e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2006
OR
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o |
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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)
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Delaware
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72-0679819 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification Number) |
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2000 W. Sam Houston Pkwy. S.,
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77042 |
Suite 1700
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(Zip Code) |
Houston, Texas |
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(Address of principal executive offices) |
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Registrants 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
o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is 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 issuers classes of Common Stock, as of
October 31, 2006.
23,491,711 shares of Common Stock, $.01 par value
BRISTOW GROUP INC.
INDEX FORM 10-Q
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
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Three Months Ended |
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Six Months Ended |
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September 30, |
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September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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(Unaudited) |
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(In thousands, except per share amounts) |
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Gross revenue: |
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Operating revenue from non-affiliates |
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$ |
191,341 |
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$ |
163,920 |
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$ |
373,127 |
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$ |
314,668 |
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Operating revenue from affiliates |
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11,631 |
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12,791 |
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23,710 |
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24,277 |
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Reimbursable revenue from non-affiliates |
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20,091 |
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16,912 |
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46,216 |
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34,340 |
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Reimbursable revenue from affiliates |
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1,146 |
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782 |
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2,218 |
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2,057 |
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224,209 |
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194,405 |
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445,271 |
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375,342 |
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Operating expense: |
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Direct cost |
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148,872 |
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126,510 |
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287,341 |
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249,062 |
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Reimbursable expense |
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20,879 |
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17,402 |
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47,778 |
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36,064 |
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Depreciation and amortization |
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10,737 |
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11,200 |
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21,020 |
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21,507 |
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General and administrative |
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16,527 |
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15,704 |
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31,876 |
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30,667 |
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Loss (gain) on disposal of assets |
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(3,667 |
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1,494 |
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(4,665 |
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902 |
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193,348 |
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172,310 |
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383,350 |
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338,202 |
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Operating income |
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30,861 |
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22,095 |
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61,921 |
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37,140 |
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Earnings from unconsolidated affiliates, net of losses |
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1,728 |
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373 |
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3,287 |
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419 |
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Interest income |
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1,069 |
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949 |
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2,359 |
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1,981 |
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Interest expense |
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(2,871 |
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(3,677 |
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(6,107 |
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(7,385 |
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Other income (expense), net |
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(1,308 |
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(769 |
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(6,093 |
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2,013 |
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Income before provision for income taxes and
minority interest |
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29,479 |
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18,971 |
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55,367 |
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34,168 |
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Provision for income taxes |
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(9,728 |
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(4,293 |
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(18,271 |
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(7,469 |
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Minority interest |
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(676 |
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(44 |
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(792 |
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(94 |
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Net income |
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19,075 |
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14,634 |
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36,304 |
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26,605 |
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Preferred stock dividends |
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(321 |
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(321 |
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Net income available to common stockholders |
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$ |
18,754 |
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$ |
14,634 |
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$ |
35,983 |
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$ |
26,605 |
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Earnings per common share: |
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Basic |
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$ |
0.80 |
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$ |
0.63 |
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$ |
1.54 |
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$ |
1.14 |
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Diluted |
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$ |
0.79 |
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$ |
0.62 |
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$ |
1.52 |
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$ |
1.13 |
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The accompanying notes are an integral part of these financial statements.
2
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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September 30, |
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March 31, |
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2006 |
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2006 |
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(Unaudited) |
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(In thousands) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
268,275 |
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$ |
122,482 |
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Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $3.5
million and $4.6 million, respectively |
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158,540 |
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144,521 |
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Accounts receivable from affiliates, net of allowance for doubtful accounts of $4.4
million and $4.6 million, respectively |
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14,594 |
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15,884 |
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Inventories |
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157,966 |
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147,860 |
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Prepaid expenses and other |
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16,431 |
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16,519 |
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Total current assets |
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615,806 |
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447,266 |
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Investment in unconsolidated affiliates |
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42,101 |
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39,912 |
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Property and equipment at cost: |
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Land and buildings |
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47,254 |
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40,672 |
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Aircraft and equipment |
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971,548 |
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838,314 |
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1,018,802 |
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878,986 |
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Less Accumulated depreciation and amortization |
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(287,978 |
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(263,072 |
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730,824 |
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615,914 |
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Goodwill |
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26,807 |
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26,837 |
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Prepaid pension costs |
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42,125 |
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37,207 |
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Other assets |
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11,479 |
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9,277 |
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$ |
1,469,142 |
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$ |
1,176,413 |
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LIABILITIES AND STOCKHOLDERS INVESTMENT |
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Current liabilities: |
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Accounts payable |
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$ |
59,930 |
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$ |
41,227 |
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Accrued wages, benefits and related taxes |
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38,645 |
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45,958 |
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Income taxes payable |
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6,791 |
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6,537 |
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Other accrued taxes |
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9,481 |
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6,471 |
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Deferred revenues |
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12,468 |
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9,994 |
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Other accrued liabilities |
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34,645 |
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31,083 |
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Deferred taxes |
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10,030 |
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5,025 |
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Short-term borrowings and current maturities of long-term debt |
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22,479 |
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17,634 |
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Total current liabilities |
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194,469 |
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163,929 |
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Long-term debt, less current maturities |
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238,064 |
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247,662 |
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Accrued pension liabilities |
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146,937 |
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136,521 |
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Other liabilities and deferred credits |
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17,620 |
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18,016 |
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Deferred taxes |
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72,635 |
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68,281 |
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Minority interest |
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4,980 |
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4,307 |
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Commitments and contingencies (Note 4) |
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Stockholders investment: |
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5.50% mandatory convertible preferred stock, $.01 par value, authorized 4,600,000 shares;
outstanding: 4,000,000 shares; entitled on liquidation to $200 million; net of offering
costs of $6.4 million |
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193,590 |
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Common stock, $.01 par value, authorized 35,000,000 shares; outstanding: 23,491,378 as
of September 30 and 23,385,473 as of March 31 (exclusive of 1,281,050 treasury shares) |
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235 |
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234 |
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Additional paid-in capital |
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164,286 |
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158,762 |
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Retained earnings |
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483,828 |
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447,524 |
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Accumulated other comprehensive loss |
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(47,502 |
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(68,823 |
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794,437 |
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537,697 |
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$ |
1,469,142 |
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$ |
1,176,413 |
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The accompanying notes are an integral part of these financial statements.
3
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
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Six Months Ended |
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September 30, |
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2006 |
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2005 |
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(Unaudited) |
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(In thousands) |
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Cash flows from operating activities: |
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Net income |
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$ |
36,304 |
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$ |
26,605 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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21,020 |
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21,507 |
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Deferred income taxes |
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8,250 |
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(19 |
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Loss (gain) on asset dispositions |
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(4,665 |
) |
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902 |
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Stock-based compensation expense |
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2,138 |
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Equity in earnings from unconsolidated affiliates over dividends received |
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(970 |
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(419 |
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Minority interest in earnings |
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792 |
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94 |
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Tax benefit related to exercise of stock options |
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(607 |
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Increase (decrease) in cash resulting from changes in: |
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Accounts receivable |
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(3,172 |
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(44,376 |
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Inventories |
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(5,241 |
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(5,362 |
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Prepaid expenses and other |
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(3,798 |
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1,495 |
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Accounts payable |
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(7,949 |
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3,714 |
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Accrued liabilities |
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7,099 |
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138 |
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Other liabilities and deferred credits |
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(502 |
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1,034 |
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Net cash provided by operating activities |
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48,699 |
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5,313 |
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Cash flows from investing activities: |
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Capital expenditures |
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(108,556 |
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(57,500 |
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Proceeds from asset dispositions |
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8,590 |
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4,449 |
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Net cash used in investing activities |
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(99,966 |
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(53,051 |
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Cash flows from financing activities: |
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Issuance of preferred stock |
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194,450 |
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Preferred stock issuance costs |
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(346 |
) |
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Repayment of debt and debt redemption premiums |
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(1,541 |
) |
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(1,483 |
) |
Partial prepayment of put/call obligation |
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(80 |
) |
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(66 |
) |
Issuance of common stock |
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2,169 |
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|
530 |
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Tax benefit related to exercise of stock options |
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|
607 |
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Net cash provided by (used in) financing activities |
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195,259 |
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(1,019 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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1,801 |
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(3,408 |
) |
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Net increase (decrease) in cash and cash equivalents |
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145,793 |
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(52,165 |
) |
Cash and cash equivalents at beginning of period |
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|
122,482 |
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|
146,440 |
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Cash and cash equivalents at end of period |
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$ |
268,275 |
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$ |
94,275 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for: |
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Interest, net of interest capitalized |
|
$ |
5,267 |
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|
$ |
6,738 |
|
Income taxes |
|
$ |
6,187 |
|
|
$ |
8,973 |
|
Non-cash investing activities: |
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Capital expenditures funded by accounts payable and short-term notes, net |
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$ |
12,859 |
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$ |
14,746 |
|
The accompanying notes are an integral part of these financial statements.
4
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
NOTE 1 BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following 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. Investments in affiliates in which we
own 50% or less of the equity but have retained the majority of the economic risk of the operating
assets and related results are consolidated. Certain of these entities are Variable Interest
Entities (VIEs) of which we are the primary beneficiary. See discussion of these VIEs in Note 3
in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for
fiscal year 2006 (fiscal year 2006 Annual Report). Other investments in affiliates in which we
own 50% or less of the equity but have the ability to exercise significant influence are accounted
for using the equity method. Investments which we do not consolidate or in which we do not
exercise significant influence are accounted for under the cost method whereby dividends are
recognized as income when received.
Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC),
the information contained in the following condensed notes to consolidated financial statements is
condensed from that which would appear in the annual consolidated financial statements;
accordingly, the consolidated financial statements included herein should be read in conjunction
with the consolidated financial statements and related notes thereto contained in our Annual Report
on Form 10-K for fiscal year 2006 (fiscal year 2006 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 financial position of the Company as of
September 30, 2006, the consolidated results of operations for the three and six months ended
September 30, 2006 and 2005, and the consolidated cash flows for the six months ended September 30,
2006 and 2005.
In order to conform with the current period presentation of accrued liabilities, we have
reclassified $8.5 million of accounts payable to other accrued liabilities as of March 31, 2006.
This reclassification had no effect on our consolidated financial position, results of operations
or cash flows.
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, 2007 is referred to as fiscal year 2007.
Foreign Currency Translation
Foreign currency transaction gains and losses result from the effect of changes in exchange
rates on transactions denominated in currencies other than a companys functional currency,
including transactions between consolidated companies. An exception is made where an intercompany
loan or advance is deemed to be of a long-term investment nature, in which instance the foreign
currency transaction gains and losses are included with cumulative translation gains and losses and
are reported in stockholders investment as accumulated other comprehensive gains or losses.
Translation adjustments, which are reported in accumulated other comprehensive gains or losses, are
the result of translating a foreign entitys financial statements from its functional currency to
U.S. dollars, our reporting currency. Balance sheet information is presented based on the exchange
rate as of the balance sheet date, and income statement information is presented based on the
average conversion rate for the period. The various components of equity are presented at their
historical average exchange rates. The resulting difference after applying the different exchange
rates is the cumulative translation adjustment. The functional currency of Bristow Aviation
Holdings, Ltd. (Bristow Aviation), one of our consolidated subsidiaries, is the British pound
sterling.
As a result of the change in exchange rates during the three and six months ended September
30, 2006, we recorded foreign currency transaction losses of approximately $1.3 million and $6.1
million, respectively, primarily related to the British pound sterling, compared to foreign
currency transaction gains of approximately $0.2 million and $3.0 million
5
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
during the three and six months ended September 30, 2005, respectively. These gains and
losses arose primarily as a result of U.S. dollar-denominated transactions entered into by Bristow
Aviation whose functional currency is the British pound sterling and included cash and cash
equivalents held in U.S. dollar-denominated accounts, U.S. dollar-, Euro- and Nigerian
Naira-denominated intercompany loans and revenues from contracts which are settled in U.S. dollars.
Beginning in July 2006, we reduced a portion of Bristow Aviations U.S. dollar-denominated cash
balances. On August 14, 2006, we entered into a derivative contract to mitigate our exposure to
exchange rate fluctuations on our U.S. dollar-denominated intercompany loans. This derivative
contract provides us with a call option on £12.9 million and a put option on $24.5 million, with a
strike price of 1.895 U.S. dollars per British pound sterling, and expires on November 14, 2006.
During the three months ended September 30, 2006, the exchange rate (of one British pound
sterling into U.S. dollars) ranged from a low of $1.82 to a high of $1.91, with an average of
$1.87. During the six months ended September 30, 2006, the exchange rate ranged from a low of
$1.74 to a high of $1.91, with an average of $1.85. As of September 30, 2006, the exchange rate
was $1.87. During the three months ended September 30, 2005, the exchange rate ranged from a low
of $1.73 to a high of $1.84, with an average of $1.78. During the six months ended September 30,
2005, the exchange rate ranged from a low of $1.73 to a high of $1.92, with an average of $1.82.
As of March 31, 2006, the exchange rate was $1.74.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R).
SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its statement of financial position and
recognize changes in that funded status in the year in which the changes occur through
comprehensive income. SFAS No. 158 is effective for our current fiscal year and will be adopted in
the consolidated financial statements to be included in our Annual Report on Form 10-K for fiscal
year 2007. We anticipate that the adoption of SFAS No. 158 will have no impact on our net income
or comprehensive income. Rather, we expect that the primary impact will be the reflection of a net
accrued pension liability ($104.8 million as of September 30, 2006) versus the current presentation
of showing the prepaid pension costs ($42.1 million as of September 30, 2006) separately from the
accrued pension liabilities ($146.9 million as of September 30, 2006).
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. SFAS No. 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. Under the standard, fair value measurements will be separately disclosed by level
within the fair value hierarchy (i.e., levels 1, 2, and 3, as defined). Companies are required to
provide enhanced disclosure regarding fair value measurements in the level 3 category (recurring
fair value measurements using significant unobservable inputs), including a reconciliation of the
beginning and ending balances separately for each major category of assets and liabilities. SFAS
No. 157 is effective for financial statements issued for our fiscal year beginning April 1, 2008
and interim periods therein. We do not believe that the adoption of this standard will have a
material impact on our consolidated results of operations, cash flows or financial position upon
adoption; however, we have not yet completed our evaluation of the impact of SFAS No. 157.
In September 2006, the SEC released Staff Accounting Bulletin (SAB) No. 108, Considering
the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements. SAB No. 108 provides guidance on how the effects of the carryover or reversal of
prior year financial statement misstatements should be considered in quantifying a current year
misstatement. Prior practice allowed the evaluation of materiality on the basis of either (1) the
error quantified as the amount by which the current year income statement was misstated (rollover
method) or (2) the cumulative error quantified as the cumulative amount by which the current year
balance sheet was misstated (iron curtain method). Reliance on either method in prior years
could have resulted in misstatement of the financial statements. SAB No. 108 requires both methods
to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first
filing of prior year financial statements after adoption. The cumulative effect of the correction
would be reflected in the opening balance sheet with appropriate disclosure of the nature and
amount of each
6
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
individual error corrected in the cumulative adjustment, as well as a disclosure of the cause
of the error and that the error had been deemed to be immaterial in the past. SAB No. 108 is
effective for our current fiscal year and will be adopted in the consolidated financial statements
to be included in our Annual Report on Form 10-K for fiscal year 2007. We do not believe that the
adoption of this bulletin will have a material impact on our consolidated results of operations,
cash flows or financial position upon adoption; however, due to the nature of the guidance, a final
determination of the impact of SAB No. 108 cannot be made until the period of its adoption.
In September 2006, the FASB approved FASB Staff Position (FSP) AUG AIR-1, Accounting for
Planned Major Maintenance Activities, which prohibits the accruing as a liability the future costs
of periodic major overhauls and maintenance of plant and equipment. Other previously acceptable
methods of accounting for planned major overhauls and maintenance will continue to be permitted.
The new requirements apply to our fiscal year beginning April 1, 2007 and must be retrospectively
applied. We do not believe that the adoption of this staff position will have a material impact on
our consolidated results of operations, cash flows or financial position upon adoption; however, we
have not yet completed our evaluation of the impact of FSP AUG AIR-1.
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109, which clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return and provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
FIN No. 48 requires enterprises to evaluate tax positions using a two-step process consisting of
recognition and measurement. The effects of a tax position will be recognized in the period in
which the enterprise determines that it is more likely than not (defined as a more than 50%
likelihood) that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. A tax
position that meets the more-likely-than-not recognition threshold is measured as the largest
amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.
FIN No. 48 is effective for our fiscal year beginning on April 1, 2007. We have not yet completed
our evaluation of the impact that the adoption of this interpretation will have on our consolidated
results of operations, cash flows or financial position.
See Note 7 for discussion and disclosure made in connection with the adoption of SFAS No.
123(R), Share-Based Payment on April 1, 2006.
NOTE 2 INVESTMENTS IN SIGNIFICANT AFFILIATES
Consolidated Affiliates
Bristow Aviation Bristow Aviation is organized with three classes of ordinary shares, each
having different voting rights. The Company, Caledonia Investments plc and its subsidiary,
Caledonia Industrial & Services Limited (together, Caledonia) and a European Union investor (the
E.U. Investor) own 49%, 46% and 5%, respectively, of Bristow Aviations total outstanding
ordinary shares, although Caledonia has voting control over the E.U. Investors shares. For a
further discussion of our investment in Bristow Aviation and our relationship with Caledonia, see
Note 3 in the Notes to Consolidated Financial Statements included in our fiscal year 2006 Annual
Report.
During September and October 2006, we conducted a public offering of 4,600,000 shares of our
5.50% mandatory convertible preferred stock, par value $.01 per share and liquidation preference of
$50 per share (the Preferred Stock) (see Note 5). Caledonia purchased an aggregate of 300,000
shares of the Preferred Stock in this offering at a price equal to the public offering price. The
underwriters for this offering received no discount or commission on the sale of these 300,000
shares to Caledonia.
Unconsolidated Affiliates
HC Since the conclusion of the contract with Petróleos Mexicanos (PEMEX) in February
2005, our 49% owned unconsolidated affiliates, Hemisco Helicopters International, Inc. (Hemisco)
and Heliservicio Campeche S.A. de C.V. (Heliservicio and collectively, HC), experienced
difficulties during fiscal year 2006 in meeting their obligations to
7
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
make lease rental payments to us and to another one of our unconsolidated affiliates,
Rotorwing Leasing Resources, L.L.C. (RLR). During fiscal year 2006, RLR and we made a
determination that because of the uncertainties as to collectibility, lease revenues from HC would
be recognized as they were collected. As of September 30, 2006, $0.8 million of amounts billed but
not collected from HC have not been recognized in our results, and our 49% share of the equity in
earnings of RLR has been reduced by $3.1 million for amounts billed but not collected from HC.
During the three and six months ended September 30, 2006, we recognized revenue of $0.3 million and
$1.0 million, respectively, upon receipt of payment from HC for amounts billed in fiscal year 2006.
Prior to June 30, 2006, we took several actions to improve the financial condition and
profitability of HC, including relocating several aircraft to other markets, restructuring our
profit sharing arrangement with our partner, and completing a recapitalization of Heliservicio on
August 19, 2005. In June 2006, Heliservicio was awarded a two-year contract by PEMEX. Under this
contract, Heliservicio will provide and operate three medium helicopters in support of PEMEXs oil
and gas operations. We will continue to evaluate the improving results for HC to determine if and
when we will change our accounting for this joint venture from the cash to accrual basis.
Other Historically, in addition to the expansion of our business through purchases of new
and used aircraft, we have also established new joint ventures with local partners or purchased
significant ownership interests in companies with ongoing helicopter operations, particularly in
countries where we have no operations or our operations are limited in scope, and we continue to
evaluate similar opportunities which could enhance our operations. Where we believe that it is
probable that an investment will result, the costs associated with such investment evaluations are
deferred and included in Investment in unconsolidated affiliates. For each investment evaluated,
an impairment of the deferred costs is recognized in the period in which we determine that it is no
longer probable that an investment will be made. As of September 30, 2006, we had deferred $1.9
million related to such investments.
NOTE 3 DEBT
Debt as of September 30, 2006 and March 31, 2006 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2006 |
|
6 1/8 % Senior Notes due 2013 |
|
$ |
230,000 |
|
|
$ |
230,000 |
|
Limited recourse term loans |
|
|
19,448 |
|
|
|
20,023 |
|
Hemisco Helicopters International, Inc. note |
|
|
4,380 |
|
|
|
4,380 |
|
Short-term advance from customer |
|
|
1,400 |
|
|
|
1,400 |
|
Note to Sakhalin Aviation Services Ltd. |
|
|
456 |
|
|
|
647 |
|
Sakhalin debt |
|
|
4,859 |
|
|
|
5,667 |
|
Short-term notes |
|
|
|
|
|
|
3,179 |
|
|
|
|
|
|
|
|
Total debt |
|
|
260,543 |
|
|
|
265,296 |
|
Less short-term borrowings and current maturities of long-term debt |
|
|
(22,479 |
) |
|
|
(17,634 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
238,064 |
|
|
$ |
247,662 |
|
|
|
|
|
|
|
|
Note to Sakhalin Aviation Services Ltd. In August 2006, the note issued to Sakhalin
Aviation Services Ltd. (Sakhalin) was replaced with a new note to Sakhalin that will be repaid
over a three-year period. As with the original note, the new note is non-interest bearing.
Senior Secured Credit Facilities In August 2006, we entered into syndicated senior secured
credit facilities which consist of a $100 million revolving credit facility (with a subfacility of
$25 million for letters of credit) and a $25 million letter of credit facility (the Credit
Facilities). The aggregate commitments under the revolving credit facility may be increased to
$200 million at our option following our 6 1/8% Senior Notes due 2013 receiving an investment grade
credit rating from Moodys or Standard & Poors (so long as the rating of the other rating agency
of such notes is no lower than
8
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
one level below investment grade). The revolving credit facility may be used for general
corporate purposes, including working capital and acquisitions. The letter of credit facility is
used to issue letters of credit supporting or securing performance of statutory obligations, surety
or appeal bonds, bid, performance bonds and similar obligations.
Borrowings under the revolving credit facility bear interest at an interest rate equal to, at
our option, either the Base Rate or LIBOR (or EURIBO, in the case of Euro-denominated borrowings)
plus the applicable margin. Base Rate means the higher of (1) the prime rate and (2) the Federal
Funds rate plus 0.5% per annum. The applicable margin for borrowings range from 0.0% and 2.5%
depending on whether the Base Rate or LIBOR is used, and is determined based on our credit rating.
Fees owed on letters of credit issued under either the revolving credit facility or the letter of
credit facility are equal to the margin for LIBOR borrowings. Based on our current ratings, the
margins on Base Rate and LIBOR borrowings were 0.0% and 1.25%, respectively, as of September 30,
2006. Interest is payable at least quarterly, and the Credit Facilities mature in August 2011.
Our obligations under the Credit Facilities are guaranteed by certain of our principal domestic
subsidiaries and secured by the accounts receivable, inventory and equipment (excluding aircraft
and their components) of Bristow Group Inc. and the guarantor subsidiaries, and the capital stock
of certain of our principal subsidiaries.
In addition, the Credit Facilities include covenants which are customary for these types of
facilities, including certain financial covenants and restrictions on the ability of Bristow Group
Inc. and its subsidiaries to enter into certain transactions, including those that could result in
the incurrence of additional liens and indebtedness; the making of loans, guarantees or
investments; sales of assets; payments of dividends or repurchases of our capital stock; and
entering into transactions with affiliates.
As of September 30, 2006, we had $4.1 million in letters of credit outstanding under the
letter of credit facility and no borrowings or letters of credit outstanding under the revolving
credit facility.
We previously had a $30 million revolving credit facility with a U.S. bank that was terminated
in August 2006.
U.K. Facilities As of September 30, 2006, Bristow Aviation had a £6.0 million ($11.2
million) facility for letters of credit, of which £0.3 million ($0.6 million) was outstanding, and
a £1.0 million ($1.9 million) net overdraft facility, under which no borrowings were outstanding.
Both facilities are with a U.K. bank. The letter of credit facility is provided on an uncommitted
basis, and outstanding letters of credit bear fees at a rate of 0.7% per annum. Borrowings under
the net overdraft facility are payable upon demand and bear interest at the banks base rate plus a
spread that can vary between 1% and 3% per annum depending on the net overdraft amount. The net
overdraft facility will be reviewed by the bank annually on August 31 and is cancelable at any time
upon notification from the bank. The facilities are guaranteed by certain of Bristow Aviations
subsidiaries and secured by a negative pledge of Bristow Aviations assets.
9
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 4 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 increase the size of our aircraft fleet.
As of October 5, 2006, we had 51 aircraft on order and options to acquire an additional 33
aircraft. The additional aircraft on order are expected to provide incremental fleet capacity,
with only a small number of our existing aircraft expected to be replaced with the new aircraft.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Fiscal Year Ending March 31, |
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011-2013 |
|
|
Total |
|
Commitments as of October 5, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Medium |
|
|
13 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
39 |
|
Large (1) |
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
15 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
168,962 |
|
|
$ |
123,227 |
|
|
$ |
23,051 |
|
|
$ |
24,285 |
|
|
$ |
63,485 |
|
|
$ |
403,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options as of October 5, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium (2) |
|
|
|
|
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
11 |
|
|
|
24 |
|
Large |
|
|
|
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
12 |
|
|
|
6 |
|
|
|
11 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
14,148 |
|
|
$ |
131,250 |
|
|
$ |
102,601 |
|
|
$ |
48,292 |
|
|
$ |
81,191 |
|
|
$ |
377,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On October 5, 2006, we exercised options with
respect to four large aircraft and are now committed
to purchase these aircraft. The options for five
large aircraft were previously set to expire on
September 30, 2006, but were extended by one
additional week for these four aircraft and to
December 31, 2006 for one remaining aircraft. We
expect these four large aircraft to be delivered
during fiscal year 2008. |
|
(2) |
|
As of October 5, 2006, options with respect to
six of these aircraft were subject to availability,
which means that the delivery time for the aircraft
subject to these options will depend upon the number
of manufacturing slots available at the time the
options are exercised. As a result, the delivery time
for these aircraft may be extended beyond those
specified in the purchase agreement with the
manufacturer, and these medium aircraft were included
in the 2011-2013 period in the table above. However,
we can accelerate the delivery of these aircraft at
our option to as early as January 1, 2008, subject to
the manufacturers availability to fill customer
orders at the time an option is exercised. |
In connection with an agreement to purchase three large aircraft to be utilized and owned by
Norsk Helikopter AS (Norsk), our unconsolidated affiliate in Norway, the Company, Norsk and the
other equity owner in Norsk each agreed to fund the purchase of one of these three aircraft. One
aircraft was delivered during fiscal year 2006, and the remaining two aircraft (including the one
we purchased) were delivered in August 2006.
Collective Bargaining Agreement We employ approximately 300 pilots in our North
America operations who are represented by the Office and Professional Employees International Union
(OPEIU) under a collective bargaining agreement. We and the pilots represented by the OPEIU
ratified an amended collective bargaining agreement on April 4, 2005. The terms under the amended
agreement are fixed until October 3, 2008 and include a wage increase for the pilot group and
improvements to several other benefit plans.
We are currently involved in negotiations with the unions in Nigeria and anticipate that we
will increase certain benefits for union personnel as a result of these negotiations. We do not
expect these benefit increases to have a material impact on our results of operations.
Our ability to attract and retain qualified pilots, mechanics and other highly-trained
personnel is an important factor in determining our future success. For example, many of our
customers require pilots with very high levels of flight
10
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
experience. The market for these experienced and highly-trained personnel is competitive and
will become more competitive if oil and gas industry activity levels increase. In addition, some
of our pilots, mechanics and other personnel, as well as those of our competitors, are members of
the U.S. or U.K. military reserves and have been, or could be, called to active duty. If
significant numbers of such personnel are called to active duty, it would reduce the supply of such
workers and likely increase our labor costs. Additionally, as a result of the disclosure and
remediation of activities identified in the Internal Review (see below), we may have difficulty
attracting and retaining qualified personnel, and we may incur increased expenses.
Internal Review In February 2005, we voluntarily advised the staff of the SEC
that the Audit Committee of our board of directors had engaged special outside counsel to undertake
a review of certain payments made by two of our affiliated entities in a foreign country. The
review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was
subsequently expanded by such special outside counsel to cover operations in other countries and
other issues (the Internal Review). In connection with this review, special outside counsel to
the Audit Committee retained forensic accountants. As a result of the findings of the Internal
Review, our quarter ended December 31, 2004 and prior financial statements were restated. For
further information on the restatements, see our fiscal year 2005 Annual Report.
The SEC then notified us that it had initiated an informal inquiry and requested that we
provide certain documents on a voluntary basis. The SEC thereafter advised us that the inquiry had
become a formal investigation. We have responded to the SECs requests for documents and intend to
continue to do so.
The Internal Review is complete. All known required restatements were reflected in the
financial statements included in our fiscal year 2005 Annual Report, and no further restatements
were required in our subsequent financial statements. As a follow-up to matters identified during
the course of the Internal Review, special counsel to the Audit Committee may be called upon to
undertake additional work in the future to assist in responding to inquiries from the SEC, from
other governmental authorities or customers, or as follow-up to the previous work performed by such
special counsel.
In October 2005, the Audit Committee reached certain conclusions with respect to findings to
date from the Internal Review. The Audit Committee concluded that, over a considerable period of
time, (1) improper payments were made by, and on behalf of, certain foreign affiliated entities
directly or indirectly to employees of the Nigerian government, (2) improper payments were made by
certain foreign affiliated entities to Nigerian employees of certain customers with whom we have
contracts, (3) inadequate employee payroll declarations and, in certain instances, tax payments
were made by us or our affiliated entities in certain jurisdictions, (4) inadequate valuations for
customs purposes may have been declared in certain jurisdictions resulting in the underpayment of
import duties, and (5) an affiliated entity in a South American country, with the assistance of our
personnel and two of our other affiliated entities, engaged in transactions which appear to have
assisted the South American entity in the circumvention of currency transfer restrictions and other
regulations. In addition, as a result of the Internal Review, the Audit Committee and management
determined that there were deficiencies in our books and records and internal controls with respect
to the foregoing and certain other activities.
Based on the Audit Committees findings and recommendations, the board of directors took
disciplinary action with respect to our personnel who it determined bore responsibility for these
matters. The disciplinary actions included termination or resignation of employment (including of
certain members of senior management), changes of job responsibility, reductions in incentive
compensation payments and reprimands. One of our affiliates also obtained the resignation of
certain of its personnel.
We took remedial actions, including correcting underreported payroll taxes, disclosing to
certain customers inappropriate payments made to customer personnel and terminating certain agency,
business and joint venture relationships. We also took steps to reinforce our commitment to
conduct our business with integrity by creating an internal corporate compliance function,
instituting a new code of business conduct, and developing and implementing a training program for
all employees. In addition to the disciplinary actions referred to above, we took steps to
strengthen our control environment by hiring new key members of senior and financial management,
including persons with appropriate technical accounting and legal expertise, expanding our
corporate finance group and internal audit staff, realigning reporting lines within the accounting
function so that field accounting reports directly to the corporate accounting function instead of
operations management, and improving the management of our tax structure to comply
11
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
with its intended design. Our compliance program is in full operation and clear corporate
policies have been established and communicated to our relevant personnel.
We have communicated the Audit Committees conclusions with respect to the findings of the
Internal Review to regulatory authorities in the jurisdictions in which the relevant activities
took place. Until final resolution of these issues, such disclosure may result in legal and
administrative proceedings, the institution of administrative, civil injunctive or criminal
proceedings involving us and/or current or former employees, officers and/or directors who are
within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies
and/or sanctions, including precluding us from participating in business operations in their
countries. To the extent that violations of the law may have occurred in countries in which we
operate, we do not yet know whether such violations can be cured merely by the payment of fines or
whether other actions may be taken against us, including requiring us to curtail our business
operations in one or more such countries for a period of time. In the event that we curtail our
business operations in any such country, we then may face difficulties exporting our aircraft from
such country. As of September 30, 2006, the book values of our aircraft in Nigeria and the South
American country where certain improper activities took place were approximately $114.8 million and
$8.0 million, respectively.
We cannot predict the ultimate outcome of the SEC investigation, nor can we predict whether
other applicable U.S. and foreign governmental authorities will initiate separate investigations.
The outcome of the SEC investigation and any related legal and administrative proceedings could
include the institution of administrative, civil injunctive or criminal proceedings involving us
and/or current or former employees, officers and/or directors, the imposition of fines and other
penalties, remedies and/or sanctions, modifications to business practices and compliance programs
and/or referral to other governmental agencies for other appropriate actions. It is not possible
to accurately predict at this time when matters relating to the SEC investigation will be
completed, the final outcome of the SEC investigation, what if any actions may be taken by the SEC
or by other governmental agencies in the U.S. or in foreign jurisdictions, or the effect that such
actions may have on our consolidated financial statements. In addition, in view of the findings of
the Internal Review, we may encounter difficulties in the future conducting business in Nigeria and
a South American country and with certain customers. It is also possible that certain of our
existing contracts may be cancelled (although none have been cancelled as of the date of filing of
this Quarterly Report) and that we may become subject to claims by third parties, possibly
resulting in litigation. The matters identified in the Internal Review and their effects could
have a material adverse effect on our business, financial condition and results of operations.
In connection with its conclusions regarding payroll declarations and tax payments, the Audit
Committee determined on November 23, 2005, following the recommendation of our senior management,
that there was a need to restate our quarter ended December 31, 2004 and prior financial
statements. Such restatement was reflected in our fiscal year 2005 Annual Report. Beginning in
the three months ended September 30, 2006, we made payments of $9.8 million for the taxes
attributable to underreported employee payroll. In October 2006, we made additional payments of
approximately $0.4 million for the taxes attributable to underreported payroll in Trinidad.
Operating income for three and six months ended September 30, 2005 included $1.1 million and $2.0
million, respectively, attributable to this accrual. Since December 31, 2005, no additional
accruals were required for taxes attributable to underreported employee payroll.
As we continue to respond to the SEC investigation and other governmental authorities and take
other actions relating to improper activities that have been identified in connection with the
Internal Review, there can be no assurance that restatements, in addition to those reflected in our
fiscal year 2005 Annual Report, will not be required or that our historical financial statements
included in this Quarterly Report will not change or require further amendment. As part of our
ongoing compliance program, we received evidence that foreign affiliates of our minority owned
operating entity in Kazakhstan may have made improper gifts or payments to government employees.
We have engaged an outside accounting firm to investigate this matter and such investigation is
underway. The results of such investigation, including our view as to whether improper activities
took place, will be disclosed to the SEC by us. In addition, as we continue to operate our
compliance program, other situations involving foreign operations, similar to those matters
disclosed to the SEC in February 2005 and described above, could arise that warrant further
investigation and subsequent disclosures. As a result, new issues may be identified that may
impact our financial statements and the scope of the restatements described above and lead us to
take other remedial actions or otherwise adversely impact us.
During fiscal years 2005 and 2006 and the six months ended September 30, 2006, we incurred
approximately $2.2 million, $10.5 million and $0.1 million, respectively, in legal and other
professional costs in connection with the Internal
12
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Review. No amounts were incurred during the three months ended September 30, 2006. We expect
to incur additional costs associated with the Internal Review and in the conduct of our new
compliance program, which will be expensed as incurred and which could be significant in the fiscal
quarters in which they are recorded.
As a result of the disclosure and remediation of a number of activities identified in the
Internal Review, we may encounter difficulties conducting business in certain foreign countries and
retaining and attracting additional business with certain customers. We cannot predict the extent
of these difficulties; however, our ability to continue conducting business in these countries and
with these customers and through agents may be significantly impacted.
We have disclosed the activities in Nigeria identified in the Internal Review to affected
customers, and one or more of these customers may seek to cancel their contracts with us. One such
customer has conducted its own investigation and contract audit. We have agreed with that customer
on certain actions we will take to address the findings of their audit, which in large part are
steps we have taken or had already planned to take. Since our customers in Nigeria are affiliates
of major international petroleum companies with whom we do business throughout the world, any
actions which are taken by certain customers could have a material adverse effect on our business,
financial position and results of operations, and these customers may preclude us from bidding on
future business with them either locally or on a worldwide basis. In addition, applicable
governmental authorities may preclude us from bidding on contracts to provide services in the
countries where improper activities took place.
In connection with the Internal Review, we also terminated our business relationship with
certain agents and took actions to terminate business relationships with other agents. In November
2005, one of the terminated agents and his affiliated entity commenced litigation against two of
our foreign affiliated entities claiming damages of $16.3 million for breach of contract. We may
be required to indemnify certain of our agents to the extent that regulatory authorities seek to
hold them responsible in connection with activities identified in the Internal Review.
In a South American country, where certain improper activities took place, we are negotiating
to terminate our ownership interest in the joint venture that provides us with the local ownership
content necessary to meet local regulatory requirements for operating in that country. We may not
be successful in our negotiations to terminate our ownership interest in the joint venture, and the
outcome of such negotiations may negatively affect our ability to continue leasing our aircraft to
the joint venture or other unrelated operating companies, to conduct other business in that
country, or to export our aircraft and inventory from that country. We recorded an impairment
charge of $1.0 million during fiscal year 2006 to reduce the recorded value of our investment in
the joint venture. During fiscal years 2006 and 2005, and the three and six months ended September
30, 2006, we derived approximately $8.0 million, $10.2 million, $1.9 million and $4.0 million,
respectively, of leasing and other revenues from this joint venture. In addition, during fiscal
year 2005, approximately $0.3 million of dividend income was derived from this joint venture. No
dividend income was derived from this joint venture during fiscal year 2006 or the three and six
months ended September 30, 2006.
Without a joint venture partner, we will be unable to maintain an operating license and our
future activities in that country may be limited to leasing our aircraft to unrelated operating
companies. Our joint venture partners and agents are typically influential members of the local
business community and instrumental in aiding us in obtaining contracts and managing our affairs in
the local country. As a result of terminating these relationships, our ability to continue
conducting business in these countries where the improper activities took place may be negatively
affected.
Many of the improper actions identified in the Internal Review resulted in decreasing the
costs incurred by us in performing our services. The remedial actions we are taking have resulted
in an increase in these costs and, if we cannot raise our prices simultaneously and to the same
extent as our increased costs, our operating income will decrease.
In addition, we face legal actions relating to the remedial actions which we have taken as a
result of the Internal Review, and may face further legal action of this type in the future. In
November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the
High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company,
Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria. The
claimants allege that an agreement between the parties was terminated without justification and
seek damages of $16.3 million. We have responded to this claim and are continuing to investigate
this matter.
13
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Document Subpoena from U.S. Department of Justice In June 2005, one of our subsidiaries
received a document subpoena from the Antitrust Division of the U.S. Department of Justice (the
DOJ). The subpoena related to a grand jury investigation of potential antitrust violations among
providers of helicopter transportation services in the U.S. Gulf of Mexico. The subpoena focused
on activities during the period from January 1, 2000 to June 13, 2005. We believe we have submitted
to the DOJ substantially all documents responsive to the subpoena; however, our ability to review
this matter internally has been somewhat impacted by the fact that certain of our former officers
covered by the DOJ investigation are no longer with our company. We have had discussions with the
DOJ and provided documents related to our operations in the United States as well as
internationally. We intend to continue to provide additional information as required by the DOJ in
connection with the investigation. There is no assurance that, after review of any information
furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S.
antitrust laws have occurred. The period of time necessary to resolve the DOJ investigation is
uncertain, and this matter could require significant management and financial resources that could
otherwise be devoted to the operation of our business.
The outcome of the DOJ investigation and any related legal proceedings in other countries
could include civil injunctive or criminal proceedings involving us or our current or former
officers, directors or employees, the imposition of fines and other penalties, remedies and/or
sanctions, including potential disbarments, and referrals to other governmental agencies. In
addition, in cases where anti-competitive conduct is found by the government, there is greater
likelihood for civil litigation to be brought by third parties seeking recovery. Any such civil
litigation could have serious consequences for our company, including the costs of the litigation
and potential orders to pay restitution or other damages or penalties, including potentially treble
damages, to any parties that were determined to be injured as a result of any impermissible
anti-competitive conduct. Any of these adverse consequences could have a material adverse effect on
our business, financial condition and results of operations. The DOJ investigation, any related
proceedings in other countries and any third-party litigation, as well as any negative outcome that
may result from the investigation, proceedings or litigation, could also negatively impact our
relationships with customers and our ability to generate revenue.
Environmental Contingencies The United States Environmental Protection Agency,
also referred to as the EPA, has in the past notified us that we are a potential responsible party,
or PRP, at four 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. We were
identified by the EPA as a PRP at the Western Sand and Gravel Superfund site in Rhode Island in
1984, at the Sheridan Disposal Services Superfund site in Waller County, Texas in 1989, at the Gulf
Coast Vacuum Services Superfund site near Abbeville, Louisiana in 1989, and at the Operating
Industries, Inc. Superfund site in Monterey Park, California in 2003. We have not received any
correspondence from the EPA with respect to the Western Sand and Gravel Superfund site since
February 1991, nor with respect to the Sheridan Disposal Services Superfund site since 1989.
Remedial activities at the Gulf Coast Vacuum Services Superfund site were completed in September
1999 and the site was removed from the National Priorities List in July 2001. The EPA has offered
to submit a settlement offer to us in return for which we would be recognized as a de minimis party
in regard to the Operating Industries Superfund site, but we have not yet received this settlement
proposal. Although we have not obtained a formal release of liability from the EPA with respect to
any of these sites, we believe that our potential liability in connection with these sites is not
likely to have a material adverse effect on our business, financial condition or results of
operations.
Hurricanes Katrina and Rita As a result of hurricanes Katrina and Rita in the
fall of 2005, several of our shorebase facilities located along the U.S. Gulf Coast sustained
significant hurricane damage. In particular, hurricane Katrina caused a total loss of our Venice,
Louisiana, shorebase facility, and hurricane Rita severely damaged the Creole, Louisiana, base and
flooded the Intracoastal City, Louisiana, base. These facilities have since been reopened. Based
on estimates of the losses, discussions with our property insurers and analysis of the terms of our
property insurance policies, we believe that it is probable that we will receive a total of $2.8
million in insurance recoveries ($1.5 million has been received thus far). We recorded a $0.2
million net gain during fiscal year 2006, ($2.8 million in probable insurance recoveries offset by
$2.6 million of involuntary conversion losses) related to property damage to these facilities.
Aircraft Repurchase Commitments During November 2002, we sold assets related to
our activities in Italy. In connection with this sale, we also agreed to acquire ownership of
three aircraft used in the Italy operations and currently
14
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
leased from unrelated third parties at future dates, and transfer ownership to the buyer. As
part of this arrangement, we agreed to exercise our purchase option at the conclusion of each lease
and to sell these aircraft to the buyer for an aggregate sales price of 8.8 million ($11.4
million). During fiscal year 2005, leases with one of the third parties were terminated and the
sale to the buyer closed on two of these aircraft, resulting in the recognition of a $2.3 million
gain. We have exercised the purchase option on the remaining aircraft and completed the sale
during the three months ended September 30, 2006, resulting in a gain of $2.2 million.
Guarantees We have guaranteed the repayment of up to £10 million ($18.7 million)
of the debt of FBS and $11.7 million of the debt of RLR, both unconsolidated affiliates. See
discussion of these commitments in Note 6 to our fiscal year 2006 Financial Statements. As of
September 30, 2006, we have recorded a liability of $0.8 million representing the fair value of the
RLR guarantee, which is reflected in our consolidated balance sheet in other liabilities and
deferred credits. Additionally, we provided an indemnity agreement to Afianzadora Sofimex, S.A. to
support issuance of surety bonds on behalf of HC from time to time; as of September 30, 2006,
surety bonds with an aggregate value of 32.4 million Mexican pesos ($2.9 million) were outstanding.
The following table summarizes our commitments under these guarantees as of September 30,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period |
|
|
Remainder |
|
Fiscal |
|
Fiscal |
|
Fiscal Year |
|
|
of Fiscal |
|
Years 2008- |
|
Years 2010- |
|
2012 and |
Total |
|
Year 2007 |
|
2009 |
|
2011 |
|
Thereafter |
|
|
(In thousands) |
$33,375 |
|
$ |
2,939 |
|
|
$ |
11,716 |
|
|
$ |
|
$ |
18,720 |
|
Other Matters Although infrequent, flight accidents have occurred in the past, and
substantially all of the related losses and liability claims have been covered by insurance. We
are a defendant in certain claims and litigation arising out of operations in the normal course of
business. In the opinion of management, uninsured losses, if any, will not be material to our
financial position, results of operations or cash flows.
NOTE 5 MANDATORY CONVERTIBLE PREFERRED STOCK
In September 2006, we issued 4,000,000 shares of Preferred Stock, in a public offering, for
net proceeds of $193.6 million. In October 2006, we issued an additional 600,000 shares of
Preferred Stock upon the exercise of the underwriters over-allotment option, for net proceeds of
$29.1 million. We intend to use the net proceeds from this offering to acquire aircraft and for
working capital and other general corporate purposes, including acquisitions.
Unless converted earlier pursuant to the terms discussed below, on September 15, 2009, the
Preferred Stock will convert into common stock based on the following conversion rates:
|
|
|
|
|
|
|
Number of Shares of |
|
Total Number of Shares of |
Market Value of |
|
Common Stock Issued |
|
Common Stock Issued |
Common Stock on |
|
for Each Share of |
|
for 4,600,000 Shares of |
September 15, 2009 |
|
Preferred Stock |
|
Preferred Stock |
$35.26 or less
|
|
1.4180
|
|
6,522,800 |
Between $35.26 and $43.19
|
|
1.4180 to 1.1577
|
|
6,522,799 to 5,324,961 |
$43.19 or greater
|
|
1.1576
|
|
5,324,960 |
The Market Value of our common stock is the average of the closing price per share of common
stock on each of the 20 consecutive trading days ending on the third trading day immediately
preceding the mandatory conversion date. Each share of Preferred Stock is convertible at the
holders option at any time into approximately 1.1576 shares of our common stock based on a
conversion price of $43.19 per share, subject to specified adjustments; however, upon such optional
conversion of Preferred Stock, we will make no payment of any future dividends. If, at any time
prior to the mandatory conversion date, the closing price per share of our common stock exceeds
$64.785, subject to anti-dilution requirements, for at least 20 days within a period of 30
consecutive trading days, we may elect to cause the conversion of all of the Preferred Stock then
outstanding at the conversion rate of 1.1576 shares of common stock (or a total of 5,324,960 shares
of common stock upon conversion of 4,600,000 shares of Preferred Stock), subject to specified
15
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
adjustments including payment of unpaid future dividends. There are also conversion and other
requirements applicable upon the cash acquisition of our company.
Annual cumulative cash dividends of $2.75 per share of mandatory convertible preferred stock
are payable quarterly on the fifteenth day of each March, June, September and December. Holders of
the Preferred Stock on the mandatory conversion date will have the right to receive the dividend
due on such date (including any accrued, cumulated and unpaid dividends), whether or not declared,
to the extent we are legally permitted to pay such dividends at such time.
NOTE 6 TAXES
Our effective income tax rates from continuing operations were 33.0% and 22.6% for the three
months ended September 30, 2006 and 2005, respectively, and 33.0% and 21.9% for the six months
ended September 30, 2006 and 2005, respectively. The significant variance between the U.S. federal
statutory rate and the effective rate for the three and six months ended September 30, 2005 was due
primarily to the impact of the reversals of reserves for tax contingencies of $2.9 million and $5.7
million, respectively, during those periods, as a result of our evaluation of the need for such
reserves in light of the expiration of the related statutes of limitations. During the three and
six months ended September 30, 2006, we had net reversals of reserves for estimated tax exposures
of $0.7 million and $1.5 million, respectively. Reversals of reserves at a level similar to that
for the three months ended September 30, 2006 are expected to occur in each of the remaining
quarterly periods of fiscal year 2007. Our effective tax rate was also impacted by the permanent
reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by
the amount of our foreign source income and our ability to realize foreign tax credits.
NOTE 7 EMPLOYEE BENEFIT PLANS
Pension Plans
The following table provides a detail of the components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Service cost for benefits earned during the period |
|
$ |
65 |
|
|
$ |
70 |
|
|
$ |
128 |
|
|
$ |
127 |
|
Interest cost on pension benefit obligation |
|
|
5,619 |
|
|
|
5,326 |
|
|
|
11,102 |
|
|
|
9,693 |
|
Expected return on assets |
|
|
(5,814 |
) |
|
|
(4,845 |
) |
|
|
(11,487 |
) |
|
|
(8,818 |
) |
Amortization of unrecognized experience losses |
|
|
901 |
|
|
|
911 |
|
|
|
1,780 |
|
|
|
1,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
771 |
|
|
$ |
1,462 |
|
|
$ |
1,523 |
|
|
$ |
2,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current estimate of our cash contributions to the pension plans for fiscal year 2007 is
$9.9 million, $2.7 million and $5.3 million of which were paid during the three and six months
ended September 30, 2006, respectively.
Stock-Based Compensation
We have a number of incentive and stock option plans, which are described in Note 9 to our
fiscal year 2006 Financial Statements.
Prior to April 1, 2006, we accounted for these stock-based compensation plans in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB No. 25, no compensation expense was reflected in net income for stock
options that we had issued to our employees, as all options granted under those plans had an
exercise price equal to the market value of the underlying shares on the date of grant.
Additionally, as required under the disclosure provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, we provided pro forma net income and earnings per share for each period
as if we had applied the fair value method to
16
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
measure stock-based compensation expense. Compensation expense related to awards of
restricted stock units was recorded in our statements of income over the vesting period of the
awards.
Effective April 1, 2006, we adopted the provisions of SFAS No. 123(R), Share-Based Payment,
and related interpretations, to account for stock-based compensation using the modified prospective
transition method and therefore will not restate our prior period results. SFAS No. 123(R)
supersedes and revises guidance in ABP No. 25 and SFAS No. 123. Among other things, SFAS No.
123(R) requires that compensation expense be recognized in the financial statements for share-based
awards based on the grant date fair value of those awards. The modified prospective transition
method applies to (1) unvested stock options under our stock option plans as of March 31, 2006
based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS
No. 123, and (2) any new share-based awards granted subsequent to March 31, 2006 (including
restricted stock units), based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R). Additionally, stock-based compensation expense includes an estimate
for pre-vesting forfeitures and is recognized over the requisite service periods of the awards on a
straight-line basis, which is commensurate with the vesting term.
As a result of adopting SFAS No. 123(R) on April 1, 2006, our income before provision for
income taxes and minority interest and net income for the three months ended September 30, 2006
were $0.7 million and $0.4 million lower, respectively, and for the six months ended September 30,
2006 were $1.2 million and $0.8 million lower, respectively, than if we had continued to account
for stock-based compensation under APB No. 25. Basic and diluted earnings per share for the three
months ended September 30, 2006 would have been $0.82 and $0.80, respectively, if we had not
adopted SFAS No. 123(R), compared to reported basic and diluted earnings per share of $0.80 and
$0.79, respectively. Basic and diluted earnings per share for the six months ended September 30,
2006 would have been $1.57 and $1.55, respectively, if we had not adopted SFAS No. 123(R), compared
to reported basic and diluted earnings per share of $1.54 and $1.52, respectively. Total
share-based compensation expense, which includes stock options and restricted stock units, was $1.3
million and $2.1 million for the three and six months ended September 30, 2006, respectively,
compared to $0.1 million for both the three and six months ended September 30, 2005. Stock-based
compensation expense has been allocated to our various business units.
Stock Options We use a Black-Scholes option pricing model to estimate the fair value of
share-based awards under SFAS No. 123(R), which is the same valuation technique we previously used
for pro forma disclosures under SFAS No. 123. The Black-Scholes option pricing model incorporates
various assumptions, including the risk-free interest rate, volatility, dividend yield and the
expected term of the options.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for a period equal to the expected term of the option. Expected volatilities are based on
the historical volatility of shares of our common stock, which has not been adjusted for any
expectation of future volatility given uncertainty related to the future performance of our common
stock at this time. We also use historical data to estimate the expected term of the options
within the option pricing model; groups of employees that have similar historical exercise behavior
are considered separately for valuation purposes. The expected term of the options represents the
period of time that the options granted are expected to be outstanding. Additionally, SFAS No.
123(R) requires us to estimate pre-vesting option forfeitures at the time of grant and periodically
revise those estimates in subsequent periods if actual pre-vesting forfeitures differ from those
estimates. We record stock-based compensation expense only for those awards expected to vest using
an estimated forfeiture rate based on our historical forfeiture data. Previously, we accounted for
forfeitures as they occurred under the pro forma disclosure provisions of SFAS No. 123 for periods
prior to April 1, 2006.
The following table shows the assumptions we used to compute the stock-based compensation
expense for stock option grants issued during the three and six months ended September 30, 2006.
17
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2006 |
|
Risk free interest rate |
|
|
5.0 |
% |
|
|
5.0-5.2 |
% |
Expected life (years) |
|
|
4 |
|
|
|
4 |
|
Volatility |
|
|
34 |
% |
|
|
30-34 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted during the three and six months
ended September 30, 2006 was $11.78 and $12.01 per option, respectively. Unrecognized stock-based
compensation expense related to nonvested stock options was approximately $3.2 million as of
September 30, 2006, relating to a total of 387,966 unvested stock options under our stock option
plans. We expect to recognize this stock-based compensation expense over a weighted average period
of approximately 1.34 years. The total fair value of options vested during the three and six
months ended September 30, 2006 was approximately $1.0 million and $1.3 million, respectively.
Options issued under our stock option plans had vesting terms ranging from six months to three
years. Options issued under these plans expire ten years from the date of grant, except for options
issued to non-employee directors which expire from three months to one year following the date when
the individual ceases to be a director (based on the reason thereof). The following is a summary
of stock option activity for the six months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Life (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Balance as of March 31, 2006 |
|
|
813,763 |
|
|
$ |
24.90 |
|
|
|
7.83 |
|
|
$ |
9,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
196,000 |
|
|
|
34.78 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(105,905 |
) |
|
|
20.48 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(27,196 |
) |
|
|
28.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2006 |
|
|
876,662 |
|
|
|
27.52 |
|
|
|
8.01 |
|
|
$ |
6,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of September 30, 2006 |
|
|
488,696 |
|
|
|
24.99 |
|
|
|
7.40 |
|
|
$ |
4,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value, determined as of the date of exercise, of options exercised for the
three and six months ended September 30, 2006 was $0.7 million and $1.5 million, respectively, and
for the three and six months ended September 30, 2005 was less than $0.1 million and was $0.5
million, respectively. The total amount of cash that we received from option exercises for the
three and six months ended September 30, 2006 and for the six months ended September 30, 2005 was
$1.4 million, $2.2 million and $0.5 million, respectively. No options were exercised during the
three months ended September 30, 2005. The total tax benefit attributable to options exercised
during the three and six months ended September 30, 2006 was $0.3 million and $0.6 million,
respectively.
SFAS No. 123(R) requires the benefits associated with tax deductions in excess of recognized
compensation cost to be reported as a financing cash flow rather than as an operating cash flow as
previously required. The excess tax benefits from stock-based compensation of $0.6 million as
reported on our condensed consolidated statement of cash flows in financing activities for the six
months ended September 30, 2006 represents the reduction in income taxes otherwise payable during
the period attributable to the actual gross tax benefits in excess of the expected tax benefits for
options exercised in current and prior periods.
Restricted Stock Units We record compensation expense for restricted stock units based on
an estimate of the expected vesting, which is tied to the future performance of our stock over
certain time periods under the terms of the award agreements. The estimated vesting period is reassessed quarterly. Changes in such
estimates may cause the
18
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
amount of expense recognized each period to fluctuate. Compensation
expense related to awards of restricted stock units for the three and six months ended September
30, 2006 was $0.6 million and $0.9 million, respectively, and for the three and six months ended
September 30, 2005 was less than $0.1 million and was $0.1 million, respectively.
The following is a summary of non-vested restricted stock units as of September 30, 2006 and
changes during the six months ended September 20, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
Date Fair |
|
|
|
|
|
|
Value |
|
|
Units |
|
Per Unit |
Non-vested as of March 31, 2006 |
|
|
198,200 |
|
|
$ |
29.32 |
|
Granted |
|
|
200,180 |
|
|
|
35.08 |
|
Forfeited |
|
|
(9,920 |
) |
|
|
31.10 |
|
|
|
|
|
|
|
|
|
|
Non-vested as of September 30, 2006 |
|
|
388,460 |
|
|
|
32.23 |
|
|
|
|
|
|
|
|
|
|
Unrecognized stock-based compensation expense related to non-vested restricted stock units was
approximately $10.4 million as of September 30, 2006, relating to a total of 388,460 unvested
restricted stock units. We expect to recognize this stock-based compensation expense over a
weighted average period of approximately 4.28 years.
Prior Period Pro Forma Presentation The following table illustrates the effect on net
income and earnings per share for the three and six months ended September 30, 2005 as if we had
applied the fair value method to measure stock-based compensation, as required under the disclosure
provisions of SFAS No. 123:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2005 |
|
|
2005 |
|
|
|
(In thousands, |
|
|
|
except per share amounts) |
|
Net income, as reported |
|
$ |
14,634 |
|
|
$ |
26,605 |
|
Stock-based employee compensation expense included
in reported net income, net of tax |
|
|
67 |
|
|
|
97 |
|
Stock-based employee compensation expense, net of tax |
|
|
(584 |
) |
|
|
(1,131 |
) |
|
|
|
|
|
|
|
Pro forma net income |
|
$ |
14,117 |
|
|
$ |
25,571 |
|
|
|
|
|
|
|
|
Basic earnings: |
|
|
|
|
|
|
|
|
Earnings, as reported |
|
$ |
0.63 |
|
|
$ |
1.14 |
|
Stock-based employee compensation expense, net of tax |
|
|
(0.02 |
) |
|
|
(0.04 |
) |
|
|
|
|
|
|
|
Pro forma basic earnings per share |
|
$ |
0.61 |
|
|
$ |
1.10 |
|
|
|
|
|
|
|
|
Diluted earnings: |
|
|
|
|
|
|
|
|
Earnings, as reported |
|
$ |
0.62 |
|
|
$ |
1.13 |
|
Stock-based employee compensation expense, net of tax |
|
|
(0.02 |
) |
|
|
(0.04 |
) |
|
|
|
|
|
|
|
Pro forma diluted earnings per share |
|
$ |
0.60 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
Black-Scholes option pricing model assumptions: |
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
4.0-4.2 |
% |
|
|
3.6-4.2 |
% |
Expected life (years) |
|
|
5 |
|
|
|
5 |
|
Volatility |
|
|
35-37 |
% |
|
|
35-38 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
19
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 8 EARNINGS PER SHARE
Basic earnings per common share was computed by dividing net income by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings per common share
for the three and six months ended September 30, 2006 excluded options to purchase 367,909 and
305,590 shares, respectively, at weighted average exercise prices of $32.85 and $32.14,
respectively, which were outstanding during the period but were anti-dilutive. Diluted earnings
per share for the three and six months ended September 30, 2005 excluded options to purchase 24,000
and 30,358 shares, respectively, at weighted average exercise prices of $36.61 and $36.06,
respectively, which were outstanding during the period but were anti-dilutive. Diluted earnings
per share also included weighted average shares resulting from the assumed conversion of the
Preferred Stock at the current conversion rate that results in the most dilution: 1.4180 shares of
common stock for each share of Preferred Stock. The following table sets forth the computation of
basic and diluted net income per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Earnings (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders basic |
|
$ |
18,754 |
|
|
$ |
14,634 |
|
|
$ |
35,983 |
|
|
$ |
26,605 |
|
Preferred Stock dividends |
|
|
321 |
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders diluted |
|
$ |
19,075 |
|
|
$ |
14,634 |
|
|
$ |
36,304 |
|
|
$ |
26,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
basic |
|
|
23,453,429 |
|
|
|
23,341,508 |
|
|
|
23,423,384 |
|
|
|
23,330,652 |
|
Assumed conversion of Preferred Stock outstanding
during the period |
|
|
678,192 |
|
|
|
|
|
|
|
340,949 |
|
|
|
|
|
Net effect of dilutive stock options and
restricted stock units based on the treasury stock
method |
|
|
115,963 |
|
|
|
276,850 |
|
|
|
117,484 |
|
|
|
272,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted |
|
|
24,247,584 |
|
|
|
23,618,358 |
|
|
|
23,881,817 |
|
|
|
23,602,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.80 |
|
|
$ |
0.63 |
|
|
$ |
1.54 |
|
|
$ |
1.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.79 |
|
|
$ |
0.62 |
|
|
$ |
1.52 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 9 SEGMENT INFORMATION
We conduct our business in two segments: Helicopter Services and Production Management
Services. The Helicopter Services segment operations are conducted through seven business units:
North America, South and Central America, Europe, West Africa, Southeast Asia, Other International
and Eastern Hemisphere (EH) Centralized Operations. We provide Production Management Services,
contract personnel and medical support services in the U.S. Gulf of Mexico to the domestic oil and
gas industry under the Grasso Production Management name. The following shows reportable segment
information for the three and six months ended September 30, 2006 and 2005, reconciled to
consolidated totals, and prepared on the same basis as our condensed consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Segment gross revenue from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
57,970 |
|
|
$ |
54,491 |
|
|
$ |
117,042 |
|
|
$ |
101,179 |
|
South and Central America |
|
|
13,137 |
|
|
|
9,897 |
|
|
|
26,148 |
|
|
|
19,484 |
|
Europe |
|
|
70,928 |
|
|
|
61,891 |
|
|
|
140,925 |
|
|
|
120,137 |
|
West Africa |
|
|
31,210 |
|
|
|
26,539 |
|
|
|
62,946 |
|
|
|
52,449 |
|
Southeast Asia |
|
|
17,626 |
|
|
|
14,688 |
|
|
|
34,665 |
|
|
|
28,496 |
|
Other International |
|
|
12,164 |
|
|
|
7,730 |
|
|
|
21,116 |
|
|
|
14,953 |
|
EH Centralized Operations |
|
|
3,409 |
|
|
|
2,233 |
|
|
|
7,024 |
|
|
|
4,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
206,444 |
|
|
|
177,469 |
|
|
|
409,866 |
|
|
|
341,438 |
|
Production Management Services |
|
|
17,765 |
|
|
|
16,920 |
|
|
|
35,430 |
|
|
|
33,872 |
|
Corporate |
|
|
|
|
|
|
16 |
|
|
|
(25 |
) |
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment gross revenue |
|
$ |
224,209 |
|
|
$ |
194,405 |
|
|
$ |
445,271 |
|
|
$ |
375,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment and intrasegment gross revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
8,334 |
|
|
$ |
6,763 |
|
|
$ |
16,063 |
|
|
$ |
12,527 |
|
South and Central America |
|
|
269 |
|
|
|
450 |
|
|
|
494 |
|
|
|
900 |
|
Europe |
|
|
1,200 |
|
|
|
833 |
|
|
|
2,587 |
|
|
|
1,768 |
|
West Africa |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast Asia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other International |
|
|
19 |
|
|
|
351 |
|
|
|
19 |
|
|
|
716 |
|
EH Centralized Operations |
|
|
11,318 |
|
|
|
10,289 |
|
|
|
22,108 |
|
|
|
20,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
21,140 |
|
|
|
18,686 |
|
|
|
41,271 |
|
|
|
36,093 |
|
Production Management Services |
|
|
19 |
|
|
|
22 |
|
|
|
38 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment and intrasegment gross revenue |
|
$ |
21,159 |
|
|
$ |
18,708 |
|
|
$ |
41,309 |
|
|
$ |
36,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross revenue reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
66,304 |
|
|
$ |
61,254 |
|
|
$ |
133,105 |
|
|
$ |
113,706 |
|
South and Central America |
|
|
13,406 |
|
|
|
10,347 |
|
|
|
26,642 |
|
|
|
20,384 |
|
Europe |
|
|
72,128 |
|
|
|
62,724 |
|
|
|
143,512 |
|
|
|
121,905 |
|
West Africa |
|
|
31,210 |
|
|
|
26,539 |
|
|
|
62,946 |
|
|
|
52,449 |
|
Southeast Asia |
|
|
17,626 |
|
|
|
14,688 |
|
|
|
34,665 |
|
|
|
28,496 |
|
Other International |
|
|
12,183 |
|
|
|
8,081 |
|
|
|
21,135 |
|
|
|
15,669 |
|
EH Centralized Operations |
|
|
14,727 |
|
|
|
12,522 |
|
|
|
29,132 |
|
|
|
24,922 |
|
Intrasegment eliminations |
|
|
(17,955 |
) |
|
|
(16,712 |
) |
|
|
(35,202 |
) |
|
|
(32,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services (1) |
|
|
209,629 |
|
|
|
179,443 |
|
|
|
415,935 |
|
|
|
345,395 |
|
Production Management Services (2) |
|
|
17,784 |
|
|
|
16,942 |
|
|
|
35,468 |
|
|
|
33,911 |
|
Corporate |
|
|
|
|
|
|
16 |
|
|
|
(25 |
) |
|
|
32 |
|
Intersegment eliminations |
|
|
(3,204 |
) |
|
|
(1,996 |
) |
|
|
(6,107 |
) |
|
|
(3,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated gross revenue |
|
$ |
224,209 |
|
|
$ |
194,405 |
|
|
$ |
445,271 |
|
|
$ |
375,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Consolidated operating income (loss) reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
9,173 |
|
|
$ |
14,592 |
|
|
$ |
20,258 |
|
|
$ |
24,374 |
|
South and Central America |
|
|
3,289 |
|
|
|
202 |
|
|
|
6,914 |
|
|
|
615 |
|
Europe |
|
|
8,436 |
|
|
|
10,004 |
|
|
|
17,460 |
|
|
|
16,924 |
|
West Africa |
|
|
820 |
|
|
|
2,033 |
|
|
|
3,227 |
|
|
|
4,105 |
|
Southeast Asia |
|
|
2,008 |
|
|
|
377 |
|
|
|
3,096 |
|
|
|
1,085 |
|
Other International |
|
|
3,328 |
|
|
|
956 |
|
|
|
4,434 |
|
|
|
2,184 |
|
EH Centralized Operations |
|
|
4,449 |
|
|
|
589 |
|
|
|
9,928 |
|
|
|
(702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
31,503 |
|
|
|
28,753 |
|
|
|
65,317 |
|
|
|
48,585 |
|
Production Management Services |
|
|
1,394 |
|
|
|
1,238 |
|
|
|
2,808 |
|
|
|
2,559 |
|
Gain (loss) on disposal of assets |
|
|
3,667 |
|
|
|
(1,494 |
) |
|
|
4,665 |
|
|
|
(902 |
) |
Corporate |
|
|
(5,703 |
) |
|
|
(6,402 |
) |
|
|
(10,869 |
) |
|
|
(13,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income |
|
$ |
30,861 |
|
|
$ |
22,095 |
|
|
$ |
61,921 |
|
|
$ |
37,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2006 |
|
|
|
(In thousands) |
|
Identifiable assets: (3) |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
433,048 |
|
|
$ |
415,045 |
|
South and Central America |
|
|
11,482 |
|
|
|
10,042 |
|
Europe |
|
|
56,337 |
|
|
|
31,515 |
|
West Africa |
|
|
6,311 |
|
|
|
8,918 |
|
Southeast Asia |
|
|
13,112 |
|
|
|
13,657 |
|
Other International |
|
|
31,596 |
|
|
|
28,125 |
|
EH Centralized Operations |
|
|
571,609 |
|
|
|
520,524 |
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
1,123,495 |
|
|
|
1,027,826 |
|
Production Management Services |
|
|
35,024 |
|
|
|
34,013 |
|
Corporate |
|
|
310,623 |
|
|
|
114,574 |
|
|
|
|
|
|
|
|
Total consolidated identifiable assets |
|
$ |
1,469,142 |
|
|
$ |
1,176,413 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes reimbursable revenue of $18.9 million and $13.2 million for the three
months ended September 30, 2006 and 2005, respectively, and $42.2 million and $27.3 million
for the six months ended September 30, 2006 and 2005, respectively. |
|
(2) |
|
Includes reimbursable revenue of $2.3 million and $4.5 million for the
three months ended September 30, 2006 and 2005, respectively, and $6.2 million and $9.1
million for the six months ended September 30, 2006 and 2005, respectively. |
|
(3) |
|
Information presented herein for our business units related to identifiable
assets is based on the business unit that owns the underlying assets. A significant portion
of these assets are leased from our North America and EH Centralized Operations business units
to other business units. Our operating revenue and operating expenses associated with the
operations of those assets is reflected in the results for the business unit that operates the
assets, and the intercompany lease revenue and expense eliminates in consolidation. |
22
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 10 COMPREHENSIVE INCOME
Comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Net income |
|
$ |
19,075 |
|
|
$ |
14,634 |
|
|
$ |
36,304 |
|
|
$ |
26,605 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
2,955 |
|
|
|
(3,285 |
) |
|
|
21,321 |
|
|
|
(17,117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
22,030 |
|
|
$ |
11,349 |
|
|
$ |
57,625 |
|
|
$ |
9,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and six months ended September 30, 2006, the U.S. dollar weakened
against the British pound sterling resulting in translation gains recorded as a component of
stockholders investment as of September 30, 2006. During the three and six months ended September
30, 2005, the U.S. dollar strengthened against the British pound sterling resulting in translation
losses recorded as a component of stockholders investment as of September 30, 2005. See
discussion of foreign currency translation in Note 1.
NOTE 11 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the sale of our 6 1/8% Senior Notes due 2013, certain
of our wholly-owned subsidiaries (the Guarantor Subsidiaries) jointly, severally and
unconditionally guaranteed the payment obligations under these notes. The following supplemental
financial information sets forth, on a consolidating basis, the balance sheet, statement of income
and cash flow information for Bristow Group Inc. (Parent Company Only), for the Guarantor
Subsidiaries and for our other subsidiaries (the Non-Guarantor Subsidiaries). We have not
presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries
because management has determined that such information is not material to investors.
The supplemental condensed consolidating financial information has been prepared pursuant to
the rules and regulations for condensed financial information and does not include all disclosures
included in annual financial statements, although we believe that the disclosures made are adequate
to make the information presented not misleading. The principal eliminating entries eliminate
investments in subsidiaries, intercompany balances and intercompany revenues and expenses.
The allocation of the consolidated income tax provision was made using the with and without
allocation method.
23
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
|
|
|
$ |
83,867 |
|
|
$ |
140,342 |
|
|
$ |
|
|
|
$ |
224,209 |
|
Intercompany revenue |
|
|
|
|
|
|
3,754 |
|
|
|
3,356 |
|
|
|
(7,110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,621 |
|
|
|
143,698 |
|
|
|
(7,110 |
) |
|
|
224,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
127 |
|
|
|
64,768 |
|
|
|
104,856 |
|
|
|
|
|
|
|
169,751 |
|
Intercompany expenses |
|
|
|
|
|
|
3,356 |
|
|
|
3,754 |
|
|
|
(7,110 |
) |
|
|
|
|
Depreciation and amortization |
|
|
56 |
|
|
|
4,526 |
|
|
|
6,155 |
|
|
|
|
|
|
|
10,737 |
|
General and administrative |
|
|
5,517 |
|
|
|
4,112 |
|
|
|
6,898 |
|
|
|
|
|
|
|
16,527 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(58 |
) |
|
|
(3,609 |
) |
|
|
|
|
|
|
(3,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,700 |
|
|
|
76,704 |
|
|
|
118,054 |
|
|
|
(7,110 |
) |
|
|
193,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(5,700 |
) |
|
|
10,917 |
|
|
|
25,644 |
|
|
|
|
|
|
|
30,861 |
|
Earnings (losses) from unconsolidated
affiliates, net |
|
|
12,790 |
|
|
|
(353 |
) |
|
|
2,132 |
|
|
|
(12,841 |
) |
|
|
1,728 |
|
Interest income |
|
|
15,331 |
|
|
|
73 |
|
|
|
1,186 |
|
|
|
(15,521 |
) |
|
|
1,069 |
|
Interest expense |
|
|
(3,183 |
) |
|
|
|
|
|
|
(15,209 |
) |
|
|
15,521 |
|
|
|
(2,871 |
) |
Other expense, net |
|
|
(5 |
) |
|
|
(17 |
) |
|
|
(1,286 |
) |
|
|
|
|
|
|
(1,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and minority interest |
|
|
19,233 |
|
|
|
10,620 |
|
|
|
12,467 |
|
|
|
(12,841 |
) |
|
|
29,479 |
|
Allocation of consolidated income taxes |
|
|
(116 |
) |
|
|
(1,357 |
) |
|
|
(8,255 |
) |
|
|
|
|
|
|
(9,728 |
) |
Minority interest |
|
|
(42 |
) |
|
|
|
|
|
|
(634 |
) |
|
|
|
|
|
|
(676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,075 |
|
|
$ |
9,263 |
|
|
$ |
3,578 |
|
|
$ |
(12,841 |
) |
|
$ |
19,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Six Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
(25 |
) |
|
$ |
168,316 |
|
|
$ |
276,980 |
|
|
$ |
|
|
|
$ |
445,271 |
|
Intercompany revenue |
|
|
|
|
|
|
6,680 |
|
|
|
5,721 |
|
|
|
(12,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
174,996 |
|
|
|
282,701 |
|
|
|
(12,401 |
) |
|
|
445,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
194 |
|
|
|
127,095 |
|
|
|
207,830 |
|
|
|
|
|
|
|
335,119 |
|
Intercompany expenses |
|
|
|
|
|
|
5,721 |
|
|
|
6,630 |
|
|
|
(12,351 |
) |
|
|
|
|
Depreciation and amortization |
|
|
82 |
|
|
|
8,776 |
|
|
|
12,162 |
|
|
|
|
|
|
|
21,020 |
|
General and administrative |
|
|
10,566 |
|
|
|
8,478 |
|
|
|
12,882 |
|
|
|
(50 |
) |
|
|
31,876 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(194 |
) |
|
|
(4,471 |
) |
|
|
|
|
|
|
(4,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,842 |
|
|
|
149,876 |
|
|
|
235,033 |
|
|
|
(12,401 |
) |
|
|
383,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(10,867 |
) |
|
|
25,120 |
|
|
|
47,668 |
|
|
|
|
|
|
|
61,921 |
|
Earnings (losses) from
unconsolidated affiliates, net |
|
|
24,660 |
|
|
|
(625 |
) |
|
|
4,017 |
|
|
|
(24,765 |
) |
|
|
3,287 |
|
Interest income |
|
|
29,961 |
|
|
|
133 |
|
|
|
2,063 |
|
|
|
(29,798 |
) |
|
|
2,359 |
|
Interest expense |
|
|
(6,466 |
) |
|
|
|
|
|
|
(29,439 |
) |
|
|
29,798 |
|
|
|
(6,107 |
) |
Other expense, net |
|
|
(94 |
) |
|
|
(94 |
) |
|
|
(5,905 |
) |
|
|
|
|
|
|
(6,093 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for
income taxes and minority
interest |
|
|
37,194 |
|
|
|
24,534 |
|
|
|
18,404 |
|
|
|
(24,765 |
) |
|
|
55,367 |
|
Allocation of consolidated income taxes |
|
|
(809 |
) |
|
|
(2,726 |
) |
|
|
(14,736 |
) |
|
|
|
|
|
|
(18,271 |
) |
Minority interest |
|
|
(81 |
) |
|
|
|
|
|
|
(711 |
) |
|
|
|
|
|
|
(792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
36,304 |
|
|
$ |
21,808 |
|
|
$ |
2,957 |
|
|
$ |
(24,765 |
) |
|
$ |
36,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
16 |
|
|
$ |
78,753 |
|
|
$ |
115,636 |
|
|
$ |
|
|
|
$ |
194,405 |
|
Intercompany revenue |
|
|
|
|
|
|
2,042 |
|
|
|
2,720 |
|
|
|
(4,762 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
80,795 |
|
|
|
118,356 |
|
|
|
(4,762 |
) |
|
|
194,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
(1,032 |
) |
|
|
54,622 |
|
|
|
90,322 |
|
|
|
|
|
|
|
143,912 |
|
Intercompany expenses |
|
|
|
|
|
|
2,718 |
|
|
|
1,934 |
|
|
|
(4,652 |
) |
|
|
|
|
Depreciation and amortization |
|
|
15 |
|
|
|
4,871 |
|
|
|
6,314 |
|
|
|
|
|
|
|
11,200 |
|
General and administrative |
|
|
7,434 |
|
|
|
3,370 |
|
|
|
5,010 |
|
|
|
(110 |
) |
|
|
15,704 |
|
Gain on disposal of assets |
|
|
(2 |
) |
|
|
(134 |
) |
|
|
1,630 |
|
|
|
|
|
|
|
1,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,415 |
|
|
|
65,447 |
|
|
|
105,210 |
|
|
|
(4,762 |
) |
|
|
172,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(6,399 |
) |
|
|
15,348 |
|
|
|
13,146 |
|
|
|
|
|
|
|
22,095 |
|
Earnings (losses) from
unconsolidated affiliates, net |
|
|
10,159 |
|
|
|
(1,227 |
) |
|
|
1,652 |
|
|
|
(10,211 |
) |
|
|
373 |
|
Interest income |
|
|
13,671 |
|
|
|
44 |
|
|
|
1,048 |
|
|
|
(13,814 |
) |
|
|
949 |
|
Interest expense |
|
|
(3,519 |
) |
|
|
(6 |
) |
|
|
(13,966 |
) |
|
|
13,814 |
|
|
|
(3,677 |
) |
Other income (expense), net |
|
|
(107 |
) |
|
|
7 |
|
|
|
(669 |
) |
|
|
|
|
|
|
(769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for
income taxes and minority
interest |
|
|
13,805 |
|
|
|
14,166 |
|
|
|
1,211 |
|
|
|
(10,211 |
) |
|
|
18,971 |
|
Allocation of consolidated income taxes |
|
|
867 |
|
|
|
(1,098 |
) |
|
|
(4,062 |
) |
|
|
|
|
|
|
(4,293 |
) |
Minority interest |
|
|
(38 |
) |
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
14,634 |
|
|
$ |
13,068 |
|
|
$ |
(2,857 |
) |
|
$ |
(10,211 |
) |
|
$ |
14,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Six Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
32 |
|
|
$ |
150,328 |
|
|
$ |
224,982 |
|
|
$ |
|
|
|
$ |
375,342 |
|
Intercompany revenue |
|
|
|
|
|
|
3,632 |
|
|
|
3,841 |
|
|
|
(7,473 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
153,960 |
|
|
|
228,823 |
|
|
|
(7,473 |
) |
|
|
375,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
(1,024 |
) |
|
|
107,679 |
|
|
|
178,471 |
|
|
|
|
|
|
|
285,126 |
|
Intercompany expenses |
|
|
|
|
|
|
3,840 |
|
|
|
3,413 |
|
|
|
(7,253 |
) |
|
|
|
|
Depreciation and amortization |
|
|
32 |
|
|
|
9,078 |
|
|
|
12,397 |
|
|
|
|
|
|
|
21,507 |
|
General and administrative |
|
|
14,126 |
|
|
|
6,348 |
|
|
|
10,413 |
|
|
|
(220 |
) |
|
|
30,667 |
|
Loss (gain) on disposal of assets |
|
|
4 |
|
|
|
(143 |
) |
|
|
1,041 |
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,138 |
|
|
|
126,802 |
|
|
|
205,735 |
|
|
|
(7,473 |
) |
|
|
338,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(13,106 |
) |
|
|
27,158 |
|
|
|
23,088 |
|
|
|
|
|
|
|
37,140 |
|
Earnings (losses) from unconsolidated
affiliates, net |
|
|
16,990 |
|
|
|
(2,037 |
) |
|
|
2,561 |
|
|
|
(17,095 |
) |
|
|
419 |
|
Interest income |
|
|
27,205 |
|
|
|
88 |
|
|
|
2,175 |
|
|
|
(27,487 |
) |
|
|
1,981 |
|
Interest expense |
|
|
(7,187 |
) |
|
|
(7 |
) |
|
|
(27,678 |
) |
|
|
27,487 |
|
|
|
(7,385 |
) |
Other income (expense), net |
|
|
(455 |
) |
|
|
(1 |
) |
|
|
2,469 |
|
|
|
|
|
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and minority interest |
|
|
23,447 |
|
|
|
25,201 |
|
|
|
2,615 |
|
|
|
(17,095 |
) |
|
|
34,168 |
|
Allocation of consolidated income taxes |
|
|
3,237 |
|
|
|
(2,340 |
) |
|
|
(8,366 |
) |
|
|
|
|
|
|
(7,469 |
) |
Minority interest |
|
|
(79 |
) |
|
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
26,605 |
|
|
$ |
22,861 |
|
|
$ |
(5,766 |
) |
|
$ |
(17,095 |
) |
|
$ |
26,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
192,770 |
|
|
$ |
7,367 |
|
|
$ |
68,138 |
|
|
$ |
|
|
|
$ |
268,275 |
|
Accounts receivable |
|
|
32,111 |
|
|
|
62,484 |
|
|
|
118,789 |
|
|
|
(40,250 |
) |
|
|
173,134 |
|
Inventories |
|
|
|
|
|
|
72,064 |
|
|
|
85,902 |
|
|
|
|
|
|
|
157,966 |
|
Prepaid expenses and other |
|
|
593 |
|
|
|
4,576 |
|
|
|
11,262 |
|
|
|
|
|
|
|
16,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
225,474 |
|
|
|
146,491 |
|
|
|
284,091 |
|
|
|
(40,250 |
) |
|
|
615,806 |
|
Intercompany investment |
|
|
291,277 |
|
|
|
1,046 |
|
|
|
|
|
|
|
(292,323 |
) |
|
|
|
|
Investment in unconsolidated affiliates |
|
|
4,749 |
|
|
|
962 |
|
|
|
36,390 |
|
|
|
|
|
|
|
42,101 |
|
Intercompany notes receivable |
|
|
685,255 |
|
|
|
|
|
|
|
24,689 |
|
|
|
(709,944 |
) |
|
|
|
|
Property and equipment at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings |
|
|
262 |
|
|
|
33,671 |
|
|
|
13,321 |
|
|
|
|
|
|
|
47,254 |
|
Aircraft and equipment |
|
|
1,941 |
|
|
|
444,741 |
|
|
|
524,866 |
|
|
|
|
|
|
|
971,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,203 |
|
|
|
478,412 |
|
|
|
538,187 |
|
|
|
|
|
|
|
1,018,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and
amortization |
|
|
(1,400 |
) |
|
|
(117,641 |
) |
|
|
(168,937 |
) |
|
|
|
|
|
|
(287,978 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
803 |
|
|
|
360,771 |
|
|
|
369,250 |
|
|
|
|
|
|
|
730,824 |
|
Goodwill |
|
|
|
|
|
|
18,594 |
|
|
|
8,102 |
|
|
|
111 |
|
|
|
26,807 |
|
Other assets |
|
|
11,137 |
|
|
|
83 |
|
|
|
42,384 |
|
|
|
|
|
|
|
53,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,218,695 |
|
|
$ |
527,947 |
|
|
$ |
764,906 |
|
|
$ |
(1,042,406 |
) |
|
$ |
1,469,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,359 |
|
|
$ |
15,064 |
|
|
$ |
52,746 |
|
|
$ |
(9,239 |
) |
|
$ |
59,930 |
|
Accrued liabilities |
|
|
12,056 |
|
|
|
23,001 |
|
|
|
97,985 |
|
|
|
(31,012 |
) |
|
|
102,030 |
|
Deferred taxes |
|
|
(4,053 |
) |
|
|
|
|
|
|
14,083 |
|
|
|
|
|
|
|
10,030 |
|
Short-term borrowings and current
maturities of long-term debt |
|
|
|
|
|
|
|
|
|
|
22,479 |
|
|
|
|
|
|
|
22,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
9,362 |
|
|
|
38,065 |
|
|
|
187,293 |
|
|
|
(40,251 |
) |
|
|
194,469 |
|
Long-term debt, less current maturities |
|
|
234,380 |
|
|
|
|
|
|
|
3,684 |
|
|
|
|
|
|
|
238,064 |
|
Intercompany notes payable |
|
|
25,482 |
|
|
|
150,806 |
|
|
|
533,656 |
|
|
|
(709,944 |
) |
|
|
|
|
Other liabilities and deferred credits |
|
|
4,263 |
|
|
|
9,858 |
|
|
|
150,436 |
|
|
|
|
|
|
|
164,557 |
|
Deferred taxes |
|
|
42,927 |
|
|
|
1,805 |
|
|
|
27,903 |
|
|
|
|
|
|
|
72,635 |
|
Minority interest |
|
|
1,945 |
|
|
|
|
|
|
|
3,035 |
|
|
|
|
|
|
|
4,980 |
|
Stockholders investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.50% mandatory convertible preferred
stock |
|
|
193,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,590 |
|
Common stock |
|
|
235 |
|
|
|
4,062 |
|
|
|
25,986 |
|
|
|
(30,048 |
) |
|
|
235 |
|
Additional paid-in-capital |
|
|
164,286 |
|
|
|
51,170 |
|
|
|
13,476 |
|
|
|
(64,646 |
) |
|
|
164,286 |
|
Retained earnings |
|
|
483,828 |
|
|
|
272,181 |
|
|
|
(66,460 |
) |
|
|
(205,721 |
) |
|
|
483,828 |
|
Accumulated other comprehensive
income (loss) |
|
|
58,397 |
|
|
|
|
|
|
|
(114,103 |
) |
|
|
8,204 |
|
|
|
(47,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900,336 |
|
|
|
327,413 |
|
|
|
(141,101 |
) |
|
|
(292,211 |
) |
|
|
794,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,218,695 |
|
|
$ |
527,947 |
|
|
$ |
764,906 |
|
|
$ |
(1,042,406 |
) |
|
$ |
1,469,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
74,601 |
|
|
$ |
1,363 |
|
|
$ |
46,518 |
|
|
$ |
|
|
|
$ |
122,482 |
|
Accounts receivable |
|
|
23,627 |
|
|
|
57,332 |
|
|
|
112,277 |
|
|
|
(32,831 |
) |
|
|
160,405 |
|
Inventories |
|
|
|
|
|
|
71,061 |
|
|
|
76,799 |
|
|
|
|
|
|
|
147,860 |
|
Prepaid expenses and other |
|
|
1,146 |
|
|
|
4,080 |
|
|
|
11,293 |
|
|
|
|
|
|
|
16,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
99,374 |
|
|
|
133,836 |
|
|
|
246,887 |
|
|
|
(32,831 |
) |
|
|
447,266 |
|
Intercompany investment |
|
|
266,510 |
|
|
|
1,046 |
|
|
|
|
|
|
|
(267,556 |
) |
|
|
|
|
Investment in unconsolidated affiliates |
|
|
4,854 |
|
|
|
1,587 |
|
|
|
33,471 |
|
|
|
|
|
|
|
39,912 |
|
Intercompany notes receivable |
|
|
547,552 |
|
|
|
|
|
|
|
13,954 |
|
|
|
(561,506 |
) |
|
|
|
|
Property and equipment at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings |
|
|
171 |
|
|
|
29,251 |
|
|
|
11,250 |
|
|
|
|
|
|
|
40,672 |
|
Aircraft and equipment |
|
|
1,695 |
|
|
|
357,051 |
|
|
|
479,568 |
|
|
|
|
|
|
|
838,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,866 |
|
|
|
386,302 |
|
|
|
490,818 |
|
|
|
|
|
|
|
878,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and
amortization |
|
|
(1,349 |
) |
|
|
(109,963 |
) |
|
|
(151,760 |
) |
|
|
|
|
|
|
(263,072 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517 |
|
|
|
276,339 |
|
|
|
339,058 |
|
|
|
|
|
|
|
615,914 |
|
Goodwill |
|
|
|
|
|
|
18,593 |
|
|
|
8,133 |
|
|
|
111 |
|
|
|
26,837 |
|
Other assets |
|
|
8,808 |
|
|
|
176 |
|
|
|
37,500 |
|
|
|
|
|
|
|
46,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
927,615 |
|
|
$ |
431,577 |
|
|
$ |
679,003 |
|
|
$ |
(861,782 |
) |
|
$ |
1,176,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
920 |
|
|
$ |
19,225 |
|
|
$ |
30,519 |
|
|
$ |
(9,437 |
) |
|
$ |
41,227 |
|
Accrued liabilities |
|
|
14,696 |
|
|
|
20,399 |
|
|
|
88,342 |
|
|
|
(23,394 |
) |
|
|
100,043 |
|
Deferred taxes |
|
|
(6,060 |
) |
|
|
|
|
|
|
11,085 |
|
|
|
|
|
|
|
5,025 |
|
Short-term borrowings and current
maturities of long-term debt |
|
|
|
|
|
|
|
|
|
|
17,634 |
|
|
|
|
|
|
|
17,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
9,556 |
|
|
|
39,624 |
|
|
|
147,580 |
|
|
|
(32,831 |
) |
|
|
163,929 |
|
Long-term debt, less current maturities |
|
|
234,381 |
|
|
|
|
|
|
|
13,281 |
|
|
|
|
|
|
|
247,662 |
|
Intercompany notes payable |
|
|
14,658 |
|
|
|
74,525 |
|
|
|
472,323 |
|
|
|
(561,506 |
) |
|
|
|
|
Other liabilities and deferred credits |
|
|
4,658 |
|
|
|
10,175 |
|
|
|
139,704 |
|
|
|
|
|
|
|
154,537 |
|
Deferred taxes |
|
|
34,361 |
|
|
|
1,648 |
|
|
|
32,272 |
|
|
|
|
|
|
|
68,281 |
|
Minority interest |
|
|
1,804 |
|
|
|
|
|
|
|
2,503 |
|
|
|
|
|
|
|
4,307 |
|
Stockholders investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
234 |
|
|
|
4,062 |
|
|
|
23,578 |
|
|
|
(27,640 |
) |
|
|
234 |
|
Additional paid-in-capital |
|
|
158,762 |
|
|
|
51,170 |
|
|
|
13,477 |
|
|
|
(64,647 |
) |
|
|
158,762 |
|
Retained earnings |
|
|
447,524 |
|
|
|
250,373 |
|
|
|
(69,418 |
) |
|
|
(180,955 |
) |
|
|
447,524 |
|
Accumulated other comprehensive
income (loss) |
|
|
21,677 |
|
|
|
|
|
|
|
(96,297 |
) |
|
|
5,797 |
|
|
|
(68,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628,197 |
|
|
|
305,605 |
|
|
|
(128,660 |
) |
|
|
(267,445 |
) |
|
|
537,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
927,615 |
|
|
$ |
431,577 |
|
|
$ |
679,003 |
|
|
$ |
(861,782 |
) |
|
$ |
1,176,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
$ |
(10,823 |
) |
|
$ |
21,740 |
|
|
$ |
20,841 |
|
|
$ |
16,941 |
|
|
$ |
48,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(377 |
) |
|
|
(95,036 |
) |
|
|
(13,143 |
) |
|
|
|
|
|
|
(108,556 |
) |
Proceeds from asset dispositions |
|
|
|
|
|
|
1,725 |
|
|
|
6,865 |
|
|
|
|
|
|
|
8,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(377 |
) |
|
|
(93,311 |
) |
|
|
(6,278 |
) |
|
|
|
|
|
|
(99,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock |
|
|
194,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
194,450 |
|
Preferred stock issuance costs |
|
|
(346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(346 |
) |
Repayment of debt and debt redemption
premiums |
|
|
|
|
|
|
|
|
|
|
(1,541 |
) |
|
|
|
|
|
|
(1,541 |
) |
Increases (decreases) in cash related to intercompany
advances and debt |
|
|
(67,575 |
) |
|
|
77,575 |
|
|
|
6,941 |
|
|
|
(16,941 |
) |
|
|
|
|
Partial prepayment of put/call obligation |
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(80 |
) |
Issuance of common stock |
|
|
2,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,169 |
|
Tax benefit related to exercise of stock
options |
|
|
607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
129,225 |
|
|
|
77,575 |
|
|
|
5,400 |
|
|
|
(16,941 |
) |
|
|
195,259 |
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
144 |
|
|
|
|
|
|
|
1,657 |
|
|
|
|
|
|
|
1,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
|
118,169 |
|
|
|
6,004 |
|
|
|
21,620 |
|
|
|
|
|
|
|
145,793 |
|
Cash and cash equivalents at beginning
of period |
|
|
74,601 |
|
|
|
1,363 |
|
|
|
46,518 |
|
|
|
|
|
|
|
122,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
192,770 |
|
|
$ |
7,367 |
|
|
$ |
68,138 |
|
|
$ |
|
|
|
$ |
268,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
$ |
(2,437 |
) |
|
$ |
48,638 |
|
|
$ |
(1,875 |
) |
|
$ |
(39,013 |
) |
|
$ |
5,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(265 |
) |
|
|
(44,162 |
) |
|
|
(13,073 |
) |
|
|
|
|
|
|
(57,500 |
) |
Proceeds from asset dispositions |
|
|
73 |
|
|
|
1,791 |
|
|
|
2,585 |
|
|
|
|
|
|
|
4,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(192 |
) |
|
|
(42,371 |
) |
|
|
(10,488 |
) |
|
|
|
|
|
|
(53,051 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt and debt redemption
premiums |
|
|
|
|
|
|
|
|
|
|
(1,483 |
) |
|
|
|
|
|
|
(1,483 |
) |
Repayment of intercompany debt |
|
|
(1 |
) |
|
|
(4,600 |
) |
|
|
(12 |
) |
|
|
4,613 |
|
|
|
|
|
Dividends paid |
|
|
|
|
|
|
(3,500 |
) |
|
|
(30,900 |
) |
|
|
34,400 |
|
|
|
|
|
Partial prepayment of put/call obligation |
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
Issuance of common stock |
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
463 |
|
|
|
(8,100 |
) |
|
|
(32,395 |
) |
|
|
39,013 |
|
|
|
(1,019 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
|
|
|
|
|
|
|
|
(3,408 |
) |
|
|
|
|
|
|
(3,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,166 |
) |
|
|
(1,833 |
) |
|
|
(48,166 |
) |
|
|
|
|
|
|
(52,165 |
) |
Cash and cash equivalents at beginning
of period |
|
|
23,947 |
|
|
|
7,907 |
|
|
|
114,586 |
|
|
|
|
|
|
|
146,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
21,781 |
|
|
$ |
6,074 |
|
|
$ |
66,420 |
|
|
$ |
|
|
|
$ |
94,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bristow Group Inc.:
We have reviewed the condensed consolidated balance sheet of Bristow Group Inc. and
subsidiaries as of September 30, 2006, the related condensed consolidated statements of income for
the three-month and six-month periods ended September 30, 2006 and 2005 and the related condensed
consolidated statements of cash flows for the six-month periods ended September 30, 2006 and 2005.
These condensed consolidated financial statements are the responsibility of the Companys
management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to
the condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Bristow Group Inc. and
subsidiaries as of March 31, 2006, and the related consolidated statements of income, stockholders
investment, and cash flows for the year then ended (not presented herein); and in our report dated
June 8, 2006, 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, 2006 is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
|
|
|
|
|
/s/ KPMG LLP |
Houston, Texas |
|
|
November 7, 2006 |
|
|
32
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Managements 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, 2006 (Annual Report) and the MD&A contained therein. In the discussion that
follows, the terms Current Quarter and Comparable Quarter refer to the three months ended
September 30, 2006 and 2005, respectively, and the terms Current Period and Comparable Period
refer to the six months ended September 30, 2006 and 2005, 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, 2007 is referred to as fiscal year 2007.
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of Section 27A
of the Securities Act 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 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 of 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. Factors that could cause our
forward-looking statements to be incorrect and actual events or our actual results to differ from
those that are anticipated include all of the following:
|
|
|
the risks and uncertainties described or referred to under Risk Factors included
elsewhere in this Quarterly Report and in the Annual Report; |
|
|
|
|
the level of activity in the oil and natural gas industry is lower than anticipated; |
|
|
|
|
production-related activities become more sensitive to variances in commodity prices; |
|
|
|
|
the major oil companies do not continue to expand internationally; |
|
|
|
|
market conditions are weaker than anticipated; |
|
|
|
|
we are not able to re-deploy our aircraft to regions with the greater demand; |
|
|
|
|
we do not achieve the anticipated benefit of our fleet expansion program; |
|
|
|
|
the outcome of the SEC investigation relating to the Foreign Corrupt Practices Act and
other matters, or the Internal Review, has a greater than anticipated financial or business
impact; |
|
|
|
|
the outcome of the DOJ antitrust investigation, which is ongoing, has a greater than
anticipated financial or business impact; and |
|
|
|
|
the implementation of our plan to improve our internal control over financial reporting,
as discussed in the Annual Report and under Item 4. Controls and Procedures Changes in
Internal Control Over Financial Reporting included elsewhere in this Quarterly Report. |
33
All forward-looking statements in this Quarterly Report are qualified by these cautionary
statements and speak only 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.
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 statements which follows and
does not disclose every item bearing on our financial condition and operating performance.
General
We are the leading provider of helicopter services to the worldwide offshore energy industry
based on the number of aircraft operated. We are one of two helicopter service providers to the
offshore energy industry with global operations. We have major operations in the U.S. Gulf of
Mexico and the North Sea, and operations in most of the other major offshore oil and gas producing
regions of the world, including Alaska, Australia, Brazil, China, Mexico, Nigeria, Russia and
Trinidad. We have a long history in the helicopter services industry, with our two principal
legacy companies, Bristow Helicopters Ltd., and Offshore Logistics, Inc., having been founded in
1955 and 1969, respectively.
We conduct our business in two segments: Helicopter Services and Production Management
Services. The Helicopter Services segment operations are conducted through seven business units:
|
|
|
North America; |
|
|
|
|
South and Central America; |
|
|
|
|
Europe; |
|
|
|
|
West Africa; |
|
|
|
|
Southeast Asia; |
|
|
|
|
Other International; and |
|
|
|
|
Eastern Hemisphere (EH) Centralized Operations. |
We provide helicopter services to a broad base of major, independent, international and
national energy companies. Customers charter our helicopters to transport personnel between
onshore bases and offshore platforms, drilling rigs and installations. A majority of our
helicopter revenue is attributable to oil and gas production activities, which have historically
provided a more stable source of revenue than exploration and development related activities. As
of September 30, 2006, we operated 332 aircraft (including 310 aircraft owned, 22 leased aircraft
and three aircraft held for sale), and our unconsolidated affiliates operated an additional 148
aircraft (excluding those aircraft leased from us). In both the Current Quarter and the Current
Period, our Helicopter Services segment contributed approximately 92% of our gross revenue.
We are also a leading provider of production management services for oil and gas production
facilities in the U.S. Gulf of Mexico. Our services include furnishing specialized production
operations personnel, engineering services, production operating services, paramedic services and
providing marine and helicopter transportation of personnel and supplies between onshore bases and
offshore facilities. In connection with these activities, our Production Management Services
segment uses our helicopter services. We also handle regulatory and production reporting for some
of our customers. As of September 30, 2006, we managed or had personnel assigned to 315 production
facilities in the U.S. Gulf of Mexico.
The chart below presents (1) the number of helicopters in our fleet and their distribution
among the business units of our Helicopter Services segment as of October 5, 2006; (2) the number
of helicopters which we had on order or under option as of October 5, 2006; and (3) the percentage
of gross revenues which each of our segments and business units provided during the Current Period.
For additional information regarding our commitments and options to acquire
34
aircraft, see Liquidity and Capital Resources Future Cash Requirements Capital
Commitments included elsewhere in this Quarterly Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft in Fleet |
|
|
Percentage of |
|
|
|
Helicopters |
|
|
Fixed |
|
|
|
|
|
|
Current Period |
|
|
|
Small |
|
|
Medium |
|
|
Large |
|
|
Wing |
|
|
Total |
|
|
Revenues |
|
Helicopter Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
138 |
|
|
|
25 |
|
|
|
4 |
|
|
|
1 |
|
|
|
168 |
|
|
|
26 |
% |
South and Central America |
|
|
2 |
|
|
|
30 |
|
|
|
1 |
|
|
|
|
|
|
|
33 |
|
|
|
6 |
% |
Europe |
|
|
1 |
|
|
|
6 |
|
|
|
30 |
|
|
|
|
|
|
|
37 |
|
|
|
31 |
% |
West Africa |
|
|
11 |
|
|
|
29 |
|
|
|
2 |
|
|
|
6 |
|
|
|
48 |
|
|
|
14 |
% |
Southeast Asia |
|
|
2 |
|
|
|
6 |
|
|
|
9 |
|
|
|
|
|
|
|
17 |
|
|
|
8 |
% |
Other International |
|
|
|
|
|
|
11 |
|
|
|
9 |
|
|
|
3 |
|
|
|
23 |
|
|
|
5 |
% |
EH Centralized Operations |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
2 |
% |
Production Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
154 |
|
|
|
107 |
|
|
|
61 |
|
|
|
10 |
|
|
|
332 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft not currently in fleet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On order |
|
|
3 |
|
|
|
39 |
|
|
|
9 |
|
|
|
|
|
|
|
51 |
|
|
|
|
|
Under option |
|
|
|
|
|
|
24 |
|
|
|
9 |
|
|
|
|
|
|
|
33 |
|
|
|
|
|
We expect that the additional aircraft on order and any aircraft we acquire pursuant to
options will generally be deployed evenly across our global business units, but with a bias towards
those units where we expect higher growth, such as our Other International and Southeast Asia
units.
Our operating revenue depends on the demand for our services and the pricing terms of our
contracts. We measure the demand for our helicopter services in flight hours. Demand for our
services depends on the level of worldwide offshore oil and gas exploration, development and
production activities. We believe that our customers exploration and development activities are
influenced by actual and expected trends in commodity prices for oil and gas. Exploration and
development activities generally use medium-size and larger aircraft on which we typically earn
higher margins. We believe that production-related activities are less sensitive to variances in
commodity prices, and accordingly, provide more stable activity levels and revenue stream. We
estimate that a majority of our operating revenue from Helicopter Services is related to the
production activities of the oil and gas companies.
Helicopter Services are seasonal in nature, as our flight activities are influenced by the
length of daylight hours and weather conditions. The worst of these conditions typically occurs
during the winter months when our ability to safely fly and our customers ability to safely
conduct their operations, is inhibited. Accordingly, our flight activity is generally lower in the
fourth fiscal quarter.
Our helicopter contracts are generally based on a two-tier rate structure consisting of a
daily or monthly fixed fee plus additional fees for each hour flown. We also provide services to
customers on an ad hoc basis, which usually entails a shorter notice period and shorter duration.
Our charges for ad hoc services are generally based on an hourly rate, or a daily or monthly fixed
fee plus additional fees for each hour flown. Generally, our ad hoc services have a higher margin
than our other helicopter contracts due to supply and demand dynamics. In addition, our standard
rate structure is based on fuel costs remaining at or below a predetermined threshold. Fuel costs
in excess of this threshold are generally charged to the customer. We also derive revenue from
reimbursements for third party out-of-pocket costs such as certain landing and navigation costs,
consultant salaries, travel and accommodation costs, and dispatcher charges. The costs incurred
that are rebilled to our customers are presented as reimbursable expense and the related revenue is
presented as reimbursable revenue in our consolidated statements of income.
Our helicopter contracts generally provide that the customer will reimburse us for cost
increases associated with the contract and are cancelable by the customer with notice of generally
30 days in the U.S. Gulf of Mexico, 90 to 180 days in Europe and 90 days in West Africa. In North
America, we generally enter into short-term contracts for twelve months or less, although we
occasionally enter into longer-term contracts. In Europe, contracts are longer term, generally
between two and five years. In South and Central America, West Africa, Southeast Asia and Other
International, contract length generally ranges from three to five years. At the expiration of a
contract, our customers often negotiate renewal terms with
35
us for the next contract period. In other instances, customers solicit new bids at the
expiration of a contract. Contracts are generally awarded based on a number of factors, including
price, quality of service, equipment and record of safety. An incumbent operator has a competitive
advantage in the bidding process based on its relationship with the customer, its knowledge of the
site characteristics and its understanding of the cost structure for the operations.
Maintenance and repair expenses, training costs, employee wages and insurance premiums
represent a significant portion of our overall expenses. Our production management costs also
include contracted transportation services. We expense maintenance and repair costs, including
major aircraft component overhaul costs, as the costs are incurred. As a result, our earnings in
any given period are directly impacted by the amount of our maintenance and repair expenses for
that period. In certain instances, major aircraft components, primarily engines and transmissions,
are maintained by third-party vendors under contractual arrangements. Under these agreements, we
are charged an agreed amount per hour of flying time.
As a result of local laws limiting foreign ownership of aviation companies, we conduct
helicopter services in certain foreign countries through interests in affiliates, some of which are
unconsolidated. Generally, we realize revenue from these foreign operations by leasing aircraft and
providing services and technical support to those entities. We also receive dividend income from
the earnings of some of these entities. For additional information about these unconsolidated
affiliates, see Note 3 in the Notes to Consolidated Financial Statements in the Annual Report and
Note 2 in the Condensed Notes to Consolidated Financial Statements included elsewhere in this
Quarterly Report.
Our Strategy
Our goal is to advance our position as the leading helicopter services provider to the
offshore energy industry. We intend to employ the following strategies to achieve this goal:
|
|
|
Strategically position our company as the preferred provider of helicopter services. We
position our company as the preferred provider of helicopter services by maintaining strong
relationships with our customers and providing high-quality service. We focus on
maintaining relationships with our customers local and corporate management. We believe
that this focus helps us to provide our customers with the right aircraft in the right place
at the right time and to better anticipate customer needs, which in turn allows us to better
manage our fleet. We also leverage our close relationships with our customers to establish
mutually beneficial operating practices and safety standards worldwide. By applying
standard operating and safety practices across our global operations, we are able to provide
our customers with consistent, high-quality service in each of their areas of operation. By
better understanding our customers needs and by virtue of our global operations and safety
standards, we have effectively competed against other helicopter service providers based on
customer service, safety and reliability, and not just price. |
|
|
|
|
Integrate our operations. In fiscal year 2006, we completed a number of changes in our
business to integrate our global organization, and we intend to continue to identify and
implement further integration opportunities. These changes include changes in our senior
management team, the integration of our operations among previously independently managed
businesses, improvements in global asset allocation and other changes in our corporate
operations. We anticipate that these improvements will result in revenue growth, and may
also generate cost savings. |
|
|
|
|
Grow our business internationally. We plan to grow our business in most of the markets
in which we operate. We expect this growth to be particularly strong in international
markets outside our three largest markets (U.S. Gulf of Mexico, North Sea and Nigeria),
which represented 63% of our Current Period revenues. Although we have a footprint in most
major oil and gas producing regions of the world, we have the opportunity to expand and
deepen our presence in many of these markets, for example the Middle East and Southeast
Asia. We anticipate this growth to result primarily from the deployment of new aircraft
into markets where we expect they will be most profitably employed, as well as by executing
opportunistic acquisitions. Our acquisition-related growth may include increasing our role
and participation with existing unconsolidated affiliates and may include increasing our
position in existing markets or expanding into new markets. |
|
|
|
|
In October 2006, we exercised options to purchase four large aircraft that were to expire on
September 30, 2006 for a purchase price of approximately $79.0 million. Consistent with our
desire to maintain a conservative use of |
36
|
|
|
leverage to fund growth, we raised $222.7 million capital through the sale of equity
securities in the offering of mandatory convertible preferred stock (Preferred Stock)
completed in September and October 2006. We have options to acquire an additional nine large
aircraft and an additional 24 medium aircraft. Depending on market conditions, we may
exercise these additional options to acquire aircraft or elect to expand our business through
acquisition, including acquisitions under consideration or negotiation. These strategic
decisions would require us to access additional sources of capital. Our decision to use
equity, debt or a combination of the two would depend on our financial position and market
conditions at that time, but we currently expect to use debt financing. |
Market Outlook
We are currently experiencing significant demand for our helicopter services. Based on our
current contract level and discussions with our customers about their needs for aircraft related to
their oil and gas production and exploration plans, we anticipate the demand for aircraft services
will continue at a very high level for the near term. Further, based on the projects planned by our
customers in the markets in which we currently operate, we anticipate global demand for our
services will grow in the long term and exceed the transportation capacity of the aircraft we and
our competitors currently have in our fleets and on order. In addition, this high level of demand
has allowed us to increase the rates we charge for our services over the past several years.
We expect to see growth in demand for additional helicopter services, particularly in North
and South America, West Africa and Southeast Asia. We also expect that the relative importance of
our Southeast Asia and Other International business units will continue to increase as the major
oil and gas companies increasingly focus on prospects outside of North America and the North Sea.
This growth will provide us with opportunities to add new aircraft to our fleet, as well as
opportunities to redeploy aircraft from weaker markets into markets that will sustain higher rates
for our services. Currently, helicopter manufacturers are indicating very limited supply
availability during the next three years. We expect that this tightness in aircraft availability
from the manufacturers and the lack of suitable aircraft in the secondary market, coupled with the
increase in demand for helicopter services, will result in upward pressure on the rates we charge
for our services. At the same time, we believe that our recent aircraft acquisitions and
commitments position us to capture a portion of the upside created by the current market
conditions.
There has been a trend of major oil and gas companies outsourcing certain activities and
transferring reserves located in the U.S. Gulf of Mexico to smaller, independent oil and gas
producers. These trends have generated, and are expected to continue to generate, additional demand
for our production management services, as smaller producers are more likely to require the
operational and manpower support that our Production Management Services segment provides.
While contracts in the North Sea are generally long term, we have experienced a trend of
increased spot market contracting of helicopters as exploration activity has increased in the North
Sea. Our Other International operations have experienced high customer demand for aircraft to
support new and ongoing operations, and we expect this trend to continue. Due to the current high
levels of fleet utilization, we have experienced, along with other helicopter operators, some
difficulty in meeting our customers needs for short-notice exploration drilling support,
particularly in remote international locations.
We have made and are in the process of making a number of changes in our West Africa business
unit operations in Nigeria. This reorganization as well as periodic disruption to our operations
related to civil unrest and violence have made and are expected to continue to make our operating
results from Nigeria unpredictable for at least the next year.
Other Matters
In 2005, we reviewed certain of our prior business practices as a result of issues that arose
in a number of our international operations. As a result of the findings of this review (the
Internal Review), our previously issued quarter ended December 31, 2004 and prior financial
statements were restated. We informed the SEC of the review, and they have initiated a formal
investigation. We have responded to the SECs requests for documents and intend to continue to do
so. We received a document subpoena from the Antitrust Division of the DOJ that related to a grand
jury investigation of potential antitrust violations among providers of helicopter transportation
services in the U.S. Gulf of Mexico. We believe we have submitted to the DOJ substantially all
documents responsive to the subpoena. We cannot predict the ultimate outcome of the
investigations, nor can we predict whether other applicable U.S. and foreign governmental
37
authorities will initiate separate investigations. For additional discussion, see Internal
Review and Governmental Investigations included elsewhere in this Quarterly Report.
Results of Operations
The following table presents our operating results and other income statement information for
the applicable periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
(In thousands) |
|
Gross revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
202,972 |
|
|
$ |
176,711 |
|
|
$ |
396,837 |
|
|
$ |
338,945 |
|
Reimbursable revenue |
|
|
21,237 |
|
|
|
17,694 |
|
|
|
48,434 |
|
|
|
36,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross revenue |
|
|
224,209 |
|
|
|
194,405 |
|
|
|
445,271 |
|
|
|
375,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
148,872 |
|
|
|
126,510 |
|
|
|
287,341 |
|
|
|
249,062 |
|
Reimbursable expense |
|
|
20,879 |
|
|
|
17,402 |
|
|
|
47,778 |
|
|
|
36,064 |
|
Depreciation and amortization |
|
|
10,737 |
|
|
|
11,200 |
|
|
|
21,020 |
|
|
|
21,507 |
|
General and administrative |
|
|
16,527 |
|
|
|
15,704 |
|
|
|
31,876 |
|
|
|
30,667 |
|
Loss (gain) on disposal of assets |
|
|
(3,667 |
) |
|
|
1,494 |
|
|
|
(4,665 |
) |
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
193,348 |
|
|
|
172,310 |
|
|
|
383,350 |
|
|
|
338,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
30,861 |
|
|
|
22,095 |
|
|
|
61,921 |
|
|
|
37,140 |
|
Earnings from unconsolidated affiliates, net of losses |
|
|
1,728 |
|
|
|
373 |
|
|
|
3,287 |
|
|
|
419 |
|
Interest expense, net |
|
|
(1,802 |
) |
|
|
(2,728 |
) |
|
|
(3,748 |
) |
|
|
(5,404 |
) |
Other income (expense), net |
|
|
(1,308 |
) |
|
|
(769 |
) |
|
|
(6,093 |
) |
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority
interest |
|
|
29,479 |
|
|
|
18,971 |
|
|
|
55,367 |
|
|
|
34,168 |
|
Provision for income taxes |
|
|
(9,728 |
) |
|
|
(4,293 |
) |
|
|
(18,271 |
) |
|
|
(7,469 |
) |
Minority interest |
|
|
(676 |
) |
|
|
(44 |
) |
|
|
(792 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,075 |
|
|
$ |
14,634 |
|
|
$ |
36,304 |
|
|
$ |
26,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Quarter Compared to Comparable Quarter
Our gross revenue increased to $224.2 million for the Current Quarter from $194.4 million for
the Comparable Quarter, an increase of 15.3%. The increase in gross revenue relates to an increase
in gross revenue for our Helicopter Services segment, with improvements in operating revenue across
all of our business units, most significantly for North America (primarily resulting from an
increase in flight hours and rates), Europe (primarily resulting from the addition of two new
aircraft in this market) and West Africa (primarily resulting from three new contracts). The
increase in gross revenue was also attributable to an increase in out-of-pocket expenses rebilled
to our customers (reimbursable revenue) of $3.5 million. Our operating expense increased to $193.3
million for the Current Quarter from $172.3 million for the Comparable Quarter, an increase of
12.2%. Operating expense increased as a result of the increase in operating activity, but also as
a result of a higher level of maintenance activity on our aircraft and higher compensation costs
driven by higher labor rates and additional personnel. These additional operating expense items
resulted in a decline in operating income and operating margin for our North America, Europe and
West Africa business units. However, improved margins for our other business units and significant
gains on asset dispositions in the Current Quarter (compared to losses on asset dispositions in the
Comparable Quarter) resulted in increases in our consolidated operating income and operating margin
for the Current Quarter to $30.9 million and 13.8%, respectively, compared to $22.1 million and
11.4%, respectively, for the Comparable Quarter.
38
Net income for the Current Quarter of $19.1 million represents a $4.4 million increase from
the Comparable Quarter. This increase in net income was driven by the increase in operating income
discussed above and an increase of $1.4 million in equity earnings from unconsolidated affiliates,
which was partially offset by an increase in the provision for income taxes due to the increase in
income during the Current Quarter and an increase in the overall effective tax rate.
Current Period Compared to Comparable Period
Our gross revenue increased to $445.3 million for the Current Period from $375.3 million for
the Comparable Period, an increase of 18.6%. The increase in gross revenue relates to an increase
in gross revenue for our Helicopter Services segment, with improvements in operating revenue across
all of our business units, most significantly for North America (primarily resulting from increases
in rates for certain contracts and an increase in utilization of our small aircraft in this
market), Europe (primarily resulting from aircraft added to the market during fiscal year 2006) and
West Africa (primarily resulting from three new contracts). The increase in gross revenue was also
attributable to an increase in out-of-pocket expenses rebilled to our customers (reimbursable
revenue) of $12.0 million. Our operating expense increased to $383.4 million for the Current
Period from $338.2 million for the Comparable Period, an increase of 13.4%. Operating expense
increased as a result of the increase in operating activity, but also as a result of a higher level
of maintenance activity on our aircraft and compensation costs driven by higher labor rates and
additional personnel. These additional operating expense items resulted in a decline in operating
income for our North America and West Africa business units and a decline in operating margin for
our North America, Europe and West Africa business units. However, improved margins for our other
business units and significant gains on asset dispositions in the Current Period (compared to
losses on asset dispositions in the Comparable Period) resulted in increases in our operating
income and operating margin for the Current Period to $61.9 million and 13.9%, respectively,
compared to $37.1 million and 9.9%, respectively, for the Comparable Period.
Net income for the Current Period of $36.3 million represents a $9.7 million increase from the
Comparable Period. This increase in net income was driven by the increase in operating income
discussed above and an increase of $2.9 million in equity earnings from unconsolidated affiliates,
which was partially offset by foreign exchange losses of $6.1 million in the Current Period
compared to foreign exchange gains of $3.0 million in the Comparable Period, and an increase in the
provision for income taxes due to the increase in income during the Current Period and from an
increase in the overall effective tax rate.
39
Business Unit Operating Results
The following tables set forth certain operating information, which forms the basis for
discussion of our Helicopter Services and Production Management Services segments, and for the
seven business units comprising our Helicopter Services segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Flight hours (excludes unconsolidated affiliates): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America (1) |
|
|
41,011 |
|
|
|
39,656 |
|
|
|
83,620 |
|
|
|
77,385 |
|
South and Central America |
|
|
9,631 |
|
|
|
10,113 |
|
|
|
18,916 |
|
|
|
19,629 |
|
Europe |
|
|
10,685 |
|
|
|
10,263 |
|
|
|
20,855 |
|
|
|
19,994 |
|
West Africa |
|
|
9,179 |
|
|
|
8,625 |
|
|
|
18,062 |
|
|
|
16,969 |
|
Southeast Asia |
|
|
3,063 |
|
|
|
3,005 |
|
|
|
6,269 |
|
|
|
5,727 |
|
Other International |
|
|
2,426 |
|
|
|
1,689 |
|
|
|
4,478 |
|
|
|
3,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
|
75,995 |
|
|
|
73,351 |
|
|
|
152,200 |
|
|
|
142,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Gross revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
66,304 |
|
|
$ |
61,254 |
|
|
$ |
133,105 |
|
|
$ |
113,706 |
|
South and Central America |
|
|
13,406 |
|
|
|
10,347 |
|
|
|
26,642 |
|
|
|
20,384 |
|
Europe |
|
|
72,128 |
|
|
|
62,724 |
|
|
|
143,512 |
|
|
|
121,905 |
|
West Africa |
|
|
31,210 |
|
|
|
26,539 |
|
|
|
62,946 |
|
|
|
52,449 |
|
Southeast Asia |
|
|
17,626 |
|
|
|
14,688 |
|
|
|
34,665 |
|
|
|
28,496 |
|
Other International |
|
|
12,183 |
|
|
|
8,081 |
|
|
|
21,135 |
|
|
|
15,669 |
|
EH Centralized Operations |
|
|
14,727 |
|
|
|
12,522 |
|
|
|
29,132 |
|
|
|
24,922 |
|
Intrasegment eliminations |
|
|
(17,955 |
) |
|
|
(16,712 |
) |
|
|
(35,202 |
) |
|
|
(32,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services (2) |
|
|
209,629 |
|
|
|
179,443 |
|
|
|
415,935 |
|
|
|
345,395 |
|
Production Management Services (3) |
|
|
17,784 |
|
|
|
16,942 |
|
|
|
35,468 |
|
|
|
33,911 |
|
Corporate |
|
|
|
|
|
|
16 |
|
|
|
(25 |
) |
|
|
32 |
|
Intersegment eliminations |
|
|
(3,204 |
) |
|
|
(1,996 |
) |
|
|
(6,107 |
) |
|
|
(3,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
224,209 |
|
|
$ |
194,405 |
|
|
$ |
445,271 |
|
|
$ |
375,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
57,131 |
|
|
$ |
46,662 |
|
|
$ |
112,847 |
|
|
$ |
89,332 |
|
South and Central America |
|
|
10,117 |
|
|
|
10,145 |
|
|
|
19,728 |
|
|
|
19,769 |
|
Europe |
|
|
63,692 |
|
|
|
52,720 |
|
|
|
126,052 |
|
|
|
104,981 |
|
West Africa |
|
|
30,390 |
|
|
|
24,506 |
|
|
|
59,719 |
|
|
|
48,344 |
|
Southeast Asia |
|
|
15,618 |
|
|
|
14,311 |
|
|
|
31,569 |
|
|
|
27,411 |
|
Other International |
|
|
8,855 |
|
|
|
7,125 |
|
|
|
16,701 |
|
|
|
13,485 |
|
EH Centralized Operations |
|
|
10,278 |
|
|
|
11,933 |
|
|
|
19,204 |
|
|
|
25,624 |
|
Intrasegment eliminations |
|
|
(17,955 |
) |
|
|
(16,712 |
) |
|
|
(35,202 |
) |
|
|
(32,136 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
178,126 |
|
|
|
150,690 |
|
|
|
350,618 |
|
|
|
296,810 |
|
Production Management Services |
|
|
16,390 |
|
|
|
15,704 |
|
|
|
32,660 |
|
|
|
31,352 |
|
Loss (gain) on disposal of assets |
|
|
(3,667 |
) |
|
|
1,494 |
|
|
|
(4,665 |
) |
|
|
902 |
|
Corporate |
|
|
5,703 |
|
|
|
6,418 |
|
|
|
10,844 |
|
|
|
13,134 |
|
Intersegment eliminations |
|
|
(3,204 |
) |
|
|
(1,996 |
) |
|
|
(6,107 |
) |
|
|
(3,996 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
193,348 |
|
|
$ |
172,310 |
|
|
$ |
383,350 |
|
|
$ |
338,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes beginning on following page.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
9,173 |
|
|
$ |
14,592 |
|
|
$ |
20,258 |
|
|
$ |
24,374 |
|
South and Central America |
|
|
3,289 |
|
|
|
202 |
|
|
|
6,914 |
|
|
|
615 |
|
Europe |
|
|
8,436 |
|
|
|
10,004 |
|
|
|
17,460 |
|
|
|
16,924 |
|
West Africa |
|
|
820 |
|
|
|
2,033 |
|
|
|
3,227 |
|
|
|
4,105 |
|
Southeast Asia |
|
|
2,008 |
|
|
|
377 |
|
|
|
3,096 |
|
|
|
1,085 |
|
Other International (5) |
|
|
3,328 |
|
|
|
956 |
|
|
|
4,434 |
|
|
|
2,184 |
|
EH Centralized Operations |
|
|
4,449 |
|
|
|
589 |
|
|
|
9,928 |
|
|
|
(702 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
31,503 |
|
|
|
28,753 |
|
|
|
65,317 |
|
|
|
48,585 |
|
Production Management Services |
|
|
1,394 |
|
|
|
1,238 |
|
|
|
2,808 |
|
|
|
2,559 |
|
Gain (loss) on disposal of assets |
|
|
3,667 |
|
|
|
(1,494 |
) |
|
|
4,665 |
|
|
|
(902 |
) |
Corporate |
|
|
(5,703 |
) |
|
|
(6,402 |
) |
|
|
(10,869 |
) |
|
|
(13,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income |
|
|
30,861 |
|
|
|
22,095 |
|
|
|
61,921 |
|
|
|
37,140 |
|
Earnings from unconsolidated affiliates |
|
|
1,728 |
|
|
|
373 |
|
|
|
3,287 |
|
|
|
419 |
|
Interest income |
|
|
1,069 |
|
|
|
949 |
|
|
|
2,359 |
|
|
|
1,981 |
|
Interest expense |
|
|
(2,871 |
) |
|
|
(3,677 |
) |
|
|
(6,107 |
) |
|
|
(7,385 |
) |
Other income (expense), net |
|
|
(1,308 |
) |
|
|
(769 |
) |
|
|
(6,093 |
) |
|
|
2,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and minority interest |
|
|
29,479 |
|
|
|
18,971 |
|
|
|
55,367 |
|
|
|
34,168 |
|
Provision for income taxes |
|
|
(9,728 |
) |
|
|
(4,293 |
) |
|
|
(18,271 |
) |
|
|
(7,469 |
) |
Minority interest |
|
|
(676 |
) |
|
|
(44 |
) |
|
|
(792 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
19,075 |
|
|
$ |
14,634 |
|
|
$ |
36,304 |
|
|
$ |
26,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Operating margin: (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
13.8 |
% |
|
|
23.8 |
% |
|
|
15.2 |
% |
|
|
21.4 |
% |
South and Central America |
|
|
24.5 |
% |
|
|
2.0 |
% |
|
|
26.0 |
% |
|
|
3.0 |
% |
Europe |
|
|
11.7 |
% |
|
|
15.9 |
% |
|
|
12.2 |
% |
|
|
13.9 |
% |
West Africa |
|
|
2.6 |
% |
|
|
7.7 |
% |
|
|
5.1 |
% |
|
|
7.8 |
% |
Southeast Asia |
|
|
11.4 |
% |
|
|
2.6 |
% |
|
|
8.9 |
% |
|
|
3.8 |
% |
Other International |
|
|
27.3 |
% |
|
|
11.8 |
% |
|
|
21.0 |
% |
|
|
13.9 |
% |
EH Centralized Operations |
|
|
30.2 |
% |
|
|
4.7 |
% |
|
|
34.1 |
% |
|
|
(2.8 |
%) |
Total Helicopter Services |
|
|
15.0 |
% |
|
|
16.0 |
% |
|
|
15.7 |
% |
|
|
14.1 |
% |
Production Management Services |
|
|
7.8 |
% |
|
|
7.3 |
% |
|
|
7.9 |
% |
|
|
7.5 |
% |
Consolidated total |
|
|
13.8 |
% |
|
|
11.4 |
% |
|
|
13.9 |
% |
|
|
9.9 |
% |
|
|
|
(1) |
|
Our presentation of flight hours for North America has been changed from prior
reports to reflect total flight hours, which is consistent with the presentation of flight
hours for our other business units. North America flight hours in prior reports reflected
only billed hours. |
|
(2) |
|
Includes reimbursable revenue of $18.9 million and $13.2 million for the three
months ended September 30, 2006 and 2005, respectively, and $42.2 million and $27.3 million
for the six months ended September 30, 2006 and 2005, respectively. |
|
(3) |
|
Includes reimbursable revenue of $2.3 million and $4.5 million for the
three months ended September 30, 2006 and 2005, respectively, and $6.2 million and $9.1
million for the six months ended September 30, 2006 and 2005, respectively. |
41
|
|
|
(4) |
|
Operating expense includes depreciation and amortization in the following
amounts for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Helicopter Services: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
4,447 |
|
|
$ |
4,264 |
|
|
$ |
8,628 |
|
|
$ |
8,362 |
|
South and Central America |
|
|
479 |
|
|
|
531 |
|
|
|
934 |
|
|
|
1,070 |
|
Europe |
|
|
202 |
|
|
|
127 |
|
|
|
331 |
|
|
|
262 |
|
West Africa |
|
|
279 |
|
|
|
815 |
|
|
|
580 |
|
|
|
1,108 |
|
Southeast Asia |
|
|
105 |
|
|
|
264 |
|
|
|
190 |
|
|
|
216 |
|
Other International |
|
|
569 |
|
|
|
456 |
|
|
|
1,073 |
|
|
|
923 |
|
EH Centralized Operations |
|
|
4,556 |
|
|
|
4,678 |
|
|
|
9,111 |
|
|
|
9,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
10,637 |
|
|
|
11,135 |
|
|
|
20,847 |
|
|
|
21,376 |
|
Production Management Services |
|
|
46 |
|
|
|
48 |
|
|
|
93 |
|
|
|
98 |
|
Corporate |
|
|
54 |
|
|
|
17 |
|
|
|
80 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
10,737 |
|
|
$ |
11,200 |
|
|
$ |
21,020 |
|
|
$ |
21,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
Includes a gain on the sale of an aircraft used in our Italy operations
of $2.1 million. |
|
(6) |
|
Operating margin is calculated as gross revenue less operating expense
divided by gross revenue. |
Current Quarter Compared to Comparable Quarter
Set forth below is a discussion of operations of our segments and business units. Our
consolidated results are discussed under Executive Overview Overview of Operating Results
above.
Helicopter Services
Gross revenue for Helicopter Services increased to $209.6 million for the Current Quarter from
$179.4 million for the Comparable Quarter, an increase of 16.8%, and operating expense increased to
$178.1 million for the Current Quarter from $150.7 million for the Comparable Quarter, an increase
of 18.2%. This resulted in a decline in operating margin to 15.0% for the Current Quarter from
16.0% for the Comparable Quarter. Helicopter Services results are further explained below by
business unit.
North America
Gross revenue for North America increased to $66.3 million for the Current Quarter from $61.3
million for the Comparable Quarter, and flight activity increased by 3.4%. The increase in gross
revenue is due to an increase in the number of aircraft on month-to-month contracts for the Current
Quarter (as reflected in the increase in flight activity) and a 10% rate increase for certain
contracts (which is being phased in beginning in March 2006).
Operating expense for North America increased to $57.1 million for the Current Quarter from
$46.7 million for the Comparable Quarter. The increase was primarily due to higher maintenance
expense and labor costs, in part as a result of the increase in flight activity, and the adoption
of the new equity compensation accounting standard in the quarter ended June 30, 2006. Our
operating margin for North America decreased to 13.8% for the Current Quarter from 23.8% for the
Comparable Quarter primarily due to the increase in maintenance costs discussed above. Our
operating margin for the Comparable Quarter was an all-time high for this business unit resulting
from a combination of a high level of flight activity related to hurricanes Katrina and Rita and a
low level of maintenance activity as only limited maintenance was being performed as a result of
the hurricanes. As a result of the increase in the number of our aircraft in this market since the
Comparable Quarter, flight activity was higher in the Current Quarter than the Comparable Quarter;
however maintenance expense was substantially higher as the level of maintenance activity returned
to a normal level.
42
South and Central America
Gross revenue for South and Central America increased to $13.4 million for the Current Quarter
from $10.3 million for the Comparable Quarter primarily due to revenue recognized in the Current
Quarter upon receipt of cash from our joint venture in Mexico, the addition of a new contract in
Trinidad in November 2005, and an overall increase in the number of aircraft operating in Trinidad
over the Comparable Quarter. In Mexico, a contract with Petróleos Mexicanos (PEMEX) concluded in
February 2005. As a result, our 49% owned unconsolidated affiliates, Hemisco Helicopters
International, Inc. and Heliservicio Campeche S.A. de C.V. (Heliservicio and collectively, HC),
experienced difficulties during fiscal year 2006 in meeting their obligations to make lease rental
payments to us and to another one of our unconsolidated affiliates, Rotorwing Leasing Resources,
L.L.C. (RLR). During fiscal year 2006, RLR and we made a determination that because of the
uncertainties as to collectibility, lease revenues from HC would be recognized as they were
collected. As of September 30, 2006, $0.8 million of revenues billed but not collected from HC
have not been recognized in our results, and our 49% share of the equity in earnings of RLR has
been reduced by $3.1 million for revenues billed but not collected from HC. During the Current
Quarter, we recognized revenue of $0.3 million upon receipt of payment from HC for amounts billed
in fiscal year 2006.
Operating expense for South and Central America was unchanged, totaling $10.1 million in both
the Current Quarter and the Comparable Quarter. Operating expense increased in Trinidad as a
result of the new contract and additional aircraft in this market, which was fully offset by lower
operating expense in other markets. As a result of the increase in gross revenue while operating
expense remained unchanged, the operating margin for this business unit increased significantly to
24.5% for the Current Quarter from 2.0% for the Comparable Quarter.
Since the conclusion of the PEMEX contract in February 2005, we took several actions to
improve the financial condition and profitability of HC, including relocating several aircraft to
other markets, restructuring our profit sharing arrangement with our partner, and completing a
recapitalization of Heliservicio on August 19, 2005. In June 2006, Heliservicio was awarded a
two-year contract by PEMEX. Under this contract, Heliservicio will provide and operate three
medium helicopters in support of PEMEXs oil and gas operations. We will continue to evaluate the
improving results for HC to determine if and when we will change our accounting for this joint
venture from the cash to accrual basis.
We are negotiating the termination of our ownership interest in the joint venture that
operates in Brazil. Nevertheless, upon such termination, we anticipate that we will lease
additional aircraft to helicopter service operations in Brazil. To the extent that we are not able
to continue such leases, we expect to experience a substantial reduction in business activity in
Brazil in future periods.
Europe
Gross revenue for Europe increased to $72.1 million for the Current Quarter from $62.7 million
for the Comparable Quarter, primarily as a result of a 4.1% increase in flight activity, a higher
level of out-of-pocket expenses rebilled to our customers, which increased $3.6 million over the
Comparable Quarter, and the effect of changes in exchange rates. The majority of the increase in
flight hours related to a new contract within the North Sea that commenced in July 2005 and
additional aircraft operating in our Scatsta U.K. market.
Operating expense for Europe increased to $63.7 million for the Current Quarter from $52.7
million for the Comparable Quarter, primarily due to a $3.6 million increase in out-of-pocket
expenses rebilled to our customers, higher maintenance costs, higher salaries and fuel costs
primarily associated with the increase in activity over the Comparable Quarter, and the effect of
changes in exchange rates. We are generally able to recover fuel cost increases from our
customers. As a result of the increase in operating expense, operating margin for Europe decreased
to 11.7% for the Current Quarter from 15.9% for the Comparable Quarter.
In October 2006, we were awarded an amendment and extension of our existing contract in the
North Sea with Integrated Aviation Consortium for the provision of helicopter transportation
services to offshore facilities both East and West of the Shetland Islands. The final contract,
which has been extended until June 2010, will call for the provision of five new Sikorsky S-92
helicopters to be delivered in the second and third quarters of fiscal year 2008 to replace the six
AS332L Super Puma helicopters currently under contract, which we intend to re-deploy to other
markets.
43
In December 2005, we were informed that we were not awarded the contract extension that would
have commenced in mid-2007 to provide search and rescue services using seven S-61 aircraft and
operate four helicopter bases for the U.K. Maritime and Coastguard Agency (MCA). The MCA has the
option to extend our agreement through July 2009, and we expect that the transition of work will
take place, one base at a time, over a period of at least one year. At the end of the agreement
and any transition period, we expect that we will either be able to employ these aircraft for other
customers or trade the aircraft in as partial consideration towards the purchase of new aircraft.
We are currently evaluating our options related to these aircraft. In the Current Quarter and
Comparable Quarter, we had $8.1 million and $7.0 million, respectively, in operating revenues
associated with this contract. In July 2006, we announced a partnership with an unconsolidated
affiliate of ours, FB Heliservices Limited (FBH), and a third party, Serco Limited, through which
we will form a team to seek to obtain the future U.K.-wide search and rescue contract scheduled to
start in 2012.
West Africa
Gross revenue for West Africa increased to $31.2 million for the Current Quarter from $26.5
million for the Comparable Quarter, primarily as a result of a 6.4% increase in flight activity in
Nigeria from the Comparable Quarter, which resulted from the addition of three new contracts in
this market since last year. Additionally, out-of-pocket expenses rebilled to our customers
increased by $1.0 million over the Comparable Quarter.
Operating expense for West Africa increased to $30.4 million for the Current Quarter from
$24.5 million in the Comparable Quarter. The increase was primarily a result of higher salary
expense and aircraft lease costs due to the increase in activity, and the higher level of
out-of-pocket expenses rebilled to our customers. We also incurred significant costs to import
certain aircraft into this market to work on the new contracts that were not rebilled to our
customers. We are currently involved in negotiations with the unions in Nigeria and anticipate
that we will increase certain benefits for union personnel as a result of these negotiations. We
do not expect these benefit increases to have a material impact on our results of operations.
Operating margin for West Africa decreased to 2.6% in the Current Quarter from 7.7% in the
Comparable Quarter as a result of the additional operating expenses.
Approximately 14% of our gross revenue for the Current Quarter and Current Period was derived
from Nigeria. If we were to experience a cancellation by customers of their contracts with us
resulting from the findings of the Internal Review (although none have been cancelled as of the
date of filing this Quarterly Report), we could experience a substantial reduction in business
activity in Nigeria in future periods. In May 2006, we extended our contract with a major customer
to March 31, 2008, under which we will provide and operate two large and two medium helicopters.
The contract is not cancelable by the customer during the first 12 months and 180 days cancellation
notice is required in the second 12 months. We have commenced a reorganization of our Nigerian
operations, including consolidation of two former operating businesses, expansion of several hangar
facilities, integration of finance and administrative functions, and repositioning of major
maintenance operations into our two largest operating facilities. This reorganization as well as
periodic disruption to our operations related to civil unrest and violence have made and are
expected to continue to make our operating results from Nigeria unpredictable for at least the next
year.
Southeast Asia
Gross revenue for Southeast Asia increased to $17.6 million in the Current Quarter from $14.7
million for the Comparable Quarter primarily due to higher revenue in Australia. Australias
flight activity and revenue increased 17.9% and 21.6%, respectively, from the Comparable Quarter,
primarily due to the utilization of three additional large aircraft.
Operating expense increased to $15.6 million for the Current Quarter from $14.3 million for
the Comparable Quarter as a result of an increase in salary and fuel costs related to the increase
in activity compared to the Comparable Quarter, and an increase in salaries associated with the
addition of personnel. As a result of higher gross revenue during the Current Quarter, operating
margin increased to 11.4% for the Current Quarter from 2.6% for the Comparable Quarter.
44
Other International
Gross revenue for Other International increased to $12.2 million for the Current Quarter from
$8.1 million for the Comparable Quarter primarily due to increases in flight activity in Russia and
the billing of escalation charges (charges to recover increases in the underlying cost structure
for a customers contract) on contracts in both Russia ($1.6 million in gross revenue) and
Mauritania ($0.5 million in gross revenue).
Operating expense increased to $8.9 million for the Current Quarter from $7.1 million for the
Comparable Quarter. The increase in operating expense is primarily due to increased operational
costs associated with the increases in flight activity in Russia discussed above and increased
general and administrative costs associated with higher salaries, travel expenses and overhead cost
allocations associated with the increased operating activity in this business unit. As a result of
the billings for escalation charges in Russia and Mauritania discussed above, our operating margin
for Other International increased to 27.3% for the Current Quarter from 11.8% for the Comparable
Quarter.
EH Centralized Operations
Gross revenue for EH Centralized Operations increased to $14.7 million for the Current Quarter
from $12.5 million for the Comparable Quarter as a result of increased out-of-pocket expenses
rebilled to our customers, an increase in intercompany lease charges associated with a change in
the mix of aircraft leased to other business units, and an increase in lease charges for aircraft
leased to Norsk Helikopter AS (Norsk), our unconsolidated affiliate in Norway, in the Current
Quarter compared to the Comparable Quarter.
Operating expense decreased to $10.3 million for the Current Quarter from $11.9 million for
the Comparable Quarter primarily due to lower maintenance costs which primarily relate to a higher
level of billing to other business units for maintenance costs incurred due to increased flight
activity throughout a majority of our operations, partially offset by increased salaries associated
with the addition of personnel and an increase in professional fees and other costs. As a result
of higher gross revenue and the decrease in operating expense, our operating margin for EH
Centralized Operations increased substantially to 30.2% for the Current Quarter from 4.7% for the
Comparable Quarter.
Production Management Services
Gross revenue for our Production Management Services segment increased to $17.8 million for
the Current Quarter from $16.9 million for the Comparable Quarter, an increase of 5.3%, primarily
due to an increase in labor revenue with the addition of several new contracts. We also had
additional billings to an existing customer beginning in June 2006 for an additional helicopter
provided to them under contract. Operating expense increased to $16.4 million for the Current
Quarter from $15.7 million for the Comparable Quarter, primarily due to an increase in costs
associated with the increase in activity. As a result of the increase in gross revenue, our
operating margin increased to 7.8% for the Current Quarter from 7.3% in the Comparable Quarter.
In September 2006, a significant customer of the Production Management Services segment
advised us that the scope of work under our services contract would be substantially reduced, which
represented 1.6% and 2.0% of consolidated gross revenue for the Current Quarter and the Current
Period, respectively. Although we expect to experience a decline in revenue from our Production
Management Services segment in the near term (i.e. the remainder of fiscal year 2007) due to the
loss of this contract, we anticipate in the long term to replace this business at comparable
margins.
General and Administrative Costs
Consolidated general and administrative costs increased by $0.8 million during the Current
Quarter compared to the Comparable Quarter. The increase is primarily due to the adoption of the
new equity compensation accounting rules during the Current Quarter, the addition of corporate
personnel, and an increase in legal fees related to matters other than the Internal Review and DOJ
investigation. The increase in costs in the Current Quarter was partially offset by lower costs
incurred related to the Internal Review and DOJ investigation. As discussed in Note 7 in the
Condensed Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report,
the adoption of the new equity compensation accounting rules resulted in additional expense
totaling $0.7 million for the Current Quarter. Professional fees in the Current Quarter included
no amounts incurred in connection with the Internal Review and approximately $0.3
45
million in connection with the DOJ investigation. Professional fees in the Comparable Quarter
included approximately $4.6 million and $0.4 million in connection with the Internal Review and DOJ
investigations, respectively. Corporate general and administrative costs are expected to increase
over the remainder of the current fiscal year related to additional corporate personnel.
Earnings from Unconsolidated Affiliates
Earnings from unconsolidated affiliates increased to $1.7 million during the Current Quarter
compared to $0.4 million in the Comparable Quarter, primarily due to higher equity earnings from
FBS Limited of $0.6 million (primarily resulting from lower interest charges, an increase in
activity and rates for a manpower services contract, and a decrease in overhead costs compared to
the Comparable Quarter) and an increase in equity in earnings from RLR of $0.9 million (resulting
from an increase in the amount of cash received from HC during the Current Quarter compared to the
Comparable Quarter, as HCs results have improved as a result of new work for aircraft which were
underutilized in the prior quarters).
Interest Expense, Net
Interest expense, net of interest income, totaled $1.8 million during the Current Quarter
compared to $2.7 million during the Comparable Quarter. Interest expense for the Current Quarter
and Comparable Quarter was reduced by approximately $1.4 million and $0.6 million, respectively, of
capitalized interest. More interest was capitalized in the Current Quarter as a result of the
increase in capitalized costs for helicopters being manufactured as discussed under Liquidity and
Capital Resources Cash Flows Investing Activities below. In addition, higher interest
income earned in the Current Quarter relative to the Comparable Quarter was due primarily to higher
short-term cash investment balances and returns.
Other Income (Expense), Net
Other income (expense), net, for the Current Quarter was expense of $1.3 million compared to
expense of $0.8 million for the Comparable Quarter. The amount for the Current Quarter primarily
represents foreign currency transaction losses. The amount for the Comparable Quarter primarily
represents an impairment charge of $1.0 million to reduce the recorded value of our investment in
our joint venture in a South American country, which was partially offset by foreign currency
transaction gains of $0.2 million. These foreign currency transaction gains and losses primarily
arise from operations performed by our U.K. consolidated affiliates, whose functional currency is
the British pound sterling, and from operations which are outside the North Sea. These foreign
currency transaction gains and losses are attributable primarily to the impact of changes in
exchange rates on cash balances dominated in U.S. dollars and intercompany loan balances that are
not permanently invested. On August 14, 2006, we entered into a derivative contract to mitigate
our exposure to exchange rate fluctuations on our U.S. dollar-denominated intercompany loans. This
derivative contract provides us with a call option on £12.9 million and a put option on $24.5
million, with a strike price of 1.895 U.S. dollars per British pound sterling, and expires on
November 14, 2006.
Taxes
Our effective income tax rates from continuing operations were 33.0% and 22.6% for the Current
Quarter and Comparable Quarter, respectively. The significant variance between the U.S. federal
statutory rate and the effective rate for the Comparable Quarter was due primarily to the impact of
the reversals of reserves for tax contingencies of $2.9 million during that period, as a result of
our evaluation of the need for such reserves in light of the expiration of the related statutes of
limitations. During the Current Quarter, we had net reversals of reserves for estimated tax
exposures of $0.7 million. Reversals of reserves at a level similar to that for the Current
Quarter are expected to occur in each of the remaining quarterly periods of fiscal year 2007. Our
effective tax rate was also reduced by the permanent reinvestment outside the U.S. of foreign
earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income
and our ability to realize foreign tax credits.
46
Current Period Compared to Comparable Period
Set forth below is a discussion of operations of our segments and business units. Our
consolidated results are discussed under Executive Overview Overview of Operating Results
above.
Helicopter Services
Gross revenue for Helicopter Services increased to $415.9 million for the Current Period from
$345.4 million for the Comparable Period, an increase of 20.4%, and operating expense increased to
$350.6 million for the Current Period from $296.8 million for the Comparable Period, an increase of
18.1%. This resulted in an operating margin of 15.7% for the Current Period compared to 14.1% for
the Comparable Period. Helicopter Services results are further explained below by business unit.
North America
Gross revenue for North America increased to $133.1 million for the Current Period from $113.7
million for the Comparable Period, and flight activity increased by 8.1%. The increase in gross
revenue is primarily due to an increase in the number of aircraft on month-to-month contracts for
the Current Period (as reflected in the increase in flight activity), a rate increase in May 2005
of 8% (which was phased in during fiscal year 2006), an additional 10% rate increase for certain
contracts (which is being phased in beginning in March 2006), and an increase in fuel surcharges we
billed to our customers as a result of fuel price increases.
Operating expense for North America increased to $112.8 million for the Current Period from
$89.3 million for the Comparable Period. The increase was primarily due to increased maintenance
expense (associated with the increase in flight activity and the complete refurbishment of several
aircraft in the Current Period), an increase in the reserve for excess and dormant inventory
recorded during the Current Period, higher labor costs associated with the increase in flight
activity and from the adoption of the new equity compensation accounting standard in the Current
Period, and higher fuel costs associated with both the increase in flight activity and a higher
average cost per gallon (which we are generally able to recover from our customers). Our operating
margin for North America decreased to 15.2% for the Current Period from 21.4% for the Comparable
Period primarily due to the increase in maintenance and labor costs.
South and Central America
Gross revenue for South and Central America increased to $26.6 million for the Current Period
from $20.4 million for the Comparable Period primarily due to higher revenue recognized in the
Current Period upon receipt of cash from our joint venture in Mexico, the addition of a new
contract in Trinidad in November 2005, and an overall increase in the number of aircraft operating
in Trinidad over the Comparable Period. As of September 30, 2006, $0.8 million of revenues billed
but not collected from HC have not been recognized in our results, and our 49% share of the equity
in earnings of RLR has been reduced by $3.1 million for revenues billed but not collected from HC.
During the Current Period, we recognized revenue of $1.0 million upon receipt of payment from HC
for amounts billed in fiscal year 2006. For additional information on our investment in HC and
RLR, see Current Quarter Compared to Comparable Quarter Helicopter Services South and
Central America included elsewhere in this Quarterly Report.
Operating expense for South and Central America totaled $19.7 million for the Current Period
and $19.8 million for the Comparable Period. Operating expense increased in Trinidad as a result
of the new contract and additional aircraft in that market, which was fully offset by lower
operating expense in other markets. The largest of these decreases was noted in Mexico, where
overall flight activity has declined due to the conclusion of the PEMEX contract. As a result of
the increase in gross revenue while operating expense was substantially unchanged, the operating
margin for this business unit increased significantly to 26.0% for the Current Period from 3.0% for
the Comparable Period.
47
Europe
Gross revenue for Europe increased to $143.5 million for the Current Period from $121.9
million for the Comparable Period, primarily as a result of a 4.3% increase in flight activity, a
$9.1 million increase in out-of-pocket expenses rebilled to our customers, and the effect of
changes in exchange rates. The majority of the increase in flight hours related to the start of a
new contract within the North Sea that commenced in July 2005.
Operating expense for Europe increased to $126.1 million for the Current Period from $105.0
million for the Comparable Period primarily due to an increase in activity in the North Sea,
increased maintenance costs, higher fuel rates, the impact of additions in personnel and salary
increases, the increase in out-of-pocket expenses rebilled to our customers, and the effect of
changes in exchange rates in the Current Period compared to the Comparable Period. We are
generally able to recover fuel cost increases from our customers. As a result of the increases in
maintenance costs and salaries, operating margin for Europe decreased to 12.2% for the Current
Period from 13.9% for the Comparable Period.
As discussed above, we were not awarded the contract extension that would have commenced in
mid-2007 by MCA. We are currently evaluating our options related to aircraft used in the MCA
contract. In the Current Period and Comparable Period, we had $17.0 million and $13.9 million,
respectively, in operating revenues associated with this contract. For additional information
relating to the contract with MCA, see Current Quarter Compared to Comparable Quarter
Helicopter Services Europe included elsewhere in this Quarterly Report.
West Africa
Gross revenue for West Africa increased to $62.9 million for the Current Period from $52.4
million for the Comparable Period, primarily as a result of a 6.4% increase in flight activity in
Nigeria from the Comparable Period (resulting from the addition of three new contracts in this
market following the end of the Comparable Period), increases in certain of our standard monthly
rates, and a $3.4 million increase in out-of-pocket expenses rebilled to our customers.
Operating expense for West Africa increased to $59.7 million for the Current Period from $48.3
million in the Comparable Period. The increase was primarily as a result of higher salary expense
and fuel costs associated with the increase in activity, increases in freight charges on spare
parts, and the increase in out-of-pocket expenses rebilled to our customers. Operating margin for
West Africa decreased to 5.1% in the Current Period from 7.8% in the Comparable Period as a result
of the higher level of operating expenses.
For a discussion of additional matters related to our Nigeria operations, see Current
Quarter Compared to Comparable Quarter Helicopters Services West Africa included elsewhere
in this Quarterly Report.
Southeast Asia
Gross revenue for Southeast Asia increased to $34.7 million in the Current Period from $28.5
million for the Comparable Period, primarily due to higher revenue in Australia. Australias
flight activity and revenue increased 20.8% and 22.4%, respectively, from the Comparable Period,
primarily due to the utilization of an additional large aircraft, increases in certain rates and
the billing of contract escalations.
Operating expense increased to $31.6 million for the Current Period from $27.4 million for the
Comparable Period primarily as a result of an increase in salary, maintenance and fuel costs
related to the increase in activity compared to the Comparable Period. As a result of higher gross
revenue during the Current Period, operating margin increased to 8.9% for the Current Period from
3.8% for the Comparable Period.
Other International
Gross revenue for Other International increased to $21.1 million for the Current Period from
$15.7 million for the Comparable Period primarily due to an increase in flight activity in Russia,
the billing of escalation charges on contracts in both Russia ($1.6 million in gross revenue) and
Mauritania ($0.5 million in gross revenue), and additional revenue in Egypt resulting from an
additional large aircraft leased to our unconsolidated affiliate in that country, which commenced
in December 2005.
48
Operating expense increased to $16.7 million for the Current Period from $13.5 million for the
Comparable Period. The increase in operating expense is primarily due to increased operational
costs associated with the increases in flight activity discussed above and increased general and
administrative costs associated with higher salaries, travel expenses, and overhead cost
allocations associated with the increased operating activity in this business unit. Primarily as a
result of the billings for escalation charges in Russia and Mauritania discussed above, our
operating margin for Other International increased to 21.0% for the Current Period from 13.9% for
the Comparable Period.
EH Centralized Operations
Gross revenue for EH Centralized Operations increased to $29.1 million for the Current Period
from $24.9 million for the Comparable Period as a result of increased parts sales, increased
out-of-pocket costs rebilled to our customers, and an increase in lease charges for aircraft leased
to Norsk in the Current Period compared to the Comparable Period.
Operating expense decreased to $19.2 million for the Current Period from $25.6 million for the
Comparable Period, primarily due to lower maintenance costs which primarily relates to a higher
level of billing to other business units for maintenance costs incurred due to increased flight
activity throughout a majority of our operations and maintenance in the Comparable Period for a
large aircraft that was then in the process of being prepared for deployment to Malaysia, partially
offset by increased salaries associated with the addition of personnel and increased professional
fees and other costs. As a result of higher gross revenue and the decrease in operating expense,
our operating margin for EH Centralized Operations increased significantly to 34.1% for the Current
Period from a negative 2.8% for the Comparable Period.
Production Management Services
Gross revenue for our Production Management Services segment increased to $35.5 million for
the Current Period from $33.9 million for the Comparable Period, an increase of 4.7%, primarily due
to an increase in labor revenue with the addition of several new contracts. We also had additional
billings to an existing customer beginning in June 2006 for an additional helicopter provided to
them under contract. Operating expense increased to $32.7 million for the Current Period from
$31.4 million for the Comparable Period, primarily due to an increase in costs associated with the
increase in activity. As a result of the increase in gross revenue, our operating margin increased
to 7.9% for the Current Period from 7.5% in the Comparable Period.
General and Administrative Costs
Consolidated general and administrative costs increased to $31.9 million during the Current
Period compared to $30.7 million for the Comparable Period. The increase is primarily due to the
adoption of the new equity compensation accounting rules during the Current Period, the addition of
corporate personnel, additional costs in the Current Period associated with the DOJ investigation
and an overall increase in corporate general and administrative costs, including additional legal
fees related to matters other than the Internal Review or DOJ investigation. The increase in cost
in the Current Period was partially offset by lower costs incurred related to the Internal Review.
As discussed in Note 7 in the Condensed Notes to Consolidated Financial Statements included
elsewhere in this Quarterly Report, the adoption of the new equity compensation accounting rules
resulted in additional expense totaling $1.2 million for the Current Period. Professional fees in
the Current Period included approximately $0.1 million and $0.9 million in connection with the
Internal Review and DOJ investigations, respectively. Professional fees in the Comparable Period
included approximately $7.8 million and $0.4 million in connection with the Internal Review and DOJ
investigations, respectively. Corporate general and administrative costs are expected to increase
over the remainder of the current fiscal year related to additional corporate personnel.
Earning from Unconsolidated Affiliates
Earnings from unconsolidated affiliates increased to $3.3 million during the Current Period
compared to $0.4 million in the Comparable Period, primarily due to higher equity earnings from FBS
Limited of $1.3 million (primarily resulting from lower interest charges, an increase in activity
and rates for a manpower services contract, and a decrease in overhead costs compared to the
Comparable Period), and higher equity earnings from RLR of $1.5 million (resulting from an increase
in the amount of cash received from HC during the Current Period compared to the Comparable Period,
as HCs results have improved as work lost upon completion of the PEMEX contract has gradually been
replaced).
49
Interest Expense, Net
Interest expense, net of interest income, totaled $3.7 million during the Current Period
compared to $5.4 million during the Comparable Period. Interest expense for the Current Period and
Comparable Period was reduced by approximately $2.5 million and $1.1 million, respectively, of
capitalized interest. More interest was capitalized in the Current Period as a result of the
increase in capitalized costs for helicopters being manufactured as discussed under Liquidity and
Capital Resources Cash Flows Investing Activities included elsewhere in this Quarterly
Report. In addition, higher interest income earned in the Current Period relative to the
Comparable Period was due primarily to higher short-term cash investment balances and returns.
Other Income (Expense), Net
Other income (expense), net, for the Current Period was expense of $6.1 million compared to
income of $2.0 million for the Comparable Period, and primarily represents foreign currency
transaction gains and losses. These gains and losses primarily arise from operations performed by
our U.K. consolidated affiliates, whose functional currency is the British pound sterling, and from
operations which are outside the North Sea. These foreign currency transaction gains and losses
are attributable primarily to the impact of changes in exchange rates on cash balances dominated in
U.S. dollars and intercompany loan balances that are not permanently invested. Beginning in July
2006, we reduced our U.S. dollar denominated cash balances, which gave rise to the foreign currency
transaction losses during the Current Period.
Taxes
Our effective income tax rates from continuing operations were 33.0% and 21.9% for the Current
Period and Comparable Period, respectively. The significant variance between the U.S. federal
statutory rate and the effective rate for the Comparable Period was due primarily to the impact of
the reversals of reserves for tax contingencies of $5.7 million during that period, as a result of
our evaluation of the need for such reserves in light of the expiration of the related statutes of
limitations. During the Current Period, we had net reversals of reserves for estimated tax
exposures of $1.5 million. Reversals of reserves at a level similar to that for the Current Period
are expected to occur in each of the remaining quarterly periods of fiscal year 2007. Our
effective tax rate was also reduced by the permanent reinvestment outside the U.S. of foreign
earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income
and our ability to realize foreign tax credits.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Net cash flows provided by operating activities totaled $48.7 million during the Current
Period and $5.3 million during the Comparable Period. Non-cash working capital used $13.1 million
in cash flows from operating activities for the Current Period compared to $44.4 million used in
operating activities for the Comparable Period. Cash flows from operating activities improved
primarily due to the favorable change in non-cash working capital and the improvement in net income
during the Current Period.
50
Investing Activities
Cash flows used in investing activities were $100.0 million and $53.1 million for the Current
Period and Comparable Period, respectively, primarily for capital expenditures as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
September 30, |
|
|
|
2006 |
|
|
2005 |
|
Number of aircraft delivered: |
|
|
|
|
|
|
|
|
New: |
|
|
|
|
|
|
|
|
Small |
|
|
|
|
|
|
3 |
|
Medium |
|
|
4 |
|
|
|
4 |
|
Large |
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
Total new aircraft |
|
|
6 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used: |
|
|
|
|
|
|
|
|
Small |
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total used aircraft |
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total aircraft |
|
|
7 |
|
|
|
14 |
|
|
|
|
|
|
|
|
Capital expenditures (in thousands): |
|
|
|
|
|
|
|
|
Aircraft and related equipment |
|
$ |
115,458 |
|
|
$ |
68,312 |
|
Other |
|
|
5,957 |
|
|
|
3,934 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
121,415 |
|
|
$ |
72,246 |
|
|
|
|
|
|
|
|
During the Current Period, we made final payments in connection with the delivery of one
small, four medium and one large aircraft and progress payments on the construction of new aircraft
to be delivered in future periods in conjunction with our aircraft commitments (discussed below)
totaling $87.7 million. Also during the Current Period, we spent an additional $14.9 million to
upgrade aircraft within our existing aircraft fleet and to customize new aircraft delivered for our
operations, recorded accounts payable of $16.3 million for the final payment due on one large
aircraft delivered in September 2006, and made payments of $3.4 million on short-term notes used to
fund capital expenditures in prior periods. During the Comparable Period, apart from payments made
for new aircraft in conjunction with our aircraft commitments, we purchased five small aircraft for
$6.4 million and paid deposits of $11.0 million for five large aircraft.
During the Current Period, we received proceeds of $8.6 million primarily from the disposal of
twelve aircraft, two airframes and certain other equipment, which together resulted in a net gain
of $4.7 million. During the Comparable Period, we received proceeds of $4.4 million primarily from
the disposal of four aircraft and certain equipment, which resulted in a net loss of $0.9 million.
Due to the significant investment in aircraft made in both the Current Period and Comparable
Period, net capital expenditures exceeded cash flow from operations, and we expect this will
continue to be the case through the end of fiscal year 2008.
Historically, in addition to the expansion of our business through purchases of new and used
aircraft, we have also established new joint ventures with local partners or purchased significant
ownership interests in companies with ongoing helicopter operations, particularly in countries
where we have no operations or our operations are limited in scope, and we continue to evaluate
similar opportunities which could enhance our operations.
Financing Activities
Cash flows provided by financing activities were $195.3 million during the Current Period
compared to cash flows used in financing activities of $1.0 million during the Comparable Period.
During the Current Period, cash was provided by the issuance of the Preferred Stock in September
2006 resulting in net proceeds of $194.5 million and by our receipt of proceeds of $2.2 million
from the exercise of options to acquire shares of our common stock by our employees. Cash was used
for the repayment of debt totaling $1.5 million.
51
We issued 4,000,000 shares of Preferred Stock at a par value of $0.01 per share and
liquidation preference $50 per share, in a public offering that closed on September 19, 2006. We
issued an additional 600,000 shares of Preferred Stock in October 2006, upon the exercise of the
underwriters over-allotment option, for net proceeds of $29.1 million. For further discussion of
the terms and conditions of the Preferred Stock, see Note 5 in the Condensed Notes to Consolidated
Financial Statements included elsewhere in this Quarterly Report.
During the Comparable Period, cash was used for the repayment of debt totaling $1.5 million
and was provided by our receipt of proceeds of $0.5 million from the exercise of options to acquire
shares of our common stock by our employees.
Future Cash Requirements
Debt Obligations
As of September 30, 2006, total debt was $260.5 million, of which $22.5 million was classified
as current.
Senior Secured Credit Facilities In August 2006, we entered into syndicated senior secured
credit facilities which consist of a $100 million revolving credit facility (with a subfacility of
$25 million for letters of credit) and a $25 million letter of credit facility (the Credit
Facilities). The aggregate commitments under the revolving credit facility may be increased to
$200 million at our option following our 6 1/8% Senior Notes due 2013 receiving an investment grade
credit rating from Moodys or Standard & Poors (so long as the rating of the other rating agency
of such notes is no lower than one level below investment grade). The revolving credit facility
may be used for general corporate purposes, including working capital and acquisitions. The letter
of credit facility is used to issue letters of credit supporting or securing performance of
statutory obligations, surety or appeal bonds, bid or performance bonds and similar obligations.
Borrowings under the revolving credit facility bear interest at an interest rate equal to, at
our option, either the Base Rate or LIBOR (or EURIBO, in the case of Euro-denominated borrowings)
plus the applicable margin. Base Rate means the higher of (1) the prime rate and (2) the Federal
Funds rate plus 0.5% per annum. The applicable margin for borrowings range from 0.0% and 2.5%
depending on whether the Base Rate or LIBOR is used, and is determined based on our credit rating.
Fees owed on letters of credit issued under either the revolving credit facility or the letter of
credit facility are equal to the margin for LIBOR borrowings. Based on our current ratings, the
margins on Base Rate and LIBOR borrowings were 0.0% and 1.25%, respectively, as of September 30,
2006. Interest is payable at least quarterly, and the Credit Facilities mature in August 2011.
Our obligations under the Credit Facilities are guaranteed by certain of our principal domestic
subsidiaries and secured by the accounts receivable, inventory and equipment (excluding aircraft
and their components) of Bristow Group Inc. and the guarantor subsidiaries, and the capital stock
of certain of our principal subsidiaries.
In addition, the Credit Facilities include covenants which are customary for these types of
facilities, including certain financial covenants and restrictions on the ability of Bristow Group
Inc. and its subsidiaries to enter into certain transactions, including those that could result in
the incurrence of additional liens and indebtedness; the making of loans, guarantees or
investments; sales of assets; payments of dividends or repurchases of our capital stock; and
entering into transactions with affiliates.
As of September 30, 2006, we had $4.1 million in letters of credit outstanding under the
letter of credit facility and no borrowings or letters of credit outstanding under the revolving
credit facility.
We previously had a $30 million revolving credit facility with a U.S. bank that was terminated
in August 2006.
U.K. Facilities As of September 30, 2006, Bristow Aviation had a £6.0 million ($11.2
million) facility for letters of credit, of which £0.3 million ($0.6 million) was outstanding, and
a £1.0 million ($1.9 million) net overdraft facility, under which no borrowings were outstanding.
Both facilities are with a U.K. bank. The letter of credit facility is provided on an uncommitted
basis, and outstanding letters of credit bear fees at a rate of 0.7% per annum. Borrowings under
the net overdraft facility are payable upon demand and bear interest at the banks base rate plus a
spread that can vary between 1% and 3% per annum depending on the net overdraft amount. The net
overdraft facility will be reviewed by the bank annually on August 31 and is cancelable at any time
upon notification from the bank. The facilities are guaranteed by certain of Bristow Aviations
subsidiaries and secured by a negative pledge of Bristow Aviations assets.
52
Preferred Stock
Annual cumulative cash dividends of $2.75 per share of Preferred Stock are payable quarterly
on the fifteenth day of each March, June, September and December. If declared, dividends on the
4,600,000 shares of Preferred Stock would be $3.0 million on December 15, 2006 and $3.2 million on
each quarterly payment date thereafter. For a further discussion of the terms and conditions of
the Preferred Stock, see Note 5 in the Condensed Notes to Consolidated Financial Statements
included elsewhere in this Quarterly Report.
Pension Plan
In May 2006, the Pensions Regulator (TPR) in the U.K. published a statement on regulating
the funding of defined benefit schemes. In this statement, TPR focused on a number of items
including the use of triggers to determine the level of funding of the schemes. Based on this
statement, it is possible that we will increase the annual amount of our pension plan contributions
in future periods. We are not currently able to estimate what this increased level of funding will
be and what impact, if any, it will have on our financial position in future periods.
Capital Commitments
As shown in the table below, we expect to make additional capital expenditures over the next
seven fiscal years to increase the size of our aircraft fleet. As of October 5, 2006, we had 51
aircraft on order and options to acquire an additional 33 aircraft. The additional aircraft on
order are expected to provide incremental fleet capacity, with only a small number of our existing
aircraft expected to be replaced with the new aircraft in the near term.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
March 31, |
|
|
Fiscal Year Ending March 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011-2013 |
|
|
Total |
|
Commitments as of October 5, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Medium |
|
|
13 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
39 |
|
Large (1) |
|
|
5 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
15 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
168,962 |
|
|
$ |
123,227 |
|
|
$ |
23,051 |
|
|
$ |
24,285 |
|
|
$ |
63,485 |
|
|
$ |
403,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options as of October 5, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft to be delivered: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium (2) |
|
|
|
|
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
11 |
|
|
|
24 |
|
Large |
|
|
|
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
12 |
|
|
|
6 |
|
|
|
11 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
14,148 |
|
|
$ |
131,250 |
|
|
$ |
102,601 |
|
|
$ |
48,292 |
|
|
$ |
81,191 |
|
|
$ |
377,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On October 5, 2006, we exercised options with respect to
four large aircraft and are now committed to purchase these
aircraft. The options for five large aircraft were
previously set to expire on September 30, 2006, but were
extended by one additional week for four aircraft and to
December 31, 2006 for one aircraft. We expect these four
large aircraft to be delivered during fiscal year 2008. |
|
(2) |
|
As of October 5, 2006, options with respect to six of these
aircraft were subject to availability, which means that
the delivery time for the aircraft subject to these options
will depend upon the number of manufacturing slots
available at the time the options are exercised. As a
result, the delivery time for these aircraft may be
extended beyond those specified in the purchase agreement
with the manufacturer, and these medium aircraft were
included in the 2011-2013 period in the table above.
However, we can accelerate the delivery of these aircraft
at our option to as early as January 1, 2008, subject to
the manufacturers availability to fill customer orders at
the time an option is exercised. |
53
In connection with an agreement to purchase three large aircraft to be utilized and owned by
Norsk, the Company, Norsk and the other equity owner in Norsk each agreed to fund the purchase of
one of these three aircraft. One aircraft was delivered during fiscal year 2006, and the remaining
two aircraft (including the one we purchased) were delivered in August 2006.
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
We have various contractual obligations which are recorded as liabilities in our consolidated
financial statements. Other items, such as certain purchase commitments, interest payments and
other executory contracts are not recognized as liabilities in our consolidated financial
statements but are included in the table below. For example, we are contractually committed to
make certain minimum lease payments for the use of property and equipment under operating lease
agreements.
The following tables summarize our significant contractual obligations and other commercial
commitments on an undiscounted basis as of September 30, 2006 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. Additional details regarding these
obligations are provided in the Condensed Notes to Consolidated Financial Statements included
elsewhere in this Quarterly Report and the Notes to Consolidated Financial Statements included in
the Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Six Months |
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
Fiscal Year Ending March 31, |
|
|
|
|
|
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
2012 and |
|
|
|
Total |
|
|
2007 |
|
|
2008-2009 |
|
|
2010-2011 |
|
|
beyond |
|
|
|
(In thousands) |
|
Contractual obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and short-term
borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
$ |
260,542 |
|
|
$ |
12,345 |
|
|
$ |
13,453 |
|
|
$ |
364 |
|
|
$ |
234,380 |
|
Interest |
|
|
97,617 |
|
|
|
8,276 |
|
|
|
29,211 |
|
|
|
28,452 |
|
|
|
31,678 |
|
Aircraft operating leases (1) (2) |
|
|
65,776 |
|
|
|
3,627 |
|
|
|
12,600 |
|
|
|
13,387 |
|
|
|
36,162 |
|
Other operating leases (1) |
|
|
16,333 |
|
|
|
1,760 |
|
|
|
4,969 |
|
|
|
3,556 |
|
|
|
6,048 |
|
Pension obligations (3) |
|
|
174,295 |
|
|
|
5,354 |
|
|
|
20,873 |
|
|
|
18,864 |
|
|
|
129,204 |
|
Aircraft purchase obligations |
|
|
332,272 |
|
|
|
145,249 |
|
|
|
99,253 |
|
|
|
49,420 |
|
|
|
38,350 |
|
Other purchase obligations (4) |
|
|
25,279 |
|
|
|
25,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
972,114 |
|
|
$ |
201,890 |
|
|
$ |
180,359 |
|
|
$ |
114,043 |
|
|
$ |
475,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial commitments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt guarantees (5) |
|
$ |
30,436 |
|
|
$ |
|
|
|
$ |
11,716 |
|
|
$ |
|
|
|
$ |
18,720 |
|
Other guarantees (6) |
|
|
2,939 |
|
|
|
2,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of credit (7) |
|
|
4,674 |
|
|
|
4,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
38,049 |
|
|
$ |
7,613 |
|
|
$ |
11,716 |
|
|
$ |
|
|
|
$ |
18,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents minimum rental payments required under operating leases that have
initial or remaining non-cancelable lease terms in excess of one year. |
|
(2) |
|
Represents nine aircraft that we sold on December 30, 2005 for $68.6 million
in aggregate to a subsidiary of General Electric Capital Corporation and then leased back
under separate operating leases with terms of ten years expiring in January 2016. A deferred
gain on the sale of the aircraft was recorded in the amount of approximately $10.8 million in
aggregate, which is being amortized over the lease term. |
|
(3) |
|
Represents expected funding for pension benefits in future periods.
These amounts are undiscounted and are based on the expectation that the pension will be fully
funded in approximately 20 years. However, see Pension Plan for discussion of
possible increases in the required level of pension plan contributions in future periods. As
of September 30, 2006, we had recorded on our balance sheet a $146.9 million pension liability
and a $42.1 million prepaid pension asset associated with this obligation. |
54
|
|
|
(4) |
|
Other purchase obligations primarily represent unfilled purchase orders
for aircraft parts and commitments associated with upgrading our strategic base
facilities. |
|
(5) |
|
We have guaranteed the repayment of up to £10 million ($18.7 million) of the
debt of FBS Limited and $11.7 million of the debt of RLR, both unconsolidated affiliates. |
|
(6) |
|
Relates to an indemnity agreement between us and Afianzadora Sofimex, S.A. to
support issuance of surety bonds on behalf of HC from time to time. As of September 30, 2006,
surety bonds with and aggregate value of 32.4 million Mexican pesos ($2.9 million) were
outstanding. |
|
(7) |
|
In January 2006, a letter of credit was issued against the revolving credit
facility for $2.5 million in conjunction with the additional collateral for the sale and
leaseback financing discussed in Note 5 in the Notes to Consolidated Financial Statements
included in the Annual Report. The letter of credit expires January 27, 2007. |
We do not expect the guarantees shown in the table above to become obligations that we will
have to fund.
Other
Historically, in addition to the expansion of our business through purchases of new and used
aircraft, we have also established new joint ventures with local partners or purchased significant
ownership interests in companies with ongoing helicopter operations, particularly in countries
where we have no operations or our operations are limited in scope, and we continue to evaluate
similar opportunities which could enhance our operations.
Financial Condition and Sources of Liquidity
Our future cash requirements include the contractual obligations discussed in the previous
section and our normal operations. Normally our operating cash flows are sufficient to fund our
cash needs. Although there can be no assurances, we believe that our existing cash, future cash
flows from operations and borrowing capacity under the Credit Facilities will be sufficient to meet
our liquidity needs in the foreseeable future based on existing commitments. However, the expansion
of our business through purchases of additional aircraft and increases in flight hours from our
existing aircraft fleet may require additional cash in the future to fund the resulting increase in
working capital requirements.
On October 6, 2006, we exercised the options for four large aircraft for a purchase price of
approximately $79.0 million. These options had been scheduled to expire on September 30, 2006, but
were extended by one week. An additional large aircraft option that was also scheduled to expire
on September 30, 2006 has been extended to December 31, 2006. Consistent with our desire to
maintain a conservative use of leverage to fund growth, we raised capital through the sale of the
Preferred Stock in September and October 2006. We have options to acquire an additional eight
large aircraft and an additional 24 medium aircraft. Depending on market conditions, we may
exercise these additional options to acquire aircraft or elect to expand our business through
acquisition, including acquisitions under consideration or negotiation. These strategic decisions
would require us to access additional sources of capital. Our decision to use equity, debt or a
combination of the two would depend on our financial position and market conditions at that time,
but we currently expect to use debt financing. See Risk Factors In order to grow our business,
we may require additional capital in the future, which may not be available to us included
elsewhere in this Quarterly Report.
Cash and cash equivalents were $268.3 million and $122.5 million, as of September 30, 2006 and
March 31, 2006, respectively. Working capital as of September 30, 2006 and March 31, 2006, was
$421.3 million and $283.3 million, respectively. The increase in working capital during Current
Period was primarily a result of the $145.8 million increase in cash and cash equivalents.
Critical Accounting Policies and Estimates
See Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies and Estimates in the Annual Report for a discussion of
our critical accounting policies. Other than the item included below, there have been no material
changes to our critical accounting policies and estimates provided in the Annual Report.
55
Stock-Based Compensation
We have historically compensated our executives and employees through the awarding of
stock-based compensation, including stock options and restricted stock units. Based on the
requirements of Statement of Financial Accounting Standards (SFAS) No.123 (R), Share-Based
Payment, which we adopted on April 1, 2006, we have begun to account for stock-based compensation
awards in the Current Quarter using a fair-value based method, resulting in compensation expense
for stock option awards being recorded in our condensed consolidated statements of income. We use
a Black-Scholes option pricing model to estimate the fair value of share-based awards under SFAS
No. 123(R), which is the same valuation technique we previously used for pro forma disclosures
under SFAS No. 123, Accounting for Stock-Based Compensation. The Black-Scholes option pricing
model incorporates various assumptions, including the risk-free interest rate, volatility, dividend
yield and the expected term of the options, in order to determine the fair value of the options on
the date of grant. Judgment is also required in estimating the amount of stock-based awards that
are expected to be forfeited. Additionally, the service period over which compensation expense
associated with awards of restricted stock units are recorded in our statements of income involve
certain assumptions as to the expected vesting of the restricted stock units, which is based on
factors relating to the future performance of our stock. As the determination of these various
assumptions is subject to significant management judgment and different assumptions could result in
material differences in amounts recorded in our condensed consolidated financial statements,
management believes that accounting estimates related to the valuation of stock options and the
service period for restricted stock units are critical estimates.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of
grant for a period equal to the expected term of the option. Expected volatilities are based on
historical volatility of shares of our common stock, which has not been adjusted for any
expectation of future volatility given uncertainty related to the future performance of our common
stock at this time. We also use historical data to estimate the expected term of the options
within the option pricing model; separate groups of employees that have similar historical exercise
behavior are considered separately for valuation purposes. The expected term of the options
represents the period of time that the options granted are expected to be outstanding. For a
detail of the assumptions used for the Current Quarter and Current Period, see Note 7 in the
Condensed Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment
of FASB Statements No. 87, 88, 106 and 132(R). SFAS No. 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability
in its statement of financial position and recognize changes in that funded status in the year in
which the changes occur through comprehensive income. SFAS No. 158 is effective for our current
fiscal year and will be adopted in the consolidated financial statements to be included in our
Annual Report on Form 10-K for fiscal year 2007. We anticipate that the adoption of SFAS No. 158
will have no impact on our net income or comprehensive income. Rather, we expect that the primary
impact will be the reflection of a net accrued pension liability ($104.8 million as of September
30, 2006) versus the current presentation of showing the prepaid pension costs ($42.1 million as of
September 30, 2006) separately from the accrued pension liabilities ($146.9 million as of September
30, 2006).
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and requires enhanced
disclosures about fair value measurements. SFAS No. 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. Under the standard, fair value measurements will be separately disclosed by level
within the fair value hierarchy (i.e., levels 1, 2, and 3, as defined). Companies are required to
provide enhanced disclosure regarding fair value measurements in the level 3 category (recurring
fair value measurements using significant unobservable inputs), including a reconciliation of the
beginning and ending balances separately for each major category of assets and liabilities. SFAS
No. 157 is effective for financial statements issued for our fiscal years beginning April 1, 2008
and interim periods therein. We do not believe that the adoption of this standard will have a
material impact on our consolidated results of operations, cash flows or financial position upon
adoption; however, we have not yet completed our evaluation of the impact of SFAS No. 157.
56
In September 2006, the SEC released Staff Accounting Bulletin (SAB) No. 108, Considering
the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial
Statements. SAB No. 108 provides guidance on how the effects of the carryover or reversal of
prior year financial statement misstatements should be considered in quantifying a current year
misstatement. Prior practice allowed the evaluation of materiality on the basis of either (1) the
error quantified as the amount by which the current year income statement was misstated (rollover
method) or (2) the cumulative error quantified as the cumulative amount by which the current year
balance sheet was misstated (iron curtain method). Reliance on either method in prior years
could have resulted in misstatement of the financial statements. SAB No. 108 requires both methods
to be used in evaluating materiality. Immaterial prior year errors may be corrected with the first
filing of prior year financial statements after adoption. The cumulative effect of the correction
would be reflected in the opening balance sheet with appropriate disclosure of the nature and
amount of each individual error corrected in the cumulative adjustment, as well as a disclosure of
the cause of the error and that the error had been deemed to be immaterial in the past. SAB No.
108 is effective for our current fiscal year and will be adopted in the consolidated financial
statements to be included in our Annual Report on Form 10-K for fiscal year 2007. We do not
believe that the adoption of this bulletin will have a material impact on our consolidated results
of operations, cash flows or financial position upon adoption; however, due to the nature of the
guidance, a final determination of the impact of SAB No. 108 cannot be made until the period of
adoption.
In September 2006, the FASB approved FASB Staff Position (FSP) AUG AIR-1, Accounting for
Planned Major Maintenance Activities, which prohibits the accruing as a liability the future costs
of periodic major overhauls and maintenance of plant and equipment. Other previously acceptable
methods of accounting for planned major overhauls and maintenance will continue to be permitted.
The new requirements apply to our fiscal year beginning April 1, 2007 and must be retrospectively
applied. We do not believe that the adoption of this staff position will have a material impact on
our consolidated results of operations, cash flows or financial position upon adoption; however, we
have not yet completed our evaluation of the impact of FSP AUG AIR-1.
In June 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes an interpretation of FASB Statement No. 109, which clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance with
SFAS No. 109, Accounting for Income Taxes. FIN No. 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return and provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
FIN No. 48 requires enterprises to evaluate tax positions using a two-step process consisting of
recognition and measurement. The effects of a tax position will be recognized in the period in
which the enterprise determines that it is more likely than not (defined as a more than 50%
likelihood) that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position. A tax
position that meets the more-likely-than-not recognition threshold is measured as the largest
amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.
FIN No. 48 is effective for our fiscal year beginning on April 1, 2007. We have not yet completed
our evaluation of the impact that the adoption of this interpretation will have on our consolidated
results of operations, cash flows or financial position.
See Note 7 in the Condensed Notes to Consolidated Financial Statements included elsewhere in
this Quarterly Report for discussion and disclosure made in connection with the adoption of SFAS
No. 123(R).
Internal Review and Governmental Investigations
Internal Review
In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our
board of directors had engaged special outside counsel to undertake a review of certain payments
made by two of our affiliated entities in a foreign country. The review of these payments, which
initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by such
special outside counsel to cover operations in other countries and other issues. In connection with
this review, special outside counsel to the Audit Committee retained forensic accountants. As a
result of the findings of the Internal Review, our quarter ended December 31, 2004 and prior
financial statements were restated. For further information on the restatements, see our Annual
Report on Form 10-K for fiscal year 2005.
57
The SEC then notified us that it had initiated an informal inquiry and requested that we
provide certain documents on a voluntary basis. The SEC thereafter advised us that the inquiry had
become a formal investigation. We have responded to the SECs requests for documents and intend to
continue to do so.
The Internal Review is complete. All known required restatements were reflected in the
financial statements included in our Annual Report on Form 10-K for fiscal year 2005, and no
further restatements were required in our subsequent financial statements. As a follow-up to
matters identified during the course of the Internal Review, special counsel to the Audit Committee
may be called upon to undertake additional work in the future to assist in responding to inquiries
from the SEC, from other governmental authorities or customers, or as follow-up to the previous
work performed by such special counsel.
For additional discussion of the SEC investigation, the Internal Review, and related
proceedings, see Note 4 in the Condensed Notes to Consolidated Financial Statements included
elsewhere in this Quarterly Report.
We have communicated the Audit Committees conclusions with respect to the findings of the
Internal Review to regulatory authorities in the jurisdictions in which the relevant activities
took place. Until final resolution of these issues, such disclosure may result in legal and
administrative proceedings, the institution of administrative, civil injunctive or criminal
proceedings involving us and/or current or former employees, officers and/or directors who are
within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies
and/or sanctions, including precluding us from participating in business operations in their
countries. To the extent that violations of the law may have occurred in countries in which we
operate, we do not yet know whether such violations can be cured merely by the payment of fines or
whether other actions may be taken against us, including requiring us to curtail our business
operations in one or more such countries for a period of time. In the event that we curtail our
business operations in any such country, we then may face difficulties exporting our aircraft from
such country. As of September 30, 2006, the book values of our aircraft in Nigeria and the South
American country where certain improper activities took place were approximately $114.8 million and
$8.0 million, respectively.
We cannot predict the ultimate outcome of the SEC investigation, nor can we predict whether
other applicable U.S. and foreign governmental authorities will initiate separate investigations.
The outcome of the SEC investigation and any related legal and administrative proceedings could
include the institution of administrative, civil injunctive or criminal proceedings involving us
and/or current or former employees, officers and/or directors, the imposition of fines and other
penalties, remedies and/or sanctions, modifications to business practices and compliance programs
and/or referral to other governmental agencies for other appropriate actions. It is not possible to
accurately predict at this time when matters relating to the SEC investigation will be completed,
the final outcome of the SEC investigation, what if any actions may be taken by the SEC or by other
governmental agencies in the U.S. or in foreign jurisdictions, or the effect that such actions may
have on our consolidated financial statements. In addition, in view of the findings of the Internal
Review, we may encounter difficulties in the future conducting business in Nigeria and a South
American country and with certain customers. It is also possible that certain of our existing
contracts may be cancelled (although none have been cancelled as of the date of this Quarterly
Report) and that we may become subject to claims by third parties, possibly resulting in
litigation. The matters identified in the Internal Review and their effects could have a material
adverse effect on our business, financial condition and results of operations.
In connection with its conclusions regarding payroll declarations and tax payments, the Audit
Committee determined on November 23, 2005, following the recommendation of our senior management,
that there was a need to restate our quarter ended December 31, 2004 and prior financial
statements. Such restatement was reflected in our fiscal year 2005 Annual Report. Beginning in the
Current Quarter, we made payments of $9.8 million for the taxes attributable to underreported
employee payroll. In October 2006, we made additional payments of approximately $0.4 million for
the taxes attributable to underreported payroll in Trinidad. Operating income for the Comparable
Quarter and the Comparable Period included $1.1 million and $2.0 million, respectively,
attributable to this accrual. Since December 31, 2005, no additional accruals were required for
taxes attributable to underreported employee payroll.
As we continue to respond to the SEC investigation and other governmental authorities and take
other actions relating to improper activities that have been identified in connection with the
Internal Review, there can be no assurance that restatements, in addition to those reflected in our
Annual Report on Form 10-K for fiscal year 2005, will not be required or that our historical
financial statements included in this Quarterly Report will not change or require further
amendment. As part of our ongoing compliance program, we received evidence that foreign affiliates
of our minority owned operating
58
entity in Kazakhstan may have made improper gifts or payments to government employees. We have
engaged an outside accounting firm to investigate this matter and such investigation is underway.
The results of such investigation, including our view as to whether improper activities took place,
will be disclosed to the SEC by us. In addition, as we continue to operate our compliance program,
other situations involving foreign operations, similar to those matters disclosed to the SEC in
February 2005 and described above, could arise that warrant further investigation and subsequent
disclosures. As a result, new issues may be identified that may impact our financial statements and
the scope of the restatements described above and lead us to take other remedial actions or
otherwise adversely impact us.
During fiscal years 2005 and 2006 and the Current Period, we incurred approximately $2.2
million, $10.5 million and $0.1 million, respectively, in legal and other professional costs in
connection with the Internal Review. No amounts were incurred during the Current Quarter. We
expect to incur additional costs associated with the Internal Review and in the conduct of our new
compliance program, which will be expensed as incurred and which could be significant in the fiscal
quarters in which they are recorded.
As a result of the disclosure and remediation of a number of activities identified in the
Internal Review, we may encounter difficulties conducting business in certain foreign countries and
retaining and attracting additional business with certain customers. We cannot predict the extent
of these difficulties; however, our ability to continue conducting business in these countries and
with these customers and through agents may be significantly impacted.
We have disclosed the activities in Nigeria identified in the Internal Review to affected
customers, and one or more of these customers may seek to cancel their contracts with us. One such
customer has conducted its own investigation and contract audit. We have agreed with that customer
on certain actions we will take to address the findings of their audit, which in large part are
steps we have taken or had already planned to take. Since our customers in Nigeria are affiliates
of major international petroleum companies with whom we do business throughout the world, any
actions which are taken by certain customers could have a material adverse effect on our business,
financial position and results of operations, and these customers may preclude us from bidding on
future business with them either locally or on a worldwide basis. In addition, applicable
governmental authorities may preclude us from bidding on contracts to provide services in the
countries where improper activities took place.
In connection with the Internal Review, we also terminated our business relationship with
certain agents and took actions to terminate business relationships with other agents. In November
2005, one of the terminated agents and his affiliated entity commenced litigation against two of
our foreign affiliated entities claiming damages of $16.3 million for breach of contract. We may
be required to indemnify certain of our agents to the extent that regulatory authorities seek to
hold them responsible in connection with activities identified in the Internal Review.
In a South American country where certain improper activities took place, we are negotiating
to terminate our ownership interest in the joint venture that provides us with the local ownership
content necessary to meet local regulatory requirements for operating in that country. We may not
be successful in our negotiations to terminate our ownership interest in the joint venture, and the
outcome of such negotiations may negatively affect our ability to continue leasing our aircraft to
the joint venture or other unrelated operating companies, to conduct other business in that
country, or to export our aircraft and inventory from that country. We recorded an impairment
charge of $1.0 million during fiscal year 2006 to reduce the recorded value of our investment in
the joint venture. During fiscal years 2006 and 2005, the Current Quarter and the Current Period,
we derived approximately $8.0 million, $10.2 million, $1.9 million and $4.0 million, respectively,
of leasing and other revenues from this joint venture. In addition, during fiscal year 2005,
approximately $0.3 million of dividend income was derived from this joint venture. No dividend
income was derived from this joint venture during the Current Quarter and the Current Period.
Without a joint venture partner, we will be unable to maintain an operating license and our
future activities in that country may be limited to leasing our aircraft to unrelated operating
companies. Our joint venture partners and agents are typically influential members of the local
business community and instrumental in aiding us in obtaining contracts and managing our affairs in
the local country. As a result of terminating these relationships, our ability to continue
conducting business in these countries where the improper activities took place may be negatively
affected.
Many of the improper actions identified in the Internal Review resulted in decreasing the
costs incurred by us in performing our services. The remedial actions we are taking have resulted
in an increase in these costs and, if we cannot raise our prices simultaneously and to the same
extent as our increased costs, our operating income will decrease.
59
In addition, we face legal actions relating to the remedial actions which we have taken as a
result of the Internal Review, and may face further legal action of this type in the future. In
November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the
High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company,
Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria. The claimants
allege that an agreement between the parties was terminated without justification and seek damages
of $16.3 million. We have responded to this claim and are continuing to investigate this matter.
Document Subpoena from U.S. Department of Justice
In June 2005, one of our subsidiaries received a document subpoena from the DOJ. The subpoena
related to a grand jury investigation of potential antitrust violations among providers of
helicopter transportation services in the U.S. Gulf of Mexico. The subpoena focused on activities
during the period from January 1, 2000 to June 13, 2005. We believe we have submitted to the DOJ
substantially all documents responsive to the subpoena; however, our ability to review this matter
internally has been somewhat impacted by the fact that certain of our former officers covered by
the investigation are no longer with our company. We have had discussions with the DOJ and provided
documents related to our operations in the United States as well as internationally. We intend to
continue to provide additional information as required by the DOJ in connection with the
investigation. There is no assurance that, after review of any information furnished by us or by
third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have
occurred. The period of time necessary to resolve the DOJ investigation is uncertain, and this
matter could require significant management and financial resources that could otherwise be devoted
to the operation of our business.
The outcome of the DOJ investigation and any related legal proceedings in other countries
could include civil injunctive or criminal proceedings involving us or our current or former
officers, directors or employees, the imposition of fines and other penalties, remedies and/or
sanctions, including potential disbarments, and referrals to other governmental agencies. In
addition, in cases where anti-competitive conduct is found by the government, there is a greater
likelihood for civil litigation to be brought by third parties seeking recovery. Any such civil
litigation could have serious consequences for our company, including the costs of the litigation
and potential orders to pay restitution or other damages or penalties, including potentially treble
damages, to any parties that were determined to be injured as a result of any impermissible
anti-competitive conduct. Any of these adverse consequences could have a material adverse effect on
our business, financial condition and results of operations. The DOJ investigation, any related
proceedings in other countries and any third-party litigation, as well as any negative outcome that
may result from the investigation, proceedings or litigation, could also negatively impact our
relationships with customers and our ability to generate revenue.
In connection with this matter, we incurred $2.6 million, $0.3 million and $0.9 million in
legal and other professional fees in fiscal year 2006, the Current Quarter and the Current Period,
respectively, and significant expenditures may continue to be incurred in the future.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We may be exposed 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 Annual Report. Significant matters concerning
market risk arising during the Current Quarter and the Current Period are discussed below.
Foreign Currency Risk
Foreign currency transaction gains and losses result from the effect of changes in exchange
rates on transactions denominated in currencies other than a companys functional currency,
including transactions between consolidated companies. An exception is made where an intercompany
loan or advance is deemed to be of a long-term investment nature, in which instance the foreign
currency transaction gains and losses are included with cumulative translation gains and losses and
are reported in stockholders investment as accumulated other comprehensive gains or losses.
Translation adjustments, which are reported in accumulated other comprehensive gains or losses, are
the result of translating a foreign entitys financial statements from its functional currency to
U.S. dollars, our reporting currency. Balance sheet information is presented based on the exchange
rate as of the balance sheet date, and income statement information is presented based on the
average conversion rate for the period. The various components of equity are presented at their
60
historical average exchange rates. The resulting difference after applying the different
exchange rates is the cumulative translation adjustment. The functional currency of Bristow
Aviation is the British pound sterling.
As a result of the change in exchange rates during the three and six months ended September
30, 2006, we recorded foreign currency transaction losses of approximately $1.3 million and $6.1
million, respectively, primarily related to the British pound sterling, compared to foreign
currency transaction gains of approximately $0.2 million and $3.0 million, respectively, during the
three and six months ended September 30, 2005. These gains and losses arose primarily as a result
of U.S. dollar-dominated transactions entered into by Bristow Aviation whose functional currency is
the British pound sterling and included cash and cash equivalents held in U.S. dollar-denominated
accounts, U.S. dollar-, Euro- and Nigerian Naira-denominated intercompany loans and revenues from
contracts which are settled in U.S. dollars. Beginning in July 2006, we reduced a portion of
Bristow Aviations U.S. dollar-denominated cash balances. On August 14, 2006, we entered into a
derivative contract to mitigate our exposure to fluctuations on our U.S. dollar-denominated
intercompany loans. This derivative contract provides us with a call option on £12.9 million and a
put option on $24.5 million, with a strike price of 1.895 U.S. dollars per British pound sterling,
and expires on November 14, 2006.
During the three months ended September 30, 2006, the exchange rate (of one British pound
sterling into U.S. dollars) ranged from a low of $1.82 to a high of $1.91, with an average of
$1.87. During the six months ended September 30, 2006, the exchange rate ranged from a low of
$1.74 to a high of $1.91, with an average of $1.85. As of September 30, 2006, the exchange rate
was $1.87. During the three months ended September 30, 2005, the exchange rate ranged from a low
of $1.73 to a high of $1.84, with an average of $1.78. During the six months ended September 30,
2005, the exchange rate ranged from a low of $1.73 to a high of $1.92, with an average of $1.82.
As of March 31, 2006, the exchange rate was $1.74. Approximately 42% of our gross revenue for the
six months ended September 30, 2006 was translated for financial reporting purposes from British
pounds sterling into U.S. dollars.
We occasionally use off-balance sheet hedging instruments to manage risks associated with our
operating activities conducted in foreign currencies. In limited circumstances and when considered
appropriate, we will use forward exchange contracts to hedge anticipated transactions. We have
historically used these instruments primarily in the buying and selling of spare parts, maintenance
services and equipment. As of September 30, 2006, we did not have any nominal forward exchange
contracts outstanding.
Item 4. Controls and Procedures.
Material Weaknesses Previously Disclosed
As discussed in Item 9A. Controls and Procedures of the Annual Report, our management,
including our Chief Executive Officer (principal executive officer, CEO) and Chief Financial
Officer (principal financial officer, CFO), concluded that, as of March 31, 2006, the Company did
not maintain effective internal control over financial reporting because of the material weaknesses
described below.
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We did not have sufficient technical expertise to address or establish
adequate policies and procedures associated with accounting matters. In addition, we did
not maintain policies and procedures to ensure adequate management review of the
information supporting the financial statements. |
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We did not have sufficient technical tax expertise to establish and maintain
adequate policies and procedures associated with the operation of certain complex tax
structures. As a result, we failed to establish proper procedures to ensure the actions
required to enable us to realize the benefits of these structures as previously recognized
in our financial statements were performed. |
Each of these material weaknesses resulted in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented or detected.
61
Evaluation of Disclosure Controls and Procedures
As of September 30, 2006, we carried out an evaluation, under the supervision of our CEO and
CFO, of the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Although the changes discussed below have substantially
addressed the material weaknesses associated with the control environment previously disclosed, the
changes have not been in effect for a sufficient period of time to permit validation of their
operation; therefore, as of September 30, 2006, our CEO and CFO concluded, after the evaluation
described above, that our disclosure controls and procedures were not effective, as of such date.
Changes in Internal Control Over Financial Reporting
During the three months ended September 30, 2006, management made the following changes to our
internal control over financial reporting to address the material weaknesses discussed above:
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We developed a number of financial policies related to the application of accounting
principles generally accepted in the United States of America and other accounting
procedures, which we subsequently implemented; |
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We completed our evaluation of our prior tax structures and the operation of those
structures, and we have substantially completed the self-reporting process for underpaid
payroll taxes in various jurisdictions; and |
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We continued to operate under and we enhanced the changes implemented prior to March
31, 2006. |
Management believes that once the changes discussed in the Annual Report, as well as the
changes discussed above, have been operating for a sufficient period of time, the material
weaknesses identified above will be remediated.
Outside of these remediation efforts, there has been no other change in our internal control
over financial reporting that occurred during the period covered by this Quarterly Report that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
62
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 Annual Report. Developments in these previously
reported matters are described in Note 4 in the Condensed Notes to Consolidated Financial
Statements in Part I. Item 1. Financial Statements of this Quarterly Report, which is
incorporated herein by reference.
Item 1A. Risk Factors.
New Risk Factors
The following are risk factor discussions which supplement, and should be read in conjunction
with, the risk factor discussion contained in the Annual Report.
Labor problems could adversely affect us.
Approximately 300 pilots in our North America business unit and substantially all of our
employees in the United Kingdom, Nigeria and Australia are represented under collective bargaining
or union agreements. Periodically, certain groups of our employees who are not covered by a
collective bargaining agreement consider entering into such an agreement. In addition, many of the
employees of our affiliates are represented by collective bargaining agreements. Any disputes over
the terms of these agreements or our potential inability to negotiate acceptable contracts with the
unions that represent our employees under these agreements could result in strikes, work stoppages
or other slowdowns by the affected workers. We are currently involved in negotiations with the
unions in Nigeria and anticipate that we will increase certain benefits for union personnel as a
result of these negotiations. If our unionized workers engage in a strike, work stoppage or other
slowdown, or other employees elect to become unionized or existing labor agreements are
renegotiated on, or future labor agreements contain, terms that are unfavorable to us, we could
experience a disruption of our operations or higher ongoing labor costs which could adversely
affect our business, financial condition and results of operations.
Actions taken by agencies empowered to enforce governmental regulations could increase our costs
and reduce our ability to operate successfully.
Our operations are regulated by governmental agencies in the various jurisdictions in which we
operate. These agencies have jurisdiction over many aspects of our business, including personnel,
aircraft and ground facilities. Statutes and regulations in these jurisdictions also subject us to
various certification and reporting requirements and inspections regarding safety, training and
general regulatory compliance. Other statutes and regulations in these jurisdictions regulate the
offshore operations of our customers. The agencies empowered to enforce these statutes and
regulations may suspend, curtail or modify our operations. A suspension or substantial curtailment
of our operations for any prolonged period, and any substantial modification of our current
operations, may have a material adverse effect on our business, financial condition and results of
operations.
Our contracts generally can be terminated or downsized by our customers without penalty.
Many of our fixed-term contracts contain provisions permitting early termination by the
customer for any reason and generally without penalty, and with limited notice requirements. For
example, in September 2006, a significant customer of the Production Management Services segment
advised us that the scope of work under our services contract would be substantially reduced. The
effect of the reduction if we are unable to replace the lost revenues with other work would be 2.0%
of consolidated gross revenues for the Current Period. In addition, many of our contracts permit
our customers to decrease the number of aircraft under contract with a corresponding decrease in
the fixed monthly payments without penalty. As a result, you should not place undue reliance on our
customer contracts or the terms of those contracts.
63
We may not be able to obtain customer contracts with acceptable terms covering some of our new
helicopters, and some of our new helicopters may replace existing helicopters already under
contract, which could adversely affect the utilization of our existing fleet.
We are substantially expanding our fleet of helicopters. Many of our new helicopters may not
be covered by customer contracts when they are placed into service, and we cannot assure you as to
when we will be able to utilize these new helicopters or on what terms. To the extent our
helicopters are covered by a customer contract when they are placed into service, many of these
contracts are for a short term, requiring us to seek renewals more frequently. Alternatively, we
expect that some of our customers may request new helicopters in lieu of our existing helicopters,
which could adversely affect the utilization of our existing fleet.
Our dependence on a small number of helicopter manufacturers poses a significant risk to our
business and prospects.
We contract with a small number of manufacturers for most of our aircraft expansion and
replacement needs. If any of these manufacturers faced production delays due to, for example,
natural disasters or labor strikes, we may experience a significant delay in the delivery of
previously ordered aircraft, which would adversely affect our revenues and profitability and could
jeopardize our ability to meet the demands of our customers. We have limited alternatives to find
alternate sources of new aircraft.
Modified Risk Factors
The following are modified risk factors discussions that should be read in conjunction with
the risk factor discussion in the Annual Report.
We face substantial competition in both of our business segments.
The helicopter business is highly competitive. Chartering of helicopters is usually done on
the basis of competitive bidding among those providers having the necessary equipment, operational
experience and resources. Factors that affect competition in our industry include price,
reliability, safety, professional reputation, availability, equipment and quality of service. In
addition, certain of our customers have the capability to perform their own helicopter operations
should they elect to do so, which may limit our ability to increase charter rates under certain
circumstances.
In our North America business unit, we face competition from a number of providers, including
one U.S. competitor with a comparable number of helicopters servicing the U.S. Gulf of Mexico. We
have two significant competitors in the North Sea. In our other international operations, we also
face significant competition. In addition, foreign regulations may require the awarding of
contracts to local operators.
Certain of our customers have the capability to perform their own helicopter operations should
they elect to do so, which has a limiting effect on our rates. The loss of a significant number of
our customers or termination of a significant number of our contracts could materially adversely
affect our business, financial condition and results of operations.
The production management services business is also highly competitive. There are a number of
competitors that maintain a presence throughout the U.S. Gulf of Mexico. In addition, there are
many smaller operators that compete with us on a local basis for single projects or jobs.
Contracts for our Production Management Services are generally for terms of a year or less and
could be awarded to our competitors upon expiration. Many of our customers are also able to
perform their own production management services should they choose to do so.
As a result of significant competition, we must continue to provide safe and efficient service
or we will lose market share, which could have a material adverse effect on our business, financial
condition and results of operations. The loss of a significant number of our customers or
termination of a significant number of our contracts could have a material adverse effect on our
business, financial condition and results of operations.
64
The DOJ investigation or any related proceedings in other countries could result in criminal
proceedings and the imposition of fines and penalties, the commencement of third-party litigation,
the incurrence of expenses, the loss of business and other adverse effects on our company.
In June 2005, one of our subsidiaries received a document subpoena from the DOJ. The subpoena
related to a grand jury investigation of potential antitrust violations among providers of
helicopter transportation services in the U.S. Gulf of Mexico. The subpoena focused on activities
during the period from January 1, 2000 to June 13, 2005. We believe we have submitted to the DOJ
substantially all documents responsive to the subpoena; however, our ability to review this matter
internally has been somewhat impacted by the fact that certain of our former officers covered by
the DOJ investigation are no longer with our company. We have had discussions with the DOJ and
provided documents related to our operations in the United States as well as internationally. We
intend to continue to provide additional information as required by the DOJ in connection with the
investigation. There is no assurance that, after review of any information furnished by us or by
third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have
occurred. The period of time necessary to resolve the DOJ investigation is uncertain, and this
matter could require significant management and financial resources that could otherwise be devoted
to the operation of our business.
The outcome of the DOJ investigation and any related legal proceedings in other countries
could include civil injunctive or criminal proceedings involving us or our current or former
officers, directors or employees, the imposition of fines and other penalties, remedies and/or
sanctions, including potential disbarments, and referrals to other governmental agencies. In
addition, in cases where anti-competitive conduct is found by the government, there is a greater
likelihood for civil litigation to be brought by third parties seeking recovery. Any such civil
litigation could have serious consequences for our company, including the costs of the litigation
and potential orders to pay restitution or other damages or penalties, including potentially treble
damages, to any parties that were determined to be injured as a result of any impermissible
anti-competitive conduct. Any of these adverse consequences could have a material adverse effect on
our business, financial condition and results of operations. The DOJ investigation, any related
proceedings in other countries and any third-party litigation, as well as any negative outcome that
may result from the investigation, proceedings or litigation, could also negatively impact our
relationships with customers and our ability to generate revenue.
In connection with this matter, we incurred $2.6 million, $0.3 million and $0.9 million in
legal and other professional fees in fiscal year 2006, the Current Quarter and the Current Period,
respectively, and significant expenditures may continue to be incurred in the future.
The SEC investigation, any related proceedings in other countries and the consequences of the
activities identified in the Internal Review could result in civil or criminal proceedings, the
imposition of fines and penalties, the commencement of third-party litigation, the incurrence of
expenses, the loss of business and other adverse effects on our company.
The following paragraph has been modified:
As we continue to respond to the SEC investigation and other governmental authorities and take
other actions relating to improper activities that have been identified in connection with the
Internal Review, there can be no assurance that restatements, in addition to those reflected in our
Annual Report on Form 10-K for fiscal year 2005, will not be required or that our historical
financial statements included in this Quarterly Report will not change or require further
amendment. As part of our ongoing compliance program, we received evidence that foreign affiliates
of our minority owned operating entity in Kazakhstan may have made improper gifts or payments to
government employees. We have engaged an outside accounting firm to investigate this matter and
such investigation is underway. The results of such investigation, including our view as to whether
improper activities took place, will be disclosed to the SEC by us. In addition, as we continue to
operate our compliance program, other situations involving foreign operations, similar to those
matters disclosed to the SEC in February 2005 and described above, could arise that warrant further
investigation and subsequent disclosures. As a result, new issues may be identified that may impact
our financial statements and the scope of the restatements described in this Quarterly Report and
lead us to take other remedial actions or otherwise adversely impact us.
65
Item 6. Exhibits.
The following exhibits are filed as part of this Quarterly Report:
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Exhibit |
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Number |
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Description of Exhibit |
4.1
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Certificate of Designation establishing the Preferred Stock (incorporated by reference to Exhibit
14 to the Registrants Registration Statement on Form 8-A dated September 15, 2006, file No.
001-31617). |
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15.1*
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Letter from KPMG LLP dated November 7, 2006, regarding unaudited interim information. |
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31.1**
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Rule 13a-14(a) Certification by President and Chief Executive Officer of Registrant. |
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31.2**
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Rule 13a-14(a) Certification by Executive Vice President and Chief Financial Officer of Registrant. |
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32.1**
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Certification of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2**
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Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
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Filed herewith. |
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** |
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Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BRISTOW GROUP INC.
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By: |
/s/ Perry L Elders
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Perry L. Elders |
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Executive Vice President and Chief Financial Officer |
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By: |
/s/ Elizabeth D. Brumley
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Elizabeth D. Brumley |
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Vice President and Chief Accounting Officer |
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November 7, 2006
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Index to Exhibits
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Exhibit |
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Number |
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Description of Exhibit |
4.1
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Certificate of Designation establishing the Preferred Stock (incorporated by reference to Exhibit
14 to the Registrants Registration Statement on Form 8-A dated September 15, 2006, file No.
001-31617). |
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15.1*
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Letter from KPMG LLP dated November 7, 2006, regarding unaudited interim information. |
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31.1**
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Rule 13a-14(a) Certification by President and Chief Executive Officer of Registrant. |
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31.2**
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Rule 13a-14(a) Certification by Executive Vice President and Chief Financial Officer of Registrant. |
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32.1**
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Certification of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2**
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Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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* |
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Filed herewith. |
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** |
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Furnished herewith. |