Bristow Group Inc - FORM 10-Q - August 2, 2018

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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 June 30, 2018
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 every Interactive Data File required to be submitted 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 such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate 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 July 27, 2018.
35,765,275 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 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(Unaudited)
(In thousands, except per share amounts)
Revenue:
 
 
 
 
Operating revenue from non-affiliates
 
$
338,466

 
$
322,118

Operating revenue from affiliates
 
12,521

 
17,611

Reimbursable revenue from non-affiliates
 
16,907

 
12,380

 
 
367,894

 
352,109

Operating expense:
 
 
 
 
Direct cost
 
280,051

 
285,580

Reimbursable expense
 
15,904

 
12,226

Depreciation and amortization
 
30,941

 
31,056

General and administrative
 
40,101

 
46,707

 
 
366,997

 
375,569

 
 
 
 
 
Loss on impairment
 
—

 
(1,192
)
Gain (loss) on disposal of assets
 
(1,678
)
 
699

Earnings from unconsolidated affiliates, net of losses
 
(3,017
)
 
(665
)
Operating loss
 
(3,798
)
 
(24,618
)
 
 
 
 
 
Interest expense, net
 
(27,144
)
 
(16,021
)
Other income (expense), net
 
(3,950
)
 
(1,616
)
Loss before benefit (provision) for income taxes
 
(34,892
)
 
(42,255
)
Benefit (provision) for income taxes
 
2,851

 
(13,491
)
Net loss
 
(32,041
)
 
(55,746
)
Net (income) loss attributable to noncontrolling interests
 
(67
)
 
471

Net loss attributable to Bristow Group
 
$
(32,108
)
 
$
(55,275
)
 
 
 
 
 
Loss per common share:
 
 
 
 
Basic
 
$
(0.90
)
 
$
(1.57
)
Diluted
 
$
(0.90
)
 
$
(1.57
)
 
 
 
 
 
Cash dividends declared per common share
 
$
—

 
$
0.07

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 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Net loss
 
$
(32,041
)
 
$
(55,746
)
Other comprehensive loss:
 
 
 
 
Currency translation adjustments
 
(29,033
)
 
9,760

Unrealized gain on cash flow hedges, net of tax benefit of $0.3 million and zero, respectively
 
1,348

 
—

Total comprehensive loss
 
(59,726
)
 
(45,986
)
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(67
)
 
471

Currency translation adjustments attributable to noncontrolling interests
 
(139
)
 
310

Total comprehensive (income) loss attributable to noncontrolling interests
 
(206
)
 
781

Total comprehensive loss attributable to Bristow Group
 
$
(59,932
)
 
$
(45,205
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

2

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
 
June 30, 
 2018
 
March 31,  
 2018
 
 
(Unaudited)
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
316,550

 
$
380,223

Accounts receivable from non-affiliates
 
246,886

 
233,386

Accounts receivable from affiliates
 
12,914

 
13,594

Inventories
 
125,681

 
129,614

Assets held for sale
 
23,502

 
30,348

Prepaid expenses and other current assets
 
49,584

 
47,234

Total current assets
 
775,117

 
834,399

Investment in unconsolidated affiliates
 
114,609

 
126,170

Property and equipment – at cost:
 
 
 
 
Land and buildings
 
242,068

 
250,040

Aircraft and equipment
 
2,493,370

 
2,511,131

 
 
2,735,438

 
2,761,171

Less – Accumulated depreciation and amortization
 
(715,496
)
 
(693,151
)
 
 
2,019,942

 
2,068,020

Goodwill
 
19,175

 
19,907

Other assets
 
118,955

 
116,506

Total assets
 
$
3,047,798

 
$
3,165,002

 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
Accounts payable
 
$
100,299

 
$
101,270

Accrued wages, benefits and related taxes
 
49,030

 
62,385

Income taxes payable
 
6,142

 
8,453

Other accrued taxes
 
8,573

 
7,378

Deferred revenue
 
18,729

 
15,833

Accrued maintenance and repairs
 
30,440

 
28,555

Accrued interest
 
16,388

 
16,345

Other accrued liabilities
 
51,325

 
65,978

Short-term borrowings and current maturities of long-term debt
 
53,723

 
56,700

Total current liabilities
 
334,649

 
362,897

Long-term debt, less current maturities
 
1,410,083

 
1,429,834

Accrued pension liabilities
 
30,526

 
37,034

Other liabilities and deferred credits
 
32,302

 
36,952

Deferred taxes
 
114,645

 
115,192

Commitments and contingencies (Note 7)
 


 

Stockholders’ investment:
 
 
 
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 35,765,275 as of June 30 and 35,526,625 as of March 31 (exclusive of 1,291,441 treasury shares)
 
385

 
382

Additional paid-in capital
 
856,826

 
852,565

Retained earnings
 
759,929

 
793,783

Accumulated other comprehensive loss
 
(313,918
)
 
(286,094
)
Treasury shares, at cost (2,756,419 shares)
 
(184,796
)
 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,118,426

 
1,175,840

Noncontrolling interests
 
7,167

 
7,253

Total stockholders’ investment
 
1,125,593

 
1,183,093

Total liabilities and stockholders’ investment
 
$
3,047,798

 
$
3,165,002

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
  
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(Unaudited)
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(32,041
)
 
$
(55,746
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
30,941

 
31,056

Deferred income taxes
 
(6,776
)
 
6,651

Discount amortization on long-term debt
 
1,510

 
23

Loss (gain) on disposal of assets
 
1,678

 
(699
)
Loss on impairment
 
—

 
1,192

Deferral of lease payments
 
1,568

 
—

Stock-based compensation
 
1,692

 
4,136

Equity in earnings from unconsolidated affiliates less than dividends received
 
3,201

 
665

Increase (decrease) in cash resulting from changes in:
 
 
 
 
Accounts receivable
 
(19,833
)
 
(21,541
)
Inventories
 
(1,496
)
 
(3,551
)
Prepaid expenses and other assets
 
(1,729
)
 
5,106

Accounts payable
 
3,385

 
(3,288
)
Accrued liabilities
 
(21,845
)
 
(8,807
)
Other liabilities and deferred credits
 
(4,374
)
 
(6,376
)
Net cash used in operating activities
 
(44,119
)
 
(51,179
)
Cash flows from investing activities:
 
 
 
 
Capital expenditures
 
(8,895
)
 
(12,553
)
Proceeds from asset dispositions
 
7,774

 
41,975

Net cash provided by (used in) investing activities
 
(1,121
)
 
29,422

Cash flows from financing activities:
 
 
 
 
Proceeds from borrowings
 
387

 
69,018

Debt issuance costs
 
(2,378
)
 
(493
)
Repayment of debt
 
(14,194
)
 
(66,947
)
Partial prepayment of put/call obligation
 
(14
)
 
(12
)
Common stock dividends paid
 
—

 
(2,465
)
Issuance of common stock
 
2,830

 
—

Repurchases for tax withholdings on vesting of equity awards
 
(1,484
)
 
(274
)
Net cash used in financing activities
 
(14,853
)
 
(1,173
)
Effect of exchange rate changes on cash and cash equivalents
 
(3,580
)
 
5,153

Net decrease in cash and cash equivalents
 
(63,673
)
 
(17,777
)
Cash and cash equivalents at beginning of period
 
380,223

 
96,656

Cash and cash equivalents at end of period
 
$
316,550

 
$
78,879

Cash paid during the period for:
 
 
 
 
Interest
 
$
24,628

 
$
22,093

Income taxes
 
$
5,648

 
$
4,543

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 Stockholders’ Investment
(Unaudited)
(In thousands, except share amounts)
 
Total Bristow Group Stockholders’ Investment
 
 
 
 
 
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, 2018
$
382

 
35,526,625

 
$
852,565

 
$
793,783

 
$
(286,094
)
 
$
(184,796
)
 
$
7,253

 
$
1,183,093

Adoption of new accounting guidance (1)
—

 
—

 
—

 
(1,746
)
 
—

 
—

 
—

 
(1,746
)
Issuance of common stock
3

 
238,650

 
4,261

 
—

 
—

 
—

 
—

 
4,264

Distributions paid to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(14
)
 
(14
)
Currency translation adjustments
—

 
—

 
—

 
—

 
—

 
—

 
(139
)
 
(139
)
Net income (loss)
—

 
—

 
—

 
(32,108
)
 
—

 
—

 
67

 
(32,041
)
Other comprehensive loss
—

 
—

 
—

 
—

 
(27,824
)
 
—

 
—

 
(27,824
)
June 30, 2018
$
385

 
35,765,275

 
$
856,826

 
$
759,929

 
$
(313,918
)
 
$
(184,796
)
 
$
7,167

 
$
1,125,593

_____________ 
(1) 
Cumulative-effect adjustment upon the adoption of new accounting guidance related to current and deferred income taxes for intra-entity transfer of assets other than inventory. For further details, see Note 1.
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, 2019 is referred to as “fiscal year 2019”. 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 2018 Annual Report (the “fiscal year 2018 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 June 30, 2018, the consolidated statements of operations and comprehensive loss for the three months ended June 30, 2018 and 2017, the consolidated cash flows for the three months ended June 30, 2018 and 2017, and the consolidated statements of changes in stockholders’ investment for the three months ended June 30, 2018.
Foreign Currency
During the three months ended June 30, 2018 and 2017, 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 
 June 30,
 
 
2018
 
2017
One British pound sterling into U.S. dollars
 
 
 
 
High
 
1.43

 
1.30

Average
 
1.36

 
1.28

Low
 
1.31

 
1.24

At period-end
 
1.32

 
1.30

One euro into U.S. dollars
 
 
 
 
High
 
1.24

 
1.14

Average
 
1.19

 
1.10

Low
 
1.16

 
1.06

At period-end
 
1.17

 
1.14

One Australian dollar into U.S. dollars
 
 
 
 
High
 
0.78

 
0.77

Average
 
0.76

 
0.75

Low
 
0.73

 
0.74

At period-end
 
0.74

 
0.77

One Norwegian kroner into U.S. dollars
 
 
 
 
High
 
0.1290

 
0.1199

Average
 
0.1247

 
0.1174

Low
 
0.1209

 
0.1152

At period-end
 
0.1227

 
0.1194

One Nigerian naira into U.S. dollars
 
 
 
 
High
 
0.0028

 
0.0033

Average
 
0.0028

 
0.0032

Low
 
0.0028

 
0.0032

At period-end
 
0.0028

 
0.0032

_____________ 
Source: FactSet

6
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction losses of $3.0 million and $1.7 million for the three months ended June 30, 2018 and 2017, respectively. Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies, with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.
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 June 30, 2018 and 2017, earnings from unconsolidated affiliates, net of losses, decreased by $2.6 million and $1.1 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 
 June 30,
 
 
2018
 
2017
One Brazilian real into U.S. dollars
 
 
 
 
High
 
0.3020

 
0.3233

Average
 
0.2778

 
0.3113

Low
 
0.2571

 
0.2995

At period-end
 
0.2599

 
0.3018

_____________ 
Source: FactSet
We estimate that the fluctuation of currencies versus the same period in the prior fiscal year had the following effect on our financial condition and results of operations (in thousands):
 
 
Three Months Ended 
 June 30, 2018
Revenue
 
$
10,450

Operating expense
 
(5,301
)
Earnings from unconsolidated affiliates, net of losses
 
(1,454
)
Non-operating expense
 
(1,351
)
Income before provision for income taxes
 
2,344

Provision for income taxes
 
445

Net income
 
2,789

Cumulative translation adjustment
 
(29,172
)
Total stockholders’ investment
 
$
(26,383
)
Interest Expense, Net
During the three months ended June 30, 2018 and 2017, interest expense, net consisted of the following (in thousands):
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Interest income
 
$
179

 
$
214

Interest expense
 
(27,323
)
 
(16,235
)
Interest expense, net
 
$
(27,144
)
 
$
(16,021
)
Accounts Receivable
As of June 30 and March 31, 2018, the allowance for doubtful accounts for non-affiliates was $3.2 million and $3.3 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of June 30 and March 31, 2018. The allowance for doubtful accounts for non-affiliates as of June 30 and March 31, 2018 primarily relates to amounts due from a customer in Nigeria for which we no longer believe collection is probable.

7
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Inventories
As of June 30 and March 31, 2018, inventories were net of allowances of $24.6 million and $26.0 million, respectively. During the three months ended June 30, 2017, as a result of changes in expected future utilization of aircraft within our training fleet we recorded a $1.2 million charge to impair inventory used on our training fleet, which is included in loss on impairment on our condensed consolidated statement of operations.
Prepaid Expenses and Other Current Assets
As of June 30 and March 31, 2018, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $10.1 million and $10.8 million, respectively, related to the search and rescue (“SAR”) contracts in the U.K. and two customer contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three months ended June 30, 2018 and 2017, we expensed $2.7 million and $2.9 million, respectively, related to these contracts.
Goodwill
Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Goodwill has an indefinite useful life and is not amortized, but is assessed for impairment annually or when events or changes in circumstances indicate that a potential impairment exists.
Goodwill of $19.2 million and $19.9 million as of June 30 and March 31, 2018, respectively, related to our Asia Pacific reporting unit was as follows (in thousands):
March 31, 2018
$
19,907

Foreign currency translation
(732
)
June 30, 2018
$
19,175

Accumulated goodwill impairment of $50.9 million as of both June 30 and March 31, 2018 related to our reporting units were as follows (in thousands):
Europe Caspian
$
(33,883
)
Africa
(6,179
)
Americas
(576
)
Corporate and other
(10,223
)
Total accumulated goodwill impairment
$
(50,861
)

8
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Other Intangible Assets
Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values. Intangible assets by type were as follows (in thousands):
 
Customer
contracts
 
Customer
relationships
 
Trade name and trademarks
 
Internally developed software
 
Licenses
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Carrying Amount
March 31, 2018
$
8,169

 
$
12,777

 
$
4,878

 
$
1,107

 
$
755

 
$
27,686

Foreign currency translation
—

 
(52
)
 
(208
)
 
(11
)
 
(1
)
 
(272
)
June 30, 2018
$
8,169

 
$
12,725

 
$
4,670

 
$
1,096

 
$
754

 
$
27,414

 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Amortization
March 31, 2018
$
(8,169
)
 
$
(11,372
)
 
$
(1,213
)
 
$
(915
)
 
$
(719
)
 
$
(22,388
)
Amortization expense
—

 
(72
)
 
(72
)
 
(54
)
 
(15
)
 
(213
)
June 30, 2018
$
(8,169
)
 
$
(11,444
)
 
$
(1,285
)
 
$
(969
)
 
$
(734
)
 
$
(22,601
)
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average remaining contractual life, in years
0.0

 
4.4

 
11.8

 
0.6

 
0.3

 
5.6

Future amortization expense of intangible assets for each of the years ending March 31 is as follows (in thousands):
                 
2019
$
527

2020
452

2021
452

2022
452

2023
452

Thereafter
2,478

 
$
4,813

The Bristow Norway AS and Eastern Airways International Limited (“Eastern Airways”) acquisitions, included in our Europe Caspian region, resulted in intangible assets for customer contracts, customer relationships, trade names and trademarks, internally developed software and licenses. The Capiteq Limited, operating under the name Airnorth, acquisition included in our Asia Pacific region, resulted in intangible assets for customer contracts, customer relationships and trade name and trademarks.
Other Assets
In addition to the other intangible assets described above, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $45.2 million and $50.6 million, respectively, as of June 30 and March 31, 2018, related to the SAR contracts in the U.K. and two customer contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts.

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


Property and Equipment, Assets Held for Sale and OEM Cost Recoveries
During the three months ended June 30, 2018 and 2017, we took delivery of aircraft and made capital expenditures as follows:
 
 
Three Months Ended 
 June 30,
 
 
2018

2017
 
 
 
Number of aircraft delivered:
 
 
 
 
Medium
 
—

 
3

Total aircraft
 
—

 
3

Capital expenditures (in thousands):
 
 
 
 
Aircraft and equipment (1)
 
$
8,337

 
$
10,810

Land and buildings
 
558

 
1,743

Total capital expenditures
 
$
8,895

 
$
12,553

_____________ 
(1)
During the three months ended June 30, 2017, we spent $1.3 million on progress payments for aircraft to be delivered in future periods. During the three months ended June 30, 2018, we made no progress payments.
The following table presents details on the aircraft sold or disposed of and impairments on assets held for sale during the three months ended June 30, 2018 and 2017:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(In thousands, except for
 number of aircraft)
Number of aircraft sold or disposed of
 
3

 
6
Proceeds from sale or disposal of assets
 
$
7,774

 
$
41,975

Gain (loss) from sale or disposal of assets (1)
 
$
(1,678
)
 
$
2,263

 
 
 
 
 
Number of aircraft impaired
 
—

 
2

Impairment charges on assets held for sale (1)
 
$
—

 
$
1,564

_____________ 
(1) 
Included in gain (loss) on disposal of assets on our condensed consolidated statements of operations.

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


During fiscal year 2018, we reached agreements with original equipment manufacturers (“OEM”) to recover approximately $136.0 million related to ongoing aircraft issues, of which $125.0 million was realized during fiscal year 2018 and $11.0 million was recovered during the three months ended June 30, 2018. To reflect the amount realized from these OEM cost recoveries during fiscal year 2018, we recorded a $94.5 million decrease in the carrying value of certain aircraft in our fleet through a decrease in property and equipment – at cost, reduced rent expense by $16.6 million and recorded a deferred liability of $13.9 million, included in other accrued liabilities and other liabilities and deferred credits, related to a reduction in rent expense to be recorded in future periods, of which $3.5 million was recognized during the three months ended June 30, 2018. We determined the realized portion of the cost recoveries related to a long-term performance issue with the aircraft, requiring a reduction of carrying value for owned aircraft and a reduction in rent expense for leased aircraft. For the owned aircraft, we allocated the $94.5 million as a reduction in carrying value by reducing the historical acquisition value of each affected aircraft on a pro-rata basis utilizing the historical acquisition value of the aircraft. We revised our salvage values for each affected aircraft by reducing the historical acquisition value by the applicable amount and applying our stated salvage value percentage for owned aircraft of 50%. In accordance with accounting standards, we will recognize the change in depreciation due to the reduction in carrying value and revision of salvage values on a prospective basis over the remaining life of the aircraft. This will result in a reduction of depreciation expense of $6.4 million during the remainder of fiscal year 2019, $8.4 million during fiscal year 2020, $5.6 million during fiscal year 2021 and $21.3 million during fiscal year 2022 and beyond. For the leased aircraft, we will recognize the remaining deferred liability of $10.4 million as a reduction in rent expense prospectively on a straight-line basis over the remaining lease terms. This will result in a reduction to rent expense of $4.4 million during the remainder of fiscal year 2019, $4.0 million during fiscal year 2020 and $2.0 million during fiscal year 2021.
During the three months ended June 30, 2018, we recovered the remaining $11.0 million in OEM cost recoveries by agreeing to net certain amounts previously accrued for aircraft leases and capital expenditures against those recoveries. During the three months ended June 30, 2018, we recorded a $7.6 million increase in revenue and a $1.1 million decrease in direct cost. We expect to realize the remaining $2.3 million recovery during fiscal year 2019 as follows: $1.0 million decrease in direct cost in the three months ended September 30, 2018, $1.0 million decrease in direct cost in the three months ended December 31, 2018 and $0.3 million decrease in direct cost in the three months ended March 31, 2019. The increase in revenue relates to compensation for lost revenue in prior periods from the late delivery of aircraft and the decreases in direct cost over fiscal year 2019 relate to prior costs we have incurred and future costs we expect to incur.
Other Accrued Liabilities
Other accrued liabilities of $51.3 million and $66.0 million as of June 30 and March 31, 2018, respectively, includes the following:
 
June 30, 
 2018
 
March 31,  
 2018
 
 
 
 
 
(In thousands)
Accrued lease costs
$
7,079

 
$
11,708

Deferred OEM cost recovery
5,378

 
8,082

Eastern overdraft liability
6,230

 
8,989

Accrued property and equipment
468

 
4,874

Deferred gain on sale leasebacks
1,305

 
1,305

Other operating accruals
30,865

 
31,020

 
$
51,325

 
$
65,978


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


Recent Accounting Pronouncements
We consider the applicability and impact of all accounting standard updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition replacing the existing accounting standard and industry-specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the new standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. This new standard is effective for annual reporting periods beginning after December 15, 2017. We adopted the standard as of April 1, 2018 using the modified retrospective method applied to open contracts and only to the version of the contracts in effect as of April 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance with our historical accounting policy. There was no impact on our condensed consolidated financial statements and no cumulative effect adjustment was recognized. For further details, see Note 2.
In February 2016, the FASB issued accounting guidance which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. We have not yet adopted this standard and are currently evaluating the effect this standard will have on our financial statements.
In October 2016, the FASB issued accounting guidance related to current and deferred income taxes for intra-entity transfer of assets other than inventory. This accounting guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. We adopted this accounting guidance effective April 1, 2018 using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings. Upon adoption, we increased deferred tax liabilities by approximately $1.7 million and recognized an offsetting decrease to retained earnings.
In January 2017, the FASB issued accounting guidance which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides criteria for determining when a transaction involves the acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction does not involve the acquisition of a business. If the criteria are not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The amendments should be applied prospectively, and no disclosures are required at the effective date. We adopted this accounting guidance effective April 1, 2018. This accounting guidance has had no impact on our financial statements since adoption as we have not entered into any transactions during this period.
In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic post-retirement benefit cost. The accounting guidance requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount of net benefit cost that is included in the statement of operations or capitalized in assets, by line item. The accounting guidance requires employers to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets) separately and exclude them from the subtotal of operating income. The accounting guidance also allows only the service cost component to be eligible for capitalization when applicable. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted as of the first interim period of an annual period for which interim or annual financial statements have not been issued. The accounting guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the statement of operations and on a prospective basis for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. We adopted this accounting guidance effective April 1, 2018 and our statement of operations was retrospectively adjusted by $0.1 million with an increase in direct cost and a corresponding credit in other income (expense), net for the three months ended June 30, 2017.

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


In May 2017, the FASB issued accounting guidance on determining which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. We have adopted this accounting guidance effective April 1, 2018 with no impact on our financial statements as there were no changes to the terms or conditions of share-based payment awards.
In February 2018, the FASB issued new accounting guidance on income statement reporting of comprehensive income, specifically pertaining to reclassification of certain tax effects from accumulated other comprehensive income. This pronouncement is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2018, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.

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

Note 2 — REVENUE RECOGNITION
Revenue Recognition
In general, we recognize revenue when a service is provided or a good is sold to a customer and there is a contract. At contract inception, we assess the goods and services promised in our contracts with customers and identify all performance obligations for each distinct promise that transfers a good or service (or bundle of goods or services) to the customer. To identify the performance obligations, we consider all goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. Revenue is recognized when control of the identified distinct goods or services have been transferred to the customer, the transaction price is determined and allocated to the performed performance obligations and we have determined that collection has occurred or is probable of occurring.
A majority of our revenue from contracts with customers is currently generated through two types of contracts: helicopter services and fixed wing services. Each contract type has a single distinct performance obligation as described below.
Helicopter services — Our customers — major integrated, national and independent offshore energy companies — charter our helicopters primarily to transport personnel between onshore bases and offshore production platforms, drilling rigs and other installations. To a lesser extent, our customers also charter our helicopters to transport time-sensitive equipment to these offshore locations. The customers for SAR services include both the oil and gas industry and governmental agencies. Revenue from helicopter services is recognized when the performance obligation is satisfied over time based on contractual rates as the related services are performed.
A performance obligation arises under contracts with customers to render services and is the unit of account under the new accounting guidance for revenue. Operating revenue from our oil and gas segment is derived mainly from fixed-term contracts with our customers, a substantial portion of which is competitively bid. A small portion of our oil and gas customer revenue is derived from providing services on an "ad-hoc" basis. Our fixed-term contracts typically have original terms of one year to seven years (subject to provisions permitting early termination by our customers). We account for services rendered separately if they are distinct and the service is separately identifiable from other items provided to a customer and if a customer can benefit from the services rendered on its own or with other resources that are readily available to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Within this contract type for helicopter services, we determined that each contract has a single distinct performance obligation. These services include a fixed monthly rate for a particular model of aircraft, and flight hour services, which represents the variable component of a typical contract with a customer. Rates for these services vary depending on the type of services provided and can be based on a per flight hour, per day, or per month basis. Variable charges within our flight services contracts are not effective until a customer-initiated flight order is received and the actual hours flown are determined; therefore, the associated flight revenue generally cannot be reasonably and reliably estimated beforehand. A contract’s standalone selling prices are determined based upon the prices that we charge for our services rendered. Revenue is recognized as performance obligations are satisfied over time, by measuring progress towards satisfying the contracted services in a manner that best depicts the transfer of services to the customer, which is generally represented by a period of 30 days or less. We typically invoice customers on a monthly basis and the term between invoicing and when the payment is due is typically between 30 and 60 days. 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 rates when estimable and applicable, which generally includes written acknowledgment from the customers that they are in agreement with the amount of the rate escalation. Cost reimbursements from customers are recorded as reimbursable revenue with the related reimbursed costs recorded as reimbursable expense on our condensed consolidated statements of operations.
Taxes collected from customers and remitted to governmental authorities and revenue are reported on a net basis in our financial statements. Thus, we exclude taxes imposed on the customer and collected on behalf of governmental agencies to be remitted to these agencies from the transaction price in determining the revenue related to contracts with a customer.
Fixed wing services — Eastern Airways and Airnorth provide fixed wing transportation services through regular passenger transport (scheduled airline service with individual ticket sales) and charter services. A performance obligation arises under contracts with customers to render services and is the unit of account under the new accounting guidance for revenue. Within fixed wing services, we determined that each contract has a single distinct performance obligation. Revenue is recognized over time 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. Both chartered and scheduled airline service revenue is recognized net of passenger taxes and discounts.

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

Contract Assets, Liabilities and Receivables
We generally satisfy performance of contract obligations by providing helicopter and fixed wing services to our customers in exchange for consideration. The timing of performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset exists when we have a contract with a customer for which revenue has been recognized (i.e. services have been performed), but customer payment is contingent on a future event (i.e. satisfaction of additional performance obligations). These contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract liabilities relate to deferred revenue in which advance consideration is received from customers for contracts where revenue is recognized on future performance of services.
As of June 30 and March 31, 2018, receivables related to services performed under contracts with customers were $195.6 million and $176.5 million, respectively. All receivables from non-affiliates and affiliates are broken out further in our condensed consolidated balance sheets. During the three months ended June 30, 2018, we recognized $9.1 million of revenue from outstanding contract liabilities as of March 31, 2018. Contract liabilities related to services performed under contracts with customers was $13.3 million as of June 30 and March 31, 2018. Contract liabilities are primarily generated by our fixed wing services where customers pay for tickets in advance of receiving our services and advanced payments from helicopter services customers. There were no contract assets as of June 30 and March 31, 2018.
For the three months ended June 30, 2018, there was $1.0 million of revenue recognized from satisfied performance obligations related to prior periods (for example, due to changes in transaction price).
Adoption Impact
In accordance with the new revenue standard requirements discussed in Note 1, the disclosure of the impact of adoption on our condensed consolidated financial statements for the three months ended June 30, 2018 follows (in thousands):
 
 
Three Months Ended 
 June 30, 2018
 
 
Balances After Adoption
 
Balances without Adoption
 
Effect of change
Revenue:
 
 
 
 
 
 
Operating revenue from non-affiliates
 
$
325,356

 
$
338,466

 
$
(13,110
)
Operating revenue from affiliates
 
5,794

 
12,521

 
(6,727
)
Reimbursable revenue from non-affiliates
 
16,907

 
16,907

 
—

Revenue from Contracts with Customers
 
348,057

 
367,894

 
(19,837
)
Other revenue from non-affiliates
 
13,110

 
—

 
13,110

Other revenue from affiliates
 
6,727

 
—

 
6,727

Total Revenue
 
$
367,894

 
$
367,894

 
$
—

No cumulative effect adjustment to retained earnings was required upon adoption on April 1, 2018.

15
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Remaining Performance Obligations
Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period and (2) the expected timing to recognize this revenue (in thousands).
 
 
Remaining Performance Obligations
 
 
Nine Months Ending March 31, 2019
 
Fiscal Year Ending March 31,
 
Total
 
 
 
2020
 
2021
 
2022
 
2023 and thereafter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding Service Revenue:
 
 
 
 
 
 
 
 
 
 
 
 
Helicopter contracts
 
$
295,833

 
$
234,757

 
$
197,321

 
$
191,449

 
485,857

 
$
1,405,217

Fixed-wing contracts
 
3,476

 
—

 
—

 
—

 
—

 
3,476

Total remaining performance obligation revenue
 
$
299,309

 
$
234,757

 
$
197,321

 
$
191,449

 
485,857

 
$
1,408,693

Although substantially all of our revenue is under contract, due to the nature of our business we do not have significant remaining performance obligations as our contracts typically include unilateral termination clauses that allow our customers to terminate existing contracts with a notice period of 30 to 180 days. The table above includes performance obligations up to the point where the parties can cancel existing contracts. Any applicable cancellation penalties have been excluded. As such, our actual remaining performance obligation revenue is expected to be greater than what is reflected above. In addition, the remaining performance obligation disclosure does not include expected consideration related to performance obligations of a variable nature (i.e., flight services) as they cannot be reasonably and reliably estimated.
Other Considerations and Practical Expedients
We were awarded a government contract to provide SAR services for all of the U.K., which commenced in April 2015. We previously incurred costs related to this contract that generate or enhance the resources used to fulfill the performance obligation within the contract and the costs are expected to be recoverable. These contract acquisition and pre-operating costs qualify for capitalization. We amortize these capitalized contract acquisition and pre-operating costs related to the UK SAR contract and two customer contracts in Norway. We determined that an amortization method that allocates the capitalized costs on a relative basis to the revenue recognized is a reasonable and systematic basis for the amortization of the pre-operating costs asset. For further details on the short and long-term pre-operating cost balances, see Note 1.
We incur incremental direct costs for obtaining contracts through sales commissions paid to ticket agents to sell seats on regular public transportation flights for our fixed-wing services only. We will utilize the practical expedient allowed by the FASB that permits us to expense the incremental costs of obtaining a contract when incurred, if the amortization period of the contract asset that we otherwise would have recognized is one year or less.
In addition, we have applied the tax practical expedient to exclude all taxes in the scope of the election from the transaction price and the invoice practical expedient that allows us to recognize revenue in the amount to which we have the right to invoice the customer and corresponds directly with the value to the customer of our performance completed to date.
Note 3 — VARIABLE INTEREST ENTITIES
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate.
As of June 30, 2018, 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 2 to the fiscal year 2018 Financial Statements for a description of other investments in significant affiliates.

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


Bristow Aviation Holdings Limited — We own 49% of Bristow Aviation Holdings Limited’s (“Bristow Aviation”) common stock and a significant amount of its subordinated debt. Bristow Aviation is incorporated in England and holds all of the outstanding shares in Bristow Helicopters Limited (“Bristow Helicopters”). Bristow Aviation’s subsidiaries provide industrial aviation services to customers 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 ($120.1 million) principal amount of subordinated unsecured loan stock (debt) of Bristow Aviation bearing interest at an annual rate of 13.5% and payable semi-annually. Payment of interest on such debt has been deferred since its incurrence in 1996. Deferred interest accrues at an annual rate of 13.5% and aggregated $2.2 billion as of June 30, 2018.
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, provided that Caledonia owned (1) at least 1,000,000 shares of common stock of the Company or (2) at least 49% of the total outstanding shares of Bristow Aviation. According to Caledonia’s most recent Form 13F filed with the SEC on July 10, 2018, Caledonia was no longer the direct beneficial owner of any shares of our common stock as of June 30, 2018. Accordingly, pursuant to the terms of the Master Agreement dated December 12, 1996 among Caledonia and the Company, Caledonia does not currently satisfy the requirements to designate directors for nomination to our board of directors.
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 June 30, 2018) plus an annual guaranteed rate of return less any prepayments of such call option price and any dividends paid on the shares concerned. We can elect to pre-pay the guaranteed return element of the call option price wholly or in part without exercising the call option. No dividends have been paid by Bristow Aviation. We have accrued the annual return due to the other shareholders at a rate of sterling LIBOR plus 3% (prior to May 2004, the rate was fixed at 12%) by recognizing noncontrolling interest expense on our condensed consolidated statements of operations, with a corresponding increase in noncontrolling interest on our condensed consolidated balance sheets. Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interest on our condensed consolidated balance sheets. The other investors have an option to put their shares in Bristow Aviation to us. The put option price is calculated in the same way as the call option price except that the guaranteed rate for the period to April 2004 was 10% per annum. If the put option is exercised, any pre-payments of the call option price are set off against the put option price.

17
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):
 
 
 
June 30, 
 2018
 
March 31,  
 2018
 
Assets
 
 
 
 
 
Cash and cash equivalents
 
$
68,947

 
$
90,788

 
Accounts receivable
 
319,251

 
256,735

 
Inventories
 
92,663

 
98,314

 
Prepaid expenses and other current assets
 
39,342

 
38,665

 
Total current assets
 
520,203

 
484,502

 
Investment in unconsolidated affiliates
 
3,268

 
3,608

 
Property and equipment, net
 
309,618

 
327,440

 
Goodwill
 
19,175

 
19,907

 
Other assets
 
230,748

 
231,884

 
Total assets
 
$
1,083,012

 
$
1,067,341

 
Liabilities
 
 
 
 
 
Accounts payable
 
$
348,588

 
$
292,893

 
Accrued liabilities
 
139,480

 
140,733

 
Accrued interest
 
2,196,334

 
2,130,433

 
Current maturities of long-term debt
 
20,024

 
23,125

 
Total current liabilities
 
2,704,426

 
2,587,184

 
Long-term debt, less current maturities
 
467,437

 
479,571

 
Accrued pension liabilities
 
30,526

 
37,034

 
Other liabilities and deferred credits
 
6,184

 
7,342

 
Deferred taxes
 
26,625

 
26,252

 
Total liabilities
 
$
3,235,198

 
$
3,137,383

 
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Revenue
 
$
331,469

 
$
301,970

Operating income (loss)
 
7,364

 
(19,654
)
Net loss
 
(69,021
)
 
(79,169
)

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


Bristow Helicopters (Nigeria) Ltd. — Bristow Helicopters (Nigeria) Ltd. (“BHNL”) is a joint venture in Nigeria in which Bristow Helicopters owns a 48% interest, a Nigerian company owned 100% by Nigerian employees owns a 50% interest and an employee trust fund owns the remaining 2% interest as of June 30, 2018. BHNL provides industrial aviation services to customers in Nigeria.
In order to be able to bid competitively for our services in the Nigerian market, we were required to identify local citizens to participate in the ownership of entities domiciled in the region. However, these owners do not have extensive knowledge of the aviation industry and have historically deferred to our expertise in the overall management and day-to-day operation of BHNL (including the establishment of operating and capital budgets and strategic decisions regarding the potential expansion of BHNL’s operations). We have also historically provided subordinated financial support to BHNL and will need to continue to do so unless and until BHNL acquires sufficient equity to permit itself to finance its activities without that additional support from us. As we have the power to direct the most significant activities affecting the economic performance and ongoing success of BHNL and hold a variable interest in the entity in the form of our equity investment and working capital infusions, we consolidate BHNL as the primary beneficiary. The employee-owned Nigerian entity referenced above purchased a 19% interest in BHNL in December 2013 with proceeds from a loan received from BGI Aviation Technical Services Nigeria Limited (“BATS”). In July 2014, the employee-owned Nigerian entity purchased an additional 29% interest with proceeds from a loan received from Bristow Helicopters (International) Limited (“BHIL”). In April 2015, Bristow Helicopters purchased an additional 8% interest in BHNL and the employee-owned Nigerian entity purchased an additional 2% interest with proceeds from a loan received from BHIL. Both BATS and BHIL are wholly-owned subsidiaries of Bristow Aviation. The employee-owned Nigerian entity is also a VIE that we consolidate as the primary beneficiary and we eliminate the loans discussed above in consolidation.
BHNL is an indirect subsidiary of Bristow Aviation; therefore, financial information for this entity is included within the amounts for Bristow Aviation and its subsidiaries presented above.
Pan African Airlines (Nigeria) Ltd. — Pan African Airlines (Nigeria) Ltd. (“PAAN”) is a joint venture in Nigeria with local partners in which we own a 50.17% interest. PAAN provides industrial aviation services to customers 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.


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


Note 4 — DEBT
Debt as of June 30 and March 31, 2018 consisted of the following (in thousands):
 
 
June 30, 
 2018
 
March 31,  
 2018
8.75% Senior Secured Notes due 2023
 
$
346,807

 
$
346,610

4½% Convertible Senior Notes due 2023
 
108,710

 
107,397

6¼% Senior Notes due 2022
 
401,535

 
401,535

Lombard Debt
 
195,467

 
211,087

Macquarie Debt
 
181,528

 
185,028

PK Air Debt
 
225,615

 
230,000

Airnorth Debt
 
13,126

 
13,832

Eastern Airways Debt
 
11,556

 
14,519

Other Debt
 
5,716

 
3,991

Unamortized debt issuance costs
 
(26,254
)
 
(27,465
)
Total debt
 
1,463,806

 
1,486,534

Less short-term borrowings and current maturities of long-term debt
 
(53,723
)
 
(56,700
)
Total long-term debt
 
$
1,410,083

 
$
1,429,834

ABL Facility — On April 17, 2018, two of our subsidiaries entered into a new asset-backed revolving credit facility (the “ABL Facility”), which provides for commitments in an aggregate amount of $75 million, with a portion allocated to each borrower subsidiary, subject to an availability block of $15 million and a borrowing base calculated by reference to eligible accounts receivable. The maximum amount of the ABL Facility may be increased from time to time to a total of as much as $100 million, subject to the satisfaction of certain conditions, and any such increase would be allocated among the borrower subsidiaries. The ABL Facility matures in five years, subject to certain early maturity triggers related to maturity of other material debt or a change of control of the Company. Amounts borrowed under the ABL Facility are secured by certain accounts receivable owing to the borrower subsidiaries and the deposit accounts into which payments on such accounts receivable are deposited. As of June 30, 2018, there were no outstanding borrowings under the ABL Facility nor had we made any draws during the three months ended June 30, 2018.
4½% Convertible Senior Notes due 2023 — The balances of the debt and equity components of our 4½% Convertible Senior Notes due 2023 (the “4½% Convertible Senior Notes”) as of June 30 and March 31, 2018 is as follows (in thousands):
 
 
June 30, 
 2018
 
March 31,  
 2018
 
 
 
 
 
Equity component - net carrying value (1)
 
$
36,778

 
$
36,778

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

 
$
143,750

Unamortized discount
 
(35,040
)
 
(36,353
)
Debt component - net carrying value
 
$
108,710

 
$
107,397

_____________ 
(1) Net of equity issuance costs of $1.0 million.
The remaining debt discount is being amortized to interest expense over the term of the 4½% Convertible Senior Notes using the effective interest rate. The effective interest rate for the three months ended June 30, 2018 was 11.0%. Interest expense related to our 4½% Convertible Senior Notes for the three months ended June 30, 2018 was as follows (in thousands):
Contractual coupon interest
 
$
1,611

 
Amortization of debt discount
 
1,313

 
Total interest expense
 
$
2,924

 


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


Note 5 — 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.
We did not have any items valued at fair value on a non-recurring basis as of June 30, 2018. 
The following table summarizes the assets as of June 30, 2017, valued at fair value on a non-recurring basis (in thousands): 
 
 
Quoted Prices in Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance as of  
 June 30, 
 2017
 
Total
Loss for the
Three Months
Ended
June 30, 2017
Inventories
 
$
—

 
$
1,252

 
$
—

 
$
1,252

 
$
(1,192
)
Assets held for sale
 
—

 
34,585

 
—

 
34,585

 
(1,564
)
Total assets
 
$
—

 
$
35,837

 
$
—

 
$
35,837

 
$
(2,756
)
The fair value of inventories using Level 2 inputs is determined by evaluating the current economic conditions for sale and disposal of spare parts, which includes estimates as to the recoverability of the carrying value of the parts based on historical experience with sales and disposal of similar spare parts, the expected time frame of sales or disposals, the location of the spare parts to be sold and the condition of the spare parts to be sold or otherwise disposed of.
The fair value of assets held for sale using Level 2 inputs is determined through evaluation of expected sales proceeds for aircraft. This analysis includes estimates based on historical experience with sales, recent transactions involving similar assets, quoted market prices for similar assets and condition and location of aircraft to be sold or otherwise disposed of. The loss for the three months ended June 30, 2017 related to two aircraft held for sale.

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


Recurring Fair Value Measurements
The following table summarizes the financial instruments we had as of June 30, 2018, 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  
 June 30, 
 2018
 
Balance  Sheet
Classification
Derivative financial instruments
 
$
—

 
$
3,333

 
$
—

 
$
3,333

 
Prepaid expenses and other current assets
Rabbi Trust investments
 
2,020

 
—

 
—

 
2,020

 
Other assets
Total assets
 
$
2,020

 
$
3,333

 
$
—

 
$
5,353

 
 
The following table summarizes the financial instruments we had as of March 31, 2018, 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,  
 2018
 
Balance  Sheet
Classification
Derivative financial instruments
 
$
—

 
$
718

 
$
—

 
$
718

 
Prepaid expenses and other current assets
Rabbi Trust investments
 
2,296

 
—

 
—

 
2,296

 
Other assets
Total assets
 
$
2,296

 
$
718

 
$
—

 
$
3,014

 
 
The rabbi trust investments consist of cash and mutual funds whose fair value are based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy. The rabbi trust holds investments related to our non-qualified deferred compensation plan for our senior executives. The derivative financial instruments consist of foreign currency put option contracts whose fair value is determined by quoted market prices of the same or similar instruments, adjusted for counterparty risk. See Note 6 for a discussion of our derivative financial instruments.
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 debt, excluding unamortized debt issuance costs, are as follows (in thousands):
 
 
June 30, 2018
 
March 31, 2018
 
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
8.75% Senior Secured Notes due 2023 (1)
 
$
346,807

 
$
340,830

 
$
346,610

 
$
353,500

4½% Convertible Senior Notes due 2023 (2)
 
108,710

 
164,349

 
107,397

 
158,772

6¼% Senior Notes due 2022
 
401,535

 
312,193

 
401,535

 
325,243

Lombard Debt
 
195,467

 
195,467

 
211,087

 
211,087

Macquarie Debt
 
181,528

 
181,528

 
185,028

 
185,028

PK Air Debt
 
225,615

 
225,615

 
230,000

 
230,000

Airnorth Debt
 
13,126

 
13,126

 
13,832

 
13,832

Eastern Airways Debt
 
11,556

 
11,556

 
14,519

 
14,519

Other Debt
 
5,716

 
5,716

 
3,991

 
3,991

 
 
$
1,490,060

 
$
1,450,380

 
$
1,513,999

 
$
1,495,972

_____________ 
(1) 
The carrying value is net of unamortized discount of $3.2 million and $3.4 million as of June 30, 2018 and March 31, 2018, respectively.
(2) 
The carrying value is net of unamortized discount of $35.0 million and $36.4 million as of June 30, 2018 and March 31, 2018, respectively.

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


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.
Note 6 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
From time to time, we enter into forward exchange contracts as a hedge against foreign currency asset and liability commitments and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. We do not use financial instruments for trading or speculative purposes.
During fiscal year 2018 and the three months ended June 30, 2018, we entered into foreign currency put option contracts of £5 million per month through May 2019 to mitigate a portion of our foreign currency exposure. These derivatives were designated as cash flow hedges.
The designation of a derivative instrument as a hedge and its ability to meet relevant hedge accounting criteria determines how the change in fair value of the derivative instrument will be reflected in the consolidated financial statements. A derivative qualifies for hedge accounting if, at inception, the derivative is expected to be highly effective in offsetting the hedged item’s underlying cash flows or fair value and the documentation requirements of the accounting standard for derivative instruments and hedging activities are fulfilled at the time we enter into the derivative contract. A hedge is designated as a cash flow hedge, fair value hedge, or a net investment in foreign operations hedge based on the exposure being hedged. The asset or liability value of the derivative will change in tandem with its fair value. For derivatives designated as cash flow hedges, the changes in fair value are recorded in accumulated other comprehensive income (loss). The derivative’s gain or loss is released from accumulated other comprehensive income (loss) to match the timing of the effect on earnings of the hedged item’s underlying cash flows.
We review the effectiveness of our hedging instruments on a quarterly basis. We discontinue hedge accounting for any hedge that we no longer consider to be highly effective. Changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting are recognized in current period earnings.
None of our derivative instruments contain credit-risk-related contingent features. Counterparties to our derivative contracts are high credit quality financial institutions.
The following table presents the balance sheet location and fair value of the portions of our derivative instruments that were designated as hedging instruments as of June 30, 2018 (in thousands):
 
 
Derivatives designated as hedging instruments
 
Derivatives not designated as hedging instruments
 
Gross amounts of recognized assets and liabilities
 
Gross amounts offset in the Balance Sheet
 
Net amounts of assets and liabilities presented in the Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
3,333

 
$
—

 
$
3,333

 
$
—

 
$
3,333

Net
 
$
3,333

 
$
—

 
$
3,333

 
$
—

 
$
3,333

The following table presents the balance sheet location and fair value of the portions of our derivative instruments that were designated as hedging instruments as of March 31, 2018 (in thousands):
 
 
Derivatives designated as hedging instruments
 
Derivatives not designated as hedging instruments
 
Gross amounts of recognized assets and liabilities
 
Gross amounts offset in the Balance Sheet
 
Net amounts of assets and liabilities presented in the Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses and other current assets
 
$
718

 
$
—

 
$
718

 
$
—

 
$
718

Net
 
$
718

 
$
—

 
$
718

 
$
—

 
$
718


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


The following table presents the impact that derivative instruments, designated as cash flow hedges, had on our accumulated other comprehensive loss (net of tax) and our consolidated statements of operations for the three months ended June 30, 2018 (in thousands):
 
 
 
 
Financial statement location
 
 
 
 
 
Amount of gain recognized in accumulated other comprehensive loss
 
$
2,962

 
Accumulated other comprehensive loss
Amount of gain reclassified from accumulated other comprehensive loss into earnings
 
$
1,614

 
Statement of operations
We estimate that $1.3 million of net gain in accumulated other comprehensive loss associated with our derivative instruments is expected to be reclassified into earnings within the next twelve months.


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


Note 7 — COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next seven fiscal years to purchase additional aircraft. As of June 30, 2018, we had 27 aircraft on order and options to acquire an additional four aircraft. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order will provide incremental fleet capacity in terms of revenue and operating income.
 
 
Nine Months Ending March 31, 2019
 
Fiscal Year Ending March 31,
 
 
 
 
2020
 
2021
 
2022
 
2023 and thereafter(1)
 
Total
Commitments as of June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
1

 
—

 
4

 
5

 
13

 
23

U.K. SAR
 
—

 
4

 
—

 
—

 
—

 
4

 
 
1

 
4

 
4

 
5

 
13

 
27

Related commitment expenditures (in thousands) (2)
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
$
19,792

 
$
24,829

 
$
76,547

 
$
84,972

 
$
192,426

 
$
398,566

U.K. SAR
 
—

 
61,226

 
—

 
—

 
—

 
61,226

 
 
$
19,792

 
$
86,055

 
$
76,547

 
$
84,972

 
$
192,426

 
$
459,792

Options as of June 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
Number of aircraft:
 
 
 
 
 
 
 
 
 
 
 
 
Large
 
2

 
2

 
—

 
—

 
—

 
4

 
 
2

 
2

 
—

 
—

 
—

 
4

 
 
 
 
 
 
 
 
 
 
 
 
 
Related option expenditures (in thousands) (2)
 
$
44,181

 
$
31,536

 
$
—

 
$
—

 
$
—

 
$
75,717

_____________ 
(1) 
Includes $93.0 million for five aircraft orders that can be cancelled prior to delivery dates. We made non-refundable deposits of $4.5 million related to these aircraft.
(2) 
Includes progress payments on aircraft scheduled to be delivered in future periods only if options are exercised.
We periodically purchase aircraft for which we have no orders.
Operating Leases — We have non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities. Rent expense incurred under all operating leases was $50.1 million and $58.7 million for the three months ended June 30, 2018 and 2017, respectively. Rent expense incurred under operating leases for aircraft was $44.1 million and $51.7 million for the three months ended June 30, 2018 and 2017, respectively.

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


The aircraft leases range from base terms of up to 180 months with renewal options of up to 240 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and require us to pay a stipulated amount if we default on our obligations under the agreements. The following is a summary of the terms related to aircraft leased under operating leases with original or remaining terms in excess of one year as of June 30, 2018:
 
End of Lease Term
 
Number of Aircraft
 
Nine months ending March 31, 2019 to fiscal year 2020
 
43

 
Fiscal year 2021 to fiscal year 2023
 
32

 
Fiscal year 2024 to fiscal year 2025
 
11

 
 
 
86

 
We lease six S-92 model aircraft and one AW139 model aircraft from VIH Aviation Group, which is a related party due to common ownership of Cougar Helicopters Inc. (“Cougar”) and paid lease fees of $5.0 million and $4.5 million during the three months ended June 30, 2018 and 2017, respectively. Additionally, we lease a facility in Galliano, Louisiana from VIH Helicopters USA, Inc., another related party due to common ownership of Cougar, and paid $0.1 million and $0.1 million in lease fees during the three months ended June 30, 2018 and 2017, respectively.
Separation Programs — Beginning in March 2015, we initiated involuntary separation programs (“ISPs”) in certain regions. The expense related to the ISPs for the three months ended June 30, 2018 and 2017 is as follows (in thousands):
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Direct cost
 
$
1,501

 
$
1,070

General and administrative
 
218

 
7,609

Total
 
$
1,719

 
$
8,679

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 June 30, 2018, we had $43.0 million of other purchase obligations representing unfilled purchase orders for aircraft parts and non-cancelable power-by-the-hour maintenance commitments.
Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to deductible, self-insured retention and loss sensitive factors.
As previously reported, on April 29, 2016, another company’s EC 225LP (also known as a H225LP) model helicopter crashed near Turøy outside of Bergen, Norway resulting in the European Aviation Safety Agency (“EASA”) issuing airworthiness directives prohibiting flight of H225LP and AS332L2 model aircraft. On July 20, 2017, the U.K. CAA and NCAA issued safety and operational directives which detail the conditions to apply for safe return to service of H225LP and AS332L2 model aircraft, where operators wish to do so. On July 5, 2018, the Accident Investigation Board Norway issued its final investigation report on the accident. The report cited a fatigue fracture within the epicyclic module of the main gear box as the cause of the accident, and issued safety recommendations in a number of areas, including gearbox design and certification requirements, failure tolerance, and continued airworthiness of the AS332L2 and the EC 225LP helicopters. We continue not to operate for commercial purposes our 23 H225LP model aircraft, and we are carefully evaluating next steps and demand for the H225LP model aircraft in our oil and gas and SAR operations worldwide, with the safety of passengers and crews remaining our highest priority.

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


We operate in jurisdictions internationally where we are subject to risks that include government action to obtain additional tax revenue. In a number of these jurisdictions, political unrest, the lack of well-developed legal systems and legislation that is not clear enough in its wording to determine the ultimate application, can make it difficult to determine whether legislation may impact our earnings until such time as a clear court or other ruling exists. We operate in jurisdictions currently where amounts may be due to governmental bodies that we are not currently recording liabilities for as it is unclear how broad or narrow legislation may ultimately be interpreted. We believe that payment of amounts in these instances is not probable at this time, but is reasonably possible.
A loss contingency is reasonably possible if the contingency has a more than remote but less than probable chance of occurring. Although management believes that there is no clear requirement to pay amounts at this time and that positions exist suggesting that no further amounts are currently due, it is reasonably possible that a loss could occur for which we have estimated a maximum loss at June 30, 2018 to be approximately $5 million to $6 million.
We are a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.

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


Note 8 — TAXES
We estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impacts of such unusual or infrequent items are treated discretely in the quarter in which they occur. During the three months ended June 30, 2018 and 2017, our effective tax rate was 8.2% and (31.9)%, respectively. The effective tax rate for the three months ended June 30, 2018 and 2017 were impacted by valuation allowances against future realization of foreign tax credits and 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 or benefit does not change proportionally with our pre-tax book income or loss. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The change in our effective tax rate excluding discrete items for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 primarily related to changes in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions. Additionally, we increased our valuation allowance by $1.0 million and $11.2 million for the three months ended June 30, 2018 and 2017, respectively, which also impacted our effective tax rate.
As of June 30, 2018, there were $6.7 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate if recognized.
On December 22, 2017, the United States Congress enacted tax legislation commonly known as the Tax Cuts and Jobs Act (the “Act”). The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. Further, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We have made reasonable estimates for the change in the U.S. federal corporate income tax rate and one-time “deemed repatriation” of accumulated foreign earnings. For the year ended March 31, 2018, our provision for income tax included provisional amounts for the revaluation of U.S. net deferred tax liabilities and the impact of the “deemed repatriation” of foreign earnings. The provisional amounts associated with the one-time “deemed repatriation” and the re-measurement of deferred tax assets and liabilities due to the reduction in the corporate income tax rate will be adjusted over time as more guidance becomes available.
Certain provisions under the Act became applicable to us on April 1, 2018 and our income tax provision for the three months ended June 30, 2018 includes the tax implications of these provisions. These provisions include Global Intangible Low-Taxed Income (“GILTI”), Base Erosion and Anti-Avoidance Tax (“BEAT”), Foreign Derived Intangible Income (“FDII”), and certain limitations on the deduction of interest expense and utilization of net operating losses.


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


Note 9 — EMPLOYEE BENEFIT PLANS
Pension Plans
The components of net periodic pension cost other than the service cost component are included in other income (expense), net on our condensed consolidated statement of operations. As discussed in Note 1, on April 1, 2018, we adopted new accounting guidance related to the presentation of net periodic pension cost. The following table provides a detail of the components of net periodic pension cost (in thousands):
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Service cost for benefits earned during the period
 
$
219

 
$
206

Interest cost on pension benefit obligation
 
3,364

 
3,113

Expected return on assets
 
(4,434
)
 
(5,106
)
Amortization of unrecognized losses
 
2,057

 
1,965

Net periodic pension cost
 
$
1,206

 
$
178

The current estimates of our cash contributions to our defined benefit pension plans to be paid in fiscal year 2019 are $16.9 million, of which $4.3 million was paid during the three months ended June 30, 2018. The weighted-average expected long-term rate of return on assets for our U.K. pension plans as of March 31, 2018 was 3.6%.
Incentive Compensation
Stock-based awards are currently made under the Bristow Group Inc. 2007 Long-Term Incentive Plan (the “2007 Plan”). A maximum of 10,646,729 shares of common stock are reserved. Awards granted under the 2007 Plan may be in the form of stock options, stock appreciation rights, shares of restricted stock, other stock-based awards (payable in cash or common stock) or performance awards, or any combination thereof, and may be made to outside directors, employees or consultants. As of June 30, 2018, 1,679,176 shares remained available for grant under the 2007 Plan.
We have a number of other incentive and stock option plans which are described in Note 9 to our fiscal year 2018 Financial Statements.
Total stock-based compensation expense, which includes stock options and restricted stock, totaled $1.7 million and $4.1 million for the three months ended June 30, 2018 and 2017. Stock-based compensation expense has been allocated to our various regions.
During the three months ended June 30, 2018, we awarded 326,221 shares of restricted stock at an average grant date fair value of $12.19 per share. Also during the three months ended June 30, 2018, 593,129 stock options were granted. The following table shows the assumptions used to compute the stock-based compensation expense for stock options granted during the three months ended June 30, 2018:
Risk free interest rate
2.76
%
Expected life (years)
5

Volatility
62.8
%
Dividend yield
—
%
Weighted average exercise price of options granted
$12.19 per option

Weighted average grant-date fair value of options granted
$6.71 per option

During June 2018 and 2017, we awarded certain members of management phantom restricted stock which will be paid out in cash after three years. Additionally, during fiscal year 2018, we awarded 22,034 shares of restricted stock to a consultant, which will be paid out in shares in September 2018. We account for these awards as liability awards. As of June 30, 2018 and March 31, 2018, we had $1.6 million and $1.0 million, respectively, included in other liabilities and deferred credits on our condensed consolidated balance sheet accrued for these awards. Additionally, we recognized $0.6 million and $0.1 million in general and administrative expense on our condensed consolidated statement of operations during the three months ended June 30, 2018 and 2017, respectively, related to these awards.

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


Performance cash awards granted in June 2017 and 2018 have two components. One half of each performance cash award will vest and pay out in cash three years after the date of grant at varying levels depending on our performance in Total Shareholder Return against a peer group of companies. The other half of each performance cash award will be earned based on absolute performance in respect of improved average adjusted earnings per share for the Company over the three-year performance period beginning on April 1, 2017 and 2018, as applicable. Performance cash awards granted in June 2016 vest and pay out in cash three years after the date of grant at varying levels depending on our performance in Total Shareholder Return against a peer group of companies. These awards were designed to tie a significant portion of total compensation to performance. One of the effects of this type of compensation is that it requires liability accounting which can result in volatility in earnings. The liability recorded for these awards as of June 30 and March 31, 2018 was $5.0 million and $7.7 million, respectively, and represents an accrual based on the fair value of the awards on those dates. The decrease in the liability during the three months ended June 30, 2018 resulted from the payout in June 2018 of the awards granted in June 2015, partially offset by the value of the new awards granted in June 2018. Any changes in fair value of the awards in future quarters will increase or decrease the liability and impact results in those periods. The effect, either positive or negative, on future period earnings can vary based on factors including changes in our stock price or the stock prices of the peer group companies, as well as changes in other market and company-specific assumptions that are factored into the calculation of fair value of the performance cash awards.
Changes in the fair values of performance cash awards increased compensation expense by $1.0 million during the three months ended June 30, 2018 and reduced compensation expense by $3.0 million during the three months ended June 30, 2017.

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


Note 10 — EARNINGS PER SHARE AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Earnings per Share
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share excludes options to purchase shares and restricted stock awards, which were outstanding during the period but were anti-dilutive, as follows:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Options:
 
 
 
 
Outstanding
 
2,849,429

 
3,040,278

Weighted average exercise price
 
$
35.43

 
$
39.69

Restricted stock awards:
 
 
 
 
Outstanding
 
567,143

 
481,451

Weighted average price
 
$
14.54

 
$
23.40

The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Loss (in thousands):
 
 
 
 
Loss available to common stockholders – basic
 
$
(32,108
)
 
$
(55,275
)
Interest expense on assumed conversion of 4½% Convertible Senior Notes, net of tax (1)
 
—

 
—

Loss available to common stockholders – diluted
 
$
(32,108
)
 
$
(55,275
)
Shares:
 
 
 
 
Weighted average number of common shares outstanding – basic
 
35,629,741

 
35,227,434

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

 
—

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

 
—

Weighted average number of common shares outstanding – diluted (2)
 
35,629,741

 
35,227,434

 
 
 
 
 
Basic loss per common share
 
$
(0.90
)
 
$
(1.57
)
Diluted loss per common share
 
$
(0.90
)
 
$
(1.57
)
_____________
(1) 
Diluted earnings per common share for three months ended June 30, 2018 excludes a number of potentially dilutive shares determined pursuant to a specified formula initially issuable upon the conversion of our 4½% Convertible Senior Notes. The 4½% Convertible Senior Notes will be convertible, under certain circumstances, into cash, shares of our common stock or a combination of cash and our common stock, at our election. We have initially elected combination settlement. As of June 30, 2018 and March 31, 2018, the base conversion price of the notes was approximately $15.64, based on the base conversion rate of 63.9488 shares of common stock per $1,000 principal amount of convertible notes (subject to adjustment in certain circumstances). In general, upon conversion of a note, the holder will receive cash equal to the principal amount of the note and common stock to the extent of the note’s conversion value in excess of such principal amount. Such shares did not impact our calculation of diluted earnings per share for the three months ended June 30, 2018 as our average stock price during these periods did not meet or exceed the conversion requirements.
(2) 
Potentially dilutive shares issuable pursuant to our warrant transactions entered into concurrently with the issuance of our 4½% Convertible Senior Notes (the “Warrant Transactions”) were not included in the computation of diluted income per share for the three months ended June 30, 2018, because to do so would have been anti-dilutive. For further details on the Warrant Transactions, see Note 4 in our fiscal year 2018 Financial Statements.
 

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


Accumulated Other Comprehensive Loss
The following table sets forth the changes in the balances of each component of accumulated other comprehensive loss (in thousands):
 
 
Currency Translation Adjustments
 
Pension Liability Adjustments (1)
 
Unrealized gain (loss) on cash flow hedges (2)
 
Total
Balance as of March 31, 2018
 
$
(79,066
)
 
$
(206,682
)
 
$
(346
)
 
$
(286,094
)
Other comprehensive income before reclassification
 
(29,172
)
 
—

 
2,962

 
(26,210
)
Reclassified from accumulated other comprehensive income
 
—

 
—

 
(1,614
)
 
(1,614
)
Net current period other comprehensive income
 
(29,172
)
 
—

 
1,348

 
(27,824
)
Foreign exchange rate impact
 
(14,025
)
 
14,025

 
—

 
—

Balance as of June 30, 2018
 
$
(122,263
)
 
$
(192,657
)
 
$
1,002

 
$
(313,918
)
_____________ 
(1) 
Reclassification of amounts related to pension liability adjustments are included as a component of net periodic pension cost.
(2) 
Reclassification of amounts related to cash flow hedges were included as direct costs.

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


Note 11 — SEGMENT INFORMATION
We conduct our business in one segment: industrial aviation services. The industrial aviation services global operations are conducted primarily through two hubs that include four regions as follows: Europe Caspian, Africa, Americas and Asia Pacific. The Europe Caspian region comprises all our operations and affiliates in Europe and Central Asia, including Norway, the U.K. and Turkmenistan. The Africa region comprises all our operations and affiliates on the African continent, including Nigeria and Egypt. The Americas region comprises all our operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico. The Asia Pacific region comprises all our operations and affiliates in Australia and Southeast Asia, including Malaysia and Sakhalin. Prior to the sale of Bristow Academy on November 1, 2017, we operated a training unit, Bristow Academy, which was previously included in Corporate and other.
The following tables show region information for the three months ended June 30, 2018 and 2017 and as of June 30 and March 31, 2018, where applicable, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements (in thousands):
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Region revenue from external customers:
 
 
 
 
Europe Caspian
 
$
218,500

 
$
191,399

Africa
 
36,416

 
50,790

Americas
 
52,593

 
55,762

Asia Pacific
 
60,196

 
52,446

Corporate and other
 
189

 
1,712

Total region revenue (1)
 
$
367,894

 
$
352,109

Intra-region revenue:
 
 
 
 
Europe Caspian
 
$
1,680

 
$
1,036

Africa
 
—

 
—

Americas
 
1,637

 
2,294

Asia Pacific
 
—

 
—

Corporate and other
 
1

 
22

Total intra-region revenue
 
$
3,318

 
$
3,352

Consolidated revenue:
 
 
 
 
Europe Caspian
 
$
220,180

 
$
192,435

Africa
 
36,416

 
50,790

Americas
 
54,230

 
58,056

Asia Pacific
 
60,196

 
52,446

Corporate and other
 
190

 
1,734

Intra-region eliminations
 
(3,318
)
 
(3,352
)
Total consolidated revenue (1)
 
$
367,894

 
$
352,109

_____________ 
(1) 
The above table represents disaggregated revenue from contracts with customers except for $19.8 million of revenue included in totals ($13.0 million from Europe Caspian, $6.7 million from Americas and $0.1 million from Asia Pacific) for the three months ended June 30, 2018.

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


 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
Earnings from unconsolidated affiliates, net of losses – equity method
    investments:
 
 
 
 
Europe Caspian
 
$
25

 
$
30

Americas
 
(2,907
)
 
(535
)
Corporate and other
 
(135
)
 
(160
)
Total earnings from unconsolidated affiliates, net of losses – equity method investments
 
$
(3,017
)
 
$
(665
)
 
 
 
 
 
Consolidated operating loss:
 
 
 
 
Europe Caspian
 
$
21,928

 
$
4,371

Africa
 
1,141

 
10,048

Americas
 
(7,587
)
 
(1,256
)
Asia Pacific
 
(971
)
 
(12,530
)
Corporate and other
 
(16,631
)
 
(25,950
)
Gain (loss) on disposal of assets
 
(1,678
)
 
699

Total consolidated operating loss (1)
 
$
(3,798
)
 
$
(24,618
)
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
Europe Caspian
 
$
12,755

 
$
11,822

Africa
 
3,414

 
3,076

Americas
 
6,881

 
6,999

Asia Pacific
 
4,355

 
5,810

Corporate and other
 
3,536

 
3,349

Total depreciation and amortization
 
$
30,941

 
$
31,056

 
 
June 30, 
 2018
 
March 31,  
 2018
Identifiable assets:
 
 
 
 
Europe Caspian
 
$
1,023,734

 
$
1,087,437

Africa
 
393,887

 
374,121

Americas
 
747,800

 
788,879

Asia Pacific
 
338,347

 
342,166

Corporate and other (2)
 
544,030

 
572,399

Total identifiable assets
 
$
3,047,798

 
$
3,165,002

Investments in unconsolidated affiliates – equity method investments:
 
 
 
 
Europe Caspian
 
$
250

 
$
270

Americas
 
105,054

 
116,276

Corporate and other
 
3,019

 
3,338

Total investments in unconsolidated affiliates – equity method investments
 
$
108,323

 
$
119,884

_____________ 
(1) 
Results for the three months ended June 30, 2018, were positively impacted by a reduction to rent expense of $3.5 million (included in direct costs) impacting Europe Caspian and Asia Pacific regions by $2.7 million and $0.8 million, respectively, related to OEM cost recoveries for ongoing aircraft issues. For further details, see Note 1.
(2) 
Includes $73.1 million and $67.7 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of June 30 and March 31, 2018, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.



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


Note 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company has registered senior notes that the Guarantor Subsidiaries have fully, unconditionally, jointly and severally guaranteed. 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. For further details on the registered senior notes, see Note 4 to the fiscal year 2018 Financial Statements.
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.


 

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


Supplemental Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2018
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
Third party revenue
 
$
45

 
$
34,135

 
$
333,714

 
$
—

 
$
367,894

Intercompany revenue
 
—

 
26,517

 
—

 
(26,517
)
 
—

 
 
45

 
60,652

 
333,714

 
(26,517
)
 
367,894

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
16

 
41,876

 
254,063

 
—

 
295,955

Intercompany expenses
 
—

 
—

 
26,517

 
(26,517
)
 
—

Depreciation and amortization
 
3,066

 
18,222

 
9,653

 
—

 
30,941

General and administrative
 
12,788

 
3,798

 
23,515

 
—

 
40,101

 
 
15,870

 
63,896

 
313,748

 
(26,517
)
 
366,997

 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on disposal of assets
 
(806
)
 
(1,160
)
 
288

 
—

 
(1,678
)
Earnings from unconsolidated affiliates, net of losses
 
(7,309
)
 
—

 
(3,017
)
 
7,309

 
(3,017
)
Operating income (loss)
 
(23,940
)
 
(4,404
)
 
17,237

 
7,309

 
(3,798
)
Interest expense, net
 
(16,379
)
 
(6,830
)
 
(3,935
)
 
—

 
(27,144
)
Other income (expense), net
 
134

 
1,075

 
(5,159
)
 
—

 
(3,950
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before (provision) benefit for income taxes
 
(40,185
)
 
(10,159
)
 
8,143

 
7,309

 
(34,892
)
Allocation of consolidated income taxes
 
8,092

 
893

 
(6,134
)
 
—

 
2,851

Net income (loss)
 
(32,093
)
 
(9,266
)
 
2,009

 
7,309

 
(32,041
)
Net income attributable to noncontrolling interests
 
(15
)
 
—

 
(52
)
 
—

 
(67
)
Net income (loss) attributable to Bristow Group
 
$
(32,108
)
 
$
(9,266
)
 
$
1,957

 
$
7,309

 
$
(32,108
)


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


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

 
$
45,775

 
$
306,334

 
$
—

 
$
352,109

Intercompany revenue
 
—

 
32,191

 
—

 
(32,191
)
 
—

 
 
—

 
77,966

 
306,334

 
(32,191
)
 
352,109

Operating expense:
 
 
 
 
 
 
 
 
 
 
Direct cost and reimbursable expense
 
6

 
52,334

 
245,466

 
—

 
297,806

Intercompany expenses
 
—

 
—

 
32,191

 
(32,191
)
 
—

Depreciation and amortization
 
2,917

 
12,483

 
15,656

 
—

 
31,056

General and administrative
 
19,107

 
5,762

 
21,838

 
—

 
46,707

 
 
22,030

 
70,579

 
315,151

 
(32,191
)
 
375,569

 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(1,192
)
 
—

 
—

 
(1,192
)
Gain on disposal of assets
 
—

 
416

 
283

 
—

 
699

Earnings from unconsolidated affiliates, net of losses
 
(20,645
)
 
—

 
(665
)
 
20,645

 
(665
)
Operating income (loss)
 
(42,675
)
 
6,611

 
(9,199
)
 
20,645

 
(24,618
)
Interest expense, net
 
(9,058
)
 
(5,780
)
 
(1,183
)
 
—

 
(16,021
)
Other income (expense), net
 
(29
)
 
(357
)
 
(1,230
)
 
—

 
(1,616
)
 
 
 
 
 
 
 
 
 
 
 
Loss before (provision) benefit for income taxes
 
(51,762
)
 
474

 
(11,612
)
 
20,645

 
(42,255
)
Allocation of consolidated income taxes
 
(3,502
)
 
(4,160
)
 
(5,829
)
 
—

 
(13,491
)
Net loss
 
(55,264
)
 
(3,686
)
 
(17,441
)
 
20,645

 
(55,746
)
Net (income) loss attributable to noncontrolling interests
 
(11
)
 
—

 
482

 
—

 
471

Net loss attributable to Bristow Group
 
$
(55,275
)
 
$
(3,686
)
 
$
(16,959
)
 
$
20,645

 
$
(55,275
)


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 June 30, 2018
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net income (loss)
 
$
(32,093
)
 
$
(9,266
)
 
$
2,009

 
$
7,309

 
$
(32,041
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
(886
)
 
(81,802
)
 
53,655

 
(29,033
)
Unrealized gain on cash flow hedges
 
—

 
—

 
1,348

 
—

 
1,348

Total comprehensive loss
 
(32,093
)
 
(10,152
)
 
(78,445
)
 
60,964

 
(59,726
)
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling interests
 
(15
)
 
—

 
(52
)
 
—

 
(67
)
Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
(139
)
 
—

 
(139
)
Total comprehensive income attributable to noncontrolling interests
 
(15
)
 
—

 
(191
)
 
—

 
(206
)
Total comprehensive loss attributable to Bristow Group
 
$
(32,108
)
 
$
(10,152
)
 
$
(78,636
)
 
$
60,964

 
$
(59,932
)


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


Supplemental Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended June 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net loss
 
$
(55,264
)
 
$
(3,686
)
 
$
(17,441
)
 
$
20,645

 
$
(55,746
)
Other comprehensive loss:
 
 
 
 
 
 
 
 
 
 
Currency translation adjustments
 
—

 
338

 
14,352

 
(4,930
)
 
9,760

Total comprehensive loss
 
(55,264
)
 
(3,348
)
 
(3,089
)
 
15,715

 
(45,986
)
 
 
 
 
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests
 
(11
)
 
—

 
482

 
—

 
471

Currency translation adjustments attributable to noncontrolling interests
 
—

 
—

 
310

 
—

 
310

Total comprehensive (income) loss attributable to noncontrolling interests
 
(11
)
 
—

 
792

 
—

 
781

Total comprehensive loss attributable to Bristow Group
 
$
(55,275
)
 
$
(3,348
)
 
$
(2,297
)
 
$
15,715

 
$
(45,205
)


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


Supplemental Condensed Consolidating Balance Sheet
As of June 30, 2018
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
244,990

 
$
1,514

 
$
70,046

 
$
—

 
$
316,550

Accounts receivable
 
421,367

 
492,437

 
298,278

 
(952,282
)
 
259,800

Inventories
 
—

 
33,018

 
92,663

 
—

 
125,681

Assets held for sale
 
—

 
19,856

 
3,646

 
—

 
23,502

Prepaid expenses and other current assets
 
2,453

 
5,115

 
42,016

 
—

 
49,584

Total current assets
 
668,810

 
551,940

 
506,649

 
(952,282
)
 
775,117

Intercompany investment
 
2,032,723

 
104,435

 
133,346

 
(2,270,504
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
114,609

 
—

 
114,609

Intercompany notes receivable
 
170,513

 
36,358

 
159,884

 
(366,755
)
 
—

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

 
58,089

 
179,173

 
—

 
242,068

Aircraft and equipment
 
156,500

 
1,318,149

 
1,018,721

 
—

 
2,493,370

 
 
161,306

 
1,376,238

 
1,197,894

 
—

 
2,735,438

Less: Accumulated depreciation and amortization
 
(42,846
)
 
(279,325
)
 
(393,325
)
 
—

 
(715,496
)
 
 
118,460

 
1,096,913

 
804,569

 
—

 
2,019,942

Goodwill
 
—

 
—

 
19,175

 
—

 
19,175

Other assets
 
4,221

 
1,357

 
113,377

 
—

 
118,955

Total assets
 
$
2,994,727

 
$
1,791,003

 
$
1,851,609

 
$
(3,589,541
)
 
$
3,047,798

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
374,301

 
$
405,656

 
$
250,703

 
$
(930,361
)
 
$
100,299

Accrued liabilities
 
51,808

 
2,607

 
146,785

 
(20,573
)
 
180,627

Short-term borrowings and current maturities of long-term debt
 
(3,496
)
 
20,165

 
37,054

 
—

 
53,723

Total current liabilities
 
422,613

 
428,428

 
434,542

 
(950,934
)
 
334,649

Long-term debt, less current maturities
 
845,754

 
264,829

 
299,500

 
—

 
1,410,083

Intercompany notes payable
 
133,078

 
197,397

 
37,382

 
(367,857
)
 
—

Accrued pension liabilities
 
—

 
—

 
30,526

 
—

 
30,526

Other liabilities and deferred credits
 
12,042

 
7,635

 
12,625

 
—

 
32,302

Deferred taxes
 
69,311

 
26,726

 
18,608

 
—

 
114,645

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
385

 
4,996

 
131,317

 
(136,313
)
 
385

Additional paid-in-capital
 
856,826

 
29,387

 
284,048

 
(313,435
)
 
856,826

Retained earnings
 
759,929

 
831,111

 
314,282

 
(1,145,393
)
 
759,929

Accumulated other comprehensive income (loss)
 
78,306

 
494

 
282,891

 
(675,609
)
 
(313,918
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,510,650

 
865,988

 
1,012,538

 
(2,270,750
)
 
1,118,426

Noncontrolling interests
 
1,279

 
—

 
5,888

 
—

 
7,167

Total stockholders’ investment
 
1,511,929

 
865,988

 
1,018,426

 
(2,270,750
)
 
1,125,593

Total liabilities and stockholders’ investment
 
$
2,994,727

 
$
1,791,003

 
$
1,851,609

 
$
(3,589,541
)
 
$
3,047,798


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


Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2018
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
277,176

 
$
8,904

 
$
94,143

 
$
—

 
$
380,223

Accounts receivable
 
211,412

 
423,214

 
250,984

 
(638,630
)
 
246,980

Inventories
 
—

 
31,300

 
98,314

 
—

 
129,614

Assets held for sale
 
—

 
26,737

 
3,611

 
—

 
30,348

Prepaid expenses and other current assets
 
3,367

 
4,494

 
41,016

 
(1,643
)
 
47,234

Total current assets
 
491,955

 
494,649

 
488,068

 
(640,273
)
 
834,399

Intercompany investment
 
2,204,454

 
104,435

 
141,683

 
(2,450,572
)
 
—

Investment in unconsolidated affiliates
 
—

 
—

 
126,170

 
—

 
126,170

Intercompany notes receivable
 
183,634

 
36,358

 
368,575

 
(588,567
)
 
—

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

 
58,191

 
187,043

 
—

 
250,040

Aircraft and equipment
 
156,651

 
1,326,922

 
1,027,558

 
—

 
2,511,131

 
 
161,457

 
1,385,113

 
1,214,601

 
—

 
2,761,171

Less: Accumulated depreciation and amortization
 
(39,780
)
 
(263,412
)
 
(389,959
)
 
—

 
(693,151
)
 
 
121,677

 
1,121,701

 
824,642

 
—

 
2,068,020

Goodwill
 
—

 
—

 
19,907

 
—

 
19,907

Other assets
 
4,966

 
2,122

 
109,418

 
—

 
116,506

Total assets
 
$
3,006,686

 
$
1,759,265

 
$
2,078,463

 
$
(3,679,412
)
 
$
3,165,002

 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
341,342

 
$
175,133

 
$
201,704

 
$
(616,909
)
 
$
101,270

Accrued liabilities
 
59,070

 
6,735

 
161,077

 
(21,955
)
 
204,927

Short-term borrowings and current maturities of long-term debt
 
(3,334
)
 
20,596

 
39,438

 
—

 
56,700

Total current liabilities
 
397,078

 
202,464

 
402,219

 
(638,864
)
 
362,897

Long-term debt, less current maturities
 
843,819

 
276,186

 
309,829

 
—

 
1,429,834

Intercompany notes payable
 
132,740

 
370,407

 
41,001

 
(544,148
)
 
—

Accrued pension liabilities
 
—

 
—

 
37,034

 
—

 
37,034

Other liabilities and deferred credits
 
14,078

 
7,924

 
14,950

 
—

 
36,952

Deferred taxes
 
77,373

 
27,794

 
10,025

 
—

 
115,192

Stockholders’ investment:
 
 
 
 
 
 
 
 
 
 
Common stock
 
382

 
4,996

 
131,317

 
(136,313
)
 
382

Additional paid-in-capital
 
852,565

 
29,387

 
284,048

 
(313,435
)
 
852,565

Retained earnings
 
793,783

 
838,727

 
478,661

 
(1,317,388
)
 
793,783

Accumulated other comprehensive income (loss)
 
78,306

 
1,380

 
363,484

 
(729,264
)
 
(286,094
)
Treasury shares
 
(184,796
)
 
—

 
—

 
—

 
(184,796
)
Total Bristow Group stockholders’ investment
 
1,540,240

 
874,490

 
1,257,510

 
(2,496,400
)
 
1,175,840

Noncontrolling interests
 
1,358

 
—

 
5,895

 
—

 
7,253

Total stockholders’ investment
 
1,541,598

 
874,490

 
1,263,405

 
(2,496,400
)
 
1,183,093

Total liabilities and stockholders’ investment
 
$
3,006,686

 
$
1,759,265

 
$
2,078,463

 
$
(3,679,412
)
 
$
3,165,002


41
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Supplemental Condensed Consolidating Statement of Cash Flows
Three Months Ended June 30, 2018
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash provided by (used in) operating activities
 
$
(32,865
)
 
$
11,992

 
$
(23,246
)
 
$
—

 
$
(44,119
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(654
)
 
(1,453
)
 
(6,788
)
 
—

 
(8,895
)
Proceeds from asset dispositions
 
—

 
7,432

 
342

 
—

 
7,774

Net cash provided by (used in) investing activities
 
(654
)
 
5,979

 
(6,446
)
 
—

 
(1,121
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
—

 
—

 
387

 
—

 
387

Debt issuance costs
 
(421
)
 
(32
)
 
(1,925
)
 
—

 
(2,378
)
Repayment of debt
 
—

 
(5,262
)
 
(8,932
)
 
—

 
(14,194
)
Dividends paid
 
162,941

 
1,649

 
(164,590
)
 
—

 
—

Increases (decreases) in cash related to intercompany advances and debt
 
(162,519
)
 
(21,716
)
 
184,235

 
—

 
—

Partial prepayment of put/call obligation
 
(14
)
 
—

 
—

 
—

 
(14
)
Issuance of common stock
 
2,830

 
—

 
—

 
—

 
2,830

Repurchases for tax withholdings on vesting of equity awards
 
(1,484
)
 
—

 
—

 
—

 
(1,484
)
Net cash provided by (used in) financing activities
 
1,333

 
(25,361
)
 
9,175

 
—

 
(14,853
)
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
(3,580
)
 
—

 
(3,580
)
Net decrease in cash and cash equivalents
 
(32,186
)
 
(7,390
)
 
(24,097
)
 
—

 
(63,673
)
Cash and cash equivalents at beginning of period
 
277,176

 
8,904

 
94,143

 
—

 
380,223

Cash and cash equivalents at end of period
 
$
244,990

 
$
1,514

 
$
70,046

 
$
—

 
$
316,550


 





42
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)


Supplemental Condensed Consolidating Statement of Cash Flows
Three Months Ended June 30, 2017
 
 
Parent
Company
Only
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Net cash used in operating activities
 
$
(37,229
)
 
$
(7,228
)
 
$
(6,722
)
 
$
—

 
$
(51,179
)
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
(4,036
)
 
(3,070
)
 
(5,447
)
 
—

 
(12,553
)
Proceeds from asset dispositions
 
—

 
2,473

 
39,502

 
—

 
41,975

Net cash provided by (used in) investing activities
 
(4,036
)
 
(597
)
 
34,055

 
—

 
29,422

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from borrowings
 
68,800

 
—

 
218

 
—

 
69,018

Debt issuance costs
 
—

 
(466
)
 
(27
)
 
—

 
(493
)
Repayment of debt
 
(42,150
)
 
(5,013
)
 
(19,784
)
 
—

 
(66,947
)
Dividends paid
 
(2,465
)
 
—

 
—

 
—

 
(2,465
)
Increases (decreases) in cash related to intercompany advances and debt
 
19,370

 
14,192

 
(33,562
)
 
—

 
—

Partial prepayment of put/call obligation
 
(12
)
 
—

 
—

 
—

 
(12
)
Repurchases for tax withholdings on vesting of equity awards
 
(274
)
 
—

 
—

 
—

 
(274
)
Net cash provided by (used in) financing activities
 
43,269

 
8,713

 
(53,155
)
 
—

 
(1,173
)
Effect of exchange rate changes on cash and cash equivalents
 
—

 
—

 
5,153

 
—

 
5,153

Net increase (decrease) in cash and cash equivalents
 
2,004

 
888

 
(20,669
)
 
—

 
(17,777
)
Cash and cash equivalents at beginning of period
 
3,382

 
299

 
92,975

 
—

 
96,656

Cash and cash equivalents at end of period
 
$
5,386

 
$
1,187

 
$
72,306

 
$
—

 
$
78,879



43

Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Bristow Group Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheets of Bristow Group Inc. and subsidiaries (the Company) as of June 30, 2018, the related condensed consolidated statements of operations and comprehensive loss, for the three-month periods ended June 30, 2018 and 2017, the related condensed consolidated statements of cash flows for the three-month periods ended June 30, 2018 and 2017, and the related condensed consolidated statements of changes in stockholders’ investment for the three-month period ended June 30, 2018, and the related notes (collectively, the “consolidated interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Bristow Group Inc. and subsidiaries as of March 31, 2018, and the related consolidated statements of operations, comprehensive loss, cash flows and stockholders’ investment for the year then ended (not presented herein); and in our report dated May 23, 2018, 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, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board. A review of consolidated 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 PCAOB, 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.
 
 
/s/ KPMG LLP
 
Houston, Texas
August 2, 2018

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, 2018 (the “fiscal year 2018 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 June 30, 2018 and 2017, 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, 2019 is referred to as “fiscal year 2019”.
Forward-Looking Statements
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are statements about our future business, strategy, operations, capabilities and results; financial projections; plans and objectives of our management; expected actions by us and by third parties, including our customers, competitors, vendors and regulators; and other matters. Some of the forward-looking statements can be identified by the use of words such as “believes”, “belief”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “would”, “could” or other similar words; however, all statements in this Quarterly Report, other than statements of historical fact or historical financial results, are forward-looking statements.
Our forward-looking statements reflect our views and assumptions on the date we are filing this Quarterly Report regarding future events and operating performance. We believe that they are reasonable, but they involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements. Accordingly, you should not put undue reliance on any forward-looking statements.
You should consider the following key factors when evaluating these forward-looking statements:
•
fluctuations in 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 possibility that we may be unable to defer payment on certain aircraft into future fiscal years or take delivery of certain aircraft later than initially scheduled;
•
the possibility that we may impair our long-lived assets, including goodwill, property and equipment and investments in unconsolidated affiliates;
•
the possibility of changes in tax and other laws and regulations;
•
the possibility that the major oil companies do not continue to expand internationally and offshore;
•
the possibility that we may be unable to dispose of older aircraft through sales into the aftermarket;
•
the possibility that we may be unable to re-deploy our aircraft to regions with greater demand;
•
general economic conditions, including the capital and credit markets;
•
the possibility that segments of our fleet may be grounded for extended periods of time or indefinitely;
•
the possibility of significant changes in foreign exchange rates and controls, including as a result of voters in the U.K. having approved the exit of the U.K. (“Brexit”) from the European Union (“E.U.”);
•
the existence of competitors;
•
the possibility that we may be unable to obtain financing or enter into definitive agreements with respect to financings on terms that are favorable to us or maintain compliance with covenants in our financing agreements;
•
the possibility that we may lack sufficient liquidity or access to additional financing sources to continue to finance contractual commitments;
•
the existence of operating risks inherent in our business, including the possibility of declining safety performance;

45

•
the possibility of political instability, war or acts of terrorism in any of the countries where we operate;
•
the possibility that reductions in spending on aviation services by governmental agencies could lead to modifications of search and rescue (“SAR”) contract terms or delays in receiving payments;
•
the possibility that we or our suppliers may be unable to deliver new aircraft on time or on budget;
•
the possibility that we may be unable to acquire additional aircraft due to limited availability or unable to exercise aircraft purchase options;
•
the possibility that customers 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 2018 Annual Report.
All forward-looking statements in this Quarterly Report are qualified by these cautionary statements and are only made as of the date of this Quarterly Report. We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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. We have a long history in industrial aviation services through Bristow Helicopters Ltd. (“Bristow Helicopters”) and Offshore Logistics, Inc., which were founded in 1955 and 1969, respectively. We have major transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore energy producing regions of the world, including Australia, Brazil, Canada, Russia and Trinidad. We provide private sector SAR services in Australia, Canada, Norway, Russia, Trinidad and the United States. We provide public sector SAR services in the U.K. on behalf of the Maritime & Coastguard Agency. We also provide regional fixed wing scheduled and charter services in the U.K., Nigeria and Australia through our consolidated affiliates, Eastern Airways International Limited (“Eastern Airways”) and Capiteq Limited, operating under the name of Airnorth. These operations support our primary industrial aviation services operations in those markets, creating a more integrated logistics solution for our customers.
During the Current Quarter, we generated approximately 65% of our consolidated operating revenue from external customers from oil and gas operations, approximately 19% from U.K. SAR operations and approximately 16% from fixed wing services, including charter and scheduled airline services that support our global helicopter operations.
We conduct our business in one segment: industrial aviation services. The industrial aviation services segment operations are conducted primarily through two hubs that include four regions:
•
Europe Caspian,
•
Africa,
•
Americas, and
•
Asia Pacific.
We primarily provide industrial aviation services to a broad base of major integrated, national and independent offshore energy companies. Our customers charter our helicopters primarily to transport personnel between onshore bases and offshore production platforms, drilling rigs and other installations. To a lesser extent, our customers also charter our helicopters to transport time-sensitive equipment to these offshore locations. These customers’ operating expenditures in the production sector are the principal source of our revenue, while their exploration and development capital expenditures provide a lesser portion of our revenue. The customers for SAR services include both the oil and gas industry, where our revenue is primarily dependent on our customers’ operating expenditures, and governmental agencies, where our revenue is dependent on a country’s desire to privatize SAR and enter into long-term contracts. As of June 30, 2018, we operated 286 aircraft (including 187 owned aircraft and 99 leased aircraft; 10 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 109 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 June 30, 2018; (2) the number of helicopters which we had on order or under option as of June 30, 2018; and (3) the percentage of operating revenue which each of our regions provided during the Current Quarter. For additional information regarding our commitments and options to acquire aircraft, see Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Percentage
of Current
Quarter
Operating
Revenue
 
Aircraft in Consolidated Fleet
 
 
 
 
 
 
Helicopters
 
Fixed
Wing (1)
 
 
 
Unconsolidated
Affiliates (4)
 
 
 
 
Small
 
Medium
 
Large
Total (2)(3)
 
Total
Europe Caspian
 
60
%
 
—

 
14

 
79

 
34

 
127

 
—

 
127

Africa
 
10
%
 
6

 
28

 
4

 
3

 
41

 
48

 
89

Americas
 
15
%
 
18

 
40

 
15

 
—

 
73

 
61

 
134

Asia Pacific
 
15
%
 
—

 
10

 
21

 
14

 
45

 
—

 
45

Total
 
100
%
 
24

 
92

 
119

 
51

 
286

 
109

 
395

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

 
—

 
27

 
—

 
27

 
 
 
 
Under option
 
 
 
—

 
—

 
4

 
—

 
4

 
 
 
 
_____________ 
(1) 
Eastern Airways operates a total of 34 fixed wing aircraft in the Europe Caspian region and provides technical support for two fixed wing aircraft in the Africa region. Additionally, Airnorth operates a total of 14 fixed wing aircraft, which are included in the Asia Pacific region.  
(2) 
Includes 10 aircraft held for sale and 99 leased aircraft as follows:
 
 
Held for Sale Aircraft in Consolidated Fleet
 
 
Helicopters
 
 
 
 
Small
 
Medium
 
Large
Fixed
Wing
 
Total
Europe Caspian
 
—

 
1

 
—

 
—

 
1

Africa
 
2

 
3

 
—

 
—

 
5

Americas
 
—

 
3

 
—

 
—

 
3

Asia Pacific
 
—

 
—

 
—

 
1

 
1

Total
 
2

 
7

 
—

 
1

 
10

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

 
5

 
38

 
15

 
58

Africa
 
—

 
1

 
2

 
2

 
5

Americas
 
2

 
14

 
6

 
—

 
22

Asia Pacific
 
—

 
3

 
7

 
4

 
14

Total
 
2

 
23

 
53

 
21

 
99

(3) 
The average age of our helicopter fleet was approximately ten years as of June 30, 2018.
(4) 
The 109 aircraft operated by our unconsolidated affiliates do not include those aircraft leased from us. Includes 41 helicopters (primarily medium) and 19 fixed wing aircraft owned and managed by Líder Táxi Aéreo S.A. (“Líder”), our unconsolidated affiliate in Brazil included in the Americas region, and 41 helicopters and seven fixed wing aircraft owned by Petroleum Air Services (“PAS”), our unconsolidated affiliate in Egypt included in the Africa region, and one helicopter operated by Cougar Helicopters Inc., our unconsolidated affiliate in Canada.
(5) 
This table does not reflect aircraft which our unconsolidated affiliates may have on order or under option.

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 fixed wing aircraft, unconsolidated affiliate aircraft, aircraft held for sale and aircraft construction in progress. We divide our operating revenue from commercial contracts relating to LACE aircraft, which excludes operating revenue from affiliates and reimbursable revenue, by LACE to develop a LACE rate, which is a standardized rate. Our historical LACE and LACE rate is as follows:
     
 
 
 
Current
Quarter (1)
 
Fiscal Year Ended March 31,
 
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
LACE
 
167

 
172

 
174

 
162

 
166

 
158

 
LACE Rate (in millions)
 
$
7.05

 
$
6.80

 
$
6.63

 
$
8.85

 
$
9.33

 
$
9.34

_____________ 
(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 June 30, 2018. 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
45

 
41

 
47
%
 
Africa
15

 
3

 
14
%
 
Americas
25

 
14

 
36
%
 
Asia Pacific
18

 
9

 
33
%
 
Total
102

 
65

 
39
%
Our Strategy
Our goal is to further strengthen our position as the leading industrial aviation services provider to the offshore energy industry and public and private sector SAR. To do this, we will pursue efficiencies and new opportunities in our core markets, address oversupply and market saturation by diversifying our portfolio, and drive innovation throughout our businesses and industry.
We will continue to transform our business to create financial sustainability, defined as positive cash flow, reduced leverage and an ability to refinance fiscal year 2023 debt maturities in absence of an offshore market recovery as the timing of a recovery remains uncertain. Fiscal year 2019 priorities include: (1) safety improvements with a refresh of Target Zero; (2) revenue growth by being competitive in a short-cycle market; (3) cost efficiencies building on the success of fiscal year 2018; (4) improving financial returns on capital with improved aircraft utilization.
While we are well-positioned to take advantage of the beginning of an offshore investment cycle, continued innovation and greater cost efficiencies will be required beyond fiscal year 2019 as we move from sustainability to profitability. Specifically, we will continue to employ our “STRIVE” strategy as follows:
•
Sustain Target Zero Safety Culture. Safety will always be our number one focus. We continue to deliver Target Zero performance with regard to our air accidents and a ground recordable injury rate that places us in the upper tier of our peer companies in oilfield services and aviation. We seek to continuously improve our safety systems and processes to allow us to become even safer and to build confidence in our industry and among our regulators with respect to the safety of helicopter transportation globally. We recently completed a global survey of safety culture and organizational effectiveness with our employees reporting that despite the historic industry downturn for oil and gas, our Target Zero safety culture remains intact and strong, especially at the local base level.
•
Train and Develop our People. We continue to invest in employee training to ensure that we have the best workforce in the industry. We believe that the skills, talent and dedication of our employees are our most important assets, and we plan to continue to invest in them, especially in entry level learning, the continued control and ownership of certain training assets, and creation of leadership programming.

49

•
Renew Commercial Strategy and Operational Excellence. We are in the process of renewing both our commercial strategy to improve revenue productivity across our global markets and our operational strategy to serve our customers safely, reliably and efficiently. We believe that we need to renew these strategies in order to thrive in an economy that is undergoing long-term structural change. Our Europe and Americas hub structure has allowed us to achieve reductions in general and administrative expenses down to approximately 12% of revenue compared to 14% in fiscal year 2015. Further, our hub structure allows us to take advantage of short-cycle work, which we define as short-term demand requests from our oil and gas customers for contracts measured in months rather than years. Our ability to service this demand led to significant outperformance versus internal expectations across many of our regions during fiscal year 2018.
•
Improve Balance Sheet and Return on Capital. We continually seek to improve our balance sheet and liquidity and reduce our capital costs, with a goal of reduced financing leverage (including lower levels of debt and leases), return to profitability and improvement of return on invested capital. To achieve this we have historically practiced the principal of prudent balance sheet management and have proactively managed our liquidity position with cash flows from operations, as well as external financings. These external financings have included the use of operating leases for a target of approximately 35% of our LACE. The target recognizes that we will have variability above or below the target of approximately 5% of our LACE due to timing of leases, purchases, disposals and lease terminations. As of June 30, 2018, commercial helicopters under operating leases accounted for 39% of our LACE. See “Liquidity and Capital Resources — Financial Condition and Sources of Liquidity” included elsewhere in this Quarterly Report for further discussion of our capital structure and liquidity.
•
Value Added Acquisitions and Divestitures. We intend to pursue value-added acquisitions that not just make us bigger but better; that generate cost efficiencies that position us to thrive in an economy that is undergoing long-term structural change. We may also divest portions of our business or assets to narrow our product lines and reduce our operational footprint to reduce leverage and improve return on capital. We also intend to continue to utilize portfolio and fleet optimization. Consistent with our ongoing process to rationalize and simplify our business and global aircraft fleet, we sold 11 aircraft for proceeds of $48.3 million during fiscal year 2018 and sold three aircraft during the Current Quarter for proceeds of $8.1 million, of which $7.4 million was received in the Current Quarter and $0.7 million was received in July 2018. We currently have 10 aircraft held for sale and the average age of our fleet is approximately ten years. Additionally, our critical short and long-term goal is to significantly reduce our aircraft rent expense. During fiscal year 2018 and the Current Quarter, we returned four Airbus H225s and six Sikorsky S-92s to lessors. We intend to further reduce aircraft rent expense through lease returns as part of our ongoing strategy to return to profitability.
•
Execute on Bristow Transformation. Our Europe and Americas hub structure has allowed for global alignment with faster local market response and increased cost efficiency. Also, as discussed elsewhere in this Quarterly Report, we reached agreements with OEMs during fiscal year 2018 to achieve $136 million in recoveries.


50

Market Outlook
Our core business is providing industrial aviation services to the worldwide oil and gas industry. We also provide public and private sector SAR services and fixed wing transportation services. Our global operations and critical mass of helicopters provide us with geographic and customer diversity which helps mitigate risks associated with a single market or customer.
The oil and gas business environment experienced a significant downturn beginning during fiscal year 2015. Brent crude oil prices declined from approximately $106 per barrel as of July 1, 2014 to a low of approximately $26 per barrel in February 2016, with an increase to approximately $74 per barrel as of June 30, 2018. 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 customers and resulted in their implementation of measures to reduce operational and capital costs, negatively impacting activity beginning in fiscal year 2015. These cost reductions have continued into fiscal year 2019 and have impacted both the offshore production and the offshore exploration activity of our customers, with offshore production activity being impacted to a lesser extent. The largest share of our revenue relates to oil and gas production and our largest contract, the contract with the U.K. Department for Transport to provide public sector SAR services for all of the U.K. (the “U.K. SAR contract”), is not directly impacted by declining oil prices. However, the significant drop in the price of crude oil resulted in the rescaling, delay or cancellation of planned offshore projects which has negatively impacted our operations and could continue to negatively impact our operations in future periods.
The oil price environment is showing signs of stabilizing with crude oil prices at levels not seen since the end of calendar year 2014. We are seeing an increase in offshore market activity off of a very low base level with an increased number of working floaters and jackups in our core markets, including the U.S. Gulf of Mexico and the North Sea. There have also been significant increases in front end engineering and design awards that, along with the stabilization of tie-back work and floating production storage and offloading unit utilization, has historically been a leading indicator of increased offshore activity. The helicopter transportation industry is benefiting from relatively low day rates for rigs, which in turn reduces our oil and gas customers’ costs and generates increased demand for offshore transportation like helicopters. Our success in reducing costs and our faster hub response has made us more competitive, and we are gaining market share in this new environment for short-cycle requirements created by the changing market; however, we are uncertain as to whether this increased activity will lead to a recovery in offshore spending, and an extended period of reduced offshore spending may have a material impact on our financial position, cash flow and results of operations.
The SAR market is continuing to evolve and we believe further outsourcing of public SAR services to the private sector will continue in the future, although the timing of these opportunities is uncertain. The customers for our SAR services include both the oil and gas industry and governmental agencies. We are pursuing other public and oil and gas SAR opportunities for multiple aircraft in various jurisdictions around the globe and other non-SAR government aircraft logistics opportunities.
Additionally, we have taken the following actions in an effort to address the downturn:
•
We continue to seek ways to operate more efficiently in the current market and work with our customers to improve the efficiency of their operations. In early fiscal year 2018, we took additional steps to increase cost efficiency by optimizing our operations around two primary geographical hubs in key areas of our business, Europe and the Americas.
•
We increased our financial flexibility by entering into new secured equipment financings that resulted in aggregate proceeds of $630 million funded in fiscal years 2017 and 2018. Additionally, in fiscal year 2018, we completed the sale of $143.8 million of the 4½% Convertible Senior Notes and $350 million of the 8.75% Senior Secured Notes. In April 2018, we entered into a new ABL Facility as discussed in Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report and under “—Recent Events” below.
•
We worked with our original equipment manufacturers (“OEMs”) to defer approximately $190 million of capital expenditures relating to fiscal years 2018 through 2020 into fiscal year 2020 and beyond and achieved $136 million in cost recoveries from OEMs related to ongoing aircraft issues, of which $125 million was recovered in fiscal year 2018 and $11 million was recovered in May 2018.
•
We took significant steps to reduce general and administrative costs that included downsizing our corporate office and the size of our senior management team. Consistent with our STRIVE strategy, we are better positioned to win contracts because we are a more nimble, regionally focused and cost efficient business.
•
In August 2017, we suspended our quarterly dividend as part of a broader plan of reducing costs and improving liquidity. By suspending this $0.07 per share quarterly dividend, we expect to preserve approximately $10 million of cash annually.

51

Recent Events
ABL Facility — On April 17, 2018, two of our subsidiaries entered into a new ABL Facility, which provides for commitments in an aggregate amount of $75 million, with a portion allocated to each borrower subsidiary, subject to an availability block of $15 million and a borrowing base calculated by reference to eligible accounts receivable. The maximum amount of the ABL Facility may be increased from time to time to a total of as much as $100 million, subject to the satisfaction of certain conditions, and any such increase would be allocated among the borrower subsidiaries. The ABL Facility matures in five years, subject to certain early maturity triggers related to maturity of other material debt or a change of control of the Company. Amounts borrowed under the ABL Facility are secured by certain accounts receivable owing to the borrower subsidiaries and the deposit accounts into which payments on such accounts receivable are deposited.
Tax Cuts and Jobs Act — On December 22, 2017, the president of the United States signed into law tax legislation commonly known as the Tax Cuts and Jobs Act (the “Act”). The Act includes numerous changes in existing U.S. tax law, including (1) reducing the U.S. federal corporate income tax rate from 35% to 21%; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; and (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized. The Act also includes the following provisions that became applicable to us on April 1, 2018: (1) creation of a new minimum tax on base erosion and anti-abuse; (2) creation of additional limitations on deductible business interest expense; and (3) creation of additional limitations on the utilization of net operating loss carryforwards.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. For the year ended March 31, 2018, our provision for income taxes includes the impact of decisions regarding the various impacts of tax reform and related disclosures. Consistent with guidance in SAB 118, for fiscal year 2018 we recorded provisional amounts for the transition tax on undistributed earnings of $52.9 million, which was partially offset by foreign tax credits of $22.6 million. Also in fiscal year 2018, we recorded $53.0 million tax benefit as a result of the revaluation of our net deferred tax liabilities. Additional details regarding the Act and the impact on us are provided in Note 8 in the “Notes to Consolidated Financial Statements” included in our 2018 Annual Report. 
We are continuing to analyze additional guidance as it becomes available to determine the final impact as well as other impacts of the Act. Any adjustments recorded to the provisional amounts will be included in income from operations as an adjustment to our fiscal year 2019 financial statements.
Fleet updates — As previously reported, on April 29, 2016, another company’s EC 225LP (also known as an H225LP) model helicopter crashed near Turøy outside of Bergen, Norway resulting in the European Aviation Safety Agency (“EASA”) issuing airworthiness directives prohibiting flight of H225LP and AS332L2 model aircraft. On July 20, 2017, the U.K. CAA and NCAA issued safety and operational directives which detail the conditions to apply for the safe return to service of H225LP and AS332L2 model aircraft, where operators wish to do so. On July 5, 2018, the Accident Investigation Board Norway issued its final investigation report on the accident. The report cited a fatigue fracture within the epicyclic module of the main gear box as the cause of the accident, and issued safety recommendations in a number of areas, including gearbox design and certification requirements, failure tolerance, and continued airworthiness of the AS332L2 and the EC 225LP helicopters. We continue not to operate for commercial purposes our 23 H225LP model aircraft, and we are carefully evaluating next steps and demand for the H225LP model aircraft in our oil and gas and SAR operations worldwide, with the safety of passengers and crews remaining our highest priority.
Separately, our efforts to successfully integrate AW189 aircraft into service for the U.K. SAR contract continue with three of the five bases operational and a fourth expected to be online by October 1, 2018. As a result of the delays due to a product improvement plan with the aircraft, the acceptance of four AW189 aircraft were pushed to later dates. We continue to meet our contractual obligations under the U.K. SAR contract through the utilization of other aircraft.
During fiscal year 2018, we reached agreements with OEMs to recover $136.0 million related to ongoing aircraft issues mentioned above, of which $125.0 million was recovered during fiscal year 2018 and $11.0 million was recovered in the Current Quarter. For further details on the accounting treatment, see Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.

52

Selected Regional Perspectives
We own an approximate 20% voting interest and a 41.9% economic interest in Líder, a provider of helicopter and executive aviation services in Brazil. Brazil represents a significant part of long term helicopter industry demand due to its concentration and size of its offshore oil reserves. However, in the short term, Brazil and, specifically, Petrobras continue to evidence uncertainty as the price of oil and Petrobras’ restructuring efforts have impacted the helicopter industry. The Brazilian government has revisited the regulations on the oil and gas industry and made significant changes to the Brazilian market, including removing the requirement that Petrobras have 30% participation on all exploratory blocks, removing the requirement that Petrobras be the operator of all pre-salt blocks and approving the next round of licensing for new exploration blocks (six years after the last successful round). In addition, the Brazilian government is currently reviewing local content requirements, which has led other operators (including international oil companies) to initiate drilling activities. Petrobras’ new management has implemented a five-year business and management plan focused on divestment, mostly of its non-core businesses. Overall, the long-term Brazilian market outlook has improved with future opportunities for growth although Líder faces significant competition from a number of global and local helicopter service providers.
Líder’s management has significantly decreased their future financial projections as a result of recent tender awards announced by Petrobras. Petrobras represented 64% and 66% of Líder’s operating revenue in calendar years 2017 and 2016, respectively. This significant decline in future forecasted results, coupled with previous declining financial results, triggered our review of our investment in Líder for potential impairment as of March 31, 2018. Based on the estimated fair value of our investment, we recorded an $85.7 million impairment as of March 31, 2018. Our remaining investment in Líder as of June 30, 2018 is $52.0 million. Despite this impairment driven by an overall reduction in financial performance, Líder’s management expects to benefit from the recovery in the Brazilian market over the long-term. As of June 30, 2018, we have no aircraft on lease to Líder. In addition to uncertainty surrounding future financial performance, currency fluctuations continue to make it difficult to predict the earnings from our Líder investment. These currency fluctuations, which primarily do not impact Líder’s cash flow from operations, had a significant negative impact on Líder’s results in recent years, impacting our earnings from unconsolidated affiliates. Earnings from unconsolidated affiliates, net of losses, on our consolidated statements of operations, is included in calculating adjusted EBITDA, adjusted net income (loss) and adjusted diluted earnings (loss) per share.
We are subject to competition and the political environment in the countries where we operate. In Nigeria, we have seen an increase in competitive pressure and the application of existing local content regulations that could impact our ability to win future work at levels previously anticipated. In order to properly and fully embrace new regulations, we have made a number of key changes to our operating model in Nigeria, while maintaining safety as our number one priority at all times. The objectives of these changes being (a) enhancing the level of continued compliance by each of Bristow Helicopters Nigeria Ltd. (“BHNL”) and Pan African Airlines Nigeria Ltd. (“PAAN”) with local content regulations, (b) the streamlining of our operations in Nigeria, including an ongoing consolidation of operations of BHNL and BGI Aviation Technical Services Nigeria Limited (“BATS”) in order to achieve cost savings and efficiencies in our operations, and (c) each of BHNL and PAAN 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, 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. For further details on this exposure and the related impact on our results of operations, see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our 2018 Annual Report and Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.

53

Results of Operations
The following table presents our operating results and other statement of operations information for the applicable periods:
 
 
Three Months Ended 
 June 30,
 
 
Favorable
(Unfavorable)
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except per share
amounts, percentages and flight hours)
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
350,987

 
$
339,729

 
 
$
11,258

 
 
3.3
 %
 
Reimbursable revenue
 
16,907

 
12,380

 
 
4,527

 
 
36.6
 %
 
Total revenue
 
367,894

 
352,109

 
 
15,785

 
 
4.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Direct cost
 
280,051

 
285,580

 
 
5,529

 
 
1.9
 %
 
Reimbursable expense
 
15,904

 
12,226

 
 
(3,678
)
 
 
(30.1
)%
 
Depreciation and amortization
 
30,941

 
31,056

 
 
115

 
 
0.4
 %
 
General and administrative
 
40,101

 
46,707

 
 
6,606

 
 
14.1
 %
 
Total operating expense
 
366,997

 
375,569

 
 
8,572

 
 
2.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on impairment
 
—

 
(1,192
)
 
 
1,192

 
 
100.0
 %
 
Gain (loss) on disposal of assets
 
(1,678
)
 
699

 
 
(2,377
)
 
 
*

 
Earnings from unconsolidated affiliates, net of losses
 
(3,017
)
 
(665
)
 
 
(2,352
)
 
 
(353.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating loss
 
(3,798
)
 
(24,618
)
 
 
20,820

 
 
84.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
 
(27,144
)
 
(16,021
)
 
 
(11,123
)
 
 
(69.4
)%
 
Other income (expense), net
 
(3,950
)
 
(1,616
)
 
 
(2,334
)
 
 
(144.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss before benefit (provision) for income taxes
 
(34,892
)
 
(42,255
)
 
 
7,363

 
 
17.4
 %
 
Benefit (provision) for income taxes
 
2,851

 
(13,491
)
 
 
16,342

 
 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
(32,041
)
 
(55,746
)
 
 
23,705

 
 
42.5
 %
 
Net (income) loss attributable to noncontrolling interests
 
(67
)
 
471

 
 
(538
)
 
 
*

 
Net loss attributable to Bristow Group
 
$
(32,108
)
 
$
(55,275
)
 
 
$
23,167

 
 
41.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted loss per common share
 
$
(0.90
)
 
$
(1.57
)
 
 
$
0.67

 
 
42.7
 %
 
Operating margin (1)
 
(1.1
)%
 
(7.2
)%
 
 
6.1
%
 
 
84.7
 %
 
Flight hours (2)
 
43,203

 
43,723

 
 
(520
)
 
 
(1.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-GAAP financial measures: (3)
 
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDA
 
$
26,769

 
$
15,203

 
 
$
11,566

 
 
76.1
 %
 
Adjusted EBITDA margin (1)
 
7.6
 %
 
4.5
 %
 
 
3.1
%
 
 
68.9
 %
 
Adjusted net loss
 
$
(29,123
)
 
$
(29,138
)
 
 
$
15

 
 
0.1
 %
 
Adjusted diluted loss per share
 
$
(0.82
)
 
$
(0.83
)
 
 
$
0.01

 
 
1.2
 %
 
 
 
_____________ 
 * percentage change too large to be meaningful or not applicable
(1) 
Operating margin is calculated as operating income (loss) divided by operating revenue. Adjusted EBITDA margin is calculated as adjusted EBITDA divided by operating revenue.
(2) 
Excludes flight hours from Bristow Academy and unconsolidated affiliates. Includes flight hours from Eastern Airways and Airnorth fixed wing operations in the U.K., Nigeria and Australia for the three months ended June 30, 2018 and 2017 totaling 10,653 and 10,379, respectively, for the three months ended June 30, 2018 and 2017.

54

(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 (loss) and adjusting for interest expense, depreciation and amortization, benefit (provision) for income taxes, gain (loss) on disposal of assets and any special items during the reported periods. See further discussion of our use of the adjusted EBITDA metric below. Adjusted net income (loss) and adjusted diluted earnings (loss) per share are each adjusted for gain (loss) on disposal of assets and any special items during the reported periods. As discussed below, management believes these non-GAAP financial measures provide meaningful supplemental information regarding our results of operations. A description of the adjustments to and reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures is as follows:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(In thousands, except percentages and per share amounts)
Net loss
 
$
(32,041
)
 
$
(55,746
)
Loss (gain) on disposal of assets
 
1,678

 
(699
)
Special items (i)
 
1,719

 
10,866

Depreciation and amortization
 
30,941

 
31,056

Interest expense
 
27,323

 
16,235

(Benefit) provision for income taxes
 
(2,851
)
 
13,491

Adjusted EBITDA
 
$
26,769

 
$
15,203

 
 
 
 
 
Benefit (provision) for income taxes
 
$
2,851

 
$
(13,491
)
Tax (benefit) provision on loss (gain) on disposal of assets
 
(404
)
 
4,573

Tax (benefit) provision on special items
 
(8
)
 
11,397

Adjusted benefit for income taxes
 
$
2,439

 
$
2,479

 
 
 
 
 
Effective tax rate (ii)
 
8.2
%
 
(31.9
)%
Adjusted effective tax rate (ii)
 
7.7
%
 
7.7
 %
 
 
 
 
 
Net loss attributable to Bristow Group
 
$
(32,108
)
 
$
(55,275
)
Loss on disposal of assets (iii)
 
1,274

 
3,874

Special items (i) (iii)
 
1,711

 
22,263

Adjusted net loss
 
$
(29,123
)
 
$
(29,138
)
 
 
 
 
 
Diluted loss per share
 
$
(0.90
)
 
$
(1.57
)
Loss on disposal of assets (iii)
 
0.04

 
0.11

Special items (i) (iii)
 
0.05

 
0.63

Adjusted diluted loss per share (iv)
 
(0.82
)
 
(0.83
)
_____________ 
(i) 
See information about special items during the Current Quarter and Comparable Quarter under “— Current Quarter Compared to Comparable Quarter” below.
(ii) 
Effective tax rate is calculated by dividing benefit (provision) for income tax by pretax net loss. Adjusted effective tax rate is calculated by dividing adjusted benefit (provision) for income tax by adjusted pretax net loss. Tax provision (benefit) on loss on disposal of assets and tax provision (benefit) on special items is calculated using the statutory rate of the entity recording the loss on disposal of assets or special item.  
(iii) 
These amounts are presented after applying the appropriate tax effect to each item and dividing by the weighted average shares outstanding during the related period to calculate the earnings per share impact.
(iv) 
Adjusted diluted earnings per share is calculated using the diluted weighted average number of shares outstanding of 35,629,741 and 35,227,434 during the Current Quarter and Comparable Quarter, respectively.
Management believes that adjusted EBITDA, adjusted benefit for income taxes, adjusted net loss and adjusted diluted loss per share (collectively, the “Non-GAAP measures”) provide relevant and useful information, which is widely used by analysts, investors and competitors in our industry as well as by our management in assessing both consolidated and regional performance.

55

Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing transactions and income taxes. Adjusted EBITDA should not be considered a measure of discretionary cash available to us for investing in the growth of our business.
Adjusted net loss and adjusted diluted loss per share present our consolidated results excluding asset dispositions and special items that do not reflect the ordinary earnings of our operations. Adjusted benefit (provision) for income taxes excludes the tax impact of these items. We believe that these measures are useful supplemental measures because net loss and diluted loss per share include asset disposition effects and special items and benefit (provision) for income taxes include the tax impact of these items, and inclusion of these items does not reflect the ongoing operational earnings of our business.
The Non-GAAP measures are not calculated or presented in accordance with GAAP and other companies in our industry may calculate these measures differently than we do. As a result, these financial measures have limitations as analytical and comparative tools and you should not consider these measures in isolation, or as a substitute for analysis of our results as reported under GAAP. In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to be inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of the Non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or special items.
Some of the additional limitations of adjusted EBITDA are:
•
Adjusted EBITDA does not reflect our current or future cash requirements for capital expenditures;
•
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•
Adjusted EBITDA does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debts; and
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements.
The following tables present region adjusted EBITDA and adjusted EBITDA margin discussed in “— Region Operating Results,” and consolidated adjusted EBITDA and adjusted EBITDA margin for the three months ended June 30, 2018 and 2017:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(In thousands, except percentages)
Europe Caspian
 
$
35,650

 
$
16,152

Africa
 
5,319

 
13,383

Americas
 
(407
)
 
6,176

Asia Pacific
 
2,086

 
(5,720
)
Corporate and other
 
(15,879
)
 
(14,788
)
Consolidated adjusted EBITDA
 
$
26,769

 
$
15,203

 
 
 
 
 
Europe Caspian
 
16.9
 %
 
8.8
 %
Africa
 
15.2
 %
 
26.8
 %
Americas
 
(0.8
)%
 
10.7
 %
Asia Pacific
 
3.8
 %
 
(11.6
)%
Consolidated adjusted EBITDA margin
 
7.6
 %
 
4.5
 %

56

The following tables present region depreciation and amortization and rent expense for the three months ended June 30, 2018 and 2017:
 
 
Three Months Ended 
 June 30,
 
 
2018
 
2017
 
 
 
 
 
 
 
(In thousands)
Depreciation and amortization:
 
 
 
 
Europe Caspian
 
$
12,755

 
$
11,822

Africa
 
3,414

 
3,076

Americas
 
6,881

 
6,999

Asia Pacific
 
4,355

 
5,810

Corporate and other
 
3,536

 
3,349

Total depreciation and amortization
 
$
30,941

 
$
31,056

 
 
 
 
 
Rent expense:
 
 
 
 
Europe Caspian
 
$
31,996

 
$
36,453

Africa
 
2,122

 
2,200

Americas
 
6,598

 
6,994

Asia Pacific
 
8,117

 
10,954

Corporate and other
 
1,248

 
2,074

 Total rent expense
 
$
50,081

 
$
58,675

Current Quarter Compared to Comparable Quarter
Operating revenue from external customers by line of service was as follows:
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
2018
 
2017
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Oil and gas services
$
227,771

 
$
234,775

 
$
(7,004
)
 
(3.0
)%
U.K. SAR services
66,320

 
52,587

 
13,733

 
26.1
 %
Fixed wing services
56,707

 
50,677

 
6,030

 
11.9
 %
Corporate and other
189

 
1,690

 
(1,501
)
 
(88.8
)%
Total operating revenue
$
350,987

 
$
339,729

 
$
11,258

 
3.3
 %
The year-over-year increase in operating revenue was primarily driven by increases in U.K. SAR and fixed wing services revenue in our Europe Caspian and Africa regions. The increase in U.K. SAR services revenue included the one-time benefit of $7.6 million in OEM cost recoveries recognized in the Current Quarter. Additionally, revenue increased by $10.5 million compared to the Comparable Quarter due to changes in foreign currency exchange rates, primarily related to the strengthening of the British pound sterling versus the U.S. dollar. Offsetting these increases was a decrease in operating revenue for our oil and gas services primarily in our Africa and Americas regions due to a decrease in activity, which was partially offset by an increase in activity in our Asia Pacific region.
For the Current Quarter, we reported a net loss of $32.1 million and a diluted loss per share of $0.90 compared to a net loss of $55.3 million and a diluted loss per share of $1.57 for the Comparable Quarter. The year-over-year change in net loss and diluted loss per share was primarily driven by higher revenue in the Current Quarter as discussed above, lower rent expense, lower general and administrative expenses and a more favorable effective tax rate. These favorable changes were partially offset by higher interest expense and a higher loss on unconsolidated affiliates in the Current Quarter.
The net loss and diluted loss per share for the Current Quarter included the organizational restructuring costs of $1.7 million ($1.7 million net of tax), or $0.05 per share, included in direct cost and general and administrative expense, resulting from separation programs across our global organization designed to increase efficiency and reduce costs.
Additionally, we realized a loss on disposal of assets of $1.7 million ($1.3 million net of tax) during the Current Quarter from the sale or disposal of aircraft and other equipment.

57

The Current Quarter results benefited from the impact of $12.2 million of OEM cost recoveries realized in the Current Quarter that resulted in a one-time benefit of $7.6 million in U.K. SAR operating revenue as discussed above, a $3.5 million reduction in rent expense and a $1.1 million reduction in direct cost. We will recognize an additional $4.4 million reduction in rent expense and an additional $2.3 million reduction in direct cost over the remainder of fiscal year 2019 related to these OEM cost recoveries. For further details, see Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Excluding the organizational restructuring costs described above and the loss on disposal of assets, adjusted net loss and adjusted diluted loss per share were $29.1 million and $0.82, respectively, for the Current Quarter. These adjusted results compare to adjusted net loss and adjusted diluted loss per share of $29.1 million and $0.83, respectively, for the Comparable Quarter. Additionally, adjusted EBITDA improved to $26.8 million in the Current Quarter from $15.2 million in the Comparable Quarter. The benefit from the OEM cost recoveries described above is included within adjusted net income, adjusted earnings per share and adjusted EBITDA in the Current Quarter.
Adjusted EBITDA, adjusted net loss and adjusted diluted loss per share benefited from the increase in revenue, decrease in rent and general and administrative expense, and favorable impact of changes in foreign currency exchange rates compared to the Comparable Quarter. These items were mostly offset by increased interest expense, resulting in no significant change in adjusted net loss and adjusted diluted loss per share year-over-year. The increase in revenue and decrease in rent expense includes the OEM cost recoveries described above.
The table below presents the year-over-year impact of changes in foreign currency exchange rates.
 
Three Months Ended 
 June 30,
 
Favorable (Unfavorable)
 
2018
 
2017
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Revenue impact
 
 
 
 
$
10,450

Operating expense impact
 
 
 
 
(5,301
)
Year-over-year income statement translation
 
 
 
 
5,149

 
 
 
 
 
 
Transaction losses included in other income (expense), net
$
(3,029
)
 
$
(1,678
)
 
(1,351
)
Líder foreign exchange impact included in earnings from unconsolidated affiliates
(2,592
)
 
(1,138
)
 
(1,454
)
Total
$
(5,621
)
 
$
(2,816
)
 
(2,805
)
 
 
 
 
 
 
Pre-tax income statement impact
 
 
 
 
2,344

Less: Foreign exchange impact on depreciation and amortization and interest expense
 
 
 
 
444

Adjusted EBITDA impact
 
 
 
 
$
2,788

 
 
 
 
 
 
Net income impact (tax affected)
 
 
 
 
$
2,789

Earnings per share impact
 
 
 
 
$
0.08


58

The most significant foreign exchange impact related to a $5.1 million favorable impact from changes in foreign currency exchange rates in the Current Quarter primarily driven by the impact of the appreciating British pound sterling on the translation of our results in our Europe Caspian region. During the Current Quarter, we benefited from the appreciation of the British pound sterling from the Comparable Quarter where a majority of our revenue is contracted in British pound sterling with our expense being more evenly split between U.S. dollars and British pound sterling, resulting in a significant net revenue exposure to the British pound sterling that translated into higher U.S. dollar earnings for reporting purposes. Partially offsetting this favorable impact was a $1.5 million increase in unfavorable foreign currency exchange rate impact from our investment in Líder in Brazil and a $1.4 million unfavorable impact from higher transaction losses in the Current Quarter compared to the Comparable Quarter.
Direct cost decreased 1.9%, or $5.5 million, year-over-year primarily due to a $7.1 million decrease in salaries and benefits primarily due to a decrease in the number of employees and an $8.5 million decrease in rent expense primarily due to return of leased aircraft and OEM cost recoveries, partially offset by a $5.3 million increase in fuel due to increased fuel prices and increased activity and a $4.8 million increase in other direct costs due to an increase in activity.
Reimbursable expense increased 30.1%, or $3.7 million, primarily due to new contracts in our Asia Pacific region and Norway.
Depreciation and amortization expense remained mostly flat at $30.9 million for the Current Quarter compared to $31.1 million for the Comparable Quarter.
General and administrative expense decreased 14.1%, or $6.6 million, in the Current Quarter, as compared to the Comparable Quarter primarily due to a decrease in compensation expense of $3.7 million primarily resulting from a reduction in severance expense of $7.4 million, partially offset by an increase in short-term and long-term incentive compensation costs of $3.7 million, a reduction in professional fees of $1.3 million and a reduction of various other general and administrative expenses of $1.6 million including information technology, training and travel as part of continued cost reduction efforts.
Loss on impairment for the Comparable Quarter includes a $1.2 million impairment charge on inventory used on our training fleet. For further details, see Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Gain (loss) on disposal of assets decreased $2.4 million to a loss of $1.7 million for the Current Quarter from a gain of $0.7 million for the Comparable Quarter. The loss on disposal of assets in the Current Quarter included a loss of $1.7 million from the sale or disposal of aircraft and other equipment. During the Comparable Quarter, the gain on disposal of assets included a gain of $2.3 million from the sale or disposal of aircraft and other equipment, partially offset by impairment charges totaling $1.6 million related to assets held for sale.
Earnings from unconsolidated affiliates, net of losses, decreased $2.4 million to a loss of $3.0 million for the Current Quarter from a loss of $0.7 million in the Comparable Quarter. This decrease primarily resulted from a loss from our investment in Líder in Brazil of $2.0 million in the Current Quarter compared to $0.9 million in earnings in the Comparable Quarter primarily due to an unfavorable impact of foreign currency exchange rates of $1.5 million and a decline in activity in the Current Quarter compared to the Comparable Quarter.
Interest expense, net, increased 69.4%, or $11.1 million, year-over-year primarily due to an increase in interest resulting from an increase in borrowings and an increase in amortization of debt discount.
For further details on income tax expense, see “— Region Operating Results — Taxes” included elsewhere in this Quarterly Report.

59

As discussed above, our results for the Current Quarter were impacted by special items. During the Comparable Quarter, special items that impacted our results included organizational restructuring costs, inventory impairment and tax items. 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 loss and adjusted diluted loss per share is as follows:
 
 
Three Months Ended 
 June 30, 2018
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(1,719
)
 
$
(1,711
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
Three Months Ended 
 June 30, 2017
 
 
Adjusted
EBITDA
 
Adjusted
Net Loss
 
Adjusted
Diluted
Loss
Per Share
 
 
 
 
 
 
 
 
 
(In thousands, except per share amounts)
Organizational restructuring costs
 
$
(9,674
)
 
$
(6,602
)
 
$
(0.19
)
Inventory impairment
 
(1,192
)
 
(775
)
 
(0.02
)
Tax items
 
—

 
(14,886
)
 
(0.42
)
Total special items
 
$
(10,866
)
 
$
(22,263
)
 
(0.63
)


60

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.
Current Quarter Compared to Comparable Quarter
Europe Caspian
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
210,986

 
$
184,478

 
$
26,508

 
14.4
%
Operating income
 
$
21,928

 
$
4,371

 
$
17,557

 
*

Operating margin
 
10.4
%
 
2.4
%
 
8.0
%
 
333.3
%
Adjusted EBITDA
 
$
35,650

 
$
16,152

 
$
19,498

 
120.7
%
Adjusted EBITDA margin
 
16.9
%
 
8.8
%
 
8.1
%
 
92.0
%
Rent expense
 
$
31,996

 
$
36,453

 
$
4,457

 
12.2
%
_____________ 
 * percentage change too large to be meaningful or not applicable
The Europe Caspian region comprises all of our operations and affiliates in Europe, including oil and gas operations in the U.K. and Norway, Eastern Airways fixed wing operations and public sector SAR operations in the U.K. and our operations in Turkmenistan.
The increase in operating revenue in the Current Quarter primarily resulted from an increase of $13.7 million for U.K. SAR revenue including a one-time benefit of OEM cost recovery of $7.6 million, an increase of $3.9 million in Norway primarily due to an increase in activity and short-term contracts and an increase of $6.9 million in fixed wing revenue from Eastern Airways. Additionally, revenue in this region benefited from a favorable year-over-year impact of changes in foreign currency exchange rates of $10.8 million. Eastern Airways contributed $34.8 million and $27.9 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
A substantial portion of our operations in the Europe Caspian region are contracted in the British pound sterling, which depreciated against the U.S. dollar in the Current Quarter. We recorded a foreign exchange gain of $1.5 million in the Current Quarter and a foreign exchange loss of $0.4 million in the Comparable Quarter from the revaluation of assets and liabilities on pound sterling functional currency entities as of June 30, 2018 and 2017, respectively, which is recorded in other income (expense), net and included in adjusted EBITDA. Net of the translation and revaluation impacts, adjusted EBITDA was favorably impacted by $6.6 million resulting from the change in exchange rates during the Current Quarter. A further weakening or strengthening of the British pound sterling could result in additional foreign exchange volatility in future quarters.
As discussed above, the Current Quarter results benefited from OEM cost recoveries realized in the Current Quarter related to ongoing aircraft issues that resulted in a one-time benefit of $7.6 million in U.K. SAR operating revenue, a $2.7 million reduction in rent expense and a $1.1 million reduction in direct cost. We will recognize an additional $2.1 million reduction in rent expense and an additional $2.3 million reduction in direct cost over the remainder of fiscal year 2019 related to these OEM cost recoveries in our Europe Caspian region results. These items are included in operating income and adjusted EBITDA in the Current Quarter. For further details, see Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin increased in the Current Quarter primarily due to the increase in operating revenue discussed above, the benefit to rent expense and direct cost in the Current Quarter related to OEM cost recoveries, the benefit of the return of leased aircraft and favorable year-over-year impacts from changes in foreign currency exchange rates. These benefits were partially offset by increased salaries and benefits and maintenance expense year-over-year due to the increase in activity. Eastern Airways contributed a negative $0.1 million and positive $0.1 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.

61

Africa
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
34,915

 
$
49,981

 
$
(15,066
)

(30.1
)%
Operating income
 
$
1,141

 
$
10,048

 
$
(8,907
)
 
(88.6
)%
Operating margin
 
3.3
%
 
20.1
%
 
(16.8
)%
 
(83.6
)%
Adjusted EBITDA
 
$
5,319

 
$
13,383

 
$
(8,064
)
 
(60.3
)%
Adjusted EBITDA margin
 
15.2
%
 
26.8
%
 
(11.6
)%
 
(43.3
)%
Rent expense
 
$
2,122

 
$
2,200

 
$
78

 
3.5
 %
The Africa region comprises all our operations and affiliates on the African continent, including Nigeria and Egypt.
Operating revenue for Africa decreased in the Current Quarter due to an overall decrease in activity compared to the Comparable Quarter. Activity declined with certain customers and certain contracts ended, including a contract that expired on March 31, 2018, reducing revenue by $20.5 million, which was only partially offset by an increase in activity with other customers increasing revenue by $5.4 million. Additionally, fixed wing services in Africa generated $2.2 million and $1.8 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
Operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin decreased as a result of the decrease in operating revenue in the Current Quarter, which was only partially offset by a decrease in direct cost and general and administrative expenses. Additionally, during the Current Quarter, we incurred $1.5 million of demobilization costs related to a significant contract that expired on March 31, 2018 and was not renewed.
As previously discussed, we have seen recent changes in the Africa region as a result of increased competition entering the Nigerian market. Additionally, the uncertainty of the political environment could have an impact on the Nigerian market.  In particular, nationwide elections in early 2019 could affect the level of activity in the months leading to the elections. Market uncertainty related to the oil and gas downturn has continued in this region putting smaller customers under increasing pressure as their activity declined, which reduced our activity levels and overall pricing.
Americas
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
53,810

 
$
57,783

 
$
(3,973
)
 
(6.9
)%
Earnings from unconsolidated affiliates, net of losses
 
$
(2,907
)
 
$
(535
)
 
$
(2,372
)
 
*

Operating loss
 
$
(7,587
)
 
$
(1,256
)
 
$
(6,331
)
 
*

Operating margin
 
(14.1
)%
 
(2.2
)%
 
(11.9
)%
 
*

Adjusted EBITDA
 
$
(407
)
 
$
6,176

 
$
(6,583
)
 
*

Adjusted EBITDA margin
 
(0.8
)%
 
10.7
 %
 
(11.5
)%
 
*

Rent expense
 
$
6,598

 
$
6,994

 
$
396

 
5.7
 %
_____________ 
 * percentage change too large to be meaningful or not applicable.
The Americas region comprises all our operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico.
Operating revenue decreased in the Current Quarter primarily due to a decrease in operating revenue of $4.8 million in Canada and $2.2 million in Trinidad due to lower activity, partially offset by an increase in activity with our U.S. Gulf of Mexico oil and gas customers, which increased operating revenue by $4.0 million.

62

Earnings from unconsolidated affiliates, net of losses, decreased $2.4 million primarily due to a decrease in earnings from our investment in Líder in Brazil due to an unfavorable change in exchange rates and decline in activity. Changes in exchange rates decreased our earnings from our investment in Líder by $2.6 million in the Current Quarter and $1.1 million in the Comparable Quarter. See further discussion about our investment in Líder and the Brazil market in “— Executive Overview — Market Outlook” included elsewhere in this Quarterly Report.
The decreases in operating income, operating margin, adjusted EBITDA and adjusted EBITDA margin were driven by the decreases in operating revenue and earnings from unconsolidated affiliates discussed above, partially offset by an decrease in rent expense.
Asia Pacific
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
54,404

 
$
49,127

 
$
5,277

 
10.7
%
Operating loss
 
$
(971
)
 
$
(12,530
)
 
$
11,559

 
92.3
%
Operating margin
 
(1.8
)%
 
(25.5
)%
 
23.7
%
 
92.9
%
Adjusted EBITDA
 
$
2,086

 
$
(5,720
)
 
$
7,806

 
*

Adjusted EBITDA margin
 
3.8
 %
 
(11.6
)%
 
15.4
%
 
*

Rent expense
 
$
8,117

 
$
10,954

 
$
2,837

 
25.9
%
_____________ 
 * percentage change too large to be meaningful or not applicable.
The Asia Pacific region comprises all our operations and affiliates in Australia and Southeast Asia, including Malaysia, Sakhalin, and our fixed wing operations through Airnorth in Australia.
Operating revenue increased in the Current Quarter primarily due to an increase in Australia of $5.1 million due to new contracts and increased activity with oil and gas customers and a $1.2 million increase in Sakhalin, partially offset by a $1.3 decrease from our fixed wing operations at Airnorth. Airnorth contributed $19.7 million and $21.0 million in operating revenue for the Current Quarter and Comparable Quarter, respectively.
Operating income and operating margin improved in the Current Quarter primarily due to an increase in operating revenue discussed above, a $3.1 million decrease in salaries and benefits due to headcount reductions, a $2.8 million reduction to rent expense related to return of leased aircraft and OEM cost recoveries and a $1.5 million decrease in depreciation and amortization expense. Adjusted EBITDA and adjusted EBITDA margin improved due to the items impacting operating income and operating margin excluding the change in depreciation and amortization. Adjusted EBITDA and adjusted EBITDA margin were negatively impacted by a $2.6 million unfavorable impact of foreign currency exchange rate changes. Airnorth contributed $0.2 million and $0.9 million in adjusted EBITDA for the Current Quarter and Comparable Quarter, respectively.
During the Current Quarter and Comparable Quarter, we recorded $1.3 million and $0.7 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 or Comparable Quarters.
Corporate and Other
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Operating revenue
 
$
190

 
$
1,712

 
$
(1,522
)
 
(88.9
)%
Operating loss
 
$
(16,631
)
 
$
(25,950
)
 
$
9,319

 
35.9
 %
Adjusted EBITDA
 
$
(15,879
)
 
$
(14,788
)
 
$
(1,091
)
 
(7.4
)%
Rent expense
 
$
1,248

 
$
2,074

 
$
826

 
39.8
 %
Corporate and other includes our supply chain management and corporate costs that have not been allocated out to other regions and our Bristow Academy operations prior to the sale of Bristow Academy on November 1, 2017.
Operating revenue decreased in the Current Quarter primarily due to the sale of Bristow Academy.

63

Operating loss was lower for the Current Quarter primarily due to the inclusion of $8.3 million related to organizational restructuring costs in the Comparable Quarter and $1.2 million of inventory impairment charges in the Comparable Quarter, both of which are excluded from adjusted EBITDA. Adjusted EBITDA decreased primarily due to an increase of $1.1 million in foreign currency transaction losses year-over-year.
Interest Expense, Net
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Interest income
 
$
179

 
$
214

 
$
(35
)
 
(16.4
)%
Interest expense
 
(24,969
)
 
(16,139
)
 
(8,830
)
 
(54.7
)%
Amortization of debt discount
 
(1,510
)
 
(23
)
 
(1,487
)
 
*

Amortization of debt fees
 
(1,645
)
 
(1,147
)
 
(498
)
 
(43.4
)%
Capitalized interest
 
801

 
1,074

 
(273
)
 
(25.4
)%
Interest expense, net
 
$
(27,144
)
 
$
(16,021
)
 
$
(11,123
)
 
(69.4
)%
_____________ 
 * percentage change too large to be meaningful or not applicable.
Interest expense, net increased in the Current Quarter compared to the Comparable Quarter primarily due to an increase in borrowings. Additionally, we issued convertible debt in December 2017 resulting in an increase in amortization of debt discount for the Current Quarter compared to the Comparable Quarter. For further details on debt, see Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Other Income (Expense), Net
 
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Foreign currency gains (losses) by region:
 
 
 
 
 
 
 
 
Europe Caspian
 
$
1,475

 
$
(406
)
 
$
1,881

 
*

Africa
 
763

 
131

 
632

 
*

Americas
 
261

 
207

 
54

 
26.1
 %
Asia Pacific
 
(2,610
)
 
238

 
(2,848
)
 
*

Corporate and other
 
(2,918
)
 
(1,848
)
 
(1,070
)
 
(57.9
)%
Foreign currency losses
 
(3,029
)
 
(1,678
)
 
(1,351
)
 
(80.5
)%
Other
 
(921
)
 
62

 
(983
)
 
*

Other income (expense), net
 
$
(3,950
)
 
$
(1,616
)
 
$
(2,334
)
 
(144.4
)%
_____________ 
 * percentage change too large to be meaningful or not applicable.
Other income (expense), net for the Current Quarter and Comparable Quarter were most significantly impacted by foreign currency gains (losses). The foreign currency gains (losses) within other income (expense), net are reflected within the results (below operating income) of the regions shown in the table above.
Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.

64

Taxes
 
Three Months Ended 
 June 30,
 
Favorable
(Unfavorable)
 
2018
 
2017
 
Quarter vs Quarter
 
 
 
 
 
 
 
 
 
(In thousands, except percentages)
Effective tax rate
8.2
%
 
(31.9
)%
 
(40.1
)%
 
*

Net foreign tax on non-U.S. earnings
$
1,714

 
$
171

 
$
(1,543
)
 
*

Expense (benefit) of foreign earnings indefinitely reinvested abroad
$
(226
)
 
$
5,251

 
$
5,477

 
*

Expense from change in tax contingency
$
30

 
$
16

 
$
(14
)
 
(87.5
)%
Impact of stock based compensation
$
1,161

 
$
1,646

 
$
485

 
29.5
 %
Deduction for foreign taxes
$
(21
)
 
$
(738
)
 
$
(717
)
 
(97.2
)%
Change in valuation allowance
$
993

 
$
11,166

 
$
10,173

 
91.1
 %
_____________ 
 * percentage change too large to be meaningful or not applicable
We estimate the full-year effective tax rate from continuing operations and apply this rate to our year-to-date income from continuing operations. In addition, we separately calculate the tax impact of unusual or infrequent items, if any. The tax impact of such unusual or infrequent items is treated discretely in the quarter in which they occur.
The relationship between our provision for or benefit from income taxes and our pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) our geographical blend of pre-tax book income. Consequently, our income tax expense or benefit does not change proportionally with our pre-tax book income or loss. Significant decreases in our pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The change in our effective tax rate excluding discrete items for the Current Quarter compared to the Comparable Quarter primarily related to changes in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions. Additionally, during the Current Quarter and Comparable Quarter, we increased our valuation allowance by $1.0 million and $11.2 million, respectively, which also increased our effective tax rate.
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 and Comparable Quarter, we recorded a valuation allowance of $1.0 million and $11.2 million, respectively, against net operating losses in certain foreign jurisdictions. For the Comparable Quarter, we recorded a valuation allowance of $7.6 million against foreign tax credits. No valuation allowance against foreign tax credits was recorded for the Current Quarter. For the Current Quarter and Comparable Quarter, we recorded a valuation allowance of $1.0 million and $3.6 million, respectively, against net operating losses in certain foreign jurisdictions. During the Comparable Quarter, the impact of ongoing valuation allowances on our overall effective tax rate resulted in additional non-cash tax expense of $13.9 million. Additionally, for the same period, we recorded a one-time non-cash tax effect from repositioning of certain aircraft from one tax jurisdiction to another related to recent financing transactions resulting in additional tax expense of $1.0 million.
On December 22, 2017, the United States Congress enacted the Act. The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction takes effect on January 1, 2018. Further, the Act provides for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under U.S. generally accepted accounting principles, our net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. We have made reasonable estimates for the change in the U.S. federal corporate income tax rate and one-time “deemed repatriation” of accumulated foreign earnings. For the year ended March 31, 2018, our provision for income tax included provisional amounts for the revaluation of U.S. net deferred tax liabilities, the impact of the “deemed repatriation” of foreign earnings. The provisional amounts associated with the one-time “deemed repatriation” and the re-measurement of deferred tax assets and liabilities due to the reduction in the corporate income tax rate will be adjusted over time as more guidance becomes available.

65

Certain provisions under the Act became applicable to us on April 1, 2018 and our income tax provision for the three months ended June 30, 2018 includes the tax implications of these provisions. These provisions include Global Intangible Low-Taxed Income (“GILTI”), Base Erosion and Anti-Avoidance Tax (“BEAT”), Foreign Derived Intangible Income (“FDII”), and certain limitations on the deduction of interest expense and utilization of net operating losses.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Net cash flows used in operating activities were $44.1 million and $51.2 million during the Current Quarter and Comparable Quarter, respectively. The decrease in net cash flows used in operating activities in the Current Quarter resulted from a lower net loss, partially offset by an increase in cash flow used in working capital changes. Changes in non-cash working capital used $41.5 million and $32.1 million in cash flows from operating activities for the Current Quarter and Comparable Quarter, respectively.
Investing Activities
Cash flows used in investing activities were $1.1 million during the Current Quarter and cash flows provided by investing activities were $29.4 million during the Comparable Quarter. Cash was used primarily for capital expenditures as follows:
 
 
 
Three Months Ended 
 June 30,
 
 
 
2018
 
2017
 
 
Number of aircraft delivered:
 
 
 
 
 
Medium
—

 
3

 
 
Total aircraft
—

 
3

 
 
Capital expenditures (in thousands):
 
 
 
 
 
Aircraft and equipment
$
8,337

 
$
10,810

 
 
Land and building
558

 
1,743

 
 
Total capital expenditures
$
8,895

 
$
12,553

 
During the Current Quarter, we received proceeds of $7.8 million primarily from the sale or disposal of three aircraft and certain other equipment. During the Comparable Quarter, we received $42.0 million in proceeds from the sale or disposal of six aircraft and certain other equipment.
Financing Activities
Cash flows used in financing activities was $14.9 million and $1.2 million during the Current Quarter and Comparable Quarter, respectively. During the Current Quarter, we used cash to make principal payments on our debt of $14.2 million. During the Comparable Quarter, we received $68.8 million from borrowings on our $400 million revolving credit facility (the “Revolving Credit Facility”). During the Comparable Quarter, we used cash to repay debt of $66.9 million (including $33.4 million related to our Revolving Credit Facility and $33.5 million related to other principal payments on debt) and pay dividends of $2.5 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.

66

The following table summarizes our significant contractual obligations and other commercial commitments on an undiscounted basis as of June 30, 2018 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 June 30, 2018. Additional details regarding these obligations are provided in Notes 4, 5, 7 and 9 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2018 Annual Report and in Notes 4, 5, 7 and 9 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Payments Due by Period
 
 
 
 
Nine Months Ending March 31, 2019
 
Fiscal Year Ending March 31,
 
 
Total
 
2020—
2021
 
2022—
2023
 
2024 and
beyond
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
Contractual obligations:
 
 
 
 
 
 
 
 
 
 
Long-term debt and short-term borrowings:
 
 
 
 
 
 
 
 
 
 
Principal (1)
 
$
1,532,569

 
$
47,430

 
$
107,356

 
$
970,783

 
$
407,000

Interest (2)
 
432,901

 
72,666

 
187,152

 
164,560

 
8,523

Aircraft operating leases (3)
 
317,532

 
115,941

 
159,436

 
37,479

 
4,676

Other operating leases (4)
 
71,487

 
7,090

 
16,487

 
15,827

 
32,083

Pension obligations (5)
 
51,673

 
12,566

 
33,562

 
5,545

 
—

Aircraft purchase obligations (6)
 
459,792

 
19,792

 
162,602

 
166,624

 
110,774

Other purchase obligations (7)
 
42,988

 
42,683

 
305

 
—

 
—

Total contractual cash obligations
 
$
2,908,942

 
$
318,168

 
$
666,900

 
$
1,360,818

 
$
563,056

Other commercial commitments:
 
 
 
 
 
 
 
 
 
 
Letters of credit
 
$
22,017

 
$
22,017

 
$
—

 
$
—

 
$
—

Total commercial commitments
 
$
22,017

 
$
22,017

 
$
—

 
$
—

 
$
—

_____________
(1) 
Excludes unamortized discount of $38.2 million and unamortized debt issuance costs of $26.3 million.
(2) 
Interest payments for variable interest debt are based on interest rates as of June 30, 2018.
(3) 
Represents separate operating leases for aircraft.
(4) 
Represents minimum rental payments required under non-aircraft operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
(5) 
Represents expected funding for defined benefit pension plans in future periods. These amounts are undiscounted and are based on the expectation that the U.K. pension plan will be fully funded in approximately five years. As of June 30, 2018, we had recorded on our balance sheet a $30.5 million pension liability associated with these obligations. The timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
(6) 
Includes $93.0 million for five aircraft orders that can be cancelled prior to delivery dates. As of June 30, 2018, we made non-refundable deposits of $4.5 million related to these aircraft.
(7) 
Other purchase obligations primarily represent unfilled purchase orders for aircraft parts 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 2018 Annual Report.

67

Capital Commitments and Other Uses of Cash
We have commitments and options to make capital expenditures over the next seven fiscal years to purchase additional aircraft, including aircraft associated with the commitments reflected in the table above. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of revenue, operating margin and adjusted EBITDA margin. See Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a detail of the number of aircraft under commitments and options expected to be delivered in the current and subsequent fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options through June 30, 2018.
As discussed under “— Executive Overview — Our Strategy”, cash may also be used in future periods to repurchase or otherwise retire debt or for any acquisition opportunities we believe are aligned with our long-term strategy.
Financial Condition and Sources of Liquidity
We manage our liquidity through generation of cash from operations while assessing our funding needs on an ongoing basis. Historically, while we have generated cash from operations, financing cash flows also have been a significant source of liquidity over the past several years. The significant factors that affect our overall liquidity include cash from or used to fund operations, capital expenditure commitments, debt service, pension funding, adequacy of bank lines of credit and our ability to attract capital on satisfactory terms.
As of June 30, 2018, approximately 22% our cash balances are held outside the U.S. and are generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the U.S. could be repatriated to the U.S., and any such repatriation could be subject to additional foreign taxes. As a result of the Act, we have provided for U.S. federal income taxes on undistributed foreign earnings. If cash held by non-U.S. operations is required for funding operations in the U.S., we may make a provision for additional tax in connection with repatriating this cash, which is not expected to have a significant impact on our results of operations.
We expect that our cash on deposit as of July 27, 2018 of approximately $320.7 million, proceeds from aircraft sales, and available borrowing capacity of $33.9 million under our ABL Facility described under “Executive Overview — Market Outlook — Recent Events — ABL Facility”, 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. However, we may require capital in excess of the amount available from these sources and we may need to seek additional sources of liquidity, complete aircraft sales or defer capital expenditures in order to have sufficient liquidity to satisfy operating needs, existing capital commitments and other contractual obligations.


68

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 2018 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 2018 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 2018 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 June 30, 2018. 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 June 30, 2018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


69

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 2018 Annual Report. Developments in these previously reported matters, if any, are described in Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Item 1A. Risk Factors.
There have been no material changes during the three months ended June 30, 2018 in our “Risk Factors” as discussed in the fiscal year 2018 Annual Report.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
Not applicable.
Item 3.    Defaults Upon Senior Securities
Not applicable.
Item 4.    Mine Safety Disclosures
Not applicable.
Item 5.    Other Information
None.

70

Item 6.    Exhibits
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit
Number
 
Description of Exhibit
 
 
 
10.1†
 
 
 
 
10.2†
 
 
 
 
10.3†
 
 
 
 
10.4†
 
 
 
 
10.5†
 
 
 
 
15.1*
 
 
 
31.1**
 
 
 
31.2**
 
 
 
32.1**
 
 
 
32.2**
 
 
 
101.INS
 
XBRL Instance Document.
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document.
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document.
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
*
 
Filed herewith.
 
 
 
**
 
Furnished herewith.
 
 
 
†
 
Compensatory Plan or Arrangement.
 

71

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
August 2, 2018

72

Bristow Group Inc Reports