form10q-11042010.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-Q
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2010
   
 
OR
   
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to
 
Commission File Number 001-31617
 
Bristow Group Inc.
 
(Exact name of registrant as specified in its charter)

Delaware
72-0679819
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)
   
2000 W.  Sam Houston Pkwy. S.,
77042
Suite 1700
(Zip Code)
Houston, Texas
  
(Address of principal executive offices)
  
Registrant’s telephone number, including area code:
 
(713) 267-7600
 
None
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes R     No £
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes R      No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer R
Accelerated filer £
Non-accelerated filer £
Smaller reporting company £
   
(Do not check if a smaller
reporting company)
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
£  Yes      R  No
 
Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of October 29, 2010.
            36,226,487 shares of Common Stock, $.01 par value




BRISTOW GROUP INC.
INDEX — FORM 10-Q

 
 
Page
PART I
  
     
Item 1.
Financial Statements                                                                                                                            
2
  
     
Item 2.
35
  
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk                                                                                                                            
55
  
     
Item 4.
Controls and Procedures                                                                                                                            
55
  
     
PART II
  
     
Item 1.
Legal Proceedings                                                                                                                            
55
  
     
Item 1A.
Risk Factors                                                                                                                            
55
  
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                            
56
  
     
Item 6.
Exhibits                                                                                                                            
57
  
     
Signatures                                                                                                                                           
58
  


PART I — FINANCIAL INFORMATION
 
Item 1.  Financial Statements.
 
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Income
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
     
2010
    
2009
      
2010
    
2009
  
   
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
                            
 
Operating revenue from non-affiliates
  
$
270,053
  
$
247,642
    
$
524,647
  
$
496,533
  
 
Operating revenue from affiliates
    
16,484
    
17,460
      
33,899
    
32,062
  
 
Reimbursable revenue from non-affiliates
    
25,933
    
24,746
      
45,996
    
50,599
  
 
Reimbursable revenue from affiliates
    
89
    
1,767
      
255
    
2,873
  
       
312,559
    
291,615
      
604,797
    
582,067
  
Operating expense:
                            
 
Direct cost
    
189,110
    
173,392
      
372,274
    
354,069
  
 
Reimbursable expense
    
25,020
    
26,304
      
45,198
    
52,961
  
 
Depreciation and amortization
    
20,968
    
18,470
      
40,299
    
36,656
  
 
General and administrative
    
30,515
    
29,686
      
61,417
    
58,488
  
         
265,613
    
247,852
      
519,188
    
502,174
  
                               
Gain on disposal of assets
    
1,897
    
4,880
      
3,615
    
10,889
  
Earnings from unconsolidated affiliates, net of losses
    
4,716
    
4,924
      
4,014
    
7,557
  
 
Operating income
    
53,559
    
53,567
      
93,238
    
98,339
  
                             
Interest income
    
168
    
210
      
460
    
432
  
Interest expense
    
(11,452
)
  
(10,640
)
    
(22,490
)
  
(20,652
)
Other income (expense), net
    
(111
)
  
1,809
      
404
    
328
  
 
Income before provision for income taxes
    
42,164
    
44,946
      
71,612
    
78,447
  
Provision for income taxes
    
(3,316
)
  
(11,236
)
    
(11,856
)
  
(20,746
)
 
Net income
    
38,848
    
33,710
      
59,756
    
57,701
  
 
Net loss (income) attributable to noncontrolling interests
    
32
    
(540
)
    
(68
)
  
(808
)
 
Net income attributable to Bristow Group
    
38,880
    
33,170
      
59,688
    
56,893
  
 
Preferred stock dividends
    
—
    
(3,163
)
    
—
    
(6,325
)
 
Net income available to common stockholders
  
$
38,880
  
$
30,007
    
$
59,688
  
$
50,568
  
                             
Earnings per common share:
                            
 
Basic
  
$
1.07
  
$
0.98
    
$
1.66
  
$
1.70
  
 
Diluted
  
$
1.06
  
$
0.92
    
$
1.63
  
$
1.58
  

The accompanying notes are an integral part of these condensed consolidated financial statements.


BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

   
September 30,
  
March 31,
  
   
2010
  
2010
  
   
(Unaudited)
      
   
(In thousands)
  
ASSETS
Current assets:
              
 
Cash and cash equivalents
  
$
108,501
  
$
77,793
  
 
Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $0.5 million and $0.2 million, respectively
    
231,351
    
203,312
  
 
Accounts receivable from affiliates, net of allowance for doubtful accounts of $4.6 million and $4.7 million, respectively 
    
19,812
    
16,955
  
 
Inventories
    
193,017
    
186,863
  
 
Prepaid expenses and other current assets
    
41,759
    
31,448
  
   
Total current assets
    
594,440
    
516,371
  
Investment in unconsolidated affiliates
    
205,779
    
204,863
  
Property and equipment – at cost:
              
 
Land and buildings
    
95,998
    
86,826
  
 
Aircraft and equipment
    
2,093,105
    
2,036,962
  
         
2,189,103
    
2,123,788
  
 
Less – Accumulated depreciation and amortization
    
(436,769
)
  
(404,443
)
         
1,752,334
    
1,719,345
  
Goodwill
    
32,185
    
31,755
  
Other assets
    
22,187
    
22,286
  
       
$
2,606,925
  
$
2,494,620
  
                   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
              
 
Accounts payable
  
$
61,545
  
$
48,545
  
 
Accrued wages, benefits and related taxes
    
36,049
    
35,835
  
 
Income taxes payable
    
952
    
2,009
  
 
Other accrued taxes
    
5,575
    
3,056
  
 
Deferred revenue
    
6,904
    
19,321
  
 
Accrued maintenance and repairs
    
15,663
    
10,828
  
 
Accrued interest 
    
6,429
    
6,430
  
 
Other accrued liabilities
    
20,680
    
14,508
  
 
Deferred taxes
    
10,714
    
10,217
  
 
Short-term borrowings and current maturities of long-term debt
    
23,798
    
15,366
  
   
Total current liabilities
    
188,309
    
166,115
  
Long-term debt, less current maturities
    
696,779
    
701,195
  
Accrued pension liabilities
    
112,551
    
106,573
  
Other liabilities and deferred credits
    
28,636
    
20,842
  
Deferred taxes
    
148,021
    
143,324
  
Commitments and contingencies (Note 4)
              
Stockholders’ investment:
              
 
Common stock, $.01 par value, authorized 90,000,000; outstanding: 36,183,920 as of September 30 and 35,954,040
 as of March 31 (exclusive of 1,291,325 treasury shares)
    
362
    
359
  
 
Additional paid-in capital 
    
684,464
    
677,397
  
 
Retained earnings
    
879,033
    
820,145
  
 
Accumulated other comprehensive loss
    
(137,414
)
  
(148,102
)
       
1,426,445
    
1,349,799
  
 
Noncontrolling interests
    
6,184
    
6,772
  
       
1,432,629
    
1,356,571
  
       
$
2,606,925
  
$
2,494,620
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

   
Six Months Ended
September  30,
  
   
2010
  
2009
  
   
(Unaudited)
  
   
(In thousands)
  
Cash flows from operating activities:
              
 
Net income
  
$
59,756
  
$
57,701
  
Adjustments to reconcile net income to net cash provided by operating activities:
              
 
Depreciation and amortization
    
40,299
    
36,656
  
 
Deferred income taxes
    
4,385
    
13,340
  
 
Discount amortization on long-term debt
    
1,565
    
1,462
  
 
Gain on disposal of assets
    
(3,615
)
  
(10,889
)
 
Gain on sale of joint ventures
    
(572
)
  
—
  
 
Stock-based compensation
    
8,019
    
6,611
  
 
Equity in earnings from unconsolidated affiliates less than (in excess of) dividends received
    
(890
)
  
(3,846
)
 
Tax benefit related to stock-based compensation
    
(179
)
  
(433
)
Increase (decrease) in cash resulting from changes in:
              
 
Accounts receivable
    
(24,940
)
  
13,707
  
 
Inventories
    
(3,000
)
  
(13,243
)
 
Prepaid expenses and other assets
    
(14,363
)
  
(10,391
)
 
Accounts payable
    
9,774
    
2,528
  
 
Accrued liabilities
    
(2,917
)
  
(10,303
)
 
Other liabilities and deferred credits
    
(4,138
)
  
10,709
  
Net cash provided by operating activities
    
69,184
    
93,609
  
Cash flows from investing activities:
              
 
Capital expenditures
    
(63,943
)
  
(136,145
)
 
Deposits on assets held for sale
    
1,000
    
—
  
 
Proceeds from sale of joint ventures
    
1,291
    
—
  
 
Proceeds from asset dispositions
    
17,178
    
71,238
  
 
Acquisition, net of cash received
    
—
    
(178,961
)
Net cash used in investing activities
    
(44,474
)
  
(243,868
)
Cash flows from financing activities:
              
 
Proceeds from borrowings
    
10,012
    
—
  
 
Repayment of debt
    
(7,630
)
  
(8,858
)
 
Distribution to noncontrolling interest owners
    
(637
)
  
—
  
 
Partial prepayment of put/call obligation
    
(28
)
  
(37
)
 
Acquisition of noncontrolling interest
    
(800
)
  
—
  
 
Preferred stock dividends paid
    
—
    
(6,325
)
 
Issuance of common stock
    
111
    
1,089
  
 
Tax benefit related to stock-based compensation
    
179
    
433
  
Net cash provided by (used in) financing activities
    
1,207
    
(13,698
)
Effect of exchange rate changes on cash and cash equivalents
    
4,791
    
6,193
  
Net increase (decrease) in cash and cash equivalents
    
30,708
    
(157,764
)
Cash and cash equivalents at beginning of period
    
77,793
    
300,969
  
Cash and cash equivalents at end of period
  
$
108,501
  
$
143,205
  
Supplemental disclosure of cash flow information:
              
Cash paid during the period for:
              
 
Interest
  
$
22,856
  
$
22,707
  
 
Income taxes
  
$
7,559
  
$
7,966
  

The accompanying notes are an integral part of these condensed consolidated financial statements.


BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
NOTE 1 — BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The condensed consolidated financial statements include the accounts of Bristow Group Inc. and its consolidated entities (“Bristow Group,” the “Company,” “we,” “us,” or “our”) after elimination of all significant intercompany accounts and transactions.  Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period.  Therefore, the fiscal year ending March 31, 2011 is referred to as fiscal year 2011.  Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the information contained in the following notes to condensed consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2010 Annual Report (the “fiscal year 2010 Financial Statements”).  Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.
 
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position of the Company as of September 30, 2010, the consolidated results of operations for the three and six months ended September 30, 2010 and 2009, and the consolidated cash flows for the six months ended September 30, 2010 and 2009.





 
5
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Foreign Currency
 
See “Foreign Currency” in Note 1 to the fiscal year 2010 Financial Statements for a discussion of the related accounting policies.  Other income (expense), net, in our condensed consolidated statements of income includes foreign currency transaction gains (losses) of $(0.1) million and $(0.2) million for the three and six months ended September 30, 2010, respectively, and $0.7 million and $(0.8) million, for the three and six months ended September 30, 2009, respectively.  Additionally, other income, net includes $1.1 million of hedging gains realized during the three and six months ended September 30, 2009 resulting from termination of a forward contract on a euro-denominated aircraft purchase commitment.
 
During the three and six months ended September 30, 2010 and 2009, our primary foreign currency exposures were to the British pound sterling, the euro, the Australian dollar and the Nigerian naira.  The value of these currencies has fluctuated relative to the U.S. dollar as indicated in the following table:
 
   
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
   
2010
    
2009
  
2010
    
2009
    
                         
One British pound sterling into U.S. dollars
                        
High
  
1.60
    
1.70
  
1.60
    
1.70
    
Average
  
1.55
    
1.64
  
1.52
    
1.60
    
Low
  
1.51
    
1.59
  
1.43
    
1.44
    
At period-end
  
1.58
    
1.60
  
1.58
    
1.60
    
One euro into U.S. dollars
                        
High
  
1.37
    
1.48
  
1.37
    
1.48
    
Average
  
1.29
    
1.43
  
1.28
    
1.40
    
Low
  
1.25
    
1.39
  
1.19
    
1.29
    
At period-end
  
1.37
    
1.46
  
1.37
    
1.46
    
One Australian dollar into U.S. dollars
                        
High
  
0.97
    
0.88
  
0.97
    
0.88
    
Average
  
0.91
    
0.83
  
0.89
    
0.80
    
Low
  
0.84
    
0.78
  
0.81
    
0.69
    
At period-end
  
0.97
    
0.88
  
0.97
    
0.88
    
One Nigerian naira into U.S. dollars
                        
High
  
0.0068
    
0.0069
  
0.0070
    
0.0069
    
Average
  
0.0067
    
0.0066
  
0.0067
    
0.0067
    
Low
  
0.0065
    
0.0063
  
0.0065
    
0.0063
    
At period-end
  
0.0066
    
0.0066
  
0.0066
    
0.0066
    
________
 
Source:  Bank of England and Oanda.com
 

 
6
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

We estimate that the fluctuation of exchange rates related to these currencies versus exchange rates during the three and six months ended September 30, 2009 had the following effect on our financial condition and results of operations, net of the effect of derivative contracts discussed in Note 6 (in thousands):
 
 
Three Months Ended
September 30, 2010
    
Six Months Ended
September 30, 2010
  
               
Revenue
$
(2,876
)
  
$
(1,115
)
Operating expense
  
3,240
      
3,790
  
Earnings from unconsolidated affiliates, net of losses
  
(161
)
    
(231
)
Non-operating expense
  
(1,928
)
    
(511
)
Income before provision for income taxes
  
(1,725
)
    
1,933
  
Provision for income taxes
  
136
      
(925
)
Net income
  
(1,589
)
    
1,008
  
Cumulative translation adjustment
  
15,864
      
5,877
  
Total stockholders’ investment
$
14,275
    
$
6,885
  

Our earnings from unconsolidated affiliates are also affected by the impact of changes in foreign currency exchange rates on the reported results of our unconsolidated affiliates.  During the three and six months ended September 30, 2010, earnings from unconsolidated affiliates were reduced by $2.0 million and $1.6 million, respectively, as a result of the impact of changes in foreign currency exchange rates on the results of our unconsolidated affiliates, primarily in Brazil.
 
Other Matters
 
In addition to the foreign currency items discussed above, other income (expense), net also includes gains on sales of two joint ventures of $0.6 million during the six months ended September 30, 2010.
 
As of September 30 and March 31, 2010, other accrued liabilities on the condensed consolidated balance sheets primarily includes accruals for insurance, travel, training, accommodations, fuel and freight as well as deposits for aircraft held for sale.
 
As discussed in “Item 1A. Risk Factors” in our fiscal year 2010 Annual Report, our results of operations are subject to seasonal fluctuations as a result of harsh weather conditions and shorter winter days which can limit activity and reduce flying.
 
Recent Accounting Pronouncements
 
On April 1, 2010, we adopted new accounting and disclosure requirements for transfers of financial assets which changed the requirements for derecognizing financial assets and require greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them.  In addition, the concept of a qualifying special-purpose entity was eliminated.  We have no financial assets subject to these requirements and therefore the adoption of these requirements had no impact on our financial position, cash flows and results of operations.
 
On April 1, 2010, we adopted an amendment to the accounting and disclosure requirements for the consolidation of Variable Interest Entities (“VIEs”).  This amendment changes how a reporting entity identifies a controlling financial interest in a VIE from the quantitative risk and rewards approach to a qualitative approach and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the entity the primary beneficiary of the VIE.  Our adoption of this amendment did not change our conclusions with regard to VIEs and did not have an impact on our financial position, cash flows and results of operations.  The additional disclosure requirements included in this amendment are provided in Note 7.
 

 
7
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued a standard to amend disclosure requirements related to fair value measurements by requiring additional disclosures for transfers in and out of Level 1 and Level 2 fair value measurements, as well as requiring fair value measurement disclosures for each “class” of assets and liabilities.  This standard also requires separate line item disclosure of all purchases, sales, issuances and settlements of financial instruments valued using significant unobservable inputs (Level 3) in the reconciliation for fair value measurements, in contrast to the current aggregate presentation as a single line item.  Certain disclosure requirements of this standard were effective April 1, 2010, while other disclosure requirements of the standard are effective for financial statements issued for reporting periods beginning after December 15, 2010.  Since these amended principles require only additional disclosures concerning fair value measurements, adoption did not and will not impact our financial position, cash flows or results of operations.
 
In October 2009, the FASB issued application guidance on multiple deliverables in revenue arrangements which is effective April 1, 2011.  This update provides further guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting and establishes a selling price hierarchy for determining the selling price of a deliverable.  The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available.  We have not yet determined the impact that the adoption of this guidance would have on our financial position, cash flows or results of operations, if any.
 
NOTE 2 — DEBT
 
Debt as of September 30 and March 31, 2010 consisted of the following (in thousands):
 
 
September 30,
2010
  
March 31,
2010
  
7 ½% Senior Notes due 2017, including $0.4 million and $0.5 million of unamortized premium, respectively
$
350,442
  
$
350,473
  
6 ⅛% Senior Notes due 2013
  
230,000
    
230,000
  
3% Convertible Senior Notes due 2038, including $17.4 million and $19.0 million of unamortized discount, respectively
  
97,608
    
96,043
  
Bristow Norway Debt
  
11,412
    
11,841
  
RLR Note
  
15,506
    
16,089
  
Term loans
  
5,609
    
12,081
  
Other debt
  
10,000
    
34
  
Total debt
  
720,577
    
716,561
  
Less short-term borrowings and current maturities of long-term debt
  
(23,798
)
  
(15,366
)
Total long-term debt
$
696,779
  
$
701,195
  
 
3% Convertible Senior Notes due 2038
 
In June 2008, we completed the sale of $115.0 million of 3% Convertible Senior Notes due 2038 (“3% Convertible Senior Notes”).  The notes are convertible, under certain circumstances, using a net share settlement process, into a combination of cash and our common stock, par value $.01 per share (“Common Stock”).  In general, upon conversion of a note, the holder will receive cash equal to the principal amount of the note and Common Stock to the extent of the note’s conversion value in excess of such principal amount.  For further details on the 3% Convertible Senior Notes, see Note 5 to the fiscal year 2010 Financial Statements.
 

 
8
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
The balances of the liability and equity components of the 3% Convertible Senior Notes as of each period presented are as follows (in thousands):
 
   
September 30,
 2010
  
March 31,
2010
  
 
Equity component – net carrying value
$
14,905
  
$
14,905
  
 
Debt component:
            
 
Face amount due at maturity
$
115,000
  
$
115,000
  
 
Unamortized discount
  
(17,392
)
  
(18,957
)
 
Debt component – net carrying value
$
97,608
  
$
96,043
  
 
The remaining debt discount is being amortized into interest expense over the expected five year remaining life of the 3% Convertible Senior Notes using the effective interest rate of 6.9%.  Interest expense related to the 3% Convertible Senior Notes was recognized as follows (in thousands):
 
 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
   
2010
    
2009
    
2010
    
2009
Contractual coupon interest 
$
863
  
$
863
  
$
1,726
  
$
1,726
Amortization of debt discount
  
789
    
737
    
1,565
    
1,462
Total interest expense
$
1,652
  
$
1,600
  
$
3,291
  
$
3,188
 
Bristow Norway Debt and Overdraft Facility
 
Bristow Norway had two term loans with a Norwegian bank that were used to purchase two helicopters.  In August 2009, these two term loans were repaid in the amounts of Norwegian kroner (“NOK”) 9.5 million ($1.6 million) and NOK 26.0 million ($4.3 million).  There is a third term loan that was used to purchase a third helicopter and was denominated in U.S. dollars prior to converting to NOK in August 2009.  As of September 30, 2010, this term loan had a balance of NOK 66.8 million ($11.4 million) and bears interest at three-month NIBOR plus a margin of 0.85%.  In October 2010, this third term loan was refinanced for three years at a fixed rate of approximately 5% per annum, payable in quarterly installments of NOK 1.7 million, with the balloon payment of NOK 47.9 million due at maturity.  This outstanding term loan is secured by the helicopter and certain receivables.  Additionally, Bristow Norway has an overdraft facility of NOK 5 million ($0.9 million) with a Norwegian bank.  No borrowings were outstanding under this overdraft facility as of September 30, 2010.  Borrowings under the overdraft facility bear interest at a reference rate plus a margin and this overdraft facility can be terminated by either party upon ten banking days’ written notice. 
 
Term loans
 
In May 2010, we repaid $5.9 million of the term loans early.  The quarterly principal payments of $0.6 million were reduced to $0.3 million, with the final principal payment remaining due on June 30, 2015.
 
Other debt
 
On July 15, 2010, we borrowed $8.1 million from Whitney National Bank which is payable on December 15, 2010 and secured by one aircraft.  Interest is payable on the loan at 4% as of September 30, 2010.
 
In April 2010, Aviashelf Aviation Co., a fully consolidated subsidiary operating in Russia, entered into a short-term loan with Bank Iturup for 60 million Russian rubles ($1.9 million) at a 19% interest rate that matures on March 31, 2011.
 

 
9
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
NOTE 3 — FAIR VALUE DISCLOSURES
 
Assets and liabilities subject to fair value are categorized into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:
 
 
·  
Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
·  
Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
·  
Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The following table summarizes the financial instruments we had as of September 30, 2010, which are valued at fair value on a recurring basis (in thousands):
 
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
    
Significant Other
Observable Inputs
(Level 2)
    
Significant Unobservable Inputs
(Level 3)
    
Balance as of
September 30,
2010
    
Balance Sheet
Classification
  
Derivative asset
  
$
—
    
$
1,322
    
$
—
    
$
1,322
      
Prepaid expenses and other current assets
  
Rabbi Trust investments
    
3,215
      
—
      
—
      
3,215
      
Other Assets
  
Total assets
  
$
3,215
    
$
1,322
    
$
—
    
$
4,537
          
 
The rabbi trust investments consist of money market and mutual funds whose fair value is based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy.  The rabbi trust holds investments related to our non-qualified deferred compensation plan for our senior executives as discussed in Note 10 in the fiscal year 2010 Financial Statements.  The methods and assumptions used to estimate the fair values of the derivative assets in the table above include the mark-to-market statements from the counterparties, which can be validated using modeling techniques that include market inputs, such as publicly available forward market rates, and are designated as Level 2 within the valuation hierarchy.  For further details on the derivative assets see Note 6.
 
 
The fair value of our financial instruments has been estimated in accordance with the accounting standard regarding fair value.  The fair value of our fixed rate long-term debt is estimated based on quoted market prices.  The carrying and fair values of our debt, including the current portion, are as follows (in thousands):
 
   
September 30, 2010
    
March 31, 2010
  
   
Carrying
Value
    
Fair
Value
    
Carrying
Value
    
Fair
Value
  
7 ½% Senior Notes
  
$
350,442
    
$
360,500
    
$
350,473
    
$
352,625
  
6 ⅛% Senior Notes
    
230,000
      
232,875
      
230,000
      
228,850
  
3% Convertible Senior Notes
    
97,608
      
104,506
      
96,043
      
101,488
  
Other
    
42,527
      
42,527
      
40,045
      
40,045
  
   
$
720,577
    
$
740,408
    
$
716,561
    
$
723,008
  
 
The fair values of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these items.
 

 
10
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
NOTE 4 — COMMITMENTS AND CONTINGENCIES
 
Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase additional aircraft.  As of September 30, 2010, we had 12 aircraft on order and options to acquire an additional 35 aircraft.  Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of potential revenue and operating income.
 
   
Six
 Months Ending
 March 31,
    
Fiscal Year Ending March 31,
      
   
2011
    
2012
    
2013
    
2014
    
2015
  
Total
Commitments as of September 30, 2010:
                                            
Number of aircraft:
                                            
Medium
    
5
      
—
      
—
      
—
      
—
    
5
Large
    
1
      
6
      
—
      
—
      
—
    
7
     
6
(1)
    
6
(2)
    
—
      
—
      
—
    
12
Related expenditures (in thousands) (3)
  
$
62,288
    
$
91,931
    
$
—
    
$
—
    
$
—
  
$
154,219
Options as of September 30, 2010:
                                            
Number of aircraft:
                                            
Medium
    
—
      
3
      
11
      
4
      
7
    
25
Large
    
—
      
1
      
5
      
4
      
—
    
10
     
—
      
4
      
16
      
8
      
7
    
35
Related expenditures (in thousands) (3)
  
$
12,217
    
$
105,324
    
$
261,572
    
$
125,034
    
$
81,240
  
$
585,387
_________

(1)
A signed customer contract is currently in place for one of these six aircraft.
   
(2)
Signed customer contracts are currently in place for these six aircraft.
   
(3)
Includes progress payments on aircraft scheduled to be delivered in future periods.
 
The following chart presents an analysis of our aircraft orders and options during fiscal year 2011:
 
 
Three Months Ended
  
 
September 30, 2010
    
June 30, 2010
  
 
Orders
    
Options
    
Orders
    
Options
  
Beginning of quarter
  
7
      
41
      
9
      
39
  
Aircraft delivered
  
(1
)
    
—
      
(1
)
    
—
  
Cancelled order
  
—
      
—
      
(1
)
    
—
  
Exercised options
  
6
      
(6
)
    
—
      
—
  
Reinstated options                               
  
—
      
—
      
—
      
2
  
End of quarter
  
12
      
35
      
7
      
41
  
 
Employee Agreements — Certain of our employees are represented by collective bargaining agreements and/or unions.  These agreements generally include annual escalations of up to 6%.  Periodically, certain groups of our employees who are not covered by a collective bargaining agreement consider entering into such an agreement.
 

 
11
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

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 Nigeria.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit Committee to cover operations in other countries and other issues (the “Internal Review”).  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review which eventually resulted in a formal SEC investigation.  In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation.  The SEC did not impose any fine or other monetary sanction upon the Company.  Without admitting or denying the SEC’s findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records.  For further information on the restatements, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.
 
Following the settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the U.S. Department of Justice (the “DOJ”) and was asked to provide certain information regarding the Internal Review.  We entered into an agreement with the DOJ that tolled the statute of limitations relating to these matters until the end of December 2009.  We have been and intend to continue to be responsive to the DOJ’s requests.  At this time, it is not possible to predict the outcome of the DOJ’s investigation into these matters.
 
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 responded to this claim in early 2006.  There has been minimal activity on this claim since then.
 
Document Subpoena Relating to DOJ Antitrust Investigation — In June 2005, one of our subsidiaries received a document subpoena from the Antitrust Division of the DOJ.  The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico.  The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005.  The Company submitted to the DOJ substantially all documents responsive to the subpoena and had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally.  On August 3, 2010, the Company was advised by the DOJ that it had closed the investigation.
 
Civil Class Action Lawsuit — On June 12, 2009, Superior Offshore International, Inc. v. Bristow Group Inc., et al, Case No. 1:09-cv-00438, was filed in the U.S. District Court for the District of Delaware.  The purported class action complaint, which also named other providers of offshore helicopter services in the Gulf of Mexico as defendants, alleged violations of Section 1 of the Sherman Act.  Among other things, the complaint alleged that the defendants unlawfully conspired to raise and maintain the price of offshore helicopter services between January 1, 2001 and December 31, 2005.  The plaintiff was seeking to represent a purported class of direct purchasers of offshore helicopter services and was asking for, among other things, unspecified treble monetary damages and injunctive relief.  In September 2010, the court granted our and the other defendants’ motion to dismiss the case on several grounds.  The plaintiff has since filed a motion seeking a rehearing and seeking leave to amend its original complaint.  We intend to continue to defend against this lawsuit vigorously.  We are currently unable to determine whether it could have a material affect on our business, financial condition and results of operations.
 
Environmental Contingencies — The U.S. 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
 

 
12
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

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 submitted a de minimus settlement offer to us in March 2010 which we have accepted.  Following finalization of the settlement, we will be released from liability in connection with this site.  Although we have not yet obtained a formal release for liability from the EPA with respect to any of the sites, we believe that our potential liability in connection with the sites is not likely to have a material adverse affect on our business, financial condition or results of operations.
 
Guarantees — We have guaranteed the repayment of up to £10 million ($16 million) of the debt of FBS Limited, an unconsolidated affiliate.  See discussion of this commitment in Note 3 to our fiscal year 2010 Financial Statements.  Additionally, we provided an indemnity agreement to Afianzadora Sofimex, S.A. to support the issuance of surety bonds on behalf of Heliservicio Campeche S.A. de C.V. (“Heliservicio”), another unconsolidated affiliate, from time to time.  As of September 30, 2010, surety bonds denominated in Mexican pesos with an aggregate value of 309 million Mexican pesos ($24.8 million) were outstanding.  Furthermore, we have received a counter-guarantee from our partner in Heliservicio for 76% ($18.8 million) of the surety bonds outstanding.
 
The following table summarizes our commitments under these guarantees, before the benefit of the counter-guarantee, as of September 30, 2010 (in thousands):
 
Amount of Commitment Expiration Per Period
Total
  
Remainder of Fiscal Year 2011
  
Fiscal Years 2012-2013
  
Fiscal Years 2014-2015
  
Fiscal Year 2016 and Thereafter
 
$
40,521
    
$
1,696
    
$
20,262
    
$
18,563
    
$
—
 
Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to a deductible.  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, cash flows or results of operations.
 

 
13
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

NOTE 5 — TAXES
 
Our effective income tax rates were 7.9% and 25.0% for the three months ended September 30, 2010 and 2009, respectively, and 16.6% and 26.4% for the six months ended September 30, 2010 and 2009, respectively.  The effective income tax rates for the three and six months ended September 30, 2010 reflect the tax implications of a recently implemented global legal structure that more closely aligns with our global operational structure.  As a result of this restructuring, most U.S. tax on offshore profits will be deferred until the profits are repatriated.  While the new structure was not put in place until November 1, 2010, U.S. accounting rules require us to project the impact for the full year and report the portion related to the six months ended September 30, 2010 during the three months ended September 30, 2010.  As a result, the tax expense for the three months ended September 30, 2010 is reduced to reflect the increase in foreign earnings indefinitely deferred abroad for the full six months ended September 30, 2010.  We expect to record adjustments to the deferred tax balances recorded in prior years during the three months ending December 31, 2010.
 
Our effective income tax rate was also reduced as a result of changes in activity levels between jurisdictions with different tax rates and enactment of a foreign statutory income tax rate reduction that required a revaluation of the net deferred tax liability balances during the six months ended September 30, 2010.
 
During the three months ended September 30, 2010 and 2009, we accrued tax contingency related items totaling $1.3 million and $2.0 million, respectively.  During the six months ended September 30, 2010 and 2009, we accrued tax contingency related items totaling $1.6 million and $3.3 million, respectively.
 
As of September 30, 2010, there were $10.4 million of unrecognized tax benefits, all of which would have an impact on our effective income tax rate, if recognized.  For the three months ended September 30, 2010 and 2009, we accrued interest and penalties of $0.2 million and $0.1 million, respectively, and for the six months ended September 30, 2010 and 2009, we accrued interest and penalties of $0.3 million and $0.3 million, respectively, in connection with uncertain tax positions.
 
NOTE 6 — DERIVATIVES
 
From time to time we enter into forward exchange contracts as a hedge against foreign currency asset and liability commitments and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value.  Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding effect on earnings.  We do not use financial instruments for trading or speculative purposes.
 
We entered into forward contracts during fiscal years 2010 and 2009 to mitigate our exposure to exchange rate fluctuations on our euro-denominated aircraft purchase commitments, which have been designated as cash flow hedges for accounting purposes.  We had no open forward contracts relating to euro-denominated aircraft purchase commitments as of March 31, 2010.  We had six open forward contracts as of September 30, 2010, which had rates ranging from 1.3153 U.S. dollars per euro to 1.3267 U.S. dollars per euro.  These contracts had an underlying nominal value of between €5,000,000 and €7,000,000, for a total of €34,300,871, with the first contract expiring in May 2011 and the last in June 2011.  As of September 30, 2010, the fair value of these contracts was an asset of $1.3 million.  As of September 30, 2010, an unrecognized gain of $0.9 million, net of tax, on these contracts is included as a component of accumulated other comprehensive loss and the derivative asset is included in prepaid expenses and other current assets in our condensed consolidated balance sheet.  No gains or losses relating to forward contracts are recognized in our consolidated statements of income for the three and six months ended September 30, 2010; however, we recognized a gain of $1.1 million for the three and six months ended September 30, 2009 in our condensed consolidated statements of income as a component of other income (expense), net relating to hedges as a result of early termination of a forward contract on a euro-denominated aircraft purchase commitment.
 

 
14
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
Information on the location and amounts of derivative gains and losses in the consolidated statements of income for the three and six months ended September 30, 2010 is as follows (in thousands):
 
Derivatives in
Cash Flow Hedging Relationships
  
Amount of Gain
(Loss) Recognized in Other
Comprehensive
Income (“OCI”) on Derivative (Effective Portion)
  
Location of Gain (Loss)
Reclassified from
Accumulated
OCI into Income (Effective
Portion)
  
Amount of Gain
(Loss) Reclassified from Accumulated
OCI into Income (Effective Portion)
  
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
  
Amount of Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and Amount
Excluded from Effectiveness Testing)
  
Foreign currency
forward contracts
  
$
860
    
Other income (expense), net
  
$
—
    
Other income (expense), net
  
$
—
  
   
$
860
        
$
—
        
$
—
  
 
Information on the location and amounts of derivative gains and losses in the consolidated statements of income for the three months ended September 30, 2009 is as follows (in thousands):
 
Derivatives in
Cash Flow Hedging Relationships
  
Amount of Gain
(Loss) Recognized in Other
Comprehensive
Income (“OCI”) on Derivative (Effective Portion)
  
Location of Gain (Loss)
Reclassified from
Accumulated
OCI into Income
(Effective Portion)
  
Amount of Gain
(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
  
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
  
Amount of Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and Amount
Excluded from Effectiveness Testing)
  
Foreign currency
forward contracts
  
$
4,196
    
Other income (expense), net
  
$
—
    
Other income (expense), net
  
$
1,132
  
   
$
4,196
        
$
—
        
$
1,132
  
 
Information on the location and amounts of derivative gains and losses in the consolidated statements of income for the six months ended September 30, 2009 is as follows (in thousands):
 
Derivatives in
Cash Flow Hedging Relationships
  
Amount of Gain
(Loss) Recognized in Other
Comprehensive
Income (“OCI”) on Derivative (Effective Portion)
  
Location of Gain (Loss)
Reclassified from A
ccumulated
OCI into Income
(Effective Portion)
  
Amount of Gain
(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
  
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amount Excluded from Effectiveness Testing)
  
Amount of Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and Amount
Excluded from Effectiveness Testing)
  
Foreign currency
forward contracts
  
$
8,762
    
Other income (expense), net
  
$
—
    
Other income (expense), net
  
$
1,132
  
   
$
8,762
        
$
—
        
$
1,132
  


 
15
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
NOTE 7 — VARIABLE INTEREST ENTITIES
 
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest.  A VIE is consolidated by its primary beneficiary.  The primary beneficiary has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE.  If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate. 
 
As of September 30, 2010, we have three VIE’s of which we are the primary beneficiary and were involved in one VIE of which we are not the primary beneficiary.
 
VIEs of which we are the primary beneficiary
 
Bristow Aviation Holdings Limited — We own 49% of Bristow Aviation Holdings Limited’s (“Bristow Aviation”) common stock and a significant amount of its subordinated debt.  Bristow Aviation is incorporated in England and holds all of the outstanding shares in Bristow Helicopter Group Limited (“Bristow Helicopters”).  Its subsidiaries provide helicopter services to customers primarily in the U.K, Norway, Australia and Nigeria.  Bristow Aviation is organized with three different classes of ordinary shares having disproportionate voting rights.  The Company, Caledonia Investments plc and its subsidiary, Caledonia Industrial & Services Limited (collectively, “Caledonia”) and a European Union investor (the “E.U. Investor”) own 49%, 46% and 5%, respectively, of Bristow Aviation’s total outstanding ordinary shares, although Caledonia has voting control over the E.U. Investor’s shares.
 
In addition to our ownership of 49% of Bristow Aviation’s outstanding ordinary shares, in May 2004, we acquired eight million shares of deferred stock, essentially a subordinated class of stock with no voting rights, from Bristow Aviation for £1 per share ($14.4 million in total).  We also have £91.0 million ($143.4 million) principal amount of subordinated unsecured loan stock (debt) of Bristow Aviation bearing interest at an annual rate of 13.5% and payable semi-annually.  Payment of interest on such debt has been deferred since its incurrence in 1996.  Deferred interest accrues at an annual rate of 13.5% and aggregated $784.6 million as of September 30, 2010.
 
The Company, Caledonia, the E.U. Investor and Bristow Aviation have entered into a shareholders’ agreement respecting, among other things, the composition of the board of directors of Bristow Aviation.  On matters coming before Bristow Aviation’s board, Caledonia’s representatives have a total of three votes and the two other directors have one vote each.  So long as Caledonia has a significant interest in the shares of the Common Stock of Bristow Group Inc. issued to it pursuant to the transaction or maintains its voting control of Bristow Aviation, Caledonia will have the right to nominate two persons to our board of directors and to replace any such directors so nominated.
 
Caledonia, the Company and the E.U. Investor also have entered into a put/call agreement under which, upon giving specified prior notice, we have the right to buy all the Bristow Aviation shares held by Caledonia and the E.U. Investor, who, in turn, each have the right to require us to purchase such shares.  Under current English law, we would be required, in order for Bristow Aviation to retain its operating license, to find a qualified E.U. investor to own any Bristow Aviation shares we have the right to acquire under the put/call agreement.  The only restriction under the put/call agreement limiting our ability to exercise the put/call option is a requirement to consult with the Civil Aviation Authority (“CAA”) in the U.K. regarding the suitability of the new holder of the Bristow Aviation shares.  The put/call agreement does not contain any provisions should the CAA not approve the new E.U. investor.  However, we would work diligently to find a E.U. investor suitable to the CAA.  The amount by which we could purchase the shares of the other investors holding 51% of the equity of Bristow Aviation is fixed under the terms of the call option, and we have reflected this amount on our condensed consolidated balance sheets as noncontrolling interest.
 
Furthermore, the call option provides a mechanism whereby the economic risk for the other investors is limited should the financial condition of Bristow Aviation deteriorate.  The call option price is the nominal value of the ordinary shares held by the noncontrolling shareholders (£1.0 million as of September 30, 2010) plus an annual guaranteed rate of return less any prepayments of such call option price and any dividends paid on the shares concerned.  We can elect to pre-pay the guaranteed return element of the call option price wholly or in
 

 
16
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

part without exercising the call option.  No dividends have been paid.  We have accrued the annual return due to the other shareholders at a rate of sterling LIBOR plus 3% (prior to May 2004, the rate was fixed at 12%) by recognizing noncontrolling interest expense in our condensed consolidated statements of income, with a corresponding increase in noncontrolling interest on our condensed consolidated balance sheets.  Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interest on our condensed consolidated balance sheets.  The other investors have an option to put their shares in Bristow Aviation to us.  The put option price is calculated in the same way as the call option price except that the guaranteed rate for the period to April 2004 was 10% per annum.  If the put option is exercised, any pre-payments of the call option price are set off against the put option price.
 
Bristow Aviation and its subsidiaries are exposed to similar operational risks and are therefore monitored and evaluated on a similar basis by management.  Accordingly, the financial information reflected on our condensed consolidated balance sheets and statements of income for Bristow Aviation and subsidiaries is presented in the aggregate, including intercompany amounts with other consolidated entities, as follows (in thousands):
 
 
September 30,
 2010
  
March 31,
2010
  
Assets
            
Cash and cash equivalents
$
53,449
  
$
54,292
  
Accounts receivable
  
179,887
    
149,848
  
Inventories
  
103,581
    
98,993
  
Prepaid expenses and other current assets
  
58,745
    
35,093
  
Total current assets
  
395,662
    
338,226
  
Investment in unconsolidated affiliates
  
14,380
    
12,938
  
Property and equipment, net
  
216,971
    
204,521
  
Goodwill
  
16,062
    
15,569
  
Other assets
  
8,438
    
15,020
  
Total assets
$
651,513
  
$
586,274
  
Liabilities
            
Accounts payable
  
86,709
    
54,592
  
Accrued liabilities
  
850,257
    
793,754
  
Deferred taxes
  
12,423
    
11,633
  
Short-term borrowings and current
maturities of long-term debt
  
13,361
    
16,497
  
Total current liabilities
  
962,750
    
876,476
  
Long-term debt, less current maturities
  
143,371
    
138,020
  
Accrued pension liabilities
  
112,551
    
106,573
  
Other liabilities and deferred credits
  
13,999
    
6,211
  
Deferred taxes
  
13,953
    
14,989
  
Total liabilities
$
1,246,624
  
$
1,142,269
  

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2010
    
2009
    
2010
    
2009
  
Revenue
$
223,609
    
$
208,727
    
$
427,827
    
$
416,020
  
Operating income
$
10,544
    
$
14,719
    
$
18,133
    
$
30,014
  
Net loss
$
21,875
    
$
14,707
    
$
41,468
    
$
28,632
  
 
 

 
17
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
Bristow Caribbean Ltd. — Effective September 30, 2010, we own 100% of Bristow Caribbean Ltd. (“BCL”) resulting from our purchase on that date of 60% of the interest in BCL we previously did not own for $0.8 million.  BCL operates eight aircraft in Trinidad, providing offshore helicopter services to customers.  As the Company maintained a controlling financial interest both prior to and subsequent to the change in ownership interest, the transaction was viewed as a transaction among the equity owners.  No gain or loss was recognized in the statement of income, and any difference between the fair value of the consideration paid and the amount by which the noncontrolling interest was adjusted was recognized as equity attributable to the parent.
 
The activities that most significantly impact BCL’s economic performance relate to the day-to-day operation of the company, including identifying and contracting with customers, and strategic decisions regarding the potential expansion of the company’s operations.  Prior to September 30, 2010, we controlled the significant management decisions of this entity, including the payment of dividends to our partner, and therefore consolidated BCL as the entity’s primary beneficiary.
 
BCL is an indirect subsidiary of Bristow Aviation; therefore, financial information for this entity is included within the amounts for Bristow Aviation and its subsidiaries presented above.
 
Bristow Helicopters Nigeria Ltd. — Bristow Helicopters Nigeria Ltd. (“BHNL”) is a joint venture in Nigeria with local partners, in which we own an interest of 40%. BHNL provides helicopter services to customers in Nigeria.
 
In order to have a presence in the Nigerian market, Bristow was required to identify local citizens to participate in the ownership of entities domiciled in the region.  However, these owners do not have extensive knowledge of the aviation industry and have historically deferred to the expertise of Bristow in the overall management and day-to-day operation of BHNL. Thus, because Bristow has the power to direct the most significant activities affecting the ongoing success of BHNL and holds a variable interest in the entity in the form of its equity investment, Bristow consolidates BHNL as the primary beneficiary.
 
BHNL is an indirect subsidiary of Bristow Aviation; therefore, financial information for this entity is included within the amounts for Bristow Aviation and its subsidiaries presented above.
 
Pan African Airlines Nigeria Ltd. — Pan African Airlines Nigeria Ltd. (“PAAN”) is a joint venture in Nigeria with local partners, in which we own an interest of 50.17%.  PAAN provides helicopter services to customers in Nigeria.
 
The activities that most significantly impact PAAN’s economic performance relate to the day-to-day operation of the company (including identifying and contracting with customers), setting the operating and capital budgets, and strategic decisions regarding the potential expansion of the company’s operations.  Throughout the history of the PAAN, through its Board seats and managing director, Bristow has directed the key operational decisions of PAAN (without objection from the other Board members).  As we have the power to direct the significant activities of PAAN, we consolidate the entity as the primary beneficiary.  However, as we own a majority interest in PAAN, the separate presentation of financial information for PAAN is not required.
 
VIEs of which we are not the primary beneficiary
 
Heliservicio — We own a 24% interest in Heliservicio, a Mexican corporation, which provides onshore helicopter services to the Mexican Federal Electric Commission and offshore helicopter transportation services to Petróleos Mexicanos and other companies on a contract and ad hoc basis.  Heliservicio  leases 21 aircraft from us and leases 13 aircraft from third parties to provide helicopter services to its customers.
 
The activities that most significantly impact Heliservicio’s economic performance relate to (a) the day-to-day operation of the company, including decisions relating to hiring/firing personnel, where and when to fly, and what customers to fly for and extend credit to; and (b) strategic decisions regarding the potential expansion of the company’s operations.  The other partner in Heliservicio has the ability to control these decisions through its majority board representation.  As such, we have determined that we would not be the primary beneficiary of Heliservicio as we do not have the power to direct the most significant activities which affect the economic success of the entity.  Accordingly, we account for our 24% interest in Heliservicio as an equity method investment.
 

 
18
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

The following table summarizes the amounts recorded for this nonconsolidated VIE and the related off-balance sheet guarantees (in thousands):
 
   
September 30, 2010
    
March 31, 2010
  
   
Carrying
Amount
    
Maximum
Exposure
to Loss
    
Carrying
Amount
  
Maximum
Exposure
to Loss
  
Assets:
                              
Accounts receivable (1)
  
$
14,529
    
$
19,114
    
$
11,986
  
$
16,571
  
Investment in unconsolidated affiliate
    
2,638
      
2,638
      
3,329
    
3,329
  
Total assets
 
$
17,167
    
$
21,752
    
$
15,315
  
$
19,900
  
Off-Balance Sheet:
                              
Guarantees (2)
  
$
—
    
$
24,767
    
$
—
  
$
26,352
  
__________

(1)
Amounts presented herein include unbilled accounts receivable of $3.5 million and $3.8 million as of September 30 and March 31, 2010, respectively.  The carrying amounts presented are net of allowances for doubtful accounts of $4.6 million as of September 30 and March 31, 2010.
   
(2)
See discussion in Note 4.  We have received a counter-guarantee from our partner in Heliservicio for 76% ($18.8 million and $20.0 million as of September 30 and March 31, 2010, respectively) of these amounts, which is not reflected in the table above.
 
NOTE 8 — EMPLOYEE BENEFIT PLANS
 
Pension Plans
 
The following table provides a detail of the components of net periodic pension cost (in thousands):
 
 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2010
    
2009
    
2010
    
2009
  
Service cost for benefits earned during the period
$
1,334
    
$
1,144
    
$
2,612
    
$
2,226
  
Interest cost on pension benefit obligation
  
6,658
      
6,611
      
13,040
      
12,859
  
Expected return on assets
  
(6,682
)
    
(5,241
)
    
(13,087
)
    
(10,194
)
Amortization of unrecognized losses
  
1,305
      
1,156
      
2,557
      
2,249
  
Net periodic pension cost
$
2,615
    
$
3,670
    
$
5,122
    
$
7,140
  
 
We pre-funded our contributions of $19.9 million to our U.K. plans for the fiscal year ending March 31, 2011 in March 2010.  The current estimate of our cash contributions to our Norwegian pension plan for fiscal year 2011 is $4.3 million, $2.0 million of which was paid during the six months ended September 30, 2010.  No contributions were made to the plan during the three months ended September 30, 2010.
 
Incentive Compensation
 
We have a number of incentive and stock option plans which are described in Note 10 to our fiscal year 2010 Financial Statements.
 
Stock-based compensation expense, which includes stock options, restricted stock units and restricted stock, totaled $4.3 million and $3.0 million for the three months ended September 30, 2010 and 2009, respectively, and totaled $8.0 million and $6.6 million for the six months ended September 30, 2010 and 2009, respectively.  Stock-based compensation expense has been allocated to our various business units.
 

 
19
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

During the six months ended September 30, 2010, 282,549 stock options were granted at an average exercise price and fair value of $30.16 and $15.03 per share, respectively.  The key input variables used in valuing these options under the Black Scholes model were: risk-free interest rate of 2.64%; dividend yield of zero; stock price volatility of 45.4%; and expected option lives of 7 years.  There were no stock options granted during the three months ended September 30, 2010.  Also during the three and six months ended September 30, 2010, we awarded 18,000 and 251,024 shares of restricted stock at a weighted average grant date fair value of $33.64 and $30.41 per share, respectively.
 
Compensation expense of $0.3 million was recorded related to the performance cash awards during the three and six months ended September 30, 2010. No compensation expense was recorded related to the performance cash awards during the three and six months ended September 30, 2009.
 
NOTE 9 —COMPREHENSIVE INCOME AND EARNINGS PER SHARE
 
Comprehensive Income
 
Comprehensive income is as follows (in thousands):
 
   
Three Months Ended
    
Six Months Ended
  
   
September 30,
    
September 30,
  
   
2010
    
2009
    
2010
    
2009
  
Net income
  
$
38,848
    
$
33,710
    
$
59,756
    
$
57,701
  
Other comprehensive income gain:
                                
Currency translation adjustments (1) 
    
19,815
      
6,001
      
9,828
      
38,999
  
Unrealized gain on cash flow hedges (net of income tax effect of $0.5 million)
    
860
      
4,196
      
860
      
8,762
  
Comprehensive income
  
$
59,523
    
$
43,907
    
$
70,444
    
$
105,462
  
__________

(1)
 
During the three and six months ended September 30, 2010 and 2009, the U.S. dollar weakened against the British pound sterling, resulting in translation gains recorded as a component of stockholders’ investment as of September 30, 2010 and 2009.


 
20
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Earnings per Share
 
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period.  The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2010
    
2009
    
2010
    
2009
  
Net income to common stockholders (in thousands):
                        
Income available to common stockholders – basic
$
38,880
  
$
30,007
  
$
59,688
  
$
50,568
  
Preferred stock dividends
  
—
    
3,163
    
—
    
6,325
  
Interest expense on assumed conversion of 3% Convertible Senior Notes, net of tax (1)
  
—
    
—
    
—
    
—
  
Income available to common stockholders – diluted
$
38,880
  
$
33,170
  
$
59,688
  
$
56,893
  
                         
Shares:
                        
Weighted-average number of common shares outstanding – basic
  
36,174,615
    
30,490,517
    
35,975,141
    
29,730,649
  
Assumed conversion of preferred stock outstanding during the period (2)
  
—
    
5,388,400
    
—
    
5,952,501
  
Assumed conversion of 3% Convertible Senior Notes outstanding during the
   period (1)
  
—
    
—
    
—
    
—
  
Net effect of dilutive stock options, restricted stock units and restricted stock
awards based on the treasury stock method
  
546,758
    
222,137
    
550,682
    
223,526
  
Weighted-average number of common shares outstanding – diluted
  
36,721,373
    
36,101,054
    
36,525,823
    
35,906,676
  
Basic earnings per common share
$
1.07
  
$
0.98
  
$
1.66
  
$
1.70
  
Diluted earnings per common share
$
1.06
  
$
0.92
  
$
1.63
  
$
1.58
  
_________

(1)
Diluted earnings per common share for each of the three and six months ended September 30, 2010 and 2009 excludes approximately 1.5 million potentially dilutive shares initially issuable upon the conversion of our 3% Convertible Senior Notes.  The 3% Convertible Senior Notes will be convertible, under certain circumstances, using a net share settlement process, into a combination of cash and our Common Stock.  The initial base conversion price of the notes is approximately $77.34 (subject to adjustment in certain circumstances), based on the initial base conversion rate of 12.9307 shares of Common Stock per $1,000 principal amount of convertible notes.  In general, upon conversion of a note, the holder will receive cash equal to the principal amount of the note and Common Stock to the extent of the note's conversion value in excess of such principal amount.  In addition, if at the time of conversion the applicable price of our Common Stock exceeds the base conversion price, holders will receive up to an additional 8.4049 shares of our Common Stock per $1,000 principal amount of notes, as determined pursuant to a specified formula.  Such shares did not impact our calculation of diluted earnings per share for the three and six months ended September 30, 2010 or 2009 as our stock price did not meet or exceed $77.34 per share.
   
(2)
Diluted earnings per common share included weighted-average shares resulting from the assumed conversion of our preferred stock at the conversion rate that results in the most dilution:  1.4180 shares of Common Stock for each share of preferred stock.  On September 15, 2009, we converted our preferred stock into 6,522,800 shares of Common Stock at this conversion rate.  For further discussion on the preferred stock, see Note 11 in the fiscal year 2010 Financial Statements.


 
21
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Diluted earnings per common share excludes options to purchase shares, restricted stock units and restricted stock awards which were outstanding during the period but were anti-dilutive as follows:

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2010
    
2009
    
2010
    
2009
  
Options:
                              
Outstanding
  
544,615
      
485,109
      
437,122
      
392,009
  
Weighted-average exercise price
$
31.49
    
$
40.11
    
$
32.90
    
$
41.85
  
Restricted stock units:
                              
Outstanding
  
213,980
      
341,752
      
219,651
      
351,084
  
Weighted-average price
$
40.08
    
$
37.14
    
$
40.02
    
$
37.04
  
Restricted stock awards:
                              
Outstanding
  
—
      
—
      
—
      
—
  
Weighted-average price
$
—
    
$
—
    
$
—
    
$
—
  
 
NOTE 10 — SEGMENT INFORMATION
 
We conduct our business in one segment: Helicopter Services.  The Helicopter Services segment operations are conducted primarily through five business units: North America, Europe, West Africa, Australia and Other International.  Additionally, we also operate a training business unit, Bristow Academy, and provide technical services to customers in the U.S. and U.K.
 
Beginning on January 1, 2010, the U.S. Gulf of Mexico and Arctic business units were combined into the North America business unit.  Additionally, there are no longer Latin America, Western Hemisphere (“WH”) Centralized Operations and Eastern Hemisphere (“EH”) Centralized Operations business units.  The Latin America business unit is now included in the Other International business unit.  The Bristow Academy business unit and the technical services business previously included with the WH Centralized Operations and EH Centralized Operations business units are now aggregated for reporting purposes in Corporate and other.  The remainder of the costs within WH Centralized Operations and EH Centralized Operations are included in Corporate and other for reporting purposes or have been allocated to our other business units to the extent these operations support those business units.  Amounts presented below for the three and six months ended September 30, 2009 have been revised to conform to current period presentation.
 

 
22
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

The following tables show reportable segment information for the three and six months ended September 30, 2010 and 2009 and as of September 30 and March 31, 2010, where applicable, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements (in thousands).
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2010
    
2009
    
2010
    
2009
  
Segment gross revenue from external customers:
                                
Europe
  
$
117,243
    
$
113,426
    
$
218,764
    
$
227,863
  
North America
    
55,246
      
48,698
      
108,009
      
98,504
  
West Africa
    
58,110
      
51,452
      
117,206
      
106,269
  
Australia
    
37,364
      
30,333
      
72,655
      
58,496
  
Other International
    
36,295
      
37,007
      
69,114
      
69,893
  
Corporate and other
    
8,301
      
10,699
      
19,049
      
21,042
  
Total segment gross revenue
  
$
312,559
    
$
291,615
    
$
604,797
    
$
582,067
  

Intrasegment gross revenue:
                                
Europe
  
$
352
    
$
487
    
$
522
    
$
1,115
  
North America
    
35
      
39
      
83
      
89
  
West Africa
    
—
      
—
      
—
      
—
  
Australia
    
—
      
—
      
—
      
—
  
Other International
    
—
      
—
      
—
      
108
  
Corporate and other
    
120
      
663
      
214
      
2,136
  
Total intrasegment gross revenue
  
$
507
    
$
1,189
    
$
819
    
$
3,448
  

Consolidated gross revenue reconciliation:
                                
Europe
  
$
117,595
    
$
113,913
    
$
219,286
    
$
228,978
  
North America
    
55,281
      
48,737
      
108,092
      
98,593
  
West Africa
    
58,110
      
51,452
      
117,206
      
106,269
  
Australia
    
37,364
      
30,333
      
72,655
      
58,496
  
Other International
    
36,295
      
37,007
      
69,114
      
70,001
  
Corporate and other
    
8,421
      
11,362
      
19,263
      
23,178
  
Intrasegment eliminations
    
(507
)
    
(1,189
)
    
(819
)
    
(3,448
)
Total consolidated gross revenue
  
$
312,559
    
$
291,615
    
$
604,797
    
$
582,067
  

Earnings from unconsolidated affiliates, net of losses – equity method investments:
                                
Europe
  
$
2,789
    
$
2,032
    
$
4,740
    
$
3,850
  
Other International
    
1,927
      
2,892
      
(670
)
    
3,699
  
Corporate and other
    
—
      
—
      
(56
)
    
8
  
Total earnings from unconsolidated affiliates, net of losses – equity method investments
  
$
4,716
    
$
4,924
    
$
4,014
    
$
7,557
  


 
23
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2010
    
2009
    
2010
    
2009
  
Consolidated operating income (loss) reconciliation:
                                
Europe
  
$
21,612
    
$
19,063
    
$
39,911
    
$
38,841
  
North America
    
8,904
      
4,716
      
14,212
      
9,142
  
West Africa
    
17,158
      
15,064
      
32,794
      
28,727
  
Australia
    
6,094
      
7,011
      
14,046
      
12,667
  
Other International
    
11,102
      
12,978
      
13,367
      
20,190
  
Corporate and other
    
(13,208
)
    
(10,145
)
    
(24,707
)
    
(22,117
)
Gain on disposal of assets
    
1,897
      
4,880
      
3,615
      
10,889
  
Total consolidated operating income
  
$
53,559
    
$
53,567
    
$
93,238
    
$
98,339
  

Depreciation and amortization:
                                
Europe
  
$
7,054
    
$
6,523
    
$
12,207
    
$
13,157
  
North America
    
3,801
      
3,677
      
8,576
      
7,232
  
West Africa
    
2,737
      
2,403
      
5,445
      
4,456
  
Australia
    
2,704
      
1,770
      
5,357
      
3,344
  
Other International
    
3,114
      
2,885
      
6,277
      
6,418
  
Corporate and other
    
1,558
      
1,212
      
2,437
      
2,049
  
Total depreciation and amortization
  
$
20,968
    
$
18,470
    
$
40,299
    
$
36,656
  

   
September 30,
    
March 31,
  
   
2010
    
2010
  
Identifiable assets:
                
Europe
  
$
809,525
    
$
767,007
  
North America
    
413,858
      
403,549
  
West Africa
    
330,824
      
323,376
  
Australia
    
317,223
      
287,660
  
Other International
    
481,653
      
483,230
  
Corporate and other
    
253,842
      
229,798
  
Total identifiable assets (1)
  
$
2,606,925
    
$
2,494,620
  


Investments in unconsolidated affiliates – equity method investments:
                
Europe
  
$
13,747
    
$
11,775
  
Other International
    
185,365
      
186,082
  
Total investments in unconsolidated affiliates – equity method investments
  
$
199,112
    
$
197,857
  
_________

(1)
Includes $168.6 million and $152.8 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of September 30 and March 31, 2010, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.
 

 
24
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
NOTE 11 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
In connection with the sale of 7 ½% Senior Notes due 2017, the 6 ⅛% Senior Notes due 2013 and the 3% Convertible Senior Notes, certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”) fully, unconditionally, jointly and severally guaranteed the payment obligations under these notes.  The following supplemental financial information sets forth, on a consolidating basis, the balance sheets, statements of income and statements of cash flows for Bristow Group Inc. (“Parent Company Only”), for the Guarantor Subsidiaries and for our other subsidiaries (the “Non-Guarantor Subsidiaries”).  We have not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.
 
The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although we believe that the disclosures made are adequate to make the information presented not misleading.  The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenue and expense.
 
The allocation of the consolidated income tax provision was made using the with and without allocation method.
 

 
25
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Supplemental Condensed Consolidating Statement of Income
 
Three Months Ended September 30, 2010

   
Parent
            
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Eliminations
    
Consolidated
  
               
(In thousands)
                
Revenue:
                                        
Gross revenue
  
$
—
    
$
79,283
    
$
233,276
    
$
—
    
$
312,559
  
Intercompany revenue
    
—
      
5,890
      
—
      
(5,890
)
    
—
  
     
—
      
85,173
      
233,276
      
(5,890
)
    
312,559
  
Operating expense:
                                        
Direct cost
    
(477
)
    
48,044
      
166,563
      
—
      
214,130
  
Intercompany expenses
    
—
      
—
      
5,890
      
(5,890
)
    
—
  
Depreciation and amortization
    
575
      
7,583
      
12,810
      
—
      
20,968
  
General and administrative
    
5,847
      
6,526
      
18,142
      
—
      
30,515
  
     
5,945
      
62,153
      
203,405
      
(5,890
)
    
265,613
  
                                         
Gain on disposal of assets
    
—
      
894
      
1,003
      
—
      
1,897
  
Earnings from unconsolidated affiliates, net of losses
    
33,477
      
—
      
5,030
      
(33,791
)
    
4,716
  
Operating income
    
27,532
      
23,914
      
35,904
      
(33,791
)
    
53,559
  
                                         
Interest income
    
20,887
      
22
      
140
      
(20,881
)
    
168
  
Interest expense
    
(11,373
)
    
(68
)
    
(20,892
)
    
20,881
      
(11,452
)
Other income (expense), net
    
(33
)
    
(92
)
    
14
      
—
      
(111
)
                                         
Income before provision for income taxes
    
37,013
      
23,776
      
15,166
      
(33,791
)
    
42,164
  
Allocation of consolidated income taxes
    
1,883
      
(2,753
)
    
(2,446
)
    
—
      
(3,316
)
Net income
    
38,896
      
21,023
      
12,720
      
(33,791
)
    
38,848
  
Net income attributable to noncontrolling interests
    
(16
)
    
—
      
48
      
—
      
32
  
Net income attributable to Bristow Group
  
$
38,880
    
$
21,023
    
$
12,768
    
$
(33,791
)
  
$
38,880
  

 

 
26
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Supplemental Condensed Consolidating Statement of Income
 
Six Months Ended September 30, 2010

   
Parent
            
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Eliminations
    
Consolidated
  
               
(In thousands)
                
Revenue:
                                        
Gross revenue
  
$
—
    
$
154,010
    
$
450,787
    
$
—
    
$
604,797
  
Intercompany revenue
    
—
      
17,871
      
—
      
(17,871
)
    
—
  
     
—
      
171,881
      
450,787
      
(17,871
)
    
604,797
  
Operating expense:
                                        
Direct cost
    
(940
)
    
99,783
      
318,629
      
—
      
417,472
  
Intercompany expenses
    
—
      
—
      
17,871
      
(17,871
)
    
—
  
Depreciation and amortization
    
1,139
      
15,742
      
23,418
      
—
      
40,299
  
General and administrative
    
17,327
      
11,194
      
32,896
      
—
      
61,417
  
     
17,526
      
126,719
      
392,814
      
(17,871
)
    
519,188
  
                                         
Gain on disposal of assets
    
—
      
1,852
      
1,763
      
—
      
3,615
  
Earnings from unconsolidated affiliates, net of losses
    
62,709
      
—
      
4,706
      
(63,401
)
    
4,014
  
Operating income
    
45,183
      
47,014
      
64,442
      
(63,401
)
    
93,238
  
                                         
Interest income
    
39,782
      
33
      
424
      
(39,779
)
    
460
  
Interest expense
    
(22,057
)
    
(68
)
    
(40,144
)
    
39,779
      
(22,490
)
Other income (expense), net
    
(16
)
    
(117
)
    
537
      
—
      
404
  
                                         
Income before provision for income taxes
    
62,892
      
46,862
      
25,259
      
(63,401
)
    
71,612
  
Allocation of consolidated income taxes
    
(3,173
)
    
(4,602
)
    
(4,081
)
    
—
      
(11,856
)
Net income                                                    
    
59,719
      
42,260
      
21,178
      
(63,401
)
    
59,756
  
Net income attributable to noncontrolling interests
    
(31
)
    
——
      
(37
)
    
—
      
(68
)
Net income attributable to Bristow Group  
  
$
59,688
    
$
42,260
    
$
21,141
    
$
(63,401
)
  
$
59,688
  

 

 
27
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Supplemental Condensed Consolidating Statement of Income
 
Three Months Ended September 30, 2009

   
Parent
            
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Eliminations
    
Consolidated
  
               
(In thousands)
                
Revenue:
                                        
Gross revenue
  
$
—
    
$
71,357
    
$
220,258
    
$
—
    
$
291,615
  
Intercompany revenue
    
—
      
8,380
      
2,955
      
(11,335
)
    
—
  
     
—
      
79,737
      
223,213
      
(11,335
)
    
291,615
  
Operating expense:
                                        
Direct cost
    
(182
)
    
45,717
      
154,161
      
—
      
199,696
  
Intercompany expenses
    
—
      
2,824
      
8,511
      
(11,335
)
    
—
  
Depreciation and amortization
    
280
      
6,836
      
11,354
      
—
      
18,470
  
General and administrative
    
10,298
      
4,757
      
14,631
      
—
      
29,686
  
     
10,396
      
60,134
      
188,657
      
(11,335
)
    
247,852
  
                                         
Gain on disposal of assets
    
—
      
2,415
      
2,465
      
—
      
4,880
  
Earnings from unconsolidated affiliates, net of losses
    
37,531
      
—
      
3,526
      
(36,133
)
    
4,924
  
Operating income
    
27,135
      
22,018
      
40,547
      
(36,133
)
    
53,567
  
                                         
Interest income
    
20,570
      
15
      
163
      
(20,538
)
    
210
  
Interest expense
    
(10,756
)
    
—
      
(20,422
)
    
20,538
      
(10,640
)
Other income (expense), net
    
1,192
      
5
      
612
      
—
      
1,809
  
                                         
Income before provision for income taxes
    
38,141
      
22,038
      
20,900
      
(36,133
)
    
44,946
  
Allocation of consolidated income taxes
    
(4,721
)
    
(3,078
)
    
(3,437
)
    
—
      
(11,236
)
Net income                                                  
    
33,420
      
18,960
      
17,463
      
(36,133
)
    
33,710
  
Net income attributable to noncontrolling interests
    
(250
)
    
—
      
(290
)
    
—
      
(540
)
Net income attributable to Bristow Group
  
$
33,170
    
$
18,960
    
$
17,173
    
$
(36,133
)
  
$
33,170
  


 

 
28
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Supplemental Condensed Consolidating Statement of Income
 
Six Months Ended September 30, 2009

   
Parent
            
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Eliminations
    
Consolidated
  
               
(In thousands)
                
Revenue:
                                        
Gross revenue
  
$
—
    
$
143,449
    
$
438,618
    
$
—
    
$
582,067
  
Intercompany revenue
    
—
      
16,273
      
6,304
      
(22,577
)
    
—
  
     
—
      
159,722
      
444,922
      
(22,577
)
    
582,067
  
Operating expense:
                                        
Direct cost
    
(264
)
    
92,153
      
315,141
      
—
      
407,030
  
Intercompany expenses
    
7
      
6,478
      
16,092
      
(22,577
)
    
—
  
Depreciation and amortization
    
459
      
13,637
      
22,560
      
—
      
36,656
  
General and administrative
    
23,112
      
7,989
      
27,387
      
—
      
58,488
  
     
23,314
      
120,257
      
381,180
      
(22,577
)
    
502,174
  
                                         
Gain on disposal of assets
    
—
      
2,415
      
8,474
      
—
      
10,889
  
Earnings from unconsolidated affiliates, net of losses
    
54,672
      
—
      
6,867
      
(53,982
)
    
7,557
  
Operating income
    
31,358
      
41,880
      
79,083
      
(53,982
)
    
98,339
  
                                         
Interest income
    
51,003
      
27
      
308
      
(50,906
)
    
432
  
Interest expense
    
(21,043
)
    
—
      
(50,515
)
    
50,906
      
(20,652
)
Other income (expense), net
    
954
      
(533
)
    
(93
)
    
—
      
328
  
                                         
Income before provision for income taxes
    
62,272
      
41,374
      
28,783
      
(53,982
)
    
78,447
  
Allocation of consolidated income taxes
    
(5,025
)
    
(5,979
)
    
(9,742
)
    
—
      
(20,746
)
Net income
    
57,247
      
35,395
      
19,041
      
(53,982
)
    
57,701
  
Net income attributable to noncontrolling interests
    
(354
)
    
—
      
(454
)
    
—
      
(808
)
Net income attributable to Bristow Group
  
$
56,893
    
$
35,395
    
$
18,587
    
$
(53,982
)
  
$
56,893
  

 

 
29
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Supplemental Condensed Consolidating Balance Sheet
As of September 30, 2010
 
   
Parent
        
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Elimination
    
Consolidated
  
                 
(In thousands)
                
ASSETS
  
Current assets:
                                        
Cash and cash equivalents
  
$
13,593
    
$
—
    
$
96,185
    
$
(1,277
)
  
$
108,501
  
Accounts receivable
    
6,863
      
75,723
      
188,110
      
(19,533
)
    
251,163
  
Inventories
    
—
      
88,000
      
105,017
      
—
      
193,017
  
Prepaid expenses and other current assets
    
210
      
8,476
      
77,199
      
(44,126
)
    
41,759
  
Total current assets
    
20,666
      
172,199
      
466,511
      
(64,936
)
    
594,440
  
                                         
Intercompany investment
    
1,110,603
      
111,435
      
—
      
(1,222,038
)
    
—
  
Investment in unconsolidated affiliates
    
2,638
      
150
      
202,991
      
—
      
205,779
  
Intercompany notes receivable
    
1,089,951
      
—
      
(184,590
)
    
(905,361
)
    
—
  
Property and equipment – at cost:
                                        
Land and buildings
    
211
      
54,385
      
41,402
      
—
      
95,998
  
Aircraft and equipment
    
14,974
      
815,204
      
1,262,927
      
—
      
2,093,105
  
     
15,185
      
869,589
      
1,304,329
      
—
      
2,189,103
  
Less:  Accumulated depreciation and amortization
    
(2,290
)
    
(154,530
)
    
(279,949
)
    
—
      
(436,769
)
     
12,895
      
715,059
      
1,024,380
      
—
      
1,752,334
  
Goodwill
    
—
      
4,755
      
27,430
      
—
      
32,185
  
Other assets
    
111,130
      
3,127
      
179,116
      
(271,186
)
    
22,187
  
   
$
2,347,883
    
$
1,006,725
    
$
1,715,838
    
$
(2,463,521
)
  
$
2,606,925
  
   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
  
Current liabilities:
                                        
Accounts payable
  
$
413
    
$
19,344
    
$
57,573
    
$
(15,785
)
  
$
61,545
  
Accrued liabilities
    
8,348
      
20,661
      
115,947
      
(52,704
)
    
92,252
  
Deferred taxes 
    
(1,980
)
    
(136
)
    
12,830
      
—
      
10,714
  
Short-term borrowings and current maturities of
 long-term debt
    
—
      
8,051
      
15,747
      
—
      
23,798
  
Total current liabilities
    
6,781
      
47,920
      
202,097
      
(68,489)
      
188,309
  
                                         
Long-term debt, less current maturities
    
678,050
      
—
      
18,729
      
—
      
696,779
  
Intercompany notes payable
    
—
      
350,463
      
654,906
      
(1,005,369
)
    
—
  
Accrued pension liabilities
    
—
      
—
      
112,551
      
—
      
112,551
  
Other liabilities and deferred credits
    
4,725
      
8,450
      
186,614
      
(171,153
)
    
28,636
  
Deferred taxes
    
124,940
      
7,392
      
15,689
      
—
      
148,021
  
                                         
Stockholders’ investment:
                                        
Common stock
    
362
      
4,996
      
41,024
      
(46,020
)
    
362
  
Additional paid-in-capital
    
684,464
      
9,552
      
608,117
      
(617,669
)
    
684,464
  
Retained earnings
    
879,033
      
577,952
      
58,279
      
(636,231
)
    
879,033
  
Accumulated other comprehensive loss
    
(31,930
)
    
—
      
(186,894
)
    
81,410
      
(137,414
)
     
1,531,929
      
592,500
      
520,526
      
(1,218,510
)
    
1,426,445
  
Noncontrolling interests
    
1,458
      
—
      
4,726
      
—
      
6,184
  
     
1,533,387
      
592,500
      
525,252
      
(1,218,510
)
    
1,432,629
  
   
$
2,347,883
    
$
1,006,725
    
$
1,715,838
    
$
(2,463,521
)
  
$
2,606,925
  


 
30
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)


Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2010
 
   
Parent
        
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Elimination
    
Consolidated
  
                 
(In thousands)
                
ASSETS
  
Current assets:
                                        
Cash and cash equivalents
  
$
16,555
    
$
1,834
    
$
59,404
    
$
—
    
$
77,793
  
Accounts receivable
    
8,776
      
62,500
      
172,333
      
(23,342
)
    
220,267
  
Inventories
    
—
      
86,441
      
100,422
      
—
      
186,863
  
Prepaid expenses and other current assets
    
758
      
6,991
      
42,671
      
(18,972
)
    
31,448
  
Total current assets
    
26,089
      
157,766
      
374,830
      
(42,314
)
    
516,371
  
                                         
Intercompany investment
    
998,138
      
104,482
      
133,609
      
(1,236,229
)
    
—
  
Investment in unconsolidated affiliates
    
3,329
      
7,835
      
193,699
      
—
      
204,863
  
Intercompany notes receivable
    
1,098,786
      
—
      
(180,782
)
    
(918,004
)
    
—
  
Property and equipment – at cost:
                                        
Land and buildings
    
211
      
54,457
      
32,158
      
—
      
86,826
  
Aircraft and equipment
    
12,115
      
788,579
      
1,236,268
      
—
      
2,036,962
  
     
12,326
      
843,036
      
1,268,426
      
—
      
2,123,788
  
Less:  Accumulated depreciation and amortization 
    
(1,322
)
    
(143,753
)
    
(259,368
)
    
—
      
(404,443
)
     
11,004
      
699,283
      
1,009,058
      
—
      
1,719,345
  
Goodwill 
    
—
      
4,486
      
27,269
      
—
      
31,755
  
Other assets 
    
112,216
      
1,172
      
183,208
      
(274,310
)
    
22,286
  
   
$
2,249,562
    
$
975,024
    
$
1,740,891
    
$
(2,470,857
)
  
$
2,494,620
  
   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
  
Current liabilities:
                                        
Accounts payable
  
$
1,955
    
$
12,647
    
$
48,942
    
$
(14,999
)
  
$
48,545
  
Accrued liabilities
    
7,687
      
23,958
      
88,471
      
(28,129
)
    
91,987
  
Deferred taxes
    
(1,356
)
    
—
      
11,573
      
—
      
10,217
  
Short-term borrowings and current maturities of
 long-term debt
    
—
      
—
      
15,366
      
—
      
15,366
  
Total current liabilities
    
8,286
      
36,605
      
164,352
      
(43,128)
      
166,115
  
                                         
Long-term debt, less current maturities
    
676,518
      
—
      
24,677
      
—
      
701,195
  
Intercompany notes payable
    
—
      
361,082
      
656,922
      
(1,018,004
)
    
—
  
Accrued pension liabilities
    
—
      
—
      
106,573
      
—
      
106,573
  
Other liabilities and deferred credits
    
5,018
      
8,324
      
181,810
      
(174,310
)
    
20,842
  
Deferred taxes
    
118,244
      
6,885
      
18,195
      
—
      
143,324
  
                                         
Stockholders’ investment:
                                        
Common stock
    
359
      
4,996
      
22,091
      
(27,087
)
    
359
  
Additional paid-in-capital
    
677,397
      
9,940
      
470,883
      
(480,823
)
    
677,397
  
Retained earnings
    
820,145
      
547,192
      
39,468
      
(586,660
)
    
820,145
  
Accumulated other comprehensive loss
    
(57,999
)
    
—
      
50,742
      
(140,845
)
    
(148,102
)
     
1,439,902
      
562,128
      
583,184
      
(1,235,415
)
    
1,349,799
  
Noncontrolling interests
    
1,594
      
—
      
5,178
      
—
      
6,772
  
     
1,441,496
      
562,128
      
588,362
      
(1,235,415
)
    
1,356,571
  
   
$
2,249,562
    
$
975,024
    
$
1,740,891
    
$
(2,470,857
)
  
$
2,494,620
  

 
31
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)


 Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2010

   
Parent
            
Non-
                  
   
Company
    
Guarantor
    
Guarantor
                  
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidated
  
                 
(In thousands)
                
                                         
Net cash provided by (used in) operating activities
  
$
(23,393
)
  
$
25,304
    
$
68,550
    
$
(1,277
)
  
$
69,184
  
                                         
Cash flows from investing activities:
                                        
Capital expenditures
    
(1,696
)
    
(30,957
)
    
(31,290
)
    
—
      
(63,943
)
Deposit on asset held for sale
    
—
      
1,000
      
—
      
—
      
1,000
  
Proceeds from sale of joint ventures
    
—
      
—
      
1,291
      
—
      
1,291
  
Proceeds from asset dispositions
    
—
      
11,280
      
5,898
      
—
      
17,178
  
                                         
Net cash used in investing activities
    
(1,696
)
    
(18,677
)
    
(24,101
)
    
—
      
(44,474
)
                                         
Cash flows from financing activities:
                                        
      Proceeds from borrowings
    
—
      
8,049
      
1,963
      
—
      
10,012
  
      Repayment of debt
    
—
      
—
      
(7,630
)
    
—
      
(7,630
)
Dividends paid
    
13,030
      
(11,500
)
    
(1,530
)
    
—
      
—
  
Distribution to noncontrolling interest owner
    
—
      
—
      
(637
)
    
—
      
(637
)
Increases (decreases) in cash related to intercompany
 advances and debt
    
8,835
      
(5,010
)
    
(3,825
)
    
—
      
—
  
Partial prepayment of put/call obligation
    
(28
)
    
—
      
—
      
—
      
(28
)
Acquisition of noncontrolling interest
    
—
      
—
      
(800
)
    
—
      
(800
)
Issuance of common stock
    
111
      
—
      
—
      
—
      
111
  
Tax benefit related to stock-based compensation
    
179
      
—
      
—
      
—
      
179
  
Net cash provided by (used in) financing activities
    
22,127
      
(8,461
)
    
(12,459
)
    
—
      
1,207
  
Effect of exchange rate changes on cash and cash equivalents
    
—
      
—
      
4,791
      
—
      
4,791
  
Net increase (decrease) in cash and cash equivalents
    
(2,962
)
    
(1,834
)
    
36,781
      
(1,277
)
    
30,708
  
Cash and cash equivalents at beginning of period
    
16,555
      
1,834
      
59,404
      
—
      
77,793
  
Cash and cash equivalents at end of period
  
$
13,593
    
$
—
    
$
96,185
    
$
(1,277
)
  
$
108,501
  


 
32
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended September 30, 2009
 
   
Parent
            
Non-
                  
   
Company
    
Guarantor
    
Guarantor
                  
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidated
  
               
(In thousands)
                
                                 
Net cash provided by (used in) operating activities
  
$
(39,246
)
  
$
35,544
    
$
97,311
    
$
—
    
$
93,609
  
                                         
Cash flows from investing activities:
                                        
Capital expenditures
    
(2,337
)
    
(54,097
)
    
(79,711
)
    
—
      
(136,145
)
Proceeds from asset dispositions
    
—
      
58,363
      
12,875
      
—
      
71,238
  
Acquisition, net of cash received
    
—
      
—
      
(178,961
)
    
—
      
(178,961
)
                                         
Net cash provided by (used in) investing activities
    
(2,337
)
    
4,266
      
(245,797
)
    
—
      
(243,868
)
                                         
Cash flows from financing activities:
                                        
Repayment of debt and debt redemption premiums
    
(1,151
)
    
—
      
(7,707
)
    
—
      
(8,858
)
Increases (decreases) in cash related to intercompany
 advances and debt
    
(133,984
)
    
(36,939
)
    
170,923
      
—
      
—
  
Dividends paid
    
8,750
      
—
      
(8,750
)
    
—
      
—
  
Partial prepayment of put/call obligation
    
(37
)
    
—
      
—
      
—
      
(37
)
Preferred stock dividends paid
    
(6,325
)
    
—
      
—
      
—
      
(6,325
)
Issuance of common stock
    
1,089
      
—
      
—
      
—
      
1,089
  
Tax benefit related to stock-based compensation
    
433
      
—
      
—
      
—
      
433
  
Net cash provided by (used in) financing activities
    
(131,225
)
    
(36,939
)
    
154,466
      
—
      
(13,698
)
Effect of exchange rate changes on cash and cash equivalents
    
(606
)
    
—
      
6,799
      
—
      
6,193
  
Net increase (decrease) in cash and cash equivalents
    
(173,414
)
    
2,871
      
12,779
      
—
      
(157,764
)
Cash and cash equivalents at beginning of period
    
226,691
      
5,445
      
68,833
      
—
      
300,969
  
Cash and cash equivalents at end of period
  
$
53,277
    
$
8,316
    
$
81,612
    
$
—
    
$
143,205
  




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 (the Company) as of September 30, 2010, the related condensed consolidated statements of income for the three- and six-month periods ended September 30, 2010 and 2009, and the related condensed consolidated statements of cash flows for the six-month periods ended September 30, 2010 and 2009.  These condensed consolidated financial statements are the responsibility of the Company’s management.
 
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
 
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
 
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of March 31, 2010, 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 May 21, 2010, 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, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 

/s/ KPMG LLP

Houston, Texas
November 4, 2010



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto as well as our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 (the “fiscal year 2010 Annual Report”) and the MD&A contained therein.  In the discussion that follows, the terms “Current Quarter” and “Comparable Quarter” refer to the three months ended September 30, 2010 and 2009, respectively, and the terms “Current Period” and “Comparable Period” refer to the six months ended September 30, 2010 and 2009, respectively.  Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period.  Therefore, the fiscal year ending March 31, 2011 is referred to as “fiscal year 2011.”
 
Forward-Looking Statements
 
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  Forward-looking statements are statements about our future business, strategy, operations, capabilities and results; financial projections; plans and objectives of our management; expected actions by us and by third parties, including our customers, vendors, competitors and regulators; and other matters.  Some of the forward-looking statements can be identified by the use of words such as “believes”, “belief”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “would”, “could” or other similar words; however, all statements in this Quarterly Report, other than statements of historical fact or historical financial results are forward-looking statements.
 
Our forward-looking statements reflect our views and assumptions on the date we are filing this Quarterly Report regarding future events and operating performance.  We believe that they are reasonable, but they involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements.  Accordingly, you should not put undue reliance on any forward-looking statements.  Factors that could cause our forward-looking statements to be incorrect and actual events or our actual results to differ from those that are anticipated include all of the following:
 
·  
the risks and uncertainties described under “Item 1A. Risk Factors” included elsewhere in this Quarterly Report and the fiscal year 2010 Annual Report;
 
·  
the level of activity in the oil and natural gas industry is lower than anticipated;
 
·  
production-related activities become more sensitive to variances in commodity prices;
 
·  
the major oil companies do not continue to expand internationally;
 
·  
market conditions are weaker than anticipated;
 
·  
we are unable to acquire additional aircraft due to limited availability or unable to exercise aircraft purchase options;
 
·  
we are unable to obtain financing or we are unable to draw on our credit facilities;
 
·  
we are not able to re-deploy our aircraft to regions with greater demand;
 
·  
we do not achieve the anticipated benefit of our fleet capacity expansion program; and
 
·  
the outcome of the U.S. Department of Justice (“DOJ”) investigation, which is ongoing, has a greater than anticipated financial or business impact.
 


All forward-looking statements in this Quarterly Report are qualified by these cautionary statements and are only made as of the date of this Quarterly Report.  We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
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 impacting 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 and one of two helicopter service providers to the offshore energy industry with global operations.  We have major transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore oil and gas producing regions of the world, including Alaska, Australia, Brazil, Mexico, Russia and Trinidad.  We generated 79% of our revenue from international operations during the Current Period.  We have a long history in the helicopter services industry through Bristow Helicopters Ltd. and Offshore Logistics, Inc., having been founded in 1955 and 1969, respectively.
 
We conduct our business in one segment:  Helicopter Services.  The Helicopter Services segment operations are conducted primarily through five business units:
 
·  
Europe,
 
·  
North America,
 
·  
West Africa,
 
·  
Australia, and
 
·  
Other International.
 
We provide helicopter services to a broad base of major integrated, national and independent oil and gas companies.  Our customers charter our helicopters primarily to transport personnel between onshore bases and offshore drilling rig platforms and other installations.  To a lesser extent, our customers also charter our helicopters to transport time-sensitive equipment to these offshore locations.  In addition to our primary Helicopter Services operations, we also operate a training business unit, Bristow Academy, and provide technical services to customers in the U.S. and U.K.  As of September 30, 2010, we operated 379 aircraft (including 336 owned aircraft, 37 leased aircraft and 6 aircraft operated for one of our customers; 12 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 199 aircraft in addition to those aircraft leased from us.
 


The chart below presents (1) the number of helicopters in our fleet and their distribution among the business units of our Helicopter Services segment as of September 30, 2010; (2) the number of helicopters which we had on order or under option as of September 30, 2010; and (3) the percentage of gross revenue which each of our business units provided during the Current Period.  For additional information regarding our commitments and options to acquire aircraft, see Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Percentage of Current Period Revenue
  
Aircraft in Consolidated Fleet
          
   
Helicopters
                  
   
Small
  
Medium
  
Large
  
Training
  
Fixed
Wing
  
Total
(1)
Unconsolidated Affiliates (2)
  
Total
Europe
36
 %
  
—
  
14
  
37
  
—
  
—
  
51
  
63
    
114
North America
18
 %
  
72
  
27
  
6
  
—
  
—
  
105
  
—
    
105
West Africa
19
 %
  
12
  
33
  
5
  
—
  
3
  
53
  
—
    
53
Australia
12
 %
  
3
  
14
  
18
  
—
  
—
  
35
  
—
    
35
Other International
12
 %
  
5
  
42
  
12
  
—
  
—
  
59
  
136
    
195
Corporate and other
3
 %
  
—
  
—
  
—
  
76
  
—
  
76
  
—
    
76
Total
100
 %
  
92
  
130
  
78
  
76
  
3
  
379
  
199
    
578
Aircraft not currently in fleet: (3)
                                    
On order
      
—
  
5
  
7
  
—
  
—
  
12
        
Under option
      
—
  
25
  
10
  
—
  
—
  
35
        
_________
 
(1)
Includes 12 aircraft held for sale.
   
(2)
The 199 aircraft operated by our unconsolidated affiliates do not include those aircraft leased from us.
   
(3)
This table does not reflect aircraft which our unconsolidated affiliates may have on order or under option.
 
Our Strategy
 
Our goal is to advance our position as a leading helicopter services provider to the offshore energy industry.  We intend to employ the following strategies to achieve this goal:
 
·  
Grow our business while improving shareholder returns.  We plan to continue to grow our business globally and increase our revenue and profitability, subject to managing through cyclical downturns in the energy industry.  We have a footprint in most major oil and gas producing regions of the world, and through our strong relationships with our existing customers, we are aware of future business opportunities in the markets we currently serve that would allow us to grow through new contracts.  We anticipate these new opportunities will result in the deployment of new or existing aircraft into markets where we expect they will be most profitably employed.  Additionally, new opportunities may result in growth through acquisitions and investments in existing or new markets, which may include increasing our role and participation with existing unconsolidated affiliates, investing in new companies, or creation of partnerships and alliances with existing industry participants.  The combination of growth in existing and new markets while continually reducing our fixed and variable costs will deliver improved shareholder returns.
 
·  
Be the preferred provider of helicopter services.  We position our business as the preferred provider of helicopter services by maintaining strong relationships with our customers and providing safe and high-quality service.  We continue to expand our well-established global safety program named ‘Target Zero’, as our safety vision is to have zero accidents, zero harm to people and zero harm to the environment.  We focus on maintaining relationships with our customers’ field operations and corporate management.  We believe that this focus helps us better anticipate customer needs and provide our customers with the right aircraft in the right place at the right time, which in turn allows us to better manage our existing fleet and capital investment program.  We also leverage our close relationships with our customers to establish mutually beneficial operating practices and safety standards worldwide.  By applying standard operating and safety practices across our global operations, we seek to provide our customers with consistent, high-quality service in each of their areas of operation.  By better understanding our customers’ needs and by virtue of our global operations and safety standards, we have effectively competed against other helicopter service providers based on aircraft availability, customer service, safety and reliability, and not just price.


 
·  
Integrate our global operations.  We are an integrated global operator, and we intend to continue to identify and implement further opportunities to integrate our global organization.  We have integrated our operations among previously independently managed businesses, created a global flight and maintenance standards group, improved our global asset allocation and made other changes in our corporate and field operations.
 
·  
Prudent balance sheet management.  We are focused on engaging in a proactive capital allocation plan with a concentration on achieving business growth and improving shareholder returns, within the dictates of prudent balance sheet management.   While we have raised $1.0 billion of capital in a mix of debt and equity with both public and private financings since fiscal year 2007, we have no immediate need to raise capital through new financings to fund our capital commitments, although we may raise capital to refinance existing debt.  Additionally, we have spent $1.4 billion on capital expenditures to grow our business over this same period.  While we plan to continue to invest in new aircraft, capital expenditures will not continue at the level we have spent in recent fiscal years on the fleet investment program.  We believe our liquidity position and cash flows from operations will be adequate to finance operating and maintenance capital expenditures, and we are exploring options for the use of any excess capital including the possibility of paying regularly scheduled dividends and buying back our common stock.
 
Market Outlook
 
Our core business is providing helicopter services to the worldwide oil and gas industry.  Our customers’ operating expenditures in the production sector are the principal source of our revenue, while their exploration and development capital expenditures provide a lesser portion of our revenue.  Our customers typically base their capital expenditure budgets on their long-term commodity price expectations and not exclusively on the current spot price.  In 2009, the credit, equity and commodity markets were volatile, causing many of our oil and gas company customers to reduce capital spending plans and defer projects.  Thus far in 2010, oil prices have ranged from approximately $65 to $87 per barrel and access to capital has improved.  We believe that the continued stability of oil prices and improved access to capital should lead to confidence among our customers and increased capital expenditure budgets and we are seeing some larger projects moving ahead that were previously on hold.
 
While we are cautiously optimistic that the economic conditions will continue to recover, we continue to seek ways to reduce costs and work with our customers to improve the efficiency of their operations.  Our global operations and critical mass of helicopters provide us with diversity of geographic and customer focus to help mitigate risks associated with a single market or customer and allows us to respond to increased demand in certain markets through redeployment of assets.
 
The limited availability of some new aircraft models and the need throughout the industry to retire many of the older aircraft in the worldwide fleet is a driver for our industry.  Currently manufacturers have some available aircraft; however, there are some constraints on supply of new large aircraft.  The aftermarket for sales of our older aircraft has also softened and sale prices have declined, reflecting fewer buyers with available capital.
 
On Thursday, April 22, 2010, a deepwater U.S. Gulf of Mexico drilling rig, Deepwater Horizon, that was engaged in drilling operations, sank after a blowout and fire.  Certain oil and gas companies we serve in the U. S. Gulf of Mexico have been forced to suspend operations as a result of the 180-day moratorium (the "Drilling Moratorium") on deepwater drilling in the U.S. Gulf of Mexico imposed after this disaster.  The Drilling Moratorium was originally issued on May 30, 2010 and then, following a preliminary injunction issued by a Federal Court on June 22, 2010, reissued on July 12, 2010.  The Drilling Moratorium originally applied through November 30, 2010 but was lifted on October 12, 2010, subject to certain specified conditions.  Five deepwater rigs have left the U.S. Gulf of Mexico since the commencement of the Drilling Moratorium.  Since the Drilling Moratorium began, certain of our customers elected to reduce the number of aircraft on contract.  These customers exercised termination rights in some contracts as a result of the Drilling Moratorium.  This loss of deepwater work in the U.S. Gulf of Mexico has been temporarily offset by work we are performing for BP in support of the spill control and monitoring effort.  The work for BP has begun to taper off
 


after September 30, 2010.  Although the ban was lifted, the future of deepwater drilling in the U.S. Gulf of Mexico remains uncertain and we cannot predict the full impact of the incident, resulting spill or Drilling Moratorium on oil and gas exploration or production operations in the U.S. Gulf of Mexico.  In addition, we cannot predict how government agencies will respond to the incident or whether changes in laws and regulations concerning operations in the U.S. Gulf of Mexico, including the ability to obtain drilling permits, will result in a long-term reduction in activity in this market.
 
As discussed in “Item 1A. Risk Factors” in the fiscal year 2010 Annual Report, we are subject to competition and the political environment in the countries where we operate.  In one of these markets, Nigeria, we have seen a recent increase in competitive pressure and new regulation that could impact our ability to win future work at levels previously anticipated.  During the Current Period, one of our major customers in Nigeria re-bid a contract we were incumbent on and awarded this to a competitor.  This contract provided us with annualized revenue of approximately $42 million and finished during the second quarter of fiscal year 2011.  Despite the current competitive and regulatory environment in this market, we expect the lost revenue to eventually be offset by new contract awards with other customers and increased ad hoc flying in this region.
 
We expect that our cash on deposit as of September 30, 2010 of $108.5 million, cash flow from operations and proceeds from aircraft sales, as well as the $100 million borrowing capacity under our revolving credit facility, will be sufficient to satisfy our capital commitments, including our remaining aircraft purchase commitments of $154.2 million as of September 30, 2010.  We plan to continue to be disciplined in our capital commitment program.  Therefore, we do not foresee an immediate need to raise capital through new financings to fund our capital commitments, although we may raise capital to refinance existing debt.
 
We conduct business in various foreign countries, and as such, our cash flows and earnings are subject to fluctuations and related risks from changes in foreign currency exchange rates.  For additional details, see Note 1 to the “Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report and “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” included in the 2010 fiscal year Annual Report.
 


Results of Operations
 
The following table presents our operating results and other income statement information for the applicable periods:
 
   
Three Months Ended
September 30,
    
Favorable
    
   
2010
    
2009
    
(Unfavorable)
    
   
    (Unaudited)
(In thousands, except per share amounts, percentages and flight hours)
    
Gross revenue:
                                  
Operating revenue
  
$
286,537
    
$
265,102
    
$
21,435
      
8.1
  %
 
Reimbursable revenue
    
26,022
      
26,513
      
(491
)
    
(1.9
)%
 
Total gross revenue
    
312,559
      
291,615
      
20,944
      
7.2
  %
 
Operating expense:
                                  
Direct cost
    
189,110
      
173,392
      
(15,718
)
    
(9.1
)%
 
Reimbursable expense
    
25,020
      
26,304
      
1,284
      
4.9
  %
 
Depreciation and amortization
    
20,968
      
18,470
      
(2,498
)
    
(13.5
)%
 
General and administrative
    
30,515
      
29,686
      
(829
)
    
(2.8
)%
 
     
265,613
      
247,852
      
(17,761
)
    
(7.2
)%
 
Gain on disposal of assets
    
1,897
      
4,880
      
(2,983
)
    
(61.1
)%
 
Earnings from unconsolidated affiliates, net of losses
    
4,716
      
4,924
      
(208
)
    
(4.2
)%
 
                                   
Operating income
    
53,559
      
53,567
      
(8
)
    
0.0
  %
 
Interest income (expense), net
    
(11,284
)
    
(10,430
)
    
(854
)
    
(8.2
)%
 
Other income (expense), net
    
(111
)
    
1,809
      
(1,920
)
    
(106.1
)%
 
Income before provision for income taxes
    
42,164
      
44,946
      
(2,782
)
    
(6.2
)%
 
Provision for income taxes
    
(3,316
)
    
(11,236
)
    
7,920
      
70.5
  %
 
Net income
    
38,848
      
33,710
      
5,138
      
15.2
  %
 
Net income attributable to noncontrolling interests
    
32
      
(540
)
    
572
      
105.9
  %
 
Net income attributable to Bristow Group
  
$
38,880
    
$
33,170
    
$
5,710
      
17.2
  %
 
                                   
Diluted earnings per common share
  
$
1.06
    
$
0.92
    
$
0.14
      
15.2
  %
 
Operating margin (1)
    
17.1
%
    
18.4
%
    
(1.3
)%
    
(7.1
)%
 
EBITDA (2)
  
$
74,584
    
$
74,056
    
$
528
      
0.7
  %
 
Flight hours (3)
    
63,178
      
58,531
      
4,647
      
7.9
  %
 

 


 
   
Six Months Ended
September 30,
    
Favorable
    
   
2010
    
2009
    
(Unfavorable)
    
   
    (Unaudited)
(In thousands, except per share amounts, percentages and flight hours)
    
Gross revenue:
                                  
Operating revenue
  
$
558,546
    
$
528,595
    
$
29,951
      
5.7
  
%
Reimbursable revenue
    
46,251
      
53,472
      
(7,221
)
    
(13.5
)
%
Total gross revenue
    
604,797
      
582,067
      
22,730
      
3.9
  
%
Operating expense:
                                  
Direct cost
    
372,274
      
354,069
      
(18,205
)
    
(5.1
)
%
Reimbursable expense
    
45,198
      
52,961
      
7,763
      
14.7
  
%
Depreciation and amortization
    
40,299
      
36,656
      
(3,643
)
    
(9.9
)
%
General and administrative
    
61,417
      
58,488
      
(2,929
)
    
(5.0
)
%
     
519,188
      
502,174
      
(17,014
)
    
(3.4
)
%
Gain on disposal of assets
   
3,615
      
10,889
      
(7,274
)
    
(66.8
)
%
Earnings from unconsolidated affiliates, net of losses
   
4,014
      
7,557
      
(3,543
)
    
(46.9
)
%
                                   
Operating income
    
93,238
      
98,339
      
(5,101
)
    
(5.2
)
%
Interest income (expense), net
    
(22,030
)
    
(20,220
)
    
(1,810
)
    
(9.0
)
%
Other income (expense), net
    
404
      
328
      
76
      
23.2
  
%
Income before provision for income taxes
    
71,612
      
78,447
      
(6,835
)
    
(8.7
)
%
Provision for income taxes
    
(11,856
)
    
(20,746
)
    
8,890
      
42.9
  
%
Net income
    
59,756
      
57,701
      
2,055
      
3.6
  
%
Net income attributable to noncontrolling interests
    
(68
)
    
(808
)
    
740
      
91.6
  
%
Net income attributable to Bristow Group
  
$
59,688
    
$
56,893
    
$
2,795
      
4.9
  
%
                                   
Diluted earnings per common share
  
$
1.63
    
$
1.58
    
$
0.05
      
3.2
  
%
Operating margin (1)
    
15.4
%
    
16.9
%
    
(1.5
)%
    
(8.9
)
%
EBITDA (2)
  
$
134,401
    
$
135,755
    
$
(1,354
)
    
(1.0
)
%
Flight hours (3)
    
122,027
      
118,458
      
3,569
      
3.0
  
%
_________
 
(1)
Operating margin is calculated as operating income divided by gross revenue.

(2)
EBITDA, or Earnings Before Interest Taxes Depreciation and Amortization, is a measure that has not been prepared in accordance with U.S. generally accepted accounting policies (“GAAP”) and has not been audited or reviewed by our independent auditors.  EBITDA is therefore considered a non-GAAP financial measure.  Management believes EBITDA provides meaningful supplemental information regarding our operating results because it excludes amounts that management does not consider part of operating results when assessing and measuring the operational and financial performance of the organization. A description of adjustments and a reconciliation to net income, the most comparable GAAP financial measure to EBITDA, is as follows:


 
 
Three Months
Ended September 30,
    
Six Months
Ended September 30,
  
 
2010
    
2009
    
2010
    
2009
  
 
(In thousands)
  
Net income
$
38,848
    
$
33,710
    
$
59,756
    
$
57,701
  
Provision for income taxes
  
3,316
      
11,236
      
11,856
      
20,746
  
Interest expense
  
11,452
      
10,640
      
22,490
      
20,652
  
Depreciation and amortization
  
20,968
      
18,470
      
40,299
      
36,656
  
EBITDA
$
74,584
    
$
74,056
    
$
134,401
    
$
135,755
  

(3)
Excludes flight hours from Bristow Academy and unconsolidated affiliates.
 
Current Quarter Compared to Comparable Quarter
 
The increase in gross revenue is primarily due to increased revenue in our Australia, West Africa, North America and Europe business units primarily as a result of the addition of new contracts and increases in rates on existing contracts, partially offset by contracts ending and reduced activity on certain contracts in these markets.
 
Despite the increase in gross revenue, operating income and EBITDA decreased primarily due to a $3.0 million decrease in gain on disposal of assets due to a reduction in the number of aircraft sold in the Current Quarter versus the Comparable Quarter, reduced earnings in Kazakhstan as we no longer operate in this market beginning October 2009 and the Comparable Quarter included a $2.5 million reversal of a bad debt provision, and an increase in employee compensation costs in Nigeria and Australia.  These items resulted in a decrease in operating margin from the Comparable Quarter.
 
 Net income and diluted earnings per share for the Current Quarter were affected by the items discussed above affecting operating income and EBITDA, a $0.9 million increase in interest expense, net, a $1.9 million decrease in other income (expense), net and a $7.9 million decrease in our provision for income taxes.  See further discussion in “– Business Unit Operating Results – Current Quarter Compared to Comparable Quarter – Interest Expense, Net,” “– Business Unit Operating Results – Current Quarter Compared to Comparable Quarter – Other Income (Expense), Net,” and “– Business Unit Operating Results – Current Quarter Compared to Comparable Quarter – Taxes.”
 
Current Period Compared to Comparable Period
 
The increase in gross revenue is primarily due to increased revenue in our Australia, West Africa and North America business units primarily as a result of the addition of new contracts and a favorable impact of exchange rate changes in Australia, partially offset by a decrease in revenue in our Europe business unit as a result of short-term work provided to a customer in the North Sea in the Comparable Period, as well as an unfavorable impact of exchange rate changes in Europe and a decrease in reimbursable revenue (primarily in Europe).
 
Despite the increase in gross revenue, operating income and EBITDA decreased primarily due to a $7.3 million decrease in gain on disposal of assets due to a reduction in the number of aircraft sold in the Current Period versus the Comparable Period, a $3.5 million decrease in earnings from unconsolidated affiliates, net of losses, primarily as a result of a decrease in earnings from Líder Aviação Holding S.A. (“Líder”), reduced earnings in Kazakhstan as we no longer operate in this market beginning October 2009 and the Comparable Period included a $2.5 million reversal of a bad debt provision, and an increase in employee compensation costs in Nigeria and Australia.  We recorded earnings from Líder of $0.2 million and $3.0 million in the Current Period and Comparable Period, respectively. 
 
 Net income and diluted earnings per share for the Current Period were affected by the items discussed above affecting operating income and EBITDA, a $1.8 million increase in interest expense, net and an $8.9 million decrease in our provision for income taxes.  See further discussion in “– Business Unit Operating Results – Current Period Compared to Comparable Period – Interest Expense, Net,” and “– Business Unit Operating Results – Current Period Compared to Comparable Period – Taxes.”
 

 
Business Unit Operating Results
 
The following discussion sets forth certain operating information for the business units comprising our Helicopter Services segment.  Intercompany lease revenue and expense are eliminated from our segment reporting, and depreciation expense of aircraft is presented in the segment that operates the aircraft.
 
Beginning on January 1, 2010, the U.S. Gulf of Mexico and Arctic business units were combined into the North America business unit.  Additionally, there are no longer Latin America, Western Hemisphere (“WH”) Centralized Operations and Eastern Hemisphere (“EH”) Centralized Operations business units.  The Latin America business unit is now included in the Other International business unit.  The Bristow Academy business unit and the technical services business previously included with the WH Centralized Operations and EH Centralized Operations business units are now aggregated for reporting purposes in Corporate and other.  The remainder of the costs within WH Centralized Operations and EH Centralized Operations are included in Corporate and other for reporting purposes or have been allocated to our other business units to the extent these operations support those business units.  Amounts presented below for the Comparable Quarter and Comparable Period have been revised to conform to Current Quarter and Current Period presentation.
 
Current Quarter Compared to Comparable Quarter
 
Set forth below is a discussion of operations of our business units.  Our consolidated results are discussed under “Results of Operations” above.
 
Europe
 
   
Three Months Ended September 30,
    
Favorable
    
   
2010
    
2009
    
(Unfavorable)
    
   
(In thousands, except percentages and flight hours)
    
Gross revenue
  
$
117,595
    
$
113,913
    
$
3,682
      
3.2
  
%
Operating expense
  
$
98,772
    
$
96,882
    
$
(1,890
)
    
(2.0
)
%
Earnings from unconsolidated affiliates, net of losses
  
$
2,789
    
$
2,032
    
$
757
      
37.3
  
%
Operating margin
    
18.4
%
    
16.7
%
    
1.7
  
%
  
10.2
  
%
Flight hours
    
14,432
      
14,242
      
190
      
1.3
  
%
 
Gross revenue and flight hours for Europe increased due to two new customers during the Current Quarter and increased activity with existing customers.  This increase was partially offset by an unfavorable impact of exchange rates and a decrease in reimbursable revenue.  Gross revenue increased, despite only a slight increase in flight hours, as a result of a favorable shift in the mix of aircraft type towards larger aircraft that earn higher rates per flight hour.
 
Operating expense for Europe increased primarily due to increases in salaries and fuel costs as a result of increased activity and a decrease in reimbursable expense.  This increase was partially offset from the impact of changes in exchange rates and a decrease in lease costs primarily due to a new administration facility and aircraft hanger in Norway (as we now have a capital lease for these facilities).
 
Earnings from unconsolidated affiliates, net of losses increased as a result of lower depreciation on certain aircraft for our equity method investments.  Operating margin improved due to increased equity earnings and the increase in activity.
 


North America
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
  
  
2009
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
55,281
    
$
48,737
    
$
6,544
      
13.4
 %
Operating expense
  
$
46,377
    
$
44,021
    
$
(2,356
)
    
(5.4
)%
Operating margin
    
16.1
%
    
9.7
%
    
6.4
  
%
  
66.0
 %
Flight hours
    
23,279
      
21,215
      
2,064
      
9.7
 %
 
Gross revenue for North America increased primarily due to additional work from BP in support of the spill control and monitoring effort and rate increases on certain existing contracts partially offset by reduced activity from the impact of the Drilling Moratorium in the U.S. Gulf of Mexico.
 
The increase in operating expense was primarily the result of an increase in salaries and maintenance expense as a result of the temporary increase in activity in this market.  The increase in operating margin from the Comparable Quarter is primarily due to an increase in rates driven by the change in the mix of aircraft type for the additional work from BP.
 
As described above, while the loss of deepwater work in the U.S. Gulf of Mexico has been temporarily offset by work we are performing for BP in support of the spill control and monitoring effort, we cannot predict the full impact of the incident and resulting spill on oil and gas exploration or production operations in the U.S. Gulf of Mexico.  Although the ban was lifted on October 12, 2010, the future of deepwater drilling in the U.S. Gulf of Mexico remains uncertain.  In addition, we cannot predict how government agencies will respond to the incident or whether changes in laws and regulations concerning operations in the U.S. Gulf of Mexico, including the ability to obtain drilling permits, will result in a long-term reduction in activity in this market.
 
West Africa
 
   
Three Months Ended
September 30,
    
Favorable
    
   
2010
    
2009
    
(Unfavorable)
    
   
(In thousands, except percentages and flight hours)
    
Gross revenue
  
$
58,110
    
$
51,452
    
$
6,658
      
12.9
  
%
Operating expense
  
$
40,952
    
$
36,388
    
$
(4,564
)
    
(12.5
)
%
Operating margin
    
29.5
%
    
29.3
%
    
0.2
  
%
  
0.7
  
%
Flight hours
    
9,572
      
8,470
      
1,102
      
13.0
  
%
 
Gross revenue for West Africa increased primarily due to new contracts, rate escalations under existing contracts and a reduction in aircraft maintenance delays offset slightly by reduced activity on some contracts.
 
The increase in operating expense was primarily a result of increases in salaries, maintenance and fuel charges due to the addition of new contracts and increase in freight charges due to the mobilization of an aircraft to this market.  Additionally, we incurred $1.3 million in employee severance costs during the Current Quarter as a result of the loss of a major contract that finished during the Current Quarter.  Operating margin remained flat as a result of the increase in revenue which was offset by increases in salaries primarily due to severance costs.
 
As previously discussed, we have seen recent changes in the West Africa market as a result of new competitors entering this market.  Additionally, increasingly active trade unions, changing regulations and the changing political environment have made and are expected to continue to make our operating results from Nigeria unpredictable.
 


Australia
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
37,364
    
$
30,333
    
$
7,031
    
23.2
 %
Operating expense
  
$
31,270
    
$
23,322
    
$
(7,948
)
  
(34.1
)%
Operating margin
    
16.3
%
    
23.1
%
    
(6.8
)%
  
(29.4
)%
Flight hours
    
3,318
      
2,794
      
524
    
18.8
 %
 
Gross revenue for Australia increased primarily due to an increase in flight hours from new contracts in the Current Quarter, a favorable impact of changes in exchange rates and an increase in reimbursable revenue for fixed wing aircraft charges to customers.  These increases were partially offset by decreased revenue from contracts ending since the Comparable Quarter.
 
Operating expense increased primarily due to the impact of exchange rates and an increase in salaries and benefits due to the increase in activity, annual salary increases and an increase in the annual leave and long service leave provisions.  Also, fuel and training costs have increased due to the increased activity in this market, and depreciation expense has increased as a result of new aircraft added to this market since the Comparable Quarter.  Excluding the impact of exchange rate changes, operating margin would have been 15.2% for the Current Quarter.  The decrease in operating margin from the Comparable Quarter is primarily due to increased compensation costs and depreciation expense.
 
Other International
 
   
Three Months Ended
September 30,
    
Favorable
  
   
2010
    
2009
    
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
36,295
    
$
37,007
    
$
(712
)
  
(1.9
)%
Operating expense
  
$
27,120
    
$
26,921
    
$
(199
)
  
(0.7
)%
Earnings from unconsolidated affiliates, net of losses
  
$
1,927
    
$
2,892
    
$
(965
)
  
(33.4
)%
Operating margin
    
30.6
%
    
35.1
%
    
(4.5
)%
  
(12.8
)%
Flight hours
    
12,577
      
11,810
      
767
    
6.5
 %
 
Gross revenue for Other International decreased slightly due to a decrease in revenue in Kazakhstan and Bolivia (due to our exit from these markets), Malaysia (decreased activity) and Ghana (due to the ending of a short-term contract) partially offset by an increase in revenue in Brazil (new aircraft on contract), the Baltic Sea (new contract) and Trinidad (increased activity).
 
Operating expense increased primarily due to an increase in costs in Russia (increased maintenance costs) and the Baltic Sea (new contract).  These increases were partially offset by a decrease in costs in Bolivia (due to our exit from this market) and Ghana (due to the ending of a short-term contract).  Additionally, operating expense decreased as we no longer operate in Kazakhstan, which was partially offset by the reversal of a $2.5 million bad debt provision in this market in the Comparable Quarter.
 
Earnings from unconsolidated affiliates, net of losses decreased primarily due to losses from our investment in Heliservicio Campeche S.A. de C.V. ("Heliservico") of $0.3 million during the Current Quarter versus $1.4 million of earnings in the Comparable Quarter.
 
The decrease in earnings from unconsolidated affiliates, net of losses along with the effect of no longer operating in Kazakhstan resulted in a decrease in operating margin from the Comparable Quarter.  Excluding the reversal of the bad debt in Kazakhstan, operating margin for the Comparable Quarter would have been 25.8%.
 


Corporate and other
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
8,421
    
$
11,362
    
$
(2,941
)
    
(25.9
)%
Operating expense
    
21,629
      
21,507
      
(122
)
    
(0.6
)%
Operating loss
  
$
(13,208
)
  
$
(10,145
)
  
$
(3,063
)
    
(30.2
)%
 
Corporate and other includes our Bristow Academy business unit, technical services business and corporate costs that have not been allocated out to other business units.
 
Gross revenue decreased due to a decrease in revenue at Bristow Academy as a result of a delay in military training contracts and a decrease in technical services revenue as a result of timing of part sales.
 
Operating expense increased slightly due to increases in corporate and Bristow Academy operating expenses offset by decrease in cost of part sales for technical services.  Corporate operating expense primarily represents costs of our corporate office and other general and administrative costs not allocated to our business units.  Both corporate and Bristow Academy operating expense increased due to an increase in salaries and benefits.
 
Interest Expense, Net
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Interest income
  
$
168
    
$
210
    
$
(42
)
    
(20.0
)%
Interest expense
    
(11,820
)
    
(11,325
)
    
(495
)
    
(4.4
)%
Amortization of debt discount
    
(790
)
    
(737
)
    
(53
)
    
(7.2
)%
Amortization of debt fees
    
(496
)
    
(497
)
    
1
      
0.2
 %
Capitalized interest
    
1,654
      
1,919
      
(265
)
    
(13.8
)%
Interest expense, net
  
$
(11,284
)
  
$
(10,430
)
  
$
(854
)
    
(8.2
)%
 
Interest expense, net increased primarily due to new short-term borrowings and a decrease in capitalized interest during the Current Quarter as a result of a decrease in the average amount of construction in progress during the Current Quarter versus the Comparable Quarter.
 
Other Income (Expense), Net
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Foreign currency (losses) gains
  
$
(121
)
  
$
677
    
$
(798
)
    
(117.9
)%
Other
    
10
      
1,132
      
(1,122
)
    
(99.1
)%
Total
  
$
(111
)
  
$
1,809
    
$
(1,920
)
    
(106.1
)%
 
The decrease in foreign currency losses primarily resulted from the revaluation of intercompany loans denominated in currencies other than the functional currencies of certain subsidiaries as certain exchange rates shifted during the Current Quarter.  Additionally, other income, net in the Comparable Quarter included $1.1 million of hedging gains realized as a result of the termination of a forward contract on a euro-denominated aircraft purchase commitment.
 

 
Taxes
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Effective income tax rate                                              
    
7.9
%
    
25.0
%
    
17.1
%
    
68.4
%
Net foreign tax on non-U.S.Earnings 
  
$
2,661
    
$
3,697
    
$
1,036
      
28.0
%
Foreign earnings indefinitely reinvested abroad
    
(15,087
)
    
(10,697
)
    
4,390
      
41.0
%
Change in valuation allowance for foreign tax credit utilization
    
—
      
93
      
93
      
100
%
Expense from change in tax contingency 
    
1,273
      
1,982
      
709
      
35.8
%
Foreign statutory rate reduction
    
(2,039
)
    
—
      
2,039
      
*
  
_________
* not meaningful
 
Our effective income tax rate was primarily reduced as a result of corporate restructuring effective November 1, 2010 which increased the earnings reported as permanently reinvested outside the U.S.  The effective income tax rate for the three months ended September 30, 2010 reflects the impact of the restructuring for the six month period ended September 30, 2010.  During the three months ended September 30, 2010 we also recorded reductions in tax expense as a result of changes in activity levels between jurisdictions with different tax rates and the revaluation of foreign net deferred tax liability balances as a result of the enactment of a statutory income tax rate reduction.
 
 
We expect that further adjustments to our deferred tax expense will be recorded during three months ending December 31, 2010 as a result of the recently implemented corporate restructuring.
 
 
Current Period Compared to Comparable Period
 
Set forth below is a discussion of operations of our business units.  Our consolidated results are discussed under “Results of Operations” above.
 
Europe
 
   
Six Months Ended
September  30,
    
Favorable
  
   
2010
    
2009
    
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
219,286
    
$
228,978
    
$
(9,692
)
    
(4.2
)%
Operating expense
  
$
184,115
    
$
193,987
    
$
9,872
      
5.1
 %
Earnings from unconsolidated affiliates, net of losses
  
$
4,740
    
$
3,850
    
$
890
      
23.1
 %
Operating margin
    
18.2
%
    
17.0
%
    
1.2
 %
 
  
7.1
 %
Flight hours
    
27,399
      
29,097
      
(1,698
)
    
(5.8
)%
 
Gross revenue for Europe decreased primarily due to an unfavorable change in exchange rates and short-term work provided in the Comparable Period to a customer in the North Sea that resulted in increased flight hours in that period.  Additionally, a decrease in reimbursable revenue also contributed to the decrease in revenue from the Comparable Period.  These decreases were partially offset by revenue from two new contracts in the Current Period.
 
Operating expense for Europe decreased primarily due to the impact of changes in exchange rates, decreased salaries, maintenance and fuel costs as a result of decreased activity, decreased reimbursable expense and decreased depreciation expense on certain aircraft operating in Norway.  Additionally, lease costs decreased primarily due to a new administration facility and aircraft hanger in Norway (as we now have a capital lease for these facilities).
 


Earnings from unconsolidated affiliates, net of losses increased as a result of lower depreciation on certain aircraft for our equity method investments.  Operating margin improved primarily due to increased equity earnings and the decrease in depreciation for the aircraft in Norway.
 
North America
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
  
  
2009
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
108,092
    
$
98,593
    
$
9,499
      
9.6
 %
Operating expense
  
$
93,880
    
$
89,451
    
$
(4,429
)
    
(5.0
)%
Operating margin
    
13.1
%
    
9.3
%
    
3.8
   %
 
  
40.9
 %
Flight hours
    
44,683
      
43,332
      
1,351
      
3.1
 %
 
Gross revenue for North America increased primarily due to additional work from BP in support of the spill control and monitoring effort and rate increases on certain existing contracts partially offset by reduced activity from the impact of the ongoing deepwater oil spill and the Drilling Moratorium in the U.S. Gulf of Mexico.  The change in contracts in the Current Period resulted in a change in aircraft type and rates allowing for increased revenue as a higher rate than the increase in flight hours.
 
The increase in operating expense was primarily the result of an increase in salaries and benefits, fuel and maintenance costs due to the change in aircraft type utilized.  The increase in operating margin from the Comparable Period is primarily due to an increase in rates driven by the change in the mix of aircraft type flying in this market.
 
For discussion of additional matters related to operations in North America, see “— Current Quarter Compared to Comparable Quarter – North America” included elsewhere in this Quarterly Report.
 
West Africa
 
   
Six Months Ended
September 30,
    
Favorable
  
   
2010
    
2009
    
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
117,206
    
$
106,269
    
$
10,937
      
10.3
 %
Operating expense
  
$
84,412
    
$
77,542
    
$
(6,870
)
    
(8.9
)%
Operating margin
    
28.0
%
    
27.0
%
    
1.0
%
    
3.7
 %
Flight hours
    
19,332
      
17,420
      
1,912
      
11.0
 %
 
Gross revenue for West Africa increased primarily due to new contracts, rate escalations under existing contracts and a reduction in aircraft maintenance delays offset slightly by reduced activity on some contracts.  Additionally, reimbursable revenue decreased due to a decrease in training and duty recharges that were rebilled to a customer during the Comparable Period.
 
The increase in operating expense was primarily a result of increases in salaries, maintenance and fuel charges due to new contracts and an increase freight charges due to the mobilization of two aircraft to this market.  Additionally, we incurred $1.0 million more in employee severance costs in the Current Period versus the Comparable Period as a result of a result of the loss of a major contract that finished during the Current Period.  Operating margin remained mostly flat despite rate escalations due to the increase in freight charges and compensation costs.
 
For discussion of additional matters related to operations in West Africa, see “— Current Quarter Compared to Comparable Quarter – West Africa” included elsewhere in this Quarterly Report.
 


Australia
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
72,655
    
$
58,496
    
$
14,159
      
24.2
 %
Operating expense
  
$
58,609
    
$
45,829
    
$
(12,780
)
  
(27.9
)%
Operating margin
    
19.3
%
    
21.7
%
    
(2.4
)%
  
(11.1
)%
Flight hours
    
6,558
      
5,674
      
884
      
15.6
 %
 
Gross revenue for Australia increased primarily due to a favorable impact of changes in exchange rates and an increase in flight hours as a result of changes in aircraft on contract from the Comparable Period.  We have introduced new aircraft since the Comparable Period resulting in a change of revenue mix.
 
Operating expense increased primarily due to the impact of exchange rates and an increase in salaries and benefits due to the increase in activity, annual salary increases and an increase in the annual leave and long service leave provisions.  During the Comparable Period, we reversed costs previously accrued in fiscal year 2009 for tax items as favorable rulings were obtained from the tax authorities in these matters during the Comparable Period.  Excluding the reversal of these tax items, operating margin would have been 17.9% in the Comparable Period.  Operating margin declined due to the increase in salaries and benefits in the Current Period and reversal of tax items in the Comparable Period.  Excluding the impact of exchange rate changes, operating margin would have been 17.8% in the Current Quarter.
 
Other International
 
   
Six Months Ended
September 30,
    
Favorable
  
   
2010
    
2009
    
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
69,114
    
$
70,001
    
$
(887
)
  
(1.3
)%
Operating expense
  
$
55,077
    
$
53,510
    
$
(1,567
)
  
(2.9
)%
Earnings from unconsolidated affiliates, net of losses
  
$
(670
)
  
$
3,699
    
$
(4,369
)
  
(118.1
)%
Operating margin
    
19.3
%
    
28.8
%
    
(9.5
)%
  
(33.0
)%
Flight hours 
    
24,055
      
22,935
      
1,120
    
4.9
 %
 
Gross revenue for Other International decreased slightly due to a decrease in revenue in Kazakhstan, Bolivia and Colombia (due to our exit from these markets) and Ghana (due to the ending of a short-term contract) partially offset by an increase in revenue in Brazil (new aircraft on contract), the Baltic Sea (new contract) and Trinidad (increased activity).
 
Operating expense increased primarily due to an increase in costs in Russia, Brazil and Mexico (increased maintenance costs) and the Baltic Sea (new contract).  These increases were partially offset by a decrease in costs in Bolivia and Colombia (due to our exit from these markets) and Ghana (due to the ending of a short-term contract).  Additionally, operating expense decreased as we no longer operate in Kazakhstan, which was partially offset by the reversal of a $2.5 million bad debt provision in this market in the Comparable Period.
 
Earnings from unconsolidated affiliates, net of losses decreased due to a decrease in earnings from our investment in Líder of $2.8 million from the Comparable Period to the Current Period as a result of foreign currency transaction losses.  Additionally, earnings from unconsolidated affiliates, net of losses decreased as a result of our investment in Heliservicio generating $0.7 million in losses during the Current Period versus $0.7 million of earnings in the Comparable Period.
 
The decrease in earnings from unconsolidated affiliates, net of losses along with the effect of no longer operating in Kazakhstan resulted in a decrease in operating margin from the Comparable Period.  Excluding the reversal of the bad debt in Kazakhstan, operating margin for the Comparable Period would have been 20.0%
 


Corporate and other
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
19,263
    
$
23,178
    
$
(3,915
)
    
(16.9
)%
Operating expense
    
43,914
      
45,303
      
1,389
      
3.1
 %
Earnings from unconsolidated affiliates, net of losses
    
(56
)
    
8
      
(64
)
      
*
Operating loss
  
$
(24,707
)
  
$
(22,117
)
  
$
(2,590
)
    
(11.7
)%
_________
* not meaningful
 
Corporate and other includes our Bristow Academy business unit, technical services business and corporate costs that have not been allocated out to other business units.
 
Gross revenue decreased due to a decrease in revenue at Bristow Academy as a result of a delay in military training contracts and a decrease in technical services revenue as a result of timing of modification work performed and part sales.
 
Operating expense decreased due to a decrease in corporate operating expenses and decrease in technical services expense partially offset by an increase in expense at Bristow Academy due to increases in salaries, contract labor and lease costs in anticipation of military training contracts that were delayed.  Corporate operating expense primarily represents costs of our corporate office and other general and administrative costs not allocated to our business units.  Corporate operating expense decreased primarily due to the inclusion of costs related to the separation between the Company and an Executive Officer during the Comparable Period.
 
Interest Expense, Net
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Interest income
  
$
460
    
$
432
    
$
28
      
6.5
 %
Interest expense
    
(23,327
)
    
(22,724
)
    
(603
)
    
(2.7
)%
Amortization of debt discount
    
(1,566
)
    
(1,462
)
    
(104
)
    
(7.1
)%
Amortization of debt fees
    
(992
)
    
(993
)
    
1
      
0.1
 %
Capitalized interest
    
3,395
      
4,527
      
(1,132
)
    
(25.0
)%
Interest expense, net
  
$
(22,030
)
  
$
(20,220
)
  
$
(1,810
)
    
(9.0
)%
 
Interest expense, net increased primarily due to a decrease in capitalized interest during the Current Period as a result of a decrease in the average amount of construction in progress during the Current Period versus the Comparable Period and new short-term borrowings.
 

 
Other Income (Expense), Net
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Foreign currency losses
  
$
(184
)
  
$
(804
)
  
$
620
      
77.1
 %
Other
    
588
      
1,132
      
(544
)
    
(48.1
)%
Total
  
$
404
    
$
328
    
$
76
      
23.2
 %
 
The decrease in foreign currency losses primarily resulted from the revaluation of intercompany loans denominated in currencies other than the functional currencies of certain subsidiaries as certain exchange rates shifted during the Current Period.  Other income (expense), net also includes gains on sales of two joint ventures during the Current Period.  Additionally, other income, net in the Comparable Period included $1.1 million of hedging gains realized as a result of the termination of a forward contract on a euro-denominated aircraft purchase commitment.
 
Taxes
 
   
Six Months Ended
September 30,
  
Favorable
  
   
2010
    
2009
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Effective income tax rate
    
16.6
%
    
26.4
%
    
9.8
%
    
37.1
%
Net foreign tax on non-U.S. earnings 
  
$
5,397
    
$
9,630
    
$
4,233
      
44
%
Foreign earnings indefinitely reinvested abroad
    
(19,894
)
    
(21,591
)
    
(1,697
)
    
(7.9
)%
Change in valuation allowance for foreign tax credit utilization
    
—
      
1,047
      
1,047
      
100
%
Expense from change in tax contingency
    
1,617
      
3,259
      
1,642
      
50.4
%
Foreign statutory rate reduction
    
(2,039
)
    
—
      
(2,039
)
    
*
  
_________
* not meaningful
 
Our effective income tax rate was primarily reduced as a result of corporate restructuring effective November 1, 2010 which increased the earnings reported as permanently reinvested outside the U.S.  During the six months ended September 30, 2010 we also recorded reductions in tax expense related to changes in activity levels between jurisdictions with different tax rates and the revaluation of foreign net deferred tax liability balances as a result of the enactment of a statutory income tax rate reduction.
 
For discussion of additional matters related to taxes, see “— Current Quarter Compared to Comparable Quarter – Taxes” included elsewhere in this Quarterly Report.
 
Liquidity and Capital Resources
 
Financial Condition and Sources of Liquidity
 
We actively manage our liquidity through generation of cash from operations while assessing our appropriate investment funding needs.  While our principal source of liquidity for the past three years has been financing cash flows, which we have used to fund our fleet investment program and other investments, we have also generated significant cash from operations.  We maintain a conservative capital structure to provide financial flexibility.  Accordingly, since the beginning of fiscal year 2007 we have raised $1.0 billion of capital in a mix of debt and equity with both public and private financings.  During this same period we have spent $1.4 billion on capital expenditures to grow our business.  In addition, other significant factors that affect our overall management of liquidity include capital expenditure commitments, pension funding, operating leases, adequacy of available bank lines of credit and ability to attract long-term capital at satisfactory terms.
 


We expect that our cash on deposit as of September 30, 2010 of $108.5 million, cash flow from operations and proceeds from aircraft sales, as well as the $100 million borrowing capacity under our revolving credit facility, will be sufficient to satisfy our capital commitments, including our remaining aircraft purchase commitments of $154.2 million as of September 30, 2010.  We plan to continue to be disciplined in our capital commitment program.  Therefore, we do not foresee an immediate need to raise capital through new financings to fund our capital commitments, although we may raise capital to refinance existing debt.
 
Cash Flows
 
Operating Activities
 
Net cash flows provided by operating activities totaled $69.2 million during the Current Period compared to $93.6 million during the Comparable Period.  Changes in non-cash working capital used $35.4 million in cash flows from operating activities for the Current Period compared to $17.7 million in the Comparable Period.
 
Investing Activities
 
Cash flows used in investing activities were $44.5 million and $243.9 million for the Current Period and Comparable Period, respectively.  Cash was used for capital expenditures as follows:
 
   
Six Months Ended
September 30,
  
   
2010
    
2009
  
Number of aircraft delivered:
            
Small
  
—
    
3
  
Medium
  
2
    
4
  
Large
  
—
    
6
  
Fixed wing
  
—
    
1
  
Total aircraft
  
2
    
14
  
             
Capital expenditures (in thousands):
            
Aircraft and related equipment
$
52,038
  
$
123,656
  
Other
  
11,905
    
12,489
  
Total capital expenditures
$
63,943
  
$
136,145
  
 
In addition to these capital expenditures, investing cash flows were impacted by aircraft sales and acquisitions.  During the Current Period, we received proceeds of $9.9 million primarily from the disposal of nine aircraft and certain other equipment, which together resulted in a net gain of $3.6 million, we received a $1.0 million deposit for an aircraft that was held for sale and we received insurance recoveries of $7.3 million.  Also, during the Current Period we received $1.3 million for the sale of two joint ventures resulting in a gain of $0.6 million.  During the Comparable Period, we received proceeds from the disposal of 17 aircraft and certain other equipment, which together resulted in a net gain of $10.9 million.  Additionally, during the Comparable Period, we acquired a 42.5% interest in Líder, the largest provider of helicopter and executive aviation services in Brazil for $179.0 million, including transaction costs.
 
Financing Activities
 
Cash flows generated from financing activities were $1.2 million during the Current Period compared to $13.7 million cash flows used during the Comparable Period.  During the Current Period, cash was used for the repayment of debt totaling $7.6 million, acquisition of 60% ownership in Bristow Caribbean Limited for $0.8 million and distribution to noncontrolling interest owners of $0.6 million.  Additionally, during the Current Period we borrowed $8.1 million and our fully consolidated subsidiary, Aviashelf Aviation Co., received $1.9 million in borrowings.  During the Comparable Period, cash was used for the payment of preferred stock dividends of $6.3 million and repayment of debt totaling $8.9 million and cash was provided by the issuance of common stock upon exercise of stock options of $1.1 million.
 

 
Future Cash Requirements
 
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
 
We have various contractual obligations which are recorded as liabilities on our condensed consolidated balance sheet.  Other items, such as certain purchase commitments, interest payments and other executory contracts are not recognized as liabilities on our condensed consolidated balance sheet but are included in the table below.  For example, we are contractually committed to make certain minimum lease payments for the use of property and equipment under operating lease agreements.
 
The following tables summarize our significant contractual obligations and other commercial commitments on an undiscounted basis as of September 30, 2010 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 Note 8 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2010 Annual Report and in Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report:
 
   
Payments Due by Period
  
         
Six Months
Ending
    
Fiscal Year Ending March 31,
          
   
Total
    
March 31,
2011
    
2012 –
2013
    
2014 –
2015
    
2016 and
beyond
      
Other
  
   
(In thousands)
  
Contractual obligations:
                                                
Long-term debt and short-term
borrowings:
                                                
Principal (1)
  
$
737,526
    
$
22,608
    
$
4,946
    
$
235,245
    
$
474,727
    
$
—
  
Interest
    
328,014
      
22,740
      
89,341
      
67,756
      
148,177
      
—
  
Aircraft operating leases (2)
    
109,839
      
7,422
      
26,561
      
25,418
      
50,438
      
—
  
Other operating leases  (3)
    
54,842
      
8,455
      
12,939
      
8,918
      
24,530
      
—
  
Capital lease obligation
    
11,329
      
581
      
2,324
      
2,324
      
6,100
      
—
  
Pension obligations (4)
    
160,553
      
10,273
      
42,212
      
43,364
      
64,704
      
—
  
Aircraft purchase obligations  (5)
    
154,219
      
62,288
      
91,931
      
—
      
—
      
—
  
Other purchase obligations (6)
    
19,007
      
18,803
      
204
      
—
      
—
      
—
  
Tax reserves (7)
    
10,444
      
—
      
—
      
—
      
—
      
10,444
  
Total contractual cash obligations
  
$
1,585,773
    
$
153,170
    
$
270,458
    
$
383,025
    
$
768,676
    
$
10,444
  
Other commercial commitments:
                                                
Debt guarantees (8)
  
$
15,755
    
$
—
    
$
15,755
    
$
—
    
$
—
    
$
—
  
Other guarantees (9)
    
24,766
      
1,696
      
4,507
      
18,563
      
—
      
—
  
Letters of credit
    
1,693
      
1,693
      
—
      
—
      
—
      
—
  
Contingent consideration (10)
    
44,625
      
8,500
      
36,125
      
—
      
—
      
—
  
Other commitments (11)
    
72,124
      
6,900
      
19,224
      
46,000
      
—
      
—
  
Total commercial commitments
  
$
158,963
    
$
18,789
    
$
75,611
    
$
64,563
    
$
—
    
$
—
  
_________

(1)
Excludes unamortized premium on the 7½% Senior Notes due 2017 of $0.4 million and unamortized discount on the 3% Convertible Senior Notes due 2038 of $17.4 million.
   
(2)
Primarily represents separate operating leases for nine aircraft with a subsidiary of General Electric Capital Corporation with terms of fifteen years expiring in August 2023.  For further details, see discussion in Note 8 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2010 Annual Report
   
(3)
Represents minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year.




(4)
Represents expected funding for pension benefits in future periods.  These amounts are undiscounted and are based on the expectation that both the U.K. and Norway pension plans will be fully funded in approximately seven and ten years, respectively.  As of September 30, 2010, we had recorded on our condensed consolidated balance sheet a $112.6 million pension liability associated with these obligations.  The timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
   
(5)
For further details on our aircraft purchase obligations, see Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
   
(6)
Other purchase obligations primarily represent unfilled purchase orders for aircraft parts and commitments associated with upgrading facilities at our bases.
   
(7)
Represents gross unrecognized tax benefits (see discussion in Note 9 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2010 Annual Report) that may result in cash payments being made to certain tax authorities.  We are not able to reasonably estimate in which future periods this amount will ultimately be settled and paid.
   
(8)
We have guaranteed the repayment of up to £10 million ($16 million) of the debt of FBS, an unconsolidated affiliate.
   
(9)
Relates to an indemnity agreement between us and Afianzadora Sofimex, S.A. to support the issuance of surety bonds on behalf of Heliservicio from time to time.  As of September 30, 2010, surety bonds denominated in Mexican pesos with an aggregate value of 309 million Mexican pesos ($24.8 million) were outstanding.  Furthermore, we have received a counter-guarantee from our partner in Heliservicio for 76% ($18.8 million) of the surety bonds outstanding.
   
(10)
The Líder purchase agreement includes incremental and cumulative earn-out payments based upon the achievement of growth targets over the three-year period ending December 31, 2011.  Based on Líder’s audited results for the period ended December 31, 2009, the initial $8.5 million earn-out payment was not earned, leaving maximum total earn-out payments of $44.6 million.  See Note 2 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2010 Annual Report for discussion of the Líder acquisition.
   
(11)
In connection with the Bristow Norway acquisition (see Note 2 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2010 Annual Report), we granted the former partner in this joint venture an option that if exercised would require us to acquire up to five aircraft from them at fair value upon the expiration of the lease terms for such aircraft.  One of the options was exercised in December 2009 and one option expired.  Two of these aircraft are not currently operated by Bristow Norway, but our former partner has agreed to purchase the aircraft and lease the aircraft to Bristow Norway for an initial period of five years, with three one-year options for extension, as soon as practicable.  The remaining aircraft lease expires in August 2011.
 
We do not expect the guarantees shown in the table above to become obligations that we will have to fund.
 
Capital Commitments
 
We have commitments and options to make capital expenditures over the next five fiscal years to purchase additional aircraft, including aircraft associated with the commitments reflected in the table above.  Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of revenue and operating margin.  See Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a detail of the number of aircraft under commitments and the number of aircraft under options expected to be delivered in the current and subsequent four fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options for the Current Period.  Also in fiscal year 2011, we expect to invest approximately $40 million in various infrastructure enhancements, including aircraft facilities, training centers and technology.  Through September 30, 2010, we had incurred $11.9 million towards these projects.
 


Critical Accounting Policies and Estimates
 
See Item 7.  “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in the fiscal year 2010 Annual Report for a discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates provided in the fiscal year 2010 Annual Report.
 
Recent Accounting Pronouncements
 
See Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for discussion of recent accounting pronouncements.
 
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 fiscal year 2010 Annual Report and Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision of and with the participation of our management, including William E. Chiles, our Chief Executive Officer (“CEO”), and Jonathan E. Baliff, our Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2010.  Based on that evaluation, our CEO and CFO concluded that such disclosure controls and procedures were effective to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and such information is accumulated and communicated to our management as appropriate to allow for timely decisions regarding required disclosure under the Exchange Act.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the three months ended September 30, 2010 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
 
PART II — OTHER INFORMATION
 
Item 1.  Legal Proceedings.
 
We have certain actions or claims pending that have been discussed and previously reported in Part I. Item 3.  “Legal Proceedings” in the fiscal year 2010 Annual Report.  Developments in these previously reported matters are described in Note 4 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Item 1A.  Risk Factors.
 
There have been no material changes during the three and six months ended September 30, 2010 in our “Risk Factors” as discussed in our fiscal year 2010 Annual Report on Form 10-K, except as follows:
 

 
Our operations in the U.S. Gulf of Mexico could be adversely impacted by the recent drilling rig accident and its consequences.
 
On May 30, 2010, the Bureau of Ocean Energy Management, Regulation and Enforcement of the U.S. Department of the Interior, at the time known as the Minerals Management Service (the “BOEM”), issued a notice to lessees and operators implementing a six-month moratorium on drilling activities with respect to new wells in water depths greater than 500 feet in the U.S. Gulf of Mexico. In addition, the notice ordered the operators of 33 wells covered by the moratorium that were being drilled to halt drilling and take steps to secure the affected wells. The notice was in response to the April 20, 2010 explosion and fire on the Deepwater Horizon and the resulting oil spill.
 
On June 22, 2010, a federal district court in Louisiana issued a preliminary injunction prohibiting the enforcement of the six-month moratorium.  In response to the preliminary injunction, the U.S. Department of the Interior filed a notice of appeal of the preliminary injunction, as well as requests for stay in both the federal district court and the U.S. Court of Appeals for the Fifth Circuit.  Each court denied the department’s request for stay of the preliminary injunction during the appeals process.
 
On July 12, 2010, the BOEM issued another notice to lessees and operators imposing a new moratorium on drilling activities in the U.S. Gulf of Mexico. The notice directed the suspension of drilling operations that use subsea blowout preventers (“BOPs”) or surface BOPs on floating facilities through November 30, 2010.  The BOEM lifted the moratorium on drilling activities in the U.S. Gulf of Mexico on October 12, 2010, subject to certain specified conditions.
 
At this time, we cannot currently predict the full impact of the incident, resulting spill or Drilling Moratorium on drilling in the U.S. Gulf of Mexico or what, if any, further actions may be taken by the federal government with respect to any moratorium on drilling.  In addition, we cannot predict whether government agencies will take further actions in response to the accident and resulting oil spill or whether changes in laws and regulations concerning operations in the U.S. Gulf of Mexico will result in reduced activity in this market.  A significant reduction in oil and gas exploration and production activity in the U.S. Gulf of Mexico could result in reduced demand for our services in this market, resulting in reduced cash flows and profitability.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities.
 
Period  (1)
  
Total Number of Shares Purchased (2)
  
Average Price Paid Per Share
  
Total Number of Shares Purchased as Part of Publicly Announced Program
  
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
  
                         
July 1, 2010 – July 31, 2010
  
180
  
$
33.43
    
—
    
—
  
September 1, 2010 – September 30, 2010
  
49
  
$
35.55
    
—
  
$
—
  
________
 
(1)  
No shares were purchased during the period of August 1, 2010 – August 31, 2010.
 
(2)  
The total number of shares purchased in the period consists of shares withheld by us in satisfaction of withholding taxes due upon the vesting of restricted stock units and awards granted to employees under our 2007 Stock Incentive Plan.
 


 
Item 6.  Exhibits.
 
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit
Number
 
Description of Exhibit
   
10.1†  
Employment Agreement with Jonathan E. Baliff dated September 12, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 12, 2010).
15.1*  
Letter from KPMG LLP dated November 4, 2010, regarding unaudited interim information.
31.1**
Rule 13a-14(a) Certification by Chief Executive Officer of Registrant.
31.2**
Rule 13a-14(a) Certification by Chief Financial Officer of Registrant.
32.1**
Certification of Chief Executive Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS±
XBRL Instance Document.
101.SCH±
XBRL Taxonomy Extension Schema Document.
101.CAL±
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB±
XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE±
XBRL Taxonomy Extension Presentation Linkbase Document.
____________
 
*
Filed herewith.
**
Furnished herewith.
†   
Compensatory Plan or Arrangement.
±   
Furnished herewith.  In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BRISTOW GROUP INC.




 
By:   /s/ Jonathan E. Baliff
 
Jonathan E. Baliff
 
Senior Vice President and Chief Financial Officer


 
By:   /s/ Brian J. Allman
 
Brian J. Allman
 
Vice President and Chief Accounting Officer


November 4, 2010




 
Index to Exhibits
 
Exhibit
Number
 
Description of Exhibit
   
10.1†  
Employment Agreement with Jonathan E. Baliff dated September 12, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 12, 2010).
Letter from KPMG LLP dated November 4, 2010, regarding unaudited interim information.
Rule 13a-14(a) Certification by Chief Executive Officer of Registrant.
Rule 13a-14(a) Certification by Chief Financial Officer of Registrant.
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.
Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS±
XBRL Instance Document.
101.SCH±
XBRL Taxonomy Extension Schema Document.
101.CAL±
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB±
XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE±
XBRL Taxonomy Extension Presentation Linkbase Document.
____________

*
Filed herewith.
**
Furnished herewith.
†  
Compensatory Plan or Arrangement.
± 
Furnished herewith.  In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.