 
 
101.INS
 
XBRL Instance Document.
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
*
 
Filed herewith.
 
 
 
**
 
Furnished herewith.
 

74

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/ L. Don Miller
 
 
L. Don Miller
Senior Vice President and
Chief Financial Officer
 
 
By:
/s/ Brian J. Allman
 
 
Brian J. Allman
Vice President,
Chief Accounting Officer
November 8, 2017

75

Index to Exhibits.
 
Exhibit
Number
 
Description of Exhibit
 
 
 
15.1*
 
Letter from KPMG LLP dated November 8, 2017, 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.
 
 
101.INS
 
XBRL Instance Document.
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
*
 
Filed herewith.
 
 
 
**
 
Furnished herewith.

Bristow Group Inc Reports

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