e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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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 June 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
(State or other jurisdiction of
incorporation or organization)
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72-0679819
(IRS Employer
Identification Number) |
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2000 W. Sam Houston Pkwy. S.,
Suite 1700
Houston, Texas
(Address of principal executive offices)
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77042
(Zip Code) |
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
July 31, 2006.
23,430,430 shares of Common Stock, $.01 par value
BRISTOW GROUP INC.
INDEX FORM 10-Q
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
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Three Months Ended |
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June 30, |
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2006 |
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2005 |
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(Unaudited) |
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(In thousands, except per |
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share amounts) |
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Gross revenue: |
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Operating revenue from non-affiliates |
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$ |
181,786 |
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$ |
150,748 |
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Operating revenue from affiliates |
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12,079 |
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11,486 |
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Reimbursable revenue from non-affiliates |
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26,125 |
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17,428 |
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Reimbursable revenue from affiliates |
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1,072 |
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1,275 |
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221,062 |
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180,937 |
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Operating expense: |
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Direct cost |
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138,470 |
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122,552 |
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Reimbursable expense |
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26,898 |
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18,662 |
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Depreciation and amortization |
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10,283 |
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10,307 |
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General and administrative |
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15,349 |
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14,963 |
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Gain on disposal of assets |
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(998 |
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(592 |
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190,002 |
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165,892 |
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Operating income |
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31,060 |
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15,045 |
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Earnings from unconsolidated affiliates, net of losses |
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1,559 |
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46 |
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Interest income |
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1,290 |
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1,032 |
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Interest expense |
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(3,236 |
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(3,708 |
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Other income (expense), net |
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(4,785 |
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2,783 |
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Income before provision for income taxes and minority interest |
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25,888 |
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15,198 |
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Provision for income taxes |
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(8,543 |
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(3,176 |
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Minority interest |
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(116 |
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(50 |
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Net income |
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$ |
17,229 |
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$ |
11,972 |
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Net income per common share: |
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Basic |
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$ |
0.74 |
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$ |
0.51 |
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Diluted |
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$ |
0.73 |
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$ |
0.51 |
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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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June 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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$ |
109,634 |
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$ |
122,482 |
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Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $4.2
million and $4.6 million, respectively |
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158,096 |
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144,521 |
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Accounts receivable from affiliates, net of allowance for doubtful accounts of $4.6
million and $4.6 million, respectively |
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16,862 |
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15,884 |
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Inventories |
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155,679 |
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147,860 |
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Prepaid expenses and other |
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17,215 |
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16,519 |
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Total current assets |
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457,486 |
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447,266 |
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Investment in unconsolidated affiliates |
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40,668 |
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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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43,815 |
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40,672 |
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Aircraft and equipment |
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900,167 |
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838,314 |
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943,982 |
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878,986 |
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Less Accumulated depreciation and amortization |
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(279,184 |
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(263,072 |
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664,798 |
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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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40,576 |
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37,207 |
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Other assets |
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9,459 |
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9,277 |
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$ |
1,239,794 |
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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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$ |
57,330 |
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$ |
49,714 |
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Accrued wages, benefits and related taxes |
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44,960 |
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45,958 |
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Income taxes payable |
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10,851 |
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6,537 |
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Other accrued taxes |
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7,791 |
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6,471 |
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Deferred revenues |
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11,048 |
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9,994 |
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Other accrued liabilities |
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27,735 |
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22,596 |
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Deferred taxes |
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6,618 |
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5,025 |
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Short-term borrowings and current maturities of long-term debt |
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14,489 |
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17,634 |
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Total current liabilities |
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180,822 |
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163,929 |
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Long-term debt, less current maturities |
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247,029 |
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247,662 |
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Accrued
pension liabilities |
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145,116 |
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136,521 |
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Other liabilities and deferred credits |
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17,511 |
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18,016 |
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Deferred taxes |
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69,245 |
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68,281 |
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Minority interest |
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4,349 |
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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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Common stock, $.01 par value, authorized 35,000,000 shares; outstanding: 23,430,097 as
of June 30 and 23,385,473 as of March 31 (exclusive of 1,281,050 treasury shares) |
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234 |
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234 |
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Additional paid-in capital |
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161,191 |
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158,762 |
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Retained earnings |
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464,753 |
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447,524 |
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Accumulated other comprehensive loss |
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(50,456 |
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(68,823 |
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575,722 |
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537,697 |
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$ |
1,239,794 |
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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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Three Months Ended |
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June 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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$ |
17,229 |
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$ |
11,972 |
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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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10,283 |
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10,307 |
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Deferred income taxes |
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1,407 |
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(737 |
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Gain on asset dispositions |
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(998 |
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(592 |
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Stock-based compensation expense |
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752 |
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Equity in earnings from unconsolidated affiliates under (over) dividends received |
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845 |
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(46 |
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Minority interest in earnings |
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116 |
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50 |
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Tax benefit related to exercise of stock options |
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(303 |
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Increase (decrease) in cash resulting from changes in: |
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Accounts receivable |
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(6,485 |
) |
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(27,430 |
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Inventories |
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(3,273 |
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(7,144 |
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Prepaid expenses and other |
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(1,180 |
) |
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736 |
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Accounts payable |
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5,847 |
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3,522 |
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Accrued liabilities |
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8,536 |
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(567 |
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Other liabilities and deferred credits |
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(599 |
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154 |
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Net cash provided by (used in) operating activities |
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32,177 |
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(9,775 |
) |
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Cash flows from investing activities: |
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Capital expenditures |
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(46,882 |
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(30,130 |
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Proceeds from asset dispositions |
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2,556 |
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2,394 |
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Net cash used in investing activities |
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(44,326 |
) |
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(27,736 |
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Cash flows from financing activities: |
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Repayment of debt and debt redemption premiums |
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(3,957 |
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(798 |
) |
Partial prepayment of put/call obligation |
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(30 |
) |
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(34 |
) |
Issuance of common stock |
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764 |
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|
530 |
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Tax benefit related to exercise of stock options |
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303 |
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Net cash used in financing activities |
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(2,920 |
) |
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(302 |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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2,221 |
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(2,405 |
) |
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Net decrease in cash and cash equivalents |
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(12,848 |
) |
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(40,218 |
) |
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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$ |
109,634 |
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$ |
106,222 |
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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 |
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$ |
6,357 |
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$ |
6,943 |
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Income taxes |
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$ |
2,562 |
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$ |
1,711 |
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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. 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 June
30, 2006, the consolidated results of operations for the three months
ended June 30, 2006 and 2005,
and the consolidated cash flows for the three months ended June 30, 2006 and 2005.
Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period.
Therefore, the fiscal year ended 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 months ended June 30, 2006, we
recorded foreign currency transaction losses of approximately $4.8 million, primarily related to
the British pound sterling, compared to foreign currency transaction gains of approximately $2.8
million during the three months ended June 30, 2005. These
5
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
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 denominated intercompany
loans and revenues from contracts which are settled in U.S. dollars. During the three months ended
June 30, 2006, the exchange rate (of one British pound sterling into U.S. dollars) ranged from a
low of $1.74 to a high of $1.89, with an average of $1.83. As of June 30, 2006, the exchange rate
was $1.85. During the three months ended June 30, 2005, the exchange rate ranged from a low of
$1.79 to a high of $1.92, with an average of $1.86. As of March 31, 2006, the exchange rate was
$1.74. Beginning in July 2006, we reduced a portion of Bristow Aviations U.S. dollar-denominated
balances, and we expect to take other actions in the near term to further mitigate this foreign
exchange exposure.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (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 Statement of Financial Accounting Standards
(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 do not believe that
the adoption of this interpretation 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 FIN No. 48.
See Note 6 for discussion and disclosure made in connection with the adoption of SFAS No.
123(R), Share-Based Payment.
NOTE 2 INVESTMENTS IN 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 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 June 30,
2006, $1.0 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 $2.6 million for
amounts billed but not collected from HC. During the three months ended June 30, 2006, we
recognized revenue of $0.8 million upon receipt of payment from HC for amounts billed in fiscal
year 2006.
We have taken 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.
We also are exploring markets in which to redeploy aircraft that are currently operating on an ad
hoc basis in Mexico. 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.
6
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 3 DEBT
Debt as of June 30, 2006 and March 31, 2006 consisted of the following (in thousands):
|
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|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2006 |
|
61/8% Senior Notes due 2013 |
|
$ |
230,000 |
|
|
$ |
230,000 |
|
Limited recourse term loans |
|
|
19,736 |
|
|
|
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. |
|
|
664 |
|
|
|
647 |
|
Sakhalin Debt |
|
|
5,338 |
|
|
|
5,667 |
|
Short-term notes |
|
|
|
|
|
|
3,179 |
|
|
|
|
|
|
|
|
Total debt |
|
|
261,518 |
|
|
|
265,296 |
|
Less short-term borrowings and current maturities of long-term debt |
|
|
(14,489 |
) |
|
|
(17,634 |
) |
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
247,029 |
|
|
$ |
247,662 |
|
|
|
|
|
|
|
|
Revolving Credit Facility As of June 30, 2006, we had a $30 million revolving credit
facility with a U.S. bank. Borrowings bear interest at a rate
equal to one-month LIBOR plus a spread ranging from 1.25% to 2.0%. We had $3.2 million of
outstanding letters of credit and no borrowings under this facility as of June 30, 2006. This
facility was terminated in August 2006.
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 will be used to issue letters of credit
supporting or securing performance of statutory obligations, surety or appeal bonds, bid,
performance 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 are 0.0% and 1.25%, respectively. Interest will be
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.
U.K. Facilities As of June 30, 2006, Bristow Aviation had a £6.0 million ($11.1 million)
facility for letters of credit, of which £0.4 million ($0.7 million) was outstanding, and a £1.0
million ($1.8 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
7
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
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 is scheduled to expire on August 31, 2006. The facilities are guaranteed by
certain of Bristow Aviations subsidiaries and secured by several helicopter mortgages and a
negative pledge of Bristow Aviations assets.
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 June 30, 2006, we had 51 aircraft on order and options to acquire an additional 37 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Fiscal Year Ending March 31, |
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011-2013 |
|
|
Total |
|
Commitments as of June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Medium |
|
|
15 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
41 |
|
Large |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
211,248 |
|
|
$ |
71,519 |
|
|
$ |
23,245 |
|
|
$ |
24,491 |
|
|
$ |
64,022 |
|
|
$ |
394,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options as of June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
11 |
|
|
|
24 |
|
Large |
|
|
|
|
|
|
7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
12 |
|
|
|
6 |
|
|
|
11 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
37,861 |
|
|
$ |
178,275 |
|
|
$ |
102,600 |
|
|
$ |
48,292 |
|
|
$ |
81,191 |
|
|
$ |
448,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006, options with respect to six of the 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. We have also made an arrangement with the
manufacturer pursuant to which we may delay our existing purchase commitments for up to $100
million of medium aircraft upon the exercise of options for an equal amount of large aircraft.
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
was delivered during fiscal year 2006, and the remaining two are expected to be delivered in fiscal
year 2007. The one aircraft that we are purchasing is reflected in the table above.
Collective Bargaining Agreement ¾ 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
8
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 ¾ 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 has
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 fiscal year 2006 Annual Report or our financial statements for the three
months ended June 30, 2006 presented in this Quarterly Report. 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 has taken
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 has also obtained the resignation of
certain of its personnel.
We have initiated remedial action, including initiating action to correct underreporting of
payroll tax, disclosing to certain customers inappropriate payments made to customer personnel and
terminating certain agency, business and joint venture relationships. We also have taken 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 have also taken steps to strengthen our control
environment by hiring new key members of senior and financial management, including persons with
appropriate technical accounting 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
9
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
comply with its intended design. Our compliance
program has also begun full operation and clear corporate policies have been established and
communicated to our relevant personnel related to employee expenses, delegation of authority,
revenue recognition and customer billings.
We have communicated the Audit Committees conclusions with respect to the findings of the
Internal Review to regulatory authorities in some, but not all, of the jurisdictions in which the
relevant activities took place. We are in the process of gathering and analyzing additional
information related to these matters, and expect to disclose the Audit Committees conclusions to
regulatory authorities in other jurisdictions once this process has been completed. 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
several 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 June 30, 2006, the book values of our
aircraft in Nigeria and the South American country where certain improper activities took place
were approximately $118.3 million and $8.1 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. As of June 30,
2006, we have accrued an aggregate of $21.6 million for the taxes, penalties and interest
attributable to underreported employee payroll, which we expect to begin paying during the quarter
ending September 30, 2006. Operating income for three months ended June 30, 2005 included $0.9
million attributable to this accrual. No additional amounts were incurred during the three months
ended June 30, 2006.
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. In addition, new
issues may be identified that may impact our financial statements and the scope of the restatements
described in our fiscal year 2005 Annual Report and lead us to take other remedial actions or
otherwise adversely impact us.
During fiscal years 2005 and 2006 and the three months ended June 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 Review. We expect to incur additional costs
associated with the Internal Review, which will be expensed as incurred and which could be
significant in the fiscal quarters in which they are recorded.
10
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
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 these 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 have terminated our business relationship with
certain agents and have taken actions to terminate business relationships with other agents. In
November 2005, one of the terminated agents and his affiliated entity have 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
months ended June 30, 2006 and 2005, we
derived approximately $8.0 million, $10.2 million, $2.0 million, and $2.0 million, respectively, of leasing and other revenues from
this joint venture, of which $4.0 million, $3.2 million, $0.9 million and $1.3 million, respectively, was paid by us to a third party
for the use of the aircraft. 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 months ended June 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.
11
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Document Subpoena from U.S. Department of Justice On June 15, 2005, we issued a press
release disclosing that one of our subsidiaries had received a document subpoena from the Antitrust
Division of the U.S. Department of Justice (the DOJ). The subpoena relates 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 will continue to provide additional information in
connection with the investigation as required.
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 the Company or
current or former officers, directors or employees of the Company, the imposition of fines and
other penalties, remedies and/or sanctions, referral to other governmental agencies, and/or the
payment of treble damages in civil litigation, any of which 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 and $0.6 million in legal and other professional fees in fiscal year 2006
and the three months ended June 30, 2006, respectively, and significant expenditures may continue
to be incurred in the future.
Environmental Contingencies ¾ 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 ¾ As a result of hurricanes Katrina and Rita,
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 ¾ 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 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 we expect the sale to be completed during the three months
ending September 30, 2006, resulting in a gain of approximately $2.2 million.
12
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Guarantees ¾ We have guaranteed the repayment of up to £10 million ($18.5
million) of the debt of FBS and $13.1 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
June 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 June 30, 2006, surety bonds with
an aggregate value of 39.9 million Mexican pesos ($3.5 million) were outstanding.
The following table summarizes our commitments under these guarantees as of June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period |
|
|
Remainder of Fiscal |
|
Fiscal Years |
|
Fiscal Years |
|
Fiscal Year 2012 |
Total |
|
Year 2007 |
|
2008-2009 |
|
2010-2011 |
|
and Thereafter |
|
|
|
(In thousands) |
$35,063
|
|
$ |
3,496 |
|
|
$ |
13,079 |
|
|
$
|
|
$ |
18,488 |
|
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 TAXES
Our effective income tax rates from continuing operations were 33.0% and 20.9% for the three
months ended June 30, 2006 and 2005, respectively. The significant variance between the U.S.
federal statutory rate and the effective rate for the three months ended June 30, 2005 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 three months ended June 30, 2006, we had net
reversals of reserves for estimated tax exposures of $0.8 million. Reversals of reserves at a
level similar to that for the three months ended June 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 6 EMPLOYEE BENEFIT PLANS
Pension Plans
The following table provides a detail of the components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Service cost for benefits earned during the period |
|
$ |
63 |
|
|
$ |
57 |
|
Interest cost on pension benefit obligation |
|
|
5,484 |
|
|
|
4,367 |
|
Expected return on assets |
|
|
(5,674 |
) |
|
|
(3,973 |
) |
Amortization of unrecognized experience losses |
|
|
879 |
|
|
|
747 |
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
752 |
|
|
$ |
1,198 |
|
|
|
|
|
|
|
|
The current estimate of our cash contributions to the pension plans for fiscal year 2007 is
$9.9 million, $0.9 million of which was paid during the three months ended June 30, 2006.
13
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
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 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 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 June 30, 2006 were
$0.4 million and $0.3 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 June 30, 2006 would have been $0.75 and $0.74, respectively, if we had not adopted
SFAS No. 123(R), compared to reported basic and diluted earnings per share of $0.74 and $0.73,
respectively.
Total share-based compensation expense, which includes stock options and restricted stock
units, was $0.8 million for the three months ended June 30, 2006 compared to less than $0.1 million
for the three months ended June 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.
14
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
The following table shows our assumptions used to compute the stock-based compensation expense
for stock option grants issued during the three months ended March 31, 2006.
|
|
|
|
|
Risk free interest rate |
|
|
5.0% - 5.2 |
% |
Expected life (years) |
|
|
4 |
|
Volatility |
|
|
34 |
% |
Dividend yield |
|
|
|
|
The weighted average grant date fair value of options granted during the three months ended
June 30, 2006 was $12.07 per option. Unrecognized stock-based compensation expense related to
nonvested stock options was approximately $3.5 million as of June 30, 2006, relating to a total of
433,895 unvested stock options under our stock option plans. We expect to recognize this
stock-based compensation expense over a weighted average period of approximately 1.87 years. The
total fair value of options vested during the three months ended June 30, 2006 was approximately
$0.6 million.
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 three months ended June 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 |
|
|
147,000 |
|
|
|
35.02 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(44,624 |
) |
|
|
17.12 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(16,075 |
) |
|
|
28.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2006 |
|
|
900,064 |
|
|
$ |
26.88 |
|
|
|
8.10 |
|
|
$ |
8,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 30, 2006 |
|
|
466,169 |
|
|
$ |
24.16 |
|
|
|
7.26 |
|
|
$ |
5,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value, determined as of the date of exercise, of options exercised for the
three months ended June 30, 2006 and 2005 was $0.9 million and $0.3 million, respectively. We
received $0.8 million and $0.5 million in cash from option exercises for the three months ended
June 30, 2006 and 2005, respectively. The total tax benefit attributable to options exercised
during the three months ended June 30, 2006 and 2005 was $0.3 million and $0.1 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 $0.3 million as
reported on our condensed consolidated statement of cash flows in financing activities for the
three months ended June 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 amount of expense recognized each period to
fluctuate. Compensation expense related to awards of restricted stock units was recognized before
the adoption of SFAS No. 123(R) and totaled $0.3 million and less than $0.1 million for the three
months ended June 30, 2006 and 2005, respectively.
15
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
The following is a summary of non-vested restricted stock units as of June 30, 2006 and
changes during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
Date Fair |
|
|
|
|
|
|
Value |
|
|
Units |
|
Per Unit |
Non-vested as of March 31, 2006 |
|
|
198,200 |
|
|
$ |
29.32 |
|
Granted |
|
|
195,680 |
|
|
|
35.03 |
|
Forfeited |
|
|
(4,240 |
) |
|
|
30.90 |
|
|
|
|
|
|
|
|
|
|
Non-vested as of June 30, 2006 |
|
|
389,640 |
|
|
|
32.16 |
|
|
|
|
|
|
|
|
|
|
Unrecognized stock-based compensation expense related to non-vested restricted stock units was
approximately $11.1 million as of June 30, 2006, relating to a total of 389,640 unvested restricted
stock units. We expect to recognize this stock-based compensation expense over a weighted average
period of approximately 4.68 years.
Prior
Period Pro Forma Presentation The following table illustrates the effect on net income
and earnings per share for the three months ended June 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 |
|
|
|
ended |
|
|
|
June 30, 2005 |
|
|
|
(In thousands, |
|
|
|
except per |
|
|
|
share |
|
|
|
amounts) |
|
Net income, as reported |
|
$ |
11,972 |
|
Stock-based employee compensation expense included
in reported net income, net of tax |
|
|
30 |
|
Stock-based employee compensation expense, net of tax |
|
|
(546 |
) |
|
|
|
|
Pro forma net income |
|
$ |
11,456 |
|
|
|
|
|
Basic earnings: |
|
|
|
|
Earnings, as reported |
|
$ |
0.51 |
|
Stock-based employee compensation expense, net of tax |
|
|
(0.02 |
) |
|
|
|
|
Pro forma basic earnings per share |
|
$ |
0.49 |
|
|
|
|
|
Diluted earnings: |
|
|
|
|
Earnings, as reported |
|
$ |
0.51 |
|
Stock-based employee compensation expense, net of tax |
|
|
(0.02 |
) |
|
|
|
|
Pro forma diluted earnings per share |
|
$ |
0.49 |
|
|
|
|
|
Black-Scholes option pricing model assumptions: |
|
|
|
|
Risk free interest rate |
|
|
3.3% - 3.9 |
% |
Expected life (years) |
|
|
5 |
|
Volatility |
|
|
40 |
% |
Dividend yield |
|
|
|
|
16
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
NOTE 7 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 months ended June 30, 2006 excluded options to purchase 176,880 shares at a weighted
average exercise price of $31.77, which were outstanding during the period but were anti-dilutive.
Diluted earnings per share for the three months ended June 30, 2005 excluded options to purchase
89,000 shares at a weighted average exercise price of $33.69, which were outstanding during the
period but were anti-dilutive. The following table sets forth the computation of basic and diluted
net income per share.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Net income (in thousands): |
|
|
|
|
|
|
|
|
Income available to common stockholders basic and diluted |
|
$ |
17,229 |
|
|
$ |
11,972 |
|
|
|
|
|
|
|
|
Shares: |
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding basic |
|
|
23,393,010 |
|
|
|
23,319,677 |
|
Net effect of dilutive stock options and restricted stock units
based on the treasury stock method |
|
|
114,498 |
|
|
|
262,734 |
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding diluted |
|
|
23,507,508 |
|
|
|
23,582,411 |
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.74 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.73 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
NOTE 8 SEGMENT INFORMATION
We operate principally in two business segments: Helicopter Services and Production Management
Services. We conduct the operations of our Helicopter Services segment 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 months ended June 30, 2006 and 2005, reconciled to
consolidated totals, and prepared on the same basis as our condensed consolidated financial
statements:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Segment gross revenue from external customers: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
59,072 |
|
|
$ |
46,686 |
|
South and Central America |
|
|
13,012 |
|
|
|
9,587 |
|
Europe |
|
|
70,006 |
|
|
|
58,244 |
|
West Africa |
|
|
31,736 |
|
|
|
25,909 |
|
Southeast Asia |
|
|
17,041 |
|
|
|
13,808 |
|
Other International |
|
|
8,954 |
|
|
|
7,223 |
|
EH Centralized Operations |
|
|
3,601 |
|
|
|
2,514 |
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
203,422 |
|
|
|
163,971 |
|
Production Management Services |
|
|
17,665 |
|
|
|
16,950 |
|
Corporate |
|
|
(25 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
Total segment gross revenue |
|
$ |
221,062 |
|
|
$ |
180,937 |
|
|
|
|
|
|
|
|
17
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Intersegment and intrasegment gross revenue: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
7,728 |
|
|
$ |
5,763 |
|
South and Central America |
|
|
225 |
|
|
|
450 |
|
Europe |
|
|
1,387 |
|
|
|
935 |
|
West Africa |
|
|
|
|
|
|
|
|
Southeast Asia |
|
|
|
|
|
|
|
|
Other International |
|
|
|
|
|
|
365 |
|
EH Centralized Operations |
|
|
10,804 |
|
|
|
9,893 |
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
20,144 |
|
|
|
17,406 |
|
Production Management Services |
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
|
Total intersegment and intrasegment gross revenue |
|
$ |
20,163 |
|
|
$ |
17,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated gross revenue reconciliation: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
66,800 |
|
|
$ |
52,449 |
|
South and Central America |
|
|
13,237 |
|
|
|
10,037 |
|
Europe |
|
|
71,393 |
|
|
|
59,179 |
|
West Africa |
|
|
31,736 |
|
|
|
25,909 |
|
Southeast Asia |
|
|
17,041 |
|
|
|
13,808 |
|
Other International |
|
|
8,954 |
|
|
|
7,588 |
|
EH Centralized Operations |
|
|
14,405 |
|
|
|
12,407 |
|
Intrasegment eliminations |
|
|
(17,298 |
) |
|
|
(15,462 |
) |
|
|
|
|
|
|
|
Total Helicopter Services (1) |
|
|
206,268 |
|
|
|
165,915 |
|
Production Management Services (2) |
|
|
17,684 |
|
|
|
16,969 |
|
Corporate |
|
|
(25 |
) |
|
|
16 |
|
Intersegment eliminations |
|
|
(2,865 |
) |
|
|
(1,963 |
) |
|
|
|
|
|
|
|
Total consolidated gross revenue |
|
$ |
221,062 |
|
|
$ |
180,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss) reconciliation: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
11,095 |
|
|
$ |
9,783 |
|
South and Central America |
|
|
3,622 |
|
|
|
412 |
|
Europe |
|
|
9,036 |
|
|
|
6,920 |
|
West Africa |
|
|
2,408 |
|
|
|
2,071 |
|
Southeast Asia |
|
|
1,089 |
|
|
|
707 |
|
Other International |
|
|
1,106 |
|
|
|
1,227 |
|
EH Centralized Operations |
|
|
5,460 |
|
|
|
(1,286 |
) |
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
33,816 |
|
|
|
19,834 |
|
Production Management Services |
|
|
1,413 |
|
|
|
1,320 |
|
Gain on disposal of assets |
|
|
998 |
|
|
|
592 |
|
Corporate |
|
|
(5,167 |
) |
|
|
(6,701 |
) |
|
|
|
|
|
|
|
Total consolidated operating income |
|
$ |
31,060 |
|
|
$ |
15,045 |
|
|
|
|
|
|
|
|
18
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
March 31, |
|
|
|
2006 |
|
|
2006 |
|
|
|
(In thousands) |
|
Identifiable assets: (3) |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
427,365 |
|
|
$ |
415,045 |
|
South and Central America |
|
|
10,160 |
|
|
|
10,042 |
|
Europe |
|
|
36,499 |
|
|
|
31,515 |
|
West Africa |
|
|
7,885 |
|
|
|
8,918 |
|
Southeast Asia |
|
|
15,530 |
|
|
|
13,657 |
|
Other International |
|
|
30,569 |
|
|
|
28,125 |
|
EH Centralized Operations |
|
|
564,877 |
|
|
|
520,524 |
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
1,092,885 |
|
|
|
1,027,826 |
|
Production Management Services |
|
|
33,074 |
|
|
|
34,013 |
|
Corporate |
|
|
113,835 |
|
|
|
114,574 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
1,239,794 |
|
|
$ |
1,176,413 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes reimbursable revenue of $23.3 million and $14.1 million for the three
months ended June 30, 2006 and 2005, respectively. |
|
(2) |
|
Includes reimbursable revenue of $3.9 million and $4.6 million for the
three months ended June 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. |
NOTE 9 COMPREHENSIVE INCOME
Comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Net income |
|
$ |
17,229 |
|
|
$ |
11,972 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
18,367 |
|
|
|
(13,832 |
) |
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
35,596 |
|
|
$ |
(1,860 |
) |
|
|
|
|
|
|
|
During the three months ended June 30, 2006, the U.S. dollar weakened against the British
pound sterling resulting in significant translation gains recorded as a component of stockholders
investment as of June 30, 2006. During the three months ended June 30, 2005, the U.S. dollar
strengthened against the British pound sterling resulting in significant translation losses
recorded as a component of stockholders investment as of June 30, 2005. See discussion of foreign
currency translation in Note 1.
NOTE 10 SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with the sale of the Senior Notes, 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
19
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
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.
20
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
(25 |
) |
|
$ |
84,449 |
|
|
$ |
136,638 |
|
|
$ |
|
|
|
$ |
221,062 |
|
Intercompany revenue |
|
|
|
|
|
|
2,926 |
|
|
|
2,365 |
|
|
|
(5,291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25 |
) |
|
|
87,375 |
|
|
|
139,003 |
|
|
|
(5,291 |
) |
|
|
221,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
67 |
|
|
|
62,327 |
|
|
|
102,974 |
|
|
|
|
|
|
|
165,368 |
|
Intercompany expenses |
|
|
|
|
|
|
2,365 |
|
|
|
2,876 |
|
|
|
(5,241 |
) |
|
|
|
|
Depreciation and amortization |
|
|
26 |
|
|
|
4,250 |
|
|
|
6,007 |
|
|
|
|
|
|
|
10,283 |
|
General and administrative |
|
|
5,049 |
|
|
|
4,366 |
|
|
|
5,984 |
|
|
|
(50 |
) |
|
|
15,349 |
|
Gain on disposal of assets |
|
|
|
|
|
|
(136 |
) |
|
|
(862 |
) |
|
|
|
|
|
|
(998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,142 |
|
|
|
73,172 |
|
|
|
116,979 |
|
|
|
(5,291 |
) |
|
|
190,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(5,167 |
) |
|
|
14,203 |
|
|
|
22,024 |
|
|
|
|
|
|
|
31,060 |
|
Earnings (losses) from unconsolidated
affiliates, net |
|
|
11,870 |
|
|
|
(272 |
) |
|
|
1,885 |
|
|
|
(11,924 |
) |
|
|
1,559 |
|
Interest income |
|
|
14,630 |
|
|
|
60 |
|
|
|
877 |
|
|
|
(14,277 |
) |
|
|
1,290 |
|
Interest expense |
|
|
(3,283 |
) |
|
|
|
|
|
|
(14,230 |
) |
|
|
14,277 |
|
|
|
(3,236 |
) |
Other income (expense), net |
|
|
(89 |
) |
|
|
(77 |
) |
|
|
(4,619 |
) |
|
|
|
|
|
|
(4,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and minority interest |
|
|
17,961 |
|
|
|
13,914 |
|
|
|
5,937 |
|
|
|
(11,924 |
) |
|
|
25,888 |
|
Allocation of consolidated income taxes |
|
|
(693 |
) |
|
|
(1,369 |
) |
|
|
(6,481 |
) |
|
|
|
|
|
|
(8,543 |
) |
Minority interest |
|
|
(39 |
) |
|
|
|
|
|
|
(77 |
) |
|
|
|
|
|
|
(116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,229 |
|
|
$ |
12,545 |
|
|
$ |
(621 |
) |
|
$ |
(11,924 |
) |
|
$ |
17,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
|
$ |
16 |
|
|
$ |
71,575 |
|
|
$ |
109,346 |
|
|
$ |
|
|
|
$ |
180,937 |
|
Intercompany revenue |
|
|
|
|
|
|
1,590 |
|
|
|
1,121 |
|
|
|
(2,711 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
73,165 |
|
|
|
110,467 |
|
|
|
(2,711 |
) |
|
|
180,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost |
|
|
8 |
|
|
|
53,057 |
|
|
|
88,149 |
|
|
|
|
|
|
|
141,214 |
|
Intercompany expenses |
|
|
|
|
|
|
1,122 |
|
|
|
1,479 |
|
|
|
(2,601 |
) |
|
|
|
|
Depreciation and amortization |
|
|
17 |
|
|
|
4,207 |
|
|
|
6,083 |
|
|
|
|
|
|
|
10,307 |
|
General and administrative |
|
|
6,692 |
|
|
|
2,978 |
|
|
|
5,403 |
|
|
|
(110 |
) |
|
|
14,963 |
|
Loss (gain) on disposal of assets |
|
|
6 |
|
|
|
(9 |
) |
|
|
(589 |
) |
|
|
|
|
|
|
(592 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,723 |
|
|
|
61,355 |
|
|
|
100,525 |
|
|
|
(2,711 |
) |
|
|
165,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(6,707 |
) |
|
|
11,810 |
|
|
|
9,942 |
|
|
|
|
|
|
|
15,045 |
|
Earnings (losses) from unconsolidated
affiliates, net |
|
|
6,831 |
|
|
|
(810 |
) |
|
|
909 |
|
|
|
(6,884 |
) |
|
|
46 |
|
Interest income |
|
|
13,534 |
|
|
|
44 |
|
|
|
1,127 |
|
|
|
(13,673 |
) |
|
|
1,032 |
|
Interest expense |
|
|
(3,668 |
) |
|
|
(1 |
) |
|
|
(13,712 |
) |
|
|
13,673 |
|
|
|
(3,708 |
) |
Other income (expense), net |
|
|
(347 |
) |
|
|
(8 |
) |
|
|
3,138 |
|
|
|
|
|
|
|
2,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes and minority interest |
|
|
9,643 |
|
|
|
11,035 |
|
|
|
1,404 |
|
|
|
(6,884 |
) |
|
|
15,198 |
|
Allocation of consolidated income taxes |
|
|
2,370 |
|
|
|
(1,241 |
) |
|
|
(4,305 |
) |
|
|
|
|
|
|
(3,176 |
) |
Minority interest |
|
|
(41 |
) |
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
11,972 |
|
|
$ |
9,794 |
|
|
$ |
(2,910 |
) |
|
$ |
(6,884 |
) |
|
$ |
11,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
41,171 |
|
|
$ |
1,428 |
|
|
$ |
67,035 |
|
|
$ |
|
|
|
$ |
109,634 |
|
Accounts receivable |
|
|
25,088 |
|
|
|
68,098 |
|
|
|
117,935 |
|
|
|
(36,163 |
) |
|
|
174,958 |
|
Inventories |
|
|
|
|
|
|
71,865 |
|
|
|
83,814 |
|
|
|
|
|
|
|
155,679 |
|
Prepaid expenses and other |
|
|
824 |
|
|
|
3,575 |
|
|
|
12,816 |
|
|
|
|
|
|
|
17,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
67,083 |
|
|
|
144,966 |
|
|
|
281,600 |
|
|
|
(36,163 |
) |
|
|
457,486 |
|
Intercompany investment |
|
|
278,435 |
|
|
|
1,046 |
|
|
|
|
|
|
|
(279,481 |
) |
|
|
|
|
Investment in unconsolidated affiliates |
|
|
4,801 |
|
|
|
1,315 |
|
|
|
34,552 |
|
|
|
|
|
|
|
40,668 |
|
Intercompany notes receivable |
|
|
620,783 |
|
|
|
|
|
|
|
18,453 |
|
|
|
(639,236 |
) |
|
|
|
|
Property and equipment at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings |
|
|
220 |
|
|
|
31,320 |
|
|
|
12,275 |
|
|
|
|
|
|
|
43,815 |
|
Aircraft and equipment |
|
|
1,874 |
|
|
|
394,392 |
|
|
|
503,901 |
|
|
|
|
|
|
|
900,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,094 |
|
|
|
425,712 |
|
|
|
516,176 |
|
|
|
|
|
|
|
943,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and
amortization |
|
|
(1,373 |
) |
|
|
(113,552 |
) |
|
|
(164,259 |
) |
|
|
|
|
|
|
(279,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
721 |
|
|
|
312,160 |
|
|
|
351,917 |
|
|
|
|
|
|
|
664,798 |
|
Goodwill |
|
|
|
|
|
|
18,594 |
|
|
|
8,102 |
|
|
|
111 |
|
|
|
26,807 |
|
Other assets |
|
|
9,117 |
|
|
|
65 |
|
|
|
40,853 |
|
|
|
|
|
|
|
50,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
980,940 |
|
|
$ |
478,146 |
|
|
$ |
735,477 |
|
|
$ |
(954,769 |
) |
|
$ |
1,239,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,012 |
|
|
$ |
19,776 |
|
|
$ |
47,443 |
|
|
$ |
(10,901 |
) |
|
$ |
57,330 |
|
Accrued liabilities |
|
|
12,338 |
|
|
|
21,329 |
|
|
|
93,980 |
|
|
|
(25,262 |
) |
|
|
102,385 |
|
Deferred taxes |
|
|
(5,733 |
) |
|
|
|
|
|
|
12,351 |
|
|
|
|
|
|
|
6,618 |
|
Short-term borrowings and current
maturities of long-term debt |
|
|
|
|
|
|
|
|
|
|
14,489 |
|
|
|
|
|
|
|
14,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
7,617 |
|
|
|
41,105 |
|
|
|
168,263 |
|
|
|
(36,163 |
) |
|
|
180,822 |
|
Long-term debt, less current maturities |
|
|
234,380 |
|
|
|
|
|
|
|
12,649 |
|
|
|
|
|
|
|
247,029 |
|
Intercompany notes payable |
|
|
19,966 |
|
|
|
107,106 |
|
|
|
512,164 |
|
|
|
(639,236 |
) |
|
|
|
|
Other liabilities and deferred credits |
|
|
4,396 |
|
|
|
9,964 |
|
|
|
148,267 |
|
|
|
|
|
|
|
162,627 |
|
Deferred taxes |
|
|
34,515 |
|
|
|
1,821 |
|
|
|
32,909 |
|
|
|
|
|
|
|
69,245 |
|
Minority interest |
|
|
1,920 |
|
|
|
|
|
|
|
2,429 |
|
|
|
|
|
|
|
4,349 |
|
Stockholders investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
234 |
|
|
|
4,062 |
|
|
|
23,578 |
|
|
|
(27,640 |
) |
|
|
234 |
|
Additional paid-in-capital |
|
|
161,191 |
|
|
|
51,170 |
|
|
|
13,476 |
|
|
|
(64,646 |
) |
|
|
161,191 |
|
Retained earnings |
|
|
464,753 |
|
|
|
262,918 |
|
|
|
(70,038 |
) |
|
|
(192,880 |
) |
|
|
464,753 |
|
Accumulated other comprehensive
income (loss) |
|
|
51,968 |
|
|
|
|
|
|
|
(108,220 |
) |
|
|
5,796 |
|
|
|
(50,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
678,146 |
|
|
|
318,150 |
|
|
|
(141,204 |
) |
|
|
(279,370 |
) |
|
|
575,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
980,940 |
|
|
$ |
478,146 |
|
|
$ |
735,477 |
|
|
$ |
(954,769 |
) |
|
$ |
1,239,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
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 |
|
|
$ |
39,006 |
|
|
$ |
(9,437 |
) |
|
$ |
49,714 |
|
Accrued liabilities |
|
|
14,696 |
|
|
|
20,399 |
|
|
|
79,855 |
|
|
|
(23,394 |
) |
|
|
91,556 |
|
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 |
|
|
|
13,476 |
|
|
|
(64,646 |
) |
|
|
158,762 |
|
Retained earnings |
|
|
447,524 |
|
|
|
250,373 |
|
|
|
(69,417 |
) |
|
|
(180,956 |
) |
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
Three Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by (used in) operating
activities |
|
$ |
(39,344 |
) |
|
$ |
40,613 |
|
|
$ |
19,933 |
|
|
$ |
10,975 |
|
|
$ |
32,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(228 |
) |
|
|
(42,248 |
) |
|
|
(4,406 |
) |
|
|
|
|
|
|
(46,882 |
) |
Proceeds from asset dispositions |
|
|
|
|
|
|
1,700 |
|
|
|
856 |
|
|
|
|
|
|
|
2,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(228 |
) |
|
|
(40,548 |
) |
|
|
(3,550 |
) |
|
|
|
|
|
|
(44,326 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
5,000 |
|
|
|
|
|
|
|
7,195 |
|
|
|
(12,195 |
) |
|
|
|
|
Repayment of debt and debt redemption
premiums |
|
|
|
|
|
|
|
|
|
|
(3,957 |
) |
|
|
|
|
|
|
(3,957 |
) |
Repayment of intercompany debt |
|
|
|
|
|
|
|
|
|
|
(1,220 |
) |
|
|
1,220 |
|
|
|
|
|
Partial prepayment of put/call obligation |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30 |
) |
Issuance of common stock |
|
|
764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764 |
|
Tax benefit related to exercise of stock
options |
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
6,037 |
|
|
|
|
|
|
|
2,018 |
|
|
|
(10,975 |
) |
|
|
(2,920 |
) |
Effect of exchange rate changes on cash and
cash equivalents |
|
|
105 |
|
|
|
|
|
|
|
2,116 |
|
|
|
|
|
|
|
2,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
|
|
(33,430 |
) |
|
|
65 |
|
|
|
20,517 |
|
|
|
|
|
|
|
(12,848 |
) |
Cash and cash equivalents at beginning
of period |
|
|
74,601 |
|
|
|
1,363 |
|
|
|
46,518 |
|
|
|
|
|
|
|
122,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
41,171 |
|
|
$ |
1,428 |
|
|
$ |
67,035 |
|
|
$ |
|
|
|
$ |
109,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
Three Months Ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent |
|
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Company |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Only |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|
|
(In thousands) |
|
Net cash provided by (used in) operating
activities |
|
$ |
(13,035 |
) |
|
$ |
25,830 |
|
|
$ |
(15,357 |
) |
|
$ |
(7,213 |
) |
|
$ |
(9,775 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(4 |
) |
|
|
(22,544 |
) |
|
|
(7,582 |
) |
|
|
|
|
|
|
(30,130 |
) |
Proceeds from asset dispositions |
|
|
68 |
|
|
|
502 |
|
|
|
1,824 |
|
|
|
|
|
|
|
2,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
64 |
|
|
|
(22,042 |
) |
|
|
(5,758 |
) |
|
|
|
|
|
|
(27,736 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt and debt redemption
premiums |
|
|
|
|
|
|
|
|
|
|
(798 |
) |
|
|
|
|
|
|
(798 |
) |
Repayment of intercompany debt |
|
|
(1 |
) |
|
|
(3,700 |
) |
|
|
(12 |
) |
|
|
3,713 |
|
|
|
|
|
Dividends paid |
|
|
|
|
|
|
(3,500 |
) |
|
|
|
|
|
|
3,500 |
|
|
|
|
|
Partial prepayment of put/call obligation |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
Issuance of common stock |
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
activities |
|
|
495 |
|
|
|
(7,200 |
) |
|
|
(810 |
) |
|
|
7,213 |
|
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
|
|
|
|
|
|
|
|
|
|
(2,405 |
) |
|
|
|
|
|
|
(2,405 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(12,476 |
) |
|
|
(3,412 |
) |
|
|
(24,330 |
) |
|
|
|
|
|
|
(40,218 |
) |
Cash and cash equivalents at beginning
of period |
|
|
23,947 |
|
|
|
7,907 |
|
|
|
114,586 |
|
|
|
|
|
|
|
146,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period |
|
$ |
11,471 |
|
|
$ |
4,495 |
|
|
$ |
90,256 |
|
|
$ |
|
|
|
$ |
106,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
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 June 30, 2006 and the related condensed consolidated statements of income and
cash flows for the three-month periods ended June 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 to financial data 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.
Houston, Texas
August 8, 2006
27
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 June
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 ended March 31, 2007 is referred to as
fiscal year 2007.
Forward-Looking Statements
This Form 10-Q for June 30, 2006 (Quarterly Report) contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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, 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 those Risk Factors disclosed in the Annual Report; the
cautionary statements made in the Annual Report with respect to our forward-looking statements; the
risks cited in, and the cautionary statements made in, our Forms 10-Q and 8-K filed during the
current fiscal year; the level of activity in the oil and natural gas industry; production related
activities becoming more sensitive to variances in commodity prices; the U.S. Department of Justice
(the DOJ) or the U.S. Securities and Exchange Commission (SEC) investigation having a greater
than anticipated financial impact (see Internal Review and Governmental Investigations below);
and the implementation of our plan to improve our internal control over financial reporting.
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 conduct our business in two segments: Helicopter Services and Production Management
Services. The Helicopter Services segment conducts its operations through seven business units:
28
|
|
|
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 June 30, 2006, we operated 333 aircraft (including 311 aircraft owned and five aircraft held for
sale), and our unconsolidated affiliates operated an additional 147 aircraft (excluding those
aircraft leased from us).
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. This provides us additional opportunities to use our Helicopter Services. We
also handle regulatory and production reporting for some of our customers. As of June 30, 2006, we
managed or had personnel assigned to 315 production facilities in the U.S. Gulf of Mexico. Our
Production Management Services segment also leases helicopters from our Helicopter Services
segment.
During the Current Quarter, our North America, South and Central America, Europe, West Africa,
Southeast Asia, Other International and EH Centralized Operations business units contributed 27%,
6%, 31%, 14%, 8%, 4% and 2%, respectively, of our gross revenue. Our Production Management
Services segment contributed the remaining 8% of our gross revenue in the Current Quarter.
The following table sets forth the number of our aircraft owned or leased as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
|
2006 |
|
2006 |
North America |
|
|
169 |
|
|
|
170 |
|
South and Central America |
|
|
34 |
|
|
|
32 |
|
Europe |
|
|
38 |
|
|
|
40 |
|
West Africa |
|
|
51 |
|
|
|
48 |
|
Southeast Asia |
|
|
16 |
|
|
|
15 |
|
Other International |
|
|
20 |
|
|
|
21 |
|
EH Centralized Operations |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
Total consolidated affiliates |
|
|
333 |
|
|
|
331 |
|
|
|
|
|
|
|
|
|
|
Additional aircraft operated by unconsolidated affiliates |
|
|
147 |
|
|
|
146 |
|
|
|
|
|
|
|
|
|
|
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.
29
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 are for varying periods and in certain cases permit the customer to
cancel the charter before the end of the contract term. These contracts 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 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 many 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 included in the Annual
Report and Note 2 in the Condensed Notes to Consolidated Financial Statements included elsewhere
in this Quarterly Report.
Market Outlook
We are currently experiencing significant demand for our helicopter services and, in certain
of our markets (particularly the U.S. Gulf of Mexico), we are unable to meet the full demand and
have been forced to decline customer orders. 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.
30
We expect to see growth in demand for additional helicopter services particularly in North and
South America, West Africa and Asia, including the Caspian Sea region. We 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.
Current
activity levels in the Gulf of Mexico are at or near all-time highs.
There has also been a
trend of major oil and gas companies transferring reserves located in the U.S. Gulf of Mexico to
smaller, independent oil and gas producers. This trend has generated, and is 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.
In 2005, we conducted the Internal Review, which consisted of a review of certain of our prior
business practices, focused on Foreign Corrupt Practices Act matters and other issues in a number
of our international operations. As a result of the findings of the Internal Review, our quarter
ended December 31, 2004 and prior financial statements reflected all known restatements. We
informed the SEC of the Internal Review, and they have a formal investigation pending. We have
responded to the SECs requests for documents and intend to continue to do so. For additional
discussion of the SEC investigation, the Internal Review and related proceedings, see Internal
Review and Governmental Investigations.
31
Overview of Operating Results
The following table presents our operating results and other income statement information for
the applicable periods:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(Unaudited) |
|
|
|
(In thousands) |
|
Gross revenue: |
|
|
|
|
|
|
|
|
Operating revenue |
|
$ |
193,865 |
|
|
$ |
162,234 |
|
Reimbursable revenue |
|
|
27,197 |
|
|
|
18,703 |
|
|
|
|
|
|
|
|
Total gross revenue |
|
|
221,062 |
|
|
|
180,937 |
|
|
|
|
|
|
|
|
Operating expense: |
|
|
|
|
|
|
|
|
Direct cost |
|
|
138,470 |
|
|
|
122,552 |
|
Reimbursable expense |
|
|
26,898 |
|
|
|
18,662 |
|
Depreciation and amortization |
|
|
10,283 |
|
|
|
10,307 |
|
General and administrative |
|
|
15,349 |
|
|
|
14,963 |
|
Gain on disposal of assets |
|
|
(998 |
) |
|
|
(592 |
) |
|
|
|
|
|
|
|
Total operating expense |
|
|
190,002 |
|
|
|
165,892 |
|
|
|
|
|
|
|
|
Operating income |
|
|
31,060 |
|
|
|
15,045 |
|
Earnings from unconsolidated affiliates, net of losses |
|
|
1,559 |
|
|
|
46 |
|
Interest expense, net |
|
|
(1,946 |
) |
|
|
(2,676 |
) |
Other income (expense), net |
|
|
(4,785 |
) |
|
|
2,783 |
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest |
|
|
25,888 |
|
|
|
15,198 |
|
Provision for income taxes |
|
|
(8,543 |
) |
|
|
(3,176 |
) |
Minority interest |
|
|
(116 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
17,229 |
|
|
$ |
11,972 |
|
|
|
|
|
|
|
|
Current Quarter Compared to Comparable Quarter
Our gross revenue increased to $221.1 million for the Current Quarter from $180.9 million for
the Comparable Quarter, an increase of 22.2%. The increase in gross revenue occurred in both our
Helicopter Services segment and our Production Management Services segment. Helicopter Services
primarily contributed to the increase in gross revenue with improvements for North America,
resulting from an increase in flight hours and rates, and improvements in Europe, resulting from
higher rates and new contracts. Our operating expense increased to $190.0 million for the Current
Quarter from $165.9 million for the Comparable Quarter, an increase of 14.5%. The increase was
primarily a result of higher costs associated with higher activity levels, higher labor costs,
higher fuel rates (which are generally recovered from our customers), and higher salaries and
benefits associated with the addition of personnel, salary increases and the impact of the adoption
of the new equity compensation accounting standard in the Current Quarter (see discussion below).
Primarily as a result of lower maintenance costs within our EH Centralized Operations business unit
and the improvement in rates in North America and Europe, our operating income and operating margin
for the Current Quarter increased to $31.1 million and 14.1%, respectively, compared to $15.0
million and 8.3%, respectively, for the Comparable Quarter.
Net income for the Current Quarter of $17.2 million represents a $5.2 million increase from
the Comparable Quarter. This increase in net income was driven by the increase in operating income
discussed above, which was partially offset by foreign exchange losses of $4.8 million in the
Current Quarter compared to foreign exchange gains of $2.8 million in the Comparable Quarter, and
an increase in the provision for income taxes to $8.5 million in the Current Quarter from $3.2
million in the Comparable Quarter. The provision for income taxes increased as a result of the
increase in income during the Current Quarter and from an increase in the overall effective tax
rate to 33.0% in the Current Quarter from 20.9% in the Comparable Quarter.
32
Results of Operations
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 |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Flight hours (excludes unconsolidated affiliates) |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
|
40,595 |
|
|
|
35,778 |
|
South and Central America |
|
|
9,285 |
|
|
|
9,516 |
|
Europe |
|
|
10,170 |
|
|
|
9,731 |
|
West Africa |
|
|
8,883 |
|
|
|
8,344 |
|
Southeast Asia |
|
|
3,206 |
|
|
|
2,722 |
|
Other International |
|
|
2,052 |
|
|
|
1,603 |
|
|
|
|
|
|
|
|
Consolidated total |
|
|
74,191 |
|
|
|
67,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Gross revenue: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
66,800 |
|
|
$ |
52,449 |
|
South and Central America |
|
|
13,237 |
|
|
|
10,037 |
|
Europe |
|
|
71,393 |
|
|
|
59,179 |
|
West Africa |
|
|
31,736 |
|
|
|
25,909 |
|
Southeast Asia |
|
|
17,041 |
|
|
|
13,808 |
|
Other International |
|
|
8,954 |
|
|
|
7,588 |
|
EH Centralized Operations |
|
|
14,405 |
|
|
|
12,407 |
|
Intrasegment eliminations |
|
|
(17,298 |
) |
|
|
(15,462 |
) |
|
|
|
|
|
|
|
Total Helicopter Services (1) |
|
|
206,268 |
|
|
|
165,915 |
|
Production Management Services (2) |
|
|
17,684 |
|
|
|
16,969 |
|
Corporate |
|
|
(25 |
) |
|
|
16 |
|
Intersegment eliminations |
|
|
(2,865 |
) |
|
|
(1,963 |
) |
|
|
|
|
|
|
|
Consolidated total |
|
$ |
221,062 |
|
|
$ |
180,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense: (3) |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
55,705 |
|
|
$ |
42,666 |
|
South and Central America |
|
|
9,615 |
|
|
|
9,625 |
|
Europe |
|
|
62,357 |
|
|
|
52,259 |
|
West Africa |
|
|
29,328 |
|
|
|
23,838 |
|
Southeast Asia |
|
|
15,952 |
|
|
|
13,101 |
|
Other International |
|
|
7,848 |
|
|
|
6,361 |
|
EH Centralized Operations |
|
|
8,945 |
|
|
|
13,693 |
|
Intrasegment eliminations |
|
|
(17,298 |
) |
|
|
(15,462 |
) |
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
172,452 |
|
|
|
146,081 |
|
Production Management Services |
|
|
16,271 |
|
|
|
15,649 |
|
Gain on disposal of assets |
|
|
(998 |
) |
|
|
(592 |
) |
Corporate |
|
|
5,142 |
|
|
|
6,717 |
|
Intersegment eliminations |
|
|
(2,865 |
) |
|
|
(1,963 |
) |
|
|
|
|
|
|
|
Consolidated total |
|
$ |
190,002 |
|
|
$ |
165,892 |
|
|
|
|
|
|
|
|
See notes beginning on following page.
33
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands, except percentages) |
|
Operating income: |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
11,095 |
|
|
$ |
9,783 |
|
South and Central America |
|
|
3,622 |
|
|
|
412 |
|
Europe |
|
|
9,036 |
|
|
|
6,920 |
|
West Africa |
|
|
2,408 |
|
|
|
2,071 |
|
Southeast Asia |
|
|
1,089 |
|
|
|
707 |
|
Other International |
|
|
1,106 |
|
|
|
1,227 |
|
EH Centralized Operations |
|
|
5,460 |
|
|
|
(1,286 |
) |
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
33,816 |
|
|
|
19,834 |
|
Production Management Services |
|
|
1,413 |
|
|
|
1,320 |
|
Gain on disposal of assets |
|
|
998 |
|
|
|
592 |
|
Corporate |
|
|
(5,167 |
) |
|
|
(6,701 |
) |
|
|
|
|
|
|
|
Consolidated operating income |
|
|
31,060 |
|
|
|
15,045 |
|
Earnings from unconsolidated affiliates |
|
|
1,559 |
|
|
|
46 |
|
Interest income |
|
|
1,290 |
|
|
|
1,032 |
|
Interest expense |
|
|
(3,236 |
) |
|
|
(3,708 |
) |
Other income (expense), net |
|
|
(4,785 |
) |
|
|
2,783 |
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest |
|
|
25,888 |
|
|
|
15,198 |
|
Provision for income taxes |
|
|
(8,543 |
) |
|
|
(3,176 |
) |
Minority interest |
|
|
(116 |
) |
|
|
(50 |
) |
|
|
|
|
|
|
|
Net income |
|
$ |
17,229 |
|
|
$ |
11,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin: (4) |
|
|
|
|
|
|
|
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
|
16.6 |
% |
|
|
18.7 |
% |
South and Central America |
|
|
27.4 |
% |
|
|
4.1 |
% |
Europe |
|
|
12.7 |
% |
|
|
11.7 |
% |
West Africa |
|
|
7.6 |
% |
|
|
8.0 |
% |
Southeast Asia |
|
|
6.4 |
% |
|
|
5.1 |
% |
Other International |
|
|
12.4 |
% |
|
|
16.2 |
% |
EH Centralized Operations |
|
|
37.9 |
% |
|
|
(10.4 |
)% |
Total Helicopter Services |
|
|
16.4 |
% |
|
|
12.0 |
% |
Production Management Services |
|
|
8.0 |
% |
|
|
7.8 |
% |
Consolidated total |
|
|
14.1 |
% |
|
|
8.3 |
% |
|
|
|
(1) |
|
Includes reimbursable revenue of $23.3 million and $14.1 million for the three
months ended June 30, 2006 and 2005, respectively. |
|
(2) |
|
Includes reimbursable revenue of $3.9 million and $4.6 million for the
three months ended June 30, 2006 and 2005, respectively. |
34
|
|
|
(3) |
|
Operating expenses include depreciation and amortization in the following
amounts for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Helicopter Services: |
|
|
|
|
|
|
|
|
North America |
|
$ |
4,182 |
|
|
$ |
4,099 |
|
South and Central America |
|
|
455 |
|
|
|
538 |
|
Europe |
|
|
128 |
|
|
|
135 |
|
West Africa |
|
|
301 |
|
|
|
291 |
|
Southeast Asia |
|
|
85 |
|
|
|
(49 |
) |
Other International |
|
|
504 |
|
|
|
469 |
|
EH Centralized Operations |
|
|
4,555 |
|
|
|
4,757 |
|
|
|
|
|
|
|
|
Total Helicopter Services |
|
|
10,210 |
|
|
|
10,240 |
|
Production Management Services |
|
|
47 |
|
|
|
50 |
|
Corporate |
|
|
26 |
|
|
|
17 |
|
|
|
|
|
|
|
|
Consolidated total |
|
$ |
10,283 |
|
|
$ |
10,307 |
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
Operating margin is calculated as gross revenues less operating expenses
divided by gross revenues. |
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 $206.3 million, an increase of 24.4%, for
the Current Quarter from $165.9 million for the Comparable Quarter, and operating expense increased
to $172.5 million, an increase of 18.1%, from $146.1 million for the Comparable Quarter. This
resulted in an operating margin of 16.4% for the Current Quarter compared to 12.0% for the
Comparable Quarter. Helicopter Services results are further explained below by business unit.
North America
Gross revenue for North America increased to $66.8 million for the Current Quarter from $52.4
million for the Comparable Quarter, and flight activity increased by 13.5%. 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 is 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 $55.7 million for the Current Quarter from
$42.7 million for the Comparable Quarter. The increase was primarily due to higher labor costs
associated with the increase in flight activity and from the adoption of the new equity
compensation accounting standard in the Current Quarter, costs incurred in the Current Quarter
related to the DOJ investigation (see Internal Review and Governmental Investigations Document
Subpoena from U.S. Department of Justice below for further discussion), and higher fuel costs
associated with both the increase in flight activity and a higher average cost per gallon. We are
generally able to recover fuel costs increases from our customers. Our operating margin for North
America decreased to 16.6% for the Current Quarter from 18.7% for the Comparable Quarter primarily
due to the increase in labor costs and costs related to the DOJ investigation discussed above.
South and Central America
Gross revenue for South and Central America increased to $13.2 million for the Current Quarter
from $10.0 million for the Comparable Quarter primarily due to a 15.5% increase in flight activity
in Trinidad and revenue recognized in the Current Quarter upon receipt of cash from our joint
venture in Mexico. Flight activity increased in Trinidad as a result of
35
the addition of an
aircraft in this market and the addition of a new contract in this market in November 2005. In
Mexico, the 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 June 30, 2006, $1.0 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 $2.6 million for revenues billed but not
collected from HC. During the Current Quarter, we recognized revenue of $0.8 million upon receipt
of payment from HC for amounts billed in fiscal year 2006.
Operating expense for South and Central America totaled $9.6 million for both the Current
Quarter and the Comparable Quarter. Operating expense increased in Trinidad as a result of the
increase in flight activity 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 unchanged, the operating margin for this business unit
increased significantly to 27.4% for the Current Quarter from 4.1% for the Comparable Quarter.
Since the conclusion of the PEMEX contract in February 2005, we have taken 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. We also are exploring markets in which to
redeploy aircraft that are currently operating on an ad hoc basis in Mexico. 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 $71.4 million for the Current Quarter from $59.2 million
for the Comparable Quarter, primarily as a result of a 4.5% increase in flight activity. 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 $62.4 million for the Current Quarter from $52.3
million for the Comparable Quarter primarily due to an increase in activity in the North Sea,
higher fuel rates and the impact of additions in personnel and salary increases in the Current
Quarter compared to the Comparable Quarter. We are generally able to recover fuel cost increases
from our customers. As a result of the increase in gross revenue, operating margin for Europe
increased to 12.7% for the Current Quarter from 11.7% for the Comparable Quarter.
In December 2005, we were informed that we were not awarded the contract extension commencing
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 $4.1 million and $2.2 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, through which we
will form a team to seek to obtain the future U.K.-wide search and rescue contract.
36
West Africa
Gross revenue for West Africa increased to $31.7 million for the Current Quarter from $25.9
million for the Comparable Quarter, primarily as a result of a 6.5% increase in flight activity in
Nigeria from the Comparable Quarter, including additional ad hoc flying, which generally earns
higher rates.
Operating expense for West Africa increased to $29.3 million for the Current Quarter from
$23.8 million in the Comparable Quarter. The increase was primarily as a result of higher salary
expense due to the increase in activity. 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 slightly to 7.6% in the Current
Quarter from 8.0% in the Comparable Quarter.
Approximately 14% of our gross revenue for the Current Quarter was derived from Nigeria. As a
result of the potential 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 may 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. We expect this process to continue for at
least the remainder of fiscal year 2007, which may cause our financial results to vary in future
periods.
Southeast Asia
Gross revenue for Southeast Asia increased to $17.0 million in the Current Quarter from $13.8
million for the Comparable Quarter primarily due to higher revenue in Australia. Australias
flight activity and revenue increased 23.8% and 23.2%, respectively, from the Comparable Quarter,
primarily due to the utilization of an additional large aircraft and more ad hoc flying.
Operating expense increased to $16.0 million for the Current Quarter from $13.1 million for
the Comparable Quarter as a result of costs associated with the mobilization of new aircraft to
Australia and other costs related to the increase in activity compared to the Comparable Quarter.
As a result of higher gross revenue during the Current Quarter, operating margin increased to 6.4%
for the Current Quarter from 5.1% for the Comparable Quarter.
Other International
Gross revenue for Other International increased to $9.0 million for the Current Quarter from
$7.6 million for the Comparable Quarter primarily due to increases in flight activity in Russia and
Turkmenistan, and improvement in Egypt resulting from an additional large aircraft leased to our
unconsolidated affiliate in that country, which commenced in December 2005.
Operating expense increased to $7.8 million for the Current Quarter from $6.4 million for the
Comparable Quarter. 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. As a result of
the increase in general and administrative costs discussed above, our operating margin for Other
International decreased to 12.4% for the Current Quarter from 16.2% for the Comparable Quarter.
37
EH Centralized Operations
Gross revenue for EH Centralized Operations increased to $14.4 million for the Current Quarter
from $12.4 million for the Comparable Quarter as a result of increased parts sales and
out-of-pocket costs rebilled to our customers in the Current Quarter compared to the Comparable
Quarter.
Operating expense decreased to $8.9 million for the Current Quarter from $13.7 million for the
Comparable Quarter primarily due to lower maintenance costs, which primarily relate to a high level
of maintenance in the Comparable Quarter for a large aircraft that was then in the process of being
prepared for deployment to Malaysia. As a result of higher gross revenue and the decrease in
operating expense, our operating margin for EH Centralized Operations increased to 37.9% for the
Current Quarter from a negative 10.4% for the Comparable Quarter.
Production Management Services
Gross revenue for our Production Management Services segment increased to $17.7 million for
the Current Quarter, an increase of 4.1%, from $17.0 million for the Comparable Quarter 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 $16.3 million for the Current
Quarter from $15.6 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 8.0% for the Current Quarter from 7.8% in the Comparable Quarter.
General and Administrative Costs
Consolidated general and administrative costs increased by $0.4 million during the Current
Quarter compared to the Comparable Quarter. The increase is primarily due to (1) the adoption of
the new equity compensation accounting rules during the Current Quarter, (2) the addition of
corporate personnel, (3) cost increase in the Current Quarter associated with the DOJ investigation
and (4) an overall increase in corporate general and administrative costs, including additional
legal fees. The increase in cost in the Current Quarter was partially offset by lower costs
incurred related to the Internal Review. As discussed in Note 6 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 $0.4 million for
the Current Quarter. Professional fees in the Current Quarter included approximately $0.1 million
and $0.6 million in connection with the Internal Review and DOJ investigations, respectively.
Professional fees in the Comparable Quarter included approximately $3.1 million and less than $0.1
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 $1.5 million during the Current Quarter
compared to a negligible amount in the Comparable Quarter, primarily due to higher equity earnings
from FBS Limited (primarily resulting from an increase in activity and rates for a manpower
services contract, and a decrease in overhead costs compared to the Comparable Quarter), and Norsk
(resulting from the acquisition of Lufttransport AS and Lufttransport AB in June 2005 and from the
addition of one new large aircraft in the third quarter of fiscal year 2006), and RLR (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 work lost upon completion of the PEMEX
contract has gradually been replaced).
Interest Expense, Net
Interest expense, net of interest income, totaled $1.9 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 $1.0 million and $0.5 million, respectively, of
capitalized interest. More interest was capitalized in the Current Quarter as a result of the
increase in capital expenditures discussed under Liquidity and Capital Resources Cash Flows
Investing Activities below.
38
Other Income (Expense), Net
Other income (expense), net, for the Current Quarter was expense of $4.8 million compared to
income of $2.8 million for the Comparable Quarter, 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 Quarter.
Taxes
Our effective income tax rates from continuing operations were 33.0% and 20.9% 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 $0.8 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.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Net
cash flows provided by operating activities totaled $32.2 million during the Current
Quarter compared to net cash flows used in operating activities of $9.8 million during the
Comparable Quarter. Changes in non-cash working capital provided $3.4 million in cash flows from
operating activities for the Current Quarter compared to $30.9 million in cash flows used in
operating activities for the Comparable Quarter. In addition, cash flows from operating activities
improved due to the improvement in net income during the Current Quarter.
Investing Activities
Cash
flows used in investing activities were $44.3 million and $27.7 million for the Current
Quarter and Comparable Quarter, respectively, primarily for capital expenditures as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2005 |
|
Capital expenditures (in thousands): |
|
|
|
|
|
|
|
|
Aircraft and related equipment |
|
$ |
44,085 |
|
|
$ |
27,456 |
|
Other |
|
|
2,797 |
|
|
|
2,674 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
46,882 |
|
|
$ |
30,130 |
|
|
|
|
|
|
|
|
During
the Current Quarter, we made final payments in connection with the
delivery of two medium aircraft and progress payments on the construction of
new aircraft to be delivered in future periods in conjunction with our aircraft commitments
(discussed below) totalling $37.4 million. Also during the Current
Quarter, we spent an additional $6.7 million to upgrade aircraft within our existing aircraft fleet and to customize new aircraft
delivered for our operations. During the Comparable Quarter, apart from payments made for new
aircraft in conjunction with our aircraft commitments, we purchased four small aircraft for $5.1
million and paid deposits of $7.3 million for three large aircraft.
During the Current Quarter, we received proceeds of $2.6 million primarily from the disposal
of five aircraft, two airframes and certain other equipment, which together resulted in a net gain
of $1.0 million. During the Comparable
39
Quarter, we received proceeds of $2.4 million primarily
from the disposal of two aircraft and certain equipment, which resulted in a net gain of $0.6
million.
Due to the significant investment in aircraft made in both the Current Quarter and Comparable
Quarter, net capital expenditures exceeded cash flow from operations, and we expect this will
continue to be the case through at least the end of fiscal year 2007.
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 used in financing activities were $2.9 million and $0.3 million during the Current
Quarter and Comparable Quarter, respectively. During the Current Quarter, cash was used for the
repayment of debt totaling $4.0 million and was provided by our receipt of proceeds of $0.8 million
from the exercise of options to acquire shares of our Common Stock by our employees. During the
Comparable Quarter, cash was used for the repayment of debt totaling $0.8 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 June 30, 2006, total debt was $261.5 million, of which $14.5 million was classified as
current.
Revolving Credit Facility As of June 30, 2006, we had a $30 million revolving credit
facility with a U.S. bank. Borrowings bear interest at a rate
equal to one-month LIBOR plus a spread ranging from 1.25% to 2.0%. We had $3.2 million of
outstanding letters of credit and no borrowings under this facility as of June 30, 2006. This
facility was terminated in August 2006.
Senior Secured Credit Facilities In August 2006, we entered into syndicated senior secured
credit facilities which consists 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 will be used to issue letters of credit
supporting or securing performance of statutory obligations, surety or appeal bonds, bid or
performance 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 are 0.0% and 1.25%, respectively. Interest will be
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
40
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.
U.K. Facilities As of June 30, 2006, Bristow Aviation Holdings, Ltd. (Bristow Aviation)
had a £6.0 million ($11.1 million) facility for letters of credit, of which £0.4 million ($0.7
million) was outstanding, and a £1.0 million ($1.8 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 a rate of 0.7% per
annum. Borrowings under the net overdraft facility are payable on 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 is scheduled to expire on August 31, 2006. The
facilities are guaranteed by certain of Bristow Aviations subsidiaries and secured by several
helicopter mortgages and a negative pledge of Bristow Aviations assets.
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 June 30, 2006, we had 51
aircraft on order and options to acquire an additional 37 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
March 31, |
|
|
Fiscal Year Ending March 31, |
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2011-2013 |
|
|
Total |
|
Commitments as of June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
Medium |
|
|
15 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
41 |
|
Large |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
11 |
|
|
|
3 |
|
|
|
3 |
|
|
|
9 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
211,248 |
|
|
$ |
71,519 |
|
|
$ |
23,245 |
|
|
$ |
24,491 |
|
|
$ |
64,022 |
|
|
$ |
394,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options as of June 30, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of aircraft: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium |
|
|
|
|
|
|
1 |
|
|
|
6 |
|
|
|
6 |
|
|
|
11 |
|
|
|
24 |
|
Large |
|
|
|
|
|
|
7 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
12 |
|
|
|
6 |
|
|
|
11 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures (in thousands) |
|
$ |
37,861 |
|
|
$ |
178,275 |
|
|
$ |
102,600 |
|
|
$ |
48,292 |
|
|
$ |
81,191 |
|
|
$ |
448,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2006, options with respect to six of the 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. We have also made an arrangement with the
manufacturer pursuant to which we may delay our existing purchase commitments for up to $100
million of medium aircraft upon the exercise of options for an equal amount of large aircraft.
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
was delivered during fiscal year 2006, and the remaining two are expected to be delivered in fiscal
year 2007. The one aircraft that we are purchasing is reflected in the table above.
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
41
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 June 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 in
this Quarterly Report and the Notes to Consolidated Financial Statements included in the Annual
Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Nine 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 |
|
$ |
261,518 |
|
|
$ |
14,489 |
|
|
$ |
12,449 |
|
|
$ |
200 |
|
|
$ |
234,380 |
|
Interest |
|
|
86,702 |
|
|
|
10,625 |
|
|
|
29,219 |
|
|
|
28,679 |
|
|
|
18,179 |
|
Aircraft operating leases (1) (2) |
|
|
67,590 |
|
|
|
5,441 |
|
|
|
12,600 |
|
|
|
13,387 |
|
|
|
36,162 |
|
Other operating leases (1) |
|
|
17,229 |
|
|
|
2,874 |
|
|
|
4,844 |
|
|
|
3,523 |
|
|
|
5,988 |
|
Pension obligations (3) |
|
|
174,778 |
|
|
|
7,932 |
|
|
|
20,614 |
|
|
|
18,630 |
|
|
|
127,602 |
|
Aircraft purchase obligations |
|
|
394,525 |
|
|
|
211,248 |
|
|
|
94,764 |
|
|
|
49,839 |
|
|
|
38,674 |
|
Other purchase obligations (4) |
|
|
30,265 |
|
|
|
30,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
1,032,607 |
|
|
$ |
282,874 |
|
|
$ |
174,490 |
|
|
$ |
114,258 |
|
|
$ |
460,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt guarantees (5) |
|
$ |
31,567 |
|
|
$ |
|
|
|
$ |
13,079 |
|
|
$ |
|
|
|
$ |
18,488 |
|
Other guarantees (6) |
|
|
3,496 |
|
|
|
3,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter of credit (7) |
|
|
4,767 |
|
|
|
4,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments |
|
$ |
39,830 |
|
|
$ |
8,263 |
|
|
$ |
13,079 |
|
|
$ |
|
|
|
$ |
18,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. As of June 30, 2006, we had recorded on our balance sheet a
$145.1 million pension liability and a $40.6 million prepaid pension asset associated with
this obligation. |
|
(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 ($18.5 million) of the
debt of FBS Limited and $13.1 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 June 30, 2006,
surety bonds with and aggregate value of 39.9 million Mexican pesos ($3.5 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. |
42
We
do not expect the guarantees shown in the table above to become obligations that we will have to fund.
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. In addition, should we exercise our options to acquire
aircraft in addition to those for which we have existing purchase commitments or should we elect to
expand our business through acquisition, including acquisitions under consideration or negotiation,
we would need to raise additional funds through public or private debt or equity financings. See
Item 1A. Risk Factors In order to grow our business, we may require additional capital in the
future, which may not be available to us included in the Annual Report.
Cash and cash equivalents were $109.6 million and $122.5 million as of June 30, 2006 and March
31, 2006, respectively. Working capital as of June 30, 2006 and March 31, 2006 was $276.7 million
and $283.3 million, respectively. The decrease in working capital during the Current Quarter was
primarily a result of the $12.8 million decrease in cash and cash equivalents. See discussion of
Cash Flow above.
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.
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. In addition, 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, see Note 6 in the Condensed Notes to
Consolidated Financial Statements included elsewhere in this Quarterly Report.
43
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (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 do not believe that the adoption of this interpretation 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 FIN No. 48.
See Note 6 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 (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 Annual Report on Form 10-K for fiscal year 2005.
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 has
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 the Annual Report or our financial statements for the Current
Quarter presented in this Quarterly Report. 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 Item 3. Legal Proceedings Internal Review included in the Annual Report.
We have communicated the Audit Committees conclusions with respect to the findings of the
Internal Review to regulatory authorities in some, but not all, of the jurisdictions in which the
relevant activities took place. We are in the process of gathering and analyzing additional
information related to these matters, and expect to disclose the Audit Committees conclusions to
regulatory authorities in other jurisdictions once this process has been completed. 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
44
several 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 June 30, 2006, the book values of our
aircraft in Nigeria and the South American country where certain improper activities took place
were approximately $118.3 million and $8.1 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. As of June 30,
2006, we have accrued an aggregate of $21.6 million for the taxes, penalties and interest
attributable to underreported employee payroll, which we expect to begin paying during the quarter
ending September 30, 2006. Operating income for the Comparable Quarter included $0.9 million
attributable to this accrual. No additional amounts were incurred during the Current Quarter.
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. In addition, new issues may be identified that may impact our financial statements and
the scope of the restatements described in our Annual Report on Form 10-K for fiscal year 2005 and
lead us to take other remedial actions or otherwise adversely impact us.
During fiscal years 2005 and 2006 and the Current Quarter, 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. We expect to incur additional costs associated with the
Internal Review, 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 these 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
45
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 have terminated our business relationship with
certain agents and have taken actions to terminate business relationships with other agents. In
November 2005, one of the terminated agents and his affiliated entity have 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 Current
and Comparable Quarters, we derived
approximately $8.0 million, $10.2 million, $2.0 million and $2.0 million, respectively, of leasing and other revenues from this joint venture, of
which $4.0 million, $3.2 million, $0.9 million and
$1.3 million, respectively, was paid by us to a third party for the use of the aircraft. 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 Current Quarter.
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.
Document Subpoena from U.S. Department of Justice
On
June 15, 2005, we issued a press release disclosing that one of our subsidiaries had received
a document subpoena from the Antitrust Division of the DOJ. The subpoena relates 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 will continue to provide additional information in
connection with the investigation as required.
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 the Company or
current or former officers, directors or employees of the Company, the imposition of fines and
other penalties, remedies and/or sanctions, referral to other governmental agencies, and/or the
payment of
46
treble damages in civil litigation, any of which 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 and $0.6 million in legal and other professional fees in fiscal year 2006
and the Current Quarter, respectively, and significant expenditures may continue to be incurred in
the future.
For additional information regarding the DOJ investigation, see Item 3. Legal Proceedings
Document Subpoena from U.S. Department of Justice in the Annual Report.
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 three months ended June 30, 2006 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
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 months ended June 30, 2006, we
recorded foreign currency transaction losses of approximately $4.8 million, primarily related to
the British pound sterling, compared to foreign currency transaction gains of approximately $2.8
million during the three months ended June 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 denominated intercompany loans and revenues from contracts
which are settled in U.S. dollars. During the three months ended June 30, 2006, the exchange rate
(of one British pound sterling into U.S. dollars) ranged from a low of $1.74 to a high of $1.89,
with an average of $1.83. As of June 30, 2006, the exchange rate was $1.85. During the three
months ended June 30, 2005, the exchange rate ranged from a low of $1.79 to a high of $1.92, with
an average of $1.86. As of March 31, 2006, the exchange rate was $1.74. Approximately 41% of our
gross revenue for the three months ended June 30, 2006 was translated for financial reporting
purposes from British pounds sterling into U.S. dollars. Beginning in July 2006, we reduced a portion of Bristow Aviations U.S.
dollar-denominated balances, and we expect to take other actions in the near term to further
mitigate this foreign exchange exposure.
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 June 30, 2006, we did not have any nominal forward exchange
contracts outstanding.
47
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.
Evaluation of Disclosure Controls and Procedures
As of June 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. In light of the material weaknesses associated with the control
environment previously disclosed, which had not been completely remediated as of June 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 June 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 hired our Vice President and General Counsel, Corporate Secretary, who has 27 years
of compliance and corporate legal experience; |
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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 expect to implement in the near term; |
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We completed our evaluation of our prior tax structures and the operation of those
structures, which allowed us to begin 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.
48
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, for discussion of certain of our legal matters.
Item 1A. Risk Factors.
New Risk Factors
The following are new risk factor discussions that should be read in conjunction with the risk
factor discussion contained in our fiscal year 2006 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, sometimes with as little as 30 days notice, for any reason and generally without
penalty. 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.
49
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 our fiscal year 2006 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 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 operations that compete with us on a local basis of 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 serves 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.
50
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.
On
June 15, 2005, we issued a press release disclosing that one of our subsidiaries had received
a document subpoena from the Antitrust Division of the U.S. Department of Justice (the DOJ). The
subpoena relates 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 will continue to provide additional
information in connection with the investigation as required.
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 the Company or
current or former officers, directors or employees of the Company, the imposition of fines and
other penalties, remedies and/or sanctions, referral to other governmental agencies, and/or the
payment of treble damages in civil litigation, any of which 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 and $0.6 million in legal and other professional fees in fiscal year 2006
and the three months ended June 30, 2006, respectively, and significant expenditures may continue
to be incurred in the future.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders was held on August 3, 2006. Matters voted on at the
meeting consisted of:
1. For the election of directors, all nominees were approved. The results were as follows:
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Nominee |
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For |
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Withheld |
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Thomas N. Amonett |
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18,467,906 |
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2,461,336 |
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Charles F. Bolden, Jr. |
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18,467,805 |
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2,461,437 |
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Peter N. Buckley |
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18,282,098 |
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2,647,144 |
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Stephen J. Cannon |
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16,539,410 |
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4,389,832 |
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Jonathan H. Cartwright |
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16,367,520 |
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4,561,722 |
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William E. Chiles |
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18,469,574 |
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2,459,668 |
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Michael A. Flick |
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18,469,679 |
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2,459,563 |
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Thomas C. Knudson |
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18,469,224 |
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2,460,018 |
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Ken C. Tamblyn |
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16,554,790 |
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4,374,452 |
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Robert W. Waldrup |
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18,469,674 |
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2,459,568 |
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2. Proposal to approve and ratify the selection of KPMG LLP as the Companys independent
auditors for the fiscal year ending March 31, 2007. The results were as follows:
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For |
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Against |
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Abstain |
20,749,552
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179,203
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487 |
51
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 |
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10.1*
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S-92 New Helicopter Sales Agreement dated as of May 19, 2006, between the Company and Sikorsky
Aircraft Corporation. + |
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15.1*
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Letter from KPMG LLP dated August 8, 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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+ |
|
Confidential information has been omitted from this exhibit and filed
separately with the SEC pursuant to a
confidential treatment request under Rule 24(b)-2. |
52
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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|
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|
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|
BRISTOW GROUP INC.
|
|
|
By: |
/s/ Perry L Elders
|
|
|
|
Perry L. Elders |
|
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
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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|
August 8, 2006
53
Index to Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
10.1*
|
|
S-92 New Helicopter Sales Agreement dated as of May 19, 2006, between the Company and Sikorsky
Aircraft Corporation. + |
|
|
|
15.1*
|
|
Letter from KPMG LLP dated August 8, 2006, regarding unaudited interim information. |
|
|
|
31.1**
|
|
Rule 13a-14(a) Certification by President and Chief Executive Officer of Registrant. |
|
|
|
31.2**
|
|
Rule 13a-14(a) Certification by Executive Vice President and Chief Financial Officer of Registrant. |
|
|
|
32.1**
|
|
Certification of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2**
|
|
Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
|
+ |
|
Confidential information has been omitted from this exhibit and filed
separately with the SEC pursuant to a
confidential treatment request under Rule 24(b)-2. |