Bristow Group Inc - FORM 10-Q - February 2, 2017

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to      
 
Commission File Number 001-31617
 
 
Bristow Group Inc.
 
 
(Exact name of registrant as specified in its charter)
 

Delaware
 
72-0679819
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
2103 City West Blvd.,
4th Floor
Houston, Texas
 
77042
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code:
(713) 267-7600
 
 
None 
 
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
o  Yes    þ  No
 
Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of January 27, 2017.
35,095,759 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,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
 
 
 
 
 
 
 
 
Operating revenue from non-affiliates
 
$
305,789

 
$
374,979

 
$
969,779

 
$
1,193,002

Operating revenue from affiliates
 
18,564

 
20,178

 
54,420

 
61,277

Reimbursable revenue from non-affiliates
 
13,090

 
24,730

 
40,109

 
79,515

 
 
337,443

 
419,887

 
1,064,308

 
1,333,794

Operating expense:
 
 
 
 
 
 
 
 
Direct cost
 
260,343

 
288,135

 
831,516

 
926,378

Reimbursable expense
 
12,206

 
23,380

 
38,096

 
76,242

Depreciation and amortization
 
29,768

 
32,320

 
93,054

 
106,853

General and administrative
 
45,409

 
59,513

 
149,278

 
174,302

 
 
347,726

 
403,348

 
1,111,944

 
1,283,775

 
 
 
 
 
 
 
 
 
Loss on impairment
 
(8,706
)
 
—

 
(16,278
)
 
(27,713
)
Loss on disposal of assets
 
(874
)
 
(2,154
)
 
(13,077
)
 
(23,856
)
Earnings from unconsolidated affiliates, net of losses
 
766

 
7,692

 
4,777

 
(1,372
)
Operating income (loss)
 
(19,097
)
 
22,077

 
(72,214
)
 
(2,922
)
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(12,179
)
 
(9,536
)
 
(34,533
)
 
(24,384
)
Other income (expense), net
 
1,668

 
650

 
(1,518
)
 
(6,935
)
Income (loss) before benefit (provision) for income taxes
 
(29,608
)
 
13,191

 
(108,265
)
 
(34,241
)
Benefit (provision) for income taxes
 
3,560

 
(9,623
)
 
11,038

 
(9,500
)
Net income (loss)
 
(26,048
)
 
3,568

 
(97,227
)
 
(43,741
)
Net (income) loss attributable to noncontrolling interests
 
4,121

 
(366
)
 
4,731

 
(3,446
)
Net income (loss) attributable to Bristow Group
 
(21,927
)
 
3,202

 
(92,496
)
 
(47,187
)
Accretion of redeemable noncontrolling interest
 
—

 
—

 
—

 
(1,498
)
Net income (loss) attributable to common stockholders
 
$
(21,927
)
 
$
3,202

 
$
(92,496
)
 
$
(48,685
)
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.62
)
 
$
0.09

 
$
(2.64
)
 
$
(1.40
)
Diluted
 
$
(0.62
)
 
$
0.09

 
$
(2.64
)
 
$
(1.40
)
 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.07

 
$
0.34

 
$
0.21

 
$
1.02


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,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Net income (loss)
 
$
(26,048
)
 
$
3,568

 
$
(97,227
)
 
$
(43,741
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(18,896
)
 
(3,639
)
 
(31,470
)
 
(7,981
)
Total comprehensive loss
 
(44,944
)
 
(71
)
 
(128,697
)
 
(51,722
)
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
4,121

 
(366
)
 
4,731

 
(3,446
)
Currency translation adjustments attributable to noncontrolling interests
 
(687
)
 
(605
)
 
(5,652
)
 
(34
)
Total comprehensive (income) loss attributable to noncontrolling interests
 
3,434

 
(971
)
 
(921
)
 
(3,480
)
Total comprehensive loss attributable to Bristow Group
 
(41,510
)
 
(1,042
)
 
(129,618
)
 
(55,202
)
Accretion of redeemable noncontrolling interest
 
—

 
—

 
—

 
(1,498
)
Total comprehensive loss attributable to common stockholders
 
$
(41,510
)
 
$
(1,042
)
 
$
(129,618
)
 
$
(56,700
)
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, 
 2016
 
March 31,  
 2016
 
 
(Unaudited)
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
71,159

 
$
104,310

Accounts receivable from non-affiliates
 
208,394

 
243,425

Accounts receivable from affiliates
 
8,012

 
5,892

Inventories
 
124,358

 
142,503

Assets held for sale
 
37,635

 
43,783

Prepaid expenses and other current assets
 
52,148

 
53,183

Total current assets
 
501,706

 
593,096

Investment in unconsolidated affiliates
 
206,797

 
194,952

Property and equipment – at cost:
 
 
 
 
Land and buildings
 
231,021

 
253,098

Aircraft and equipment
 
2,617,467

 
2,570,577

 
 
2,848,488

 
2,823,675

Less – Accumulated depreciation and amortization
 
(585,821
)
 
(540,423
)
 
 
2,262,667

 
2,283,252

Goodwill
 
18,793

 
29,990

Other assets
 
141,146

 
161,655

Total assets
 
$
3,131,109

 
$
3,262,945

 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
Accounts payable
 
$
79,902

 
$
96,966

Accrued wages, benefits and related taxes
 
58,565

 
59,431

Income taxes payable
 
7,115

 
27,400

Other accrued taxes
 
6,754

 
7,995

Deferred revenue
 
24,014

 
24,206

Accrued maintenance and repairs
 
22,136

 
22,196

Accrued interest
 
5,699

 
11,985

Other accrued liabilities
 
51,110

 
48,392

Deferred taxes
 
—

 
1,881

Short-term borrowings and current maturities of long-term debt
 
271,461

 
60,394

Contingent consideration
 
7,137

 
29,522

Total current liabilities
 
533,893

 
390,368

Long-term debt, less current maturities
 
990,207

 
1,071,578

Accrued pension liabilities
 
49,291

 
70,107

Other liabilities and deferred credits
 
26,456

 
33,273

Deferred taxes
 
149,961

 
172,254

Commitments and contingencies (Note 5)
 


 

Redeemable noncontrolling interest
 
8,267

 
15,473

Stockholders’ investment:
 
 
 
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 35,095,759 as of December 31 and 34,976,743 as of March 31 (exclusive of 1,291,441 treasury shares)
 
378

 
377

Additional paid-in capital
 
807,046

 
801,173

Retained earnings
 
1,072,411

 
1,172,273

Accumulated other comprehensive loss
 
(326,941
)
 
(289,819
)
Treasury shares, at cost (2,756,419 shares)
 
(184,796
)
 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,368,098

 
1,499,208

Noncontrolling interests
 
4,936

 
10,684

Total stockholders’ investment
 
1,373,034

 
1,509,892

Total liabilities, redeemable noncontrolling interests and stockholders’ investment
 
$
3,131,109

 
$
3,262,945

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,
 
 
2016
 
2015
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(97,227
)
 
$
(43,741
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
93,054

 
106,853

Deferred income taxes
 
(20,991
)
 
(37,628
)
Discount amortization on long-term debt
 
1,314

 
973

Loss on disposal of assets
 
13,077

 
23,856

Loss on impairment
 
16,278

 
27,713

Stock-based compensation
 
9,508

 
16,641

Equity in earnings from unconsolidated affiliates less than (in excess of) dividends received
 
(4,294
)
 
2,227

Tax benefit related to stock-based compensation
 
—

 
(44
)
Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
15,787

 
31,858

Inventories
 
(2,912
)
 
(5,555
)
Prepaid expenses and other assets
 
(4,359
)
 
(2,645
)
Accounts payable
 
(7,395
)
 
(2,527
)
Accrued liabilities
 
(19,891
)
 
(46,289
)
Other liabilities and deferred credits
 
(6,809
)
 
(16,008
)
Net cash provided by (used in) operating activities
 
(14,860
)
 
55,684

Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(119,726
)
 
(343,365
)
Proceeds from asset dispositions
 
14,344

 
19,152

Deposits on assets held for sale
 
290

 
—

Net cash used in investing activities
 
(105,092
)
 
(324,213
)
Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings
 
360,240

 
910,421

Debt issuance costs
 
(3,883
)
 
—

Repayment of debt
 
(243,677
)
 
(567,121
)
Partial prepayment of put/call obligation
 
(38
)
 
(42
)
Acquisition of noncontrolling interest
 
—

 
(7,311
)
Dividends paid to noncontrolling interest
 
(2,533
)
 
(153
)
Payment of contingent consideration
 
(10,000
)
 
(8,000
)
Common stock dividends paid
 
(7,366
)
 
(35,627
)
Tax benefit related to stock-based compensation
 
—

 
44

Net cash provided by financing activities
 
92,743

 
292,211

Effect of exchange rate changes on cash and cash equivalents
 
(5,942
)
 
4,080

Net increase (decrease) in cash and cash equivalents
 
(33,151
)
 
27,762

Cash and cash equivalents at beginning of period
 
104,310

 
104,146

Cash and cash equivalents at end of period
 
$
71,159

 
$
131,908

Cash paid during the period for:
 
 
 
 
Interest
 
$
43,965

 
$
36,453

Income taxes
 
$
23,550

 
$
21,073

Supplemental disclosure of non-cash investing activities:
 
 
 
 
Deferred sale leaseback advance
 
$
—

 
$
18,285

Completion of deferred sale leaseback
 
$
—

 
$
(74,480
)
Aircraft purchased with short-term borrowings
 
$
—

 
$
14,794

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, 2016
$
15,473

 
$
377

 
34,976,743

 
$
801,173

 
$
1,172,273

 
$
(289,819
)
 
$
(184,796
)
 
$
10,684

 
$
1,509,892

Issuance of common stock
—

 
1

 
119,016

 
5,873

 
—

 
—

 
—

 
—

 
5,874

Distributions paid to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(38
)
 
(38
)
Dividends paid to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,533
)
 
(2,533
)
Common stock dividends ($0.21 per share)
—

 
—

 
—

 
—

 
(7,366
)
 
—

 
—

 
—

 
(7,366
)
Currency translation adjustments
(2,064
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,588
)
 
(3,588
)
Net loss
(5,142
)
 
—

 
—

 
—

 
(92,496
)
 
—

 
—

 
411

 
(92,085
)
Other comprehensive income
—

 
—

 
—

 
—

 
—

 
(37,122
)
 
—

 
—

 
(37,122
)
December 31, 2016
$
8,267

 
$
378

 
35,095,759

 
$
807,046

 
$
1,072,411

 
$
(326,941
)
 
$
(184,796
)
 
$
4,936

 
$
1,373,034


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, 2017 is referred to as “fiscal year 2017”. 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 2016 Annual Report (the “fiscal year 2016 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, 2016, the consolidated statements of operations and comprehensive income (loss) for the three and nine months ended December 31, 2016 and 2015, and the consolidated cash flows for the nine months ended December 31, 2016 and 2015.
Certain reclassifications of prior period information have been made to conform to the presentations of the current period information as a result of an adoption of a required accounting standard. In the prior period financial statements, we had included unamortized debt issuance costs in other assets. Current period presentation has reclassified certain of these unamortized debt issuance costs as direct deductions of our debt balances on our condensed consolidated balance sheet. These reclassifications had no effect on net income or cash flows provided by operating activities as previously reported.



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, 2016 and 2015, 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,
 
 
 
 
2016
 
2015
 
2016
 
2015
 
 
One British pound sterling into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
1.30

 
1.55

 
1.48

 
1.59

 
 
Average
 
1.24

 
1.52

 
1.33

 
1.53

 
 
Low
 
1.21

 
1.47

 
1.21

 
1.46

 
 
At period-end
 
1.24

 
1.47

 
1.24

 
1.47

 
 
One euro into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
1.12

 
1.14

 
1.15

 
1.16

 
 
Average
 
1.08

 
1.10

 
1.11

 
1.10

 
 
Low
 
1.04

 
1.06

 
1.04

 
1.06

 
 
At period-end
 
1.05

 
1.09

 
1.05

 
1.09

 
 
One Australian dollar into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.77

 
0.74

 
0.78

 
0.81

 
 
Average
 
0.75

 
0.72

 
0.75

 
0.74

 
 
Low
 
0.72

 
0.70

 
0.72

 
0.69

 
 
At period-end
 
0.72

 
0.73

 
0.72

 
0.73

 
 
One Norwegian kroner into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.1253

 
0.1240

 
0.1253

 
0.1367

 
 
Average
 
0.1193

 
0.1174

 
0.1202

 
0.1227

 
 
Low
 
0.1145

 
0.1130

 
0.1145

 
0.1130

 
 
At period-end
 
0.1162

 
0.1130

 
0.1162

 
0.1130

 
 
One Nigerian naira into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.0032

 
0.0050

 
0.0050

 
0.0050

 
 
Average
 
0.0032

 
0.0050

 
0.0037

 
0.0050

 
 
Low
 
0.0031

 
0.0050

 
0.0029

 
0.0050

 
 
At period-end
 
0.0032

 
0.0050

 
0.0032

 
0.0050

 
_____________ 
Source: Bank of England, FactSet and Oanda.com
Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction gains of $1.6 million and $0.6 million for the three months ended December 31, 2016 and 2015, respectively, and foreign currency transaction losses of $1.8 million and $7.0 million for the nine months ended December 31, 2016 and 2015, respectively. Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The gains recorded for the three months ended December 31, 2016 and 2015 were primarily driven by amounts owed in British pound sterling on U.S. dollar legal entities while the pound sterling depreciated against the dollar, which was in excess of U.S. dollar liabilities revalued on pound sterling legal entities, partially offset by losses driven by U.S. dollar net liabilities on Nigerian naira legal entities while the naira devalued against the U.S. dollar. The losses for the nine months ended December 31, 2016 and 2015 were primarily driven by a combination of currencies depreciating against the U.S. dollar as presented in the table above while various foreign currency denominated legal entities held U.S. dollar liability positions.

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, 2016 and 2015, earnings from unconsolidated affiliates, net of losses, decreased by $1.2 million and increased by $1.0 million, respectively, and during the nine months ended December 31, 2016 and 2015, earnings from unconsolidated affiliates, net of losses, decreased by $2.5 million and $17.2 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,
 
 
 
 
2016
 
2015
 
2016
 
2015
 
 
One Brazilian real into U.S. dollars
 
 
 
 
 
 
 
 
 
 
High
 
0.3207

 
0.2694

 
0.3207

 
0.3437

 
 
Average
 
0.3032

 
0.2602

 
0.2988

 
0.2899

 
 
Low
 
0.2866

 
0.2479

 
0.2702

 
0.2378

 
 
At period-end
 
0.3073

 
0.2528

 
0.3073

 
0.2528

 
_____________ 
Source: FactSet and Oanda.com
We estimate that the fluctuation of currencies versus the same period in the prior fiscal year had the following effect on our financial condition and results of operations (in thousands):
 
 
 
Three Months Ended 
 December 31, 2016
 
Nine Months Ended 
 December 31, 2016
 
 
Revenue
 
$
(25,785
)
 
$
(63,817
)
 
 
Operating expense
 
22,564

 
59,035

 
 
Earnings from unconsolidated affiliates, net of losses
 
(2,197
)
 
14,655

 
 
Non-operating expense
 
1,022

 
5,191

 
 
Income (loss) before benefit (provision) for income taxes
 
(4,396
)
 
15,064

 
 
Benefit (provision) for income taxes
 
557

 
(5,470
)
 
 
Net income (loss)
 
(3,839
)
 
9,594

 
 
Cumulative translation adjustment
 
(19,583
)
 
(37,122
)
 
 
Total stockholders’ investment
 
$
(23,422
)
 
$
(27,528
)
 
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)

Bristow Academy, our helicopter training unit, primarily earns revenue from military training, flight training provided to individual students and ground school courses. We recognize revenue from these sources using the same revenue recognition principles described above as services are provided. We consider revenue to be realized or realizable and earned when the following conditions exist: there is persuasive evidence of an arrangement (generally a contract exists); the services have been performed or delivered to the client or student; the sales price is fixed and determinable; and collection has occurred or is probable.
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.
Interest Expense, Net
During the three and nine months ended December 31, 2016 and 2015, interest expense, net consisted of the following (in thousands):
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
 
2016
 
2015
 
2016
 
2015
 
 
Interest income
$
168

 
$
181

 
$
637

 
$
619

 
 
Interest expense
(12,347
)
 
(9,717
)
 
(35,170
)
 
(25,003
)
 
 
Interest expense, net
$
(12,179
)
 
$
(9,536
)
 
$
(34,533
)
 
$
(24,384
)
 
Accretion of Redeemable Noncontrolling Interests
Accretion of redeemable noncontrolling interests of $1.5 million for the nine months ended December 31, 2015 related to put arrangements whereby the noncontrolling interest holders may require us to redeem the remaining shares of Airnorth (prior to repurchasing the remaining 15% of the outstanding shares in November 2015) and Eastern Airways at a formula-based amount that is not considered fair value (the “redemption amount”). No accretion of redeemable noncontrolling interests was recorded during the three and nine months ended December 31, 2016 and three months ended December 31, 2015. Redeemable noncontrolling interest is adjusted each period for comprehensive income, dividends attributable to the noncontrolling interest and changes in ownership interest, if any, such that the noncontrolling interest represents the proportionate share of Airnorth’s and Eastern Airways’ equity (the “carrying value”). Additionally, at each period end we are required to compare the redemption amount to the carrying value of the redeemable noncontrolling interest and record the redeemable noncontrolling interest at the higher of the two amounts, with a corresponding charge or credit directly to retained earnings. While this charge or credit does not impact net income (loss), it does result in a reduction or increase of income (loss) available to common shareholders in the calculation of diluted earnings (loss) per share (see Note 8).
Accounts Receivable
As of December 31 and March 31, 2016, the allowance for doubtful accounts for non-affiliates was $4.5 million and $5.6 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of December 31 and March 31, 2016. The allowance for doubtful accounts for non-affiliates as of December 31 and March 31, 2016 primarily related to amounts due from two clients in Nigeria and one client in Australia for which we no longer believed collection was probable.
Inventories
As of December 31 and March 31, 2016, inventories were net of allowances of $25.5 million and $27.8 million, respectively. As of September 30, 2016, a decision was made to cease operation of certain older model aircraft within our fleet in fiscal year 2018. This decision resulted in a change in estimate of consumption of inventory utilized for the maintenance and repair of these aircraft leading to excess inventory on hand. In addition to recognizing this excess inventory, we also noted a continued decline in the recovery value for the disposal of this inventory into the aftermarket. This change in estimate of consumption and the continued decline in the secondary market for this inventory resulted in an impairment charge of $7.6 million recorded in the nine months ended December 31, 2016. No impairment was recorded in the three months ended December 31, 2016.

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

Prepaid Expenses and Other Current Assets
As of December 31 and March 31, 2016, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $15.5 million and $12.1 million, respectively, related to the SAR contracts in the U.K. and Australia and a client contract in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three and nine months ended December 31, 2016, we have expensed $2.5 million and $8.2 million, respectively, due to the start-up of some of 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 $22.3 million for the nine months ended December 31, 2015, and impairment charges for inventory of $7.6 million for the nine months ended December 31, 2016 and $5.4 million for the nine months ended December 31, 2015. The goodwill impairment charges 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, 2015 resulted from of our review of excess inventory on aircraft model types we planned to exit by the end of fiscal year 2016 (see discussion under “Inventories” above).
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 annually or when events or changes in circumstances indicate that a potential impairment exists. Goodwill as of December 31 and March 31, 2016 related to our reporting units was as follows (in thousands):
 
Europe Caspian
 
Asia Pacific
 
Total
March 31, 2016
$
10,026

 
$
19,964

 
$
29,990

Impairments
(8,706
)
 
—

 
(8,706
)
Foreign currency translation
(1,320
)
 
(1,171
)
 
(2,491
)
December 31, 2016
$
—

 
$
18,793

 
$
18,793

Accumulated goodwill impairment of $50.9 million and $42.2 million as of December 31 and March 31, 2016 related to our reporting units were as follows (in thousands):
 
 
Europe Caspian
 
Africa
 
Corporate and other
 
Americas
 
Total
March 31, 2016
 
$
(25,177
)
 
$
(6,179
)
 
$
(10,223
)
 
$
(576
)
 
$
(42,155
)
Impairments
 
(8,706
)
 
—

 
—

 
—

 
(8,706
)
December 31, 2016
 
$
(33,883
)
 
$
(6,179
)
 
$
(10,223
)
 
$
(576
)
 
$
(50,861
)
We test goodwill for impairment on an annual basis 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. Based on this review, we performed our analysis of goodwill for reporting units as of March 31, 2016 during which we impaired a portion of the goodwill for Eastern Airways of $13.1 million reflected in our loss on impairment in our statement of operations for fiscal year 2016.
As of December 31, 2016, prior to any impairments being recorded, we had $27.5 million of goodwill, including $8.7 million of goodwill related to Eastern Airways, within our Europe Caspian region, and $18.8 million of goodwill related to Airnorth, within our Asia Pacific region. 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 a loss of $8.7 million reflected in our results for the three and nine months ended December 31, 2016. We did not have any triggering events to test Airnorth for impairment as of December 31, 2016.

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

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 current downturn. Operating costs were forecasted using a combination of our historical average operating costs and expected future costs, including ongoing cost reduction initiatives. Capital requirements in the discounted cash flow model were based on management’s estimates of future capital costs driven by expected market demand in future periods. The estimated capital requirements included cash outflows for new aircraft, infrastructure and improvements. A terminal period was used to reflect our estimate of stable, perpetual growth. The future cash flows were discounted using a market-participant risk-adjusted weighted average cost of capital 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.
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, 2016
$
8,170

 
$
12,779

 
$
5,008

 
$
1,149

 
$
752

 
$
27,858

Foreign currency translation
(6
)
 
(122
)
 
(584
)
 
(94
)
 
(6
)
 
(812
)
December 31, 2016
$
8,164

 
$
12,657

 
$
4,424

 
$
1,055

 
$
746

 
$
27,046

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
March 31, 2016
$
(8,062
)
 
$
(10,600
)
 
$
(636
)
 
$
(480
)
 
$
(601
)
 
$
(20,379
)
Amortization expense
(82
)
 
(353
)
 
(202
)
 
(152
)
 
(42
)
 
(831
)
December 31, 2016
$
(8,144
)
 
$
(10,953
)
 
$
(838
)
 
$
(632
)
 
$
(643
)
 
$
(21,210
)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average remaining contractual life, in years
0.1

 
3.4

 
8.9

 
1.4

 
1.2

 
4.1

Future amortization expense of intangible assets for each of the years ending March 31 are as follows (in thousands):
 
2017
$
209

 
 
2018
825

 
 
2019
704

 
 
2020
433

 
 
2021
433

 
 
Thereafter
3,232

 
 
 
$
5,836

 
The Bristow Norway and Eastern Airways acquisitions, completed in October 2008 and February 2014, respectively, 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 completed in January 2015, included in our Asia Pacific

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

region, resulted in intangible assets for client contracts, client relationships and trade name and trademarks. As of December 31, 2016, we tested the remaining intangible assets for Eastern Airways for trade name and trademarks and internally developed software. We determined that the fair value was above carrying value and no impairment was required as of December 31, 2016.
Other Assets
As of December 31 and March 31, 2016, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $49.8 million and $55.1 million, respectively, related to the SAR contracts in the U.K. and a client contract in Norway, which are recoverable under the contract and will be expensed over the terms of the contracts.
Property and Equipment and Assets Held for Sale

During the three and nine months ended December 31, 2016 and 2015, we made capital expenditures as follows:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016

2015
 
2016

2015
 
Number of aircraft delivered:
 
 
 
 
 
 
 
 
Medium
—

 
—

 
5

 
1

 
Large
—

 
2

 
—

 
2

 
SAR aircraft
1

 
6

 
2

 
8

 
Total aircraft
1

 
8

 
7

 
11

 
Capital expenditures (in thousands):
 
 
 
 
 
 
 
 
Aircraft and related equipment (1)
$
17,196

 
$
165,394

 
$
112,770

 
$
276,547

 
Other
664

 
30,982

 
6,956

 
66,818

 
Total capital expenditures
$
17,860

 
$
196,376

 
$
119,726

 
$
343,365

_____________ 
(1) 
During the three months ended December 31, 2015, we spent $136.8 million and during the nine months ended December 31, 2016 and 2015, we spent $66.8 million and $201.1 million, respectively, on progress payments for aircraft to be delivered in future periods. We did not make any progress payments for aircraft to be delivered in future periods for the three months ended December 31, 2016.

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, 2016 and 2015:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except for number of aircraft)
 
 
 
 
 
 
 
 
 
 
Number of aircraft sold or disposed of
3

 
3

 
9

 
16

 
Proceeds from sale or disposal of assets
$
2,525

 
$
3,045

 
$
14,344

 
$
19,152

 
Loss from sale or disposal of assets (1)
$
674

 
$
2,154

 
$
1,717

 
$
1,825

 
 
 
 
 
 
 
 
 
 
Number of aircraft impaired
1

 
—

 
13

 
11

 
Impairment charges on aircraft held for sale (1)
$
200

 
$
—

 
$
11,360

 
$
22,031

_____________
(1) 
Included in gain (loss) on disposal of assets on our condensed consolidated statements of operations.
During the three months ended December 31, 2016 and 2015, we recorded accelerated depreciation of $1.1 million and $5.0 million on five and 21 aircraft, respectively, and during the nine months ended December 31, 2016 and 2015, we recorded accelerated depreciation of $9.3 million and $22.4 million on 11 and 21 aircraft, respectively, as our management decided to exit these model types earlier than originally anticipated. We expect to record an additional $1.1 million in depreciation expense over the remainder of fiscal year 2017 relating to this change in fleet exit timing. As discussed in “— Loss on Impairment” above, during the three and nine months ended December 31, 2015, we noted an overall reduction in expected operating results due to the downturn in the oil and gas market driven by reduced crude oil prices. The impact on our results was reflected in an increase in the number of

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

idle aircraft and reduction in forecasted results across our global oil and gas helicopter operations, and was reflected in reduced operating revenue for our business for the nine months ended December 31, 2015, when excluding growth from the U.K. SAR contract and the addition of Airnorth. The reduction in demand for aircraft in the offshore energy market led to further impairment of older model aircraft classified in held for sale as of December 31, 2015.
Changes in our forecasted cash flows during the three months ended December 31, 2016 triggered a review of our oil and gas related property and equipment and Eastern Airways property and equipment for potential impairment. In accordance with Accounting Standard Codification 360-10-35, we estimate future undiscounted cash flows to test the recoverability of our property and equipment, which largely consists of our held for use aircraft. The determination of estimated future undiscounted cash flows required us to use significant unobservable inputs including assumptions related to projected demand for services and rates. We determined that the estimated future undiscounted cash flows were above the carrying value for our oil and gas related property and equipment and Eastern Airways property and equipment as of December 31, 2016 and no impairment was recorded on these assets. Future declines in operating performance or anticipated business outlook may reduce our estimated future undiscounted cash flows and result in impairment of our oil and gas related property and equipment or Eastern Airways property and equipment.
Recent Accounting Pronouncements
We consider the applicability and impact of all accounting standard updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. This new standard was effective for annual reporting periods beginning after December 15, 2016. However, in July 2015, the FASB approved the deferral of the effective date of the revenue recognition standard permitting public entities to apply the new revenue standard to annual reporting periods beginning after December 15, 2017. Early application is permitted, but not before the original effective date of December 15, 2016. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently evaluating our customer contracts to determine the effect this standard will have on our financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.
In August 2014, the FASB issued accounting guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within a year of the date the financial statements are issued. The standard applies to all entities and is effective for annual and interim periods beginning after December 15, 2016 with early adoption permitted. We are evaluating the effect this standard will have on our financial statements and related disclosures.
In February 2015, the FASB issued accounting guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance amends the criteria for determining which entities are considered Variable Interest Entities (“VIEs”) and amends the criteria for determining if a service provider possesses a variable interest in a VIE. This pronouncement is effective for annual and interim periods in fiscal years beginning after December 15, 2015. A reporting entity may apply the amendments using a modified retrospective approach or a full retrospective application. We have adopted this accounting guidance effective April 1, 2016 and there is no material effect on our financial statements and related disclosures.
In April 2015, the FASB issued accounting guidance relating to the presentation of debt issuance costs. The intent is to simplify the presentation of debt issuance costs by requiring entities to record debt issuance costs on the balance sheet as a direct deduction from the carrying amount of the related debt liability, similar to debt discounts or premiums. In August 2015, the FASB issued additional guidance to allow issuers to continue to recognize debt issuance costs related to line-of-credit arrangements as an asset and amortize that asset over the term of the credit agreement regardless of whether a balance is outstanding. These pronouncements are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. We have adopted this accounting guidance effective April 1, 2016. As a result of the adoption, we presented the $8.9 million of unamortized debt issuance costs that was previously included in other assets in our condensed consolidated balance sheet as of March 31, 2016 as direct deductions from the carrying amount of the related debt.

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

In November 2015, the FASB issued a new standard which changes how deferred taxes are classified on an entity’s balance sheet. The 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 will be 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 have not yet adopted this accounting guidance or determined the method of adoption but we believe the adoption of this guidance would reduce current assets and current liabilities and increase long-term assets and long-term liabilities by such amounts.
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 pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this pronouncement 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 nor have we determined the effect of the standard on our ongoing financial reporting.
In March 2016, the FASB issued accounting guidance related to accounting for employee share-based payments. The amendments are 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 pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and early adoption is permitted. We have not yet adopted this standard and are currently evaluating the effect this standard will have on our financial statements and related disclosures.
In August 2016, the FASB issued accounting guidance related to the statement of cash flows to reduce the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This 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 standard and are currently evaluating the effect this standard will have on our 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 pronouncement 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 pronouncement 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 standard and are currently evaluating the effect this standard will have on our financial statements.
In October 2016, the FASB issued accounting guidance related to interest held through related parties that are under common control. The pronouncement affects reporting entities that are required to evaluate whether they should consolidate a variable interest entity in certain situations involving entities under common control. Specifically, the pronouncement changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity by changing how a reporting entity that is a single decision maker of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, and early adoption is permitted. We have not yet adopted this standard and are currently evaluating the effect this standard will have on our financial statements.

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

Note 2 — VARIABLE INTEREST ENTITIES AND INVESTMENTS IN OTHER SIGNIFICANT AFFILIATES
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, 2016, 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 2016 Financial Statements for a description of other investments in significant affiliates.
Bristow Aviation Holdings Limited — We own 49% of Bristow Aviation Holdings Limited’s (“Bristow Aviation”) common stock and a significant amount of its subordinated debt. Bristow Aviation is incorporated in England and holds all of the outstanding shares in Bristow Helicopters Limited (“Bristow Helicopters”). Bristow Aviation’s subsidiaries provide industrial aviation services to clients primarily in the U.K, Norway, Australia, Nigeria and Trinidad and fixed wing services primarily in the U.K. and Australia. Bristow Aviation is organized with three different classes of ordinary shares having disproportionate voting rights. The Company, Caledonia Investments plc (“Caledonia”) and a European Union investor (the “E.U. Investor”) own 49%, 46% and 5%, respectively, of Bristow Aviation’s total outstanding ordinary shares, although Caledonia has voting control over the E.U. Investor’s shares.
In addition to our ownership of 49% of Bristow Aviation’s outstanding ordinary shares, in May 2004, we acquired eight million shares of deferred stock, essentially a subordinated class of stock with no voting rights, from Bristow Aviation for £1 per share ($14.4 million in total). We also have £91.0 million ($112.4 million) principal amount of subordinated unsecured loan stock (debt) of Bristow Aviation bearing interest at an annual rate of 13.5% and payable semi-annually. Payment of interest on such debt has been deferred since its incurrence in 1996. Deferred interest accrues at an annual rate of 13.5% and aggregated $1.8 billion as of December 31, 2016.
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, 2016) plus an annual guaranteed rate of return less any prepayments of such call option price and any dividends paid on the shares concerned. We can elect to pre-pay the guaranteed return element of the call option price wholly or in part without exercising the call option. No dividends have been paid by Bristow Aviation. We have accrued the annual return due to the other shareholders at a rate of sterling LIBOR plus 3% (prior to May 2004, the rate was fixed at 12%) by recognizing noncontrolling interest expense on our condensed consolidated statements of operations, with a corresponding increase in noncontrolling interests on our condensed consolidated balance sheets. Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interests on our condensed consolidated balance sheets. The other investors have an option to put their shares in Bristow Aviation to us. The put option price is calculated in the same way as the call option price except that the guaranteed rate for the period to April 2004 was 10% per annum. If the put option is exercised, any pre-payments of the call option price are set off against the put option price.

15
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, 
 2016
 
March 31,  
 2016
 
 
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
70,406

 
$
62,773

 
 
Accounts receivable
 
549,783

 
565,223

 
 
Inventories
 
89,097

 
102,738

 
 
Prepaid expenses and other current assets
 
53,924

 
53,776

 
 
Total current assets
 
763,210

 
784,510

 
 
Investment in unconsolidated affiliates
 
3,575

 
4,676

 
 
Property and equipment, net
 
217,967

 
251,494

 
 
Goodwill
 
18,792

 
29,990

 
 
Other assets
 
73,857

 
82,443

 
 
Total assets
 
$
1,077,401

 
$
1,153,113

 
 
Liabilities
 
 
 
 
 
 
Accounts payable
 
$
363,665

 
$
521,563

 
 
Accrued liabilities
 
128,474

 
141,977

 
 
Accrued interest
 
1,840,368

 
1,698,360

 
 
Current maturities of long-term debt
 
14,063

 
10,322

 
 
Total current liabilities
 
2,346,570

 
2,372,222

 
 
Long-term debt, less current maturities
 
371,425

 
155,222

 
 
Accrued pension liabilities
 
49,291

 
70,107

 
 
Other liabilities and deferred credits
 
5,310

 
7,928

 
 
Deferred taxes
 
13,924

 
20,330

 
 
Redeemable noncontrolling interest
 
8,266

 
15,473

 
 
Total liabilities
 
$
2,794,786

 
$
2,641,282

 
 
 
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
 
 
2016
 
2015
 
2016
 
2015
 
 
Revenue
 
$
291,808

 
$
355,036

 
$
920,587

 
$
1,119,169

 
 
Operating loss
 
(28,287
)
 
(4,906
)
 
(68,803
)
 
(32,479
)
 
 
Net loss
 
(44,999
)
 
(66,425
)
 
(214,336
)
 
(210,140
)
 
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, 2016. 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

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

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.
Note 3 — DEBT
Debt as of December 31 and March 31, 2016 consisted of the following (in thousands):
 
 
 
December 31, 
 2016
 
March 31,  
 2016
 
 
6¼% Senior Notes due 2022
 
$
401,535

 
$
401,535

 
 
Term Loan
 
314,747

 
335,665

 
 
Term Loan Credit Facility
 
200,000

 
200,000

 
 
Revolving Credit Facility
 
190,000

 
144,000

 
 
Lombard debt
 
105,540

 
—

 
 
Airnorth debt
 
17,508

 
19,652

 
 
Eastern Airways debt
 
16,072

 
15,643

 
 
Other debt
 
25,286

 
24,394

 
 
Unamortized debt issuance costs
 
(9,020
)
 
(8,917
)
 
 
Total debt
 
1,261,668

 
1,131,972

 
 
Less short-term borrowings and current maturities of long-term debt
 
(271,461
)
 
(60,394
)
 
 
Total long-term debt
 
$
990,207

 
$
1,071,578

 
Term Loan and Revolving Credit Facility — On September 16, 2016, we entered into a ninth amendment (the “Ninth Amendment”) to our amended and restated revolving credit and term loan agreement (the “Amended and Restated Credit Agreement”), which includes a $400 million revolving credit facility with a subfacility of $30 million for letters of credit (the “Revolving Credit Facility”) and a five-year, $350 million term loan (the “Term Loan”, and together with the Revolving Credit Facility, the “Credit Facilities”) that changed the definition of a change in control.
On May 23, 2016, we entered into an eighth amendment (the “Eighth Amendment”) to the Amended and Restated Credit Agreement that, among other things, (a) replaced the maximum leverage ratio requirement with a maximum senior secured leverage ratio defined as the ratio of the sum of senior secured debt and the present value of obligations under operating leases to consolidated EBITDA for the most recent four consecutive fiscal quarters, which ratio may not be greater than 4.25:1.00 for each fiscal quarter ending during the period from March 31, 2016 through September 30, 2017 and 4.00:1.00 for each fiscal quarter ending thereafter, (b) replaced the interest coverage ratio requirement with a minimum current ratio, defined as the ratio of the sum of consolidated current assets minus the book value of aircraft held for sale plus the unused amount of aggregate revolving commitments less $25 million to consolidated current liabilities, which may not be not less than 1.00:1.00 as of the last day of each fiscal quarter, (c) allows for the issuance of certain additional indebtedness when the leverage ratio exceeds 4.75:1.00, including (i) unsecured, subordinated or convertible indebtedness to refinance outstanding term loans under the Amended and Restated Credit Agreement and our senior secured term loan agreement (the “Term Loan Credit Agreement”), (ii) additional unsecured, subordinated or convertible indebtedness of up to $100 million in principal amount, (iii) equipment financings, including, without limitation, aircraft sale and leaseback transactions, and (iv) financings of U.K. bases with respect to helicopter SAR services and (d) limits cash dividends on our common stock to $0.07 per share per quarter. In addition, in connection with the Eighth Amendment and the first amendment to the Term Loan Credit Agreement described below, certain of our U.S. subsidiaries have granted liens on

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

certain of their aircraft to secure our obligations under the Amended and Restated Credit Agreement and the Term Loan Credit Agreement on a pari passu secured basis in favor of the lenders under each such agreement. Also as part of the Eighth Amendment, the applicable margin for borrowings under the Credit Facilities will range from 0.50% to 3.50% depending on whether the Base Rate or LIBOR was used and based on our leverage ratio pricing grid.
During the nine months ended December 31, 2016, we had borrowings of $243.9 million and made payments of $197.9 million under the Revolving Credit Facility. Additionally, we paid $21.0 million to reduce our borrowings under the Term Loan. As of December 31, 2016, we had $0.6 million in letters of credit outstanding under the Revolving Credit Facility.
Term Loan Credit Facility — On September 16, 2016, we entered into a second amendment to the Term Loan Credit Agreement that incorporates, as applicable, the provisions of the Ninth Amendment described above. On May 23, 2016, we entered into the first amendment to the Term Loan Credit Agreement that, among other things, incorporates, as applicable, the provisions of the Eighth Amendment described above.
Lombard Debt — On November 11, 2016, certain of our subsidiaries entered into two, seven-year British pound sterling denominated secured equipment financings for an aggregate $200 million U.S. dollar equivalent with Lombard North Center Plc, part of the Royal Bank of Scotland. In December 2016, the first loan amount of $109.9 million (GBP 89.1 million) funded and the borrower prepaid a portion of the scheduled principal payments totaling $4.5 million (GBP 3.7 million). Therefore, as of December 31, 2016, we had $105.5 million (GBP 85.4 million) in long-term debt related to this facility at a borrowing rate of 2.48%. The proceeds from the financing were used to finance the purchase by the borrower thereunder of three SAR aircraft utilized for our U.K. SAR contract from a subsidiary. In January 2017, the second loan in the amount of $90.1 million (GBP $72.4 million) funded. The proceeds from this financing were used to finance the purchase by the borrower thereunder of five SAR aircraft utilized for our U.K. SAR contract from a subsidiary. The borrowers’ respective obligations under the financings are guaranteed by the Company, and each financing is secured by the aircraft purchased by the applicable borrower with the proceeds of its loan. The covenants contained in the financings are effective, and the collateral and guarantees were provided, upon the funding of the financings. Borrowings under the financings bear interest at an interest rate equal to the ICE Benchmark Administration Limited LIBOR (or the successor thereto) plus 2.25% per annum. The financing which funded in December 2016 matures in December 2023 and the financing which funded in January 2017 matures in January 2024.
Macquarie Credit Agreement — On February 1, 2017, one of our wholly-owned subsidiaries entered into a term loan credit agreement for a $200 million five-year secured equipment financing with Macquarie Bank Limited. In conjunction with closing and funding under such term loan, we have agreed to lease five helicopters for up to five years (the “Leased Aircraft”) from Wells Fargo Bank Northwest, N.A., acting as owner trustee for Macquarie Aerospace Inc., an affiliate of Macquarie Bank Limited. The borrower's obligations under the credit agreement will be guaranteed by the Company and secured by 20 oil and gas aircraft. The financing is expected to fund no later than March 31, 2017. The lenders are not obligated to fund until the completion of certain customary conditions for this type of facility, as well as the borrower taking delivery of certain of the leased aircraft. Borrowings under the financing bear interest at an interest rate equal to the ICE Benchmark Administration Limited LIBOR (or the successor thereto) plus 5.35% per annum. The proceeds from the financing are expected to be used to repay amounts due under our existing term loans.
GE Commitment Letter — On February 2, 2017, we executed a commitment letter for an approximate six-year, $230 million secured equipment financing with PK Transportation Finance Ireland Limited, a part of GE Capital Aviation Services (“GECAS”). As part of this financing, which is subject to entering into definitive agreements, Milestone Aviation Group Limited (“Milestone”), a GECAS company, will defer up to $25 million in lease rentals on certain Airbus H225 assets on lease to us. The financing will be secured by 20 oil and gas aircraft. Borrowings under the financing bear interest at an interest rate equal to the ICE Benchmark Administration Limited LIBOR (or the successor thereto) plus 5% per annum. We expect this financing to fund no later than June 30, 2017. The proceeds from the financing are expected to be used to repay amounts due under our existing bank indebtedness. As part of executing the commitment letter, we will extend three Sikorsky S-92 leases by two years each with Milestone.
Other Debt — Other debt includes borrowings for an aircraft purchase payment totaling $9.3 million with an interest rate of 3.5% due in January 2017 and amounts payable relating to the third year earn-out payment for our investment in Cougar Helicopters Inc. (“Cougar”) totaling $15.8 million due in April 2017.

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

Note 4 — FAIR VALUE DISCLOSURES
Assets and liabilities subject to fair value measurement are categorized into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:
•
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
•
Level 2 – inputs that reflect quoted prices for identical assets or liabilities in markets which are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 – unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
Non-recurring Fair Value Measurements
The majority of our non-financial assets, which include inventories, property and equipment, assets held for sale, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial asset is required to be evaluated for impairment and deemed to be impaired, the impaired non-financial asset is recorded at its fair value.
The following table summarizes the assets as of 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 following table summarizes the assets as of December 31, 2015, valued at fair value on a non-recurring basis (in thousands): 
 
 
Quoted Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance as of
December 31, 2015
 
Total
Loss for the
Three Months
Ended
December 31, 2015
 
Total
Loss for the
Nine Months
Ended
December 31, 2015
Inventories
 
$
—

 
$
8,871

 
$
—

 
$
8,871

 
$
—

 
$
(5,439
)
Assets held for sale
 
—

 
52,916

 
—

 
52,916

 
—

 
(22,031
)
Goodwill
 
—

 
—

 
52,530

 
52,530

 
—

 
(22,274
)
Total assets
 
$
—

 
$
61,787

 
$
52,530

 
$
114,317

 
$
—

 
$
(49,744
)
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 timeframe of sales or disposals, the location of the spare parts to be sold and the condition of the spare parts to be sold or otherwise disposed of.
The fair value of assets held for sale using Level 2 inputs is determined through evaluation of expected sales proceeds for aircraft. This analysis includes estimates based on historical experience with sales, recent transactions involving similar assets, quoted market prices for similar assets and condition and location of aircraft to be sold or otherwise disposed of. The loss for the three and nine months ended December 31, 2016 related to one and 13 aircraft held for sale, respectively, and the loss for the nine months ended December 31, 2015 related to 11 aircraft held for sale.

19
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)

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, 2016, 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, 2016
 
Balance Sheet
Classification
Rabbi Trust investments
 
$
2,601

 
$
—

 
$
—

 
$
2,601

 
Other assets
Total assets
 
$
2,601

 
$
—

 
$
—

 
$
2,601

 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration: (1)
 
 
 
 
 
 
 
 
 
 
Current
 
$
—

 
$
—

 
$
7,137

 
$
7,137

 
Contingent consideration
Total liabilities
 
$
—

 
$
—

 
$
7,137

 
$
7,137

 
 
______________

(1) 
Relates to the acquisition of Airnorth totaling $7.1 million. For further details on Airnorth, see Note 2 to the fiscal year 2016 Financial Statements.
The following table summarizes the financial instruments we had as of March 31, 2016, 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, 2016
 
Balance Sheet
Classification
Rabbi Trust investments
 
$
2,990

 
$
—

 
$
—

 
$
2,990

 
Other assets
Total assets
 
$
2,990

 
$
—

 
$
—

 
$
2,990

 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration: (1)
 
 
 
 
 
 
 
 
 
 
Current
 
$
—

 
$
—

 
$
29,522

 
$
29,522

 
Contingent consideration
Long-term
 
—

 
—

 
3,069

 
3,069

 
Other liabilities and deferred credits
Total liabilities
 
$
—

 
$
—

 
$
32,591

 
$
32,591

 
 
______________

(1) 
Relates to our investment in Cougar totaling $26.0 million and Airnorth totaling $6.6 million. For further details on Cougar and Airnorth, see Notes 2 and 3 to the fiscal year 2016 Financial Statements.
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.

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

The following table provides a rollforward of the contingent consideration liability Level 3 fair value measurements during the nine months ended December 31, 2016 (in thousands):
 
 
Significant
Unobservable
Inputs (Level 3)
Balance as of March 31, 2016
 
$
32,591
 
Change in fair value of contingent consideration
 
546
 
Payment of Cougar third year earn-out
 
(10,000
)
Reclass of remaining Cougar third year earn-out to short-term borrowings and other accrued liabilities
 
(16,000
)
Balance as of December 31, 2016
 
$
7,137
 
We assess the estimated fair value of the contractual obligation to pay the contingent consideration on a quarterly basis and any changes in estimated fair value are recorded as accretion expense included in depreciation and amortization on our condensed consolidated statements of operations. Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability of Cougar or Airnorth achieving certain agreed performance targets and the estimated discount rate. As of December 31 and March 31, 2016, the discount rate approximated 4% for the contingent consideration related to Cougar and 2% for the contingent consideration related to Airnorth.
Fair Value of Debt
The fair value of our debt has been estimated in accordance with the accounting standard regarding fair value. The fair value of our fixed rate long-term debt is estimated based on quoted market prices. The carrying and fair value of our long-term debt, including the current portion and excluding unamortized debt issuance costs, are as follows (in thousands):
 
 
December 31, 2016
 
March 31, 2016
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
6¼% Senior Notes
 
$
401,535

 
$
341,305

 
$
401,535

 
$
277,059

Term Loan
 
314,747

 
314,747

 
335,665

 
335,665

Term Loan Credit Facility
 
200,000

 
200,000

 
200,000

 
200,000

Revolving Credit Facility
 
190,000

 
190,000

 
144,000

 
144,000

Lombard debt
 
105,540

 
105,540

 
—

 
—

Airnorth debt
 
17,508

 
17,508

 
19,652

 
19,652

Eastern Airways debt
 
16,072

 
16,072

 
15,643

 
15,643

Other debt
 
25,286

 
25,286

 
24,394

 
24,394

 
 
$
1,270,688

 
$
1,210,458

 
$
1,140,889

 
$
1,016,413

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.

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

Note 5 — COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase additional aircraft. As of December 31, 2016, we had 34 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, 2017
 
Fiscal Year Ending March 31,
 
 
 
 
2018
 
2019
 
2020
 
2021 and thereafter(1)
 
Total
Commitments as of December 31, 2016: (2)
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Medium
 
—

 
5

 
—

 
—

 
—

 
5

Large
 
—

 
—

 
5

 
4

 
14

 
23

U.K. SAR
 
2

 
4

 
—

 
—

 
—

 
6

 
 
2

 
9

 
5

 
4

 
14

 
34

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

 
$
2,263

 
$
92,735

 
$
72,133

 
$
194,624

 
$
361,755

U.K. SAR
 
4,633

 
58,208

 
—

 
—

 
—

 
62,841

 
 
$
4,633

 
$
60,471

 
$
92,735

 
$
72,133

 
$
194,624

 
$
424,596

Options as of December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
—

 
2

 
2

 
—

 
—

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Related expenditures (in thousands)(3)
 
$
—

 
$
43,088

 
$
30,410

 
$
—

 
$
—

 
$
73,498

_____________ 
(1) 
Includes $83.7 million for five aircraft orders that can be cancelled prior to delivery dates. During the nine months ended December 31, 2016, we made non-refundable deposits of $4.5 million related to these aircraft.
(2) 
Signed client contracts are currently in place that will utilize six of these U.K. SAR aircraft.
(3) 
Includes progress payments on aircraft scheduled to be delivered in future periods.
The following chart presents an analysis of our aircraft orders and options during fiscal year 2017:
 
 
 
Three Months Ended
 
 
 
December 31, 2016
 
September 30, 2016
 
June 30, 2016
 
 
 
Orders
 
Options
 
Orders
 
Options
 
Orders
 
Options
 
Beginning of period
 
35

 
6

 
36

 
10

 
36

 
14

 
Aircraft delivered
 
(1
)
 
—

 
(6
)
 
—

 
—

 
—

 
Aircraft ordered
 
—

 
—

 
5

 
—

 
—

 
—

 
Expired options
 
—

 
(2
)
 
—

 
(4
)
 
—

 
(4
)
 
End of period
 
34

 
4

 
35

 
6

 
36

 
10

We periodically purchase aircraft for which we have no orders.
Operating Leases — We have non-cancelable operating leases in connection with the lease of certain equipment, land and facilities, including leases for aircraft. Rental expense incurred under all operating leases was $53.7 million and $52.2 million for the three months ended December 31, 2016 and 2015, respectively, and $156.9 million and $160.5 million for the nine months ended December 31, 2016 and 2015, respectively. Rental expense incurred under operating leases for aircraft was $47.9 million and $45.6 million for the three months ended December 31, 2016 and 2015, respectively, and $138.7 million and $139.5 million for the nine months ended December 31, 2016 and 2015, 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

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

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, 2016:
 
End of Lease Term
 
Number of Aircraft
 
Three months ending March 31, 2017 to fiscal year 2018
 
19

 
Fiscal year 2019 to fiscal year 2021
 
57

 
Fiscal year 2022 to fiscal year 2025
 
17

 
 
 
93

 
Employee Agreements — Approximately 52% of our employees are represented by collective bargaining agreements and/or unions with 83% 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. The expense related to the VSPs and ISPs for the three and nine months ended December 31, 2016 and 2015 is as follows (in thousands):
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
2016
 
2015
 
2016
 
2015
VSP:
 
 
 
 
 
 
 
Direct cost
$
179

 
$
661

 
$
1,624

 
$
7,338

General and administrative
—

 
234

 
23

 
831

Total
$
179

 
$
895

 
$
1,647

 
$
8,169

 
 
 
 
 
 
 
 
ISP:
 
 
 
 
 
 
 
Direct cost
$
464

 
$
2,184

 
$
5,360

 
$
4,745

General and administrative
102

 
4,269

 
8,697

 
8,125

Total
$
566

 
$
6,453

 
$
14,057

 
$
12,870


On April 18, 2016, Mr. Jeremy Akel departed the Company as Senior Vice President and Chief Operating Officer. Mr. Akel and the Company have entered into a Separation Agreement and Release in Full, dated June 7, 2016 to specify the terms of his departure from the Company, pursuant to which he will receive benefits generally consistent with the termination without cause terms set forth in the Bristow Group Inc. Management Severance Benefits Plan for U.S. Employees effective June 4, 2014 and the Amended and Restated Severance Benefits Agreement between Mr. Akel and the Company dated April 20, 2012. Additionally, on July 1, 2016, Ms. Hilary Ware departed the Company as Senior Vice President and Chief Administration Officer. Ms. Ware and the Company have entered into a Separation Agreement and Release in Full, dated July 14, 2016 to specify the terms of her departure from the Company, pursuant to which she will receive benefits generally consistent with the termination without cause terms set forth in the Bristow Group Inc. Management Severance Benefits Plan for U.S. Employees effective June 4, 2014 and the Amended and Restated Severance Benefits Agreement between Ms. Ware and the Company dated November 4, 2010. We recognized compensation expense related to the departure of Mr. Akel during the three months ended June 30, 2016 and Ms. Ware during the three months ended September 30, 2016 included in the amounts above.
Environmental Contingencies — The U.S. Environmental Protection Agency (the “EPA”), has in the past notified us that we are a potential responsible party (“PRP”) at three former waste disposal facilities that are on the National Priorities List of contaminated sites. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund law, persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites. Although we have not yet obtained a formal release of liability from the EPA with respect to any of the sites, we believe that our potential liability in connection with the sites is not likely to have a material adverse effect on our business, financial condition or results of operations.
Other Purchase Obligations — As of December 31, 2016, we had $55.5 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.

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

Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to deductible, self-insured retention and loss sensitive factors.
We became aware of an incident involving another operator of the Sikorsky S-92A in the North Sea in December 2016. The preliminary review suggests a reduction in tail rotor control authority. In response to an Alert Service Bulletin issued by Sikorsky shortly after the incident, on January 13, 2017, the Federal Aviation Administration issued an Emergency Airworthiness Directive (Emergency AD) to perform one-time and periodic inspections on the tail rotor pitch change shaft bearing assembly.  We acted immediately to ensure ongoing compliance with the Emergency AD across our global fleet. The other operator’s incident remains under investigation by the U.K. Air Accidents Investigation Branch. It is too early to determine whether or not any further action may be required or the impact of this on our future business, financial condition and results of operations.
As previously reported, on April 29, 2016, another helicopter company’s Airbus Helicopters EC225LP (also known as a H225) model helicopter crashed near Turøy outside of Bergen, Norway. The aircraft was carrying eleven passengers and two crew members at the time of the accident. Thirteen fatalities were reported. The cause of the accident is not yet known and is under investigation by authorities in Norway.
Prior to the accident, we operated a total of 27 H225 model aircraft (including 16 owned and 11 leased) worldwide as follows:
•Five H225 model aircraft registered in Norway;
•Thirteen H225 model aircraft registered in the United Kingdom; and
•Nine H225 model aircraft registered in Australia.
On June 2, 2016, the European Aviation Safety Agency (“EASA”) issued an emergency airworthiness directive, which was subsequently amended on June 3, 2016 and June 9, 2016 (collectively, the “June EASA Airworthiness Directive”), prohibiting flight of Airbus Helicopters EC225LP and AS332L2 model aircraft. The June EASA Airworthiness Directive by its terms did not apply to military, customs, police, search and rescue, firefighting, coastguard or similar activities or services as those types of services are governed by the member states of EASA directly.
On October 7, 2016, EASA issued a new airworthiness directive effective October 13, 2016 (the “October EASA Airworthiness Directive”) that expressly supersedes the June EASA Airworthiness Directive and details the mandatory actions necessary to permit a return to service of the Airbus Helicopters EC225LP and AS332L2 model aircraft. In response to the October EASA Airworthiness Directive, the U.K. Civil Aviation Authority (“UK CAA”) immediately issued a statement (the “UK CAA Statement”) confirming that its existing restriction that was evidenced through its safety directive issued in June 2016, prohibiting all commercial flying of these model aircraft, remains in effect until further notice. The safety directive issued in June 2016 by the Norway Civil Aviation Agency (“NCAA”) prohibiting commercial operation of the EC225LP and AS332L2 model aircraft in Norway remains in effect as well. The UK CAA Statement also stated that the UK CAA and NCAA are awaiting further information from the accident investigation before considering any future action.
In light of the October EASA Airworthiness Directive and UK CAA Statement, we are working with local regulators, Airbus, HeliOffshore and our clients to carefully evaluate our next steps for the H225 model aircraft in both our oil and gas and SAR operations in Norway, the United Kingdom and Australia. We do not currently have any AS332L2 model aircraft in our fleet. Until we are confident that the H225 model aircraft can be operated safely, we will continue to suspend all operation of its H225 model aircraft, including for SAR and training.
Specifically, we will continue to not operate for commercial purposes our sole H225 model aircraft in Norway, our 13 H225 model aircraft in the United Kingdom or our six H225 model aircraft in Australia, or for search and rescue purposes, including training and missions, any of our other four H225 model aircraft in Norway or our other three H225 model aircraft in Australia.
Our other aircraft, including SAR, continue to operate globally. It is too early to determine whether the H225 accident that occurred in Norway in April 2016 will have a material impact on us as we are in the process of quantifying the impact and investigating potential claims against Airbus.
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

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

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, 2016 to be approximately $5 million to $7 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.
Note 6 — TAXES
In accordance with GAAP, we estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impacts of such unusual or infrequent items are treated discretely in the quarter in which they occur. Our effective tax rate was 12.0% and 73.0% during the three months ended December 31, 2016 and 2015, respectively, and 10.2% and (27.7)% during the nine months ended December 31, 2016 and 2015, respectively. The effective tax rate for the three and nine months ended December 31, 2016 was impacted by valuation allowances against future realization of foreign tax credits. Additionally, we continue to value against net operating losses in certain foreign jurisdictions.
The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our geographical blend of pre-tax book income. Consequently, our income tax expense does not change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The increase in our effective tax rate excluding discrete items for the three and nine months ended December 31, 2016 compared to the three and nine months ended December 31, 2015 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 $3.7 million and $9.5 million for the three months ended December 31, 2016 and 2015, respectively, and $19.3 million and $15.0 million for the nine months ended December 31, 2016 and 2015, respectively, which also increased our effective tax rate.
As of December 31, 2016, there were $1.3 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate if recognized.
Note 7 — EMPLOYEE BENEFIT PLANS
Pension Plans
The following table provides a detail of the components of net periodic pension cost (in thousands):
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
Service cost for benefits earned during the period
 
$
1,696

 
$
2,349

 
$
5,450

 
$
7,121

Interest cost on pension benefit obligation
 
4,139

 
5,119

 
13,297

 
15,515

Expected return on assets
 
(5,601
)
 
(6,871
)
 
(17,992
)
 
(20,826
)
Amortization of unrecognized losses
 
1,699

 
2,110

 
5,454

 
6,395

Net periodic pension cost
 
$
1,933

 
$
2,707

 
$
6,209

 
$
8,205

The current estimate of our cash contributions required for fiscal year 2017 for our pension plans to be paid in fiscal year 2017 is $17.8 million, of which $12.6 million was paid during the nine months ended December 31, 2016.

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

Incentive Compensation
Stock–based awards are currently made under the Bristow Group Inc. 2007 Long-Term Incentive Plan (the “2007 Plan”). A maximum of 10,646,729 shares of common stock, par value $.01 per share (“Common Stock”), are reserved. Awards granted under the 2007 Plan may be in the form of stock options, stock appreciation rights, shares of restricted stock, other stock-based awards (payable in cash or Common Stock) or performance awards, or any combination thereof, and may be made to outside directors, employees or consultants. As of December 31, 2016, 4,326,151 shares remained available for grant under the 2007 Plan.
On May 23, 2016, our board of directors approved an amendment and restatement of the 2007 Plan, approved by our stockholders on August 3, 2016, that effected each of the following changes: (i) reserved an additional 5,246,729 “shares” (or 2,623,365 full value shares) that, when combined with “shares” remaining available for issuance under the 2007 Plan resulted in a total of approximately 6,400,000 “shares” (or approximately 3,200,000 full value shares) available for issuance under the amended and restated plan, with each option and stock appreciation right granted under the amended and restated plan counting as one “shares” against such total and with each incentive award that may be settled in Common Stock counting as two “shares” (or one full value share) against such total; (ii) increased the maximum share-based employee award under the amended and restated plan from 500,000 full value shares to 1,000,000 full value shares; (iii) set the maximum aggregate compensation and incentive awards that may be provided by the Company in any calendar year to any non-employee member of the board of directors at $1,125,000; and (iv) made other administrative and updating changes.
We have a number of other incentive and stock option plans which are described in Note 9 to our fiscal year 2016 Financial Statements.
Total stock-based compensation expense, which includes stock options and restricted stock, totaled $3.3 million and $6.3 million for the three months ended December 31, 2016 and 2015, respectively, and $9.5 million and $16.6 million for the nine months ended December 31, 2016 and 2015, respectively. Stock-based compensation expense has been allocated to our various regions.
During the nine months ended December 31, 2016, we awarded 642,753 shares of restricted stock at an average grant date fair value of $10.21 per share. Also during the nine months ended December 31, 2016, 1,024,168 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, 2016:
 
Risk free interest rate
1.07
%
 
 
Expected life (years)
5

 
 
Volatility
46.75
%
 
 
Dividend yield
2.74
%
 
 
Weighted average exercise price of options granted
$16.21 per option

 
 
Weighted average grant-date fair value of options granted
$2.16 per option

 
Performance cash awards 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, 2016 was $12.7 million and $15.8 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, 2016 resulted from the payout in June 2016 of the awards granted in June 2013, partially offset by the value of the new awards granted in June 2016. Any changes in fair value of the awards in future quarters will increase or decrease the liability and impact results in those periods. The effect, either positive or negative, on future period earnings can vary based on factors including changes in our stock price or the stock prices of the peer group companies, as well as changes in other market and company-specific assumptions that are factored into the calculation of fair value of the performance cash awards.
Compensation related to the performance cash awards recorded as an expense of $3.1 million and $2.8 million during the three months ended December 31, 2016 and 2015, respectively, and an expense of $5.6 million and $4.5 million during the nine months ended December 31, 2016 and 2015, respectively.

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

Note 8 — DIVIDENDS, SHARE REPURCHASES, EARNINGS PER SHARE AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Dividends
On February 1, 2017, our board of directors approved a dividend of $0.07 per share of Common Stock, payable on March 15, 2017 to shareholders of record on March 1, 2017. See discussion of our dividends in Note 10 to our fiscal year 2016 Financial Statements. The declaration of future dividends is at the discretion of our board of directors and subject to our results of operations, financial condition, cash requirements and other factors and restrictions under applicable law and our debt instruments.
Share Repurchases
We did not repurchase any shares during the nine months ended December 31, 2016 and 2015. As of December 31, 2016, our $150.0 million of remaining repurchase authority had expired. In addition, covenants in our credit agreements restrict our ability to repurchase our Common Stock. For additional information on our repurchases of Common Stock, see “Share Repurchases” in Note 10 to the fiscal year 2016 Financial Statements.
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,
 
 
2016
 
2015
 
2016
 
2015
Options:
 
 
 
 
 
 
 
 
Outstanding
 
2,150,235

 
1,182,210

 
1,720,164

 
1,131,668

Weighted average exercise price
 
$
28.51

 
$
63.83

 
$
32.90

 
$
63.30

Restricted stock awards:
 
 
 
 
 
 
 
 
Outstanding
 
404,772

 
175,578

 
486,340

 
265,128

Weighted average price
 
$
15.06

 
$
58.17

 
$
27.92

 
$
41.67


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

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
Net income (loss) available to common stockholders (in thousands):
 
 
 
 
 
 
 
 
Income (loss) available to common stockholders – basic
 
$
(21,927
)
 
$
3,202

 
$
(92,496
)
 
$
(48,685
)
Interest expense on assumed conversion of 3% Convertible Senior Notes, net of tax (1)
 
—

 
—

 
—

 
—

Income (loss) available to common stockholders – diluted
 
$
(21,927
)
 
$
3,202

 
$
(92,496
)
 
$
(48,685
)
Shares:
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding – basic
 
35,095,240

 
34,936,937

 
35,021,463

 
34,884,529

Assumed conversion of 3% Convertible Senior Notes outstanding during the period (1)
 
—

 
—

 
—

 
—

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

 
366,301

 
—

 
—

Weighted average number of common shares outstanding – diluted
 
35,095,240

 
35,303,238

 
35,021,463

 
34,884,529

 
 
 
 
 
 
 
 
 
Basic income (loss) per common share
 
$
(0.62
)
 
$
0.09

 
$
(2.64
)
 
$
(1.40
)
Diluted income (loss) per common share
 
$
(0.62
)
 
$
0.09

 
$
(2.64
)
 
$
(1.40
)
_____________ 
(1) 
Diluted earnings per common share for the three and nine months ended December 31, 2015 excludes potentially dilutive shares determined pursuant to a specified formula initially issuable upon the conversion of our 3% Convertible Senior Notes. The 3% Convertible Senior Notes were convertible, under certain circumstances, using a net share settlement process, into a combination of cash and our Common Stock. As of December 31, 2015, we had repurchased the $115.0 million principal amount of our 3% Convertible Senior Notes. Prior to the purchase, upon conversion of a note, the holder would have received cash equal to the principal amount of the note and Common Stock to the extent of the note’s conversion value in excess of such principal amount. In addition, if at the time of conversion the applicable price of our Common Stock exceeded the base conversion price, holders would have received additional shares of our Common Stock per $1,000 principal amount of notes, as determined pursuant to a specified formula. Such shares did not impact our calculation of diluted earnings per share for the three and nine months ended December 31, 2015 as our average stock price during these periods did not meet or exceed the conversion requirements.
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, 2016
 
$
(67,365
)
 
$
(222,454
)
 
$
(289,819
)
Other comprehensive income before reclassification
 
(37,122
)
 
—

 
(37,122
)
Reclassified from accumulated other comprehensive income
 
—

 
—

 
—

Net current period other comprehensive income
 
(37,122
)
 
—

 
(37,122
)
Foreign exchange rate impact
 
(46,324
)
 
46,324

 
—

Balance as of December 31, 2016
 
$
(150,811
)
 
$
(176,130
)
 
$
(326,941
)
_____________ 
(1) 
Reclassification of amounts related to pension liability adjustments are included as a component of net periodic pension cost.


28
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 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, Trinidad and the U.S. Gulf of Mexico. The Asia Pacific region comprises all our operations and affiliates in Australia and Southeast Asia, including Malaysia and Sakhalin. Additionally, we operate a training unit, Bristow Academy, which is included in Corporate and other.
The following tables show region information for the three and nine months ended December 31, 2016 and 2015 and as of December 31 and March 31, 2016, 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,
 
 
2016
 
2015
 
2016
 
2015
Region gross revenue from external clients:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
179,632

 
$
208,852

 
$
566,290

 
$
657,299

Africa
 
50,516

 
63,287

 
156,422

 
207,501

Americas
 
52,362

 
70,826

 
166,651

 
219,284

Asia Pacific
 
52,857

 
73,598

 
167,256

 
232,677

Corporate and other
 
2,076

 
3,324

 
7,689

 
17,033

Total region gross revenue
 
$
337,443

 
$
419,887

 
$
1,064,308

 
$
1,333,794

Intra-region gross revenue:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,278

 
$
302

 
$
5,308

 
$
1,379

Africa
 
—

 
—

 
—

 
2

Americas
 
977

 
1,406

 
2,939

 
6,778

Asia Pacific
 
—

 
—

 
1

 
2

Corporate and other
 
38

 
400

 
317

 
1,844

Total intra-region gross revenue
 
$
2,293

 
$
2,108

 
$
8,565

 
$
10,005

Consolidated gross revenue reconciliation:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
180,910

 
$
209,154

 
$
571,598

 
$
658,678

Africa
 
50,516

 
63,287

 
156,422

 
207,503

Americas
 
53,339

 
72,232

 
169,590

 
226,062

Asia Pacific
 
52,857

 
73,598

 
167,257

 
232,679

Corporate and other
 
2,114

 
3,724

 
8,006

 
18,877

Intra-region eliminations
 
(2,293
)
 
(2,108
)
 
(8,565
)
 
(10,005
)
Total consolidated gross revenue
 
$
337,443

 
$
419,887

 
$
1,064,308

 
$
1,333,794




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

 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
Earnings from unconsolidated affiliates, net of losses – equity method investments:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
125

 
$
93

 
$
241

 
$
345

Americas
 
831

 
7,556

 
4,954

 
(1,760
)
Corporate and other
 
(190
)
 
—

 
(461
)
 
—

Total earnings (loss) from unconsolidated affiliates, net of losses – equity method investments
 
$
766

 
$
7,649

 
$
4,734

 
$
(1,415
)
 
 
 
 
 
 
 
 
 
Consolidated operating income (loss) reconciliation:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
(303
)
 
$
26,986

 
$
18,468

 
$
56,243

Africa
 
10,441

 
4,377

 
19,954

 
24,903

Americas
 
2,226

 
22,797

 
5,790

 
30,283

Asia Pacific
 
(9,012
)
 
458

 
(24,480
)
 
4,783

Corporate and other
 
(21,575
)
 
(30,387
)
 
(78,869
)
 
(95,278
)
Loss on disposal of assets
 
(874
)
 
(2,154
)
 
(13,077
)
 
(23,856
)
Total consolidated operating income (loss)
 
$
(19,097
)
 
$
22,077

 
$
(72,214
)
 
$
(2,922
)
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
11,185

 
$
8,912

 
$
33,594

 
$
29,889

Africa
 
4,007

 
8,581

 
12,680

 
24,274

Americas
 
7,060

 
7,797

 
25,669

 
28,523

Asia Pacific
 
4,973

 
4,268

 
13,586

 
17,445

Corporate and other
 
2,543

 
2,762

 
7,525

 
6,722

Total depreciation and amortization (1)
 
$
29,768

 
$
32,320

 
$
93,054

 
$
106,853

 
 
 
December 31, 
 2016
 
March 31,  
 2016
Identifiable assets:
 
 
 
 
Europe Caspian
 
$
981,364

 
$
1,067,647

Africa
 
424,590

 
304,081

Americas
 
840,101

 
884,455

Asia Pacific
 
394,544

 
426,677

Corporate and other
 
490,510

 
580,085

Total identifiable assets (2)
 
$
3,131,109

 
$
3,262,945

Investments in unconsolidated affiliates – equity method investments:
 
 
 
 
Europe Caspian
 
$
214

 
$
298

Americas
 
196,935

 
183,990

Corporate and other
 
3,362

 
4,378

Total investments in unconsolidated affiliates – equity method investments
 
$
200,511

 
$
188,666

_____________ 
(1) 
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 $5.0 million during the three months ended December 31, 2015 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, Americas and Africa regions of $0.4 million, $3.9 million and $5.0 million, respectively. Includes accelerated depreciation expense of $22.4 million during nine months ended December 31, 2015 related to aircraft where management made the decision to exit these model types earlier than originally anticipated in our Americas, Africa and Asia Pacific regions of $4.5 million, $11.6 million and $6.3 million, respectively. For further details, see Note 1.
(2) 
Includes $228.8 million and $307.4 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of December 31 and March 31, 2016, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.

30
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 and the 3% Convertible Senior Notes (which we repurchased during the nine months ended December 31, 2015), certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”) fully, unconditionally, jointly and severally guaranteed the payment obligations under these notes. As part of the Eighth Amendment to our Amended and Restated Credit Agreement, Bristow Academy, Inc. became a Guarantor Subsidiary. Therefore, Bristow Academy, Inc. is presented as a Guarantor Subsidiary for the three and nine months ended December 31, 2016 and as of December 31, 2016 in the following supplemental condensed consolidating financial statements. 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.
 

31
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
)
Gain (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
)

32
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
)
Gain (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 income (loss)
 
(92,455
)
 
(13,417
)
 
(9,260
)
 
17,905

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

 
4,771

 
—

 
4,731

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

 
$
(92,496
)

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


Supplemental Condensed Consolidating Statement of Operations
Three Months Ended December 31, 2015
  
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
55,990

 
$
363,897

 
$
—

 
$
419,887

Intercompany revenue
 
—

 
23,560

 
—

 
(23,560
)
 
—

 
 
—

 
79,550

 
363,897

 
(23,560
)
 
419,887

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
1,146

 
44,053

 
266,316

 
—

 
311,515

Intercompany expenses
 
—

 
—

 
23,560

 
(23,560
)
 
—

Depreciation and amortization
 
1,852

 
15,621

 
14,847

 
—

 
32,320

General and administrative
 
22,175

 
5,960

 
31,378

 
—

 
59,513

 
 
25,173

 
65,634

 
336,101

 
(23,560
)
 
403,348

 
 
 
 
 
 
 
 
 
 
 
Loss on disposal of assets
 
—

 
(100
)
 
(2,054
)
 
—

 
(2,154
)
Earnings from unconsolidated affiliates, net of losses
 
(753
)
 
—

 
7,649

 
796

 
7,692

Operating income (loss)
 
(25,926
)
 
13,816

 
33,391

 
796

 
22,077

Interest expense, net
 
30,442

 
(1,035
)
 
(38,943
)
 
—

 
(9,536
)
Other income (expense), net
 
230

 
252

 
168

 
—

 
650

Income (loss) before provision for income taxes
 
4,746

 
13,033

 
(5,384
)
 
796

 
13,191

Allocation of consolidated income taxes
 
(1,530
)
 
(309
)
 
(7,784
)
 
—

 
(9,623
)
Net income (loss)
 
3,216

 
12,724

 
(13,168
)
 
796

 
3,568

Net income attributable to noncontrolling interests
 
(14
)
 
—

 
(352
)
 
—

 
(366
)
Net income (loss) attributable to Bristow Group
 
$
3,202

 
$
12,724

 
$
(13,520
)
 
$
796

 
$
3,202


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

Supplemental Condensed Consolidating Statement of Operations
Nine Months Ended December 31, 2015

 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Gross revenue
 
$
—

 
$
179,416

 
$
1,154,378

 
$
—

 
$
1,333,794

Intercompany revenue
 
—

 
70,295

 
—

 
(70,295
)
 
—

 
 
—

 
249,711

 
1,154,378

 
(70,295
)
 
1,333,794

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
229

 
149,010

 
853,381

 
—

 
1,002,620

Intercompany expenses
 
—

 
—

 
70,295

 
(70,295
)
 
—

Depreciation and amortization
 
5,136

 
47,736

 
53,981

 
—

 
106,853

General and administrative
 
62,490

 
18,752

 
93,060

 
—

 
174,302

 
 
67,855

 
215,498

 
1,070,717

 
(70,295
)
 
1,283,775

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(2,508
)
 
(25,205
)
 
—

 
(27,713
)
Loss on disposal of assets
 
—

 
(19,738
)
 
(4,118
)
 
—

 
(23,856
)
Earnings from unconsolidated affiliates, net of losses
 
(90,180
)
 
—

 
(1,415
)
 
90,223

 
(1,372
)
Operating income (loss)
 
(158,035
)
 
11,967

 
52,923

 
90,223

 
(2,922
)
Interest expense, net
 
88,893

 
(3,381
)
 
(109,896
)
 
—

 
(24,384
)
Other income (expense), net
 
185

 
336

 
(7,456
)
 
—

 
(6,935
)
Income (loss) before provision for income taxes
 
(68,957
)
 
8,922

 
(64,429
)
 
90,223

 
(34,241
)
Allocation of consolidated income taxes
 
21,812

 
(2,719
)
 
(28,593
)
 
—

 
(9,500
)
Net income (loss)
 
(47,145
)
 
6,203

 
(93,022
)
 
90,223

 
(43,741
)
Net income attributable to noncontrolling interests
 
(42
)
 
—

 
(3,404
)
 
—

 
(3,446
)
Net income (loss) attributable to Bristow Group
 
(47,187
)
 
6,203

 
(96,426
)
 
90,223

 
(47,187
)
Accretion of redeemable noncontrolling interests
 
—

 
—

 
(1,498
)
 
—

 
(1,498
)
Net income (loss) attributable to common stockholders
 
$
(47,187
)
 
$
6,203

 
$
(97,924
)
 
$
90,223

 
$
(48,685
)

35
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
)

36
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 income (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
)

37
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, 2015
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net income (loss)
 
$
3,216

 
$
12,724

 
$
(13,168
)
 
$
796

 
$
3,568

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(31,902
)
 
—

 
23,556

 
4,707

 
(3,639
)
Total comprehensive income (loss)
 
(28,686
)
 
12,724

 
10,388

 
5,503

 
(71
)
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(14
)
 
—

 
(352
)
 
—

 
(366
)
Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
(605
)
 
—

 
(605
)
Total comprehensive income attributable to noncontrolling interests
 
(14
)
 
—

 
(957
)
 
—

 
(971
)
Total comprehensive income (loss) attributable to Bristow Group
 
(28,700
)
 
12,724

 
9,431

 
5,503

 
(1,042
)

38
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, 2015
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net income (loss)
 
$
(47,145
)
 
$
6,203

 
$
(93,022
)
 
$
90,223

 
$
(43,741
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
(38,773
)
 
—

 
63,859

 
(33,067
)
 
(7,981
)
Total comprehensive income (loss)
 
(85,918
)
 
6,203

 
(29,163
)
 
57,156

 
(51,722
)
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(42
)
 
—

 
(3,404
)
 
—

 
(3,446
)
Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
(34
)
 
—

 
(34
)
Total comprehensive income attributable to noncontrolling interests
 
(42
)
 
—

 
(3,438
)
 
—

 
(3,480
)
Total comprehensive income (loss) attributable to Bristow Group
 
(85,960
)
 
6,203

 
(32,601
)
 
57,156

 
(55,202
)
Accretion of redeemable noncontrolling interests
 
—

 
—

 
(1,498
)
 
—

 
(1,498
)
Total comprehensive income (loss) attributable to common stockholders
 
$
(85,960
)
 
$
6,203

 
$
(34,099
)
 
$
57,156

 
$
(56,700
)

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


Supplemental Condensed Consolidating Balance Sheet
As of December 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
2,397

 
$
—

 
$
71,709

 
$
(2,947
)
 
$
71,159

Accounts receivable
 
570,910

 
642,332

 
420,565

 
(1,417,401
)
 
216,406

Inventories
 
—

 
35,261

 
89,097

 
—

 
124,358

Assets held for sale
 
—

 
33,780

 
3,855

 
—

 
37,635

Prepaid expenses and other current assets
 
2,565

 
(1,852
)
 
51,435

 
—

 
52,148

Total current assets
 
575,872

 
709,521

 
636,661

 
(1,420,348
)
 
501,706

Intercompany investment
 
2,524,982

 
104,435

 
124,801

 
(2,754,218
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
206,797

 
—

 
206,797

Intercompany notes receivable
 
126,159

 
13,786

 
3,600

 
(143,545
)
 
—

Property and equipment—at cost:
 
 
 
 
 
 
 
 
 
 
Land and buildings
 
4,842

 
63,932

 
162,247

 
—

 
231,021

Aircraft and equipment
 
152,131

 
1,093,653

 
1,371,683

 
—

 
2,617,467

 
 
156,973

 
1,157,585

 
1,533,930

 
—

 
2,848,488

Less: Accumulated depreciation and amortization
 
(29,157
)
 
(256,037
)
 
(300,627
)
 
—

 
(585,821
)
 
 
127,816

 
901,548

 
1,233,303

 
—

 
2,262,667

Goodwill
 
—

 
—

 
18,793

 
—

 
18,793

Other assets
 
38,973

 
2,306

 
99,867

 
—

 
141,146

Total assets
 
$
3,393,802

 
$
1,731,596

 
$
2,323,822

 
$
(4,318,111
)
 
$
3,131,109

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
365,253

 
$
619,569

 
$
417,657

 
$
(1,322,577
)
 
$
79,902

Accrued liabilities
 
13,978

 
38,677

 
139,392

 
(16,654
)
 
175,393

Current deferred taxes
 
(1,332
)
 
(4,403
)
 
5,735

 
—

 
—

Short-term borrowings and current maturities of long-term debt
 
230,353

 
1,926

 
39,182

 
—

 
271,461

Contingent consideration
 
—

 
—

 
7,137

 
—

 
7,137

Total current liabilities
 
608,252

 
655,769

 
609,103

 
(1,339,231
)
 
533,893

Long-term debt, less current maturities
 
868,180

 
102,656

 
19,371

 
—

 
990,207

Intercompany notes payable
 
—

 
89,038

 
136,826

 
(225,864
)
 
—

Accrued pension liabilities
 
—

 
—

 
49,291

 
—

 
49,291

Other liabilities and deferred credits
 
10,092

 
6,325

 
10,039

 
—

 
26,456

Deferred taxes
 
132,721

 
5,380

 
11,860

 
—

 
149,961

Redeemable noncontrolling interest
 
—

 
—

 
8,267

 
—

 
8,267

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
378

 
20,028

 
115,317

 
(135,345
)
 
378

Additional paid-in-capital
 
807,046

 
29,387

 
284,048

 
(313,435
)
 
807,046

Retained earnings
 
1,072,411

 
823,013

 
821,938

 
(1,644,951
)
 
1,072,411

Accumulated other comprehensive income (loss)
 
78,306

 
—

 
254,038

 
(659,285
)
 
(326,941
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,773,345

 
872,428

 
1,475,341

 
(2,753,016
)
 
1,368,098

Noncontrolling interests
 
1,212

 
—

 
3,724

 
—

 
4,936

Total stockholders’ investment
 
1,774,557

 
872,428

 
1,479,065

 
(2,753,016
)
 
1,373,034

Total liabilities, redeemable noncontrolling interests and stockholders’ investment
 
$
3,393,802

 
$
1,731,596

 
$
2,323,822

 
$
(4,318,111
)
 
$
3,131,109


40
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2016
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
35,241

 
$
3,393

 
$
65,676

 
$
—

 
$
104,310

Accounts receivable
 
768,641

 
353,729

 
373,963

 
(1,247,016
)
 
249,317

Inventories
 
—

 
37,185

 
105,318

 
—

 
142,503

Assets held for sale
 
—

 
38,771

 
5,012

 
—

 
43,783

Prepaid expenses and other current assets
 
5,048

 
(1,843
)
 
49,978

 
—

 
53,183

Total current assets
 
808,930

 
431,235

 
599,947

 
(1,247,016
)
 
593,096

Intercompany investment
 
2,207,516

 
104,435

 
145,168

 
(2,457,119
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
194,952

 
—

 
194,952

Intercompany notes receivable
 
153,078

 
13,787

 
3,600

 
(170,465
)
 
—

Property and equipment—at cost:
 
 
 
 
 
 
 
 
 
 
Land and buildings
 
4,776

 
63,976

 
184,346

 
—

 
253,098

Aircraft and equipment
 
137,751

 
1,142,829

 
1,289,997

 
—

 
2,570,577

 
 
142,527

 
1,206,805

 
1,474,343

 
—

 
2,823,675

Less: Accumulated depreciation and amortization
 
(23,556
)
 
(238,644
)
 
(278,223
)
 
—

 
(540,423
)
 
 
118,971

 
968,161

 
1,196,120

 
—

 
2,283,252

Goodwill
 
—

 
—

 
29,990

 
—

 
29,990

Other assets
 
48,190

 
743

 
112,722

 
—

 
161,655

Total assets
 
$
3,336,685

 
$
1,518,361

 
$
2,282,499

 
$
(3,874,600
)
 
$
3,262,945

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
208,230

 
$
475,118

 
$
296,860

 
$
(883,242
)
 
$
96,966

Accrued liabilities
 
26,886

 
31,371

 
401,031

 
(257,683
)
 
201,605

Current deferred taxes
 
88

 
1,914

 
(121
)
 
—

 
1,881

Short-term borrowings and current maturities of long-term debt
 
25,678

 
—

 
34,716

 
—

 
60,394

Contingent consideration
 
—

 
—

 
29,522

 
—

 
29,522

Total current liabilities
 
260,882

 
508,403

 
762,008

 
(1,140,925
)
 
390,368

Long-term debt, less current maturities
 
1,047,150

 
—

 
24,428

 
—

 
1,071,578

Intercompany notes payable
 
—

 
108,952

 
81,422

 
(190,374
)
 
—

Accrued pension liabilities
 
—

 
—

 
70,107

 
—

 
70,107

Other liabilities and deferred credits
 
12,278

 
6,935

 
14,060

 
—

 
33,273

Deferred taxes
 
147,631

 
3,670

 
20,953

 
—

 
172,254

Redeemable noncontrolling interest
 
—

 
—

 
15,473

 
—

 
15,473

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
377

 
4,996

 
130,348

 
(135,344
)
 
377

Additional paid-in-capital
 
801,173

 
9,291

 
284,048

 
(293,339
)
 
801,173

Retained earnings
 
1,172,273

 
876,114

 
807,131

 
(1,683,245
)
 
1,172,273

Accumulated other comprehensive income (loss)
 
78,306

 
—

 
63,248

 
(431,373
)
 
(289,819
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,867,333

 
890,401

 
1,284,775

 
(2,543,301
)
 
1,499,208

Noncontrolling interests
 
1,411

 
—

 
9,273

 
—

 
10,684

Total stockholders’ investment
 
1,868,744

 
890,401

 
1,294,048

 
(2,543,301
)
 
1,509,892

Total liabilities, redeemable noncontrolling interests and stockholders’ investment
 
$
3,336,685

 
$
1,518,361

 
$
2,282,499

 
$
(3,874,600
)
 
$
3,262,945


41
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
 
$
(88,396
)
 
$
39,771

 
$
36,712

 
$
(2,947
)
 
$
(14,860
)
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

Deposits on assets held for sale
 
—

 
290

 
—

 
—

 
290

Net cash provided by (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
)
Net cash provided by (used in) financing activities
 
70,937

 
(35,255
)
 
57,061

 
—

 
92,743

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


42
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, 2015
 
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(111,132
)
 
$
104,553

 
$
62,263

 
$
—

 
$
55,684

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(24,633
)
 
(258,365
)
 
(60,367
)
 
—

 
(343,365
)
Proceeds from asset dispositions
 
—

 
15,192

 
3,960

 
—

 
19,152

Net cash used in investing activities
 
(24,633
)
 
(243,173
)
 
(56,407
)
 
—

 
(324,213
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
893,025

 
—

 
17,396

 
—

 
910,421

Repayment of debt
 
(542,900
)
 
—

 
(24,221
)
 
—

 
(567,121
)
Dividends paid
 
(35,627
)
 
—

 
—

 
—

 
(35,627
)
Increases (decreases) in cash related to intercompany advances and debt
 
(178,140
)
 
138,564

 
39,576

 
—

 
—

Partial prepayment of put/call obligation
 
(42
)
 
—

 
—

 
—

 
(42
)
Acquisition of noncontrolling interest
 
—

 
—

 
(7,311
)
 
—

 
(7,311
)
Dividends paid to noncontrolling interest
 
—

 
—

 
(153
)
 
—

 
(153
)
Payment of contingent consideration
 
—

 
—

 
(8,000
)
 
—

 
(8,000
)
Tax benefit related to stock-based compensation
 
44

 
—

 
—

 
—

 
44

Net cash provided by financing activities
 
136,360

 
138,564

 
17,287

 
—

 
292,211

Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
4,080

 
—

 
4,080

Net increase (decrease) in cash and cash equivalents
 
595

 
(56
)
 
27,223

 
—

 
27,762

Cash and cash equivalents at beginning of period
 
126

 
884

 
103,136

 
—

 
104,146

Cash and cash equivalents at end of period
 
$
721

 
$
828

 
$
130,359

 
$
—

 
$
131,908


43

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Bristow Group Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Bristow Group Inc. and subsidiaries as of December 31, 2016, and the related condensed consolidated statements of operations and comprehensive loss for the three and nine month periods ended December 31, 2016 and 2015, the condensed consolidated statements of cash flows for the nine month periods ended December 31, 2016 and 2015, and the condensed consolidated statement of changes in equity and redeemable noncontrolling interests for the nine month period ended December 31, 2016. 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, 2016, and the related consolidated statements of income, comprehensive income (loss), cash flows and stockholders’ investment for the year then ended (not presented herein); and in our report dated May 27, 2016 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, 2016 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 2, 2017

44

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, 2016 (the “fiscal year 2016 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, 2016 and 2015, respectively, and the terms “Current Period” and “Comparable Period” refer to the nine months ended December 31, 2016 and 2015, 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, 2017 is referred to as “fiscal year 2017”.
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 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:
•the possibility of political instability, war or acts of terrorism in any of the countries where we operate;
•fluctuations in worldwide prices of and demand for oil and natural gas;
•fluctuations in levels of oil and natural gas exploration, development and production activities;
•fluctuations in the demand for our services;
•the existence of competitors;
•
the existence of operating risks inherent in our business, including the possibility of declining safety performance;
•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 of significant changes in foreign exchange rates and controls;
•general economic conditions including the capital and credit markets;
•
the possibility that we may impair our long-lived assets, including goodwill, property and equipment and investments in unconsolidated affiliates;
•
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 be unable to acquire additional aircraft due to limited availability or unable to exercise aircraft purchase options;

45

•the possibility that we may be unable to dispose of older aircraft through sales into the aftermarket;
•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 obtain financing, draw on our credit facilities or enter into definitive agreements with respect to financings;
•
the possibility that we may lack sufficient liquidity or access to additional financing sources to continue to pay a quarterly dividend or finance contractual commitments;
•
the possibility that we may be unable to maintain compliance with debt covenants;
•the possibility that segments of our fleet may be grounded for extended periods of time or indefinitely;
•the possibility that we may be unable to re-deploy our aircraft to regions with greater demand;
•
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 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 2016 Annual Report and in this Quarterly 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.

46

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 and one of two helicopter service providers to the offshore energy industry with global operations. 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, Nigeria, 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 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 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 (“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 continues to July 2017 and a contract length of approximately ten years. We are currently operational at nine bases as follows: Humberside and Inverness (April 2015), Caernarfon (July 2015), Lydd (August 2015), St. Athan (October 2015), Prestwick and Newquay (January 2016) and two previously awarded Gap SAR bases of Sumburgh (June 2013) and Stornoway (July 2013). Operation is expected to commence at one additional base in fiscal year 2018. The two Gap SAR bases are also expected to transition to the U.K. SAR contract in fiscal year 2018.
During the Current Period, we generated approximately 71% of our consolidated operating revenue from external clients from oil and gas operations, approximately 14% from SAR operations and approximately 14% 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 four regions:
•
Europe Caspian,
•
Africa,
•
Americas, and
•
Asia Pacific.
We primarily provide industrial aviation services to a broad base of major integrated, national and independent offshore energy companies. Our clients charter our helicopters primarily to transport personnel between onshore bases and offshore production platforms, drilling rigs and other installations. To a lesser extent, our clients also charter our helicopters to transport time-sensitive equipment to these offshore locations. These clients’ operating expenditures in the production sector are the principal source of our revenue, while their exploration and development capital expenditures provide a lesser portion of our revenue. The clients for SAR services include both the oil and gas industry, where our revenue is primarily dependent on our clients’ operating expenditures, and governmental agencies, where our revenue is dependent on a country’s desire to privatize SAR and enter into long-term contracts. In addition to our primary Industrial Aviation Services operations, we also operate a training unit, Bristow Academy. As of December 31, 2016, we operated 345 aircraft (including 228 owned aircraft and 117 leased aircraft; 24 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 113 aircraft in addition to those aircraft leased from us.


47

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, 2016; (2) the number of helicopters which we had on order or under option as of December 31, 2016; and (3) the percentage of operating revenue which each of our regions provided during the Current Period. For additional information regarding our commitments and options to acquire aircraft, see Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Percentage
of Current
Period
Operating
Revenue
 
Aircraft in Consolidated Fleet
 
 
 
 
 
 
Helicopters
 
Fixed
Wing (1)
 
 
 
Unconsolidated
Affiliates (4)
 
 
 
 
Small
 
Medium
 
Large
 
Training
 
 
Total (2)(3)
 
Total
Europe Caspian
 
54
%
 
—

 
16

 
76

 
—

 
31

 
123

 
—

 
123

Africa
 
15
%
 
14

 
30

 
5

 
—

 
4

 
53

 
46

 
99

Americas
 
16
%
 
15

 
42

 
16

 
—

 
—

 
73

 
67

 
140

Asia Pacific
 
15
%
 
2

 
9

 
24

 
—

 
14

 
49

 
—

 
49

Corporate and other
 
—
%
 
—

 
—

 
—

 
47

 
—

 
47

 
—

 
47

Total
 
100
%
 
31

 
97

 
121

 
47

 
49

 
345

 
113

 
458

Aircraft not currently in fleet: (5)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
On order (6)
 
 
 
—

 
5

 
29

 
—

 
—

 
34

 
 
 
 
Under option
 
 
 
—

 
—

 
4

 
—

 
—

 
4

 
 
 
 
____________ 
(1) 
Includes 33 fixed wing aircraft operated by Eastern Airways which are included in the Europe Caspian and Africa regions and 14 fixed wing aircraft operated by Airnorth which are included in the Asia Pacific region.
(2) 
Includes 24 aircraft held for sale and 117 leased aircraft as follows:
 
 
Held for Sale Aircraft in Consolidated Fleet
 
 
Helicopters
 
 
 
 
Small
 
Medium
 
Large
 
Training
 
Fixed
Wing
 
Total
Europe Caspian
 
—

 
1

 
—

 
—

 
—

 
1

Africa
 
5

 
7

 
—

 
—

 
—

 
12

Americas
 
1

 
6

 
—

 
—

 
—

 
7

Asia Pacific
 
—

 
—

 
—

 
—

 
1

 
1

Corporate and other
 
—

 
—

 
—

 
3

 
—

 
3

Total
 
6

 
14

 
—

 
3

 
1

 
24

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

 
6

 
39

 
—

 
13

 
58

Africa
 
—

 
—

 
2

 
—

 
2

 
4

Americas
 
1

 
14

 
6

 
—

 
—

 
21

Asia Pacific
 
2

 
2

 
9

 
—

 
4

 
17

Corporate and other
 
—

 
—

 
—

 
17

 
—

 
17

Total
 
3

 
22

 
56

 
17

 
19

 
117

(3) 
The average age of our commercial helicopter fleet, which excludes training aircraft, was approximately nine years as of December 31, 2016.
(4) 
The 113 aircraft operated by our unconsolidated affiliates do not include those aircraft leased from us. Includes 44 helicopters (primarily medium) and 23 fixed wing aircraft owned and managed by Líder Táxi Aéreo S.A. (“Líder”), our unconsolidated affiliate in Brazil, which is included in the Americas region.
(5) 
This table does not reflect aircraft which our unconsolidated affiliates may have on order or under option.
(6) 
Includes $83.7 million for five aircraft orders that can be cancelled prior to delivery dates. During the Current Period, we made non-refundable deposits of $4.5 million related to these aircraft.

48

The commercial aircraft in our consolidated fleet represented in the above chart are our primary source of revenue. To normalize the consolidated operating revenue of our commercial helicopter fleet for the different revenue productivity and cost, we developed a common weighted factor that combines large, medium and small commercial helicopters into a combined standardized number of revenue producing commercial aircraft assets. We call this measure Large AirCraft Equivalent (“LACE”). Our commercial large, medium and small helicopters, including owned and leased helicopters, are weighted as 100%, 50% and 25%, respectively, to arrive at a single LACE number, which excludes Bristow Academy aircraft, fixed wing aircraft, unconsolidated affiliate aircraft, aircraft held for sale and aircraft construction in progress. We divide our operating revenue from commercial contracts relating to LACE aircraft, which excludes operating revenue from affiliates and reimbursable revenue, by LACE to develop a LACE rate, which is a standardized rate. Our current number of LACE is 169 and our historical LACE and LACE rate is as follows:
     
 
 
 
Current
Period (1)
 
Fiscal Year Ended March 31,
 
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
LACE
 
169

 
162

 
166

 
158

 
158

 
149

 
LACE Rate (in millions)
 
$
7.03

 
$
8.85

 
$
9.33

 
$
9.34

 
$
8.35

 
$
7.89

____________ 
(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, 2016. 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
42

 
42

 
50
%
 
Africa
17

 
2

 
11
%
 
Americas
24

 
13

 
35
%
 
Asia Pacific
19

 
11

 
36
%
 
Total
101

 
68

 
40
%

49

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. We intend to employ the following well defined business/commercial and capital allocation strategies to achieve this goal:
Business/Commercial Strategy
•
Be the preferred industrial aviation services provider. We are positioned in the market to be the preferred provider of industrial aviation services by maintaining strong relationships with our clients and providing a high level of safety and operating reliably. This differentiation is maintained because of our focus on our cornerstone philosophy of “Target Zero Accidents”, “Target Zero Downtime” and “Target Zero Complaints” allowing us to achieve “Operational Excellence”. Operational Excellence means we maintain close relationships with field operations, corporate management and contacts at our oil and gas clients and governmental agencies which we believe help us better anticipate client needs and provide them reliable service. We provide our clients operational predictability by positioning the right assets in the right place at the right time. This in turn allows us to better manage our fleet utilization and capital investment program and drive internal efficiencies. By better understanding and delivering on our clients’ needs, we effectively compete against other industrial aviation service providers with better aircraft optionality, client service, and reliability, not just on price and safety. In October 2014, we along with four major helicopter operators formally launched HeliOffshore. HeliOffshore is an industry organization with the primary goal of enhancing the already strong safety record of the offshore helicopter industry by sharing best practices in automation, performance monitoring, operating procedures, and advanced technology to establish common global flight standards. We believe this will make our sector a sustainably reliable and dependable logistics option for the oil and gas industry.
•
Grow our business while managing our assets. We plan to continue to grow our business globally and increase our revenue and profitability over time, while managing through cyclical downturns in the energy industry or governmental spending reductions or modifications. We conduct flight operations in most major oil and gas producing regions of the world, and through our strong relationships with our existing clients, we are aware of future business opportunities in the markets we currently serve that would allow us to grow through new contracts. Additionally, new opportunities may result in growth through acquisitions, participation with existing unconsolidated affiliates, investing in new companies, or creating partnerships and alliances with existing industry participants or in new sectors of the air transport industry. We are also actively managing our aircraft fleet with the expressed goal of renewing the fleet with newer technology aircraft over time, while also reducing the number of fleet types we operate. We expect that a reduction in the number of fleet types we operate will allow us to realize operating, maintenance, inventory and supply chain efficiencies across a more standardized global fleet of aircraft.
•
Sustaining Operational Excellence. We continue to invest in operations transformation across our organization, with the goal of developing and sustaining industry differentiation through Operational Excellence. We define our objective of ongoing improvement across four strategic areas: client alignment, operational excellence, exceptional people and profitable growth. We strive for the highest standards in safety performance, mission execution, people management and financial discipline. We have appointed a number of global account and business development executives to support our drive to deliver Operational Excellence to our clients. We are also working to improve operational performance through our global supply chain and fleet management groups. We are in the process of further standardizing, simplifying and integrating our business processes across our global operations so we can better provide more consistent and high quality service delivery. We have invested in two new technology platforms, eFlight and a new ERP platform, to support flight operations and activities such as finance, supply chain and maintenance. The expected benefits of these efforts in addition to a scalable platform for growth include fewer process steps, decreased cost, better maintenance turnaround, minimization of aircraft downtime, faster billing and collections, reduced inventory levels and lower risk exposure, which should lead to improved margins, asset turnover, cash flow and Bristow Value Added (“BVA”). We expect the technology execution portion of Operational Excellence to not only improve our differentiated position with our clients but also reduce risk and reinforce our objective of profitable growth.

50

Capital Allocation Strategy
Our capital allocation strategy is based on three principles as follows:
capitalallocation12.jpg
•
Prudent balance sheet management. Throughout our corporate and regional management, we proactively manage our capital allocation plan with a focus on achieving business growth and improving rates of return, within the dictates of prudent balance sheet management. In addition to cash flow generated from operations, we intend to maintain adequate liquidity and manage our capital structure relative to our commitments with external financings when necessary and through 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, 2016, commercial helicopters under operating leases accounted for 40% of our LACE. Our adjusted debt to total equity ratio and total liquidity were 135.1% and $280.6 million, respectively, as of December 31, 2016 and 119.3% and $359.7 million, respectively, as of March 31, 2016. Adjusted debt includes balance sheet debt of $1.3 billion and $1.1 billion, respectively, excluding unamortized debt issuance costs, the net present value of operating leases totaling $524.6 million and $578.3 million, respectively, letters of credit, bank guarantees and financial guarantees totaling $11.9 million and $11.7 million, respectively, and the unfunded pension liability of $49.3 million and $70.1 million, respectively, as of December 31 and March 31, 2016.


51

•
Highest return of BVA. Our internal financial management framework, called BVA, focuses on the returns we deliver across our organization. BVA is a financial performance measure that we use to measure gross cash flow less a capital charge, assumed to be 10.5% of the use of gross invested capital employed. Our goal is to achieve strong improvements in BVA over time by (1) improving the cash returns we earn throughout our organization via Operational Excellence initiatives and capital efficiency improvements as well as through better pricing based on the differentiated value we deliver to clients via the Bristow Client Promise program; (2) deploying more capital into commercial opportunities where management believes we can deliver strong returns and when we believe it will benefit us and our shareholders, including making strategic acquisitions or strategic equity investments; and (3) withdrawing capital from areas where returns are deemed inadequate and unable to be sufficiently improved. When appropriate, we may divest parts of the Company. Improvements in BVA are the primary financial measure in our management incentive plan, which is designed to align the interests of management with shareholders and also encourages management actions that increase the long-term value of the Company.
•
Balanced shareholder return. We continue to proactively manage our liquidity position with cash flows from operations, as well as external financings as discussed above. On February 1, 2017, our board of directors approved a dividend of $0.07 per share, our twenty-fourth consecutive quarterly dividend. Our board of directors has approved a dividend policy with a goal of an annualized quarterly dividend payout ratio of approximately 20-30% of forward adjusted earnings per share; however, actual dividend payments are at the discretion of the board of directors and may not meet or may exceed this ratio.
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 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 during fiscal years 2015 and 2016. Brent crude oil prices declined from approximately $106 per barrel at July 1, 2014 to a low of approximately $26 in February 2016 with an increase during calendar year 2016 to $54 per barrel at December 31, 2016. The decrease in oil prices was driven by increased global supply and forecasts of reduced demand for crude oil resulting from weaker global economic growth in many regions of the world. The oil price decline negatively impacted the cash flow of our clients and resulted in their implementation of measures to reduce operational and capital costs in calendar years 2015 and 2016 compared to 2014 levels, negatively impacting activity during fiscal years 2015, 2016 and 2017. These cost reductions have continued into calendar year 2017 and have impacted both the offshore production and the offshore exploration activity of our clients, with offshore production activity being impacted to a lesser extent. Although the largest share of our revenue relates to oil and gas production and our largest contract, U.K. SAR, 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. Recently, oil prices have begun to recover following an OPEC meeting in late 2016. This meeting resolved to cut production globally to allow for oil prices to recover and we believe that this resolution may provide operators the confidence to increase offshore spending. Although oil prices have recently increased and we believe that the oil price environment is beginning to stabilize, we are uncertain as to when a recovery in offshore spending will occur.
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 also pursuing other public and oil and gas SAR opportunities for multiple aircraft in various jurisdictions around the globe. We are also pursuing other non-SAR government aircraft logistics opportunities.
As discussed above, we continue to seek ways to operate more efficiently and work with our clients to improve the efficiency of their operations within our “Operational Excellence” strategy. We have reduced operating costs to achieve savings during fiscal year 2016 and the first nine months of fiscal year 2017 by implementing operating cost initiatives and further cost reductions and cash savings or capital deferral efforts are planned across our business in the last quarter of fiscal year 2017 and into fiscal year 2018.
Recent Events
Macquarie Credit Agreement — On February 1, 2017, one of our wholly-owned subsidiaries entered into a term loan credit agreement for a $200 million five-year secured equipment financing with Macquarie Bank Limited. In conjunction with closing and funding under such term loan, we have agreed to lease five helicopters for up to five years (the “Leased Aircraft”) from Wells Fargo Bank Northwest, N.A., acting as owner trustee for Macquarie Aerospace Inc., an affiliate of Macquarie Bank Limited. The borrower's obligations under the credit agreement will be guaranteed by the Company and secured by 20 oil and gas aircraft. The

52

financing is expected to fund no later than March 31, 2017. The proceeds from the financing are expected to be used to repay amounts due under our existing term loans.
GE Commitment Letter — On February 2, 2017, we executed a commitment letter for an approximate six-year, $230 million secured equipment financing with PK Transportation Finance Ireland Limited, a part of GE Capital Aviation Services (“GECAS”). As part of this financing, which is subject to entering into definitive agreements, Milestone Aviation Group Limited (“Milestone”), a GECAS company, will defer up to $25 million in lease rentals on certain Airbus H225 assets on lease to us. The financing will be secured by 20 oil and gas aircraft. Borrowings under the financing bear interest at an interest rate equal to the ICE Benchmark Administration Limited LIBOR (or the successor thereto) plus 5% per annum. We expect this financing to fund no later than June 30, 2017. The proceeds from the financing are expected to be used to repay amounts due under our existing bank indebtedness. As part of executing the commitment letter, we will extend three Sikorsky S-92 leases by two years each with Milestone.
Aircraft incident — We became aware of an incident involving another operator of the S-92 in the North Sea in December 2016. The preliminary review suggests a reduction in tail rotor control authority. On January 13, 2017, the Federal Aviation Administration issued an Emergency Airworthiness Directive (Emergency AD) to perform one-time and periodic inspections on the tail rotors.  We acted immediately to ensure ongoing compliance with the Emergency AD across our global fleet. The other operator’s incident remains under investigation by the U.K. Air Accidents Investigation Branch. It is too early to determine whether or not any further action may be required or the impact of this on our future business, financial condition and results of operations.
U.K. SAR Financing — On November 11, 2016, certain of our subsidiaries entered into two seven-year British pound sterling denominated secured equipment financings for an aggregate $200 million U.S. dollar equivalent with Lombard North Center Plc, part of the Royal Bank of Scotland. In December 2016, the first loan in the amount of $109.9 million (GBP 89.1 million) funded and the borrower prepaid a portion of the scheduled payments totaling $4.5 million (GBP 3.7 million). In January 2017, the second loan amount of $90.1 million (GBP 72.4 million) funded.
The vote by the United Kingdom to leave the European Union — In a referendum held on June 23, 2016, voters in the U.K. approved the exit of the U.K. from the European Union (the “E.U.”) (“Brexit”). While the result of the referendum is not legally binding on the U.K. government, it is expected that the U.K. government will commence 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 will begin 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 fiscal year 2016, respectively, approximately 37% and 34% of our revenue was derived from contracts with customers in the U.K. and approximately 16% of our revenue was derived from contracts with customers in other European markets (primarily Norway) in both periods.
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. 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.
The Brexit vote has already resulted in a significant depreciation in the value of British pound sterling and volatility in exchange rates is expected to continue as the terms of Brexit are negotiated. If British pound sterling remains weak or continues to depreciate, 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 approximately 35% of our consolidated revenue. These 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 11% further devaluation of the naira versus the U.S. dollar from June 30 to December 31, 2016. 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.

53

Impact of fleet changes — The management of our global aircraft fleet involves a careful evaluation of the expected demand for industrial aviation services across global energy markets, including the type of aircraft needed to meet this demand. As offshore oil and gas drilling and production globally moves to deeper water, more medium and large aircraft and newer technology aircraft may be required. As older aircraft models come off of current contracts and are replaced by new aircraft, our management evaluates our future needs for these aircraft models and ultimately the ability to recover our remaining investments in these aircraft through sales into the aftermarket. We depreciate our aircraft over their expected useful life to the expected salvage value to be received for the aircraft at the end of that life. However, depending on the market for aircraft or changes in the expected future use of aircraft within our fleet, we may record gains or losses on aircraft sales, impairment charges for aircraft operating or held for sale, or accelerate or increase depreciation on aircraft used in our operations. In certain instances where a cash return can be made on newer aircraft in excess of the expected return available through the provision of industrial aviation services, we may sell newer aircraft. The number of aircraft sales and the amount of gains and losses recorded on these sales is unpredictable. While aircraft sales are common in our business and are reflected in our operating results, gains and losses on aircraft sales may result in our operating results not reflecting the ordinary operating performance of our primary business, which is providing aircraft services to our clients. The gains and losses on aircraft sales and any impairment charges are not included in the calculation of adjusted EBITDA, adjusted net income (loss), adjusted earnings (loss) per share or gross cash flows for purposes of calculating BVA.
As part of an ongoing process to rationalize and simplify our global fleet of commercial helicopters, during fiscal year 2014 we implemented a plan to reduce the number of aircraft types in our fleet to eight model types in approximately five years and six model types in approximately ten years. During fiscal year 2014, we completed our exit from five model types, in fiscal year 2015 we completed our exit from four model types while adding two model types and in fiscal year 2016 we completed our exit from two model types, resulting in 11 model types in our fleet as of December 31, 2016. As we modernize our fleet, the introduction of new technology aircraft types and other operating or market conditions may temporarily slow fleet type reduction.
During fiscal year 2015, we recorded impairment charges of $36.1 million related to 27 held for sale aircraft, primarily related to one large aircraft type we were in the process of removing from our fleet. Additionally, as we expected to complete the disposal of the remaining aircraft of this type still operating as of March 31, 2015, we adjusted the salvage value and recorded additional depreciation expense of $6.0 million during fiscal year 2015. During fiscal year 2016, we saw further deterioration in market sales for aircraft resulting mostly from an increase in idle aircraft and reduced demand across the offshore energy market. While other markets exist for certain aircraft model types, including utility, firefighting, government, VIP transportation and tourism, the market for certain model type aircraft slowed. As a result of these market changes, we recorded impairment charges of $29.6 million related to 16 held for sale aircraft during fiscal year 2016 and $11.4 million related to 13 held for sale aircraft during the Current Period. Additionally, due to changes in estimated salvage values for our fleet of operational aircraft and other changes in the timing of exiting certain aircraft from our operations, we recorded an additional $9.3 million and $28.7 million in depreciation expense during the Current Period and fiscal year 2016, respectively, and we estimate that we will record accelerated depreciation expense of $1.1 million during the fourth quarter of fiscal year 2017.
Changes in our forecasted cash flows during the Current Quarter triggered a review of our oil and gas related property and equipment and Eastern Airways property and equipment for potential impairment. In accordance with Accounting Standard Codification 360-10-35, we estimate future undiscounted cash flows to test the recoverability of our property and equipment, which largely consists of our held for use aircraft. The determination of estimated future undiscounted cash flows required us to use significant unobservable inputs including assumptions related to projected demand for services and rates. We determined that the estimated future undiscounted cash flows were above the carrying value for our oil and gas related property and equipment and Eastern Airways property and equipment as of December 31, 2016 and no impairment was recorded on these assets. Future declines in operating performance or anticipated business outlook may reduce our estimated future undiscounted cash flows and result in impairment of our oil and gas related property and equipment or Eastern Airways property and equipment.
Goodwill impairment — During the three months ended September 30, 2015, we noted rapid and significant declines in the market value of our stock resulting from the downturn in the oil and gas market driven by reduced crude oil prices. We identified this decline in market value of our stock and an overall reduction in expected operating results resulting from the downturn as indicators that the fair value of our goodwill could have fallen below its carrying amount. As a result, we performed an interim goodwill impairment test as of September 30, 2015 and determined that the goodwill associated with our Bristow Norway reporting unit within our Europe Caspian region and associated with our Bristow Academy reporting unit within Corporate and other was impaired. We performed our annual goodwill impairment test as of March 31, 2016 and as a result of a further decline in forecasted operational results determined that all of the goodwill associated with our Africa region and a portion of the goodwill associated with Eastern Airways were impaired. In fiscal year 2016, we recognized a loss of $41.6 million associated with the impairment of goodwill.

54

As of December 31, 2016, prior to any impairments being recorded, we had $27.5 million of goodwill, including $8.7 million of goodwill related to Eastern Airways, within our Europe Caspian region, and $18.8 million of goodwill related to Airnorth, within our Asia Pacific region. During the Current Quarter, we concluded that the fair value of our goodwill for Eastern Airways could have fallen below its carrying value due to an overall reduction in expected operating results for Eastern Airways primarily driven by the continued impact of the downturn in the oil and gas market. Therefore, we performed an 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 a loss of $8.7 million reflected in our results for the Current Quarter and the Current Period. We did not have any triggering events requiring us to test Airnorth for impairment as of December 31, 2016.
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 its restructuring efforts have impacted the helicopter industry. Petrobras did not release its 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 60% of Líder’s operating revenue in fiscal year 2016 and 66% of Líder’s operating revenue in calendar year 2016.
The new Petrobras management has implemented a five-year business plan focused on divestment, thus allowing other oil and gas operators into the Brazilian market. Additionally, Petrobras had made significant changes in the 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 of the next round of licensing for new exploration blocks (six years after the last successful round). Also, the Brazilian government is reviewing local content requirements, which is making the market more attractive to other operators as evidenced by other operators' recent requests for information and/or requests for proposal. Fundamentally, the Brazilian market outlook is much improved compared to the prior year for Líder with substantial possibilities for growth.
Currency fluctuations continue to make it difficult to predict the earnings from our Líder investment. These currency fluctuations, which primarily do not impact Líder’s cash flow from operations, had a significant negative impact on Líder’s results in fiscal years 2014, 2015 and 2016 and the nine months ended December 31, 2016 impacting our earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates, net of losses, on our condensed consolidated statements of operations, is included in calculating adjusted EBITDA and adjusted net income.
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.
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 Quarter and 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 is an example of this exposure and possible impacts on our results of operations.

55

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)
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
324,353

 
 
$
395,157

 
 
$
(70,804
)
 
 
(17.9
)%
Reimbursable revenue
 
13,090

 
 
24,730

 
 
(11,640
)
 
 
(47.1
)%
Total gross revenue
 
337,443

 
 
419,887

 
 
(82,444
)
 
 
(19.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
260,343

 
 
288,135

 
 
27,792

 
 
9.6
 %
Reimbursable expense
 
12,206

 
 
23,380

 
 
11,174

 
 
47.8
 %
Depreciation and amortization
 
29,768

 
 
32,320

 
 
2,552

 
 
7.9
 %
General and administrative
 
45,409

 
 
59,513

 
 
14,104

 
 
23.7
 %
Total operating expense
 
347,726

 
 
403,348

 
 
55,622

 
 
13.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
(8,706
)
 
 
—

 
 
(8,706
)
 
 
*

Loss on disposal of assets
 
(874
)
 
 
(2,154
)
 
 
1,280

 
 
59.4
 %
Earnings from unconsolidated affiliates, net of losses
 
766

 
 
7,692

 
 
(6,926
)
 
 
(90.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
(19,097
)
 
 
22,077

 
 
(41,174
)
 
 
(186.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(12,179
)
 
 
(9,536
)
 
 
(2,643
)
 
 
(27.7
)%
Other income (expense), net
 
1,668

 
 
650

 
 
1,018

 
 
156.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before benefit (provision) for income taxes
 
(29,608
)
 
 
13,191

 
 
(42,799
)
 
 
(324.5
)%
Benefit (provision) for income taxes
 
3,560

 
 
(9,623
)
 
 
13,183

 
 
137.0
 %
 
 
 
 
 
 
 
 
 
 
 


Net income (loss)
 
(26,048
)
 
 
3,568

 
 
(29,616
)
 
 
*

Net (income) loss attributable to noncontrolling interests
 
4,121

 
 
(366
)
 
 
4,487

 
 
*

Net income (loss) attributable to Bristow Group
 
$
(21,927
)
 
 
$
3,202

 
 
$
(25,129
)
 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per common share
 
$
(0.62
)
 
 
$
0.09

 
 
$
(0.71
)
 
 
*

Operating margin (1)
 
(5.9
)%
 
 
5.6
%
 
 
(11.5
)%
 
 
(205.4
)%
Flight hours (2)
 
40,094

 
 
47,396

 
 
(7,302
)
 
 
(15.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
22,918

 
 
$
64,730

 
 
$
(41,812
)
 
 
(64.6
)%
Adjusted EBITDA margin (1)
 
7.1
 %
 
 
16.4
%
 
 
(9.3
)%
 
 
(56.7
)%
Adjusted net income (loss)
 
$
(10,121
)
 
 
$
23,533

 
 
$
(33,654
)
 
 
(143.0
)%
Adjusted diluted earnings (loss) per share
 
$
(0.29
)
 
 
$
0.67

 
 
$
(0.96
)
 
 
(143.3
)%

56

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended 
 December 31,
 
 
Favorable
(Unfavorable)
 
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
Gross revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
1,024,199

 
 
$
1,254,279

 
 
$
(230,080
)
 
 
(18.3
)%
Reimbursable revenue
 
40,109

 
 
79,515

 
 
(39,406
)
 
 
(49.6
)%
Total gross revenue
 
1,064,308

 
 
1,333,794

 
 
(269,486
)
 
 
(20.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
831,516

 
 
926,378

 
 
94,862

 
 
10.2
 %
Reimbursable expense
 
38,096

 
 
76,242

 
 
38,146

 
 
50.0
 %
Depreciation and amortization
 
93,054

 
 
106,853

 
 
13,799

 
 
12.9
 %
General and administrative
 
149,278

 
 
174,302

 
 
25,024

 
 
14.4
 %
Total operating expense
 
1,111,944

 
 
1,283,775

 
 
171,831

 
 
13.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
(16,278
)
 
 
(27,713
)
 
 
11,435

 
 
41.3
 %
Loss on disposal of assets
 
(13,077
)
 
 
(23,856
)
 
 
10,779

 
 
45.2
 %
Earnings from unconsolidated affiliates, net of losses
 
4,777

 
 
(1,372
)
 
 
6,149

 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(72,214
)
 
 
(2,922
)
 
 
(69,292
)
 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(34,533
)
 
 
(24,384
)
 
 
(10,149
)
 
 
(41.6
)%
Other income (expense), net
 
(1,518
)
 
 
(6,935
)
 
 
5,417

 
 
78.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
Loss before benefit (provision) for income taxes
 
(108,265
)
 
 
(34,241
)
 
 
(74,024
)
 
 
(216.2
)%
Benefit (provision) for income taxes
 
11,038

 
 
(9,500
)
 
 
20,538

 
 
216.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(97,227
)
 
 
(43,741
)
 
 
(53,486
)
 
 
(122.3
)%
Net (income) loss attributable to noncontrolling interests
 
4,731

 
 
(3,446
)
 
 
8,177

 
 
237.3
 %
Net loss attributable to Bristow Group
 
(92,496
)
 
 
(47,187
)
 
 
(45,309
)
 
 
(96.0
)%
Accretion of redeemable noncontrolling interests
 
—

 
 
(1,498
)
 
 
1,498

 
 
*

Net loss attributable to common stockholders
 
$
(92,496
)
 
 
$
(48,685
)
 
 
$
(43,811
)
 
 
(90.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(2.64
)
 
 
$
(1.40
)
 
 
$
(1.24
)
 
 
(88.6
)%
Operating margin (1)
 
(7.1
)%
 
 
(0.2
)%
 
 
(6.9
)%
 
 
*

Flight hours (2)
 
125,835

 
 
151,014

 
 
(25,179
)
 
 
(16.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
67,397

 
 
$
170,223

 
 
$
(102,826
)
 
 
(60.4
)%
Adjusted EBITDA margin (1)
 
6.6
 %
 
 
13.6
 %
 
 
(7.0
)%
 
 
(51.5
)%
Adjusted net income (loss)
 
$
(34,415
)
 
 
$
47,196

 
 
$
(81,611
)
 
 
(172.9
)%
Adjusted diluted earnings (loss) per share
 
$
(0.98
)
 
 
$
1.34

 
 
$
(2.32
)
 
 
(173.1
)%
 ____________ 
 * percentage change too large to be meaningful or not applicable

(1) 
Operating margin is calculated as operating income divided by operating revenue. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by operating revenue.
(2) 
Excludes flight hours from Bristow Academy and unconsolidated affiliates. Includes flight hours from Eastern Airways and Airnorth fixed wing operations in the U.K., Nigeria and Australia totaling 9,580 and 10,010 for the three months ended December 31, 2016 and 2015, respectively, and 30,344 and 31,657 for the nine months ended December 31, 2016 and 2015, respectively.

57

(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, 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,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages and per share amounts)
Net income (loss)
 
$
(26,048
)
 
$
3,568

 
$
(97,227
)
 
$
(43,741
)
Loss on disposal of assets
 
874

 
2,154

 
13,077

 
23,856

Special items (i)
 
9,537

 
7,348

 
34,361

 
48,752

Depreciation and amortization
 
29,768

 
32,320

 
93,054

 
106,853

Interest expense
 
12,347

 
9,717

 
35,170

 
25,003

Benefit (provision) for income taxes
 
(3,560
)
 
9,623

 
(11,038
)
 
9,500

Adjusted EBITDA
 
$
22,918

 
$
64,730

 
$
67,397

 
$
170,223

 
 
 
 
 
 
 
 
 
Benefit (provision) for income taxes
 
$
3,560

 
$
(9,623
)
 
$
11,038

 
$
(9,500
)
Tax benefit on loss on disposal of asset
 
(1,953
)
 
(496
)
 
(5,858
)
 
(5,487
)
Tax provision (benefit) on special items
 
5,227

 
6,282

 
10,227

 
4,816

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

 
$
(3,837
)
 
$
15,407

 
$
(10,171
)
 
 
 
 
 
 
 
 
 
Effective tax rate (iv)
 
12.0
%
 
73.0
%
 
10.2
%
 
(27.7
)%
Adjusted effective tax rate (iv)
 
37.9
%
 
13.8
%
 
29.9
%
 
16.7
 %
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to Bristow Group
 
$
(21,927
)
 
$
3,202

 
$
(92,496
)
 
$
(47,187
)
Loss on disposal of assets (ii)
 
(1,079
)
 
1,658

 
7,219

 
18,369

Special items (i) (ii)
 
12,885

 
18,673

 
50,862

 
76,014

Adjusted net income (loss)
 
$
(10,121
)
 
$
23,533

 
$
(34,415
)
 
$
47,196

 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
 
$
(0.62
)
 
$
0.09

 
$
(2.64
)
 
$
(1.40
)
Loss on disposal of assets (ii)
 
(0.03
)
 
0.05

 
0.21

 
0.52

Special items (i) (ii)
 
0.37

 
0.53

 
1.45

 
2.20

Adjusted diluted earnings (loss) per share (iii)
 
(0.29
)
 
0.67

 
(0.98
)
 
1.34

____________ 
(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) 
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.
(iii) 
Adjusted diluted earnings per share is calculated using the diluted weighted average number of common shares outstanding of 35,303,238 and 34,884,529 for the Comparable Quarter and Comparable Period, respectively.
(iv) 
Effective tax rate is calculated by dividing income tax expense by pretax net income. Adjusted effective tax rate is calculated by dividing adjusted income tax expense by adjusted pretax net income. Tax expense (benefit) on loss on disposal of asset and tax expense (benefit) on special items is calculated using the statutory rate of the entity recording the loss on disposal of asset or special item.
Management believes that adjusted EBITDA, adjusted benefit (provision) for income taxes, adjusted net income (loss) and adjusted diluted earnings (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.
Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing transactions and income taxes. Adjusted EBITDA should not be considered a measure of discretionary cash available to us for investing in the growth of our business. In prior periods we presented adjusted EBITDAR, which was calculated by taking our

58

net income and adjusting for interest expense, depreciation and amortization, rent expense (included as a component of direct cost and general and administrative expense), provision for income taxes, gain (loss) on disposal of assets and any special items during the reported periods. We believed that adjusted EBITDAR provided us with a useful supplemental measure of our operational performance by excluding the financing decisions we make regarding aircraft purchases or leasing.  However, we have revised our disclosures to present adjusted EBITDA rather than adjusted EBITDAR consistent with recent interpretations regarding Non-GAAP measures issued by the Securities Exchange Commission.
Adjusted net income and adjusted diluted earnings 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 income and diluted earnings 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, 2016 and 2015:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Adjusted EBITDA:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
9,123

 
$
32,683

 
$
43,273

 
$
95,511

Africa
 
17,012

 
15,680

 
39,350

 
54,852

Americas
 
10,039

 
30,875

 
34,317

 
60,429

Asia Pacific
 
(5,027
)
 
7,383

 
(10,513
)
 
22,164

Corporate and other
 
(8,229
)
 
(21,891
)
 
(39,030
)
 
(62,733
)
Consolidated adjusted EBITDA
 
$
22,918

 
$
64,730

 
$
67,397

 
$
170,223

 
 
 
 
 
 
 
 
 
Adjusted EBITDA margin:
 
 
 
 
 
 
 
 
Europe Caspian
 
5.3
 %
 
17.0
%
 
7.9
 %
 
15.8
%
Africa
 
34.3
 %
 
25.4
%
 
25.7
 %
 
27.0
%
Americas
 
18.9
 %
 
42.8
%
 
20.4
 %
 
26.8
%
Asia Pacific
 
(10.2
)%
 
11.0
%
 
(6.8
)%
 
10.3
%
Consolidated adjusted EBITDA margin
 
7.1
 %
 
16.4
%
 
6.6
 %
 
13.6
%
 
 
 
 
 
 
 
 
 

59

The following tables present region depreciation and amortization and rent expense for the three and nine months ended December 31, 2016 and 2015:
 
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Depreciation and amortization:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
11,185

 
$
8,912

 
$
33,594

 
$
29,889

Africa
 
4,007

 
8,581

 
12,680

 
24,274

Americas
 
7,060

 
7,797

 
25,669

 
28,523

Asia Pacific
 
4,973

 
4,268

 
13,586

 
17,445

Corporate and other
 
2,543

 
2,762

 
7,525

 
6,722

Total depreciation and amortization
 
$
29,768

 
$
32,320

 
$
93,054

 
$
106,853

 
 
 
 
 
 
 
 
 
Rent expense:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
34,115

 
$
33,379

 
$
100,007

 
$
103,110

Africa
 
1,767

 
2,482

 
6,101

 
6,025

Americas
 
5,638

 
5,033

 
16,258

 
16,216

Asia Pacific
 
10,247

 
9,216

 
28,803

 
27,830

Corporate and other
 
1,885

 
2,067

 
5,721

 
7,314

 Total rent expense
 
$
53,652

 
$
52,177

 
$
156,890

 
$
160,495

 
 
 
 
 
 
 
 
 
Current Quarter Compared to Comparable Quarter
As discussed under “— Executive Overview — Market Outlook” above, the oil and gas industry experienced a significant downturn during fiscal years 2015 and 2016 primarily due to a decline in crude oil prices which negatively impacted activity with our oil and gas clients. While this decline started in fiscal year 2015, activity and pricing declined further in fiscal year 2016 and has continued into fiscal year 2017, resulting in a significant decrease in gross revenue for our oil and gas services year-over-year.
Operating revenue from external clients by line of service was as follows:
 
Three Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
232,287

 
$
299,260

 
$
(66,973
)
 
(22.4
)%
Fixed wing services
44,811

 
45,159

 
(348
)
 
(0.8
)%
U.K. SAR services
45,193

 
47,529

 
(2,336
)
 
(4.9
)%
Corporate and other
2,062

 
3,209

 
(1,147
)
 
(35.7
)%
Total operating revenue
$
324,353

 
$
395,157

 
$
(70,804
)
 
(17.9
)%
In addition to operational decreases, changes in foreign currency exchange rates during the Current Quarter contributed to $25.8 million of the decrease in gross revenue year-over-year.
We reported a net loss of $21.9 million and diluted loss per share of $0.62 for the Current Quarter compared to net income of $3.2 million and diluted earnings per share of $0.09 for the Comparable Quarter. The year-over-year decrease in net income (loss) and diluted earnings (loss) per share was primarily driven due to the decline in oil and gas revenue discussed above, goodwill impairment charges recorded in the Current Quarter, lower earnings from unconsolidated affiliates, net of losses, higher interest expense as a result of additional borrowings and the unfavorable impact of changes in foreign currency exchange rates, partially offset by less of a loss from disposal of assets and lower depreciation and amortization expense due to lower accelerated depreciation.
The net loss for the Current Quarter was significantly impacted by the following items:
•
Impairment charges on goodwill of $8.7 million ($7.9 million net of tax) included in loss on impairment,
•
Organizational restructuring costs of $0.8 million ($0.6 million net of tax), which includes severance expense of $0.7 million related to separation programs across our global organization designed to increase efficiency and reduce costs and other restructuring costs of $0.1 million; $0.6 million of the restructuring costs are included in direct costs and $0.2 million are included in general and administrative expense,

60

•
Loss on disposal of assets of $0.9 million ($1.1 million net of tax) and accelerated depreciation of $1.1 million ($0.8 million net of tax), and
•
A non-cash adjustment related to the valuation of deferred tax assets of $3.7 million.
Excluding these items, adjusted net loss and adjusted diluted loss per share were $10.1 million and $0.29, respectively, for the Current Quarter. These adjusted results compare to adjusted net income and adjusted diluted earnings per share of $23.5 million and $0.67, respectively, for the Comparable Quarter. Adjusted EBITDA, which excludes these items with the exception of accelerated depreciation and the tax adjustment, also decreased year-over-year to $22.9 million in the Current Quarter from $64.7 million in the Comparable Quarter. The year-over-year decrease in each of these measures was primarily driven by the decline in oil and gas revenue discussed above and an unfavorable impact from changes in foreign currency exchange rates in the Current Quarter with significant decreases in the Europe Caspian, Americas and Asia Pacific regions. See further discussion of operating results by region under “— Region Operating Results — Current Quarter Compared to Comparable Quarter” included elsewhere in this Quarterly Report.
The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Three Months Ended 
 December 31,
 
Favorable (Unfavorable)
 
2016
 
2015
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Transaction gains
$
1,638

 
$
616

 
$
1,022

Líder foreign exchange impact
(1,241
)
 
956

 
(2,197
)
Total
$
397

 
$
1,572

 
(1,175
)
Year-over-year income statement translation
 
 
 
 
(3,221
)
Total pre-tax income statement impact
 
 
 
 
(4,396
)
Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
(216
)
Adjusted EBITDA impact
 
 
 
 
$
(4,612
)
 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
(3,839
)
Earnings per share impact
 
 
 
 
$
(0.11
)
The most significant foreign exchange impact was related to a $3.2 million unfavorable income statement translation impact from changes in foreign currency exchange rates compared to the Comparable Quarter 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. Compared to the pre-Brexit exchange rates, the depreciation of the pound sterling versus the U.S. dollar resulted in a $5.9 million pre-tax decrease in earnings during the Current Quarter. Similarly, compared to pre-naira devaluation exchange rates from late June 2016, the devaluation of the naira versus the U.S. dollar resulted in a $2.1 million pre-tax increase in earnings during the Current Quarter. During the Current Quarter, we benefited from the devaluation of the naira as a majority of our revenue in our Africa region is contracted at fixed U.S. dollar values, despite being billed in a mix of U.S. dollar and naira, while the expenses incurred in this region are more evenly split between U.S. dollars and naira, resulting in a significant net expense exposure to the naira that translates into higher U.S. dollar earnings for reporting purposes. This is contrary to our position in our Europe Caspian region, where a majority of our revenue is contracted in British pound sterling with our expense being more evenly split between U.S. dollars and pound sterling, resulting in a significant net revenue exposure to the pound sterling that translates into lower U.S. dollar earnings for reporting purposes. Additionally, results for the Current Quarter were impacted by a $2.2 million unfavorable foreign currency exchange rate impact from our investment in Líder in Brazil.
In response to the ongoing downturn, we have implemented cost reduction measures as part of an organizational restructuring, which partially offset the impact of the decline in revenue and certain higher costs within general and administrative expense. See the further discussion of changes in direct costs and general and administrative expense below.

61

Direct costs decreased 9.6%, or $27.8 million, year-over-year primarily due to the benefit of organizational restructuring efforts reflected in a $19.3 million decrease in salaries and benefits due to lower headcount across all regions, a $2.1 million decrease in travel expense and a $3.2 million decrease in insurance expense. Additionally, we had a decrease in bad debt expense of $3.1 million primarily related to bad debt expense recorded in the Comparable Quarter related to two clients in the Africa region and one client in the Asia Pacific region. These decreases were partially offset by a $1.6 million increase in rent expense.
Reimbursable expense decreased 47.8%, or $11.2 million, primarily due to a decline in activity.
Depreciation and amortization decreased 7.9% or $2.6 million, to $29.8 million for the Current Quarter from $32.3 million for the Comparable Quarter. The decrease in depreciation and amortization expense is primarily due to a decrease in accelerated depreciation of $3.9 million as a result of fleet changes for older aircraft in the Comparable Quarter.
General and administrative expense decreased 23.7%, or $14.1 million, primarily due to a decrease of $10.9 million in salaries and benefits and a decrease of $3.2 million in other general and administrative expenses including information technology expenses, training, travel recruitment and various other expenses resulting from cost reduction initiatives. The reduction in salaries and benefits is due to lower severance expense incurred in the Current Quarter of $6.6 million, a reduction in long-term incentive compensation expense of $3.9 million due to lower stock price performance and a reduction of $0.4 million in other salaries and benefits due to lower headcount in the Current Quarter from cost reduction initiatives.
Loss on impairment for the Current Quarter includes $8.7 million of goodwill impairments from the impairment of the remaining goodwill 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 decreased $1.3 million, to a loss of $0.9 million for the Current Quarter from a loss of $2.2 million for the Comparable Quarter. The loss on disposal of assets in the Current Quarter included impairment charges totaling $0.2 million related to one held for sale aircraft and other equipment and a loss of $0.7 million from the sale or disposal of other equipment. During the Comparable Quarter, the loss on disposal of assets included a loss of $2.2 million from the sale of three aircraft. We did not record any impairment charges on held for sale aircraft during the Comparable Quarter.
Earnings from unconsolidated affiliates, net of losses, decreased $6.9 million to $0.8 million for the Current Quarter from $7.7 million in the Comparable Quarter. 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 $1.5 million in the Current Quarter from $8.1 million in the Comparable Quarter primarily due to a decrease in activity. Our earnings from Líder were decreased by $1.2 million from an unfavorable impact of foreign currency exchange rate changes in the Current Quarter and were increased by $1.0 million from a favorable impact of foreign currency exchange rate changes in the Comparable Quarter.
Interest expense, net, increased 27.7%, or $2.6 million, year-over-year primarily due to an increase in interest expense resulting from an increase in borrowings in the Current Quarter.
Other income (expense), net increased $1.0 million primarily due to an increase in foreign currency transaction gains. For further details on income tax expense, see “— Region Operating Results — Other Income (Expense), Net” included elsewhere in this Quarterly Report.
For further details on income tax expense, see “— Region Operating Results — Taxes” included elsewhere in this Quarterly Report.

62

As discussed above, our results for the Current Quarter were impacted by a number of special items. During the Comparable Quarter, special items that impacted our results included goodwill impairment, additional depreciation expense related to fleet changes, organizational restructuring costs and tax valuation allowance. 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, 2016
 
Adjusted
EBITDA
 
Adjusted
Net Income
 
Adjusted
Diluted
Earnings
Per Share
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Goodwill impairment
$
8,706

 
$
7,857

 
$
0.22

Additional depreciation expense resulting from fleet changes
—

 
761

 
0.02

Organizational restructuring costs
831

 
583

 
0.02

Tax valuation allowance
—

 
3,684

 
0.10

Total special items
$
9,537

 
$
12,885

 
0.37

 
 
 
 
 
 
 
Three Months Ended 
 December 31, 2015
 
Adjusted
EBITDA
 
Adjusted
Net Income
 
Adjusted
Diluted
Earnings
Per Share
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
$
7,348

 
$
5,370

 
$
0.15

Additional depreciation expense resulting from fleet changes
—

 
3,774

 
0.11

Tax valuation allowance
—

 
9,529

 
0.27

Total special items
$
7,348

 
$
18,673

 
0.53


Current Period Compared to Comparable Period
Gross revenue decreased 20.2%, or $269.5 million, year-over-year primarily due to the downturn in the oil and gas industry partially offset by the start of the U.K. SAR contract in April 2015 with seven bases coming online throughout fiscal year 2016.
Operating revenue from external clients by line of service was as follows:
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
722,896

 
$
967,487

 
$
(244,591
)
 
(25.3
)%
Fixed wing services
148,111

 
154,985

 
(6,874
)
 
(4.4
)%
U.K. SAR services
145,592

 
115,112

 
30,480

 
26.5
 %
Corporate and other
7,600

 
16,695

 
(9,095
)
 
(54.5
)%
Total operating revenue
$
1,024,199

 
$
1,254,279

 
$
(230,080
)
 
(18.3
)%
In addition to operational decreases, changes in foreign currency exchange rates during the Current Period contributed to $63.8 million of the decrease year-over-year.
We reported a net loss of $92.5 million and $47.2 million and a diluted loss per share of $2.64 and $1.40 for the Current and Comparable Periods, respectively. The year-over-year increase in net loss and diluted loss per share is primarily driven by the decline in oil and gas revenue discussed above, higher interest expense as a result of additional borrowings, higher inventory impairment recorded in the Current Period (included in loss on impairment), partially offset by higher goodwill impairment recorded in the Comparable Period (included in loss on impairment), less of an unfavorable impact from changes in foreign currency exchange rates, lower losses from disposal of assets and lower depreciation and amortization expense due to less accelerated depreciation.

63

The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Nine Months Ended 
 December 31,
 
Favorable (Unfavorable)
 
2016
 
2015
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Transaction losses
$
(1,763
)
 
$
(6,954
)
 
$
5,191

Líder foreign exchange impact
(2,545
)
 
(17,200
)
 
14,655

Total
(4,308
)
 
(24,154
)
 
19,846

Year-over-year income statement translation
 
 
 
 
(4,782
)
Total pre-tax income statement impact
 
 
 
 
15,064

Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
(746
)
Adjusted EBITDA impact
 
 
 
 
$
14,318

 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
9,594

Earnings per share impact
 
 
 
 
$
0.27

The most significant impacts were from a more significant loss in the Comparable Period from the revaluation of balance sheet assets and liabilities into the functional currencies of legal entities through which we operate globally presented as transaction gains (losses), and a larger impact in the Comparable Period on our earnings from unconsolidated affiliates as results related to Líder were impacted by a 17.9% devaluation of the Brazilian real versus the U.S. dollar in the Comparable Period. This favorable year-over-year change was partially offset by an unfavorable income statement translation impact from changes in foreign currency exchange rates 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.
The net loss for the Current Period was significantly impacted by the following items:
•
Organizational restructuring costs of $18.1 million ($12.2 million net of tax), which includes severance expense of $15.7 million related to separation programs across our global organization designed to increase efficiency and reduce costs and other restructuring costs of $2.4 million; $7.0 million of the restructuring costs are included in direct costs and $11.1 million are included in general and administrative expense,
•
Loss on disposal of assets of $13.1 million ($7.2 million net of tax), accelerated depreciation of $9.3 million ($6.1 million net of tax) and impairment of inventory of $7.6 million ($5.4 million net of tax),
•
Impairment charges on goodwill of $8.7 million ($7.9 million net of tax) included in loss on impairment, and
•
A non-cash adjustment related to the valuation of deferred tax assets of $19.3 million.
Excluding these items, adjusted net loss and adjusted diluted loss per share were $34.4 million and $0.98, respectively, for the Current Period. These adjusted results compare to adjusted net income and adjusted diluted earnings per share of $47.2 million and $1.34, respectively, for the Comparable Period. Adjusted EBITDA, which excludes these items with the exception of accelerated depreciation and the tax adjustment, also decreased year-over-year to $67.4 million in the Current Period from $170.2 million in the Comparable Quarter. The year-over-year decrease in each of these measures was primarily driven by the decline in oil and gas revenue discussed above partially offset by less of an unfavorable impact from changes in foreign currency exchange rates in the Current Period with significant decreases in all four regions. See further discussion of operating results by region under “— Region Operating Results — Current Period Compared to Comparable Period” included elsewhere in this Quarterly Report.
Direct costs decreased 10.2%, or $94.9 million, year-over-year primarily due to the benefit of organizational restructuring efforts reflected in a $53.1 million decrease in salaries and benefits due to lower headcount across all regions, a $6.6 million decrease in training and travel and meals expense, a $6.4 million decrease in insurance expense, a $3.7 million decrease in inventory consignment fees and a $3.0 million decrease in rent expense. Additionally, we had a decrease of $7.8 million in fuel costs and a decrease in bad debt expense of $6.6 million primarily related to bad debt expense recorded in the Comparable Period related to two clients in our Africa region and a client in our Asia Pacific region.

64

Reimbursable expense declined 50.0%, or $38.1 million, primarily due to a decline in activity and a contract amendment in our Europe Caspian region.
Depreciation and amortization decreased 12.9%, or $13.8 million, to $93.1 million for the Current Period from $106.9 million for the Comparable Period. The decrease in depreciation and amortization expense is primarily due to a decrease in accelerated depreciation of $13.1 million as a result of fleet changes for older aircraft in the Comparable Period.
General and administrative expense decreased 14.4%, or $25.0 million, primarily due to a decrease of $8.3 million in salaries and benefits, a decrease of $5.6 million in professional fees and a decrease of $11.1 million in other general and administrative expenses including information technology expenses, training, travel, recruitment and various other expenses from cost reduction initiatives. The reduction in salaries and benefits is primarily due to lower salaries and benefits of $10.9 million due to lower headcount in the Current Period from cost reduction initiatives, a reduction in long-term incentive compensation expense of $1.6 million including performance cash, stock option and restricted stock expense due to lower stock price performance, partially offset by higher bonus of $4.2 million in the Current Period due to no bonus accrued or awarded in the prior year.
Loss on impairment for the Current Period included $8.7 million of goodwill impairment related to Eastern Airways and $7.6 million of inventory impairments. Loss on impairment for the Comparable Period included $22.3 million of goodwill impairment related to our Bristow Norway reporting unit within our Europe Caspian region ($12.1 million) and Bristow Academy reporting unit within our Corporate and other region ($10.2 million) and $5.4 million of inventory impairments.
Loss on disposal of assets decreased $10.8 million to a loss of $13.1 million for the Current Period from a loss of $23.9 million for the Comparable Period. The loss on disposal of assets in the Current Period included impairment charges totaling $11.4 million related to 13 held for sale aircraft and a loss of $1.7 million from the sale of nine aircraft and other equipment. During the Comparable Period, the loss on disposal of assets included impairment charges totaling $22.0 million related to 11 held for sale aircraft partially offset by a gain of $1.8 million from the sale of 16 aircraft and other equipment.
Earnings from unconsolidated affiliates, net of losses, increased $6.1 million to earnings of $4.8 million for the Current Period from losses of $1.4 million in the Comparable Period. 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 $6.9 million of earnings in the Current Period from $0.6 million in losses in the Comparable Period primarily due to $14.7 million more of an unfavorable impact of foreign currency exchange rates partially offset by a decrease in activity. Our earnings from Líder in the Current and Comparable Periods were decreased by the unfavorable impact of foreign currency exchange rate changes of $2.5 million and $17.2 million, respectively.
Interest expense, net, increased 41.6%, or $10.1 million, year-over-year primarily due to an increase in interest resulting from an increase in borrowings.
Other income (expense), net increased $5.4 million primarily due to a decrease in foreign currency transaction losses. For further details on other income (expense), net, see “— Region Operating Results — Other Income (Expense), Net” included elsewhere in this Quarterly Report.
For further details on income tax expense, see “— Region Operating Results — Taxes” included elsewhere in this Quarterly Report.

65

As discussed above, our results for the Current Period were impacted by a number of special items. During the Comparable Period, special items that impacted our results included organizational restructuring costs, additional depreciation expense related to fleet changes, goodwill impairment, impairment of inventories, and tax valuation allowance. 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, 2016
 
Adjusted
EBITDA
 
Adjusted
Net Income
 
Adjusted
Diluted
Earnings
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

Impairment of inventories
7,572

 
5,372

 
0.15

Tax valuation allowance
—

 
19,340

 
0.55

Total special items
$
34,361

 
$
50,862

 
1.45

 
 
 
 
 
 
 
Nine Months Ended 
 December 31, 2015
Adjusted
EBITDA
 
Adjusted
Net Income
 
Adjusted
Diluted
Earnings
Per Share
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
$
21,039

 
$
16,758

 
$
0.47

Additional depreciation expense resulting from fleet changes
—

 
15,532

 
0.44

Impairment of inventories
5,439

 
3,764

 
0.11

Goodwill impairment
22,274

 
24,996

 
0.71

Tax valuation allowance
—

 
14,964

 
0.42

Accretion of redeemable noncontrolling interests
—

 
—

 
0.04

Total special items
$
48,752

 
$
76,014

 
2.20


66

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)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
$
172,844

 
$
192,400

 
$
548,070

 
$
603,397

 
$
(19,556
)
 
(10.2
)%
 
$
(55,327
)
 
(9.2
)%
Earnings from unconsolidated affiliates, net of losses
$
125

 
$
93

 
$
241

 
$
345

 
$
32

 
34.4
 %
 
$
(104
)
 
(30.1
)%
Operating income
$
(303
)
 
$
26,986

 
$
18,468

 
$
56,243

 
$
(27,289
)
 
(101.1
)%
 
$
(37,775
)
 
(67.2
)%
Operating margin
(0.2
)%
 
14.0
%
 
3.4
%
 
9.3
%
 
(14.2
)%
 
(101.4
)%
 
(5.9
)%
 
(63.4
)%
Adjusted EBITDA
$
9,123

 
$
32,683

 
$
43,273

 
$
95,511

 
$
(23,560
)
 
(72.1
)%
 
$
(52,238
)
 
(54.7
)%
Adjusted EBITDA margin
5.3
 %
 
17.0
%
 
7.9
%
 
15.8
%
 
(11.7
)%
 
(68.8
)%
 
(7.9
)%
 
(50.0
)%
Rent expense
$
34,115

 
$
33,379

 
$
100,007

 
$
103,110

 
$
(736
)
 
(2.2
)%
 
$
3,103

 
3.0
 %
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 year-over-year decrease in operating revenue was primarily driven by changes in foreign currency exchange rates of $25.9 million and the impact of the downturn in the oil and gas industry, which has resulted in decreased activity levels with our oil and gas clients primarily in the Northern North Sea totaling $10.4 million. Partially offsetting these decreases was an increase in operating revenue (on a foreign exchange neutral basis) from the start-up of two U.K. SAR bases in the March 2016 quarter of $7.6 million, Eastern Airways operations of $3.5 million and increased activity in Norway of $2.5 million. Eastern Airways contributed $25.1 million and $27.3 million in operating revenue and a negative $2.1 million and positive $2.7 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.
A substantial portion of our revenue in the Europe Caspian region is contracted in British pound sterling, which depreciated significantly against the U.S. dollar since June 2016 as a result of Brexit. Translation of results at lower pound sterling exchange rates decreased operating revenue, operating income and adjusted EBITDA by $25.9 million, $7.4 million and $7.7 million, respectively, for the Current Quarter compared to the Comparable Quarter. Additionally, we recorded foreign exchange losses of $10.7 million and $5.2 million primarily from the revaluation of assets and liabilities on British pound sterling functional currency entities as of December 31, 2016 and 2015, respectively, which is recorded in other income (expense), net and included in adjusted EBITDA.
Additionally, during the Current Quarter, we recorded an impairment of $8.7 million for the remaining goodwill related to Eastern Airways, which contributed to the operating loss in the Current 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. Excluding the impact of the goodwill impairment and changes in foreign currency exchange rates, operating margin would have been 5.1% and 14.0% and adjusted EBITDA margin would have been 11.4% and 19.6% for the Current Quarter and Comparable Quarter, respectively.
Operating margin and adjusted EBITDA margin decreased from the Comparable Quarter as a result of the impact from the downturn in the offshore energy market, which was only partially offset by cost reduction activities.

67

Current Period Compared to Comparable Period
Similar to the Current Quarter discussed above, the year-over-year decrease in operating revenue was primarily driven by the impact of changes in foreign currency exchange rates reducing operating revenue by $62.4 million, the downturn in the oil and gas industry, which has resulted in decreased activity levels with our oil and gas clients reducing operating revenue by $33.6 million and the end of an oil and gas contract that began in late fiscal year 2015 and ended in late fiscal year 2016 that contributed $38.4 million in additional operating revenue in the Comparable Period. Partially offsetting these decreases was an increase in operating revenue (on a foreign exchange neutral basis) from the start-up of U.K. SAR bases since the Comparable Period of $52.3 million and a contract amendment resulting in an increase in operating revenue of $14.9 million (previously included in reimbursable revenue). Eastern Airways contributed $85.9 million and $94.3 million in operating revenue and a negative $0.2 million and positive $14.3 million in adjusted EBITDA for the Current Period and Comparable Period, respectively.
As discussed above a substantial portion of our operations in the Europe Caspian region are contracted in the British pound sterling, which weakened significantly against the U.S. dollar in the Current Period as a result of Brexit. The movement of exchange rates decreased operating revenue, operating income and adjusted EBITDA by $62.4 million, $20.8 million and $21.6 million, respectively, from translation of results compared to the Comparable Period. Additionally, we recorded foreign exchange losses of $18.7 million and $9.1 million, respectively, from the revaluation of assets and liabilities on British pound sterling functional currency entities as of December 31, 2016 and 2015, which is recorded in other income (expense), net and included in adjusted EBITDA. Including both the translation and revaluation impacts, adjusted EBITDA was negatively impacted by $29.2 million and $8.7 million, respectively, resulting from the change in exchange rates from March 31, 2016 and 2015.
Additionally, during the Current Period, we recorded an impairment of $8.7 million for the remaining goodwill related to Eastern Airways, which contributed to the decline in operating income in the Current Period, 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. Excluding the impact of the goodwill impairment and changes in foreign currency exchange rates, operating margin would have been 6.5% and 9.7% adjusted EBITDA margin would have been 12.5% and 17.5% for the Current Period and Comparable Period, respectively.
Operating margin and adjusted EBITDA margin decreased from the Comparable Period as a result of the impact from the downturn in the offshore energy market, which was only partially offset by the start-up of the U.K. SAR bases and cost reduction activities.
Africa
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
$
49,587

 
$
61,786

 
$
153,055

 
$
202,885

 
$
(12,199
)
 
(19.7
)%
 
$
(49,830
)
 
(24.6
)%
Earnings from unconsolidated affiliates, net of losses
$
—

 
$
43

 
$
43

 
$
43

 
$
(43
)
 
*

 
$
—

 
*

Operating income
$
10,441

 
$
4,377

 
$
19,954

 
$
24,903

 
$
6,064

 
138.5
 %
 
$
(4,949
)
 
(19.9
)%
Operating margin
21.1
%
 
7.1
%
 
13.0
%
 
12.3
%
 
14.0
%
 
197.2
 %
 
0.7
 %
 
5.7
 %
Adjusted EBITDA
$
17,012

 
$
15,680

 
$
39,350

 
$
54,852

 
$
1,332

 
8.5
 %
 
$
(15,502
)
 
(28.3
)%
Adjusted EBITDA margin
34.3
%
 
25.4
%
 
25.7
%
 
27.0
%
 
8.9
%
 
35.0
 %
 
(1.3
)%
 
(4.8
)%
Rent expense
$
1,767

 
$
2,482

 
$
6,101

 
$
6,025

 
$
715

 
28.8
 %
 
$
(76
)
 
(1.3
)%
_____________ 
* percentage change too large to be meaningful or not applicable
The Africa region comprises all of 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 primarily due to an overall decrease in activity resulting from the downturn of the oil and gas industry. The lower activity reduced revenue by $13.4 million, which was only partially offset by $0.7 million from increased activity on a contract. Additionally, Eastern Airways began providing fixed wing services in this region in October 2015, which generated $1.0 million of operating revenue for the Current Quarter. As discussed under “— Results of Operations — Current Quarter Compared to Comparable Quarter,” a majority of our revenue in our Africa region is contracted at

68

fixed U.S. dollar values, resulting in minimal exposure to the devalued Nigerian naira upon translation into U.S. dollars for reporting purposes.
Operating income and operating margin increased in the Current Quarter primarily due to a decrease in depreciation and amortization expense of $4.6 million and a decline in direct costs including a $3.0 million decrease in maintenance expense, a $2.1 million decrease in salaries and benefits and a $1.2 million decrease in freight costs. Operating expenses were $3.7 million lower in the Current Quarter due to the devaluation of the Nigerian naira which resulted in naira-based expenses translating into fewer U.S. dollars. The decrease in depreciation and amortization expense and direct costs was partially offset by the decline in revenue discussed above. The decrease in depreciation and amortization expense is primarily due to a lower level of accelerated depreciation of $1.1 million in the Current Quarter versus $5.0 million in the Comparable Quarter. In the prior year, management decided to exit certain older aircraft fleet types operating in this market sooner than originally anticipated, resulting in accelerated depreciation. Additionally, during the Comparable Quarter, we recorded $1.7 million of bad debt expense. Operating income and adjusted EBITDA in the Current Quarter benefited $2.4 million and $3.5 million, respectively, from changes in foreign currency exchange rates due to the combination of currencies our Nigerian operations transact in.
Additionally, during the Current and Comparable Quarters, we recorded $0.3 million and $1.5 million, respectively, in severance expense resulting from voluntary and involuntary separation programs as part of our organizational restructuring efforts, which is excluded from adjusted EBITDA and adjusted EBITDA margin.
Excluding the impact of changes in foreign currency exchange rates, operating margin would have been 21.2% and 7.0% and adjusted EBITDA margin would have been 29.6% and 23.4% for the Current Quarter and Comparable Quarter, respectively.
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 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 primarily due to an overall decrease in activity resulting from the downturn of the oil and gas industry. The lower activity reduced revenue by $56.1 million, which was only partially offset by $4.3 million from new contracts and increased activity on a contract. Additionally, Eastern Airways began providing fixed wing services in this region in October 2015, which generated $2.4 million of operating revenue for the Current Period.
Operating income, adjusted EBITDA and adjusted EBITDA margin decreased in the Current Period primarily due to the decrease in revenue discussed above, partially offset by a decline in direct costs (including an $8.8 million decrease in salaries and benefits and an $8.0 million decrease in maintenance expense) and a $6.1 million decrease in general and administrative expenses. Operating expenses were $14.3 million lower in the Current Period due to the devaluation of the Nigerian naira which resulted in naira-based expenses translating into fewer U.S. dollars. Also, during the Comparable Period, we recorded $4.7 million in bad debt expense related to two clients in this region. Additionally impacting operating income and operating margin is a decrease in depreciation and amortization expense as a result of a lower amount of accelerated depreciation of $5.0 million in the Current Period versus $11.6 million in the Comparable Period.
Additionally, during the Current and Comparable Periods, we recorded $4.4 million and $5.2 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.
Excluding the impact of changes in foreign currency exchange rates, operating margin would have been 5.7% and 12.3% and adjusted EBITDA margin would have been 16.7% and 26.9% for the Current Period and Comparable Period, respectively.

69

Americas
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
$
53,024

 
$
72,068

 
$
168,578

 
$
225,283

 
$
(19,044
)
 
(26.4
)%
 
$
(56,705
)
 
(25.2
)%
Earnings from unconsolidated affiliates, net of losses
$
831

 
$
7,556

 
$
4,954

 
$
(1,760
)
 
$
(6,725
)
 
(89.0
)%
 
$
6,714

 
381.5
 %
Operating income
$
2,226

 
$
22,797

 
$
5,790

 
$
30,283

 
$
(20,571
)
 
(90.2
)%
 
$
(24,493
)
 
(80.9
)%
Operating margin
4.2
%
 
31.6
%
 
3.4
%
 
13.4
%
 
(27.4
)%
 
(86.7
)%
 
(10.0
)%
 
(74.6
)%
Adjusted EBITDA
$
10,039

 
$
30,875

 
$
34,317

 
$
60,429

 
$
(20,836
)
 
(67.5
)%
 
$
(26,112
)
 
(43.2
)%
Adjusted EBITDA margin
18.9
%
 
42.8
%
 
20.4
%
 
26.8
%
 
(23.9
)%
 
(55.8
)%
 
(6.4
)%
 
(23.9
)%
Rent expense
$
5,638

 
$
5,033

 
$
16,258

 
$
16,216

 
$
(605
)
 
(12.0
)%
 
$
(42
)
 
(0.3
)%
_____________ 
* percentage change too large to be meaningful or not applicable
The Americas region comprises all our operations and affiliates in North America and South America, including Brazil, Canada, Trinidad and the U.S. Gulf of Mexico.
Current Quarter Compared to Comparable Quarter
Operating revenue decreased in the Current Quarter primarily due to a decline in activity in our U.S. Gulf of Mexico operations resulting from the oil and gas industry downturn, which reduced operating revenue by $19.0 million in the Current Quarter and a decrease of $1.9 million in Brazil due to fewer aircraft leased to Líder. These decreases were partially offset by a new contract in Guyana that increased operating revenue by $1.5 million and the introduction of SAR services in the U.S. Gulf of Mexico, which generated $0.4 million of operating revenue in the Current Quarter.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were impacted by foreign currency exchange rate changes in the Current and Comparable Quarters, which reduced earnings from our investment in Líder by $1.2 million for the Current Quarter and increased earnings from our investment in Líder by $1.0 million for the Comparable Quarter due to the impact of foreign currency exchange rate changes. Excluding this impact, in the Current and Comparable Quarters, earnings from our investment in Líder would have been $2.7 million and $7.1 million, respectively, operating income for the Americas region would have been $3.5 million (6.5% operating margin) and $21.8 million (30.3% operating margin), respectively, and adjusted EBITDA for the Americas region would have been $11.3 million (21.3% adjusted EBITDA margin) and $29.9 million (41.5% adjusted EBITDA margin), respectively. This year-over-year decrease in the Americas region’s operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin primarily resulted from lower revenue due to a decline in activity discussed above, partially offset by a decrease in direct costs, including a $2.3 million decrease in salaries and benefits and a $1.2 million decrease in maintenance expense.
During the Current and Comparable Quarters, we recorded severance expense related to organizational restructuring efforts of $0.1 million and $0.5 million, respectively, which is excluded from adjusted EBITDA and adjusted EBITDA margin.
See further discussion about our investment in Líder and the Brazil market in “— Executive Overview — Market Outlook” and “— Results of Operations — Current Quarter Compared to Comparable Quarter” included elsewhere in this Quarterly Report.
Current Period Compared to Comparable Period
Operating revenue decreased from in the Current Period primarily due to a decline in activity in our U.S. Gulf of Mexico operations, primarily resulting from the oil and gas industry downturn, that reduced operating revenue by $52.3 million in the Current Period, a decrease of $6.2 million in Brazil due to fewer aircraft leased to Líder and a decrease in Suriname of $5.2 million due to the end of a contract. These decreases were partially offset by a new contract in Guyana which increased operating revenue by $7.0 million.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were negatively impacted by unfavorable foreign currency exchange rate changes in the Current and Comparable Periods which reduced earnings from our investment in Líder by $2.5 million and $17.2 million for the Current and Comparable Periods, respectively. Excluding this impact, in the Current and Comparable Periods, earnings from our investment in Líder would have been $9.5 million and $16.6 million, respectively, operating income for the Americas region would have been $8.3 million (4.9% operating margin) and $47.5 million

70

(21.1% operating margin), respectively, and adjusted EBITDA for the Americas region would have been $36.9 million (21.9% adjusted EBITDA margin) and $77.6 million (34.5% adjusted EBITDA margin), respectively. This year-over-year decrease in the Americas region’s operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin primarily resulted from a decline in activity driven by the decline in revenue discussed above, partially offset by a decrease in direct costs including a $8.6 million decrease in maintenance expense and a $7.1 million decrease in salaries and benefits.
During the Current and Comparable Periods, we recorded accelerated depreciation expense on aircraft exiting our fleet of $3.9 million and $4.5 million, respectively, and we recorded severance expense related to organizational restructuring efforts of $1.2 million and $2.0 million, respectively. Depreciation and amortization, including accelerated depreciation, and severance expense recorded during the Current and Comparable Periods, were excluded from adjusted EBITDA and adjusted EBITDA margin.
Asia Pacific
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
$
49,092

 
$
67,402

 
$
155,144

 
$
214,177

 
$
(18,310
)
 
(27.2
)%
 
$
(59,033
)
 
(27.6
)%
Operating income
$
(9,012
)
 
$
458

 
$
(24,480
)
 
$
4,783

 
$
(9,470
)
 
*

 
$
(29,263
)
 
*

Operating margin
(18.4
)%
 
0.7
%
 
(15.8
)%
 
2.2
%
 
(19.1
)%
 
*

 
(18.0
)%
 
*

Adjusted EBITDA
$
(5,027
)
 
$
7,383

 
$
(10,513
)
 
$
22,164

 
$
(12,410
)
 
(168.1
)%
 
$
(32,677
)
 
(147.4
)%
Adjusted EBITDA margin
(10.2
)%
 
11.0
%
 
(6.8
)%
 
10.3
%
 
(21.2
)%
 
(192.7
)%
 
(17.1
)%
 
(166.0
)%
Rent expense
$
10,247

 
$
9,216

 
$
28,803

 
$
27,830

 
$
(1,031
)
 
(11.2
)%
 
$
(973
)
 
(3.5
)%
_____________ 
* 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 and Sakhalin, and our fixed wing operations through Airnorth in Australia.
Current Quarter Compared to Comparable Quarter
Operating revenue in Australia decreased in the Current Quarter by $18.9 million primarily due to the ending of short-term oil and gas contracts and decline in number of aircraft on contract in Australia and a decrease of $1.3 million due to a short-term contract in South Korea in the Comparable Quarter, partially offset by an $0.8 million increase in operating revenue from Airnorth. A significant portion of our revenue in the Asia Pacific region is contracted in the Australian dollar, which strengthened against the U.S. dollar in the Current Quarter. Foreign currency exchange rate changes resulted in an increase in revenue of $1.3 million year-over-year. Airnorth contributed $18.7 million and $17.9 million in operating revenue and $1.1 million and $3.2 million in adjusted EBITDA for the Current and Comparable Quarters, respectively.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin decreased primarily due to lower activity partially offset by cost reduction activities, including a decrease of $4.9 million in salaries and benefits, a decrease of $2.6 million in maintenance expense and a decrease of $1.7 million in travel expense. Additionally, we recorded $1.0 million of bad debt expense in the Comparable Quarter.
During both the Current Quarter and Comparable Quarter, we recorded $0.2 million in severance expense related to organizational restructuring efforts. The severance expense is not included in adjusted EBITDA or adjusted EBITDA margin for the Current Quarter and Comparable Quarter.
Current Period Compared to Comparable Period
Operating revenue in Australia decreased in the Current Period by $59.0 million primarily due to the ending of short-term oil and gas contracts, a $2.8 million decrease due to a short-term contract in South Korea in the Comparable Period, a $1.2 million decrease in Russia and a $1.2 million decrease for Airnorth. A significant portion of our revenue in the Asia Pacific region is contracted in the Australian dollar, which strengthened against the U.S. dollar in the Current Period. Foreign currency exchange rate changes resulted in an increase in revenue of $1.4 million year-over-year. Airnorth contributed $59.9 million and $61.1 million, respectively, in operating revenue and $7.8 million and $10.1 million, respectively, in adjusted EBITDA for the Current and Comparable Periods.

71

Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin decreased primarily due to decreased activity partially offset by a decrease in direct costs, including a decrease of $9.4 million in salaries and benefits, a decrease of $9.0 million in maintenance expense and a decrease of $3.3 million in travel expense. Additionally, operating income and operating margin were impacted by a decline in depreciation and amortization expense of $3.9 million. During the Comparable Period, we recorded additional depreciation expense of $6.3 million for four large aircraft operating in this region due to management’s decision to exit these fleet types earlier than originally anticipated, and during the Current Period and Comparable Period, we recorded $2.5 million and $1.6 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)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
$
2,099

 
$
3,609

 
$
7,917

 
$
18,542

 
$
(1,510
)
 
(41.8
)%
 
$
(10,625
)
 
(57.3
)%
Earnings from unconsolidated affiliates, net of losses
$
(190
)
 
$
—

 
$
(461
)
 
$
—

 
$
(190
)
 
*

 
$
(461
)
 
*

Operating loss
$
(21,575
)
 
$
(30,387
)
 
$
(78,869
)
 
$
(95,278
)
 
$
8,812

 
29.0
 %
 
$
16,409

 
17.2
 %
Adjusted EBITDA
$
(8,229
)
 
$
(21,891
)
 
$
(39,030
)
 
$
(62,733
)
 
$
13,662

 
62.4
 %
 
$
23,703

 
37.8
 %
Rent expense
$
1,885

 
$
2,067

 
$
5,721

 
$
7,314

 
$
182

 
8.8
 %
 
$
1,593

 
21.8
 %
_____________ 
* percentage change too large to be meaningful or not applicable
Corporate and other includes our Bristow Academy operations, supply chain management and corporate costs that have not been allocated out to other regions.
Current Quarter Compared to Comparable Quarter
Operating revenue decreased in the Current Quarter primarily due to a decline in third-party part sales of $0.8 million and Bristow Academy revenue of $0.7 million due to a decline in military training.
Operating loss and adjusted EBITDA improved in the Current Quarter primarily due to cost reduction activities that reduced general and administrative costs by $10.0 million primarily driven by a reduction in salaries and benefits of $8.3 million and other general and administrative costs of $1.7 million. Salaries and benefits declined primarily due to a decrease in stock compensation and performance cash plan expense of $3.5 million as a result of decreased stock price performance and lower headcount, a reduction in organizational restructuring costs of $3.0 million and a reduction in other salaries and benefits of $1.8 million as a result of a reduced headcount from organizational restructuring efforts. Additionally, adjusted EBITDA in the Current Quarter benefited from a favorable impact of changes in foreign currency exchange rates on our Corporate results of $9.1 million compared to the Comparable Quarter.
Additionally, during the Current Quarter and Comparable Quarter, we recorded $0.1 million and $3.1 million, respectively, related to organizational restructuring costs which are excluded from adjusted EBITDA.
Current Period Compared to Comparable Period
Operating revenue decreased in the Current Period primarily due to a decline in Bristow Academy revenue of $8.0 million due to a decline in military training and a decrease in third-party part sales of $2.4 million.
Operating loss and adjusted EBITDA improved in the Current Period primarily due to cost reduction activities that reduced general and administrative costs driven by a reduction in salaries and benefits by $5.0 million, professional fees by $4.9 million and other costs by $4.9 million, including information technology, staff relocation and recruitment and travel expenses, partially offset by a decline in revenue discussed above. The decrease in salaries and benefits is primarily driven by a $10.8 million reduction in salaries and benefits as a result of reduced headcount from organizational restructuring efforts, which was partially offset by a $2.9 million increase in severance expense associated with the organizational restructuring efforts and a $2.9 million increase in bonus accrual as no bonus was accrued or awarded in the prior year. Additionally, adjusted EBITDA in the Current Quarter benefited from a favorable impact of changes in foreign currency exchange rates on our Corporate results of $14.2 million compared to the Comparable Period.

72

Additionally, during the Current Period and Comparable Period, we recorded $9.0 million and $6.1 million, respectively, related to organizational restructuring costs, and the Current Period includes $7.6 million of inventory impairments, all of which are excluded from adjusted EBITDA.
Interest Expense, Net
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Interest income
$
168

 
$
181

 
$
637

 
$
619

 
$
(13
)
 
(7.2
)%
 
$
18

 
2.9
 %
Interest expense
(13,737
)
 
(11,043
)
 
(38,756
)
 
(30,328
)
 
(2,694
)
 
(24.4
)%
 
(8,428
)
 
(27.8
)%
Amortization of debt discounts
(325
)
 
(27
)
 
(1,314
)
 
(973
)
 
(298
)
 
*

 
(341
)
 
(35.0
)%
Amortization of debt fees
(1,136
)
 
(794
)
 
(3,623
)
 
(1,865
)
 
(342
)
 
(43.1
)%
 
(1,758
)
 
(94.3
)%
Capitalized interest
2,851

 
2,147

 
8,523

 
8,163

 
704

 
32.8
 %
 
360

 
4.4
 %
Interest expense, net
$
(12,179
)
 
$
(9,536
)
 
$
(34,533
)
 
$
(24,384
)
 
$
(2,643
)
 
(27.7
)%
 
$
(10,149
)
 
(41.6
)%
_____________ 
* percentage change too large to be meaningful or not applicable
Interest expense, net increased in the Current Quarter primarily due to an increase in borrowings and higher amortizations of debt discounts and debt fees, partially offset by an increase in capitalized interest resulting from higher average construction in progress.
Interest expense, net increased in the Current Period primarily due to an increase in borrowings and an increase in amortizations of debt discounts and debt fees, partially offset by an increase in capitalized interest resulting from higher average construction in progress.
Other Income (Expense), Net
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Foreign currency gains (losses) by region:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Europe Caspian
(10,656
)
 
(5,217
)
 
(18,659
)
 
(9,109
)
 
$
(5,439
)
 
(104.3
)%
 
$
(9,550
)
 
(104.8
)%
Africa
2,255

 
1,188

 
2,112

 
373

 
1,067

 
89.8
 %
 
1,739

 
*

Americas
607

 
(283
)
 
1,564

 
(364
)
 
890

 
314.5
 %
 
1,928

 
*

Asia Pacific
(1,233
)
 
2,370

 
(2,186
)
 
(1,753
)
 
(3,603
)
 
(152.0
)%
 
(433
)
 
(24.7
)%
Corporate and other
10,665

 
2,558

 
15,406

 
3,899

 
8,107

 
316.9
 %
 
11,507

 
295.1
 %
Foreign currency gains
(losses)
1,638

 
616

 
(1,763
)
 
(6,954
)
 
1,022

 
165.9
 %
 
5,191

 
74.6
 %
Other
30

 
34

 
245

 
19

 
(4
)
 
(11.8
)%
 
226

 
*

Other income (expense), net
$
1,668

 
$
650

 
$
(1,518
)
 
$
(6,935
)
 
1,018

 
156.6
 %
 
5,417

 
78.1
 %
____________ 
 * percentage change too large to be meaningful or not applicable
Other income (expense), net increased in the Current Quarter compared to the Comparable Quarter primarily due to a higher favorable impact of changes in foreign currency exchange rates in the Current Quarter compared to the Comparable Quarter. The foreign currency gains (losses) within other income (expense), net are reflected within adjusted EBITDA of the regions shown in the table above.
Other income (expense), net decreased in the Current Period compared to the Comparable Period primarily due to a higher unfavorable impact of changes in foreign currency exchange rates in the Comparable Period compared to the Current Period. The foreign currency gains (losses) within other income (expense), net are reflected within adjusted EBITDA of the regions shown in the table above.

73

Taxes
 
Three Months Ended 
 December 31,
 
Nine Months Ended 
 December 31,
 
Favorable
(Unfavorable)
 
 
 
2016
 
2015
 
2016
 
2015
 
Quarter vs Quarter
 
Period vs Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Effective tax rate
12.0
%
 
73.0
%
 
10.2
%
 
(27.7
)%
 
61.0
%
 
83.6
 %
 
(37.9
)%
 
(136.8
)%
Net foreign tax on non-U.S. earnings
$
179

 
$
(2,494
)
 
$
894

 
$
10,235

 
$
(2,673
)
 
(107.2
)%
 
$
9,341

 
91.3
 %
Expense (benefit) of foreign earnings indefinitely reinvested abroad
$
3,666

 
$
(9,694
)
 
$
7,811

 
$
(21,087
)
 
$
(13,360
)
 
(137.8
)%
 
$
(28,898
)
 
(137.0
)%
Expense from change in tax contingency
$
599

 
$
66

 
$
229

 
$
463

 
$
(533
)
 
(807.6
)%
 
$
234

 
50.5
 %
Impact of goodwill impairment
$
2,186

 
$
4,155

 
$
2,186

 
$
4,155

 
$
1,969

 
47.4
 %
 
$
1,969

 
47.4
 %
Change in valuation allowance
$
3,684

 
$
9,529

 
$
19,340

 
$
14,964

 
$
5,845

 
61.3
 %
 
$
(4,376
)
 
(29.2
)%
Foreign statutory rate reduction
$
—

 
$
—

 
$
(1,234
)
 
$
—

 
$
—

 
*

 
$
1,234

 
*

Deduction of foreign taxes
$
(801
)
 
$
(1,670
)
 
$
(2,003
)
 
$
(1,670
)
 
$
(869
)
 
(52.0
)%
 
$
333

 
19.9
 %
____________ 
 * percentage change too large to be meaningful or not applicable
In accordance with GAAP, we estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impact of such unusual or infrequent items is treated discretely in the quarter in which they occur.
The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our geographical blend of pre-tax book income. Consequently, our income tax expense does not change proportionally with our pre-tax book income. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The increase in our effective tax rate excluding discrete items for the Current Quarter compared to the Comparable Quarter primarily related to an increase in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions.
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 Quarter, we recorded a valuation allowance of $3.7 million against net operating losses in certain foreign jurisdictions. For Current Period, we recorded a valuation allowance of $11.0 million against foreign tax credits and $8.3 million against net operating losses in certain foreign jurisdictions.

74

Liquidity and Capital Resources
Cash Flows
Operating Activities
Net cash flows used by operating activities was $14.9 million during the Current Period compared to net cash flows provided by operating activities of $55.7 million during the Comparable Period. Changes in non-cash working capital used $18.8 million and $25.2 million in cash flows from operating activities for the Current Period and Comparable Period, respectively. The decrease in net cash flows provided by operating activities is primarily due to the decreased top-line earnings.
Investing Activities
Cash flows used in investing activities was $105.1 million during the Current Period compared to $324.2 million during the Comparable Period. Cash was used for capital expenditures as follows:
 
 
Nine Months Ended 
 December 31,
 
 
 
2016
 
2015
 
 
Number of aircraft delivered:
 
 
 
 
 
Medium
5

 
1

 
 
Large
—

 
2

 
 
SAR aircraft
2

 
8

 
 
Total aircraft
7

 
11

 
 
Capital expenditures (in thousands):
 
 
 
 
 
Aircraft and related equipment
$
112,770

 
$
276,547

 
 
Other
6,956

 
66,818

 
 
Total capital expenditures
$
119,726

 
$
343,365

 
In addition to these capital expenditures, investing cash flows were impacted by aircraft sales. During the Current Period, we received proceeds of $14.3 million primarily from the sale or disposal of nine aircraft and certain other equipment. During the Comparable Period, we received proceeds of $19.2 million primarily from the sale or disposal of 16 aircraft and certain other equipment.
Financing Activities
Cash flows provided by financing activities totaled $92.7 million during the Current Period compared to $292.2 million during the Comparable Period. During the Current Period, we received $243.9 million from borrowings on our Revolving Credit Facility and $109.9 million from the Lombard debt. During the Current Period, we used cash to repay debt of $243.7 million and pay dividends of $7.4 million on our Common Stock. During the Comparable Period, we received $565.7 million from borrowings on our Revolving Credit Facility, $200 million from borrowings on our $200 million Term Loan and $127.4 million from borrowings on our $350 million Term Loan. During the Comparable Period, we used cash to repay debt of $567.1 million (including $115.0 million for the repurchase of our 3% Convertible Senior Notes) and pay dividends of $35.6 million on our Common Stock.
Future Cash Requirements
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
We have various contractual obligations that are recorded as liabilities on our condensed consolidated balance sheet. Other items, such as certain purchase commitments, interest payments and other executory contracts are not recognized as liabilities on our condensed consolidated balance sheet but are included in the table below. For example, we are contractually committed to make certain minimum lease payments for the use of property and equipment under operating lease agreements.

75

The following table summarizes our significant contractual obligations and other commercial commitments on an undiscounted basis as of December 31, 2016 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, 2016. 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 2016 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, 2017
 
Fiscal Year Ending March 31,
 
 
Total
 
2018 —  
 2019
 
2020 —  
 2021
 
2022 and beyond
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Contractual obligations:
 
 
 
 
 
 
 
 
 
 
Long-term debt and short-term borrowings:
 
 
 
 
 
 
 
 
 
 
Principal (1)(2)
 
$
1,271,174

 
$
24,399

 
$
319,541

 
$
437,906

 
$
489,328

Interest (3)
 
214,029

 
7,550

 
95,209

 
56,336

 
54,934

Aircraft operating leases (4)
 
513,755

 
47,182

 
313,777

 
132,239

 
20,557

Other operating leases (5)
 
78,941

 
2,725

 
20,996

 
16,140

 
39,080

Pension obligations (6)
 
42,111

 
5,225

 
35,131

 
1,755

 
—

Aircraft purchase obligations (7)(8)
 
424,596

 
4,633

 
153,206

 
141,352

 
125,405

Other purchase obligations (9)
 
55,528

 
41,671

 
13,857

 
—

 
—

Total contractual cash obligations
 
$
2,600,134

 
$
133,385

 
$
951,717

 
$
785,728

 
$
729,304

Other commercial commitments:
 
 
 
 
 
 
 
 
 
 
Letters of credit
 
$
11,919

 
$
11,919

 
$
—

 
$
—

 
$
—

Contingent consideration (10)
 
18,276

 
3,621

 
14,655

 
—

 
—

Total commercial commitments
 
$
30,195

 
$
15,540

 
$
14,655

 
$
—

 
$
—

____________ 
(1) 
Excludes unamortized discount of $0.3 million on the Term Loan and unamortized debt issuance cost of $9.0 million.
(2) 
On February 1, 2017, one of our wholly-owned subsidiaries entered into a term loan credit agreement for a $200 million five-year secured equipment financing with Macquarie Bank Limited. The financing is expected to fund no later than March 31, 2017. The proceeds from the financing are expected to be used to repay amounts due under our existing term loans. Additionally, on February 2, 2017, we executed a commitment letter for an approximate six-year, $230 million secured equipment financing with PK Transportation Finance Ireland Limited, a part of GECAS. We expect this financing to fund no later than June 30, 2017. These financings are not included in the contractual obligations in the above table.
(3) 
Interest payments for variable interest debt are based on interest rates as of December 31, 2016.
(4) 
Represents separate operating leases for aircraft. During the Current Period, we entered into six new aircraft operating leases.
(5) 
Represents minimum rental payments required under non-operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
(6) 
Represents expected funding for pension benefits in future periods. These amounts are undiscounted and are based on the expectation that both the U.K. and Norway pensions will be fully funded in approximately three years. As of December 31, 2016, we had recorded on our balance sheet $49.3 million pension liability associated with these obligations. The timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
(7) 
Includes $2.9 million for final payments for aircraft delivered during fiscal year 2016 that is included in accounts payable as of December 31, 2016.
(8) 
Includes $83.7 million for five aircraft orders that can be cancelled prior to delivery dates. During the nine months ended December 31, 2016, 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 2016 Annual Report.
(10) 
Includes $7.4 million related to Eastern and $10.9 million related to Airnorth as of December 31, 2016. The Eastern Airways purchase agreement includes an earn-out payable over three years, which is contingent upon both the achievement of agreed performance targets and the continued employment of the selling shareholders, that will be included as general and administrative expense in our condensed

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consolidated statements of operations as earned. The first and second year earn-out payments relating to Eastern were not achieved. The remaining potential earn-out of $7.4 million would be payable in fiscal year 2018, of which no amounts are accrued as of December 31, 2016. 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 fair value of the Airnorth earn-out, which is contingent upon the achievement of agreed performance targets, is A$9.9 million ($7.1 million) as of December 31, 2016 and is included in contingent consideration and other liabilities and deferred credits on our condensed consolidated balance sheet. A portion of 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-outs for Eastern and Airnorth are 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 five fiscal years to purchase additional aircraft, including aircraft associated with the commitments reflected in the table above. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of revenue, operating margin and adjusted EBITDA margin. See Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a detail of the number of aircraft under commitments and options expected to be delivered in the current and subsequent five fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options through December 31, 2016.
As discussed under “— Executive Overview — Our Strategy — Capital Allocation Strategy”, cash may also be used for dividend payments and repurchases of Common Stock. Additionally, cash may be used in future periods to repurchase or otherwise retire debt, including our 6 ¼% Senior Notes, 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 have also been a significant source of liquidity over the past several years. The significant factors that affect our overall liquidity include cash from operations, capital expenditure commitments, debt service, pension funding, dividends, adequacy of bank lines of credit and our ability to attract capital on satisfactory terms.
Substantially all of our cash balances are held outside the U.S. and are generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the U.S. could be repatriated to the U.S., but under current law, any such repatriation would be subject to U.S. federal income tax, as adjusted for applicable foreign tax credits. We have provided for U.S. federal income taxes on undistributed foreign earnings where we have determined that such earnings are not indefinitely reinvested. We expect to meet the continuing funding requirements of our U.S. operations with cash generated by such U.S. operations, cash from earnings generated by non-U.S. operations that are not indefinitely reinvested and our existing Revolving Credit Facility. If cash held by non-U.S. operations is required for funding operations in the U.S., and if U.S. tax has not previously been provided on the earnings of such operations, we would make a provision for additional U.S. tax in connection with repatriating this cash, which may be material to our cash flow and results of operations.
We expect that our cash on deposit as of February 1, 2017 of approximately $95 million, proceeds from aircraft sales, available borrowing capacity under our Revolving Credit Facility ($264 million as of February 1, 2017) and proceeds from the equipment financings described below, 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, if we are unable to successfully fund either the $200 million or the $230 million secured equipment financings discussed below, we will need to pursue other financings or capital market transactions, complete aircraft sales or defer capital expenditures in order to have sufficient liquidity to satisfy existing capital commitments and other contractual obligations, including debt obligations over the next 12-month period.
On November 11, 2016, certain of our subsidiaries entered into two seven-year British pound sterling denominated secured equipment financings for an aggregate $200 million U.S. dollar equivalent with Lombard North Center Plc, part of the Royal Bank of Scotland. In December 2016, the first loan amount of $109.9 million (GBP 89.1 million) funded and the borrower prepaid a portion of the schedule payments totaling $4.5 million (GBP 3.7 million). In January 2017, the second loan in the amount of $90.1 million (GBP 72.4 million) funded. Additionally, on February 1, 2017, one of our wholly-owned subsidiaries entered into a term loan credit agreement for a $200 million five-year secured equipment financing with Macquarie Bank Limited. The borrower's obligations under the credit agreement will be guaranteed by the Company and secured by 20 oil and gas aircraft. The financing is expected to fund no later than March 31, 2017. The proceeds from the financing are expected to be used to repay amounts due

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under our existing term loans. Additionally, on February 2, 2017, we executed a commitment letter for an approximate six-year, $230 million secured equipment financing with PK Transportation Finance Ireland Limited, a part of GECAS. The financing will be secured by 20 oil and gas aircraft. We expect this financing to fund no later than June 30, 2017.
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 2016 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 2016 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 2016 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, 2016. 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, 2016 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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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 2016 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, 2016 in our “Risk Factors” as discussed in the fiscal year 2016 Annual Report and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
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.

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Item 6.    Exhibits.
The following exhibits are filed as part of this Quarterly Report:
Exhibit
Number
 
Description of Exhibit
 
 
 
10.1
 
Term Loan Credit Agreement, dated as of November 11, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 14, 2016).
 
 
 
10.2
 
Term Loan Credit Agreement, dated as of November 11, 2016 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 14, 2016).
 
 
 
10.3
 
Compensation Package for William Collins (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 5, 2016).
 
 
 
10.4
 
Term Loan Credit Agreement, dated as of February 1, 2017, among Bristow U.S. LLC, the several banks, other financial institutions and other lenders from time to time party thereto and Macquarie Bank Limited, as administrative agent and as security agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated February 2, 2017).
 
 
 
15.1*
 
Letter from KPMG LLP dated November 3, 2016, 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.
 
 
 
 

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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 2, 2017

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Bristow Group Inc Reports