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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 December 31, 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 February 2, 2018.
35,377,044 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
 
 
 
 
 
 
 
 
Operating revenue from non-affiliates
 
$
328,944

 
$
305,789

 
$
991,655

 
$
969,779

Operating revenue from affiliates
 
16,584

 
18,564

 
51,594

 
54,420

Reimbursable revenue from non-affiliates
 
15,207

 
13,090

 
43,271

 
40,109

 
 
360,735

 
337,443

 
1,086,520

 
1,064,308

Operating expense:
 
 
 
 
 
 
 
 
Direct cost
 
271,864

 
260,343

 
842,128

 
831,516

Reimbursable expense
 
14,725

 
12,206

 
42,365

 
38,096

Depreciation and amortization
 
31,682

 
29,768

 
94,119

 
93,054

General and administrative
 
43,366

 
45,409

 
138,695

 
149,278

 
 
361,637

 
347,726

 
1,117,307

 
1,111,944

 
 
 
 
 
 
 
 
 
Loss on impairment
 

 
(8,706
)
 
(1,192
)
 
(16,278
)
Loss on disposal of assets
 
(4,591
)
 
(874
)
 
(12,418
)
 
(13,077
)
Earnings from unconsolidated affiliates, net of losses
 
1,996

 
766

 
3,394

 
4,777

Operating loss
 
(3,497
)
 
(19,097
)
 
(41,003
)
 
(72,214
)
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(19,093
)
 
(12,179
)
 
(53,677
)
 
(34,533
)
Other income (expense), net
 
(766
)
 
1,668

 
147

 
(1,518
)
Loss before benefit for income taxes
 
(23,356
)
 
(29,608
)
 
(94,533
)
 
(108,265
)
Benefit (provision) for income taxes
 
13,419

 
3,560

 
(2,546
)
 
11,038

Net loss
 
(9,937
)
 
(26,048
)
 
(97,079
)
 
(97,227
)
Net loss attributable to noncontrolling interests
 
1,664

 
4,121

 
2,322

 
4,731

Net loss attributable to Bristow Group
 
$
(8,273
)
 
$
(21,927
)
 
$
(94,757
)
 
$
(92,496
)
 
 
 
 
 
 
 
 
 
Loss per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.23
)
 
$
(0.62
)
 
$
(2.69
)
 
$
(2.64
)
Diluted
 
$
(0.23
)
 
$
(0.62
)
 
$
(2.69
)
 
$
(2.64
)
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$

 
$
0.07

 
$
0.07

 
$
0.21

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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Net loss
 
$
(9,937
)
 
$
(26,048
)
 
$
(97,079
)
 
$
(97,227
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(57
)
 
(18,896
)
 
20,394

 
(31,470
)
Total comprehensive loss
 
(9,994
)
 
(44,944
)
 
(76,685
)
 
(128,697
)
 
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
 
1,664

 
4,121

 
2,322

 
4,731

Currency translation adjustments attributable to
   noncontrolling interests
 
(17
)
 
(687
)
 
530

 
(5,652
)
    Total comprehensive (income) loss attributable to
       noncontrolling interests
 
1,647

 
3,434

 
2,852

 
(921
)
Total comprehensive loss attributable to Bristow Group
 
$
(8,347
)
 
$
(41,510
)
 
$
(73,833
)
 
$
(129,618
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

2


BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
 
December 31, 
 2017
 
March 31,  
 2017
 
 
(Unaudited)
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
117,848

 
$
96,656

Accounts receivable from non-affiliates
 
202,141

 
198,129

Accounts receivable from affiliates
 
12,638

 
8,786

Inventories
 
133,993

 
124,911

Assets held for sale
 
31,038

 
38,246

Prepaid expenses and other current assets
 
43,668

 
41,143

Total current assets
 
541,326

 
507,871

Investment in unconsolidated affiliates
 
211,115

 
210,162

Property and equipment – at cost:
 
 
 
 
Land and buildings
 
241,792

 
231,448

Aircraft and equipment
 
2,511,322

 
2,622,701

 
 
2,753,114

 
2,854,149

Less – Accumulated depreciation and amortization
 
(673,930
)
 
(599,785
)
 
 
2,079,184

 
2,254,364

Goodwill
 
20,299

 
19,798

Other assets
 
115,233

 
121,652

Total assets
 
$
2,967,157

 
$
3,113,847

 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
Accounts payable
 
$
87,428

 
$
98,215

Accrued wages, benefits and related taxes
 
55,652

 
59,077

Income taxes payable
 
5,320

 
15,145

Other accrued taxes
 
6,095

 
9,611

Deferred revenue
 
17,922

 
19,911

Accrued maintenance and repairs
 
28,468

 
22,914

Accrued interest
 
6,292

 
12,909

Other accrued liabilities
 
72,292

 
46,679

Deferred taxes
 

 
830

Short-term borrowings and current maturities of long-term debt
 
93,136

 
131,063

Total current liabilities
 
372,605

 
416,354

Long-term debt, less current maturities
 
1,102,765

 
1,150,956

Accrued pension liabilities
 
54,291

 
61,647

Other liabilities and deferred credits
 
37,768

 
28,899

Deferred taxes
 
141,904

 
154,873

Commitments and contingencies (Note 5)
 


 

Redeemable noncontrolling interest
 
3,859

 
6,886

Stockholders’ investment:
 
 
 
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 35,375,380 as of December 31 and 35,213,991 as of March 31 (exclusive of 1,291,441 treasury shares)
 
381

 
379

Additional paid-in capital
 
844,825

 
809,995

Retained earnings
 
894,684

 
991,906

Accumulated other comprehensive loss
 
(307,353
)
 
(328,277
)
Treasury shares, at cost (2,756,419 shares)
 
(184,796
)
 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,247,741

 
1,289,207

Noncontrolling interests
 
6,224

 
5,025

Total stockholders’ investment
 
1,253,965

 
1,294,232

Total liabilities, redeemable noncontrolling interest and stockholders’ investment
 
$
2,967,157

 
$
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
  
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(97,079
)
 
$
(97,227
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
94,119

 
93,054

Deferred income taxes
 
(14,665
)
 
(20,991
)
Write-off of deferred financing fees
 
1,138

 

Discount amortization on long-term debt
 
343

 
1,314

Loss on disposal of assets
 
12,418

 
13,077

Loss on impairment
 
1,192

 
16,278

Deferral of lease payments
 
2,423

 

Stock-based compensation
 
8,776

 
9,508

Equity in earnings from unconsolidated affiliates in excess of dividends received
 
(3,185
)
 
(4,294
)
Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
(3,785
)
 
15,787

Inventories
 
(4,618
)
 
(2,912
)
Prepaid expenses and other assets
 
10,250

 
(4,359
)
Accounts payable
 
(14,540
)
 
(7,395
)
Accrued liabilities
 
(5,528
)
 
(19,891
)
Other liabilities and deferred credits
 
3,434

 
(6,047
)
Net cash used in operating activities
 
(9,307
)
 
(14,098
)
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(36,441
)
 
(119,726
)
Proceeds from asset dispositions
 
48,547

 
14,344

Proceeds from OEM cost recoveries
 
94,463

 

Deposits received on aircraft held for sale
 

 
290

Net cash provided by (used in) investing activities
 
106,569

 
(105,092
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings
 
548,768

 
360,240

Debt issuance costs
 
(11,653
)
 
(3,883
)
Repayment of debt
 
(609,667
)
 
(243,677
)
Purchase of 4½% Convertible Senior Notes call option
 
(40,393
)
 

Proceeds from issuance of warrants
 
30,259

 

Partial prepayment of put/call obligation
 
(36
)
 
(38
)
Dividends paid to noncontrolling interest
 

 
(2,533
)
Payment of contingent consideration
 

 
(10,000
)
Common stock dividends paid
 
(2,465
)
 
(7,366
)
Repurchases for tax withholdings on vesting of equity awards
 
(591
)
 
(762
)
Net cash provided by (used in) financing activities
 
(85,778
)
 
91,981

Effect of exchange rate changes on cash and cash equivalents
 
9,708

 
(5,942
)
Net increase (decrease) in cash and cash equivalents
 
21,192

 
(33,151
)
Cash and cash equivalents at beginning of period
 
96,656

 
104,310

Cash and cash equivalents at end of period
 
$
117,848

 
$
71,159

Cash paid during the period for:
 
 
 
 
Interest
 
$
69,896

 
$
43,965

Income taxes
 
$
20,440

 
$
23,550

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

 
161,389

 
8,186

 

 

 

 

 
8,188

Equity component of 4½% Convertible Senior Notes issued

 

 

 
36,778

 

 

 

 

 
36,778

Purchase of 4½% Convertible Senior Notes
call option

 

 

 
(40,393
)
 

 

 

 

 
(40,393
)
Proceeds from issuance of warrants

 

 

 
30,259

 

 

 

 

 
30,259

Distributions paid to noncontrolling interests

 

 

 

 

 

 

 
(36
)
 
(36
)
Common stock dividends ($0.07 per share)

 

 

 

 
(2,465
)
 

 

 

 
(2,465
)
Currency translation adjustments
489

 

 

 

 

 

 

 
41

 
41

Net loss
(3,516
)
 

 

 

 
(94,757
)
 

 

 
1,194

 
(93,563
)
Other comprehensive income

 

 

 

 

 
20,924

 

 

 
20,924

December 31, 2017
$
3,859

 
$
381

 
35,375,380

 
$
844,825

 
$
894,684

 
$
(307,353
)
 
$
(184,796
)
 
$
6,224

 
$
1,253,965

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 December 31, 2017, the consolidated statements of operations and comprehensive loss for the three and nine months ended December 31, 2017 and 2016, the consolidated cash flows for the nine months ended December 31, 2017 and 2016, and the consolidated statements of changes in equity and redeemable noncontrolling interest for the nine months ended December 31, 2017.

6

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



Foreign Currency
During the three and nine months ended December 31, 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
One British pound sterling into U.S. dollars
 
 
 
 
 
 
 
 
High
 
1.35

 
1.30

 
1.36

 
1.48

Average
 
1.33

 
1.24

 
1.31

 
1.33

Low
 
1.31

 
1.21

 
1.24

 
1.21

At period-end
 
1.35

 
1.24

 
1.35

 
1.24

One euro into U.S. dollars
 
 
 
 
 
 
 
 
High
 
1.20

 
1.12

 
1.20

 
1.15

Average
 
1.18

 
1.08

 
1.15

 
1.11

Low
 
1.16

 
1.04

 
1.06

 
1.04

At period-end
 
1.20

 
1.05

 
1.20

 
1.05

One Australian dollar into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.79

 
0.77

 
0.81

 
0.78

Average
 
0.77

 
0.75

 
0.77

 
0.75

Low
 
0.75

 
0.72

 
0.74

 
0.72

At period-end
 
0.78

 
0.72

 
0.78

 
0.72

One Norwegian kroner into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.1269

 
0.1253

 
0.1294

 
0.1253

Average
 
0.1225

 
0.1193

 
0.1219

 
0.1202

Low
 
0.1193

 
0.1145

 
0.1152

 
0.1145

At period-end
 
0.1223

 
0.1162

 
0.1223

 
0.1162

One Nigerian naira into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.0028

 
0.0032

 
0.0033

 
0.0050

Average
 
0.0028

 
0.0032

 
0.0030

 
0.0037

Low
 
0.0028

 
0.0031

 
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 $0.4 million and $1.6 million for the three months ended December 31, 2017 and 2016, respectively, and foreign currency transaction gains of $1.2 million and foreign currency transaction losses of $1.8 million for the nine months ended December 31, 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 most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.

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 December 31, 2017 and 2016, earnings from unconsolidated affiliates, net of losses, decreased by $0.8 million and $1.2 million, respectively, and during the nine months ended December 31, 2017 and 2016, earnings from unconsolidated affiliates, net of losses, decreased by $1.6 million and $2.5 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
One Brazilian real into U.S. dollars
 
 
 
 
 
 
 
 
High
 
0.3198

 
0.3207

 
0.3244

 
0.3207

Average
 
0.3076

 
0.3032

 
0.3117

 
0.2988

Low
 
0.3004

 
0.2866

 
0.2995

 
0.2702

At period-end
 
0.3015

 
0.3073

 
0.3015

 
0.3073

_____________ 
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 
 December 31, 2017
 
Nine Months Ended 
 December 31, 2017
Revenue
 
$
10,826

 
$
(4,850
)
Operating expense
 
(9,028
)
 
593

Earnings from unconsolidated affiliates, net of losses
 
484

 
908

Non-operating expense
 
(1,270
)
 
2,977

Income before provision for income taxes
 
1,012

 
(372
)
Provision for income taxes
 
1,057

 
2,933

Net income
 
2,069

 
2,561

Cumulative translation adjustment
 
(74
)
 
20,924

Total stockholders’ investment
 
$
1,995

 
$
23,485

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.
Prior to the sale of our 100% interest in Bristow Academy, Inc. (“Bristow Academy”) on November 1, 2017, Bristow Academy, our helicopter training unit, primarily earned revenue from military training, flight training provided to individual students and ground school courses. We recognized revenue from these sources using the same revenue recognition principles described above as services are provided.
Interest Expense, Net
During the three and nine months ended December 31, 2017 and 2016, interest expense, net consisted of the following (in thousands):
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
2017
 
2016
 
2017
 
2016
Interest income
$
144

 
$
168

 
$
512

 
$
637

Interest expense
(19,237
)
 
(12,347
)
 
(54,189
)
 
(35,170
)
Interest expense, net
$
(19,093
)
 
$
(12,179
)
 
$
(53,677
)
 
$
(34,533
)
Accounts Receivable
As of December 31 and March 31, 2017, the allowance for doubtful accounts for non-affiliates was $3.8 million and $4.5 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of December 31 and March 31, 2017. The allowance for doubtful accounts for non-affiliates as of December 31, 2017 primarily relates to amounts due from clients in Nigeria for which we no longer believe collection is probable.
Inventories
As of December 31 and March 31, 2017, inventories were net of allowances of $22.1 million and $21.5 million, respectively. During the nine months ended December 31, 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 December 31 and March 31, 2017, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $10.7 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 December 31, 2017 and 2016, we expensed $2.8 million and $2.5 million, respectively, and for the nine months ended December 31, 2017 and 2016, we expensed $8.5 million and $8.2 million, respectively, related to these contracts.
Loss on Impairment
Loss on impairment included goodwill impairment charges of $8.7 million for the three and nine months ended December 31, 2016, and impairment charges for inventory of $1.2 million and $7.6 million for the nine months ended December 31, 2017 and December 31, 2016, respectively. The goodwill impairment charges related to Eastern Airways and resulted from an overall reduction in expected operating results due to the downturn in the oil and gas market driven by reduced crude oil prices (see discussion under “Goodwill” below). The inventory impairment for the nine months ended December 31, 2017 resulted from changes in expected future utilization of aircraft within our training fleet as discussed under “Inventories” above. The inventory impairment for the nine months ended December 31, 2016 resulted from a change in estimated consumption and the continued decline in the secondary market for certain inventory related to the decision to cease operating certain older model aircraft within our fleet in fiscal year 2018.

9

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



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 $20.3 million and $19.8 million as of December 31 and March 31, 2017, respectively, related to our Asia Pacific reporting unit was as follows (in thousands):
March 31, 2017
$
19,798

Foreign currency translation
501

December 31, 2017
$
20,299

Accumulated goodwill impairment of $50.9 million as of both December 31 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

 

 

 

 

December 31, 2017
$
(33,883
)
 
$
(6,179
)
 
$
(576
)
 
$
(10,223
)
 
$
(50,861
)
We test goodwill for impairment on an annual basis as of March 31 or when events or changes in circumstances indicate that a potential impairment exists. For the purposes of performing an analysis of goodwill, we evaluate whether there are reporting units below the reporting segment we disclose for segment reporting purposes by assessing whether our regional management typically reviews results and whether discrete financial information exists at a lower level.
During the three months ended December 31, 2016, we noted an overall reduction in expected operating results for Eastern Airways from the downturn in the oil and gas market driven by reduced crude oil prices and performed an interim impairment test of goodwill for Eastern Airways. Based on this factor, we concluded that the fair value of our goodwill for Eastern Airways could have fallen below its carrying value and that an interim period analysis of goodwill was required. We performed the interim impairment test of goodwill for Eastern Airways as of December 31, 2016, noting that the estimated fair value of Eastern Airways was below its carrying value, resulting in an impairment of all of the remaining goodwill related to Eastern Airways and an impairment charge of $8.7 million reflected in our results for the three and nine months ended December 31, 2016.
We estimated the implied fair value of Eastern Airways using a variety of valuation methods, including the income and market approaches. The determination of estimated fair value required us to use significant unobservable inputs, representative of a Level 3 fair value measurement, including assumptions related to the future performance of the reporting units, such as projected demand for our services and rates.
The income approach was based on a discounted cash flow model, which utilized present values of cash flows to estimate fair value. The future cash flows were projected based on our estimates of future rates for our services, utilization, operating costs, capital requirements, growth rates and terminal values. Forecasted rates and utilization take into account current market conditions and our anticipated business outlook, both of which have been impacted by the adverse changes in the offshore energy business environment from the downturn. Operating costs were forecasted using a combination of our historical average operating costs and expected future costs, including cost reduction initiatives. Capital requirements in the discounted cash flow model were based on management’s estimates of future capital costs driven by expected market demand in future periods. The estimated capital requirements included cash outflows for new aircraft, infrastructure and improvements. A terminal period was used to reflect our estimate of stable, perpetual growth. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital for each of the reporting units individually and in the aggregate. These assumptions were derived from unobservable inputs and reflect management’s judgments and assumptions.
The market approach was based upon the application of price-to-earnings multiples to management’s estimates of future earnings adjusted for a control premium. Management’s earnings estimates were derived from unobservable inputs that require significant estimates, judgments and assumptions as described in the income approach.
For purposes of the goodwill impairment test, we calculated Eastern Airways’ estimated fair value as the average of the values calculated under the income approach and the market approach.

10

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



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

 
46

 
272

 
32

 
4

 
355

December 31, 2017
$
8,170

 
$
12,798

 
$
4,755

 
$
1,094

 
$
750

 
$
27,567

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
March 31, 2017
$
(8,155
)
 
$
(11,071
)
 
$
(908
)
 
$
(685
)
 
$
(657
)
 
$
(21,476
)
Amortization expense
(13
)
 
(224
)
 
(221
)
 
(167
)
 
(44
)
 
(669
)
December 31, 2017
$
(8,168
)
 
$
(11,295
)
 
$
(1,129
)
 
$
(852
)
 
$
(701
)
 
$
(22,145
)
 
 
 
 
 
 
 
 
 
 
 
 
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
$
220

2019
760

2020
469

2021
469

2022
470

Thereafter
3,034

 
$
5,422

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 $51.2 million and $51.1 million, respectively, as of December 31 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.

11

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 nine months ended December 31, 2017 and 2016, we took delivery of aircraft and made capital expenditures as follows:
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
2017

2016
 
2017

2016
Number of aircraft delivered:
 
 
 
 
 
 
 
Medium

 

 
5

 
5

SAR aircraft

 
1

 

 
2

Total aircraft

 
1

 
5

 
7

Capital expenditures (in thousands):
 
 
 
 
 
 
 
Aircraft and equipment (1)
$
10,311

 
$
17,196

 
$
26,800

 
$
112,770

Land and buildings
1,813

 
664

 
9,641

 
6,956

Total capital expenditures
$
12,124

 
$
17,860

 
$
36,441

 
$
119,726

_____________ 
(1)
During the nine months ended December 31, 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 nine months ended December 31, 2017 and 2016:
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
(In thousands, except for number of aircraft)
Number of aircraft sold or disposed of
5

 
3

 
11

 
9
Proceeds from sale or disposal of assets
$
6,303

 
$
2,525

 
$
48,547

 
$
14,344

Loss from sale or disposal of assets (1)
$
3,031

 
$
674

 
$
1,111

 
$
1,717

 
 
 
 
 
 
 
 
Number of aircraft impaired
1

 
1

 
5

 
13

Impairment charges on assets held for sale (1)(2)
$
1,560

 
$
200

 
$
11,307

 
$
11,360

_____________ 
(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 nine months ended December 31, 2017.
On November 1, 2017, we sold our 100% interest in Bristow Academy, including all of its aircraft, for 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. As of September 30, 2017, we concluded the disposal group, comprised of the Bristow Academy assets and liabilities met the held for sale criteria under accounting standards, but did not meet the requirements for classification as discontinued operations. We evaluated the carrying value of the Bristow Academy disposal group and recorded an impairment of $6.5 million during the three months ended September 30, 2017, within loss on disposal of assets on our condensed consolidated statement of operations, to record the disposal group at fair value based on the terms of the sale. During the three months ended December 31, 2017, we recorded an additional loss on disposal of $0.7 million within loss on disposal of assets on our condensed consolidated statement of operations. The Bristow Academy disposal group is included in Corporate and other in Note 9 – Segment Information.
During the three and nine months ended December 31, 2016, we recorded accelerated depreciation of $1.1 million and $9.3 million on five and 11 aircraft, respectively, as our management decided to exit these model types earlier than originally anticipated.

12

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



During fiscal year 2018, we reached agreements with original equipment manufacturers (“OEM”) to recover approximately $130.0 million related to ongoing aircraft issues, of which $125.0 million was realized during the three months ended December 31, 2017 and resulted in an increase in cash. To reflect the amount realized from these OEM cost recoveries during the three months ended December 31, 2017, we recorded a $94.5 million decrease in the carrying value of certain aircraft in our fleet through a decrease in property and equipment – at cost, reduced rent expense by $12.0 million and recorded a deferred liability of $18.5 million, included in other accrued liabilities and other liabilities and deferred credits, related to a reduction in rent expense to be recorded in future periods, of which $1.1 million was recognized in December 2017. We determined the realized portion of the cost recoveries related to a long-term performance issue with the aircraft, requiring a reduction of carrying value for owned aircraft and a reduction in rent expense for leased aircraft. For the owned aircraft, we have allocated the $94.5 million as a reduction in carrying value by reducing the historical acquisition value of each affected aircraft on a pro-rata basis utilizing the historical acquisition value of the aircraft. We revised our salvage values for each affected aircraft by reducing the historical acquisition value by the applicable amount and applying our stated salvage value percentage for owned aircraft of 50%. In accordance with accounting standards, we will recognize the change in depreciation due to the reduction in carrying value and revision of salvage values on a prospective basis over the remaining life of the aircraft. This will result in a reduction of depreciation expense of $2.1 million during the remainder of fiscal year 2018, $8.5 million during fiscal year 2019, $8.4 million during fiscal year 2020, $5.6 million during fiscal year 2021 and $21.3 million during fiscal year 2022 and beyond. For the leased aircraft, we will recognize the remaining deferred liability of $17.4 million as a reduction in rent expense prospectively on a straight-line basis over the remaining lease terms. This will result in a reduction to rent expense of $3.5 million during the remainder of fiscal year 2018, $7.9 million during fiscal year 2019, $4.0 million during fiscal year 2020 and $2.0 million during fiscal year 2021. For certain leased aircraft, the leases expired prior to the realization of the settlements to which they were related recognized by the immediate reduction to rent expense of $12.0 million during the three and nine months ended December 31, 2017.
Other Accrued Liabilities
Other accrued liabilities of $72.3 million and $46.7 million as of December 31 and March 31, 2017, respectively, includes the following:
 
December 31, 
 2017
 
March 31,  
 2017
 
 
 
 
 
(In thousands)
Accrued lease costs
$
12,189

 
$
5,601

Deferred OEM cost recovery
10,413

 

Eastern overdraft liability
9,486

 
5,829

Accrued property and equipment
5,158

 
3,546

Deferred gain on sale leasebacks
1,305

 
1,655

Other operating accruals
33,741

 
30,048

 
$
72,292

 
$
46,679

Redeemable Noncontrolling Interest
In January 2018, we acquired the remaining 40% of the outstanding shares of Eastern Airways for no consideration.

13

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 $2.3 million recorded as an increase to the income tax provision during the nine months ended December 31, 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 nine months ended December 31, 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.

14

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.
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 December 31, 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.

15

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



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 ($123.1 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 $2.1 billion as of December 31, 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 December 31, 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.

16

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):
 
 
 
December 31, 
 2017
 
March 31,  
 2017
 
Assets
 
 
 
 
 
Cash and cash equivalents
 
$
84,236

 
$
92,409

 
Accounts receivable
 
271,053

 
222,560

 
Inventories
 
102,370

 
90,190

 
Prepaid expenses and other current assets
 
48,016

 
50,016

 
Total current assets
 
505,675

 
455,175

 
Investment in unconsolidated affiliates
 
3,407

 
3,513

 
Property and equipment, net
 
318,879

 
306,831

 
Goodwill
 
20,299

 
19,798

 
Other assets
 
208,390

 
203,228

 
Total assets
 
$
1,056,650

 
$
988,545

 
Liabilities
 
 
 
 
 
Accounts payable
 
$
276,997

 
$
146,841

 
Accrued liabilities
 
142,180

 
122,130

 
Accrued interest
 
2,065,246

 
1,891,305

 
Current maturities of long-term debt
 
20,993

 
18,578

 
Total current liabilities
 
2,505,416

 
2,178,854

 
Long-term debt, less current maturities
 
465,699

 
501,782

 
Accrued pension liabilities
 
54,291

 
61,647

 
Other liabilities and deferred credits
 
2,495

 
8,138

 
Deferred taxes
 
16,777

 
20,264

 
Redeemable noncontrolling interest
 
3,859

 
6,886

 
Total liabilities
 
$
3,048,537

 
$
2,777,571

 
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Revenue
 
$
309,461

 
$
291,808

 
$
933,387

 
$
920,587

Operating loss
 
(17,463
)
 
(28,287
)
 
(40,095
)
 
(68,803
)
Net loss
 
(79,789
)
 
(44,999
)
 
(221,039
)
 
(214,336
)

17

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 December 31, 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.


18

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



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

 
$
401,535

4½% Convertible Senior Notes due 2023
 
106,124

 

Term Loan
 
52,546

 
261,907

Term Loan Credit Facility
 

 
45,900

Revolving Credit Facility
 

 
139,100

Lombard Debt
 
206,831

 
196,832

Macquarie Debt
 
188,528

 
200,000

PK Air Debt
 
230,000

 

Airnorth Debt
 
14,507

 
16,471

Eastern Airways Debt
 
12,772

 
15,326

Other Debt
 
2,423

 
16,293

Unamortized debt issuance costs
 
(19,365
)
 
(11,345
)
Total debt
 
1,195,901

 
1,282,019

Less short-term borrowings and current maturities of long-term debt
 
(93,136
)
 
(131,063
)
Total long-term debt
 
$
1,102,765

 
$
1,150,956

4½% Convertible Senior Notes due 2023 On December 18, 2017, we issued and sold $143.8 million of 4½% Convertible Senior Notes due 2023 (the “4½% Convertible Senior Notes”). The 4½% Convertible Senior Notes bear interest at a rate of 4.50% per year and interest is payable on June 1 and December 1 of each year, beginning on June 1, 2018. The 4½% Convertible Senior Notes mature on June 1, 2023 and may not be redeemed by us prior to maturity.
The 4½% Convertible Senior Notes were issued pursuant to an indenture dated as of June 17, 2008 (the “Base Indenture”), among the Company, the subsidiary guarantors named therein (the “Guarantors”) and U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the sixth supplemental indenture thereto dated as of December 18, 2017 (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) among us, the Guarantors and the Trustee.
The 4½% Convertible Senior Notes are convertible into cash, shares of our common stock or a combination of cash and shares of the our common stock, at our election. We have initially elected combination settlement. The initial conversion price of the 4½% Convertible Senior Notes is approximately $15.64 (subject to adjustment in certain circumstances), based on the initial conversion rate of 63.9488 Common Shares per $1,000 principal amount of 4½% Convertible Senior Notes. Prior to December 1, 2022, the 4½% Convertible Senior Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. The 4½% Convertible Senior Notes are our senior unsecured obligations. As of December 31, 2017, the if-converted value of the 4½% Convertible Senior Notes did not exceed the principal balance.
The proceeds were used to repay $89.6 million of the $350 million term loan (the “Term Loan”) as discussed below and to pay the $10.1 million cost of the convertible note hedge transaction described below, with the remainder available for general corporate purposes.

19

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



Accounting standards require that convertible debt which may be settled in cash upon conversion (including partial cash settlement) be accounted for with a liability component based on the fair value of similar nonconvertible debt and an equity component based on the excess of the initial proceeds from the convertible debt over the liability component. Such excess represents proceeds related to the conversion option and is recorded as additional paid-in capital. The liability is recorded at a discount, which is then amortized as additional non-cash interest expense over the term of the 4½% Convertible Senior Notes. The balances of the debt and equity components of the 4½% Convertible Senior Notes as of December 31, 2017 is as follows (in thousands):
Equity component - net carrying value (1)
 
$
36,778

Debt component:
 
 
Face amount due at maturity
 
$
143,750

Unamortized discount
 
(37,626
)
Debt component - net carrying value
 
$
106,124

_____________ 
(1) Net of equity issuance costs of $1.0 million.
The remaining debt discount is being amortized to interest expense over the term of the 4½% Convertible Senior Notes using the effective interest rate. The effective interest rate for the three and nine months ended December 31, 2017 was 11.0%. Interest expense related to our 4½% Convertible Senior Notes for the three and nine months ended December 31, 2017 was as follows (in thousands):
Contractual coupon interest
 
$
234

 
Amortization of debt discount
 
181

 
Total interest expense
 
$
415

 
Convertible Note Call Spread Overlay Concurrent with the issuance of the 4½% Convertible Senior Notes, we entered into privately negotiated convertible note hedge transactions (the “Note Hedge Transactions”) and warrant transactions (the “Warrant Transactions”) with each of Credit Suisse Capital LLC, Barclays Bank PLC, Citibank, N.A. and JP Morgan Chase Bank, National Association (the “Option Counterparties”). These transactions represent a Call Spread Overlay, whereby the cost of the Note Hedge Transactions we purchased to cover the cash outlay upon conversion of the 4½% Convertible Senior Notes was reduced by the sales price of the Warrant Transactions. Each of these transactions is described below.
The Note Hedge Transactions cost an aggregate $40.4 million and are expected generally to reduce the potential dilution and/or offset the cash payments we are required to make in excess of the principal amount upon conversion of the 4½% Convertible Senior Notes in the event that the market price of our common stock is greater than the strike price of the Note Hedge Transactions, which is initially $15.64 (subject to adjustment), corresponding approximately to the initial conversion price of the 4½% Convertible Senior Notes. The Note Hedge Transactions have been accounted for by recording the cost as a reduction to additional paid-in capital.
We received proceeds of $30.3 million for the Warrant Transactions, in which we sold net-share-settled warrants to the Option Counterparties in an amount equal to the number of shares of the our common stock initially underlying the 4½% Convertible Senior Notes, subject to customary anti-dilution adjustments. The strike price of the warrants is $20.02 per share (subject to adjustment), which is 60% above the last reported sale price of our common stock on the New York Stock Exchange on December 13, 2017. The Warrant Transactions could have a dilutive effect to our stockholders to the extent the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The Warrant Transactions have been accounted for by recording the proceeds received as additional paid-in capital.
The Note Hedge Transactions and the Warrant Transactions are separate transactions, in each case entered into by us with the Option Counterparties, and are not part of the terms of the 4½% Convertible Senior Notes and will not affect any holder’s rights under the 4½% Convertible Senior Notes.
Term Loan and Revolving Credit Facility — During the nine months ended December 31, 2017, we had borrowings of $174.8 million and made payments of $313.9 million under our $400 million revolving credit facility (the “Revolving Credit Facility”). Additionally, we paid $209.5 million to reduce our borrowings under the Term Loan. As of December 31, 2017, we had $12.4 million in letters of credit outstanding under the Revolving Credit Facility.
Term Loan Credit Facility — During the nine months ended December 31, 2017, we paid $45.9 million under our $200 million of term loan commitments (the “Term Loan Credit Facility”) and terminated the facility in October 2017.

20

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



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.
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 December 31, 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
December 31,
2017
 
Total
Loss for the
Three Months
Ended
December 31,
2017
 
Total
Loss for the
Nine Months
Ended
December 31,
2017
Inventories
 
$

 
$

 
$

 
$

 
$

 
$
(1,192
)
Assets held for sale
 

 

 
31,038

 
31,038

 
(1,560
)
 
(11,307
)
Total assets
 
$

 
$

 
$
31,038

 
$
31,038

 
$
(1,560
)
 
$
(12,499
)

21

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



The following table summarizes the assets as of December 31, 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
December 31,
2016
 
Total
Loss for the
Three Months
Ended
December 31,
2016
 
Total
Loss for the
Nine Months
Ended
December 31,
2016
Inventories
 
$

 
$
46,654

 
$

 
$
46,654

 
$

 
$
(7,572
)
Assets held for sale
 

 
37,635

 

 
37,635

 
(200
)
 
(11,360
)
Goodwill
 

 

 
18,793

 
18,793

 
(8,706
)
 
(8,706
)
Total assets
 
$

 
$
84,289

 
$
18,793

 
$
103,082

 
$
(8,906
)
 
$
(27,638
)
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 nine months ended December 31, 2017 related to one and five aircraft held for sale, respectively, and the loss for the three and nine months ended December 31, 2016 related to one and 13 aircraft held for sale, respectively. Additionally, the loss for the nine months ended December 31, 2017 includes $6.5 million of impairment relating to the Bristow Academy disposal group. For further details on Bristow Academy disposal group, see Note 1.
The fair value of goodwill is estimated using a variety of valuation methods, including the income and market approaches. These estimates of fair value include unobservable inputs, representative of Level 3 fair value measurement, including assumptions related to future performance, such as projected demand for our services and rates. For further details on our goodwill, see Note 1.
Recurring Fair Value Measurements
The following table summarizes the financial instruments we had as of December 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
December 31,
2017
 
Balance  Sheet
Classification
Rabbi Trust investments
 
$
2,847

 
$

 
$

 
$
2,847

 
Other assets
Total assets
 
$
2,847

 
$

 
$

 
$
2,847

 
 
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.

22

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



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):
 
 
December 31, 2017
 
March 31, 2017
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
6¼% Senior Notes
 
$
401,535

 
$
328,777

 
$
401,535

 
$
323,236

4½% Convertible Senior Notes (1)
 
106,124

 
158,571

 

 

Term Loan
 
52,546

 
52,546

 
261,907

 
261,907

Term Loan Credit Facility
 

 

 
45,900

 
45,900

Revolving Credit Facility
 

 

 
139,100

 
139,100

Lombard Debt
 
206,831

 
206,831

 
196,832

 
196,832

Macquarie Debt
 
188,528

 
188,528

 
200,000

 
200,000

PK Air Debt
 
230,000

 
230,000

 

 

Airnorth Debt
 
14,507

 
14,507

 
16,471

 
16,471

Eastern Airways Debt
 
12,772

 
12,772

 
15,326

 
15,326

Other Debt
 
2,423

 
2,423

 
16,293

 
16,293

 
 
$
1,215,266

 
$
1,194,955

 
$
1,293,364

 
$
1,215,065

_____________ 
(1) 
Carrying value of the 4½% Convertible Senior Notes includes unamortized discount of $37.6 million as of December 31, 2017.
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.

23

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 February 8, 2018, 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.
 
 
Three Months Ending March 31, 2018
 
Fiscal Year Ending March 31,
 
 
 
 
2019
 
2020
 
2021
 
2022 and thereafter(1)
 
Total
Commitments as of February 8, 2018: (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
 
$

 
$
19,856

 
$
25,536

 
$
78,726

 
$
285,295

 
$
409,413

U.K. SAR
 
3,242

 

 
62,970

 

 

 
66,212

 
 
$
3,242

 
$
19,856

 
$
88,506

 
$
78,726

 
$
285,295

 
$
475,625

Options as of February 8, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 

 
2

 
2

 

 

 
4

 
 

 
2

 
2

 

 

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Related option expenditures (in thousands) (3)
 
$

 
$
44,181

 
$
31,536

 
$

 
$

 
$
75,717

_____________ 
(1) 
Includes $96.0 million for five aircraft orders that can be cancelled prior to delivery dates. We made non-refundable deposits of $4.5 million related to these aircraft.
(2) 
We have an agreement to defer payment of approximately $63.0 million in capital expenditures out of fiscal year 2018 and into future periods which is 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
 
 
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
 
 
Orders
 
Options
 
Orders
 
Options
 
Orders
 
Options
 
Beginning of period
 
27

 
4

 
29

 
4

 
32

 
4

 
Aircraft delivered
 

 

 
(2
)
 

 
(3
)
 

 
End of period
 
27

 
4

 
27

 
4

 
29

 
4

We periodically purchase aircraft for which we have no orders.

24

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



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 $42.6 million and $53.7 million for the three months ended December 31, 2017 and 2016, respectively, and $158.5 million and $156.9 million for the nine months ended December 31, 2017 and 2016, respectively. Rent expense incurred under operating leases for aircraft was $36.5 million and $47.9 million for the three months ended December 31, 2017 and 2016, respectively, and $137.9 million and $138.7 million for the nine months ended December 31, 2017 and 2016, respectively.
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 December 31, 2017:
 
End of Lease Term
 
Number of Aircraft
 
Three months ending March 31, 2018 to fiscal year 2019
 
25

 
Fiscal year 2020 to fiscal year 2022
 
48

 
Fiscal year 2023 to fiscal year 2024
 
17

 
 
 
90

 
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 $4.7 million and $14.4 million during the three and nine months ended December 31, 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 nine months ended December 31, 2017.
Employee Agreements — Approximately 53% of our employees are represented by collective bargaining agreements and/or unions with 90% 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 4%. 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 nine months ended December 31, 2017 and 2016 is as follows (in thousands):
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
2017
 
2016
 
2017
 
2016
VSP:
 
 
 
 
 
 
 
Direct cost
$

 
$
179

 
$

 
$
1,624

General and administrative

 

 

 
23

Total
$

 
$
179

 
$

 
$
1,647

ISP:
 
 
 
 
 
 
 
Direct cost
$
2,661

 
$
464

 
$
5,208

 
$
5,360

General and administrative
120

 
102

 
8,662

 
8,697

Total
$
2,781

 
$
566

 
$
13,870

 
$
14,057

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

25

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



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 December 31, 2017, we had $28.4 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.
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. During the three months ended December 31, 2017, we returned three of these H225LP models to the lessor; two were previously operating in Australia and one was previously operating in the U.K. During February 2018, we returned one H225LP model to the lessor that was previously operating in the U.K.
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 acceptance 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.
During fiscal year 2018, we reached agreements with OEMs to recover approximately $130.0 million related to ongoing aircraft issues mentioned above, of which $125.0 million was recovered during the three months ended December 31, 2017. For further details on the accounting treatment, see Note 1 Basis of Presentation, Consolidation and Summary of Significant Accounting Policies — Property and Equipment and Assets Held for Sale.
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 December 31, 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.

26

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



Note 6 — TAXES
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 December 31, 2017 and 2016, our effective tax rate was 57.5% and 12.0%, and during the nine months ended December 31, 2017 and 2016, our effective tax rate was (2.7)% and 10.2%, respectively. The effective tax rate for the three and nine months ended December 31, 2017 and 2016 were impacted by valuation allowances against future realization of foreign tax credits and net operating losses in certain foreign jurisdictions. For the three and nine months ended December 31, 2017, our effective tax rate also includes the impact of $4.7 million of unrecognized tax benefits in certain foreign jurisdictions. Additionally, for the three and nine months ended December 31, 2017, we reported a one-time tax benefit of $14.1 million as a result of the enactment of the Tax Cuts and Jobs Act (the “Act”).
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 or benefit does not change proportionally with our pre-tax book income or loss. 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 December 31, 2017 compared to the three months ended December 31, 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 $2.1 million and $3.7 million for the three months ended December 31, 2017 and 2016, respectively, and $13.4 million and $19.3 million for the nine months ended December 31, 2017 and 2016, respectively, which also increased our effective tax rate.
As of December 31, 2017, there were $6.2 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate if recognized.
On December 22, 2017, the United States Congress enacted the Act. The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. Further, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We have made reasonable estimates for the change in the U.S. federal corporate income tax rate and one-time “deemed repatriation” of accumulated foreign earnings. We estimate the revaluation of U.S. net deferred tax liabilities will result in a one-time tax benefit of approximately $75.6 million offset by an estimated $61.5 million in tax expense as a result of the “deemed repatriation” of foreign earnings. We are still analyzing certain aspects of the Act and refining our calculations.
Because of the complexity, we are continuing to evaluate certain provisions of the Act which may have an impact on our income taxes beginning after fiscal year 2018. 

27

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



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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Service cost for benefits earned during the period
 
$
159

 
$
1,696

 
$
470

 
$
5,450

Interest cost on pension benefit obligation
 
3,893

 
4,139

 
11,482

 
13,297

Expected return on assets
 
(5,509
)
 
(5,601
)
 
(16,250
)
 
(17,992
)
Amortization of unrecognized losses
 
1,844

 
1,699

 
5,441

 
5,454

Net periodic pension cost
 
$
387

 
$
1,933

 
$
1,143

 
$
6,209

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 $12.0 million was paid during the nine months ended December 31, 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 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 December 31, 2017, 2,385,248 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.
Total stock-based compensation expense, which includes stock options and restricted stock, totaled $2.2 million and $3.3 million for the three months ended December 31, 2017 and 2016, respectively, and $8.8 million and $9.5 million for the nine months ended December 31, 2017 and 2016. Stock-based compensation expense has been allocated to our various regions.
During the nine months ended December 31, 2017, we awarded 600,618 shares of restricted stock at an average grant date fair value of $7.15 per share. Also during the nine months ended December 31, 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 nine months ended December 31, 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 December 31, 2017, we had $0.9 million included in other liabilities and deferred credits on our condensed consolidated balance sheet and recognized $0.9 million in general and administrative expense on our condensed consolidated statement of operations during the nine months ended December 31, 2017 related to these awards.

28

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



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 December 31 and March 31, 2017 was $6.8 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 nine months ended December 31, 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.
Changes in the fair values of performance cash awards reduced compensation expense by $0.8 million during the three months ended December 31, 2017 and increased compensation expense by $3.1 million, $0.6 million and $5.6 million during the three months ended December 31, 2016 and nine months ended December 31, 2017 and 2016, respectively.


29

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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Options:
 
 
 
 
 
 
 
 
Outstanding
 
2,729,888

 
2,150,235

 
2,791,193

 
1,720,164

Weighted average exercise price
 
$
38.12

 
$
28.51

 
$
39.88

 
$
32.90

Restricted stock awards:
 
 
 
 
 
 
 
 
Outstanding
 
681,571

 
404,772

 
432,596

 
486,340

Weighted average price
 
$
8.67

 
$
15.06

 
$
23.25

 
$
27.92

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Loss (in thousands):
 
 
 
 
 
 
 
 
Loss available to common stockholders – basic
 
$
(8,273
)
 
$
(21,927
)
 
$
(94,757
)
 
$
(92,496
)
Interest expense on assumed conversion of 4½% Convertible Senior Notes, net of tax (1)
 

 

 

 

Loss available to common stockholders – diluted
 
(8,273
)
 
(21,927
)
 
(94,757
)
 
(92,496
)
Shares:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
35,368,212

 
35,095,240

 
35,260,746

 
35,021,463

Assumed conversion of 4½% Convertible Senior Notes outstanding during period (1)
 

 

 

 

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

 

 

 

Weighted average number of common shares outstanding – diluted (2)
 
35,368,212

 
35,095,240

 
35,260,746

 
35,021,463

 
 
 
 
 
 
 
 
 
Basic loss per common share
 
$
(0.23
)
 
$
(0.62
)
 
$
(2.69
)
 
$
(2.64
)
Diluted loss per common share
 
$
(0.23
)
 
$
(0.62
)
 
$
(2.69
)
 
$
(2.64
)
_____________
(1) 
Diluted earnings per common share for three and nine months ended December 31, 2017 excludes a number of potentially dilutive shares determined pursuant to a specified formula initially issuable upon the conversion of our 4½% Convertible Senior Notes. The 4½% Convertible Senior Notes will be convertible, under certain circumstances, into cash, shares of our common stock or a combination of cash and our common stock, at our election. We have initially elected combination settlement. As of December 31, 2017, the base conversion price of the notes was approximately $15.64, based on the base conversion rate of 63.9488 shares of common stock per $1,000 principal amount of convertible notes (subject to adjustment in certain circumstances). In general, upon conversion of a note, the holder will receive cash equal to the principal amount of the note and common stock to the extent of the note’s conversion value in excess of such principal amount. Such shares did not impact our calculation of diluted earnings per share for the three and nine months ended December 31, 2017 as our average stock price during these periods did not meet or exceed the conversion requirements.
(2) 
Potentially dilutive shares issuable pursuant to our Warrant Transactions were not included in the computation of diluted income per share for the three and nine months ended December 31, 2017, because to do so would have been anti-dilutive. For further details on the Warrant Transactions, see Note 3.
 

30

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



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
 
20,924

 

 
20,924

Reclassified from accumulated other comprehensive income
 

 

 

Net current period other comprehensive income
 
20,924

 

 
20,924

Foreign exchange rate impact
 
18,885

 
(18,885
)
 

Balance as of December 31, 2017
 
$
(109,912
)
 
$
(197,441
)
 
$
(307,353
)
_____________ 
(1) 
Reclassification of amounts related to pension liability adjustments are included as a component of net periodic pension cost.


31

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. Prior to the sale of Bristow Academy on November 1, 2017, we operated a training unit, Bristow Academy, which was previously included in Corporate and other.
The following tables show region information for the three and nine months ended December 31, 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Region gross revenue from external clients:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
196,958

 
$
179,632

 
$
592,280

 
$
566,290

Africa
 
48,712

 
50,516

 
149,289

 
156,422

Americas
 
58,468

 
52,362

 
173,431

 
166,651

Asia Pacific
 
55,691

 
52,857

 
167,421

 
167,256

Corporate and other
 
906

 
2,076

 
4,099

 
7,689

Total region gross revenue
 
$
360,735

 
$
337,443

 
$
1,086,520

 
$
1,064,308

Intra-region gross revenue:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,481

 
$
1,278

 
$
4,000

 
$
5,308

Africa
 

 

 

 

Americas
 
2,147

 
977

 
6,391

 
2,939

Asia Pacific
 

 

 

 
1

Corporate and other
 
5

 
38

 
27

 
317

Total intra-region gross revenue
 
$
3,633

 
$
2,293

 
$
10,418

 
$
8,565

Consolidated gross revenue:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
198,439

 
$
180,910

 
$
596,280

 
$
571,598

Africa
 
48,712

 
50,516

 
149,289

 
156,422

Americas
 
60,615

 
53,339

 
179,822

 
169,590

Asia Pacific
 
55,691

 
52,857

 
167,421

 
167,257

Corporate and other
 
911

 
2,114

 
4,126

 
8,006

Intra-region eliminations
 
(3,633
)
 
(2,293
)
 
(10,418
)
 
(8,565
)
Total consolidated gross revenue
 
$
360,735

 
$
337,443

 
$
1,086,520

 
$
1,064,308




32

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



 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
Earnings from unconsolidated affiliates, net of losses – equity method investments:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
34

 
$
125

 
$
125

 
$
241

Americas
 
2,097

 
831

 
3,712

 
4,954

Corporate and other
 
(135
)
 
(190
)
 
(443
)
 
(461
)
Total earnings from unconsolidated affiliates, net of losses – equity method investments
 
$
1,996

 
$
766

 
$
3,394

 
$
4,734

 
 
 
 
 
 
 
 
 
Consolidated operating loss:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
5,312

 
$
(303
)
 
$
19,610

 
$
18,468

Africa
 
10,470

 
10,441

 
28,353

 
19,954

Americas
 
5,308

 
2,226

 
11,535

 
5,790

Asia Pacific
 
(941
)
 
(9,012
)
 
(19,374
)
 
(24,480
)
Corporate and other
 
(19,055
)
 
(21,575
)
 
(68,709
)
 
(78,869
)
Loss on disposal of assets
 
(4,591
)
 
(874
)
 
(12,418
)
 
(13,077
)
Total consolidated operating loss (1)
 
$
(3,497
)
 
$
(19,097
)
 
$
(41,003
)
 
$
(72,214
)
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
12,771

 
$
11,185

 
$
36,789

 
$
33,594

Africa
 
3,664

 
4,007

 
10,330

 
12,680

Americas
 
6,909

 
7,060

 
20,906

 
25,669

Asia Pacific
 
4,479

 
4,973

 
15,347

 
13,586

Corporate and other
 
3,859

 
2,543

 
10,747

 
7,525

Total depreciation and amortization (2)
 
$
31,682

 
$
29,768

 
$
94,119

 
$
93,054

 
 
December 31, 
 2017
 
March 31,  
 2017
Identifiable assets:
 
 
 
 
Europe Caspian
 
$
955,122

 
$
1,091,536

Africa
 
414,162

 
325,719

Americas
 
857,463

 
809,071

Asia Pacific
 
330,210

 
433,614

Corporate and other (3)
 
410,200

 
453,907

Total identifiable assets
 
$
2,967,157

 
$
3,113,847

Investments in unconsolidated affiliates – equity method investments:
 
 
 
 
Europe Caspian
 
$
350

 
$
257

Americas
 
201,422

 
200,362

Corporate and other
 
3,057

 
3,257

Total investments in unconsolidated affiliates – equity method investments
 
$
204,829

 
$
203,876

_____________ 
(1) 
Results for the three and nine months ended December 31, 2017, were positively impacted by a reduction to rent expense of $13.1 million (included in direct costs) impacting Europe Caspian and Asia Pacific regions by $7.1 million and $6.0 million, respectively, related to OEM cost recoveries for ongoing aircraft issues. For further details, see Note 1.
(2) 
Includes accelerated depreciation expense of $1.1 million during the three months ended December 31, 2016 related to aircraft where management made the decision to exit these model types earlier than originally anticipated in our Africa region. Includes accelerated depreciation expense of $9.3 million during the nine months ended December 31, 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 $5.0 million, respectively. For further details, see Note 1.
(3) 
Includes $69.1 million and $199.3 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of December 31 and March 31, 2017, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.


33

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 6¼% Senior Notes due 2022 (the “6¼% Senior Notes”) and the 4½% Convertible Senior Notes, 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.


 

34

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



Supplemental Condensed Consolidating Statement of Operations
Three Months Ended December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
188

 
$
47,377

 
$
313,170

 
$

 
$
360,735

Intercompany revenue
 

 
28,608

 

 
(28,608
)
 

 
 
188

 
75,985

 
313,170

 
(28,608
)
 
360,735

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
81

 
49,540

 
236,968

 

 
286,589

Intercompany expenses
 

 

 
28,608

 
(28,608
)
 

Depreciation and amortization
 
3,048

 
12,489

 
16,145

 

 
31,682

General and administrative
 
13,937

 
6,514

 
22,915

 

 
43,366

 
 
17,066

 
68,543

 
304,636

 
(28,608
)
 
361,637

 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on disposal of assets
 
(1,757
)
 
(3,657
)
 
823

 

 
(4,591
)
Earnings from unconsolidated affiliates, net of losses
 
(11,503
)
 

 
1,996

 
11,503

 
1,996

Operating income (loss)
 
(30,138
)
 
3,785

 
11,353

 
11,503

 
(3,497
)
Interest expense, net
 
(9,480
)
 
(5,008
)
 
(4,605
)
 

 
(19,093
)
Other income (expense), net
 
(16
)
 
227

 
(977
)
 

 
(766
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(39,634
)
 
(996
)
 
5,771

 
11,503

 
(23,356
)
Allocation of consolidated income taxes
 
31,373

 
(1,791
)
 
(16,163
)
 

 
13,419

Net loss
 
(8,261
)
 
(2,787
)
 
(10,392
)
 
11,503

 
(9,937
)
Net (income) loss attributable to noncontrolling interests
 
(12
)
 

 
1,676

 

 
1,664

Net loss attributable to Bristow Group
 
$
(8,273
)
 
$
(2,787
)
 
$
(8,716
)
 
$
11,503

 
$
(8,273
)



35

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



Supplemental Condensed Consolidating Statement of Operations
Three Months Ended December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$

 
$
39,558

 
$
297,885

 
$

 
$
337,443

Intercompany revenue
 

 
29,799

 

 
(29,799
)
 

 
 

 
69,357

 
297,885

 
(29,799
)
 
337,443

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
703

 
45,794

 
226,052

 

 
272,549

Intercompany expenses
 

 

 
29,799

 
(29,799
)
 

Depreciation and amortization
 
2,233

 
10,942

 
16,593

 

 
29,768

General and administrative
 
13,897

 
5,841

 
25,671

 

 
45,409

 
 
16,833

 
62,577

 
298,115

 
(29,799
)
 
347,726

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 

 

 
(8,706
)
 

 
(8,706
)
Loss on disposal of assets
 

 
(361
)
 
(513
)
 

 
(874
)
Earnings from unconsolidated affiliates, net of losses
 
4,562

 

 
765

 
(4,561
)
 
766

Operating income (loss)
 
(12,271
)
 
6,419

 
(8,684
)
 
(4,561
)
 
(19,097
)
Interest expense, net
 
(11,525
)
 
(42
)
 
(612
)
 

 
(12,179
)
Other income (expense), net
 
497

 
1,666

 
(495
)
 

 
1,668

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(23,299
)
 
8,043

 
(9,791
)
 
(4,561
)
 
(29,608
)
Allocation of consolidated income taxes
 
1,386

 
(1,138
)
 
3,312

 

 
3,560

Net income (loss)
 
(21,913
)
 
6,905

 
(6,479
)
 
(4,561
)
 
(26,048
)
Net (income) loss attributable to noncontrolling interests
 
(13
)
 

 
4,134

 

 
4,121

Net income (loss) attributable to Bristow Group
 
$
(21,926
)
 
$
6,905

 
$
(2,345
)
 
$
(4,561
)
 
$
(21,927
)


36

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



Supplemental Condensed Consolidating Statement of Operations
Nine Months Ended December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
188

 
$
140,104

 
$
946,228

 
$

 
$
1,086,520

Intercompany revenue
 

 
92,518

 

 
(92,518
)
 

 
 
188

 
232,622

 
946,228

 
(92,518
)
 
1,086,520

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
3,350

 
147,829

 
733,314

 

 
884,493

Intercompany expenses
 

 

 
92,518

 
(92,518
)
 

Depreciation and amortization
 
8,981

 
38,209

 
46,929

 

 
94,119

General and administrative
 
50,924

 
17,899

 
69,872

 

 
138,695

 
 
63,255

 
203,937

 
942,633

 
(92,518
)
 
1,117,307

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 

 
(1,192
)
 

 

 
(1,192
)
Gain (loss) on disposal of assets
 
(1,757
)
 
7,356

 
(18,017
)
 

 
(12,418
)
Earnings from unconsolidated affiliates, net of losses
 
(22,506
)
 

 
3,394

 
22,506

 
3,394

Operating income (loss)
 
(87,330
)
 
34,849

 
(11,028
)
 
22,506

 
(41,003
)
Interest expense, net
 
(29,174
)
 
(16,811
)
 
(7,692
)
 

 
(53,677
)
Other income (expense), net
 
(142
)
 
(529
)
 
818

 

 
147

 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(116,646
)
 
17,509

 
(17,902
)
 
22,506

 
(94,533
)
Allocation of consolidated income taxes
 
21,925

 
(7,896
)
 
(16,575
)
 

 
(2,546
)
Net income (loss)
 
(94,721
)
 
9,613

 
(34,477
)
 
22,506

 
(97,079
)
Net (income) loss attributable to noncontrolling interests
 
(36
)
 

 
2,358

 

 
2,322

Net income (loss) attributable to Bristow Group
 
$
(94,757
)
 
$
9,613

 
$
(32,119
)
 
$
22,506

 
$
(94,757
)


37

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



Supplemental Condensed Consolidating Statement of Operations
Nine Months Ended December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$

 
$
127,414

 
$
936,894

 
$

 
$
1,064,308

Intercompany revenue
 

 
78,413

 

 
(78,413
)
 

 
 

 
205,827

 
936,894

 
(78,413
)
 
1,064,308

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
72

 
142,270

 
727,270

 

 
869,612

Intercompany expenses
 

 

 
78,413

 
(78,413
)
 

Depreciation and amortization
 
6,549

 
38,728

 
47,777

 

 
93,054

General and administrative
 
51,643

 
18,921

 
78,714

 

 
149,278

 
 
58,264

 
199,919

 
932,174

 
(78,413
)
 
1,111,944

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 

 
(4,761
)
 
(11,517
)
 

 
(16,278
)
Loss on disposal of assets
 

 
(11,936
)
 
(1,141
)
 

 
(13,077
)
Earnings from unconsolidated affiliates, net of losses
 
(17,861
)
 

 
4,733

 
17,905

 
4,777

Operating income (loss)
 
(76,125
)
 
(10,789
)
 
(3,205
)
 
17,905

 
(72,214
)
Interest expense, net
 
(31,757
)
 
(1,070
)
 
(1,706
)
 

 
(34,533
)
Other income (expense), net
 
1,249

 
3,312

 
(6,079
)
 

 
(1,518
)
 
 
 
 
 
 
 
 
 
 
 
Loss before (provision) benefit for income taxes
 
(106,633
)
 
(8,547
)
 
(10,990
)
 
17,905

 
(108,265
)
Allocation of consolidated income taxes
 
14,178

 
(4,870
)
 
1,730

 

 
11,038

Net loss
 
(92,455
)
 
(13,417
)
 
(9,260
)
 
17,905

 
(97,227
)
Net (income) loss attributable to noncontrolling interests
 
(40
)
 

 
4,771

 

 
4,731

Net loss attributable to Bristow Group
 
$
(92,495
)
 
$
(13,417
)
 
$
(4,489
)
 
$
17,905

 
$
(92,496
)


38

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



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(8,261
)
 
$
(2,787
)
 
$
(10,392
)
 
$
11,503

 
$
(9,937
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 

 
(18
)
 
1,116

 
(1,155
)
 
(57
)
Total comprehensive loss
 
(8,261
)
 
(2,805
)
 
(9,276
)
 
10,348

 
(9,994
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(12
)
 

 
1,676

 

 
1,664

Currency translation adjustments attributable to noncontrolling interests
 

 

 
(17
)
 

 
(17
)
Total comprehensive (income) loss attributable to noncontrolling interests
 
(12
)
 

 
1,659

 

 
1,647

Total comprehensive loss attributable to Bristow Group
 
$
(8,273
)
 
$
(2,805
)
 
$
(7,617
)
 
$
10,348

 
$
(8,347
)



39

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



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net income (loss)
 
$
(21,913
)
 
$
6,905

 
$
(6,479
)
 
$
(4,561
)
 
$
(26,048
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 

 

 
(11,792
)
 
(7,104
)
 
(18,896
)
Total comprehensive income (loss)
 
(21,913
)
 
6,905

 
(18,271
)
 
(11,665
)
 
(44,944
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(13
)
 

 
4,134

 

 
4,121

Currency translation adjustments attributable to noncontrolling interests
 

 

 
(687
)
 

 
(687
)
Total comprehensive (income) loss attributable to noncontrolling interests
 
(13
)
 

 
3,447

 

 
3,434

Total comprehensive income (loss) attributable to Bristow Group
 
$
(21,926
)
 
$
6,905

 
$
(14,824
)
 
$
(11,665
)
 
$
(41,510
)


40

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



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine Months Ended December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net income (loss)
 
$
(94,721
)
 
$
9,613

 
$
(34,477
)
 
$
22,506

 
$
(97,079
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 

 
626

 
29,686

 
(9,918
)
 
20,394

Total comprehensive income (loss)
 
(94,721
)
 
10,239

 
(4,791
)
 
12,588

 
(76,685
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(36
)
 

 
2,358

 

 
2,322

Currency translation adjustments attributable to noncontrolling interests
 

 

 
530

 

 
530

Total comprehensive (income) loss attributable to noncontrolling interests
 
(36
)
 

 
2,888

 

 
2,852

Total comprehensive income (loss) attributable to Bristow Group
 
$
(94,757
)
 
$
10,239

 
$
(1,903
)
 
$
12,588

 
$
(73,833
)


41

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



Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Nine Months Ended December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(92,455
)
 
$
(13,417
)
 
$
(9,260
)
 
$
17,905

 
$
(97,227
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 

 

 
196,442

 
(227,912
)
 
(31,470
)
Total comprehensive income (loss)
 
(92,455
)
 
(13,417
)
 
187,182

 
(210,007
)
 
(128,697
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(40
)
 

 
4,771

 

 
4,731

Currency translation adjustments attributable to noncontrolling interests
 

 

 
(5,652
)
 

 
(5,652
)
Total comprehensive income attributable to noncontrolling interests
 
(40
)
 

 
(881
)
 

 
(921
)
Total comprehensive income (loss) attributable to Bristow Group
 
$
(92,495
)
 
$
(13,417
)
 
$
186,301

 
$
(210,007
)
 
$
(129,618
)


42

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



Supplemental Condensed Consolidating Balance Sheet
As of December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
27,895

 
$

 
$
90,875

 
$
(922
)
 
$
117,848

Accounts receivable
 
148,115

 
419,838

 
320,897

 
(674,071
)
 
214,779

Inventories
 

 
31,623

 
102,370

 

 
133,993

Assets held for sale
 

 
25,265

 
5,773

 

 
31,038

Prepaid expenses and other current assets
 
2,427

 
5,234

 
36,007

 

 
43,668

Total current assets
 
178,437

 
481,960

 
555,922

 
(674,993
)
 
541,326

Intercompany investment
 
2,387,382

 
104,435

 
136,627

 
(2,628,444
)
 

Investment in unconsolidated affiliates
 

 

 
211,115

 

 
211,115

Intercompany notes receivable
 
166,341

 
36,358

 
157,575

 
(360,274
)
 

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

 
58,252

 
178,734

 

 
241,792

Aircraft and equipment
 
157,421

 
1,135,071

 
1,218,830

 

 
2,511,322

 
 
162,227

 
1,193,323

 
1,397,564

 

 
2,753,114

Less: Accumulated depreciation and amortization
 
(38,062
)
 
(257,033
)
 
(378,835
)
 

 
(673,930
)
 
 
124,165

 
936,290

 
1,018,729

 

 
2,079,184

Goodwill
 

 

 
20,299

 

 
20,299

Other assets
 
9,471

 
1,961

 
103,822

 
(21
)
 
115,233

Total assets
 
$
2,865,796

 
$
1,561,004

 
$
2,204,089

 
$
(3,663,732
)
 
$
2,967,157

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
348,871

 
$
203,517

 
$
190,827

 
$
(655,787
)
 
$
87,428

Accrued liabilities
 
48,284

 
4,391

 
157,341

 
(17,975
)
 
192,041

Short-term borrowings and current maturities of long-term debt
 
40,087

 
20,335

 
32,714

 

 
93,136

Total current liabilities
 
437,242

 
228,243

 
380,882

 
(673,762
)
 
372,605

Long-term debt, less current maturities
 
513,801

 
277,442

 
311,522

 

 
1,102,765

Intercompany notes payable
 
187,531

 
133,087

 
40,757

 
(361,375
)
 

Accrued pension liabilities
 

 

 
54,291

 

 
54,291

Other liabilities and deferred credits
 
13,570

 
7,660

 
16,538

 

 
37,768

Deferred taxes
 
78,937

 
47,494

 
15,494

 
(21
)
 
141,904

Redeemable noncontrolling interest
 

 

 
3,859

 

 
3,859

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
381

 
20,028

 
131,317

 
(151,345
)
 
381

Additional paid-in-capital
 
844,825

 
45,306

 
284,048

 
(329,354
)
 
844,825

Retained earnings
 
894,684

 
800,730

 
674,765

 
(1,475,495
)
 
894,684

Accumulated other comprehensive loss
 
78,306

 
1,014

 
285,707

 
(672,380
)
 
(307,353
)
Treasury shares
 
(184,796
)
 

 

 

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,633,400

 
867,078

 
1,375,837

 
(2,628,574
)
 
1,247,741

Noncontrolling interests
 
1,315

 

 
4,909

 

 
6,224

Total stockholders’ investment
 
1,634,715

 
867,078

 
1,380,746

 
(2,628,574
)
 
1,253,965

Total liabilities, redeemable noncontrolling interest and stockholders’ investment
 
$
2,865,796

 
$
1,561,004

 
$
2,204,089

 
$
(3,663,732
)
 
$
2,967,157


43

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


44

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



Supplemental Condensed Consolidating Statement of Cash Flows
Nine Months Ended December 31, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(105,817
)
 
$
34,995

 
$
62,437

 
$
(922
)
 
$
(9,307
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(8,182
)
 
(7,755
)
 
(97,984
)
 
77,480

 
(36,441
)
Proceeds from asset dispositions
 

 
85,760

 
40,267

 
(77,480
)
 
48,547

Proceeds from OEM cost recoveries
 

 

 
94,463

 

 
94,463

Net cash provided by (used in) investing activities
 
(8,182
)
 
78,005

 
36,746

 

 
106,569

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
318,550

 

 
230,218

 

 
548,768

Debt issuance costs
 
(2,558
)
 
(552
)
 
(8,543
)
 

 
(11,653
)
Repayment of debt
 
(569,325
)
 
(13,137
)
 
(27,205
)
 

 
(609,667
)
Purchase of 4½% Convertible Senior Notes call option
 
(40,393
)
 

 

 

 
(40,393
)
Proceeds from issuance of warrants
 
30,259

 

 

 

 
30,259

Dividends paid
 
110,637

 

 
(113,102
)
 

 
(2,465
)
Increases (decreases) in cash related to intercompany advances and debt
 
291,969

 
(99,610
)
 
(192,359
)
 

 

Partial prepayment of put/call obligation
 
(36
)
 

 

 

 
(36
)
Repurchases for tax withholdings on vesting of equity awards
 
(591
)
 

 

 

 
(591
)
Net cash provided by (used in) financing activities
 
138,512

 
(113,299
)
 
(110,991
)
 

 
(85,778
)
Effect of exchange rate changes on cash and cash equivalents
 

 

 
9,708

 

 
9,708

Net increase (decrease) in cash and cash equivalents
 
24,513

 
(299
)
 
(2,100
)
 
(922
)
 
21,192

Cash and cash equivalents at beginning of period
 
3,382

 
299

 
92,975

 

 
96,656

Cash and cash equivalents at end of period
 
$
27,895

 
$

 
$
90,875

 
$
(922
)
 
$
117,848


 





45

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



Supplemental Condensed Consolidating Statement of Cash Flows
Nine Months Ended December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(87,634
)
 
$
39,771

 
$
36,712

 
$
(2,947
)
 
$
(14,098
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(15,385
)
 
(21,093
)
 
(83,248
)
 

 
(119,726
)
Proceeds from asset dispositions
 

 
12,894

 
1,450

 

 
14,344

Investment in unconsolidated affiliate
 

 
290

 

 

 
290

Net cash used in investing activities
 
(15,385
)
 
(7,909
)
 
(81,798
)
 

 
(105,092
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
243,900

 
109,890

 
6,450

 

 
360,240

Debt issuance costs
 
(2,925
)
 

 
(958
)
 

 
(3,883
)
Repayment of debt
 
(218,900
)
 
(4,494
)
 
(20,283
)
 

 
(243,677
)
Dividends paid
 
(7,010
)
 
4

 
(360
)
 

 
(7,366
)
Increases (decreases) in cash related to intercompany advances and debt
 
55,910

 
(140,655
)
 
84,745

 

 

Partial prepayment of put/call obligation
 
(38
)
 

 

 

 
(38
)
Dividends paid to noncontrolling interest
 

 

 
(2,533
)
 

 
(2,533
)
Payment of contingent consideration
 

 

 
(10,000
)
 

 
(10,000
)
Repurchases for tax withholdings on vesting of equity awards
 
(762
)
 

 

 

 
(762
)
Net cash provided by (used in) financing activities
 
70,175

 
(35,255
)
 
57,061

 

 
91,981

Effect of exchange rate changes on cash and cash equivalents
 

 

 
(5,942
)
 

 
(5,942
)
Net increase (decrease) in cash and cash equivalents
 
(32,844
)
 
(3,393
)
 
6,033

 
(2,947
)
 
(33,151
)
Cash and cash equivalents at beginning of period
 
35,241

 
3,393

 
65,676

 

 
104,310

Cash and cash equivalents at end of period
 
$
2,397

 
$

 
$
71,709

 
$
(2,947
)
 
$
71,159



46


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 December 31, 2017, the related condensed consolidated statements of operations and comprehensive loss, for the three-month and nine-month periods ended December 31, 2017 and 2016, the related condensed consolidated statements of cash flows for the nine-month periods ended December 31, 2017 and 2016, and the related condensed consolidated statements of changes in equity and redeemable noncontrolling interest for the nine-month period ended December 31, 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 sheet 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
February 8, 2018

47


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 December 31, 2017 and 2016, respectively, and the terms “Current Period” and “Comparable Period” refer to the nine months ended December 31, 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 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 defer payment on certain aircraft into future fiscal years or take delivery of certain aircraft later than initially scheduled;
the possibility that we may impair our long-lived assets, including goodwill, property and equipment and investments in unconsolidated affiliates;
the possibility of changes in tax and other laws and regulations;
the possibility that the major oil companies do not continue to expand internationally and offshore;
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 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 existence of competitors;

48


the existence of operating risks inherent in our business, including the possibility of declining safety performance;
the possibility of political instability, war or acts of terrorism in any of the countries where we operate;
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.

49


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 with 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 include 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. As of December 31, 2017, we operated 292 aircraft (including 190 owned aircraft and 102 leased aircraft; 9 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 114 aircraft in addition to those aircraft leased from us.


50


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 December 31, 2017; (2) the number of helicopters which we had on order or under option as of December 31, 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
Total (2)(3)
 
Total
Europe Caspian
 
54
%
 

 
16

 
79

 
32

 
127

 

 
127

Africa
 
14
%
 
9

 
28

 
5

 
5

 
47

 
48

 
95

Americas
 
17
%
 
16

 
41

 
16

 

 
73

 
66

 
139

Asia Pacific
 
15
%
 

 
10

 
21

 
14

 
45

 

 
45

Total
 
100
%
 
25

 
95

 
121

 
51

 
292

 
114

 
406

Aircraft not currently in fleet: (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 9 aircraft held for sale and 102 leased aircraft as follows:
 
 
Held for Sale Aircraft in Consolidated Fleet
 
 
Helicopters
 
 
 
 
Small
 
Medium
 
Large
Fixed
Wing
 
Total
Europe Caspian
 

 
2

 

 

 
2

Africa
 

 
1

 

 
1

 
2

Americas
 

 
4

 

 

 
4

Asia Pacific
 

 

 

 
1

 
1

Total
 

 
7

 

 
2

 
9

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

 
6

 
40

 
14

 
60

Africa
 

 
1

 
2

 
2

 
5

Americas
 
3

 
14

 
6

 

 
23

Asia Pacific
 

 
3

 
7

 
4

 
14

Total
 
3

 
24

 
55

 
20

 
102

(3) 
The average age of our helicopter fleet was approximately nine years as of December 31, 2017.
(4) 
The 114 aircraft operated by our unconsolidated affiliates do not include those aircraft leased from us. Includes 44 helicopters (primarily medium) and 22 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) 
This table does not reflect aircraft which our unconsolidated affiliates may have on order or under option.

51


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 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
 
171

 
174

 
162

 
166

 
158

 
158

 
LACE Rate (in millions)
 
$
6.85

 
$
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 December 31, 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

 
43

 
50
%
 
Africa
18

 
3

 
12
%
 
Americas
25

 
14

 
36
%
 
Asia Pacific
18

 
9

 
33
%
 
Total
104

 
68

 
40
%
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 to 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 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 December 31, 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.

52


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 of 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 are employing the following priorities in furtherance of the STRIVE strategy: (1) maintaining safety as our first priority; (2) achieving cost efficiencies, including the reduction of 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.
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 as of July 1, 2014 to a low of approximately $26 per barrel in February 2016, with an increase to approximately $60 per barrel as of December 31, 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, negatively impacting activity beginning in fiscal year 2015. These cost reductions have continued into fiscal year 2018 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. 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 showing 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.
Through the continued downturn we have been successful in preserving our liquidity and managing revenue and margin declines through cost reductions and capital efficiencies, diversification into other lines of service, such as SAR and fixed wing services, OEM cost recoveries and public and private financings.
Additionally, we have taken the following actions in an effort to address the downturn:
We continue to seek ways to operate more efficiently in the current market and work with our clients to improve the efficiency of their operations. We achieved approximately $80.0 million of annualized cost reductions and cash savings in fiscal year 2017 relative to our original fiscal year 2017 operating plan by proactively implementing operating cost initiatives, and further cost reductions and cash savings have been put into effect during fiscal year 2018.
We increased our financial flexibility by amending certain financial covenants in each of our senior secured credit agreements and entering into new secured equipment financings that resulted in aggregate proceeds of $630 million funded in fiscal years 2017 and 2018. Additionally, in December 2017, we completed the sale of $143.8 million of 4½% Convertible Senior Notes due 2023 (the “4½% Convertible Senior Notes”) as discussed in Note 3 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report and under “Recent Events” below.

53


We worked with our OEMs to defer approximately $190 million of capital expenditures relating to fiscal years 2018 through 2020 into fiscal year 2020 and beyond and expect to achieve approximately $130 million in cost recoveries from OEMs in fiscal year 2018 related to ongoing aircraft issues, of which $125 million was recovered in the Current Quarter.
In early fiscal year 2018, we took additional steps to increase cost efficiency by optimizing our operations around two primary geographical hubs in key areas of our business, Europe and the Americas. We took significant steps to reduce general and administrative costs that included downsizing our corporate office and the size of our senior management team. Consistent with our STRIVE strategy, Bristow is better positioned to win contracts because it is a more nimble regionally focused and cost efficient business.
In August 2017, we suspended our quarterly dividend as part of a broader plan of reducing costs and improving liquidity. By suspending this $0.07 per share quarterly dividend, we expect to preserve approximately $10 million of cash annually.
Recent Events
4½% Convertible Senior Notes On December 18, 2017, we issued and sold $143.8 million of the 4½% Convertible Senior Notes. The proceeds were used to repay $89.6 million of the $350 million term loan (the “Term Loan”) and to pay $10.1 million of the cost of the convertible note hedge transactions entered into in connection with the 4½% Convertible Senior Notes, with the remainder available for general corporate purposes. Additional details regarding the 4½% Convertible Senior Notes are provided in Note 3 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Tax Cuts and Jobs Act — On December 22, 2017, the United States Congress enacted the Tax Cuts and Jobs Act (the “Act”). The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. Further, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We have made reasonable estimates for the change in the U.S. federal corporate income tax rate and one-time “deemed repatriation” of accumulated foreign earnings. We estimate the revaluation of U.S. net deferred tax liabilities will result in a one-time tax benefit of approximately $75.6 million offset by an estimated $61.5 million in tax expense as a result of the “deemed repatriation” of foreign earnings. We are still analyzing certain aspects of the Act and refining our calculations.
Because of the complexity, we are continuing to evaluate certain provisions of the Act which may have an impact on our income taxes beginning after fiscal year 2018. 
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 our competitive position during the market downturn. The sales price is 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 total charges recorded in the Current Quarter and Current Period of $0.7 million and $7.2 million, respectively, which resulted from the combined loss on the sale and related impairment of assets included in loss on disposal of assets on our condensed consolidated statement of operations.
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.

54


Fleet updates — 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 the 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. During the three months ended December 31, 2017, we returned three of these H225LP models to the lessor; two were previously operating in Australia and one was previously operating in the U.K. During February 2018, we returned one H225LP model to the lessor that was previously operating in the U.K.
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 acceptance 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.
During fiscal year 2018, we reached agreements with OEMs to recover approximately $130.0 million related to ongoing aircraft issues mentioned above, of which $125.0 million was recovered during the Current Quarter. For further details on the accounting treatment, see Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
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 Term Loan and $103.0 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 the U.S. Gulf of Mexico, Guyana, Trinidad, Canada and Brazil, and had included Bristow Academy prior to its sale on November 1, 2017. 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.

55


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.
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 December 31, 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.
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 64% and 66% of Líder’s operating revenue in calendar years 2017 and 2016, respectively. As of December 31, 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 recent years, 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.

56


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 above and elsewhere in this Quarterly Report is an example of this exposure and possible impact on our results of operations.

57


Results of Operations
The following table presents our operating results and other statement of operations information for the applicable periods:
 
 
Three Months Ended 
 December 31,
 
 
Favorable
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
 
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
345,528

 
$
324,353

 
 
$
21,175

 
 
6.5
 %
 
Reimbursable revenue
 
15,207

 
13,090

 
 
2,117

 
 
16.2
 %
 
Total gross revenue
 
360,735

 
337,443

 
 
23,292

 
 
6.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
271,864

 
260,343

 
 
(11,521
)
 
 
(4.4
)%
 
Reimbursable expense
 
14,725

 
12,206

 
 
(2,519
)
 
 
(20.6
)%
 
Depreciation and amortization
 
31,682

 
29,768

 
 
(1,914
)
 
 
(6.4
)%
 
General and administrative
 
43,366

 
45,409

 
 
2,043

 
 
4.5
 %
 
Total operating expense
 
361,637

 
347,726

 
 
(13,911
)
 
 
(4.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 

 
(8,706
)
 
 
8,706

 
 
100.0
 %
 
Loss on disposal of assets
 
(4,591
)
 
(874
)
 
 
(3,717
)
 
 
*

 
Earnings from unconsolidated affiliates, net of losses
 
1,996

 
766

 
 
1,230

 
 
160.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(3,497
)
 
(19,097
)
 
 
15,600

 
 
81.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(19,093
)
 
(12,179
)
 
 
(6,914
)
 
 
(56.8
)%
 
Other income (expense), net
 
(766
)
 
1,668

 
 
(2,434
)
 
 
(145.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before benefit for income taxes
 
(23,356
)
 
(29,608
)
 
 
6,252

 
 
21.1
 %
 
Benefit for income taxes
 
13,419

 
3,560

 
 
9,859

 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(9,937
)
 
(26,048
)
 
 
16,111

 
 
61.9
 %
 
Net loss attributable to noncontrolling interests
 
1,664

 
4,121

 
 
(2,457
)
 
 
(59.6
)%
 
Net loss attributable to Bristow Group
 
$
(8,273
)
 
$
(21,927
)
 
 
$
13,654

 
 
62.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(0.23
)
 
$
(0.62
)
 
 
$
0.39

 
 
62.9
 %
 
Operating margin (1)
 
(1.0
)%
 
(5.9
)%
 
 
4.9
%
 
 
83.1
 %
 
Flight hours (2)
 
44,952

 
40,094

 
 
4,858

 
 
12.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
34,964

 
$
22,918

 
 
$
12,046

 
 
52.6
 %
 
Adjusted EBITDA margin (1)
 
10.1
 %
 
7.1
 %
 
 
3.0
%
 
 
42.3
 %
 
Adjusted net loss
 
$
(18,450
)
 
$
(10,121
)
 
 
$
(8,329
)
 
 
(82.3
)%
 
Adjusted diluted loss per share
 
$
(0.52
)
 
$
(0.29
)
 
 
$
(0.23
)
 
 
(79.3
)%
 


58


 
 
Nine Months Ended 
 December 31,
 
 
Favorable
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
 
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,043,249

 
$
1,024,199

 
 
$
19,050

 
 
1.9
 %
 
Reimbursable revenue
 
43,271

 
40,109

 
 
3,162

 
 
7.9
 %
 
Total gross revenue
 
1,086,520

 
1,064,308

 
 
22,212

 
 
2.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
842,128

 
831,516

 
 
(10,612
)
 
 
(1.3
)%
 
Reimbursable expense
 
42,365

 
38,096

 
 
(4,269
)
 
 
(11.2
)%
 
Depreciation and amortization
 
94,119

 
93,054

 
 
(1,065
)
 
 
(1.1
)%
 
General and administrative
 
138,695

 
149,278

 
 
10,583

 
 
7.1
 %
 
Total operating expense
 
1,117,307

 
1,111,944

 
 
(5,363
)
 
 
(0.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
(1,192
)
 
(16,278
)
 
 
15,086

 
 
92.7
 %
 
Loss on disposal of assets
 
(12,418
)
 
(13,077
)
 
 
659

 
 
5.0
 %
 
Earnings from unconsolidated affiliates, net of losses
 
3,394

 
4,777

 
 
(1,383
)
 
 
(29.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(41,003
)
 
(72,214
)
 
 
31,211

 
 
43.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(53,677
)
 
(34,533
)
 
 
(19,144
)
 
 
(55.4
)%
 
Other income (expense), net
 
147

 
(1,518
)
 
 
1,665

 
 
109.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before provision for income taxes
 
(94,533
)
 
(108,265
)
 
 
13,732

 
 
12.7
 %
 
Benefit (provision) for income taxes
 
(2,546
)
 
11,038

 
 
(13,584
)
 
 
(123.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(97,079
)
 
(97,227
)
 
 
148

 
 
0.2
 %
 
Net loss attributable to noncontrolling interests
 
2,322

 
4,731

 
 
(2,409
)
 
 
(50.9
)%
 
Net loss attributable to Bristow Group
 
$
(94,757
)
 
$
(92,496
)
 
 
$
(2,261
)
 
 
(2.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(2.69
)
 
$
(2.64
)
 
 
$
(0.05
)
 
 
(1.9
)%
 
Operating margin (1)
 
(3.9
)%
 
(7.1
)%
 
 
3.2
%
 
 
45.1
 %
 
Flight hours (2)
 
135,124

 
125,835

 
 
9,289

 
 
7.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
82,545

 
$
67,397

 
 
$
15,148

 
 
22.5
 %
 
Adjusted EBITDA margin (1)
 
7.9
 %
 
6.6
 %
 
 
1.3
%
 
 
19.7
 %
 
Adjusted net loss
 
$
(59,198
)
 
$
(34,415
)
 
 
$
(24,783
)
 
 
(72.0
)%
 
Adjusted diluted loss per share
 
$
(1.68
)
 
$
(0.98
)
 
 
$
(0.70
)
 
 
(71.4
)%
 
_____________ 
 * percentage change too large to be meaningful or not applicable.

(1) 
Operating margin is calculated as operating income (loss) 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 December 31, 2017 and 2016 totaling 11,246 and 9,580, respectively, and 32,923 and 30,344, respectively, for the nine months ended December 31, 2017 and 2016.

59


(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 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages and per share amounts)
Net loss
 
$
(9,937
)
 
$
(26,048
)
 
$
(97,079
)
 
$
(97,227
)
Loss on disposal of assets
 
4,591

 
874

 
12,418

 
13,077

Special items (i)
 
2,810

 
9,537

 
16,352

 
34,361

Depreciation and amortization
 
31,682

 
29,768

 
94,119

 
93,054

Interest expense
 
19,237

 
12,347

 
54,189

 
35,170

(Benefit) provision for income taxes
 
(13,419
)
 
(3,560
)
 
2,546

 
(11,038
)
Adjusted EBITDA
 
$
34,964

 
$
22,918

 
$
82,545

 
$
67,397

 
 
 
 
 
 
 
 
 
Benefit (provision) for income taxes
 
$
13,419

 
$
3,560

 
$
(2,546
)
 
$
11,038

Tax provision (benefit) on loss on disposal of
   assets
 
(2,130
)
 
(1,953
)
 
8,061

 
(5,858
)
Tax provision (benefit) on special items
 
(15,448
)
 
5,227

 
(1,272
)
 
10,227

Adjusted (provision) benefit for income taxes
 
$
(4,159
)
 
$
6,834

 
$
4,243

 
$
15,407

 
 
 
 
 
 
 
 
 
Effective tax rate (ii)
 
57.5
 %
 
12.0
%
 
(2.7
)%
 
10.2
%
Adjusted effective tax rate (ii)
 
(26.1
)%
 
37.9
%
 
6.5
 %
 
29.9
%
 
 
 
 
 
 
 
 
 
Net loss attributable to Bristow Group
 
$
(8,273
)
 
$
(21,927
)
 
$
(94,757
)
 
$
(92,496
)
Loss on disposal of assets (iii)
 
2,461

 
(1,079
)
 
20,479

 
7,219

Special items (i) (iii)
 
(12,638
)
 
12,885

 
15,080

 
50,862

Adjusted net loss
 
$
(18,450
)
 
$
(10,121
)
 
$
(59,198
)
 
$
(34,415
)
 
 
 
 
 
 
 
 
 
Diluted loss per share
 
$
(0.23
)
 
$
(0.62
)
 
$
(2.69
)
 
$
(2.64
)
Loss on disposal of assets (iii)
 
0.07

 
(0.03
)
 
0.58

 
0.21

Special items (i) (iii)
 
(0.36
)
 
0.37

 
0.43

 
1.45

Adjusted diluted loss per share (iv)
 
(0.52
)
 
(0.29
)
 
(1.68
)
 
(0.98
)
_____________ 
(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 provision (benefit) on loss on disposal of assets and tax provision (benefit) on special items is calculated using the statutory rate of the entity recording the loss on disposal of assets 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 35,368,212 and 35,095,240 during the Current Quarter and Comparable Quarter, respectively, and of 35,260,746 and 35,021,463 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.

60


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.
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 nine months ended December 31, 2017 and 2016:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Europe Caspian
 
$
18,614

 
$
9,123

 
$
58,716

 
$
43,273

Africa
 
14,206

 
17,012

 
40,206

 
39,350

Americas
 
12,689

 
10,039

 
33,430

 
34,317

Asia Pacific
 
4,797

 
(5,027
)
 
502

 
(10,513
)
Corporate and other
 
(15,342
)
 
(8,229
)
 
(50,309
)
 
(39,030
)
Consolidated adjusted EBITDA
 
$
34,964

 
$
22,918

 
$
82,545

 
$
67,397

 
 
 
 
 
 
 
 
 
Europe Caspian
 
9.8
%
 
5.3
 %
 
10.3
%
 
7.9
 %
Africa
 
29.6
%
 
34.3
 %
 
27.4
%
 
25.7
 %
Americas
 
21.0
%
 
18.9
 %
 
18.7
%
 
20.4
 %
Asia Pacific
 
9.5
%
 
(10.2
)%
 
0.3
%
 
(6.8
)%
Consolidated adjusted EBITDA margin
 
10.1
%
 
7.1
 %
 
7.9
%
 
6.6
 %

61


The following tables present region depreciation and amortization and rent expense for the three and nine months ended December 31, 2017 and 2016:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
12,771

 
$
11,185

 
$
36,789

 
$
33,594

Africa
 
3,664

 
4,007

 
10,330

 
12,680

Americas
 
6,909

 
7,060

 
20,906

 
25,669

Asia Pacific
 
4,479

 
4,973

 
15,347

 
13,586

Corporate and other
 
3,859

 
2,543

 
10,747

 
7,525

Total depreciation and amortization
 
$
31,682

 
$
29,768

 
$
94,119

 
$
93,054

 
 
 
 
 
 
 
 
 
Rent expense:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
29,499

 
$
34,115

 
$
102,803

 
$
100,007

Africa
 
2,048

 
1,767

 
6,424

 
6,101

Americas
 
6,295

 
5,638

 
18,480

 
16,258

Asia Pacific
 
2,807

 
10,247

 
24,356

 
28,803

Corporate and other
 
1,971

 
1,885

 
6,456

 
5,721

 Total rent expense
 
$
42,620

 
$
53,652

 
$
158,519

 
$
156,890

Current Quarter Compared to Comparable Quarter
Operating revenue from external clients by line of service was as follows:
 
Three Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
236,655

 
$
232,287

 
$
4,368

 
1.9
 %
Fixed wing services
52,476

 
44,811

 
7,665

 
17.1
 %
U.K. SAR services
55,659

 
45,193

 
10,466

 
23.2
 %
Corporate and other
738

 
2,062

 
(1,324
)
 
(64.2
)%
Total operating revenue
$
345,528

 
$
324,353

 
$
21,175

 
6.5
 %
The year-over-year increase in operating revenue was primarily driven by an increase in U.K. SAR services revenue due to additional bases coming online in fiscal years 2017 and 2018, an increase in operating revenue from our fixed wing services in our Asia Pacific, Africa and Europe Caspian regions and an increase in operating revenue for our oil and gas services primarily in our Americas and Europe Caspian regions due to an increase in activity. The activity level increase across our business was driven mostly by short term contracts, ad hoc and increased flying on existing contracts as we continue to see stability in certain markets, especially in the North Sea off of Norway and in the shelf in the U.S. Gulf of Mexico. Additionally, revenue increased by $10.8 million compared to the Comparable Quarter due to changes in foreign currency exchange rates, primarily related to the strengthening of the British pound sterling versus the U.S. dollar.
For the Current Quarter, we reported net loss of $8.3 million and a diluted loss per share of $0.23 compared to a net loss of $21.9 million and a diluted loss per share of $0.62 for the Comparable Quarter. The year-over-year change in net loss and diluted loss per share was primarily driven by one-time income tax benefits, higher revenue in the Current Quarter as discussed above, lower rent expense resulting from OEM cost recoveries in Current Quarter and impairment charges on goodwill recorded in the Comparable Quarter that did not recur in the Current Quarter. These favorable changes were partially offset by higher interest expense and higher loss on disposal of assets in the Current Quarter.

62


The net loss for the Current Quarter was significantly impacted by the following special items:
Organizational restructuring costs of $2.8 million ($2.5 million net of tax) included in direct cost and general and administrative expense, resulting from separation programs across our global organization designed to increase efficiency and reduce costs, and
A non-cash benefit of $15.1 million from tax items including a $75.6 million benefit related to the revaluation of net deferred tax liabilities to a lower tax rate resulting from the enactment of the Act in December 2017 and ongoing impact of valuation of deferred tax assets and recent financings of $1.0 million, partially offset by the impact of deemed repatriation of foreign earnings under the Act of $61.5 million.
Additionally, we had a loss on disposal of assets of $4.6 million ($2.5 million net of tax) during the Current Quarter primarily related to a loss of $3.0 million from the sale or disposal of aircraft and other equipment.
The Current Quarter results also benefited from the impact of OEM cost recoveries related to ongoing aircraft issues that resulted in a $125 million increase in cash and liquidity, a reduction in the carrying value of certain aircraft within our fleet by $94.5 million, a reduction in rent expense of $13.1 million (included in direct costs) and the recording of a liability of $17.4 million as of December 31, 2017. The liability recorded as of December 31, 2017 reflects the value of the OEM cost recoveries to be recorded as a reduction in rent expense in future periods, including $3.5 million to be recorded in the March 2018 quarter.
Excluding the special items described above and the loss on disposal of assets, adjusted net loss and adjusted diluted loss per share were $18.5 million and $0.52, respectively, for the Current Quarter. These adjusted results compare to adjusted net loss and adjusted diluted loss per share of $10.1 million and $0.29, respectively, for the Comparable Quarter. Additionally, adjusted EBITDA improved to $35.0 million in the Current Quarter from $22.9 million in the Comparable Quarter. The benefit from the OEM cost recoveries described above is included with adjusted net income, adjusted earnings per share and adjusted EBITDA in the Current Quarter.
The year-over-year change in adjusted net loss and adjusted diluted loss per share is primarily driven by an adjusted income tax expense in the Current Quarter compared to an adjusted income tax benefit in the Comparable Quarter and an increase in interest expense, partially offset by the increase in U.K. SAR, fixed wing services and oil and gas services revenue discussed above and the benefit from the OEM cost recoveries. The year-over-year change in adjusted EBITDA was primarily driven by the increase in U.K. SAR, fixed wing services and oil and gas services revenue discussed above and the benefit from the OEM cost recoveries.
The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Three Months Ended 
 December 31,
 
Favorable (Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Revenue impact
 
 
 
 
$
10,826

Operating expense impact
 
 
 
 
(9,028
)
Year-over-year income statement translation
 
 
 
 
1,798

 
 
 
 
 
 
Transaction gains included in other income (expense), net
$
368

 
$
1,638

 
(1,270
)
Líder foreign exchange impact included in earnings from unconsolidated affiliates
(757
)
 
(1,241
)
 
484

Total
$
(389
)
 
$
397

 
(786
)
 
 
 
 
 
 
Pre-tax income statement impact
 
 
 
 
1,012

Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
605

Adjusted EBITDA impact
 
 
 
 
$
1,617

 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
2,069

Earnings per share impact
 
 
 
 
$
0.06


63


The most significant foreign exchange impact related to a $1.8 million favorable impact from changes in foreign currency exchange rates in the Current Quarter primarily driven by the impact of the appreciating British pound sterling on the translation of our results in our Europe Caspian region. During the Current Quarter, we benefited from the appreciation of the British pound sterling from the Comparable Quarter 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 translated into higher U.S. dollar earnings for reporting purposes. Additionally, results for the Current Quarter were impacted by a $0.5 million decrease in unfavorable foreign currency exchange rate impact from our investment in Líder in Brazil. Partially offsetting these favorable impacts was a $1.3 million unfavorable impact from lower transaction gains in the Current Quarter compared to the Comparable Quarter.
Direct costs increased 4.4%, or $11.5 million, year-over-year primarily due to a $7.3 million increase in maintenance expense, a $7.2 million increase in salaries and benefits, a $4.5 million increase in fuel costs and a $4.0 million increase in other direct costs, all of which are attributable to an increase in activity, partially offset by a $11.5 million decrease in rent expense primarily due to OEM cost recoveries.
Reimbursable expense increased 20.6%, or $2.5 million, primarily due to new contracts in our Asia Pacific region and Norway.
Depreciation and amortization expense increased 6.4%, or $1.9 million, to $31.7 million for the Current Quarter from $29.8 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, partially offset by a $0.7 million reduction to depreciation expense related to OEM cost recoveries.
General and administrative expense decreased 4.5%, or $2.0 million, in the Current Quarter, as compared to the Comparable Quarter primarily due to a decrease in compensation expense of $2.6 million primarily resulting from a reduction in long-term incentive compensation costs, partially offset by an increase of $0.6 million primarily related to information technology costs.
Loss on impairment for the Comparable Quarter includes $8.7 million of goodwill impairments related to Eastern Airways. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Loss on disposal of assets increased $3.7 million to a loss of $4.6 million for the Current Quarter from a loss of $0.9 million for the Comparable Quarter. The loss on disposal of assets in the Current Quarter included a loss of $3.0 million from the sale or disposal of aircraft and other equipment and impairment charges totaling $1.6 million related to assets held for sale. During the Comparable Quarter, the loss on disposal of assets included impairment charges totaling $0.2 million related to assets held for sale and a loss of $0.7 million from the sale or disposal of aircraft and other equipment.
Earnings from unconsolidated affiliates, net of losses, increased $1.2 million to earnings of $2.0 million for the Current Quarter from earnings of $0.8 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 $2.7 million of earnings in the Current Quarter from $1.5 million in earnings in the Comparable Quarter primarily due to reduced salaries and benefits and less of an unfavorable impact of foreign currency exchange rates of $0.5 million in the Current Quarter compared to the Comparable Quarter.
Interest expense, net, increased 56.8%, or $6.9 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 $0.5 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.

64


As discussed above, our results for the Current Quarter were impacted by special items. During the Comparable Quarter, special items that impacted our results included organizational restructuring costs, accelerated depreciation expense, goodwill impairment 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 
 December 31, 2017
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(2,810
)
 
$
(2,501
)
 
$
(0.07
)
Tax items
 

 
15,139

 
0.42

Total special items
 
$
(2,810
)
 
$
12,638

 
0.36

 
 
 
 
 
 
 
 
 
Three Months Ended 
 December 31, 2016
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(831
)
 
$
(583
)
 
$
(0.02
)
Additional depreciation expense resulting from fleet changes
 

 
(761
)
 
(0.02
)
Goodwill impairment
 
(8,706
)
 
(7,857
)
 
(0.22
)
Tax valuation allowances
 

 
(3,684
)
 
(0.10
)
Total special items
 
$
(9,537
)
 
$
(12,885
)
 
(0.37
)
Current Period Compared to Comparable Period
Operating revenue from external clients by line of service was as follows:
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
715,184

 
$
722,896

 
$
(7,712
)
 
(1.1
)%
Fixed wing services
159,874

 
148,111

 
11,763

 
7.9
 %
U.K. SAR services
164,306

 
145,592

 
18,714

 
12.9
 %
Corporate and other
3,885

 
7,600

 
(3,715
)
 
(48.9
)%
Total operating revenue
$
1,043,249

 
$
1,024,199

 
$
19,050

 
1.9
 %
The year-over-year increase in revenue in the Current Period was primarily driven 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 our Asia Pacific, Africa and Europe Caspian regions. These increases were partially offset by a decrease in our oil and gas services driven by declines in our Asia Pacific and Africa regions, partially offset by increases in oil and gas services in our Europe Caspian and Americas regions. See further discussion of operating revenue by region under “—Region Operating Results.” Additionally, revenue decreased by $4.9 million compared to the Comparable Period due to changes in foreign exchange rates, primarily related to the weakening of the British pound sterling versus the U.S. dollar.
For the Current Period, we reported a net loss of $94.8 million and a diluted loss per share of $2.69 compared to a net loss of $92.5 million and a diluted loss per share of $2.64 for the Comparable Period. The year-over-year change in net loss and diluted loss per share was primarily driven by higher revenue from U.K. SAR and fixed wing services in the Current Period discussed above, higher inventory and goodwill impairment charges recorded in the Comparable Period and a decrease in general and administrative expense primarily from lower salaries and benefits in the Current Period. These favorable changes were partially offset by the decline in the oil and gas services revenue and higher interest expense.

65


The net loss for the Current Period was significantly impacted by the following special items:
Organizational restructuring costs of $15.2 million ($11.3 million net of tax) included in general and administrative expense, which includes severance expense of $13.9 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
A non-cash expense of $3.0 million from tax items including a $75.6 million benefit related to the revaluation of net deferred tax liabilities to a lower tax rate resulting from the enactment of the Act in December 2017, partially offset by the impact of deemed repatriation of foreign earnings under the Act of $61.5 million, the ongoing impact of valuation of deferred tax assets of $14.7 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 $2.4 million.
Additionally, we had a loss on disposal of assets of $12.4 million ($20.5 million net of tax) during the Current Period primarily related to $11.3 million for impairment charges on assets held for sale (including $7.2 million impairment and loss on disposal related to the Bristow Academy disposal group).
Excluding the special items described above and the loss on disposal of assets, adjusted net loss and adjusted diluted loss per share were $59.2 million and $1.68, respectively, for the Current Period. These adjusted results compare to adjusted net loss and adjusted diluted loss per share of $34.4 million and $0.98, respectively, for the Comparable Period. Additionally, adjusted EBITDA improved to $82.5 million in the Current Period from $67.4 million in the Comparable Period. Results for the Current Period were also positively impacted by a reduction in rent expense of $13.1 million included in direct costs related to OEM cost recoveries.
The year-over-year change in adjusted EBITDA was primarily driven by higher revenue from U.K. SAR and fixed wing services in the Current Period discussed above and a decrease in general and administrative expense primarily from lower salaries and benefits in the Current Period. These favorable changes were partially offset by the decline in oil and gas revenue discussed above. The year-over-year change in adjusted net loss and diluted earnings per share was impacted by the same items that impacted adjusted EBITDA and higher interest expense.
The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Nine Months Ended 
 December 31,
 
Favorable (Unfavorable)
 
2017
 
2016
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Revenue impact
 
 
 
 
$
(4,850
)
Operating expense impact
 
 
 
 
593

Year-over-year income statement translation
 
 
 
 
(4,257
)
 
 
 
 
 
 
Transaction gains (losses) included in other income (expense), net
$
1,214

 
$
(1,763
)
 
2,977

Líder foreign exchange impact included in earnings from unconsolidated affiliates
(1,637
)
 
(2,545
)
 
908

Total
$
(423
)
 
$
(4,308
)
 
3,885

 
 
 
 
 
 
Pre-tax income statement impact
 
 
 
 
(372
)
Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
612

Adjusted EBITDA impact
 
 
 
 
$
240

 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
2,561

Earnings per share impact
 
 
 
 
$
0.07

The most significant foreign exchange impact related to a $4.3 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. Partially offsetting these unfavorable impacts was a $3.0 million favorable impact from transaction gains in the Current Period compared to transaction losses in the Comparable Period. Additionally, results for the Current Period were impacted by a $0.9 million decrease in unfavorable foreign currency exchange rate impact from our investment in Líder in Brazil.

66


Direct costs increased 1.3%, or $10.6 million, year-over-year primarily due to a $17.2 million increase in maintenance expense and a $11.2 million increase in fuel primarily due to an increase in activity, partially offset by lower headcount across all regions due to the benefit of organizational restructuring efforts reflected in a $7.0 million decrease in salaries and benefits and $5.6 million decrease in freight costs and a $5.2 million decrease in various other costs.
Reimbursable expense increased 11.2%, or $4.3 million, primarily due to new contracts in Norway.
Depreciation and amortization expense increased 1.1%, or $1.1 million, to $94.1 million for the Current Period from $93.1 million for the Comparable Period. 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 Period, partially offset by a $0.7 million reduction in depreciation expense related to OEM cost recoveries. Additionally, we recorded accelerated depreciation of $9.3 million in the Comparable Period as a result of fleet changes for older aircraft.
General and administrative expense decreased 7.1%, or $10.6 million, in the Current Period, as compared to the Comparable Period primarily due to an $8.6 million decrease in compensation expense primarily related to lower salaries and benefits due to a reduction in headcount across all regions and a $3.3 million decrease in professional fees, partially offset by a $1.3 million increase in various other costs primarily including rent expense.
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 $8.7 million of goodwill impairment related to Eastern Airways and $7.6 million of inventory impairments.
Loss on disposal of assets decreased $0.7 million, to a loss of $12.4 million for the Current Period from a loss of $13.1 million for the Comparable Period. The loss on disposal of assets in the Current Period included impairment charges totaling $11.3 million related to assets held for sale (including $7.2 million impairment and loss on disposal related to the Bristow Academy disposal group) and a loss of $1.1 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 $11.4 million related to assets held for sale and a loss of $1.7 million related to the sale of aircraft and other equipment.
Earnings from unconsolidated affiliates, net of losses, decreased $1.4 million to earnings of $3.4 million for the Current Period from earnings of $4.8 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 $5.7 million in the Current Period from $6.9 million in earnings in the Comparable Period primarily due to a decrease in activity. Our earnings from Lider in the Current Period were also impacted by less of an unfavorable impact of foreign currency exchange rate changes of $0.9 million.
Interest expense, net, increased 55.4%, or $19.1 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 Period we wrote-off $1.1 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.

67


As discussed above, our results for the Current Period were impacted by special items. During the Comparable Period, special items that impacted our results included organizational restructuring costs, accelerated depreciation expense, goodwill impairment, 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:
 
 
Nine Months Ended 
 December 31, 2017
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(15,160
)
 
$
(11,337
)
 
$
(0.32
)
Inventory impairment
 
(1,192
)
 
(775
)
 
(0.02
)
Tax items
 

 
(2,968
)
 
(0.08
)
Total special items
 
$
(16,352
)
 
$
(15,080
)
 
(0.43
)
 
 
 
 
 
 
 
 
 
Nine Months Ended 
 December 31, 2016
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(18,083
)
 
$
(12,171
)
 
$
(0.35
)
Additional depreciation expense resulting from fleet changes
 

 
(6,122
)
 
(0.17
)
Goodwill impairment
 
(8,706
)
 
(7,857
)
 
(0.22
)
Inventory impairment
 
(7,572
)
 
(5,372
)
 
(0.15
)
Tax valuation allowances
 

 
(19,340
)
 
(0.55
)
Total special items
 
$
(34,361
)
 
$
(50,862
)
 
(1.45
)

68


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 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
189,910

 
$
172,844

 
$
570,983

 
$
548,070

 
$
17,066

 
9.9
%
 
$
22,913

 
4.2
 %
Operating income (loss)
 
$
5,312

 
$
(303
)
 
$
19,610

 
$
18,468

 
$
5,615

 
*

 
$
1,142

 
6.2
 %
Operating margin
 
2.8
%
 
(0.2
)%
 
3.4
%
 
3.4
%
 
3.0
%
 
*

 
%
 
 %
Adjusted EBITDA
 
$
18,614

 
$
9,123

 
$
58,716

 
$
43,273

 
$
9,491

 
104.0
%
 
$
15,443

 
35.7
 %
Adjusted EBITDA margin
 
9.8
%
 
5.3
 %
 
10.3
%
 
7.9
%
 
4.5
%
 
84.9
%
 
2.4
%
 
30.4
 %
Rent expense
 
$
29,499

 
$
34,115

 
$
102,803

 
$
100,007

 
$
4,616

 
13.5
%
 
$
(2,796
)
 
(2.8
)%
_____________ 
 * percentage change too large to be meaningful or not applicable
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 primarily resulted from an increase of $10.5 million from the start-up of additional U.K. SAR bases, an increase of $7.2 million in Norway primarily due to an increase in activity and short-term contracts, an increase of $4.4 million in fixed wing revenue from Eastern Airways and a favorable year-over-year impact of changes in foreign currency exchange rates of $10.1 million. Partially offsetting these increases was a decrease in U.K. oil and gas revenue of $5.0 million primarily resulting from the continued impact of the industry downturn on drilling activity. Eastern Airways contributed $29.5 million and $25.1 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
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 in the Comparable Quarter as a result of Brexit. As a result of the changes in the British pound sterling, adjusted EBITDA was favorably impacted from foreign exchange changes of $0.7 million during the Current Quarter compared to an unfavorable impact of $11.3 million during the Comparable Quarter. The negative impact in the Comparable Quarter primarily related to a loss of $10.7 million from the revaluation of assets and liabilities on British pound sterling functional currency entities as of December 31, 2016, which is recorded in other income (expense), net. This compares to a foreign exchange gain within other income (expense), net of $1.3 million in the Current Quarter. A further weakening or strengthening of the British pound sterling could result in additional foreign exchange volatility in future quarters.
During the Current Quarter, we recorded a reduction to rent expense of $7.1 million in our Europe Caspian region related to OEM cost recoveries. This item is included in operating income and adjusted EBITDA in the Current Quarter. Additionally, during the Comparable Quarter, we recorded an impairment charge of $8.7 million for the remaining goodwill related to Eastern Airways, which contributed to the operating loss in the Comparable Quarter, but was adjusted for in our calculation of adjusted EBITDA. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin increased in the Current Quarter primarily due to the increase in operating revenue, the benefit to rent expense in the Current Quarter related to OEM cost recoveries and favorable year-over-year impacts from changes in foreign currency exchange rates, with operating income and operating margin also improving due to the goodwill impairment charge recorded in the Comparable Quarter. These benefits were partially offset by increased salaries and benefits and maintenance expense year-over-year due to the increase in activity. Eastern Airways contributed a negative $4.1 million and a negative $2.1 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.

69


Current Period Compared to Comparable Period
The increase in operating revenue in the Current Period primarily resulted from an increase of $26.8 million in Norway primarily due to an increase in activity and short-term contracts and an increase of $18.7 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 $18.0 million resulting from the continued impact of the industry downturn on drilling activity and an unfavorable year-over-year impact of changes in foreign currency exchange rates of $6.5 million. Eastern Airways contributed $87.8 million and $85.9 million in operating revenue for the Current Period and Comparable Period, respectively.
During the Current Period, we recorded a reduction to rent expense of $7.1 million in our Europe Caspian region related to OEM cost recoveries. This item is included in operating income and adjusted EBITDA in the Current Period. Additionally, during the Comparable Period, we recorded an impairment charge of $8.7 million for the remaining goodwill related to Eastern Airways, which was included in operating income, but was adjusted for in our calculation of adjusted EBITDA. For further details, see Note 1 in the “Notes to Consolidated Financial Statements” included elsewhere in this Quarterly Report.
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 in the Comparable Period as a result of Brexit. We recorded a foreign exchange gain of $2.8 million in the Current Period and foreign exchange loss of $18.7 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 $4.8 million and negatively impacted by $29.2 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 periods.
Operating income, adjusted EBITDA and adjusted EBITDA margin increased in the Current Period primarily due to the increase in operating revenue, the benefit to rent expense in the Current Period related to OEM cost recoveries and the impact of favorable changes in foreign currency exchange rates. These benefits were partially offset by increased salaries and benefits and maintenance expense year-over-year due to the increase in activity. Eastern Airways contributed a negative $3.7 million and a negative $0.2 million in adjusted EBITDA for the Current Period and Comparable Period, respectively.
Africa
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
47,915

 
$
49,587

 
$
146,523

 
$
153,055

 
$
(1,672
)

(3.4
)%
 
$
(6,532
)
 
(4.3
)%
Operating income
 
$
10,470

 
$
10,441

 
$
28,353

 
$
19,954

 
$
29

 
0.3
 %
 
$
8,399

 
42.1
 %
Operating margin
 
21.9
%
 
21.1
%
 
19.4
%
 
13.0
%
 
0.8
 %
 
3.8
 %
 
6.4
%
 
49.2
 %
Adjusted EBITDA
 
$
14,206

 
$
17,012

 
$
40,206

 
$
39,350

 
$
(2,806
)
 
(16.5
)%
 
$
856

 
2.2
 %
Adjusted EBITDA margin
 
29.6
%
 
34.3
%
 
27.4
%
 
25.7
%
 
(4.7
)%
 
(13.7
)%
 
1.7
%
 
6.6
 %
Rent expense
 
$
2,048

 
$
1,767

 
$
6,424

 
$
6,101

 
$
(281
)
 
(15.9
)%
 
$
(323
)
 
(5.3
)%
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 compared to the Comparable Quarter. Activity declined with certain clients and certain contracts ended, reducing revenue by $5.8 million, which was only partially offset by an increase in activity with other clients increasing revenue by $3.1 million. Additionally, fixed wing services in Africa generated $2.0 million and $1.0 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
Operating income remained mostly flat while adjusted EBITDA and adjusted EBITDA margin decreased in the Current Quarter primarily due to the impact of changes in foreign currency exchange rates, which negatively impacted adjusted EBITDA by $2.2 million compared to the Comparable Quarter.

70


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.
Current Period Compared to Comparable Period
Operating revenue for Africa decreased in the Current Period due to an overall decrease in activity compared to the Comparable Period. Activity declined with certain clients and certain contracts ended, reducing revenue by $13.6 million, which was only partially offset by an increase in activity with other clients increasing revenue by $4.2 million. Additionally, fixed wing services in Africa generated $5.5 million and $2.4 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 an $11.0 million decline in direct 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 $5.0 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 adjusted EBITDA by $1.3 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 $0.7 million and $4.4 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
60,345

 
$
53,024

 
$
178,884

 
$
168,578

 
$
7,321

 
13.8
 %
 
$
10,306

 
6.1
 %
Earnings from unconsolidated affiliates, net of losses
 
$
2,097

 
$
831

 
$
3,712

 
$
4,954

 
$
1,266

 
152.3
 %
 
$
(1,242
)
 
(25.1
)%
Operating income
 
$
5,308

 
$
2,226

 
$
11,535

 
$
5,790

 
$
3,082

 
138.5
 %
 
$
5,745

 
99.2
 %
Operating margin
 
8.8
%
 
4.2
%
 
6.4
%
 
3.4
%
 
4.6
%
 
109.5
 %
 
3.0
 %
 
88.2
 %
Adjusted EBITDA
 
$
12,689

 
$
10,039

 
$
33,430

 
$
34,317

 
$
2,650

 
26.4
 %
 
$
(887
)
 
(2.6
)%
Adjusted EBITDA margin
 
21.0
%
 
18.9
%
 
18.7
%
 
20.4
%
 
2.1
%
 
11.1
 %
 
(1.7
)%
 
(8.3
)%
Rent expense
 
$
6,295

 
$
5,638

 
$
18,480

 
$
16,258

 
$
(657
)
 
(11.7
)%
 
$
(2,222
)
 
(13.7
)%
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 in our U.S. Gulf of Mexico oil and gas operations, which increased operating revenue by $8.0 million and $2.2 million in additional operating revenue from the SAR consortium in the U.S. Gulf of Mexico, partially offset by a decrease in operating revenue of $2.4 million in Trinidad and $1.0 million in Brazil due to lower activity.
Earnings from unconsolidated affiliates, net of losses, increased $1.3 million primarily due to an increase in earnings from our investment in Líder in Brazil due to reduced salaries and benefits and less of an unfavorable change in exchange rates. Changes in exchange rates decreased our earnings from our investment in Líder by $0.8 million in the Current Quarter and $1.2 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 increases in revenue and earnings from unconsolidated affiliates discussed above, partially offset by an increase in rent expense.

71


Current Period Compared to Comparable Period
Operating revenue increased in the Current Period primarily due to an increase in activity from our U.S. Gulf of Mexico oil and gas operations which increased operating revenue by $7.0 million and $6.8 million in additional operating revenue from the SAR consortium in the U.S. Gulf of Mexico, partially offset by a decrease of $4.8 million in operating revenue in Trinidad due to lower activity.
Earnings from unconsolidated affiliates, net of losses, decreased $1.2 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 $1.6 million in the Current Period and $2.5 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 a decrease in depreciation expense of $4.8 million, partially offset by the decrease in earnings from unconsolidated affiliates discussed above and an increase in rent expense of $2.2 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 $0.4 million and $1.2 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 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
50,248

 
$
49,092

 
$
153,365

 
$
155,144

 
$
1,156

 
2.4
%
 
$
(1,779
)
 
(1.1
)%
Operating loss
 
$
(941
)
 
$
(9,012
)
 
$
(19,374
)
 
$
(24,480
)
 
$
8,071

 
89.6
%
 
$
5,106

 
20.9
 %
Operating margin
 
(1.9
)%
 
(18.4
)%
 
(12.6
)%
 
(15.8
)%
 
16.5
%
 
89.7
%
 
3.2
%
 
20.3
 %
Adjusted EBITDA
 
$
4,797

 
$
(5,027
)
 
$
502

 
$
(10,513
)
 
$
9,824

 
*

 
$
11,015

 
104.8
 %
Adjusted EBITDA margin
 
9.5
 %
 
(10.2
)%
 
0.3
 %
 
(6.8
)%
 
19.7
%
 
*

 
7.1
%
 
104.4
 %
Rent expense
 
$
2,807

 
$
10,247

 
$
24,356

 
$
28,803

 
$
7,440

 
72.6
%
 
$
4,447

 
15.4
 %
_____________ 
 * percentage change too large to be meaningful or not applicable
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 $2.3 million from our fixed wing operations as Airnorth contributed $21.0 million and $18.7 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin improved in the Current Quarter primarily due to a reduction to rent expense of $6.0 million in our Asia Pacific region recorded in the Current Quarter related to OEM cost recoveries and the increase in operating revenue from Airnorth discussed above.
During the Current Quarter and Comparable Quarter, we recorded $1.5 million and $0.2 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.

72


Current Period Compared to Comparable Period
Operating revenue decreased in the Current Period by $14.8 million due to the end of short-term contracts in Australia, partially offset by an increase of $6.7 million from our fixed wing operations at Airnorth, an increase of $4.1 million in Russia (Sakhalin) and favorable foreign exchange rate impact of $3.5 million. Airnorth contributed $66.6 million and $59.9 million in 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 the reduction to rent expense related to OEM cost recoveries discussed above, a decrease in salaries and benefits of $1.5 million due to organizational restructuring efforts and a favorable year-over-year impact from changes in exchange rates, partially offset by increased depreciation and amortization expense of $1.8 million. Changes in foreign exchange rates positively impacted adjusted EBITDA results by $3.1 million compared to the Comparable Period primarily due to foreign exchange rate gains of $0.8 million for the Current Period compared to foreign exchange rate losses of $2.2 million in the Comparable Period. Airnorth contributed $8.6 million and $7.8 million in adjusted EBITDA for the Current Period and Comparable Period, respectively.
Additionally, during the Current Period and Comparable Period, we recorded $3.7 million and $2.5 million, respectively, 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.
Corporate and Other
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
743

 
$
2,099

 
$
3,912

 
$
7,917

 
$
(1,356
)
 
(64.6
)%
 
$
(4,005
)
 
(50.6
)%
Operating loss
 
$
(19,055
)
 
$
(21,575
)
 
$
(68,709
)
 
$
(78,869
)
 
$
2,520

 
11.7
 %
 
$
10,160

 
12.9
 %
Adjusted EBITDA
 
$
(15,342
)
 
$
(8,229
)
 
$
(50,309
)
 
$
(39,030
)
 
$
(7,113
)
 
(86.4
)%
 
$
(11,279
)
 
(28.9
)%
Rent expense
 
$
1,971

 
$
1,885

 
$
6,456

 
$
5,721

 
$
(86
)
 
(4.6
)%
 
$
(735
)
 
(12.8
)%
Corporate and other includes our supply chain management and corporate costs that have not been allocated out to other regions and our Bristow Academy operations prior to the sale of Bristow Academy on November 1, 2017.
Current Quarter Compared to Comparable Quarter
Operating revenue decreased in the Current Quarter primarily due to a decrease in Bristow Academy revenue of $1.1 million as a result of the sale of those operations.
Operating loss was lower for the Current Quarter primarily due to the sale of Bristow Academy which incurred less of an operating loss in the Current Quarter compared to the Comparable Quarter. Adjusted EBITDA decreased primarily due to foreign currency transaction losses of $0.3 million recorded in the Current Quarter versus foreign currency transaction gains of $10.7 million for the Comparable Quarter.
Current Period Compared to Comparable Period
Operating revenue decreased in the Current Period primarily due to a decrease in Bristow Academy revenue of $2.4 million and decrease in part sales of $1.6 million.
Operating loss for the Current Period and Comparable Period were most significantly impacted by $1.2 million and $7.6 million, respectively, of inventory impairment charges and a $5.7 million reduction in general and administrative expenses, partially offset by the decline in revenue. Adjusted EBITDA decreased primarily due to foreign currency transaction losses of $3.3 million for the Current Period versus foreign currency transaction gains of $15.4 million for the Comparable Period. This change in foreign currency impacts was partially offset by overall cost reduction activities that decreased general and administrative expenses as discussed above.
During the Current and Comparable Periods, we recorded $9.5 million and $9.0 million related to organizational restructuring costs, respectively, which along with the inventory impairment charges discussed above are excluded from adjusted EBITDA.

73


Interest Expense, Net
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Interest income
 
$
144

 
$
168

 
$
512

 
$
637

 
$
(24
)
 
(14.3
)%
 
$
(125
)
 
(19.6
)%
Interest expense
 
(17,840
)
 
(13,737
)
 
(51,707
)
 
(38,756
)
 
(4,103
)
 
(29.9
)%
 
(12,951
)
 
(33.4
)%
Amortization of debt discount
 
(242
)
 
(325
)
 
(343
)
 
(1,314
)
 
83

 
25.5
 %
 
971

 
73.9
 %
Amortization of debt fees
 
(1,851
)
 
(1,136
)
 
(4,791
)
 
(3,623
)
 
(715
)
 
(62.9
)%
 
(1,168
)
 
(32.2
)%
Capitalized interest
 
696

 
2,851

 
2,652

 
8,523

 
(2,155
)
 
(75.6
)%
 
(5,871
)
 
(68.9
)%
Interest expense, net
 
$
(19,093
)
 
$
(12,179
)
 
$
(53,677
)
 
$
(34,533
)
 
$
(6,914
)
 
(56.8
)%
 
$
(19,144
)
 
(55.4
)%
Interest expense, net increased in the Current Quarter compared to the Comparable Quarter and in the 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 $0.5 million and $1.1 million, respectively, of deferred financing fees related to the early extinguishment of debt.
Other Income (Expense), Net
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Foreign currency gains (losses) by region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,325

 
$
(10,656
)
 
$
2,770

 
$
(18,659
)
 
$
11,981

 
112.4
 %
 
$
21,429

 
114.8
 %
Africa
 
(400
)
 
2,255

 
762

 
2,112

 
(2,655
)
 
(117.7
)%
 
(1,350
)
 
(63.9
)%
Americas
 
(22
)
 
607

 
173

 
1,564

 
(629
)
 
(103.6
)%
 
(1,391
)
 
(88.9
)%
Asia Pacific
 
(276
)
 
(1,233
)
 
789

 
(2,186
)
 
957

 
77.6
 %
 
2,975

 
136.1
 %
Corporate and other
 
(259
)
 
10,665

 
(3,280
)
 
15,406

 
(10,924
)
 
(102.4
)%
 
(18,686
)
 
(121.3
)%
Foreign currency gains (losses)
 
368

 
1,638

 
1,214

 
(1,763
)
 
(1,270
)
 
(77.5
)%
 
2,977

 
168.9
 %
Other
 
(1,134
)
 
30

 
(1,067
)
 
245

 
(1,164
)
 
*

 
(1,312
)
 
*

Other income (expense), net
 
$
(766
)
 
$
1,668

 
$
147

 
$
(1,518
)
 
$
(2,434
)
 
(145.9
)%
 
$
1,665

 
109.7
 %
_____________ 
 * percentage change too large to be meaningful or not applicable.
Other income (expense), net for the Current Quarter, Comparable Quarter, Current Period and Comparable Period 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. Additionally, during the Current Quarter and Current Period, we recorded a provision related to a non-operational contract matter with a client.
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 most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.

74


Taxes
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
2017
 
2016
 
2017
 
2016
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Effective tax rate
57.5
%
 
12.0
%
 
(2.7
)%
 
10.2
%
 
(45.5
)%
 
(379.2
)%
 
12.9
%
 
126.5
 %
Net foreign tax on non-U.S. earnings
$
(2,433
)
 
$
179

 
$
2,747

 
$
894

 
$
2,612

 
*

 
$
(1,853
)
 
(207.3
)%
Expense of foreign earnings indefinitely reinvested abroad
$
2,484

 
$
3,666

 
$
(11,511
)
 
$
7,811

 
$
1,182

 
32.2
 %
 
$
19,322

 
247.4
 %
Expense (benefit) from change in tax contingency
$
180

 
$
599

 
$
4,874

 
$
229

 
$
419

 
69.9
 %
 
$
(4,645
)
 
*

Impact of goodwill impairment
$

 
$
2,186

 
$

 
$
2,186

 
$
2,186

 
100.0
 %
 
$
2,186

 
100.0
 %
Impact of stock based compensation
$
78

 
$

 
$
2,314

 
$

 
$
(78
)
 
*

 
$
(2,314
)
 
*

Foreign statutory rate reduction
$

 
$

 
$

 
$
(1,234
)
 
$

 
*

 
$
(1,234
)
 
(100.0
)%
Deduction for foreign taxes
$
501

 
$
(801
)
 
$
(643
)
 
$
(2,003
)
 
$
(1,302
)
 
(162.5
)%
 
$
(1,360
)
 
(67.9
)%
Change in valuation allowance
$
2,085

 
$
3,684

 
$
13,402

 
$
19,340

 
$
1,599

 
43.4
 %
 
$
5,938

 
30.7
 %
U.S. statutory rate
 reduction
$
(75,636
)
 
$

 
$
(75,636
)
 
$

 
$
75,636

 
*

 
$
75,636

 
*

One-time repatriation tax
$
61,478

 
$

 
$
61,478

 
$

 
$
(61,478
)
 
*

 
$
(61,478
)
 
*

_____________ 
 * percentage change too large to be meaningful or not applicable
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 or benefit does not change proportionally with our pre-tax book income or loss. 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 $2.1 million and $3.7 million, respectively, which also increased our effective tax rate. During the Current and Comparable Periods, we increased our valuation allowance by $13.4 million and $19.3 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 $2.1 million and $3.7 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 $5.8 million and $8.3 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 benefit of $1.6 million in the Current Quarter and expense of $14.7 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 benefit of $0.6 million in the Current Quarter and additional tax expense of $2.4 million in the Current Period.

75


On December 22, 2017, the United States Congress enacted the Act. The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. Further, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We have made reasonable estimates for the change in the U.S. federal corporate income tax rate and one-time “deemed repatriation” of accumulated foreign earnings. We estimate the revaluation of U.S. net deferred tax liabilities will result in a one-time tax benefit of approximately $75.6 million offset by an estimated $61.5 million in tax expense as a result of the “deemed repatriation” of foreign earnings. We are still analyzing certain aspects of the Act and refining our calculations.
Because of the complexity, we are continuing to evaluate certain provisions of the Act which may have an impact on our income taxes beginning after fiscal year 2018. 
Liquidity and Capital Resources
Cash Flows
Operating Activities
Net cash flows used by operating activities were $9.3 million and $14.1 million during the Current Period and Comparable Period, respectively. The decrease in net cash flows used by operating activities in the Current Period resulted from a lower net loss and a decrease in cash flow used in working capital changes. Changes in non-cash working capital used $18.2 million and $18.8 million in cash flows from operating activities for the Current Period and Comparable Period, respectively. Cash flows from operations for the Current Period includes $30.5 million related to OEM cost recoveries of which $20.1 million is included in cash flows from operations before working capital changes and $10.4 million is included in working capital changes.
Investing Activities
Cash flows provided by investing activities were $106.6 million during the Current Period and cash flows used by investing activities was $105.1 million during the Comparable Period. Cash was used primarily for capital expenditures as follows:
 
 
 
Nine Months Ended 
 December 31,
 
 
 
2017
 
2016
 
 
Number of aircraft delivered:
 
 
 
 
 
Medium
5

 
5

 
 
SAR aircraft

 
2

 
 
Total aircraft
5

 
7

 
 
Capital expenditures (in thousands):
 
 
 
 
 
Aircraft and equipment
$
26,800

 
$
112,770

 
 
Land and building
9,641

 
6,956

 
 
Total capital expenditures
$
36,441

 
$
119,726

 
In addition to these capital expenditures, investing cash flows were impacted by aircraft sales and OEM cost recoveries. During the Current Period, we received proceeds of $48.5 million primarily from the sale or disposal of eleven aircraft and certain other equipment. During the Comparable Period, we received $14.3 million in proceeds from the sale or disposal of nine aircraft and certain other equipment. During the Current Period, cash flows from investing activities includes $94.5 million related to OEM cost recoveries.
Financing Activities
Cash flows used by financing activities was $85.8 million and cash flows provided by financing activities was $92.0 million during the Current Period and Comparable Period, respectively. During the Current Period, we received $174.8 million from borrowings on our Revolving Credit Facility, $230 million from borrowings on our PK Air Debt and $143.8 million from the issuance of our 4½% Convertible Senior Notes. During the Current Period, we used cash to repay debt of $609.7 million (including $313.9 million related to our Revolving Credit Facility and $295.8 million related to other principal payments on debt) and pay dividends of $2.5 million on our common stock. Additionally, during the Current Period, we paid $40.4 million for the purchase of the 4½% Convertible Senior Notes call option, and simultaneously received $30.3 million for the issuance of warrants. During the Comparable Period, we received $243.9 million from borrowings on our Revolving Credit Facility and $109.9 million from the Lombard debt. During the Comparable Period, we used cash to repay debt of $243.7 million, pay contingent consideration of $10.0 million and pay dividends of $7.4 million on our common stock.

76



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.
The following table summarizes our significant contractual obligations and other commercial commitments on an undiscounted basis as of December 31, 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 December 31, 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
 
 
 
 
Three 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)
 
$
1,252,924

 
$
17,356

 
$
153,353

 
$
231,614

 
$
850,601

Interest (2)
 
300,797

 
8,945

 
126,160

 
113,885

 
51,807

Aircraft operating leases (3)
 
397,818

 
42,979

 
267,355

 
73,789

 
13,695

Other operating leases (4)
 
68,160

 
2,749

 
18,286

 
14,348

 
32,777

Pension obligations (5)
 
53,889

 
3,319

 
30,563

 
20,007

 

Aircraft purchase obligations (6)(7)(8)
 
475,625

 
66,212

 
45,392

 
166,117

 
197,904

Other purchase obligations (9)
 
28,448

 
26,004

 
2,444

 

 

Total contractual cash obligations
 
$
2,577,661

 
$
167,564

 
$
643,553

 
$
619,760

 
$
1,146,784

Other commercial commitments:
 
 
 
 
 
 
 
 
 
 
Letters of credit
 
$
14,521

 
$
14,521

 
$

 
$

 
$

Contingent consideration (10)
 
3,129

 

 
3,129

 

 

Total commercial commitments
 
$
17,650

 
$
14,521

 
$
3,129

 
$

 
$

_____________
(1) 
Excludes unamortized discount of $37.7 million on the Term Loan and 4½% Convertible Senior Notes and unamortized debt issuance costs of $19.4 million.
(2) 
Interest payments for variable interest debt are based on interest rates as of December 31, 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 December 31, 2017, we had recorded on our balance sheet a $54.3 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) 
We have an agreement to defer payment of approximately $63 million in capital expenditures out of fiscal year 2018 and into future periods which is not reflected in the table above.
(7) 
Includes $4.4 million for final payments for aircraft delivered during fiscal year 2017 that is included in accounts payable as of December 31, 2017.
(8) 
Includes $96.0 million for five aircraft orders that can be cancelled prior to delivery dates. As of December 31, 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.

77


(10) 
Includes $3.1 million related to Airnorth as of December 31, 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.
Capital Commitments and Other Uses of Cash
We have commitments and options to make capital expenditures over the next seven 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 February 8, 2018.
As discussed under “— Executive Overview — Our Strategy”, cash may also be used in future periods to repurchase or otherwise retire debt 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. and any such repatriation could be subject to additional foreign taxes. As a result of the Act, we have provided for U.S. federal income taxes on undistributed foreign earnings. 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. we would make a provision for additional foreign taxes 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 February 2, 2018 of approximately $98.1 million, proceeds from aircraft sales and available borrowing capacity under our Revolving Credit Facility ($387.6 million as of February 2, 2018), 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 operating needs, existing capital commitments and other contractual obligations, including debt obligations due in April 2019. The available borrowing capacity under our Revolving Credit Facility was $387.6 million as of December 31, 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 and private and public debt and equity offerings.


78


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 December 31, 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 December 31, 2017 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


79


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.
There have been no material changes during the three and nine months ended December 31, 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.

80


Item 6.    Exhibits
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit
Number
 
Description of Exhibit
 
 
 
4.2

 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 
10.3

 
 
 
 
10.4

 
 
 
 
10.5

 
 
 
 
10.6

 
 
 
 
10.7

 
 
 
 
10.8

 
 
 
 
10.9

 
 
 
 
10.10

 
 
 
 
10.11

 
 
 
 
10.12

 
 
 
 
10.13

 
 
 
 
10.14

 
 
 
 
10.15

 
 
 
 

81


10.16

 
 
 
 
15.1*

 
 
 
31.1**

 
 
 
31.2**

 
 
 
32.1**

 
 
 
32.2**

 
 
 
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.
 

82


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
February 8, 2018

83


Index to Exhibits.
 
Exhibit
Number
 
Description of Exhibit
 
 
 
4.2

 
Sixth Supplemental Indenture, dated as of December 18, 2017, among the Company, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.1

 
Letter Agreement, dated December 13, 2017, between Credit Suisse Capital LLC and the Company, regarding the Base Warrant Transactions (incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.2

 
Letter Agreement, dated December 13, 2017, between Barclays Bank PLC and the Company, regarding the Base Warrant Transactions (incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.3

 
Letter Agreement, dated December 13, 2017, between Citibank, N.A., and the Company, regarding the Base Warrant Transactions (incorporated herein by reference to Exhibit 10.3 to the Company Form 8-K filed on December 18, 2017).
 
 
 
10.4

 
Letter Agreement, dated December 13, 2017, between JPMorgan Chase Bank, National Association, and the Company, regarding the Base Warrant Transactions (incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.5

 
Letter Agreement, dated December 13, 2017, between Credit Suisse Capital LLC and the Company, regarding the Base Note Hedge Transactions (incorporated herein by reference to Exhibit 10.5 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.6

 
Letter Agreement, dated December 13, 2017, between Barclays Bank PLC and the Company, regarding the Base Note Hedge Transactions (incorporated herein by reference to Exhibit 10.6 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.7

 
Letter Agreement, dated December 13, 2017, between Citibank, N.A., and the Company, regarding the Base Note Hedge Transactions (incorporated herein by reference to Exhibit 10.7 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.8

 
Letter Agreement, dated December 13, 2017, between JPMorgan Chase Bank, National Association, and the Company, regarding the Base Note Hedge Transactions (incorporated herein by reference to Exhibit 10.8 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.9

 
Letter Agreement, dated December 14, 2017, between Credit Suisse Capital LLC and the Company, regarding the Additional Warrant Transactions (incorporated herein by reference to Exhibit 10.9 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.1

 
Letter Agreement, dated December 14, 2017, between Barclays Bank PLC and the Company, regarding the Additional Warrant Transactions (incorporated herein by reference to Exhibit 10.10 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.11

 
Letter Agreement, dated December 14, 2017, between Citibank, N.A., and the Company, regarding the Additional Warrant Transactions (incorporated herein by reference to Exhibit 10.11 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.12

 
Letter Agreement, dated December 14, 2017, between JPMorgan Chase Bank, National Association, and the Company, regarding the Additional Warrant Transactions (incorporated herein by reference to Exhibit 10.12 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.13

 
Letter Agreement, dated December 14, 2017, between Credit Suisse Capital LLC and the Company, regarding the Additional Note Hedge Transactions (incorporated herein by reference to Exhibit 10.13 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.14

 
Letter Agreement, dated December 14, 2017, between Barclays Bank PLC and the Company, regarding the Additional Note Hedge Transactions (incorporated herein by reference to Exhibit 10.14 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
10.15

 
Letter Agreement, dated December 14, 2017, between Citibank, N.A., and the Company, regarding the Additional Note Hedge Transactions (incorporated herein by reference to Exhibit 10.15 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 



10.16

 
Letter Agreement, dated December 14, 2017, between JPMorgan Chase Bank, National Association, and the Company, regarding the Additional Note Hedge Transactions (incorporated herein by reference to Exhibit 10.16 to the Company’s Form 8-K filed on December 18, 2017).
 
 
 
15.1*

 
Letter from KPMG LLP dated February 8, 2018, 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.