form10q-110409.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, 2009
   
 
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 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 30, 2009.
35,881,016 shares of Common Stock, $.01 par value




BRISTOW GROUP INC.
INDEX — FORM 10-Q

 
 
Page
PART I
  
     
Item 1.
2
  
     
Item 2.
33
  
     
Item 3.
57
  
     
Item 4.
57
  
     
PART II
  
     
Item 1.
57
  
     
Item 1A.
57
  
     
Item 6.
58
  
     
59
  


PART I — FINANCIAL INFORMATION
Item 1.  Financial Statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Income
(2008 As Adjusted – Notes 1 and 4)
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
     
2009
    
2008
      
2009
    
2008
  
   
(Unaudited)
(In thousands, except per share amounts)
Gross revenue:
                            
 
Operating revenue from non-affiliates
  
$
247,642
  
$
248,526
    
$
496,533
  
$
489,660
  
 
Operating revenue from affiliates
    
17,460
    
18,430
      
32,062
    
35,700
  
 
Reimbursable revenue from non-affiliates
    
24,746
    
23,208
      
50,599
    
47,579
  
 
Reimbursable revenue from affiliates
    
1,767
    
1,524
      
2,873
    
2,872
  
       
291,615
    
291,688
      
582,067
    
575,811
  
Operating expense:
                            
 
Direct cost
    
173,392
    
188,393
      
354,069
    
375,366
  
 
Reimbursable expense
    
26,304
    
24,681
      
52,961
    
50,748
  
 
Depreciation and amortization
    
18,470
    
15,485
      
36,656
    
30,440
  
 
General and administrative
    
29,686
    
25,984
      
58,488
    
53,190
  
         
247,852
    
254,543
      
502,174
    
509,744
  
                               
Gain on disposal of assets
    
4,880
    
3,302
      
10,889
    
5,967
  
Earnings from unconsolidated affiliates, net of losses
    
4,924
    
1,971
      
7,557
    
9,694
  
 
Operating income
    
53,567
    
42,418
      
98,339
    
81,728
  
                             
Interest income
    
210
    
3,205
      
432
    
4,652
  
Interest expense
    
(10,640
)
  
(9,065
)
    
(20,652
)
  
(17,667
)
Other income, net
    
1,809
    
2,070
      
328
    
3,762
  
 
Income from continuing operations before provision for income taxes
    
44,946
    
38,628
      
78,447
    
72,475
  
Provision for income taxes
    
(11,236
)
  
(10,069
)
    
(20,746
)
  
(20,633
)
 
Net income from continuing operations
    
33,710
    
28,559
      
57,701
    
51,842
  
 
Loss from discontinued operations, net of tax
    
—
    
(246
)
    
—
    
(246
)
 
Net income
    
33,710
    
28,313
      
57,701
    
51,596
  
 
Net income attributable to noncontrolling interests
    
(540
)
  
(952
)
    
(808
)
  
(1,655
)
 
Net income attributable to Bristow
    
33,170
    
27,361
      
56,893
    
49,941
  
 
Preferred stock dividends
    
(3,163
)
  
(3,163
)
    
(6,325
)
  
(6,325
)
 
Net income available to common stockholders
  
$
30,007
  
$
24,198
    
$
50,568
  
$
43,616
  
                             
Basic earnings per common share:
                            
 
Earnings from continuing operations
  
$
0.98
  
$
0.84
    
$
1.70
  
$
1.63
  
 
Loss from discontinued operations
    
—
    
(0.01
)
    
—
    
(0.01
)
 
Net earnings
  
$
0.98
  
$
0.83
    
$
1.70
  
$
1.62
  
                               
Diluted earnings per common share:
                            
 
Earnings from continuing operations
  
$
0.92
  
$
0.77
    
$
1.58
  
$
1.50
  
 
Loss from discontinued operations
    
—
    
—
      
—
    
(0.01
)
 
Net earnings
  
$
0.92
  
$
0.77
    
$
1.58
  
$
1.49
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


BRISTOW GROUP INC. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(March 31 As Adjusted – Notes 1 and 4)
   
September 30,
  
March 31,
  
   
2009
  
2009
  
   
(Unaudited)
      
   
(In thousands)
  
ASSETS
Current assets:
              
 
Cash and cash equivalents
  
$
143,205
  
$
300,969
  
 
Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $1.8 million and $0.6 million, respectively 
    
199,648
    
194,030
  
 
Accounts receivable from affiliates, net of allowance for doubtful accounts of $0.9 millionand $3.4 million, respectively
    
29,539
    
22,644
  
 
Inventories
    
188,181
    
165,438
  
 
Prepaid expenses and other current assets
    
39,437
    
20,226
  
   
Total current assets
    
600,010
    
703,307
  
Investment in unconsolidated affiliates
    
204,457
    
20,265
  
Property and equipment – at cost:
              
 
Land and buildings
    
82,783
    
68,961
  
 
Aircraft and equipment
    
1,892,662
    
1,823,011
  
         
1,975,445
    
1,891,972
  
 
Less – Accumulated depreciation and amortization
    
(375,011
)
  
(350,515
)
         
1,600,434
    
1,541,457
  
Goodwill
    
46,800
    
44,654
  
Other assets
    
24,689
    
24,888
  
       
$
2,476,390
  
$
2,334,571
  
                   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
              
 
Accounts payable
  
$
54,089
  
$
44,892
  
 
Accrued wages, benefits and related taxes
    
33,464
    
39,939
  
 
Income taxes payable
    
933
    
—
  
 
Other accrued taxes
    
3,794
    
3,357
  
 
Deferred revenues
    
18,551
    
17,593
  
 
Accrued maintenance and repairs
    
13,316
    
10,317
  
 
Accrued interest
    
6,430
    
6,434
  
 
Other accrued liabilities
    
16,845
    
20,164
  
 
Deferred taxes
    
10,526
    
6,195
  
 
Short-term borrowings and current maturities of long-term debt
    
7,918
    
8,948
  
   
Total current liabilities
    
165,866
    
157,839
  
Long-term debt, less current maturities
    
709,843
    
714,965
  
Accrued pension liabilities
    
97,833
    
81,380
  
Other liabilities and deferred credits
    
19,856
    
16,741
  
Deferred taxes
    
142,666
    
127,266
  
Commitments and contingencies (Note 7)
              
Stockholders’ investment:
              
 
5.50% mandatory convertible preferred stock, $.01 par value, authorized and outstanding 0 shares as of September 30
and 4,600,000 shares as of March 31; entitled in liquidationto $230 million; net of offering costs of $7.4 million 
    
—
    
222,554
  
 
Common stock, $.01 par value, authorized 90,000,000 shares; outstanding: 35,879,170 as of September 30 (exclusive of
    1,291,325 treasury shares) and 29,111,436 as of March 31 (exclusive of 1,281,050 treasury shares)
    
359
    
291
  
 
Additional paid-in capital
    
665,789
    
436,296
  
 
Retained earnings
    
769,061
    
718,493
  
 
Noncontrolling interests
    
9,810
    
11,200
  
 
Accumulated other comprehensive loss
    
(104,693
)
  
(152,454
)
       
1,340,326
    
1,236,380
  
       
$
2,476,390
  
$
2,334,571
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(2008 As Adjusted – Notes 1 and 4)

   
Six Months Ended
September  30,
  
   
2009
  
2008
  
   
(Unaudited)
  
   
(In thousands)
  
Cash flows from operating activities:
              
 
Net income
  
$
57,701
  
$
51,596
  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
              
 
Depreciation and amortization
    
36,656
    
30,440
  
 
Deferred income taxes
    
13,340
    
7,133
  
 
Loss on disposal of discontinued operations
    
—
    
379
  
 
Discount amortization on long-term debt
    
1,462
    
803
  
 
Gain on asset dispositions
    
(10,889
)
  
(5,967
)
 
Gain on Heliservicio investment sale
    
—
    
(1,438
)
 
Stock-based compensation expense
    
6,611
    
4,881
  
 
Equity in earnings from unconsolidated affiliates (in excess of) below dividends received
    
(3,846
)
  
4,499
  
 
Tax benefit related to stock-based compensation
    
(433
)
  
(231
)
Increase (decrease) in cash resulting from changes in:
              
 
Accounts receivable
    
13,707
    
(11,425
)
 
Inventories
    
(13,243
)
  
(10,643
)
 
Prepaid expenses and other assets
    
(10,391
)
  
(2,699
)
 
Accounts payable
    
2,528
    
(5,234
)
 
Accrued liabilities
    
(10,303
)
  
(2,420
)
 
Other liabilities and deferred credits
    
10,709
    
(4,205
)
Net cash provided by operating activities
    
93,609
    
55,469
  
Cash flows from investing activities:
              
 
Capital expenditures
    
(136,145
)
  
(278,543
)
 
Proceeds from asset dispositions
    
71,238
    
17,322
  
 
Acquisitions, net of cash received
    
(178,961
)
  
356
  
Net cash used in investing activities
    
(243,868
)
  
(260,865
)
Cash flows from financing activities:
              
 
Proceeds from borrowings
    
—
    
115,000
  
 
Debt issuance costs
    
—
    
(3,768
)
 
Repayment of debt and debt redemption premiums
    
(8,858
)
  
(3,967
)
 
Partial prepayment of put/call obligation
    
(37
)
  
(82
)
 
Preferred Stock dividends paid
    
(6,325
)
  
(6,325
)
 
Issuance of common stock
    
1,089
    
225,099
  
 
Tax benefit related to stock-based compensation
    
433
    
231
  
Net cash provided by (used in) financing activities
    
(13,698
)
  
326,188
  
Effect of exchange rate changes on cash and cash equivalents
    
6,193
    
(11,787
)
Net increase (decrease) in cash and cash equivalents
    
(157,764
)
  
109,005
  
Cash and cash equivalents at beginning of period
    
300,969
    
290,050
  
Cash and cash equivalents at end of period
  
$
143,205
  
$
399,055
  
Supplemental disclosure of cash flow information:
              
Cash paid during the period for:
              
 
Interest
  
$
22,707
  
$
21,094
  
 
Income taxes
  
$
7,966
  
$
19,628
  
Non-cash investing activities:
              
 
Contribution of note receivable and aircraft to RLR 
  
$
—
  
$
(6,551
)
 
Aircraft received for investment in Heliservicio
  
$
—
  
$
2,410
  

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, 2010 is referred to as fiscal year 2010.  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 2009 Annual Report (the “fiscal year 2009 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, 2009, the consolidated results of operations for the three and six months ended September 30, 2009 and 2008, and the consolidated cash flows for the six months ended September 30, 2009 and 2008.

The following changes in presentation have been reflected in the condensed consolidated statements of income:
Amounts presented for the three and six months ended September 30, 2008 have been restated to conform to current period presentation.
 
We have evaluated subsequent events through the time of filing these condensed consolidated financial statements with the SEC on November 4, 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 2009 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 $0.7 million and ($0.8) million for the three and six months ended September 30, 2009, respectively, and $2.0 million and $1.7 million, for the three and six months ended September 30, 2008, 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.
 
The following table presents applicable exchange rates for the indicated periods:
   
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
   
2009
      
2008
  
2009
    
2008
  
                         
One British pound sterling into U.S. dollars
                        
High
  
1.70
      
2.01
  
1.70
    
2.01
  
Average
  
1.64
      
1.89
  
1.60
    
1.93
  
Low
  
1.59
      
1.75
  
1.44
    
1.75
  
At period-end
  
1.60
      
1.78
  
1.60
    
1.78
  
One euro into U.S. dollars
                        
High
  
1.48
      
1.60
  
1.48
    
1.60
  
Average
  
1.43
      
1.50
  
1.40
    
1.53
  
Low
  
1.39
      
1.39
  
1.29
    
1.39
  
At period-end
  
1.46
      
1.41
  
1.46
    
1.41
  
One Australian dollar into U.S. dollars
                        
High
  
0.88
      
0.98
  
0.88
    
0.98
  
Average
  
0.83
      
0.89
  
0.80
    
0.92
  
Low
  
0.78
      
0.79
  
0.69
    
0.79
  
At period-end
  
0.88
      
0.79
  
0.88
    
0.79
  
One Nigerian naira into U.S. dollars
                        
High
  
0.0069
      
0.0088
  
0.0069
    
0.0088
  
Average
  
0.0066
      
0.0086
  
0.0067
    
0.0086
  
Low
  
0.0063
      
0.0085
  
0.0063
    
0.0085
  
At period-end
  
0.0066
      
0.0086
  
0.0066
    
0.0086
  
_______
 
Sources:  Bank of England and Oanda.com
 
We estimate that the deterioration of these currencies and other currencies versus the U.S. dollar compared to the average exchange rates for the three and six months ended September 30, 2008 had the following unfavorable impact on our results of operations, net of the effect of the derivative contracts discussed in Note 6 (in thousands):
 
 
Three Months Ended
September 30, 2009
    
Six Months Ended
September 30, 2009
  
               
Revenue
$
(17,309
)
  
$
(52,271
)
Operating expense
  
17,807
      
50,231
  
Earnings from unconsolidated affiliates
  
(302
)
    
(774
)
Non-operating expense
  
(237
)
    
(2,103
)
Income before provision for income taxes
  
(41
)
    
(4,917
)
Provision for income taxes
  
11
      
1,395
  
Net income
$
(30
)
  
$
(3,522
)

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

Recent Accounting Pronouncements
 
In December 2007, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard for business combinations.  This accounting standard establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in the business combination or a gain from a bargain purchase, and also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  This accounting standard became effective for business combinations entered into after April 1, 2009 and thereafter.  We applied the provisions of this accounting standard to our acquisition of a 42.5% interest in Líder Aviação Holding S.A. (“Líder”) to the extent applicable to the acquisition of interests in equity method joint ventures.  See Note 2 for further details on the Líder acquisition.
 
On April 1, 2009, we adopted a newly issued accounting standard for noncontrolling interests that establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  This accounting standard changed the accounting and reporting for minority interests by re-characterizing them as noncontrolling interests and classifying them as a component of stockholders’ investment in our condensed consolidated balance sheet and requires net income attributable to both the parent and the noncontrolling interests to be disclosed separately on the face of the condensed consolidated statement of income.  The presentation and disclosure requirements of this new accounting standard require retrospective application to all prior periods presented and also requires enhanced disclosures to clearly distinguish between our interests and the interests of noncontrolling owners.  Upon adoption of this new accounting standard, we have presented the noncontrolling interest as stockholders’ investment on our condensed consolidated balance sheets as of September 30 and March 31, 2009 and presented net income attributable to noncontrolling interests separately on our condensed consolidated statements of income for the three and six months ended September 30, 2009 and 2008.  Prior year amounts were previously included in mezzanine stockholders’ investment and minority interest expense on our consolidated balance sheets and consolidated statements of income, respectively.  The effect as of March 31, 2009 of the adoption of this accounting standard was a reduction in the reported noncontrolling interest in mezzanine equity of $11.2 million, which was subsequently reclassified as a component of stockholders’ investment.  No changes in the ownership interests of these subsidiaries occurred during the six months ended September 30, 2009.
 
On April 1, 2009, we adopted a newly issued accounting standard regarding enhanced disclosures about an entity’s derivative and hedging activities, but does not impact the accounting for such activities.  See Note 6 for further discussion and disclosures.
 
On April 1, 2009, we adopted a newly issued accounting standard regarding convertible debt instruments that may be settled in cash upon conversion.  This accounting standard requires entities with cash settled convertibles to bifurcate the securities into a debt component and an equity component and accrete the debt component to par over the expected life of the convertible.  This accounting standard must be applied retrospectively to all instruments.  In June 2008, we issued 3% Convertible Senior Notes due 2038 (the “3% Convertible Senior Notes”) which are subject to this accounting standard.  See Note 5 to the fiscal year 2009 Annual Report for further discussion of the 3% Convertible Senior Notes.  Effective April 1, 2009, we applied the provisions of this accounting standard, on a retrospective basis, to our consolidated financial statements.  The impact of this accounting standard is provided in Note 4.
 
In April 2009, the FASB issued a new accounting standard regarding interim fair value disclosures for financial instruments.  This accounting standard increases the frequency of fair value disclosures required by previous fair value accounting standards from annual only to quarterly reporting periods.  The requirements of this accounting standard are effective for financial statements issued for interim and annual periods ending after June 15, 2009.  We adopted this accounting standard as of June 30, 2009.  The impact of this accounting standard is provided in Note 5.
 
In June 2009, the FASB issued a new accounting standard regarding subsequent events which requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements.  The requirements of this accounting standard are effective for interim and annual periods ending after June 15, 2009.  We adopted this accounting standard as of June 30, 2009.
 

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

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for transfers of financial assets.  This amendment requires greater transparency and additional disclosures for transfers of financial assets and the entity’s continuing involvement with them and changes the requirements for derecognizing financial assets.  In addition, this amendment eliminates the concept of a qualifying special-purpose entity.  This amendment is effective for us on April 1, 2010 on a prospective basis.  We are currently evaluating the impact of this amendment, if any, on our financial position, cash flows or results of operations.
 
In June 2009, the FASB issued 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 current 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.  This amendment is effective for us on April 1, 2010 on a prospective basis.  We are currently evaluating the impact of this amendment, if any, on our financial position, cash flows or results of operations.
 
NOTE 2 — ACQUISITION
 
On May 26, 2009, we acquired a 42.5% interest in Líder, the largest provider of helicopter and executive aviation services in Brazil, for $179.9 million, including transaction costs incurred in fiscal years 2010 and 2009.  The acquisition was accounted for under the equity method of accounting.  In connection with this transaction, Líder purchased one large and four medium aircraft from us for $55.0 million, resulting in a net cash outlay of $124.9 million.  For the next five years, Bristow has the right to provide 100% of Líder’s helicopter lease requirements as well as the right to lease 50% of Líder’s total medium and large helicopter requirements that it would otherwise fulfill through purchase or finance lease.
 
Additionally, the terms of the purchase agreement include incremental earn-out payments of $8.5 million for each of the next three years and a cumulative earn-out payment up to an additional $27.6 million based on the achievements of growth targets over the next three years.  If fully earned, these payments would total up to $53.1 million.  In connection with the acquisition of our interest in Líder, we entered into a shareholders’ agreement that defines certain rights held by shareholders of Líder. Pursuant to the shareholders’ agreement, we are entitled to appoint one of the five members of Líder’s board of directors and our approval is required for certain actions. The shareholders’ agreement also includes provisions relating to the transfer of Líder shares, including provisions that restrict the sale by us of our Líder shares for three years, provides us with a right of first refusal on certain secondary sales and a tag along right for transfers of shares and requires our consent for an initial public offering by Líder in specified circumstances.
 
NOTE 3 — PROPERTY AND EQUIPMENT
 
During the six months ended September 30, 2009, we received proceeds of $71.2 million from the disposal of 17 aircraft and certain other equipment, resulting in a net gain of $10.9 million.  As of September 30 and March 31, 2009, respectively, we had 13 and 10 aircraft held for sale totaling $14.3 million and $4.4 million, which were classified in prepaid expenses and other current assets in our condensed consolidated balance sheets.
 
Additionally, during the six months ended September 30, 2009, we made final payments in connection with the delivery of three small, four medium, six large and one fixed wing aircraft, and made progress payments on the construction of new aircraft to be delivered in future periods in conjunction with our aircraft commitments (see Note 7) for a total of $113.8 million.  Also, during the six months ended September 30, 2009, we spent $9.9 million to upgrade aircraft within our existing fleet and to customize new aircraft delivered for our operations and $9.3 million for additions to land and buildings.
 

 
8
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

NOTE 4 — DEBT
 
Debt as of September 30 and March 31, 2009 consisted of the following:

 
September 30,
2009
  
March 31,
2009
  
             
7 ½% Senior Notes due 2017, including $0.5 million of unamortized premium
$
350,505
  
$
350,537
  
6 ⅛% Senior Notes due 2013
  
230,000
    
230,000
  
3% Convertible Senior Notes due 2038, including $20.5 million and $21.9 million of unamortized discount, respectively
  
94,530
    
93,067
  
Bristow Norway Debt
  
12,697
    
18,348
  
RLR Note
  
16,663
    
17,215
  
Term loans
  
13,231
    
14,382
  
Other debt
  
135
    
364
  
Total debt 
  
717,761
    
723,913
  
Less short-term borrowings and current maturities of long-term debt
  
(7,918
)
  
(8,948
)
Total long-term debt 
$
709,843
  
$
714,965
  
 
In June 2008, we completed the sale of $115 million of 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.  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.  The following table sets forth the stock price and additional shares by which the applicable conversion rate will be increased upon conversion, subject to the terms discussed above.
 
Market Value of Common Stock
  
Number of Shares of Common
Stock Issued for Each $1,000 principal amount of
3% Convertible Senior Notes
  
Total Number of Common
Stock Issued for 3%
Convertible Senior Notes
  
$46.87 or less
  
21.3356
  
2,453,594
  
Between $46.87 and $169.99
  
12.9308 to 21.3344
  
1,487,032 to 2,453,593
  
$170.00 and above
  
12.9307
  
1,487,031
  
 
The notes will mature on June 15, 2038 and may not be redeemed by us prior to June 15, 2015, after which they may be redeemed at 100% of principal amount plus accrued and unpaid interest.  Holders of the 3% Convertible Senior Notes may require us to repurchase any or all of their notes for cash on June 15, 2015, 2020, 2025, 2030 and 2035, or in the event of a fundamental change, as defined in the indenture for the 3% Convertible Senior Notes (including the delisting of our common stock and certain change of control transactions), at a price equal to 100% of the principal amount plus accrued and unpaid interest.  If a holder elects to convert its notes in connection with certain fundamental changes occurring prior to June 15, 2015, we will increase the applicable conversion rate by a specified number of additional shares of common stock.
 

 
9
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

Prior to April 1, 2009, accounting standards required that we not separately account for the embedded conversion option in the 3% Convertible Senior Notes.  As discussed in Note 1, effective April 1, 2009, we adopted a newly issued accounting standard regarding convertible debt instruments that may be settled in cash upon conversion.  This accounting standard requires that convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) be accounted for with a liability component based on the fair value of a similar nonconvertible debt instrument and an equity component based on the excess of the initial proceeds from the convertible debt instrument over the liability component.  Such excess represents proceeds related to the conversion option and is recorded as accumulated paid in capital.  The liability is recorded at a discount, which is then amortized as additional non-cash interest expense over the convertible debt instrument’s remaining life.  Additionally, this accounting standard requires bifurcation of the debt issuance costs into a component of debt and equity.  Our adoption of this accounting standard has been applied retrospectively to all past periods presented for our 3% Convertible Senior Notes issued in June 2008 which are subject to this accounting standard.
 
Under the provisions of this accounting standard, the following assumptions were made for our 3% Convertible Senior Notes upon adoption:
 
Date of issue
  
June 2008
  
Expected maturity date
  
June 2015
  
Remaining life
  
7 years
  
Effective interest rate
  
6.9%
  
Tax rate over term of debt 
  
35%
  
 
The effect of the adoption of this accounting standard on our consolidated balance sheet as of March 31, 2009 was as follows (in thousands):
 
 
As Previously Reported
  
Effect of Change
  
As Currently Reported
  
Other assets
$
25,590
  
$
(702
)
$
24,888
  
Total debt
  
745,846
    
(21,933
)
  
723,913
  
Deferred income tax liability
  
119,589
    
7,677
    
127,266
  
Additional paid-in capital
  
421,391
    
14,905
    
436,296
  
Retained earnings
  
719,844
    
(1,351
)
  
718,493
  
 
The following information is presented for comparative purposes and illustrates the effect of this accounting standard on our 3% Convertible Senior Notes.  The balances of the liability and equity components as of each period presented are as follows (in thousands):
 
 
September 30,
2009
  
March 31,
 2009
  
Equity component- net carrying value
$
14,905
  
$
14,905
  
Liability component:
            
Face amount due at maturity
$
115,000
  
$
115,000
  
Unamortized discount
  
(20,470
)
  
(21,933
)
Liability component – net carrying value
$
94,530
  
$
93,067
  

 
10
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
The effect of the adoption of this accounting standard on our condensed consolidated statements of income for the three and six months ended September 30, 2008 was as follows (in thousands, except per share amounts):
 
 
Three Months Ended
September 30, 2008
  
Six Months Ended
September 30, 2008
  
 
As Previously Reported
  
Effect of Change
  
As Currently Reported
  
As Previously Reported
  
Effect of Change
  
As Currently Reported
  
Interest expense
$
8,404
  
$
661
  
$
9,065
  
$
16,897
  
$
770
  
$
17,667
  
Income tax expense
  
10,310
    
(241
)
  
10,069
    
20,914
    
(281
)
  
20,633
  
Net income  from continuing operations
  
28,979
    
(420
)
  
28,559
    
52,331
    
(489
)
  
51,842
  
Net income attributable to Bristow
  
27,781
    
(420
)
  
27,361
    
50,430
    
(489
)
  
49,941
  
Diluted earnings per share
  
0.78
    
(0.01
)
  
0.77
    
1.50
    
(0.01
)
  
1.49
  
 
The remaining debt discount is being amortized into interest expense over the expected remaining life of the convertible debt instruments using the effective interest rate.  The effective interest rate for the three and six months ended September 30, 2009 and 2008 was 6.9%.  Interest expense related to our 3% Convertible Senior Notes for the three and six months ended September 30, 2009 and 2008 was as follows (in thousands):
 
 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Contractual coupon interest
 $
863
  
$
863
  
$
1,726
  
$
997
  
Amortization of debt discount
  
737
    
689
    
1,462
    
803
  
Total interest expense
 $
1,600
  
$
1,552
  
$
3,188
  
$
1,800
  
 
NOTE 5 — FAIR VALUE DISCLOSURES
 
Effective April 1, 2009, we adopted a newly issued accounting standard for fair value measurements relating to our nonfinancial assets and liabilities measured on a nonrecurring basis which primarily consist of goodwill, intangible assets and other long-lived assets and assets acquired and liabilities assumed in a business combination.  During the three and six months ended September 30, 2009, there were no triggering events that required fair value measurements of our nonfinancial assets and liabilities.
 
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.

 
11
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
The following table summarizes the financial instruments we held as of September 30, 2009 which are valued at fair value (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, 2009
  
Balance Sheet
Classification
Derivative financial
     instrument asset
  
$
—
    
$
1,027
    
$
—
    
$
1,027
  
Prepaid expenses and
other current assets
Rabbi trust investments
    
3,257
      
—
      
—
      
3,257
  
Other assets
Total assets
  
$
3,257
    
$
1,027
    
$
—
    
$
4,284
      
 
The methods and assumptions used to estimate the fair values of the derivative financial instrument asset 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 is designated as Level 2 within the valuation hierarchy.  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 investments relate to our non-qualified deferred compensation plan for our senior executives as discussed in Note 9 to the fiscal year 2009 Financial Statements.
 
The fair value of our financial instruments has been estimated in accordance with the accounting standard regarding fair value.  The estimated fair value of our total debt as of September 30, 2009 was $687.8 million based on quoted market prices for our publicly listed 7 ½% Senior Notes due 2017, 6 ⅛% Senior Notes due 2013 and 3% Convertible Senior Notes and the carrying value for our other debt, which approximates fair value.  The fair values of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to the short-term nature of these instruments.
 
NOTE 6 — DERIVATIVES
 
As discussed in Note 1, effective April 1, 2009, we adopted a newly issued accounting standard regarding enhanced disclosures about an entity’s derivative and hedging activities, which requires enhanced disclosure of derivatives and hedging activities on: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under the accounting standard regarding accounting for derivative instruments and hedging activities and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.
 
The designation of a derivative instrument as a hedge and its ability to meet relevant hedge accounting criteria determines how the change in fair value of the derivative instrument will be reflected in the condensed consolidated financial statements.  A derivative qualifies for hedge accounting if, at inception, the derivative is expected to be highly effective in offsetting the hedge’s underlying cash flows or fair value and the documentation standards of the accounting standard regarding accounting for derivative instruments and hedging activities are fulfilled at the time we enter into the derivative contract.  A hedge is designated as a cash flow hedge, fair value hedge, or a net investment in foreign operations hedge based on the exposure being hedged.  The asset or liability value of the derivative will change in tandem with its fair value.  Changes in fair value, for the effective portion of qualifying hedges, are recorded in accumulated other comprehensive loss.  The derivative’s gain or loss is released from accumulated other comprehensive loss to match the timing of the effect on earnings of the hedge’s underlying cash flows.
 

 
12
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
We review the effectiveness of our hedging instruments on a quarterly basis.  We recognize current period hedge ineffectiveness immediately in earnings, and we discontinue hedge accounting for any hedge that we no longer consider to be highly effective.  Changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting are recognized in current period earnings.  Upon termination of cash flow hedges, we release gains and losses from accumulated other comprehensive loss based on the timing of the underlying cash flows, unless the termination results from the failure of the intended transaction to occur in the expected timeframe.  Such an untimely occurrence requires us to immediately recognize in earnings gains and losses previously recorded in accumulated other comprehensive loss.
 
None of our derivative instruments contain credit-risk-related contingent features.  Counterparties to our derivative contracts are high credit quality financial institutions.
 
We entered into forward contracts during the six months ended September 30, 2009 and fiscal year 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 three open contracts as of September 30, 2009, which had rates ranging from 1.37 U.S. dollars per euro to 1.54 U.S. dollars per euro.  These contracts had an underlying nominal value of between €11,229,225 and €12,601,875, for a total of €35,398,200, with the first contract expiring in October 2009 and the last in January 2010.  As of September 30, 2009, the fair value of these contracts was an asset of $1.0 million.  As of September 30, 2009, an unrecognized gain of $0.7 million, net of tax, on these contracts is included as a component of accumulated other comprehensive loss.  We had eight open contracts as of March 31, 2009, which had rates ranging from 1.30 U.S. dollars per euro to 1.54 U.S. dollars per euro.  These contracts had an underlying nominal value of between €614,625 and €13,217,175, for a total of €86,894,175, with the first contract expiring in April 2009 and the last in January 2010.  As of March 31, 2009, the fair value of these contracts was a liability of $8.5 million.  As of March 31, 2009, an unrecognized loss of $5.5 million, net of tax, on these contracts is included as a component of accumulated other comprehensive loss.  The derivative asset is included in prepaid expenses and other current assets and the derivative liabilities are included in other accrued liabilities in our condensed consolidated balance sheets.  For the three and six months ended September 30, 2009, we recognized a gain of $1.1 million relating to hedges in our condensed consolidated statements of income as a component of other income, net.  No gains or losses relating to hedges are recognized in our condensed consolidated statements of income for the three and six months ended September 30, 2008.
 
NOTE 7 — COMMITMENTS AND CONTINGENCIES
 
Aircraft Purchase Contracts — As of September 30, 2009, we had 12 aircraft on order and options to acquire an additional 47 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 margin.
 
   
Six Months Ending
March 31,
    
Fiscal Year Ending March 31,
      
   
2010
    
2011
    
2012
    
2013
    
2014
  
Total
Commitments as of September 30, 2009:
                                            
Number of aircraft:
                                            
Medium
    
4
      
3
      
—
      
—
      
—
    
7
Large
    
2
      
3
(1)
    
—
      
—
      
—
    
5
     
6
(2)
    
6
(3)
    
—
      
—
      
—
    
12
Related expenditures (in thousands) (4)
  
$
63,916
    
$
55,057
    
$
—
    
$
—
    
$
—
  
$
118,973
Options as of  September 30, 2009:
                                            
Number of aircraft:
                                            
Small
    
1
      
—
      
—
      
—
      
—
    
1
Medium
    
—
      
—
      
3
      
9
      
15
    
27
Large
    
—
      
—
      
10
      
5
      
4
    
19
     
1
      
—
      
13
      
14
      
19
    
47
Related expenditures (in thousands) (4)
  
$
4,340
    
$
83,270
    
$
257,568
    
$
248,149
    
$
232,110
  
$
825,437

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

(1)
We have agreements which allow us to cancel two large aircraft with delivery dates in fiscal year 2011 and commitments totaling $40.9 million without a termination fee through January 30, 2010 and February 28, 2010.
   
(2)
No signed customer contracts are currently in place for 5 of these 6 aircraft.
   
(3)
No signed customer contracts are currently in place for these 6 aircraft.
   
(4)
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 2010:
 
 
Three Months Ended
  
 
September 30, 2009
    
June 30, 2009
  
 
Orders
    
Options
    
Orders
    
Options
  
Beginning of quarter
  
17
      
47
      
24
      
47
  
Aircraft delivered
  
(4
)
    
—
      
(10
)
    
—
  
Aircraft ordered
  
—
      
—
      
3
      
—
  
Cancelled order
  
(1
)
    
—
      
—
      
—
  
End of quarter
  
12
      
47
      
17
      
47
  
 
As was the case in prior years, we periodically order aircraft for which we have no options.
 
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.
 
During August 2009, the unions representing our national staff in Nigeria were on strike, but have since returned to work while discussions are ongoing.
 
As a result of recently enacted legislation in Australia, effective July 1, 2009, the engineering workforce in Australia gained the right to be represented by a union.  We are currently in consultations about representation arrangements.
 
In March 2009, we announced that in response to the recent worldwide economic downturn we were freezing management salaries and reviewing staffing levels and compensation structures to properly position the Company to meet changing market conditions while maintaining operational safety.  After union consultations in various countries, we have largely completed staffing changes as part of an overall plan to reduce our work force by 5% to 10%.
 
Effective April 30, 2009, an Executive Officer departed the Company.  In connection with the Executive Officer departure, we extended the expiration date of this Executive Officer’s options to purchase common stock to November 17, 2009.
 
During the three and six months ended September 30, 2009, we recognized approximately $0.9 million and $5.1 million, respectively, in compensation expense (inclusive of the expenses recorded for the acceleration of unvested stock options and restricted stock) related to the work force reductions that have occurred to date and the separation between the Company and the Executive Officer.
 

 
14
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 have entered into an agreement with the DOJ that tolls the statute of limitations relating to these matters until the end of December 2009.  We intend to continue to be responsive to the DOJ’s requests.  At this time, it is not possible to predict what the outcome of the DOJ’s investigation into these matters will be for the Company.
 
As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted.  We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in such countries.  It is also possible that we may become subject to claims by third parties, possibly resulting in litigation.
 
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.  We may face further legal action of this type in the future.  The matters identified in the Internal Review and their effects could have a material adverse effect on our business, financial condition or results of operations.
 
As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures.  As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.
 
During prior fiscal years, we incurred a total of $13.6 million in legal and other professional fees related to the Internal Review and related matters.  We have incurred no legal or other professional fees in connection with the Internal Review since fiscal year 2007.  During the three and six months ended September 30, 2009, we incurred approximately $0.5 million and $0.8 million, respectively, in legal and other professional fees in connection with the DOJ investigation relating to the Internal Review.  During the three and six months ended September 30, 2008, we incurred approximately $0.2 million and $0.3 million, respectively, in legal and other professional fees in connection with the DOJ investigation relating to the Internal Review.
 

 
15
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

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.  We believe we have submitted to the DOJ substantially all documents responsive to the subpoena.  We have had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally.  We intend to continue to provide additional information as required by the DOJ in connection with the investigation.  There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred.  The period of time necessary to resolve the DOJ antitrust investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
 
The outcome of the DOJ antitrust investigation and any related legal proceedings in other countries could include civil injunctive or criminal proceedings involving us and/or our current or former employees, officers and/or directors, the imposition of fines and other penalties, remedies and/or sanctions, including potential disbarments, and referrals to other governmental agencies.  In addition, in cases where anti-competitive conduct is found by the government, there is greater likelihood for civil litigation to be brought by third parties seeking recovery.  Any such civil litigation could have serious consequences for our Company, including the costs of the litigation and potential orders to pay restitution or other damages or penalties, including potentially treble damages, to any parties that were determined to be injured as a result of any impermissible anti-competitive conduct.  Any of these adverse consequences could have a material adverse effect on our business, financial condition or results of operations.  The DOJ antitrust investigation, any related proceedings in other countries and any third-party litigation, as well as any negative outcome that may result from the investigation, proceedings or litigation, could also negatively impact our relationships with customers and our ability to generate revenue.
 
During prior fiscal years, we incurred a total of $5.2 million in legal and other professional fees related to this matter.  We have incurred no legal or other professional fees in connection with this matter since fiscal year 2008; however, significant expenditures may continue to be incurred in the future.
 
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 names other providers of offshore helicopter services in the Gulf of Mexico as defendants, alleges violations of Section 1 of the Sherman Act.  Among other things, the complaint alleges 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 seeks to represent a purported class of direct purchasers of offshore helicopter services and is asking for, among other things, unspecified treble monetary damages and injunctive relief.  The Company intends to defend against this lawsuit vigorously.  As this lawsuit is in its initial stage, we are currently unable to determine whether it could have a material affect on our business, financial condition or results of operations. During the six months ended September 30, 2009, we incurred approximately $0.2 million in legal and other professional fees in connection with the class action suit.
 
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 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.
 

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

The EPA has offered to submit a settlement offer to us in return for which we would be recognized as a de minimis party in regard to the Operating Industries Superfund site, but we have not yet received this settlement proposal.  Although we have not obtained a formal release of liability from the EPA with respect to any of these sites, we believe that our potential liability in connection with these sites is not likely to have a material adverse effect on our business, financial condition or results of operations.
 
Guarantees — We have guaranteed the repayment of up to £10 million ($16.0 million) of the debt of FBS Limited, an unconsolidated affiliate.  See discussion of this commitment in Note 3 to our fiscal year 2009 Financial Statements.  Additionally, we provided an indemnity agreement to Afianzadora Sofimex, S.A. to support 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, 2009, surety bonds with an aggregate value of 413 million Mexican pesos ($30.5 million) and surety bonds denominated in U.S. dollars with an aggregate value of $1.2 million were outstanding.  Furthermore, we have received a counter-guarantee from our partner in Heliservicio, for 76% ($24.1 million) of the surety bonds outstanding.  Bristow Norway is also the guarantor under two aircraft leases taken out by a previous subsidiary of Bristow Norway prior to Bristow Norway disposing of that subsidiary and prior to Bristow’s acquisition of the additional 51% of Bristow Norway in October 2008 for the sum of $5.6 million.  The purchaser of that subsidiary is legally subject to an obligation to reimburse Bristow Norway for these guarantees under the terms of the Sale and Purchase Agreement by which that subsidiary was sold.
 
The following table summarizes our commitments under these guarantees, before the benefit of the counter-guarantee from our partner in Heliservicio, as of September 30, 2009 (in thousands):
 
Amount of Commitment Expiration Per Period
Total
  
Remainder of Fiscal Year 2010
  
Fiscal Year
2011
  
Fiscal Years
2012-2013
  
Fiscal Year 2014
and Thereafter
 
$
53,328
    
$
1,909
    
$
4,699
    
$
25,042
    
$
21,678
 
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, results of operations or cash flows.
 
NOTE 8 — TAXES
 
Our effective income tax rates from continuing operations were 25.0% and 26.1% for the three months ended September 30, 2009 and 2008, respectively, and 26.4% and 28.5% for the six months ended September 30, 2009 and 2008.  During the three months ended September 30, 2009, we accrued tax contingency related items totaling $2.0 million and during the three months ended September 30, 2008, we benefited from tax contingency related items totaling $0.3 million.  During the six months ended September 30, 2009, we accrued tax contingency related items totaling $3.3 million and during the six months ended September 30, 2008, we benefited from the contingency related items totaling $0.1 million.  Our effective tax rate was also impacted by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
 
As of September 30, 2009, there were $8.0 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized.  For each of the six months ended September 30, 2009 and 2008, we accrued interest and penalties of $0.3 million in connection with uncertain tax positions.
 
U.S. President Barack Obama recently announced a broad outline of his administration’s proposals to modify certain aspects of the rules governing the U.S. taxation of certain non-U.S. subsidiaries.  Many details of the various proposals remain unknown at this time and any legislation enacting such proposed modifications would require Congressional approval.  However, changes to the U.S. tax law related to taxation of non-U.S. subsidiaries could increase the Company’s effective tax rate.
 

 
17
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 

NOTE 9 — EMPLOYEE BENEFIT PLANS
 
Pension Plans
 
The following table provides a detail of the components of net periodic pension cost:
 
 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
Service cost for benefits earned during the period
$
58
    
$
68
    
$
113
    
$
140
  
Interest cost on pension benefit obligation
  
6,175
      
7,407
      
12,012
      
15,122
  
Expected return on assets
  
(4,840
)
    
(6,692
)
    
(9,413
)
    
(13,661
)
Amortization of unrecognized losses
  
1,149
      
1,232
      
2,234
      
2,515
  
Net periodic pension cost
$
2,542
    
$
2,015
    
$
4,946
    
$
4,116
  
 
We pre-funded our contributions of $14.3 million to our U.K. staff pension plan for the fiscal year ending March 31, 2010 in March 2009.  The current estimate of our cash contributions to our U.K. expatriate and Norwegian pension plans for fiscal year 2010 is $7.6 million, $2.9 million of which was paid during the six months ended September 30, 2009.
 
Incentive Compensation
 
We have a number of incentive and stock option plans which are described in Note 9 to our fiscal year 2009 Financial Statements.
 
Stock-based compensation expense, which includes stock options, restricted stock units and restricted stock, totaled $3.0 million for both the three months ended September 30, 2009 and 2008 and totaled $6.6 million and $4.9 million for the six months ended September 30, 2009 and 2008, respectively.  Stock-based compensation expense has been allocated to our various business units.
 
During the three months ended June 30, 2009, 288,788 stock options were granted at an average exercise price of $32.90 per share.  The key input variables used in valuing these options under the Black Scholes model were: risk-free interest rate of 2.56%; dividend yield of zero; stock price volatility of 52.2%; and expected option lives of 6 years.  Also during the three months ended June 30, 2009, we awarded 187,115 shares of restricted stock at an average grant date fair value of $32.90 per share.  No stock options or restricted stock was awarded during the three months ended September 30, 2009.
 
No compensation expense was recorded related to the performance cash awards during the six months ended September 30, 2009 or 2008.
 

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

NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
 
Preferred Stock — On September 15, 2009 each outstanding share of our 5.50% mandatory convertible preferred stock was converted into 1.418 shares of common stock.  Since there were 4,600,000 shares of mandatory convertible preferred stock outstanding on the conversion date, we issued 6,522,800 shares of common stock upon conversion. For further details, see Note 10 in our fiscal year 2009 Financial Statements.
 
Earnings Per Share — Basic earnings per common share was computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per common share for the three and six months ended September 30, 2009 excluded options to purchase 485,109 and 392,009 shares, respectively, at the weighted average exercise prices of $40.11 and $41.85, respectively, and 341,752 and 351,084 restricted stock units, respectively, at weighted average prices of $37.14 and $37.04, respectively, which were outstanding during the period but were anti-dilutive.  Diluted earnings per common share for the three and six months ended September 30, 2008 excluded options to purchase 406,468 and 395,825 shares, respectively, at the weighted average exercise price of $48.35 for both periods, 416,776 and 418,692 restricted stock units, respectively, at weighted average prices of $37.39 and $37.31, respectively, and 139,279 and zero restricted stock awards, respectively, at weighted average prices of $50.25 and zero, respectively, which were outstanding during the period but were anti-dilutive.  The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
Earnings (in thousands):
                        
Continuing operations:
                        
Income available to common stockholders – basic
$
30,007
  
$
24,444
  
$
50,568
  
$
43,862
  
Preferred stock dividends
  
3,163
    
3,163
    
6,325
    
6,325
  
Interest expense on assumed conversion of 3% Convertible Senior Notes,
    net of tax (1)
  
—
    
—
    
—
    
—
  
Income available to common stockholders – diluted
$
33,170
  
$
27,607
  
$
56,893
  
$
50,187
  
                         
Discontinued operations:
                        
Loss available to common stockholders – basic and diluted
$
—
  
$
(246
)
$
—
  
$
(246
)
Net earnings:
                        
Income available to common stockholders – basic
$
30,007
  
$
24,198
  
$
50,568
  
$
43,616
  
Preferred stock dividends
  
3,163
    
3,163
    
6,325
    
6,325
  
Interest expense on assumed conversion of 3% Convertible Senior Notes, net
    of tax (1)
  
—
    
—
    
—
    
—
  
Income available to common stockholders – diluted
$
33,170
  
$
27,361
  
$
56,893
  
$
49,941
  
Shares:
                        
Weighted average number of common shares outstanding – basic
  
30,490,517
    
29,085,095
    
29,730,649
    
26,941,095
  
Assumed conversion of Preferred stock outstanding during the period (2)
  
5,388,400
    
6,522,800
    
5,952,501
    
6,522,800
  
Assumed conversion of 3% Convertible Senior Notes outstanding during
     the period (1)
  
—
    
—
    
—
    
—
  
Net effect of dilutive stock options and restricted stock units and restricted stock 
     awards based on the treasury stock method
  
222,137
    
28,552
    
223,526
    
22,990
  
Weighted average number of common shares outstanding – diluted
  
36,101,054
    
35,636,447
    
35,906,676
    
33,486,885
  
Basic earnings per common share:
                        
Earnings from continuing operations
$
0.98
  
$
0.84
  
$
1.70
  
$
1.63
  
Loss from discontinued operations
  
—
    
(0.01
)
  
—
    
(0.01
)
Net earnings
$
0.98
  
$
0.83
  
$
1.70
  
$
1.62
  
Diluted earnings per common share:
                        
Earnings from continuing operations
$
0.92
  
$
0.77
  
$
1.58
  
$
1.50
  
Loss from discontinued operations
  
—
    
—
    
—
    
(0.01
)
Net earnings
$
0.92
  
$
0.77
  
$
1.58
  
$
1.49
  
 
 
19
_________
 
(1)
Diluted earnings per common share for each of the three and six months ended September 30, 2009 and 2008 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 Bristow's common stock exceeds the base conversion price, holders will receive up to an additional 8.4049 shares of Bristow 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, 2009 or 2008 as our stock price did not meet or exceed $77.34 per share.

(2)
For the three and six months ended September 30, 2009 and 2008, 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 as previously discussed.
 
NOTE 11 — SEGMENT INFORMATION
 
We conduct our business in one segment: Helicopter Services.  The Helicopter Services segment’s operations are conducted through three divisions:  Western Hemisphere, Eastern Hemisphere and Global Training, and ten business units within those divisions.  Western Hemisphere and Eastern Hemisphere operate through nine of the business units:  U.S. Gulf of Mexico, Arctic, Latin America and Western Hemisphere (“WH”) Centralized Operations within the Western Hemisphere, and Europe, West Africa, Australia, Other International and Eastern Hemisphere (“EH”) Centralized Operations within the Eastern Hemisphere.  Our WH and EH Centralized Operations business units are comprised of our technical services business and other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Western and Eastern Hemisphere business units) and division level expenses.  Bristow Academy is the only business unit within our Global Training division.
 
Beginning on April 1, 2009, there is no longer a Southeast Asia business unit.  Australia is now a separate business unit and Malaysia, China and Vietnam are now included in the Other International business unit.  Amounts presented below for the three and six months ended September 30, 2008 and as of March 31, 2009 have been restated to conform to current period presentation.
 
Additionally, we previously recorded certain cost reimbursement intercompany transactions between the EH Centralized Operations business unit and other business units as intrasegment revenue.  We have reclassified these cost reimbursements from revenue to a reduction in expense.  Amounts presented below for the three and six months ended September 30, 2008 have been restated to conform to current period presentation.
 
As discussed in Note 1, earnings from unconsolidated affiliates which were previously excluded from operating income have been reclassified to be included within operating income and have been allocated to our business units herein.  Amounts presented below for the three and six months ended September 30, 2008 have been restated to conform to current period presentation.
 

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

The tables that follow show reportable segment information for the three and six months ended September 30, 2009 and 2008, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements.
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
Segment gross revenue from external customers:
                                
U.S. Gulf of Mexico
  
$
42,575
    
$
62,491
    
$
87,986
    
$
124,000
  
Arctic
    
6,123
      
6,840
      
10,518
      
11,083
  
Latin America
    
20,786
      
19,051
      
40,345
      
39,257
  
WH Centralized Operations
    
230
      
1,875
      
996
      
3,733
  
Europe
    
113,403
      
97,965
      
227,818
      
193,251
  
West Africa
    
51,452
      
47,010
      
106,269
      
90,310
  
Australia
    
30,333
      
29,226
      
58,496
      
62,339
  
Other International
    
16,221
      
18,127
      
29,548
      
34,385
  
EH Centralized Operations
    
3,343
      
3,535
      
5,647
      
5,702
  
Bristow Academy
    
7,151
      
5,572
      
14,444
      
11,723
  
Corporate
    
(2
)
    
(4
)
    
—
      
28
  
Total segment gross revenue
  
$
291,615
    
$
291,688
    
$
582,067
    
$
575,811
  

Intrasegment gross revenue:
                                
U.S. Gulf of Mexico
  
$
39
    
$
—
    
$
89
    
$
—
  
Arctic
    
—
      
—
      
—
      
—
  
Latin America
    
—
      
—
      
—
      
—
  
WH Centralized Operations
    
561
      
1,034
      
1,280
      
1,436
  
Europe
    
487
      
338
      
1,115
      
482
  
West Africa
    
—
      
—
      
—
      
—
  
Australia
    
—
      
—
      
—
      
—
  
Other International
    
—
      
243
      
108
      
773
  
EH Centralized Operations
    
1,216
      
522
      
2,571
      
670
  
Bristow Academy
    
—
      
—
      
—
      
—
  
Total intrasegment gross revenue
  
$
2,303
    
$
2,137
    
$
5,163
    
$
3,361
  

Consolidated gross revenue reconciliation:
                                
U.S. Gulf of Mexico
  
$
42,614
    
$
62,491
    
$
88,075
    
$
124,000
  
Arctic
    
6,123
      
6,840
      
10,518
      
11,083
  
Latin America
    
20,786
      
19,051
      
40,345
      
39,257
  
WH Centralized Operations
    
791
      
2,909
      
2,276
      
5,169
  
Europe
    
113,890
      
98,303
      
228,933
      
193,733
  
West Africa
    
51,452
      
47,010
      
106,269
      
90,310
  
Australia
    
30,333
      
29,226
      
58,496
      
62,339
  
Other International
    
16,221
      
18,370
      
29,656
      
35,158
  
EH Centralized Operations
    
4,559
      
4,057
      
8,218
      
6,372
  
Bristow Academy
    
7,151
      
5,572
      
14,444
      
11,723
  
Intrasegment eliminations
    
(2,303
)
    
(2,137
)
    
(5,163
)
    
(3,361
)
Corporate
    
(2
)
    
(4
)
    
—
      
28
  
Total consolidated gross revenue
  
$
291,615
    
$
291,688
    
$
582,067
    
$
575,811
  


 
21
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
Consolidated operating income (loss) reconciliation:
                                
U.S. Gulf of Mexico
  
$
5,509
    
$
8,263
    
$
11,749
    
$
16,252
  
Arctic
    
2,085
      
1,900
      
2,690
      
2,419
  
Latin America
    
7,314
      
3,973
      
12,093
      
13,674
  
WH Centralized Operations
    
(4,156
)
    
904
      
(7,365
)
    
228
  
Europe
    
14,172
      
22,211
      
32,950
      
41,677
  
West Africa
    
14,466
      
8,024
      
28,704
      
14,540
  
Australia
    
6,869
      
(1,218
)
    
13,044
      
927
  
Other International
    
6,611
      
3,945
      
9,898
      
7,243
  
EH Centralized Operations
    
2,247
      
(2,243
)
    
(646
)
    
(7,665
)
Bristow Academy
    
723
      
(159
)
    
1,654
      
387
  
Gain on disposal of assets
    
4,880
      
3,302
      
10,889
      
5,967
  
Corporate
    
(7,153
)
    
(6,484
)
    
(17,321
)
    
(13,921
)
Total consolidated operating income (1)
  
$
53,567
    
$
42,418
    
$
98,339
    
$
81,728
  

   
September 30,
    
March 31,
  
   
2009
    
2009
  
   
(In thousands)
  
Identifiable assets:
                
U.S. Gulf of Mexico
  
$
341,934
    
$
345,522
  
Arctic
    
19,337
      
15,584
  
Latin America
    
402,853
      
214,490
  
WH Centralized Operations
    
11,969
      
12,480
  
Europe
    
757,484
      
683,191
  
West Africa
    
334,553
      
269,618
  
Australia
    
291,969
      
175,031
  
Other International
    
111,222
      
110,429
  
EH Centralized Operations
    
34,462
      
30,241
  
Bristow Academy
    
36,674
      
37,961
  
Corporate (2)
    
133,933
      
440,024
  
Total identifiable assets
  
$
2,476,390
    
$
2,334,571
  
__________

(1)
Operating income includes depreciation and amortization expense in the following amounts for the periods presented:

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2009
    
2008
    
2009
    
2008
  
 
(In thousands)
  
U.S. Gulf of Mexico
$
3,491
    
$
2,945
    
$
6,658
    
$
5,902
  
Arctic
  
193
      
202
      
384
      
426
  
Latin America
  
2,022
      
2,024
      
4,568
      
3,954
  
WH Centralized Operations
  
313
      
125
      
620
      
249
  
Europe
  
6,511
      
5,021
      
13,109
      
9,900
  
West Africa
  
2,399
      
2,003
      
4,438
      
4,056
  
Australia
  
1,767
      
1,411
      
3,333
      
2,583
  
Other International
  
848
      
976
      
1,724
      
1,942
  
EH Centralized Operations
  
202
      
152
      
381
      
302
  
Bristow Academy
  
637
      
518
      
1,268
      
929
  
Corporate 
  
87
      
108
      
173
      
197
  
Consolidated total
$
18,470
    
$
15,485
    
$
36,656
    
$
30,440
  

(2)
Includes $107.5 million and $230.1 million of construction in progress within property and equipment on our condensed consolidated balance sheets as of September 30 and March 31, 2009, respectively, which primarily represents progress payments on aircraft to be delivered in future periods.

 
22
BRISTOW GROUP INC. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)
 
 
NOTE 12 — COMPREHENSIVE INCOME
 
Comprehensive income (loss) is as follows:
 
   
Three Months Ended
    
Six Months Ended
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
(In thousands)
  
Net income
  
$
33,710
    
$
28,313
    
$
57,701
    
$
51,596
  
Other comprehensive income (loss):
                                
Currency translation adjustments (1) 
       6,001      
(47,121
)
       38,999      
(43,618
)
Income tax effect attributable to pension liability adjustment as a result of internal reorganization (2)
      
—
      
—
        
—
      
(9,371
)
Unrealized gain (loss) on cash flow hedges (3)
     4,196       
(7,130
)
       8,762      
(7,708
)
Comprehensive income (loss)
  
$
   43,907    
$
(25,938
)
  
$
   105,462    
$
(9,101
)
__________

(1)
 
During the three and six months ended September 30, 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, 2009.  During the three and six months ended September 30, 2008, the U.S. dollar strengthened against the British pound sterling, resulting in translation losses recorded as a component of stockholders’ investment as of September 30, 2008.
   
(2)
On April 1, 2008, we completed an internal reorganization that restructured our holdings in Bristow Aviation Holdings Limited (“Bristow Aviation”) in an effort to simplify our legal entity structure and reduce administrative costs associated with our ownership in Bristow Aviation.  In late March 2008, we completed part of this overall restructuring that resulted in the release of $3.5 million of previously provided U.S. deferred tax on the assets subject to the restructuring.  The additional transactions completed on April 1, 2008 resulted in a charge to other comprehensive income as a result of a reduction of $9.4 million in deferred tax assets associated with our net pension liability; however, these transactions did not result in a material impact on net income.
   
(3)
Net of income tax effect of $2.3 million and $4.7 million for the three and six months ended September 30, 2009, respectively, and $3.8 million and $4.1 million for the three and six months ended September 30, 2008, respectively.

NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
In connection with the sale of our 7 ½% Senior Notes due 2017, 6 ⅛% Senior Notes due 2013 and 3% Convertible Senior Notes, certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”) jointly, severally and unconditionally guaranteed the payment obligations under these notes.  The following supplemental financial information sets forth, on a consolidating basis, the balance sheet, statement of income and cash flow information for Bristow Group Inc. (“Parent Company Only”), for the Guarantor Subsidiaries and for our other subsidiaries (the “Non-Guarantor Subsidiaries”).  We have not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.
 
The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although we believe that the disclosures made are adequate to make the information presented not misleading.  The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenue and expense.
 
The allocation of the consolidated income tax provision was made using the with and without allocation method.
 

 
23
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
    
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, 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
  
$
33,170
    
$
18,960
    
$
17,173
    
$
(36,133
)
  
$
33,170
  

 
24
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
    
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
  
$
56,893
    
$
35,395
    
$
18,587
    
$
(53,982
)
  
$
56,893
  


 
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, 2008

   
Parent
            
Non-
                  
   
Company
    
Guarantor
    
Guarantor
                  
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidated
  
 
(In thousands)
  
Revenue:
                                        
Gross revenue
  
$
42
    
$
91,625
    
$
200,021
    
$
—
    
$
291,688
  
Intercompany revenue
    
—
      
7,116
      
7,374
      
(14,490
)
    
—
  
     
42
      
98,741
      
207,395
      
(14,490
)
    
291,688
  
Operating expense:
                                        
Direct cost
    
556
      
55,761
      
156,757
      
—
      
213,074
  
Intercompany expenses
    
—
      
7,458
      
7,032
      
(14,490
)
    
—
  
Depreciation and amortization
    
106
      
5,694
      
9,685
      
—
      
15,485
  
General and administrative
    
5,351
      
4,596
      
16,037
      
—
      
25,984
  
     
6,013
      
73,509
      
189,511
      
(14,490
)
    
254,543
  
                                         
Gain (loss) on disposal of assets
    
—
      
(431
)
    
22,077
      
(18,344
)
    
3,302
  
Earnings from unconsolidated affiliates, net
    
46,648
      
—
      
2,832
      
(47,509
)
    
1,971
  
Operating income
    
40,677
      
24,801
      
42,793
      
(65,853
)
    
42,418
  
                                         
Interest income
    
21,985
      
25
      
711
      
(19,516
)
    
3,205
  
Interest expense
    
(9,330
)
    
—
      
(19,251
)
    
19,516
      
(9,065
)
Other income (expense), net
    
(1,424
)
    
294
      
3,200
      
—
      
2,070
  
                                         
Income before provision for income taxes
    
51,908
      
25,120
      
27,453
      
(65,853
)
    
38,628
  
Allocation of consolidated income taxes
    
(24,138
)
    
(3,667
)
    
17,736
      
—
      
(10,069
)
Net income from continuing operations
    
27,770
      
21,453
      
45,189
      
(65,853
)
    
28,559
  
Net income attributable to noncontrolling interests
    
(409
)
    
—
      
(543
)
    
—
      
(952
)
Net income attributable to Bristow from continuing
operations
    
27,361
      
21,453
      
44,646
      
(65,853
)
    
27,607
  
Discontinued operations:
                                        
Loss from discontinued operations before provision
for income taxes
    
—
      
(379
)
    
—
      
—
      
(379
)
Benefit for income taxes on discontinued operations
    
—
      
133
      
—
      
—
      
133
  
Loss from discontinued operations
    
—
      
(246
)
    
—
      
—
      
(246
)
Net income attributable to Bristow
  
$
27,361
    
$
21,207
    
$
44,646
    
$
(65,853
)
  
$
27,361
  


 
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, 2008
 
   
Parent
            
Non-
                  
   
Company
    
Guarantor
    
Guarantor
                  
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidated
  
 
(In thousands)
  
Revenue:
                                        
Gross revenue
  
$
73
    
$
180,857
    
$
394,881
    
$
—
    
$
575,811
  
Intercompany revenue
    
—
      
12,589
      
11,806
      
(24,395
)
    
—
  
     
73
      
193,446
      
406,687
      
(24,395
)
    
575,811
  
Operating expense:
                                        
Direct cost
    
596
      
115,214
      
310,304
      
—
      
426,114
  
Intercompany expenses
    
—
      
11,943
      
12,452
      
(24,395
)
    
—
  
Depreciation and amortization
    
173
      
11,406
      
18,861
      
—
      
30,440
  
General and administrative
    
12,504
      
8,927
      
31,759
      
—
      
53,190
  
     
13,273
      
147,490
      
373,376
      
(24,395
)
    
509,744
  
                                         
Gain on disposal of assets
    
—
      
1,532
      
22,779
      
(18,344
)
    
5,967
  
Earnings from unconsolidated affiliates, net
    
95,771
      
3,454
      
7,101
      
(96,632
)
    
9,694
  
Operating income
    
82,571
      
50,942
      
63,191
      
(114,976
)
    
81,728
  
                                         
Interest income
    
42,920
      
90
      
1,162
      
(39,520
)
    
4,652
  
Interest expense
    
(18,182
)
    
—
      
(39,005
)
    
39,520
      
(17,667
)
Other income, net
    
3,256
      
269
      
237
      
—
      
3,762
  
                                         
Income before provision for income taxes
    
110,565
      
51,301
      
25,585
      
(114,976
)
    
72,475
  
Allocation of consolidated income taxes
    
(60,172
)
    
(7,540
)
    
47,079
      
—
      
(20,633
)
Net income from continuing operations
    
50,393
      
43,761
      
72,664
      
(114,976
)
    
51,842
  
Net income attributable to noncontrolling interests
    
(452
)
    
—
      
(1,203
)
    
—
      
(1,655
)
Net income attributable to Bristow from continuing
operations
    
49,941
      
43,761
      
71,461
      
(114,976
)
    
50,187
  
Discontinued operations:
                                        
Loss from discontinued operations before provision
for income taxes
    
—
      
(379
)
    
—
      
—
      
(379
)
Benefits for income taxes on discontinued operations
    
—
      
133
      
—
      
—
      
133
  
Loss from discontinued operations
    
—
      
(246
)
    
—
      
—
      
(246
)
Net income attributable to Bristow
  
$
49,941
    
$
43,515
    
$
71,461
    
$
(114,976
)
  
$
49,941
  


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

Supplemental Condensed Consolidating Balance Sheet
 
As of September 30, 2009
   
Parent
        
Non-
                  
   
Company
  
Guarantor
    
Guarantor
                  
   
Only
  
Subsidiaries
    
Subsidiaries
  
Eliminations
    
Consolidated
  
                 
(In thousands)
                
ASSETS
  
Current assets:
                                        
Cash and cash equivalents
  
$
53,277
    
$
8,316
    
$
81,612
    
$
—
    
$
143,205
  
Accounts receivable
    
13,878
      
66,350
      
172,513
      
(23,554
)
    
229,187
  
Inventories
    
—
      
86,725
      
101,456
      
—
      
188,181
  
Prepaid expenses and other current assets
    
675
      
8,975
      
73,354
      
(43,567
)
    
39,437
  
Total current assets
    
67,830
      
170,366
      
428,935
      
(67,121
)
    
600,010
  
                                         
Intercompany investment
    
947,155
      
94,795
      
135,569
      
(1,177,519
)
    
—
  
Investment in unconsolidated affiliates
    
1,399
      
844
      
202,214
      
—
      
204,457
  
Intercompany notes receivable
    
1,081,841
      
—
      
(186,268
)
    
(895,573
)
    
—
  
Property and equipment – at cost:
                                        
Land and buildings
    
211
      
53,443
      
29,129
      
—
      
82,783
  
Aircraft and equipment
    
9,153
      
722,380
      
1,161,129
      
—
      
1,892,662
  
     
9,364
      
775,823
      
1,190,258
      
—
      
1,975,445
 
Less:  Accumulated depreciation and amortization
    
(1,353
)
    
(134,819
)
    
(238,839
)
    
—
      
(375,011
 ) 
     
8,011
      
641,004
      
951,419
      
—
      
1,600,434
  
Goodwill
    
—
      
4,486
      
42,314
      
—
      
46,800
  
Other assets
    
113,166
      
1,149
      
184,684
      
(274,310
)
    
24,689
  
   
$
2,219,402
    
$
912,644
    
$
1,758,867
    
$
(2,414,523
)
  
$
2,476,390
  
   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
  
Current liabilities:
                                        
Accounts payable
  
$
2,564
    
$
10,209
    
$
51,359
    
$
(10,043
)
  
$
54,089
  
Accrued liabilities
    
14,792
      
28,552
      
107,769
      
(57,780
)
    
93,333
  
Deferred taxes
    
(1,506
)
    
—
      
12,032
      
—
      
10,526
  
Short-term borrowings and currentmaturities of
    long-term debt  
    
3,142
      
—
      
4,776
      
—
      
7,918
  
Total current liabilities
    
18,992
      
38,761
      
175,936
      
(67,823
)
    
165,866
  
                                         
Long-term debt, less current maturities
    
671,893
      
—
      
37,950
      
—
      
709,843
  
Intercompany notes payable 
    
—
      
319,067
      
676,531
      
(995,598
)
    
—
  
Accrued pension liabilities
    
—
      
—
      
97,833
      
—
      
97,833
  
Other liabilities and deferred credits
    
4,002
      
8,403
      
181,761
      
(174,310
)
    
19,856
  
Deferred taxes 
    
106,383
      
6,679
      
29,604
      
—
      
142,666
  
                                         
Stockholders’ investment:
                                        
Common stock
    
359
      
4,996
      
27,847
      
(32,843
)
    
359
  
Additional paid-in-capital
    
665,789
      
18,041
      
470,692
      
(488,733
)
    
665,789
  
Retained earnings 
    
769,061
      
516,697
      
22,697
      
(539,394
)
    
769,061
  
Noncontrolling interests 
    
5,126
      
—
      
4,684
      
—
      
9,810
  
Accumulated other comprehensiveincome (loss)
    
(22,203
)
    
—
      
33,332
      
(115,822
)
    
(104,693
)
     
1,418,132
      
539,734
      
559,252
      
(1,176,792
)
    
1,340,326
  
   
$
2,219,402
    
$
912,644
    
$
1,758,867
    
$
(2,414,523
)
  
$
2,476,390
  


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

 Supplemental Condensed Consolidating Balance Sheet
 
As of March 31, 2009
 
   
Parent
          
Non-
              
   
Company
    
Guarantor
    
Guarantor
            
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidate
  
   
(In thousands)
  
ASSETS
  
Current assets:
                                        
Cash and cash equivalents
  
$
226,691
    
$
5,445
    
$
68,833
    
$
—
    
$
300,969
  
Accounts receivable
    
11,931
      
67,047
      
172,974
      
(35,278
)
    
216,674
  
Inventories
    
—
      
82,422
      
83,016
      
—
      
165,438
  
Prepaid expenses and other current assets
    
1,000
      
6,200
      
30,676
      
(17,650
)
    
20,226
  
Total current assets
    
239,622
      
161,114
      
355,499
      
(52,928
)
    
703,307
  
                                         
Intercompany investment
    
924,815
      
62,990
      
251,960
      
(1,239,765
)
    
—
  
Investment in unconsolidated affiliates
    
1,631
      
150
      
18,484
      
—
      
20,265
  
Intercompany notes receivable
    
835,439
      
—
      
(8,709
)
    
(826,730
)
    
—
  
Property and equipment – at cost:
                                        
Land and buildings
    
212
      
48,770
      
19,979
      
—
      
68,961
  
Aircraft and equipment
    
7,280
      
768,709
      
1,047,022
      
—
      
1,823,011
  
     
7,492
      
817,479
      
1,067,001
      
—
      
1,891,972
  
Less:  Accumulated depreciation andamortization
    
(1,511
)
    
(129,675
)
    
(219,329
)
    
—
      
(350,515
)
     
5,981
      
687,804
      
847,672
      
—
      
1,541,457
  
Goodwill
    
—
      
4,486
      
40,168
      
—
      
44,654
  
Other assets
    
113,735
      
1,151
      
186,726
      
(276,724
)
    
24,888
  
   
$
2,121,223
    
$
917,695
    
$
1,691,800
    
$
(2,396,147
)
  
$
2,334,571
  
   
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
  
Current liabilities:
                                        
Accounts payable
  
$
938
    
$
20,772
    
$
50,230
    
$
(27,048
)
  
$
44,892
  
Accrued liabilities
    
11,458
      
22,703
      
90,594
      
(26,951
)
    
97,804
  
Deferred taxes
    
(1,575
)
    
—
      
7,770
      
—
      
6,195
  
Short-term borrowings and current maturities of
 long-term debt
    
3,040
      
—
      
5,908
      
—
      
8,948
  
Total current liabilities
    
13,861
      
43,475
      
154,502
      
(53,999
)
    
157,839
  
                                         
Long-term debt, less current maturities
    
670,565
      
—
      
44,400
      
—
      
714,965
  
Intercompany notes payable
    
—
      
355,150
      
572,148
      
(927,298
)
    
—
  
Accrued pension liabilities
    
—
      
—
      
81,380
      
—
      
81,380
  
Other liabilities and deferred credits
    
3,340
      
8,567
      
181,964
      
(177,130
)
    
16,741
  
Deferred taxes
    
97,503
      
6,299
      
23,464
      
—
      
127,266
  
                                         
Stockholders’ investment:
                                        
Preferred stock
    
222,554
      
—
      
—
      
—
      
222,554
  
Common stock
    
291
      
4,996
      
9,646
      
(14,642
)
    
291
  
Additional paid-in-capital
    
436,296
      
17,906
      
542,992
      
(560,898
)
    
436,296
  
Retained earnings
    
718,493
      
481,302
      
12,860
      
(494,162
)
    
718,493
  
Noncontrolling interests
    
7,107
      
—
      
4,093
      
—
      
11,200
  
Accumulated other comprehensiveincome (loss)
    
(48,787
)
    
—
      
64,351
      
(168,018
)
    
(152,454
)
     
1,335,954
      
504,204
      
633,942
      
(1,237,720
)
    
1,236,380
  
   
$
2,121,223
    
$
917,695
    
$
1,691,800
    
$
(2,396,147
)
  
$
2,334,571
  

 
29
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
  


 
30
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, 2008

   
Parent
            
Non-
                  
   
Company
    
Guarantor
    
Guarantor
                  
   
Only
    
Subsidiaries
    
Subsidiaries
    
Eliminations
    
Consolidated
  
                 
(In thousands)
                
                                         
Net cash provided by (used in) operating activities
  
$
(103,169
)
  
$
(124,419
)
  
$
184,894
    
$
98,163
    
$
55,469
  
                                         
Cash flows from investing activities:
                                        
Capital expenditures
    
(1,241
)
    
(70,412
)
    
(206,890
)
    
—
      
(278,543
)
Proceeds from asset dispositions
    
—
      
3,232
      
14,090
      
—
      
17,322
  
Acquisition, net of cash received
    
—
      
356
      
—
      
—
      
356
  
                                         
Net cash used in investing activities 
    
(1,241
)
    
(66,824
)
    
(192,800
)
    
—
      
(260,865
)
                                         
Cash flows from financing activities:
                                        
Proceeds from borrowings
    
115,000
      
—
      
—
      
—
      
115,000
  
Debt issuance costs
    
(3,768
)
    
—
      
—
      
—
      
(3,768
)
Repayment of debt and debt redemption premiums 
    
(1,150
)
    
—
      
(2,817
)
    
—
      
(3,967
)
Increases (decreases) in cash related to intercompany
advances and debt
    
(190,325
)
    
192,902
      
95,586
      
(98,163
)
    
—
  
Partial prepayment of put/call obligation
    
(82
)
    
—
      
—
      
—
      
(82
)
Dividends paid
    
12,900
      
—
      
(12,900
)
    
—
      
—
  
Preferred Stock dividends paid
    
(6,325
)
    
—
      
—
      
—
      
(6,325
)
Issuance of common stock
    
225,099
      
—
      
—
      
—
      
225,099
  
Tax benefit related to stock-based compensation
    
231
      
—
      
—
      
—
      
231
  
Net cash provided by financing activities
    
151,580
      
192,902
      
79,869
      
(98,163
)
    
326,188
  
Effect of exchange rate changes on cash and cash equivalents
    
(1,516
)
    
—
      
(10,271
)
    
—
      
(11,787
)
Net increase in cash and cash equivalents
    
45,654
      
1,659
      
61,692
      
—
      
109,005
  
Cash and cash equivalents at beginning of period
    
226,494
      
361
      
63,195
      
—
      
290,050
  
Cash and cash equivalents at end of period
  
$
272,148
    
$
2,020
    
$
124,887
    
$
—
    
$
399,055
  




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, 2009, and the related condensed consolidated statements of income for the three - and six-month periods ended September 30, 2009 and 2008, and the related condensed consolidated statements of cash flows for the six-month periods ended September 30, 2009 and 2008.  These condensed consolidated financial statements are the responsibility of the Company’s management.
 
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
 
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
 
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Bristow Group Inc. and subsidiaries as of March 31, 2009, 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, 2009 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, 2009 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, 2009



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, 2009 (the “fiscal year 2009 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, 2009 and 2008, respectively, and the terms “Current Period” and “Comparable Period” refer to the six months ended September 30, 2009 and 2008, 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, 2010 is referred to as “fiscal year 2010.”
 
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” in the fiscal year 2009 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 renewal and growth strategy;
 


·  
the outcome of the U.S. Department of Justice (“DOJ”) investigation relating to the Internal Review, which is ongoing, has a greater than anticipated financial or business impact; and
 
·  
the outcome of the DOJ antitrust 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 a leading provider of helicopter services to the worldwide offshore energy industry and one of two helicopter service providers to the offshore energy industry with global operations.  We have significant operations in most major offshore oil and gas producing regions of the world, including the North Sea, the U.S. Gulf of Mexico, Nigeria, Australia and Latin America, and we generated 80% of our revenue from international operations during the Current Period.  We have a long history in the helicopter services industry, with our two principal legacy companies, Bristow Helicopters Ltd. and Offshore Logistics, Inc., having been founded in 1955 and 1969, respectively.
 
We conduct our business in one segment:  Helicopter Services.  The Helicopter Services segment’s operations are conducted through three divisions, Western Hemisphere, Eastern Hemisphere and Global Training, and through ten business units within those divisions:
 
·  
Western Hemisphere
 
−  
U.S. Gulf of Mexico
 
−  
Arctic
 
−  
Latin America
 
−  
Western Hemisphere (“WH”) Centralized Operations
 
·  
Eastern Hemisphere
 
−  
Europe
 
−  
West Africa
 
−  
Australia
 
−  
Other International
 
−  
Eastern Hemisphere (“EH”) Centralized Operations
 
·  
Global Training
 
−  
Bristow Academy
 
We provide helicopter services to a broad base of major integrated, national and independent oil and gas companies.  Customers charter our helicopters to transport personnel between onshore bases and offshore platforms, drilling rigs and installations.  A majority of our helicopter revenue is attributable to oil and gas production activities, which have historically provided a more stable source of revenue than exploration and development related activities.  As of September 30, 2009, we operated 378 aircraft (including 337 owned aircraft, 35 leased aircraft and 6 aircraft operated for one of our customers; 13 of the owned aircraft are held for sale) and our unconsolidated affiliates operated or managed 197 aircraft in addition to those aircraft leased from us.  Our Global Training division is approved to provide helicopter flight training to the commercial pilot and flight instructor level by both the U.S. Federal Aviation Administration and the European Joint Aviation Authority.  Bristow Academy, which forms the central core of our Global Training division, operates 76 aircraft (including 56 owned and 20 leased aircraft) and employs 187 people, including 87 flight instructors and 8 ground instructors.  The Global Training division supports, coordinates, standardizes, and in the case of the Bristow Academy schools, directly manages our flight training activities.
 
 
34
 
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, 2009; (2) the number of helicopters which we had on order or under option as of September 30, 2009; and (3) the percentage of gross revenue each of our business units provided during the Current Period.  For additional information regarding our commitments and options to acquire aircraft, see Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
 
Percentage of Current Period Revenue
  
Aircraft in Consolidated Fleet
          
   
Helicopters
                  
   
Small
  
Medium
  
Large
  
Training
  
Fixed   Wing
  
Total
(1)
Unconsolidated Affiliates (2)
  
Total
U.S. Gulf of Mexico
15
 %
  
61
  
26
  
7
  
—
  
—
  
94
  
—
    
94
Arctic
2
 %
  
13
  
2
  
—
  
—
  
1
  
16
  
—
    
16
Latin America
7
 %
  
5
  
31
  
2
  
—
  
—
  
38
  
93
    
131
WH Centralized Operations
—
 %
  
—
  
—
  
—
  
—
  
—
  
—
  
—
    
—
Europe
39
 %
  
—
  
11
  
40
  
—
  
—
  
51
  
—
    
51
West Africa
18
 %
  
12
  
31
  
5
  
—
  
4
  
52
  
—
    
52
Australia
10
 %
  
2
  
10
  
17
  
—
  
—
  
29
  
—
    
29
Other International
5
 %
  
—
  
12
  
10
  
—
  
—
  
22
  
41
    
63
EH Centralized Operations
1
 %
  
—
  
—
  
—
  
—
  
—
  
—
  
63
    
63
Bristow Academy
3
 %
  
—
  
—
  
—
  
75
  
1
  
76
  
—
    
76
Total
100
 %
  
93
  
123
  
81
  
75
  
6
  
378
  
197
    
575
Aircraft not currently in fleet: (3)
                                    
On order
      
—
  
7
  
5
  
—
  
—
  
12
        
Under option
      
1
  
27
  
19
  
—
  
—
  
47
        
_________
 
(1)
Includes 13 aircraft held for sale.
   
(2)
The 197 aircraft operated or managed by our unconsolidated affiliates are in addition to 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.  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 we expect to have the opportunity to expand and deepen our presence in many of these markets.  We anticipate this growth will result primarily from the deployment of new aircraft into markets where we expect they will be most profitably employed, as well as by executing opportunistic acquisitions and investments.  Through our 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 fleet additions.  Our acquisition-related growth may include increasing our role and participation with existing unconsolidated affiliates or investing in new companies, and may include increasing our position in existing markets or expanding into new markets.


·  
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 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 are able to provide our customers with consistent, high-quality service in each of their areas of operation.  By better understanding our customers’ needs and by virtue of our global operations and safety standards, we have effectively competed against other helicopter service providers based on 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.
 
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 continue to be volatile.  Most of our oil company customers reduced capital spending plans in calendar year 2009 versus the prior year, including in many cases deferral of projects, typically by 12 to 18 months.
 
As a result of lower commodity prices and the lack of liquidity in the credit markets, we have seen a reduction in demand for exploration-based flying and a shift in demand to lower cost aircraft in certain of our markets.  This shift to lower cost aircraft has been driven by a combination of perceived aircraft capabilities and customer preferences and not just aircraft size.  While we are cautiously optimistic that the economic conditions will gradually recover, we continue to implement our cost reduction efforts.  We have held pricing firm on existing contracts and continue to work with our clients 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 single markets or customers.
 
Although some of the global demand for our services has softened, the fundamental long-term challenge for our industry is the limitation on supply of new aircraft and the need to retire many of the older aircraft in the industry’s fleet.  Currently manufacturers have some availability for aircraft.  However, we expect constraints on supply of new aircraft to resume.  The aftermarket for sales of our older aircraft has softened, reflecting fewer buyers with available capital, and sale prices have also declined, but to a lesser extent.  We continue to expect to grow our business through the delivery of aircraft on order and potentially through acquisitions and investments, subject to managing through cyclical downturns in the energy industry.  Additionally, during this fiscal year we have invested in Brazil, an emerging market and potential growth area.
 
Since the beginning of fiscal year 2007, we have raised approximately $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 $1.2 billion on capital expenditures to grow our business.  We expect that our cash on deposit as of September 30, 2009 of $143.2 million, cash flow from operations and 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 $119.0 million as of September 30, 2009.  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.  See “Items 1A. Risk Factors” in Part II of our fiscal year 2009 Annual Report for a discussion of some of the risks associated with the continuing financial and credit crisis and worldwide economic downturn.
 


In order to manage our business more prudently during this period, we are taking the following actions:
 
·  
Capital expenditures are being carefully evaluated and prioritized;
 
·  
Management salaries have been frozen; and
 
·  
After union consultations in various countries, we have largely completed staffing changes as part of an overall plan to reduce our work force by 5% to 10% to meet changing market conditions while maintaining operational safety.
 
Results of Operations
 
The following tables present our operating results and other income statement information for the applicable periods:
 
   
Three Months Ended
September 30,
    
Favorable
    
   
2009
    
2008
    
(Unfavorable)
    
   
(Unaudited)
(In thousands, except per share
amounts, percentages and flight hours)
    
Gross revenue:
                                  
Operating revenue
  
$
265,102
    
$
266,956
    
$
(1,854
)
    
(0.7
)
%
Reimbursable revenue
    
26,513
      
24,732
      
1,781
      
7.2
  
%
Total gross revenue
    
291,615
      
291,688
      
(73
)
    
0.0
  
%
Operating expense:
                                  
Direct cost
    
173,392
      
188,393
      
15,001
      
8.0
  
%
Reimbursable expense
    
26,304
      
24,681
      
(1,623
)
    
(6.6
)
%
Depreciation and amortization
    
18,470
      
15,485
      
(2,985
)
    
(19.3
)
%
General and administrative
    
29,686
      
25,984
      
(3,702
)
    
(14.2
)
%
     
247,852
      
254,543
      
6,691
      
2.6
  
%
Gain on disposal of assets  (1)
    
4,880
      
3,302
      
1,578
      
47.8
  
%
Earnings from unconsolidated affiliates, net of
losses (1)
    
4,924
      
1,971
      
2,953
      
149.8
  
%
                                   
Operating income
    
53,567
      
42,418
      
11,149
      
26.3
  
%
Interest income (expense), net
    
(10,430
)
    
(5,860
)
    
(4,570
)
    
(78.0
)
%
Other income, net
    
1,809
      
2,070
      
(261
)
    
(12.6
)
%
Income before provision for income taxes
    
44,946
      
38,628
      
6,318
      
16.4
  
%
Provision for income taxes
    
(11,236
)
    
(10,069
)
    
(1,167
)
    
(11.6
)
%
Net income from continuing operations
    
33,710
      
28,559
      
5,151
      
18.0
  
%
Loss from discontinued operations
    
—
      
(246
)
    
246
      
100.0
  
%
Net income
    
33,710
      
28,313
      
5,397
      
19.1
  
%
Net income attributable to noncontrolling interests
    
(540
)
    
(952
)
    
412
      
43.3
  
%
Net income attributable to Bristow
  
$
33,170
    
$
27,361
    
$
5,809
      
21.2
  
%
                                   
Diluted earnings per common share
  
$
0.92
    
$
0.77
    
$
0.15
      
19.5
  
%
Operating margin  (2)
    
18.4
%
    
14.5
%
    
3.9
%
    
26.9
  
%
Flight hours (3)
    
58,531
      
74,757
      
(16,226
)
    
(21.7
)
%

 



 
   
Six Months Ended
September 30,
    
Favorable
    
   
2009
    
2008
    
(Unfavorable)
    
   
(Unaudited)
(In thousands, except per share
amounts, percentages and flight hours)
    
Gross revenue:
                                  
Operating revenue
  
$
528,595
    
$
525,360
    
$
3,235
      
0.6
  
%
Reimbursable revenue
    
53,472
      
50,451
      
3,021
      
6.0
  
%
Total gross revenue
    
582,067
      
575,811
      
6,256
      
1.1
  
%
Operating expense:
                                  
Direct cost
    
354,069
      
375,366
      
21,297
      
5.7
  
%
Reimbursable expense
    
52,961
      
50,748
      
(2,213
)
    
(4.4
)
%
Depreciation and amortization
    
36,656
      
30,440
      
(6,216
)
    
(20.4
)
%
General and administrative
    
58,488
      
53,190
      
(5,298
)
    
(10.0
)
%
     
502,174
      
509,744
      
7,570
      
1.5
  
%
Gain on disposal of assets (1)
    
10,889
      
5,967
      
4,922
      
82.5
  
%
Earnings from unconsolidated affiliates, net of
losses (1)
    
7,557
      
9,694
      
(2,137
)
    
(22.0
)
%
                                   
Operating income
    
98,339
      
81,728
      
16,611
      
20.3
  
%
Interest income (expense), net
    
(20,220
)
    
(13,015
)
    
(7,205
)
    
(55.4
)
%
Other income, net
    
328
      
3,762
      
(3,434
)
    
(91.3
)
%
Income before provision for income taxes
    
78,447
      
72,475
      
5,972
      
8.2
  
%
Provision for income taxes
    
(20,746
)
    
(20,633
)
    
(113
)
    
(0.5
)
%
Net income from continuing operations
    
57,701
      
51,842
      
5,859
      
11.3
  
%
Loss from discontinued operations
    
—
      
(246
)
    
246
      
100.0
  
%
Net income
    
57,701
      
51,596
      
6,105
      
11.8
  
%
Net income attributable to noncontrolling interests
    
(808
)
    
(1,655
)
    
847
      
51.2
  
%
Net income attributable to Bristow
  
$
56,893
    
$
49,941
    
$
6,952
      
13.9
  
%
                                   
Diluted earnings per common share
  
$
1.58
    
$
1.49
    
$
0.09
      
6.0
  
%
Operating margin (2)
    
16.9
%
    
14.2
%
    
2.7
%
    
19.0
  
%
Flight hours (3)
    
118,458
      
150,211
      
(31,753
)
    
(21.1
)
%
_________
 
(1)
Gain on disposal of assets which was previously included within operating expense has been reclassified in this Quarterly Report to be included as a separate line below operating expense, but still within operating income.  Earnings from unconsolidated affiliates which were previously included in non-operating income have been reclassified in this Quarterly Report to be included within operating income.  Amounts presented for the Comparable Quarter and Comparable Period have been restated to conform to Current Quarter and Current Period presentation.  See Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for further discussion of these changes in presentation.
   
(2)
Operating margin is calculated as operating income divided by gross revenue.
   
(3)
Excludes flight hours from Bristow Academy and unconsolidated affiliates.
 

 


 
Current Quarter Compared to Comparable Quarter
 
Gross revenue in the Current Quarter was substantially unchanged from the Comparable Quarter despite an increase in revenue from our October 31, 2008 acquisition of the 51% interest in Bristow Norway that we did not previously own, which added $33.1 million in revenue, and increases in rates charged to customers.  The items offsetting this increase were decreases in revenue in the U.S. Gulf of Mexico as a result of the sale of 53 small aircraft and related inventory, spare parts, and offshore fuel equipment operating in the U.S. Gulf of Mexico (the “GOM Asset Sale”), the impact of a stronger U.S. dollar versus the British pound sterling and Australian dollar on revenue for our Europe and Australia business units and a decrease in fuel costs rebilled to our customers.
 
Operating expense decreased primarily due to a reduction in operating costs in the U.S. Gulf of Mexico resulting from the GOM Asset Sale, a decrease in global fuel costs, a significant decrease in costs within our Australia business unit and the impact of exchange rate changes, partially offset by the addition of $30.4 million in expense from Bristow Norway and increases in depreciation expense resulting from the addition of new aircraft.  Additionally, operating expense in the Current Quarter was reduced by the reversal of a $2.5 million bad debt reserve in Kazakhstan in our Other International business unit.
 
Operating income improved in the Current Quarter primarily as a result of improved results in West Africa and Australia, the reversal of the bad debt reserve in Kazakhstan and a $3.0 million increase in earnings from unconsolidated affiliates, partially offset by decreased operating income in certain other business units, including Europe and the U.S. Gulf of Mexico.  The Current Quarter includes earnings from our recent investment in Líder Aviação Holding S.A. (“Líder”) of $1.5 million as well as an increase in earnings from Heliservicio Campeche S.A. de C.V. (“Heliservicio”) of $2.0 million, which were partially offset by decreased earnings from our other unconsolidated affiliates.  See further discussion of Líder and Heliservicio included in “– Business Unit Operating Results – Current Quarter Compared to Comparable Quarter – Latin America”.
 
Net income and diluted earnings per common share for the Current Quarter were affected by the items discussed above affecting operating income, a $4.6 million increase in interest expense, net and a $2.1 million increase in our provision for income taxes ($0.06 per share) resulting from $2.0 million in tax contingency items and $0.1 million in changes in our valuation allowance for foreign tax credit utilization.  See further discussion in “– Business Unit Operating Results – Current Quarter Compared to Comparable Quarter – Interest Expense, Net” and in “– 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 our October 31, 2008 acquisition of the 51% interest in Bristow Norway that we did not previously own, increases in rates charged to customers and increased reimbursable revenue.  The acquisition of Bristow Norway increased revenue by $64.7 million from the Comparable Period to the Current Period.  These increases were partially offset by decreases in revenue in the U.S. Gulf of Mexico resulting from the GOM Asset Sale and lower demand for services, the impact of a stronger U.S. dollar versus the British pound sterling and Australian dollar on revenue for our Europe and Australia business units and a decrease in fuel costs rebilled to our customers.
 
Operating expense decreased primarily due to a reduction in operating costs in the U.S. Gulf of Mexico resulting from the GOM Asset Sale, a decrease in global fuel costs, a significant decrease in costs within our Australia business unit and the impact of exchange rate changes, partially offset by the addition of $59.7 million in expense from Bristow Norway and increases in depreciation expense resulting from the addition of new aircraft.  Additionally, operating expense in the Current Period was reduced by the reversal of a $2.5 million bad debt reserve in Kazakhstan in our Other International business unit.  General and administrative expense increased primarily from the separation between the Company and an Executive Officer that resulted in $3.1 million of additional compensation expense during the Current Period.
 
Operating income improved in the Current Period primarily as a result of improved results in West Africa and Australia, the reversal of the bad debt reserve in Kazakhstan and an increase in the gain on disposal of assets of $4.9 million, partially offset by decreased operating income in certain other business units, including Europe and the U.S. Gulf of Mexico.
 


Net income and diluted earnings per common share for the Current Period were affected by the items affecting operating income, a $7.2 million increase in interest expense, net and a $4.3 million increase in our provision for income taxes ($0.12 per share) resulting from $3.3 million in tax contingency items and $1.0 million in changes in our valuation allowance for foreign tax credit utilization.  See further discussion in “– Business Unit Operating Results – Current Period Compared to Comparable Period – Interest Expense, Net”  and in “– Business Unit Operating Results – Current Period Compared to Comparable Period – Taxes.”  
 
Our results for the Current Period were unfavorably impacted by the strengthening of the U.S. dollar versus other foreign currencies (primarily the British pound sterling and Australian dollar), which resulted in a decrease in operating income of $2.8 million, net income of $3.6 million and diluted earnings per common share of $0.10.  These decreases are reflected in our results for Europe and Australia and in other income, net (driven by a decrease in foreign currency transaction gains, net of hedging impact), partially offset by an increase in results for West Africa.  See further discussion in “—Business Unit operating Results – Current Period Compared to Comparable Period – Other Income, Net.”
 
Business Unit Operating Results
 
The following discussion sets forth certain operating information for the ten 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 April 1, 2009, there is no longer a Southeast Asia business unit.  Australia is now a separate business unit and Malaysia, China and Vietnam are now included in the Other International business unit.  Amounts presented below for the Comparable Quarter and Comparable Period have been restated to conform to Current Quarter and Current Period presentation.
 
Additionally, we previously recorded certain cost reimbursement intercompany transactions between the EH Centralized Operations business unit and other business units as intrasegment revenue.  We have reclassified these cost reimbursements from revenue to a reduction in expense.  Amounts presented below for the Comparable Quarter and Comparable Period have been restated to conform to Current Quarter and Current Period presentation.
 
As discussed in Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, earnings from unconsolidated affiliates which were previously included in non-operating income have been reclassified to be included within operating income and have been allocated to our business units herein.  Amounts presented below for the Comparable Quarter and Comparable Period have been restated to conform to Current Quarter and Current Period presentation.
 
Current Quarter Compared to Comparable Quarter
 
Set forth below is a discussion of the operations of our business units.  Our consolidated results are discussed under “Results of Operations” above.
 
U.S. Gulf of Mexico
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
42,614
    
$
62,491
    
$
(19,877
)
    
(31.8
)%
Operating expense
  
$
37,105
    
$
54,228
    
$
17,123
      
31.6
 %
Operating margin
    
12.9
%
    
13.2
%
    
(0.3
)%
 
  
(2.3
)%
Flight hours
    
18,372
      
34,891
      
(16,519
)
    
(47.3
)%
 
The decrease in flight hours, gross revenue and operating expense is primarily due to the GOM Asset Sale as well as an overall decrease in activity resulting from a decline in the demand for aircraft in this market.  The GOM Asset Sale resulted in a decrease in revenue and flight hours of $10.1 million and 11,904, respectively.  Additionally, both revenue and operating expense decreased as a result of a decrease in fuel costs, which are generally recovered from our customers, due to a combination of a decrease in fuel price and lower flight hours.  Operating margin was favorably impacted by the GOM Asset Sale resulting in a shift in the mix of aircraft type utilized towards more medium and large aircraft, which earn higher rates.  Despite the favorable impact, operating margin remained flat in this market due to the decline in demand discussed above.
 


Arctic
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
6,123
    
$
6,840
    
$
(717
)
    
(10.5
)%
Operating expense
  
$
4,038
    
$
4,940
    
$
902
      
18.3
 %
Operating margin
    
34.1
%
    
27.8
%
    
6.3
  % 
 
  
22.7
 %
Flight hours
    
2,843
      
3,695
      
(852
)
    
(23.1
)%
 
Although Arctic flight hours decreased 23.1% from the Comparable Quarter, gross revenue decreased only slightly primarily due to a shift in fleet mix.
 
Operating expenses decreased due to decreases in maintenance, fuel, salaries and reimbursable expenses as a result of the reduction in flight activity.  The operating margin improvement related to the fleet mix shift coupled with several cost savings initiatives implemented during the Current Quarter.  As in prior fiscal years, we anticipate the results of this business unit to be lower during the three months ending December 31, 2009 and March 31, 2010 as a result of lower winter activity levels.
 
Latin America
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
20,786
    
$
19,051
    
$
1,735
      
9.1
 %
Operating expense
  
$
16,371
    
$
14,498
    
$
(1,873
)
    
(12.9
)%
Earnings (loss) from unconsolidated affiliates  
  
$
2,899
    
$
(580
)
  
$
3,479
      
*
  
Operating margin
    
35.2
%
    
20.9
%
    
14.3
  %
 
  
68.4
 %
Flight hours
    
9,228
      
9,595
      
(367
)
    
(3.8
)%
______
 
* percentage change not meaningful
 
Gross revenue and operating expense increased primarily due to additional contracts in Mexico and increased activity in Brazil partially offset by decreased activity in Trinidad.
 
Earnings (loss) from unconsolidated affiliates improved primarily due to the addition of $1.5 million of earnings in the Current Quarter from our investment in Líder on May 26, 2009.  Additionally, our investment in Heliservicio generated $1.4 million of equity earnings in the Current Quarter versus equity losses of $0.6 million in the Comparable Quarter.
 
WH Centralized Operations
 
   
Three Months Ended
September 30,
      
Favorable
  
   
2009
  
  
2008
      
(Unfavorable)
  
     
(In thousands, except percentages)
  
Gross revenue
  
$
791
    
$
2,909
    
$
(2,118
)
    
(72.8
)%
Operating expense
    
4,947
      
2,005
      
(2,942
)
    
(146.7
)%
Operating income (loss)
  
$
(4,156
)
  
$
904
    
$
(5,060
)
    
(559.7
)%
 
Our WH Centralized Operations business unit is comprised of our technical services business, other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Western Hemisphere business units) and division level expenses.  Operating expense reflects costs associated with other support services net of the related charges to the other Western Hemisphere business units.
 

 
Gross revenue for WH Centralized Operations, which consists entirely of technical services revenue, decreased as a result of a reduction in part sales.
 
Operating expense for WH Centralized Operations increased primarily due to lower recovery of maintenance expense from our other Western Hemisphere business units as a result of reduced flight activity.
 
Europe
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
113,890
    
$
98,303
    
$
15,587
      
15.9
 %
Operating expense
  
$
99,747
    
$
76,334
    
$
(23,413
)
    
(30.7
)%
Earnings from unconsolidated affiliates
  
$
29
    
$
242
    
$
(213
)
    
(88.0
)%
Operating margin
    
12.4
%
    
22.6
%
    
(10.2
)%
 
  
(45.1
)%
Flight hours
    
14,242
      
10,265
      
3,977
      
38.7
 %
 
Gross revenue and flight hours for Europe increased during the Current Quarter primarily as a result of the consolidation of Bristow Norway effective October 31, 2008 ($33.1 million and 4,377 hours, respectively), partially offset by the unfavorable impact of exchange rate changes as the U.S. dollar was stronger in the Current Quarter versus the Comparable Quarter and a lower level of contractual escalation billings in the Current Quarter.
 
Operating expense for Europe increased primarily due to the consolidation of Bristow Norway ($30.4 million).  This increase in operating expense was partially offset by the impact of exchange rate changes.  As a result of the consolidation of Bristow Norway, which earned a lower operating margin than the remainder of the Europe business unit, and a lower level of contractual escalation billings, operating margin for Europe decreased compared to the Comparable Quarter.
 
We are continuing to integrate Bristow Norway into our Europe business unit, including administrative and operating activities.  The future operating results and operating margins for Europe, including Bristow Norway, are expected to improve as a result of this integration.
 
West Africa
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
51,452
    
$
47,010
    
$
4,442
      
9.4
 %
Operating expense
  
$
36,986
    
$
38,986
    
$
2,000
      
5.1
 %
Operating margin
    
28.1
%
    
17.1
%
    
11.0
 %
 
  
64.3
 %
Flight hours 
    
8,470
      
9,647
      
(1,177
)
    
(12.2
)%
 
Flight hours for West Africa decreased as a result of a decrease in demand for aircraft in this market by certain existing customers, partially offset by the addition of one new contract and ad hoc work.  Despite the decrease in flight hours, gross revenue increased due to rate escalations under existing contracts and higher rates earned on the new contract and ad hoc work.
 
The decrease in operating expense was primarily a result of a favorable impact of exchange rate changes as the U.S. dollar was stronger versus the Nigerian naira and the British pound sterling in the Current Quarter versus the Comparable Quarter, which contributed to increased operating margin.  Operating margin for West Africa was also favorably impacted by higher rates.  Excluding the impact of exchange rate changes, the operating margin for West Africa was 21.6% in the Current Quarter.
 
We experience periodic disruption to our operations related to civil unrest and violence.  During August 2009, the unions representing our national staff in Nigeria were on strike, but have since returned to work while discussions are ongoing.  These factors have made and are expected to continue to make our operating results from Nigeria unpredictable.

Australia
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
30,333
    
$
29,226
    
$
1,107
      
3.8
 %
Operating expense
  
$
23,464
    
$
30,444
    
$
6,980
      
22.9
 %
Operating margin
    
22.6
%
    
(4.2
)%
    
26.8
  %
 
  
*
  
Flight hours
    
2,794
      
3,813
      
(1,019
)
    
(26.7
)%
_____
 
* percentage change not meaningful
 
Flight hours for Australia decreased primarily due to a reduction in flying by a major customer and termination of contracts by two other customers, which were partially offset by new contracts.  Despite the decrease in flight hours, gross revenue increased due to higher rates earned on the new contracts and an increase in reimbursable revenue, partially offset by foreign currency translation effects of the Australian dollar versus the U.S. dollar in the Current Quarter compared to the Comparable Quarter.
 
Operating expense decreased primarily due to decreased activity resulting in a decrease in salaries and benefits, maintenance expense, fuel, travel and training expenses and the impact of changes in exchange rates.  During the Comparable Quarter, we incurred salary, maintenance and other costs on aircraft that were not fully operational as a result of delays in planned contracts, unscheduled maintenance and re-positioning of aircraft.  Additionally, compensation costs for the Comparable Quarter included adjustments to employee tax and leave accruals related to prior periods totaling $1.8 million.
 
Other International
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
16,221
    
$
18,370
    
$
(2,149
)
    
(11.7
)%
Operating expense
  
$
9,603
    
$
14,510
    
$
4,907
      
33.8
 %
Earnings from unconsolidated affiliates 
  
$
(7
) 
  
$
85
    
$
(92
)
    
(108.2
)%
Operating margin
    
40.8
%
    
21.5
%
    
19.3
  %
 
  
89.8 
 %
Flight hours
    
2,582
      
2,851
      
(269
)
    
(9.4
)%
 
Gross revenue for Other International decreased primarily due to a decrease in revenue in Mauritania (due to the non renewal of a contract) and Turkmenistan (due to ending of a short-term contract) partially offset by increases in revenue in Libya and Ghana (due to new contracts) and in Kazakhstan (due to an increase in rates).
 
Operating expense decreased primarily due to the reversal of a bad debt provision in Kazakhstan of $2.5 million during the Current Quarter, a reduction in costs in Mauritania (due to the non renewal of a contract) and the impact of exchange rate changes.  Additionally, during the Comparable Quarter we incurred increased maintenance costs in Kazakhstan.  These decreases were partially offset by increase in costs in Libya and Ghana (due to new contracts).  The decrease in operating expense in these markets resulted in the increase in operating margin for Other International.
 
 
We currently lease two aircraft to our Kazakhstan joint venture, Atyrau Bristow Air Services (“ABAS”).  These aircraft have previously been operated in Kazakhstan by ABAS on the air operating certificate (“AOC”) of our partner in this joint venture.  Our partner’s AOC expired in mid-October 2009 and was not renewed.  As a result, our aircraft have been grounded in Kazakhstan since mid-October 2009.  Therefore, we are in discussions with other AOC holders in Kazakhstan under whose AOC we can operate our aircraft in this market.  Although talks continue, our ability to agree on such an arrangement with another AOC holder is currently uncertain.  If we are not ultimately able to agree on an arrangement to operate under a new AOC, neither we nor ABAS will be able to operate in this market, which will result in a reduction in revenue and operating income.  During the Current Period,  we had revenue from our operations in Kazakhstan totaling $6.6 million and operating income totaling $4.8 million. 
 
EH Centralized Operations
 
   
Three Months Ended
September 30,
    
Favorable
  
   
2009
    
2008
    
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
4,559
    
$
4,057
    
$
502
      
12.4
 %
Operating expense
    
4,315
      
8,524
      
4,209
      
49.4
 %
Earnings from unconsolidated affiliates
    
2,003
      
2,224
      
(221
)
    
(9.9
)%
Operating income (loss)
  
$
2,247
    
$
(2,243
) 
  
$
4,490
      
200.2
 %
 
Our EH Centralized Operations business unit is comprised of our technical services business, other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Eastern Hemisphere business units) and division level expenses.  Operating expense reflects costs associated with other support services net of the related charge to the other Eastern Hemisphere business units.
 
Gross revenue for EH Centralized Operations increased as a result of an increase in spare part and workorder sales.
 
Operating expense decreased from the Comparable Quarter primarily due to an increase in maintenance and overhead allocations to other business units as well as less exposure to the impact of changes in foreign exchange rates as the result of allocating these foreign exchange exposures to the other business units.
 
Earnings from unconsolidated affiliates decreased due to the stronger U.S. dollar during the Current Quarter compared to the Comparable Quarter.
 
Bristow Academy
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
  
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
7,151
    
$
5,572
    
$
1,579
      
28.3
 %
Operating expense
  
$
6,428
    
$
5,731
    
$
(697
)
    
(12.2
)%
Operating margin
    
10.1
%
    
(2.9
)%
    
13.0
  %
 
  
*
  
_____
 
* percentage change not meaningful
 
Gross revenue for Bristow Academy increased primarily as a result of increased military training.
 
Operating expense increased primarily due to increased business volume as well as costs of operating additional aircraft.  The operating margin improved due to the fact that the military training contracts yield a higher margin of return.  During the Current Quarter, approximately 50 pilots graduated from Bristow Academy and we hired 9 graduates as instructors at Bristow Academy.

 
Corporate
 
   
Three Months Ended
September 30,
    
Favorable
  
   
2009
    
2008
    
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
(2
)
  
$
(4
)
  
$
2
      
50.0
 %
Operating expense
    
7,151
      
6,480
      
(671
)
    
(10.4
)%
Operating loss
  
$
(7,153
) 
  
$
(6,484
) 
  
$
(669
)
    
(10.3
)%
 
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 increased slightly from the Comparable Quarter due to higher legal and professional fees associated with the DOJ investigation relating to the Internal Review and the Civil Class Action Lawsuit.  For further details on our commitments and contingencies, see Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Interest Expense, Net
 
   
Three Months Ended
September 30,
    
Favorable
  
   
2009
    
2008
    
(Unfavorable)
  
   
(In thousands, except percentages)
  
Interest income
  
$
210
    
$
3,205
    
$
(2,995
)
    
(93.4
)%
Interest expense
    
(11,325
)
    
(11,366
)
    
41
      
0.4
 %
Amortization of debt discount
    
(737
)
    
(689
)
    
(48
)
    
(7.0
)%
Amortization of debt fees
    
(497
)
    
(499
)
    
2
      
0.4
 %
Capitalized interest
    
1,919
      
3,489
      
(1,570
)
    
(45.0
)%
Interest expense, net
  
$
(10,430
)
  
$
(5,860
) 
  
$
(4,570
)
    
(78.0
)%

Interest income decreased as a result of our shift in cash from higher yielding investments to lower yielding, U.S. government investments in response to the condition of global financial markets as well as lower levels of cash and cash equivalents available for investment.  Capitalized interest decreased due to a decrease in the average amount of construction in progress during the Current Quarter.

Other Income, Net
 
   
Three Months Ended
September 30,
    
Favorable
  
   
2009
    
2008
    
(Unfavorable)
  
   
(In thousands, except percentages)
  
Foreign currency gains
  
$
677
    
$
2,049
    
$
(1,372
)
    
(67.0
)%
Other
    
1,132
      
21
      
1,111
      
*
  
Total
  
$
1,809
    
$
2,070
    
$
(261
)
    
(12.6
)%
_____
 
* percentage change not meaningful
 
The decrease in foreign currency gains 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.  Other income, net includes $1.1 million of hedging gains realized during the Current Quarter due to termination of a forward contract on a euro-denominated aircraft purchase commitment.  For further details on our derivative contracts, see Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.

 
Taxes
 
   
Three Months Ended
September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Effective tax rate for continuing operations
    
25.0
%
    
26.1
%
    
1.1
%
    
4.2
 %
Net foreign tax on non-U.S. earnings
  
$
3,697
    
$
3,732
    
$
35
      
0.9
 %
Tax on foreign earnings indefinitely
     reinvested abroad
    
(10,697
)
    
(13,001
)
    
(2,304
)
    
(17.7
)%
Increase (decrease) in valuation allowance for
     foreign tax credit utilization
    
93
      
(21
)
    
(114
)
    
*
 
Expense (benefit) from change in tax contingency
    
1,982
      
(301
) 
    
(2,283
)
    
*
  
_____
 
* percentage change not meaningful
 
Our effective tax rate for the Current Quarter and Comparable Quarter was reduced by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
 
Discontinued operations
 
Discontinued operations for the Comparable Quarter incurred $0.2 million after-tax loss.  The $0.2 million after-tax loss resulted from purchase price adjustments from the sale of Grasso Production Management (“Grasso”).
 
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.
 
U.S. Gulf of Mexico
 
   
Six Months Ended September 30,
    
Favorable
  
   
2009
    
2008
    
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
88,075
    
$
124,000
    
$
(35,925
)
    
(29.0
)%
Operating expense
  
$
76,326
    
$
107,748
    
$
31,422
      
29.2
 %
Operating margin
    
13.3
%
    
13.1
%
    
0.2
  %
 
  
1.5
 %
Flight hours
    
38,141
      
72,530
      
(34,389
)
    
(47.4
)%
 
The decrease in flight hours, gross revenue and operating expense is primarily due to the GOM Asset Sale as well as an overall decrease in activity resulting from a decline in the demand for aircraft in this market.  The GOM Asset Sale resulted in a decrease in revenue and flight hours of $21.5 million and 25,701, respectively.  Additionally, both revenue and operating expense decreased as a result of a decrease in fuel costs, which are generally recovered from our customers, due to a combination of a decrease in fuel price and lower flight hours.  Operating margin was favorably impacted by the GOM Asset Sale resulting in a shift in the mix of aircraft type utilized towards more medium and large aircraft, which earn higher rates.  Despite the favorable impact, operating margin remained flat in this market due to the decline in demand discussed above.
 
 
46
Arctic
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
10,518
    
$
11,083
    
$
(565
)
    
(5.1
)%
Operating expense
  
$
7,828
    
$
8,664
    
$
836
      
9.6
 %
Operating margin
    
25.6
%
    
21.8
%
    
3.8
%
    
17.4
 %
Flight hours
    
5,191
      
6,132
      
(941
)
    
(15.3
)%
 
Although Arctic flight hours decreased 15.3% from the Comparable Period, gross revenue decreased only slightly primarily due to a shift in fleet mix.
 
Operating expenses decreased due to decreases in maintenance, fuel, salaries and reimbursable expenses as a result of the reduction in flight activity.  The operating margin improvement related to the fleet mix shift coupled with several cost savings initiatives implemented during the Current Period.
 
Latin America
 
   
Six Months Ended
September 30,
    
Favorable
    
   
2009
    
2008
    
(Unfavorable)
    
   
(In thousands, except percentages and flight hours)
    
Gross revenue
  
$
40,345
    
$
39,257
    
$
1,088
      
2.8
  
%
Operating expense
  
$
31,943
    
$
28,229
    
$
(3,714
)
    
(13.2
)
%
Earnings from unconsolidated affiliates
  
$
3,691
    
$
2,646
    
$
1,045
      
39.5
  
%
Operating margin
    
30.0
%
    
34.8
%
    
(4.8
)%
 
  
(13.8
)
%
Flight hours
    
17,860
      
18,134
      
(274
)
    
(1.5
)
%
 
Gross revenue for Latin America increased primarily due to additional contracts in Mexico and increased activity in Brazil offset by decreased demand for services in Trinidad.  During the Comparable Period, we restructured our ownership interests in certain joint ventures which resulted in several changes effective April 1, 2008, including the consolidation of RLR, return to the accrual basis of accounting for revenue recognition with Heliservicio and application of the equity method of accounting to our investment in Heliservicio.  Collectively these transactions are referred to as the Mexico Reorganization.
 
Operating expense for Latin America increased primarily due to increased activity in Mexico and Brazil offset by a decrease in operating expense for Trinidad as a result of decreased activity in that market.  Although revenue in Trinidad has decreased significantly, we are still incurring some fixed operating costs which contributed to the decreased operating margin for this business unit compared to the Comparable Period.  The decrease in operating margin was also driven by the Mexico Reorganization in the Comparable Period, which resulted in additional operating income during that period.
 
Earnings from unconsolidated affiliates increased primarily due to the addition of $3.0 million of earnings from our investment in Líder on May 26, 2009 and an increase in equity earnings of $1.5 million from our investment in Heliservicio in the Current Period, partially offset by the collection of past due receivables of RLR resulting in $3.6 million of additional equity earnings during the Comparable Period.
 


WH Centralized Operations
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
2,276
    
$
5,169
    
$
(2,893
)
    
*
  
Operating expense
    
9,641
      
4,941
      
(4,700
)
    
(95.1
)%
Operating income
  
$
(7,365
)
  
$
228
    
$
(7,593
)
    
*
  
______
 
* percentage change not meaningful
 
 
Gross revenue for WH Centralized Operations, which consists entirely of technical services revenue, decreased as a result of a reduction in part sales.
 
Operating expense for WH Centralized Operations increased primarily due to lower recovery of maintenance expense from our other Western Hemisphere business units as a result of reduced flight activity.
 
Europe
 
   
Six Months Ended
September 30,
    
Favorable
    
   
2009
    
2008
    
(Unfavorable)
    
   
(In thousands, except percentages and flight hours)
    
Gross revenue
  
$
228,933
    
$
193,733
    
$
35,200
      
18.2
  
%
Operating expense
  
$
196,044
    
$
154,288
    
$
(41,756
)
    
(27.1
)
%
Earnings from unconsolidated affiliates
  
$
61
    
$
2,232
    
$
(2,171
)
    
(97.3
)
%
Operating margin
    
14.4
%
    
21.5
%
    
(7.1
)%
 
  
(33.0
)
%
Flight hours
    
29,097
      
20,571
      
8,526
      
41.4
  
%
 
Gross revenue and flight hours for Europe increased primarily as a result of the consolidation of Bristow Norway effective October 31, 2008 ($64.7 million and 8,441 hours, respectively) and new contracts in the North Sea, partially offset by the unfavorable impact of exchange rate changes as the U.S. dollar was stronger in the Current Period versus the Comparable Period and a lower level of contractual escalation billings in the Current Period.
 
Operating expense for Europe increased primarily due to the consolidation of Bristow Norway ($59.7 million).  This increase in operating expense was offset primarily by the impact of exchange rate changes.  Additionally, during the Comparable Period we recorded $2.1 million of equity earnings from Bristow Norway as it was an equity method investment prior to our October 31, 2008 acquisition of the 51% interest that we did not previously own.  As a result of the consolidation of Bristow Norway, which earned a lower operating margin than the remainder of the Europe business unit, the related decrease in earnings from unconsolidated affiliates and a lower level of contractual escalation billings, operating margin for Europe decreased compared to the Comparable Period.
 


West Africa
 
   
Six Months Ended
September 30,
    
Favorable
    
   
2009
    
2008
    
(Unfavorable)
    
   
(In thousands, except percentages and flight hours)
    
Gross revenue
  
$
106,269
    
$
90,310
    
$
15,959
      
17.7
  
%
Operating expense
  
$
77,565
    
$
75,770
    
$
(1,795
)
    
(2.4
)
%
Operating margin
    
27.0
%
    
16.1
%
    
10.9
  %
 
  
67.7
  
%
Flight hours
    
17,420
      
19,245
      
(1,825
)
    
(9.5
)
%
 
Flight hours for West Africa decreased as a result of a decrease in demand for aircraft in this market by certain existing customers offset by the addition of one new contract and ad hoc work.  Despite the decrease in flight hours, gross revenue increased due to rate escalations under existing contracts and higher rates earned on the new contract and ad hoc flying.
 
The increase in operating expense was primarily a result of increases in salaries and benefits, freight, training and travel and meals, partially offset by a favorable impact of exchange rate changes.  The U.S. dollar was stronger versus the Nigerian naira and the British pound sterling in the Current Period versus the Comparable Period which contributed to increased operating margin.  Operating margin for West Africa was also favorably impacted by the new contract and increases in rates under existing contracts.  Excluding the impact of exchange rate changes, operating margin for West Africa was 19.0% in the Current Period.
 
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
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
58,496
    
$
62,339
    
$
(3,843
)
    
(6.2
)%
Operating expense
  
$
45,452
    
$
61,412
    
$
15,960
      
26.0
 %
Operating margin 
    
22.3
%
    
1.5
%
    
20.8
%
    
*
  
Flight hours
    
5,674
      
7,853
      
(2,179
)
    
(27.7
)%
_____
 
* percentage change not meaningful
 
Gross revenue for Australia decreased primarily due to a decrease in flight hours resulting from a decrease in activity in this market since the Comparable Period and the weakening of the Australian dollar versus the U.S. dollar in the Current Period compared to the Comparable Period.
 
Operating expense decreased primarily due to decreased activity resulting in a decrease in salaries and benefits, maintenance expense, fuel, travel and training expenses and the impact of changes in exchange rates.  Operating expense was also decreased as a result of the reversal of costs previously accrued in fiscal year 2009 for tax items as favorable rulings were obtained from the tax authorities in these matters during the Current Period.  During the Comparable Period, we incurred salary maintenance and other costs on aircraft that were not fully operational as a result of delays in planned contracts, unscheduled maintenance and re-positioning of aircraft.  Additionally, compensation costs for the Comparable Period included adjustments to employee tax and leave accruals related to prior periods totaling $2.2 million.  Operating margin improved due to the decrease in costs discussed above.
 


Other International
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages and flight hours)
  
Gross revenue
  
$
29,656
    
$
35,158
    
$
(5,502
)
    
(15.6
)%
Operating expense
  
$
19,766
    
$
28,060
    
$
8,294
      
29.6
 %
Earnings from unconsolidated affiliates
  
$
8
    
  $
145
    
$
(137
)
    
(94.5
)%
Operating margin
    
33.4
%
    
20.6
%
    
12.8
%
    
62.1
 %
Flight hours
    
5,075
      
5,746
      
(671
)
    
(11.7
)%
 
Gross revenue for Other International decreased primarily due to a decrease in revenue in Russia (the Comparable Period included $1.2 million in escalation charges to a customer and increased rates), Mauritania and Egypt and Turkmenistan (due to ending of short-term contracts), partially offset by increases in revenue in Libya and Ghana (due to new contracts).
 
Operating expense decreased primarily due to a reduction in activity in Russia, a reduction in maintenance costs and reversal of bad debt expense of $2.5 million in Kazakhstan, a reduction in costs in Mauritania (due to the non renewal of a contract) and Egypt (due to ending of short-term contract) and the impact of exchange rate changes.  These decreases were partially offset by increase in costs in Libya and Ghana (due to new contracts).  The decrease in operating expense in these markets resulted in the increase in operating margin for this business unit.
 
 For discussion of additional matters related to operations in Other International, see “— Current Quarter Compared to Comparable Quarter — Other International” included elsewhere in this Quarterly Report.
 
EH Centralized Operations
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
8,218
    
$
6,372
    
$
1,846
      
29.0
 %
Operating expense
    
12,661
      
18,760
      
6,099
      
32.5
 %
Earnings from unconsolidated affiliates
    
3,797
      
4,723
      
(926
)
    
(19.6
)%
Operating loss
  
$
(646
)
  
$
(7,665
)
  
$
7,019
      
91.6
 %
 
Gross revenue for EH Centralized Operations increased as a result of an increase in spare part and workorder sales.
 
Operating expense decreased primarily due to an increase in maintenance and overhead allocations to other business units as well as less exposure to the impact of changes in foreign exchange rates as the result of allocating these foreign exchange exposures to the other business units, a charge taken in the Comparable Period to reduce the carrying value of obsolete inventory and unusually high heavy maintenance expense incurred in the Comparable Period.
 
Earnings from unconsolidated affiliates decreased due to the stronger U.S. dollar during the Current Period compared to the Comparable Period.
 


Bristow Academy
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
14,444
    
$
11,723
    
$
2,721
      
23.2
 %
Operating expense
  
$
12,790
    
$
11,336
    
$
(1,454
)
    
(12.8
)%
Operating margin
    
11.5
%
    
3.3
%
    
8.2
%
    
248.5
 %
 
Gross revenue for Bristow Academy increased as a result of increased military training and the acquisition of additional training aircraft.
 
Operating expense increased primarily due to increased business volume as well as costs of operating additional aircraft.  The operating margin improved due to the fact that the military training contracts yield a higher margin of return.  During the Current Period, approximately 100 pilots graduated from Bristow Academy; we hired 10 graduates as instructors at Bristow Academy and 3 graduates as pilots (mostly former instructors) into our other business units.
 
Corporate
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Gross revenue
  
$
—
    
$
28
    
$
(28
)
    
(100.0
)%
Operating expense
    
17,321
      
13,897
      
(3,424
)
    
(24.6
)%
Losses from unconsolidated affiliates
    
—
      
(52
)
    
52
      
100.0
 %
Operating loss
  
$
(17,321
)
  
$
(13,921
)
  
$
(3,400
)
    
(24.4
)%

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 increased primarily due to the separation between the Company and an Executive Officer during April 2009.
 
Interest Expense, Net
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Interest income
  
$
432
    
$
4,652
    
$
(4,220
)
    
*
 
Interest expense
    
(22,724
)
    
(22,223
)
    
(501
)
    
(2.3
)%
Amortization of debt discount
    
(1,462
)
    
(803
)
    
(659
)
    
(82.1
)%
Amortization of debt fees                                             
    
(993
)
    
(912
)
    
(81
)
    
(8.9
)%
Capitalized interest
    
4,527
      
6,271
      
(1,744
)
    
(27.8
)%
Interest expense, net
  
$
(20,220
)
  
$
(13,015
)
  
$
(7,205
)
    
(55.4
)%
_________
* percentage change not meaningful
 
Interest income decreased as a result of our shift in cash from higher yielding investments to lower yielding U.S. government investments in response to the condition of global financial markets.  Interest expense increased primarily as a result of additional interest expense of $0.7 million associated with the 3% Convertible Senior Notes issued in June 2008, which also resulted in the additional amortization of debt discount.  Capitalized interest decreased due to a decrease in the average amount of construction in progress during the Current Period.



Other Income, Net
 
   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Foreign currency (losses) gains
  
$
(804
)
  
$
1,682
    
$
(2,486
)
    
(147.8
)%
Other
    
1,132
      
2,080
      
(948
)
    
(45.6
)%
Total
  
$
328
    
$
3,762
    
$
(3,434
)
    
(91.3
)%

The increase 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, net includes $1.1 million of hedging gains realized during the Current Period due to termination of a forward contract on a euro-denominated aircraft purchase commitment.  During the Comparable Period, we realized $1.4 million in gains from the Mexico Reorganization, which represented the majority of other income, net in that period.

Taxes

   
Six Months Ended September 30,
  
Favorable
  
   
2009
    
2008
  
(Unfavorable)
  
   
(In thousands, except percentages)
  
Effective tax rate for continuing operations
    
26.4
%
    
28.5
%
    
2.1
%
    
7.4
 %
Net foreign tax on non-U.S. earnings 
  
$
9,630
    
$
5,735
    
$
(3,201
)
    
(55.8
)%
Tax on foreign earnings indefinitely
     reinvested abroad
    
(21,591
)
    
(17,153
)
    
4,438
      
25.9
 %
Increase (decrease) in valuation allowance for
     foreign tax credit utilization
    
1,047
      
(21
)
    
(1,068
)
    
*
  
Expense (benefit) from change in tax contingency
    
3,259
      
(113
)
    
(3,372
)
    
*
  
________
* percentage change not meaningful

Our effective tax rate for the Current Period and Comparable Period was reduced by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.

Discontinued operations
 
Discontinued operations for the Comparable Period incurred $0.2 million after-tax loss.  The $0.2 million after-tax loss resulted from purchase price adjustments from the sale of Grasso.
 


Liquidity and Capital Resources

Financial Condition and Sources of Liquidity
 
See “Market Outlook” included elsewhere in this Quarterly Report for further discussion.
 
Cash and cash equivalents were $143.2 million and $301.0 million as of September 30 and March 31, 2009, respectively.  Working capital as of September 30 and March 31, 2009 was $434.1 million and $545.5 million, respectively.  The decrease in cash and cash equivalents and working capital was primarily a result of the $179.0 million in cash paid (including transaction costs incurred in fiscal year 2010) to acquire the 42.5% interest in Líder as discussed in Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Cash Flows
 
Operating Activities
 
Net cash flows provided by operating activities totaled $93.6 million during the Current Period compared to $55.5 million during the Comparable Period.  Changes in non-cash working capital used $17.7 million in cash flows from operating activities for the Current Period compared to $32.4 million in the Comparable Period.
 
Investing Activities
 
Cash flows used in investing activities were $243.9 million and $260.9 million for the Current Period and Comparable Period, respectively.  Cash was used for capital expenditures as follows:
 
   
Six Months Ended
September 30,
  
   
2009
    
2008
  
Number of aircraft delivered:
            
Small
  
3
    
3
  
Medium
  
4
    
7
  
Large
  
6
    
3
  
Fixed wing
  
1
    
—
  
Training
  
—
    
4
  
Total aircraft
  
14
    
17
  
             
Capital expenditures (in thousands):
            
Aircraft and related equipment 
$
123,656
  
$
274,337
  
Other
  
12,489
    
4,206
  
Total capital expenditures
$
136,145
  
$
278,543
  

Included in the capital expenditures aircraft and related equipment in the table above are final payments in connection with the delivery of aircraft and progress payments on the construction of new aircraft to be delivered in future periods in conjunction with our aircraft commitments (discussed in additional detail in Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report) of $113.8 million and an additional $9.9 million to upgrade aircraft within our existing aircraft fleet and to customize new aircraft delivered for our operations during the Current Period.  Also, during the Current Period, we acquired a 42.5% investment in Líder for $179.0 million.
 
Included in the capital expenditures aircraft and related equipment in the table above are final payments in connection with the delivery of aircraft and progress payments on the construction of new aircraft to be delivered in future periods of $255.3 million and $19.0 million to upgrade aircraft within our existing aircraft fleet and to customize new aircraft delivered for our operations during the Comparable Period.
 


During the Current Period we received proceeds of $71.2 million primarily from the disposal of 17 aircraft and certain other equipment, which together resulted in a net gain of $10.9 million.  During the Comparable Period, we received proceeds from the disposal of ten aircraft and certain other equipment, which together resulted in a net gain of $6.4 million.
 
Due to the significant investment in aircraft made in both the Current Period and Comparable Period, net capital expenditures exceeded cash flow from operations, and we expect this will continue to be the case through the end of fiscal year 2010.  Also in fiscal year 2010, we expect to invest approximately $40 million in various infrastructure enhancements, including aircraft facilities, training centers and technology.  Through September 30, 2009, we had incurred $12.5 million towards these projects.
 
Financing Activities
 
Cash flows used in financing activities was $13.7 million during the Current Period compared to $326.2 million provided by financing activities during the Comparable Period.  During the Current 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 issuance of common stock upon exercise of stock options of $1.1 million.  Preferred stock dividends on our 5.5% mandatory convertible preferred stock will not be paid in future periods because on September 15, 2009 each outstanding share of the preferred stock was converted into 1.418 shares of common stock resulting in the issuance of 6,522,800 shares of common stock.  During the Comparable Period, cash was provided by our issuance of the 3% Convertible Senior Notes resulting in net proceeds of $111.2 million, by our issuance of 4,996,900 shares of common stock in a public offering and private placement in June 2008 resulting in net proceeds of $224.2 million and by our receipt of proceeds of $0.9 million from the exercise of options to acquire shares of our common stock by our employees.  Additionally, during the Comparable Period, cash was used for the payment of preferred stock dividends of $6.3 million and the repayment of debt totaling $4.0 million.
 
Future Cash Requirements
 
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
 
We have various contractual obligations which are recorded as liabilities in our condensed consolidated balance sheet.  Other items, such as certain purchase commitments, interest payments and other executory contracts are not recognized as liabilities in 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, 2009 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 7 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2009 Annual Report and in Note 7 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,
2010
    
2011
    
2012 –
2013
    
2014 and
beyond
      
Other
  
   
(In thousands)
  
Contractual obligations:
                                                
Long-term debt and short-term borrowings:
                                                
Principal (1)
  
$
737,726
    
$
2,417
    
$
15,630
    
$
7,186
    
$
712,493
    
$
—
  
Interest
    
373,678
      
22,726
      
45,199
      
89,679
      
216,074
      
—
  
Aircraft operating leases (2)
    
69,305
      
5,397
      
7,571
      
9,553
      
46,784
      
—
  
Other operating leases  (3)
    
49,136
      
3,950
      
5,961
      
10,057
      
29,168
      
—
  
Capital lease obligation
    
11,935
      
277
      
1,003
      
2,304
      
8,351
      
—
  
Pension obligations (4)
    
198,357
      
4,708
      
23,785
      
48,509
      
121,355
      
—
  
Aircraft purchase obligations  (5)
    
118,973
      
63,916
      
55,057
      
—
      
—
      
—
  
Other purchase obligations (6)
    
24,359
      
24,359
      
—
      
—
      
—
      
—
  
Tax reserves (7)
    
8,016
      
—
      
—
      
—
      
—
      
8,016
  
Total contractual cash obligations
  
$
1,591,485
    
$
127,750
    
$
154,206
    
$
167,288
    
$
1,134,225
    
$
8,016
  
Other commercial commitments:
                                                
Debt guarantees (8)
  
$
15,993
    
$
—
    
$
—
    
$
15,993
    
$
—
    
$
—
  
Other guarantees (9)
    
37,335
      
1,909
      
4,699
      
9,049
      
21,678
      
—
  
Letters of credit                                               
    
1,388
      
1,156
      
232
      
—
      
—
      
—
  
Contingent consideration (10)
    
53,125
      
8,500
      
8,500
      
36,125
      
—
      
—
  
Other commitments (11)
    
101,751
      
17,644
      
18,883
      
19,224
      
46,000
      
—
  
Total commercial commitments
  
$
209,592
    
$
29,209
    
$
32,314
    
$
80,391
    
$
67,678
    
$
—
  
_________

(1)
Excludes unamortized premium on the 7½% Senior Notes of $0.5 million and unamortized discount on the 3% Senior Convertible Notes of $20.5 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.
   
(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 ten years.  As of September 30, 2009, we had recorded on our condensed consolidated balance sheet a $97.8 million pension liability associated with these obligations.  Also, the timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
   
(5)
Subsequent to September 30, 2009, we entered into an agreement to extend the delivery date to fiscal year 2011 for two  large aircraft with commitments totaling $40.9 million.  This agreement allows us to cancel these orders without a termination fee through January 30, 2010 and February 28, 2010.  These aircraft were previously scheduled to be delivered in fiscal year 2010.  For further details on our aircraft purchase obligations, see Note 7 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 7 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2009 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 ($16.0 million) of the debt of FBS, an unconsolidated affiliate.  This amount is not included in the “Contractual Obligations” section of the table above.
   
(9)
Relates to an indemnity agreement between us and Afianzadora Sofimex, S.A. to support issuance of surety bonds on behalf of Heliservicio from time to time.  As of September 30, 2009, surety bonds denominated in Mexican pesos with an aggregate value of 413 million Mexican pesos ($30.5 million) were outstanding and surety bonds denominated in U.S. dollars with an aggregate value of $1.2 million were outstanding.  Furthermore, we have received a counter-guarantee from our partner in Heliservicio, for 76% ($24.1 million) of the surety bonds outstanding.  Bristow Norway is also the guarantor under two aircraft leases taken out by a previous subsidiary of Bristow Norway prior to Bristow Norway disposing of that subsidiary and prior to Bristow’s acquisition of the additional 51% of Bristow Norway in October 2008 for the sum of $5.6 million.  The purchaser of that subsidiary is legally subject to an obligation to reimburse Bristow Norway for these guarantees under the terms of the Sale and Purchase Agreement by which that subsidiary was sold.
   
(10)
The Líder purchase agreement includes incremental and cumulative earn-out payments based upon the achievement of growth targets over the next three years.
   
(11)
In connection with the Bristow Norway acquisition (see “Part I.  Item I.  Business — Overview” included in the fiscal year 2009 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.  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 existing three aircraft leases expire in December 2009, June 2010 and 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 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a detail of the number of aircraft under commitments and the number of aircraft under options expected to be delivered in the current and subsequent five fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options for the Current Period.
 
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 2009 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 2009 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 2009 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
 
As of September 30, 2009, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2009 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was (i) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes during the three months ended September 30, 2009 in our internal control over financial reporting 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.
 
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 names other providers of offshore helicopter services in the Gulf of Mexico as defendants, alleges violations of Section 1 of the Sherman Act.  Among other things, the complaint alleges 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 seeks to represent a purported class of direct purchasers of offshore helicopter services and is asking for, among other things, unspecified treble monetary damages and injunctive relief.  The Company intends to defend against this lawsuit vigorously.  As this lawsuit is in its initial stage, we are currently unable to determine whether it could have a material affect on our business, financial condition or results of operations.
 
We have certain other actions or claims pending that have been discussed and previously reported in Part I. Item 3.  “Legal Proceedings” in the fiscal year 2009 Annual Report.  Developments in these previously reported matters are described in Note 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Item 1A.  Risk Factors.
 
There have been no material changes during the six months ended September 30, 2009 in our “Risk Factors” as discussed in our fiscal year 2009 Annual Report on Form 10-K.
 

 
Item 6. Exhibits.
 
The following exhibits are filed as part of this Quarterly Report:
 
Exhibit
Number
 
Description of Exhibit
   
Letter from KPMG LLP dated November 4, 2009, 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.
____________

*
Filed herewith.
**
Furnished herewith.



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/ Elizabeth D. Brumley                                                                
Elizabeth D. Brumley
Vice President, Finance and Chief Financial Officer


By: /s/ Brian J. Allman 
Brian J. Allman
Chief Accounting Officer and Corporate Controller


November 4, 2009



 
Index to Exhibits
 
Exhibit
Number
 
Description of Exhibit
   
Letter from KPMG LLP dated November 4, 2009, 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.
____________

*
Filed herewith.
**
Furnished herewith.