e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended December 31, 2005 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition
period to |
Commission File Number 001-31617
Bristow Group Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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72-0679819 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification Number) |
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2000 W. Sam Houston Parkway South,
Suite 1700
Houston, Texas
(Address of principal executive offices) |
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77042
(Zip Code) |
Registrants telephone number, including area code:
(713) 267-7600
Offshore Logistics, Inc.
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in
Rule 12b-2 of the
Exchange
Act). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a
non-accelerated filer.
See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o |
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Indicate the number shares outstanding of each of the
issuers classes of Common Stock, as of January 31,
2006.
23,358,007 shares of Common Stock, $.01 par value
BRISTOW GROUP INC.
INDEX FORM 10-Q
PART I FINANCIAL INFORMATION
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Item 1. |
Financial Statements. |
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
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Three Months Ended | |
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Nine Months Ended | |
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December 31, | |
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December 31, | |
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2005 | |
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2004 | |
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2005 | |
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2004 | |
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(Restated) | |
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(Restated) | |
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(Unaudited) | |
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(In thousands, except per share amounts) | |
Operating revenues
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$ |
192,267 |
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$ |
172,167 |
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$ |
567,609 |
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$ |
503,195 |
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Operating expenses:
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Direct costs
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148,170 |
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133,107 |
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433,296 |
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382,749 |
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Depreciation and amortization
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10,653 |
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10,790 |
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32,160 |
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31,820 |
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General and administrative
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15,338 |
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11,075 |
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46,005 |
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33,084 |
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Loss (gain) on disposal of assets
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374 |
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(2,021 |
) |
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1,276 |
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(8,177 |
) |
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174,535 |
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152,951 |
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512,737 |
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439,476 |
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Operating income
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17,732 |
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19,216 |
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54,872 |
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63,719 |
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Earnings from unconsolidated affiliates, net of losses
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1,351 |
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1,769 |
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1,770 |
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5,690 |
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Interest income
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898 |
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985 |
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2,879 |
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2,168 |
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Interest expense
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(3,903 |
) |
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(4,056 |
) |
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(11,288 |
) |
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(11,970 |
) |
Other income (expense), net
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2,296 |
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(2,599 |
) |
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4,308 |
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(2,038 |
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Income before provision for income taxes and minority interest
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18,374 |
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15,315 |
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52,541 |
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57,569 |
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Provision for income taxes
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4,984 |
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5,146 |
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12,453 |
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18,924 |
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Minority interest
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10 |
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(61 |
) |
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(84 |
) |
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(299 |
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Net income
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$ |
13,400 |
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$ |
10,108 |
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$ |
40,004 |
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$ |
38,346 |
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Net income per common share:
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Basic
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$ |
0.57 |
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$ |
0.43 |
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$ |
1.71 |
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$ |
1.67 |
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Diluted
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$ |
0.57 |
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$ |
0.43 |
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$ |
1.70 |
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$ |
1.65 |
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The accompanying notes are an integral part of these financial
statements.
2
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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December 31, | |
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March 31, | |
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2005 | |
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2005 | |
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(Unaudited) | |
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(In thousands) | |
ASSETS |
Current assets:
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Cash and cash equivalents
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$ |
129,053 |
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$ |
146,440 |
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Accounts receivable
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154,906 |
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133,839 |
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Inventories
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149,804 |
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140,706 |
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Prepaid expenses and other
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25,030 |
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11,459 |
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Total current assets
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458,793 |
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432,444 |
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Investments in unconsolidated affiliates
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40,028 |
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37,176 |
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Property and equipment at cost:
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Land and buildings
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34,685 |
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32,543 |
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Aircraft and equipment
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825,019 |
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827,031 |
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859,704 |
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859,574 |
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Less: accumulated depreciation and amortization
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(257,143 |
) |
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(250,512 |
) |
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602,561 |
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609,062 |
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Goodwill
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26,837 |
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26,809 |
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Other assets
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45,090 |
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44,085 |
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$ |
1,173,309 |
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$ |
1,149,576 |
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LIABILITIES AND STOCKHOLDERS INVESTMENT |
Current liabilities:
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Accounts payable
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$ |
41,757 |
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$ |
35,640 |
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Accrued liabilities
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122,356 |
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101,904 |
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Deferred taxes
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5,839 |
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17,740 |
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Current maturities of long-term debt
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4,548 |
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6,413 |
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Total current liabilities
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174,500 |
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161,697 |
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Long-term debt, less current maturities
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258,089 |
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255,667 |
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Other liabilities and deferred credits
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160,443 |
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164,728 |
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Deferred taxes
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67,501 |
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69,977 |
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Minority interest
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4,186 |
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4,514 |
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Commitments and contingencies (Note E)
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Stockholders investment:
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Common Stock, $.01 par value, authorized
35,000,000 shares; outstanding 23,345,508 shares and
23,314,708 shares at December 31 and March 31,
respectively (exclusive of 1,281,050 treasury shares)
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233 |
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233 |
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Additional paid-in capital
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157,837 |
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157,100 |
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Retained earnings
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429,719 |
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389,715 |
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Accumulated other comprehensive loss
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(79,199 |
) |
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(54,055 |
) |
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508,590 |
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492,993 |
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$ |
1,173,309 |
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$ |
1,149,576 |
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The accompanying notes are an integral part of these financial
statements.
3
BRISTOW GROUP INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
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Nine Months Ended | |
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December 31, | |
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2005 | |
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2004 | |
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| |
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(Restated) | |
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(Unaudited) | |
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(In thousands) | |
Cash flows from operating activities:
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Net income
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$ |
40,004 |
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$ |
38,346 |
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation and amortization
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32,160 |
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|
31,820 |
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Increase (decrease) in deferred taxes
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(12,350 |
) |
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|
6,415 |
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Loss (gain) on asset dispositions
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1,276 |
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(8,177 |
) |
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Equity in earnings from unconsolidated affiliates
(over) under
dividends received
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(689 |
) |
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8,826 |
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Minority interest in earnings
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84 |
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|
299 |
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Increase (decrease) in cash resulting from changes in:
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Accounts receivable
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(28,565 |
) |
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26 |
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Inventories
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(15,386 |
) |
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(4,387 |
) |
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Prepaid expenses and other
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(4,817 |
) |
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|
974 |
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Accounts payable
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8,246 |
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|
4,989 |
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Accrued liabilities
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|
1,282 |
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(1,108 |
) |
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Other liabilities and deferred credits
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|
10,104 |
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|
1,849 |
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Net cash provided by operating activities
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31,349 |
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79,872 |
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Cash flows from investing activities:
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Capital expenditures
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(102,307 |
) |
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(51,689 |
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Proceeds from asset dispositions
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|
72,620 |
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|
39,805 |
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Acquisitions, net of cash received
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(1,986 |
) |
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Investments
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|
(8,166 |
) |
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Net cash used in investing activities
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|
(29,687 |
) |
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|
(22,036 |
) |
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Cash flows from financing activities:
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Cash collateral provided under operating leases
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(10,285 |
) |
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Repayment of debt
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(3,160 |
) |
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(1,794 |
) |
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Partial prepayment of put/call obligation
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(66 |
) |
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|
(51 |
) |
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Repurchase of shares from minority interests
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(7,389 |
) |
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Issuance of common stock
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|
602 |
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|
11,871 |
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Net cash provided by (used in) financing activities
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(12,909 |
) |
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|
2,637 |
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Effect of exchange rate changes on cash and cash equivalents
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(6,140 |
) |
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|
3,768 |
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Net increase (decrease) in cash and cash equivalents
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(17,387 |
) |
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|
64,241 |
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Cash and cash equivalents at beginning of period
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|
146,440 |
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|
85,679 |
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Cash and cash equivalents at end of period
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$ |
129,053 |
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$ |
149,920 |
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Supplemental disclosure of cash flow information:
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Cash paid during the period for:
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Interest, net of interest capitalized
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$ |
13,658 |
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|
$ |
14,450 |
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Income taxes
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|
$ |
13,241 |
|
|
$ |
19,920 |
|
Supplemental disclosure of non-cash investing activities:
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Nonmonetary exchange of assets
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$ |
|
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$ |
5,876 |
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|
Capital expenditures funded by short-term notes
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|
$ |
14,746 |
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|
$ |
|
|
The accompanying notes are an integral part of these financial
statements.
4
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
NOTE A BASIS OF PRESENTATION AND CONSOLIDATION
The following consolidated financial statements include the
accounts of Bristow Group Inc. (formerly Offshore Logistics,
Inc.) and its consolidated entities (the Company)
after elimination of all significant intercompany accounts and
transactions. On February 1, 2006, OL Sub, Inc., a wholly
owned subsidiary of Offshore Logistics, Inc., merged into
Offshore Logistics, Inc. In conjunction with the merger, the
name of the Company changed from Offshore Logistics, Inc. to
Bristow Group Inc.
The information contained in the following condensed notes to
consolidated financial statements is condensed from that which
would appear in the annual consolidated financial statements;
accordingly, the consolidated financial statements included
herein should be read in conjunction with the consolidated
financial statements and related notes thereto contained in the
Companys Annual Report on Form 10-K for the fiscal
year ended March 31, 2005 (Annual Report).
Operating results for the interim periods 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 at December 31, 2005, the
consolidated results of operations for the three and nine months
ended December 31, 2005 and 2004, and the consolidated cash
flows for the nine months ended December 31, 2005 and 2004.
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Restatement of Previously Reported Amounts |
As a result of the Internal Review findings discussed further in
Note E, the Company restated its historical financial
statements to accrue for payroll taxes, penalties and interest
attributable to underreported employee payroll. For further
information regarding the Internal Review and related matters,
including the Companys restatement of its historical
financial statements, refer to the Annual Report. The restated
condensed consolidated statements of income included in this
Quarterly Report on
Form 10-Q for the
fiscal period ended December 31, 2005 (Quarterly
Report) reflect reductions in operating income of
$0.9 million for the three months ended December 31,
2004 and $2.8 million for the nine months ended
December 31, 2004 in connection with this matter. As of
December 31, 2005, accrued liabilities includes
$18.8 million related to this matter. At this time, the
Company cannot estimate what additional payments, fines and/or
penalties may be required in connection with the matters
identified as a result of the Internal Review or the related
Securities and Exchange Commission (SEC)
investigation; however, such payments, fines and/or penalties
could have a material adverse effect on the Companys
business, financial condition and results of operations.
The Companys management has separately determined that the
Company was not reporting reimbursements received from its
customers for costs incurred on their behalf in accordance with
United States generally accepted accounting principles
(GAAP). The Companys customers reimburse it
for certain costs incurred on their behalf, which have
historically been recorded by offsetting such amounts against
the related expenses. In addition, the Companys management
has determined that the Company did not properly record expenses
related to severance benefits for certain employees of a foreign
subsidiary and the Company did not properly record expenses
related to payroll taxes incurred by one of the Companys
foreign subsidiaries. In accordance with GAAP, the Company has
restated its historical financial statements for the three and
nine months ended December 31, 2004 to reflect such
reimbursements as an increase in revenue and a corresponding
increase in expense, and the Company increased direct costs to
reflect the severance obligation and payroll taxes in the
applicable periods. With respect to customer reimbursements,
operating revenues and direct costs were increased
$16.2 million for the three months and $41.1 million
for the nine months ended December 31, 2004, from
previously reported amounts, with no impact on income from
operations or net income. With respect to the severance benefits
and payroll taxes, direct costs were increased by
$0.2 million for the three months and $0.7 million for
the nine months ended December 31, 2004.
5
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
The impact of these adjustments on the condensed consolidated
statements of income and cash flows is reflected in the tables
below (in thousands, except per share amounts):
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, 2004 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
As | |
|
|
|
As | |
|
|
|
|
Previously | |
|
|
|
Previously | |
|
|
|
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
Statements of Income |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
155,977 |
|
|
$ |
172,167 |
|
|
$ |
462,083 |
|
|
$ |
503,195 |
|
Direct costs
|
|
|
115,719 |
|
|
|
133,107 |
|
|
|
338,058 |
|
|
|
382,749 |
|
Total operating expenses
|
|
|
135,563 |
|
|
|
152,951 |
|
|
|
394,785 |
|
|
|
439,476 |
|
Operating income
|
|
|
20,414 |
|
|
|
19,216 |
|
|
|
67,298 |
|
|
|
63,719 |
|
Income before provision for taxes and minority interests
|
|
|
16,513 |
|
|
|
15,315 |
|
|
|
61,148 |
|
|
|
57,569 |
|
Provision for income taxes
|
|
|
4,953 |
|
|
|
5,146 |
|
|
|
18,344 |
|
|
|
18,924 |
|
Net income
|
|
|
11,499 |
|
|
|
10,108 |
|
|
|
42,505 |
|
|
|
38,346 |
|
Basic EPS
|
|
|
0.49 |
|
|
|
0.43 |
|
|
|
1.85 |
|
|
|
1.67 |
|
Diluted EPS
|
|
|
0.49 |
|
|
|
0.43 |
|
|
|
1.82 |
|
|
|
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
December 31, 2004 | |
|
|
| |
|
|
(Unaudited) | |
|
|
As | |
|
|
|
|
Previously | |
|
|
|
|
Reported | |
|
Restated | |
Statements of Cash Flows |
|
| |
|
| |
Net income
|
|
$ |
42,505 |
|
|
$ |
38,346 |
|
Deferred taxes
|
|
|
5,470 |
|
|
|
6,415 |
|
Decrease in accrued liabilities
|
|
|
(4,322 |
) |
|
|
(1,108 |
) |
Net cash provided by operating activities
|
|
|
79,872 |
|
|
|
79,872 |
|
In addition, certain information in Notes B, H, I and J has
been restated to reflect the effect of these adjustments.
Certain amounts in the above presentation for 2004 have been
reclassified to conform to the current year presentation.
Specifically, gains and losses on asset disposals were
previously included in revenues but are now included in
operating expenses.
|
|
|
Recent Accounting Pronouncements |
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 153, Exchange of
Nonmonetary Assets (SFAS No. 153),
effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005.
SFAS No. 153 amends Accounting Principles Board
(APB) Opinion No. 29, Accounting for
Nonmonetary Transactions, to eliminate the similar
productive assets concept and replace it with the concept of
commercial substance. Commercial substance occurs when the
future cash flows of an entity are changed significantly due to
the nonmonetary exchange. The adoption of SFAS No. 153
did not have a significant impact on the Companys
financial statements.
In December 2004, the FASB issued SFAS No. 123R,
Share-Based Payment
(SFAS No. 123R), which is a revision of
SFAS No. 123, Accounting for Stock Based
Compensation (SFAS No. 123) and
supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB Opinion No. 25).
SFAS No. 123R becomes effective for the Companys
fiscal year beginning April 1, 2006 and will require
companies to expense stock options and other share based
payments. The Company does not currently know whether
implementation of SFAS No. 123R would result in
financial results materially different from pro forma results
presented in Note B.
6
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
In December 2004, the FASB issued FASB Staff Position
No. 109-1, Application of FASB Statement
No. 109, Accounting for Income Taxes, to the Tax Deduction
on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004 (FSP 109-1) which
provides accounting guidance to companies that will be eligible
for the tax deduction resulting from qualified production
activities income as defined in the American Jobs Creation
Act of 2004 (the Act). FSP No. 109-1 provides
that this deduction will be treated as a special
deduction as described in SFAS 109 rather than a
reduction in the statutory tax rate applied to deferred tax
items. As such, FSP 109-1 does not result in a revaluation of
the Companys U.S. deferred tax assets. The impact of
this deduction has not had and is not expected to have a
material effect on the Companys results for fiscal year
2006, the first tax year in which this tax deduction is
available.
In December 2004, the FASB issued Staff Position No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004
(FSP No. 109-2)
to address the treatment of a special one time incentive
provided in the Act for companies to repatriate foreign
earnings. Signed into law on October 22, 2004, the Act
provides for a special one-time tax deduction equal to 85% of
dividends received out of qualifying foreign earnings that are
paid in either a companys last tax year that began before
the enactment date, or the first tax year that begins during the
one-year period beginning on the enactment date. The special
deduction is subject to a number of limitations and
requirements, one of which is to adopt a Domestic Reinvestment
Plan (DRIP) to document planned reinvestments of
amounts equal to the foreign earnings repatriated under the Act.
FSP 109-2 provides entities additional time to assess the effect
of repatriating foreign earnings under the Act for purposes of
applying SFAS No. 109, which otherwise requires the
effect of a new tax law to be recorded in the period of
enactment. In September 2005, senior management approved a DRIP
that provides for the repatriation of up to $75 million of
previously unremitted foreign earnings under the Act. If the
Company does repatriate the maximum amount called for in the
DRIP, the related U.S. incremental tax liability associated
with the total repatriated earnings would be approximately
$5.3 million. Technical corrections, regulations and
additional guidance from the U.S. Treasury related to the
statute could impact the Companys estimate of the tax
liability associated with the potential range of repatriation.
The favorable U.S. tax rate on such repatriations under the
Act applies to qualifying distributions received by the Company
through March 31, 2006. As of December 31, 2005, the
Company had received $30.9 million of repatriated funds
intended to qualify under the Act, and the Company has reflected
the tax in its overall effective tax rate for the nine months
ended December 31, 2005.
In March 2005, the FASB issued Interpretation No. 47,
Accounting for Conditional Asset Retirement
Obligations (Interpretation No. 47), an
interpretation of SFAS No. 143, Accounting for
Asset Retirement Obligations (SFAS
No. 143). The interpretation is effective for the
Companys fiscal year ending March 31, 2006.
Interpretation No. 47 provides clarification on conditional
asset retirement obligation and the fair value of such
obligation as referred to in SFAS No. 143. The
adoption of Interpretation No. 47 did not have a
significant impact on these condensed consolidated financial
statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections
(SFAS No. 154), which is a replacement of
APB Opinion No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154
becomes effective for the Companys fiscal year beginning
April 1, 2006 and provides guidance on the accounting for,
and reporting of, accounting changes and error corrections.
SFAS No. 154 establishes the method of retrospective
application as the required method of reporting a change in
accounting principle, unless impracticable or the new accounting
principle explicitly states transition requirements, and the
Company expects that in the future there will be more instances
of retrospective application of new accounting principles to
prior periods whereas previously such applications were
typically required to be reported as a cumulative adjustment in
the period in which the accounting principle was adopted. With
respect to reporting the correction of an error in previously
issued financial statements, SFAS No. 154 carries
forward without change the guidance contained in APB Opinion
No. 20 which requires the correction to be reflected as a
prior period
7
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
adjustment, and therefore the adoption of this standard would
not have affected the restatements reflected in these financial
statements.
NOTE B EARNINGS PER SHARE
Basic earnings per common share was computed by dividing net
income by the weighted average number of shares of Common Stock
outstanding during the period. Diluted earnings per common share
for the three and nine months ended December 31, 2005
excluded options to purchase 101,400 and 32,379 shares,
respectively, at a weighted average exercise price of $33.72 and
$35.93, respectively, which were outstanding during the period
but were anti-dilutive. Diluted earnings per share for the three
and nine months ended December 31, 2004 excluded options to
purchase 15,642 and 31,545 shares, respectively, at a weighted
average exercise price of $36.61 and $33.28, respectively, which
were outstanding during the period but were anti-dilutive. The
following table sets forth the computation of basic and diluted
net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
Net income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$ |
13,400 |
|
|
$ |
10,108 |
|
|
$ |
40,004 |
|
|
$ |
38,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
23,343,465 |
|
|
|
23,272,477 |
|
|
|
23,334,939 |
|
|
|
22,954,297 |
|
|
Options and restricted stock units
|
|
|
254,280 |
|
|
|
344,224 |
|
|
|
265,850 |
|
|
|
356,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, including
assumed conversions
|
|
|
23,597,745 |
|
|
|
23,616,701 |
|
|
|
23,600,789 |
|
|
|
23,310,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
0.57 |
|
|
$ |
0.43 |
|
|
$ |
1.71 |
|
|
$ |
1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$ |
0.57 |
|
|
$ |
0.43 |
|
|
$ |
1.70 |
|
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accounts for its stock-based employee compensation
under the intrinsic-value based method. Pro forma
calculations of earnings and net earnings per share as if the
fair value method of
8
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
accounting had been applied are shown in the following table.
The pro forma data presented below may not be representative of
the effects on reported amounts for future years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands, except per share amounts) | |
Net income, as reported:
|
|
$ |
13,400 |
|
|
$ |
10,108 |
|
|
$ |
40,004 |
|
|
$ |
38,346 |
|
|
Stock-based employee compensation expense included in reported
net income, net of tax
|
|
|
185 |
|
|
|
|
|
|
|
280 |
|
|
|
|
|
|
Stock-based employee compensation expense, net of tax
|
|
|
(457 |
) |
|
|
(681 |
) |
|
|
(1,586 |
) |
|
|
(1,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
13,128 |
|
|
$ |
9,427 |
|
|
$ |
38,698 |
|
|
$ |
36,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, as reported
|
|
$ |
0.57 |
|
|
$ |
0.43 |
|
|
$ |
1.71 |
|
|
$ |
1.67 |
|
|
Stock-based employee compensation expense, net of tax
|
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
(0.05 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
$ |
0.56 |
|
|
$ |
0.40 |
|
|
$ |
1.66 |
|
|
$ |
1.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, as reported
|
|
$ |
0.57 |
|
|
$ |
0.43 |
|
|
$ |
1.70 |
|
|
$ |
1.65 |
|
|
Stock-based employee compensation expense, net of tax
|
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
(0.06 |
) |
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted earnings per share
|
|
$ |
0.56 |
|
|
$ |
0.40 |
|
|
$ |
1.64 |
|
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE C INVESTMENTS IN UNCONSOLIDATED
AFFILIATES
Norsk Helikopter AS During the first quarter
of fiscal 2006, the Companys unconsolidated Norwegian
affiliate, Norsk Helikopter AS (Norsk), completed
the acquisition of Lufttransport AS, a Norwegian company, and
its sister company Lufttransport AB, in Sweden, collectively
operating 28 aircraft and engaged in providing air ambulance
services in Scandinavia. In addition, in the first quarter of
fiscal year 2006, Norsk committed to purchase three large
aircraft. The purchase of these three aircraft, supported by a
multi-year contract to provide helicopter services offshore in
Norway, will be funded through additional borrowings by Norsk
and additional funding by both of its shareholders.
Mexican Joint Venture Since the conclusion of
the contract with Petroleós Mexicanos in February 2005, the
Companys 49% owned unconsolidated affiliates, Hemisco
Helicopters International, Inc. (Hemisco) and
Heliservicio Campeche, S.A. de C.V. (Heliservicio
and together with Hemisco HC) have experienced
difficulties in meeting their obligations to make lease rental
payments to the Company and RLR. During the three months ended
June 30, 2005, the Company and RLR made a determination
that because of the uncertainties as to collectibility, lease
revenues from HC would be recognized as they were collected. For
the three and nine months ended December 31, 2005, $1.0 and
$5.7 million, respectively, of revenues billed but not
collected from HC have not been recognized in the Companys
results, and the Companys 49% share of equity in earnings
of RLR has been reduced by $0.9 and $3.7 million,
respectively, for revenues billed but not collected from HC.
In order to improve the financial condition of Heliservicio, the
Company and its joint venture partner, Compania Controladora de
Servicios Aeronauticos, S.A. de C.V. (CCSA),
completed a recapitalization of Heliservicio on August 19,
2005. As a result of this recapitalization, Heliservicios
two shareholders, the Company and CCSA, have notes payable to
Hemisco of $4.4 million and $4.6 million,
respectively, and
9
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
obligations of Heliservicio in the same amounts were cancelled
thereby increasing its capital. The $4.4 million note owed
by the Company to Hemisco bears interest at 3% annually and is
due on July 31, 2015.
The Company is continuing to evaluate certain actions to return
HCs operations to profitability, including reducing the
number of HCs aircraft to a lower level based on current
utilization, and the Company is actively seeking other markets
in which to redeploy the aircraft that are currently operating
in Mexico on an ad hoc basis. Although not anticipated or known
at this time, such actions could result in future losses.
NOTE D LONG-TERM DEBT
Long-term debt at December 31, 2005 and March 31, 2005
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
December 31, | |
|
March 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
61/8% Senior
Notes due 2013
|
|
$ |
230,000 |
|
|
$ |
230,000 |
|
Limited recourse term loans
|
|
|
20,309 |
|
|
|
21,116 |
|
Hemisco Helicopter International, Inc.
|
|
|
4,380 |
|
|
|
|
|
Short-term advance from customer
|
|
|
1,400 |
|
|
|
3,400 |
|
Note to Sakhalin Aviation Services Ltd.
|
|
|
622 |
|
|
|
641 |
|
Sakhalin debt
|
|
|
5,926 |
|
|
|
6,923 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
262,637 |
|
|
|
262,080 |
|
|
Less current maturities
|
|
|
4,548 |
|
|
|
6,413 |
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
258,089 |
|
|
$ |
255,667 |
|
|
|
|
|
|
|
|
At December 31, 2005, the Company had a $30 million
unsecured line of credit with a U.S. bank that expires on
August 31, 2006. Borrowings bear interest at a rate equal
to one month LIBOR plus a spread ranging from 1.25% to 2.0%. The
Company had $0.7 million of outstanding letters of credit
and no borrowings under this facility as of December 31,
2005.
At December 31, 2005, Bristow Aviation Holdings, Ltd.
(Bristow Aviation) had a £6.0 million
($10.3 million) facility for letters of credit, of which
£1.7 million ($2.9 million) was outstanding, and
a £1.0 million ($1.7 million) net overdraft
facility, of which no borrowings were outstanding. Both
facilities are with a U.K. bank. The letter of credit facility
is provided on an uncommitted basis, and outstanding letters of
credit bear fees at a rate of 0.7% per annum. Borrowings under
the net overdraft facility are payable upon demand and bear
interest at the banks base rate plus a spread that can
vary between 1% and 3% per annum depending on the net overdraft
amount. The net overdraft facility was scheduled to expire
August 31, 2005, but has been extended to August 31,
2006.
Defaults Under Certain Long-Term Debt Agreements
The $230.0 million
61/8% Senior
Notes due 2013 (Senior Notes) were issued on
June 20, 2003. On June 16, 2005, the Company received
notice from the trustee of the indenture underlying the Senior
Notes that it was in breach of the financial reporting covenants
contained in the indenture, and stating that, unless the
deficiency was remedied within 60 days, an event of default
would occur under the indenture. The Company solicited consents
from all holders of the Senior Notes to extend until
November 15, 2005 (or, at the election of the Company and
upon the payment of additional fees, until December 15,
2005 or January 16, 2006, as applicable) the period in
which the Company must file and deliver its financial reports
and related documents, and to waive certain past defaults under
the indenture relating to the Companys failure to timely
file and deliver its required financial reporting information,
and on August 16, 2005 completed the consent solicitation.
A consent fee of $1.4 million was paid to consenting
holders of Senior Notes on August 17, 2005 to waive until
November 15, 2005 the financial reporting covenants and the
compliance certificate and auditors statement covenants in
the indenture.
10
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
The Company elected to exercise its option to extend the waiver
to December 15, 2005 and then to further extend this waiver
through January 16, 2006 upon payment of additional fees
totalling $1.2 million. The consent and waiver fees have
been deferred and are being amortized over the remaining term of
the Senior Notes. In January 2006, the default was cured.
As of June 30, 2005, the Company was in default of the
various financial information reporting covenants in its
revolving credit facility and a five-year $31.8 million
term loan (the RLR Note) under which an
unconsolidated affiliate, Rotorwing Leasing Resources, L.L.C.
(RLR), is a borrower and the Company is a guarantor.
The defaults were as a result of not providing financial
information for fiscal 2005 when due, and also for not providing
similar information to other creditors. This situation resulted
from activities identified in connection with the Internal
Review discussed in Note E which prevented the Company from
filing the financial report for fiscal year 2005 on time. The
bank initially provided waivers through August 14, 2005,
and subsequently provided additional waivers through
November 15, 2005. Further, the waivers were extended at
the Companys election through December 15, 2005 upon
payment of $26,000, and were further extended through
January 16, 2006 upon payment of an additional fee of
$26,000. In January 2006, the defaults were cured.
NOTE E COMMITMENTS AND CONTINGENCIES
Sale and Leaseback Financing On
December 30, 2005, the Company sold nine aircraft for
$68.6 million in aggregate to a subsidiary of General
Electric Capital Corporation, and then leased back each of the
nine aircraft under separate operating leases with terms of ten
years expiring in January 2016. Each net lease
agreement requires the Company to be responsible for all
operating costs and has an effective interest rate of
approximately 5%. Rent payments under each lease are payable
monthly and total $6.3 million and $7.6 million
annually during the first 60 months and second
60 months, respectively, for all nine leases. Each lease
has an end of lease purchase option at ten years, an early
purchase option at 60 months (December 2010), and an early
termination option at 24 months (December 2007). The early
purchase option price for the nine aircraft at 60 months is
approximately $52 million in aggregate. There was a
deferred gain on the sale of the aircraft in the amount of
approximately $10.8 million in aggregate. The deferred gain
will be amortized as a reduction in lease expense over the
10 year lease term in proportion to the rent payments.
Additional collateral in the amount of at least
$11.8 million is to be provided until the conclusion of the
SEC investigation related to the Internal Review. A portion
of the proceeds ($10.3 million) was retained by the lessor
until January 30, 2006 when the additional collateral,
which consisted of five aircraft and a $2.5 million letter
of credit, was provided.
11
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Aircraft Purchase Contracts The Company has
entered into several agreements to purchase new and used
aircraft which are reflected in the following table. As of
December 31, 2005, the Company had $381.1 million
remaining to be paid in connection with its aircraft purchase
commitments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivered | |
|
Remaining to be Delivered | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
Nine Months | |
|
Three Months | |
|
|
|
|
|
|
Prior to | |
|
Ended | |
|
Ended | |
|
Fiscal Year Ended March 31, | |
|
|
|
|
April 1, | |
|
December 31, | |
|
March 31, | |
|
| |
|
|
|
|
2005 | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2008 | |
|
2009-2013 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Number of aircraft(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
7 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
Medium
|
|
|
10 |
|
|
|
8 |
|
|
|
1 |
|
|
|
12 |
|
|
|
11 |
|
|
|
15 |
|
|
|
57 |
|
|
|
Large
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
14 |
|
|
|
3 |
|
|
|
16 |
|
|
|
11 |
|
|
|
15 |
|
|
|
76 |
|
|
Used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
Medium
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
19 |
|
|
|
3 |
|
|
|
16 |
|
|
|
11 |
|
|
|
15 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures(2)
|
|
$ |
104,370 |
|
|
$ |
89,668 |
|
|
$ |
35,964 |
|
|
$ |
166,573 |
|
|
$ |
66,844 |
|
|
$ |
111,758 |
|
|
$ |
575,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company also has options to purchase 24 additional
aircraft. As of December 31, 2005, the options with respect
to six of the aircraft are now subject to availability. |
|
(2) |
Subsequent to December 31, 2005, the Company entered into
purchase obligations of $5.0 million for additional
aircraft not reflected in the table above. |
In connection with our agreement to purchase three large
aircraft to be utilized and owned by Norsk, the Company agreed
to fund the purchase of one aircraft (reflected in the table
above), and Norsk and the other equity owner in Norsk each
agreed to fund the purchase of one of the two other aircraft.
One was delivered in the third quarter of fiscal year 2006 and
the remaining two are expected to be delivered in fiscal year
2007.
Internal Review In February 2005, the Company
voluntarily advised the SEC that the Audit Committee of its
Board of Directors had engaged special outside counsel to
undertake a review of certain payments made by two of the
Companys affiliated entities in a foreign country. The
review of these payments, which initially focused on Foreign
Corrupt Practices Act matters, was subsequently expanded to
cover operations in other countries and other issues (the
Internal Review). In connection with this review,
special outside counsel to the Audit Committee retained forensic
accountants.
The SEC then notified the Company that it had initiated an
informal inquiry and requested that the Company provide certain
documents on a voluntary basis. Subsequently, the SEC advised
the Company that the inquiry had become an investigation. The
Company has responded to the SECs requests for documents
and is continuing to do so.
The Internal Review is complete and the accompanying financial
statements reflect all known required restatements. As a
follow-up to matters
identified during the course of the Internal Review, Special
Counsel to the Audit Committee is completing certain work, and
may be called upon to undertake additional work in the future to
assist in responding to inquiries from the SEC, from other
governmental authorities or customers, or as
follow-up to the steps
being performed by Special Counsel.
In October 2005, the Audit Committee reached certain conclusions
with respect to findings to date from the Internal Review. The
Audit Committee concluded that, over a considerable period of
time, (a) improper
12
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
payments were made by, and on behalf of, certain foreign
affiliated entities directly or indirectly to employees of the
Nigerian government, (b) improper payments were made by
certain foreign affiliated entities to Nigerian employees of
certain customers with whom the Company has contracts,
(c) inadequate employee payroll declarations and, in
certain instances, tax payments were made by the Company or its
affiliated entities in certain jurisdictions,
(d) inadequate valuations for customs purposes may have
been declared in certain jurisdictions resulting in the
underpayment of import duties, and (e) an affiliated entity
in a South American country, with the assistance of Company
personnel and two of its other affiliated entities, engaged in
transactions which appear to have assisted the South American
entity in the circumvention of currency transfer restrictions
and other regulations. In addition, as a result of the Internal
Review, the Audit Committee and management determined that there
were deficiencies in the Companys books and records and
internal controls with respect to the foregoing and certain
other activities.
Based on the Audit Committees findings and
recommendations, the Board of Directors has taken disciplinary
action with respect to the Companys personnel who it
determined bore responsibility for these matters. The
disciplinary actions included termination or resignation of
employment (including of certain members of senior management),
changes of job responsibility, reductions in incentive
compensation payments and reprimands. One of the Companys
affiliates has also obtained the resignation of certain of its
personnel.
The Company has initiated remedial action, including initiating
action to correct underreporting of payroll tax, disclose to
certain customers inappropriate payments made to customer
personnel and terminate certain agency, business and joint
venture relationships. The Company also has taken steps to
reinforce its commitment to conduct its business with integrity
by creating an internal corporate compliance function,
instituting a new code of business conduct (the Companys
new code of business conduct entitled Code of Business
Integrity is available on its website,
http://www.bristowgroup.com), and developing and implementing a
training program for all employees. In addition to the
disciplinary actions referred to above, the Company has also
taken steps to strengthen its control environment by hiring new
personnel and realigning reporting lines within the accounting
function so that field accounting reports directly to the
corporate accounting function instead of operations management.
In connection with the Audit Committees conclusions, the
Company will voluntarily advise certain foreign governmental
authorities of the Audit Committees findings. The Company
has not yet advised such foreign governmental authorities of the
Audit Committee findings, but intends to do so. Such disclosure
may result in legal and administrative proceedings, the
institution of administrative, civil injunctive or criminal
proceedings involving the Company 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
the Company from participating in business operations in their
countries. To the extent that violations of the law may have
occurred in several countries in which the Company operates, the
Company does not yet know whether such violations can be cured
merely by the payment of fines or whether other actions may be
taken against the Company, including requiring the Company to
curtail its business operations in one or more such countries
for a period of time. In the event that the Company curtails its
business operations in any such country, the Company may face
difficulties exporting its aircraft. As of December 31,
2005, the book values of its aircraft in Nigeria and the South
American country where certain improper activities took place
were approximately $117.0 million and $2.8 million,
respectively.
The Company cannot predict the ultimate outcome of the SEC
investigation, nor can the Company predict whether other
applicable U.S. and foreign governmental authorities will
initiate separate investigations. The outcome of the SEC
investigation and any related legal and administrative
proceedings could include the institution of administrative,
civil injunctive or criminal proceedings involving the Company
and/or current or former employees, officers and/or directors,
the imposition of fines and other penalties, remedies and/or
sanctions, modifications to business practices and compliance
programs and/or referral to
13
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
other governmental agencies for other appropriate actions. It is
not possible to accurately predict at this time when matters
relating to the SEC investigation will be completed, the final
outcome of the SEC investigation, what if any actions may be
taken by the SEC or by other governmental agencies in the
U.S. or in foreign jurisdictions, or the effect that such
actions may have on the Companys consolidated financial
statements. In addition, in view of the findings of the Internal
Review, the Company expects to encounter difficulties in the
future conducting business in Nigeria and a South American
country, and with certain customers. It is also possible that
certain of the Companys existing contracts may be
cancelled and that the Company may become subject to claims by
third parties, possibly resulting in litigation. The matters
identified in the Internal Review and their effects could have a
material adverse effect on the Companys business,
financial condition and results of operations.
In connection with its conclusions regarding payroll
declarations and tax payments, the Audit Committee determined on
November 23, 2005, following the recommendation of the
Companys senior management, that there was a need to
restate the Companys historical consolidated financial
statements, including those for the quarterly periods in fiscal
year 2005. As of December 31, 2005, the Company has accrued
$18.8 million for the taxes, penalties and interest
attributable to underreported employee payroll. Operating income
for the nine months ended December 31, 2005 and 2004
includes $3.0 million and $2.8 million, respectively,
attributable to this accrual. At this time, the Company cannot
estimate what additional payments, fines, penalties and/or
litigation and related expenses may be required in connection
with the matters identified as a result of the Internal Review,
the SEC investigation, any other regulatory investigation that
may be instituted or third-party litigation; however, such
payments, fines, penalties and/or expenses could have a material
adverse effect on the Companys business, financial
condition and results of operations.
As the Company continues to respond to the SEC investigation and
other governmental authorities and take other actions relating
to improper activities that have been identified in connection
with the Internal Review, there can be no assurance that
additional restatements will not be required or that these
historical financial statements will not change or require
amendment. In addition, new issues may be identified that may
impact the financial statements and the scope of the
restatements described in this Quarterly Report and the Annual
Report and lead the Company to take other remedial actions or
that may otherwise adversely impact the Company.
Through December 31, 2005, the Company has incurred
approximately $12.4 million, including $2.2 million
and $10.3 million in the three and nine months ended
December 31, 2005, respectively, in legal and other
professional costs in connection with the Internal Review. The
Company expects to incur additional costs associated with the
Internal Review, which will be expensed as incurred and which
could be significant in the fiscal quarters in which they are
recorded.
As a result of the disclosure and remediation of a number of
activities identified in the Internal Review, the Company
expects to encounter difficulties conducting business in certain
foreign countries and retaining and attracting additional
business with certain customers. The Company cannot predict the
extent of these difficulties; however, its ability to continue
conducting business in these countries and with these customers
may be significantly impacted.
The Company has commenced actions to disclose activities in
Nigeria identified in the Internal Review to affected customers,
and one or more of these customers may seek to cancel their
contracts with the Company. One such customer already has
commenced its own investigation. Among other things, the Company
has been advised that such customer intends to exercise its
rights to audit a specific contract, as well as to review its
other relations with the Company. Although the Company has no
indication as to what the final outcome of the audit and review
will be, it is possible that such customer may seek to cancel
one or more existing contracts if it believes that they were
improperly obtained or that the Company breached any of their
terms. Since its customers in Nigeria are affiliates of major
international petroleum companies with whom the Company does
business throughout the world, any actions which are taken by
certain customers could have a
14
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
material adverse effect on its business, financial position and
results of operations, and these customers may preclude the
Company from bidding on future business with them either locally
or on a worldwide basis. In addition, applicable governmental
authorities may preclude the Company from bidding on contracts
to provide services in the countries where improper activities
took place.
In connection with the Internal Review, the Company also has
terminated its business relationship with certain agents and has
taken actions to terminate business relationships with other
agents. As described further below, in November 2005, one of the
terminated agents and his affiliated entity have commenced
litigation against two of the Companys foreign affiliated
entities claiming damages of $16.3 million for breach of
contract. The Company may be required to indemnify certain of
its agents to the extent that regulatory authorities seek to
hold them responsible in connection with activities identified
in the Internal Review.
In a South American country where certain improper activities
took place, the Company is negotiating to terminate its
ownership interest in the joint venture that provides the
Company with the local ownership content necessary to meet local
regulatory requirements for operating in that country. During
fiscal year 2005, the Company derived approximately
$9.9 million of leasing and other revenues, of which
$3.2 million was paid by the Company to a third party for
the use of the aircraft, and received approximately
$0.3 million of dividend income from this joint venture.
During the nine months ended December 31, 2005, the Company
derived approximately $6.3 million of leasing and other
revenues, of which $3.0 million was paid by the Company to
a third party for the use of the aircraft, and received no
dividend income from this joint venture. Without a joint venture
partner, the Company will be unable to maintain an operating
license and its future activities in that country may be limited
to leasing its aircraft to unrelated operating companies. The
Companys joint venture partners and agents are typically
influential members of the local business community and
instrumental in aiding the Company in obtaining contracts and
managing its affairs in the local country. As a result of
terminating these relationships, the Companys ability to
continue conducting business in these countries where the
improper activities took place may be negatively affected. The
Company may not be successful in its negotiations to terminate
its ownership interest in the joint venture, and the outcome of
such negotiations may negatively affect the Companys
ability to continue leasing its aircraft to the joint venture or
unrelated operating companies or conducting other business in
that country, to export its aircraft or to recover its
investment in the joint venture.
Many of the improper actions identified in the Internal Review
resulted in decreasing the costs incurred by the Company in
performing its services. The remedial actions the Company is
taking will result in an increase in these costs and, if the
Company cannot raise its prices simultaneously and to the same
extent of its increased costs, its operating income will
decrease.
In November 2005, two of the Companys consolidated foreign
affiliates were named in a lawsuit filed in the High Court of
Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and
Kensit Nigeria Limited, which allegedly acted as agents of the
affiliates in Nigeria. The claimants allege that an agreement
between the parties was terminated without justification by the
defendants and seek damages of $16.3 million. The Company
is continuing to investigate this matter.
Collective Bargaining Agreement The Company
employs approximately 300 pilots in its North American
Operations who are represented by the Office and Professional
Employees International Union (OPEIU) under a
collective bargaining agreement. The Company and the pilots
represented by the OPEIU ratified an amended collective
bargaining agreement on April 4, 2005. The terms under the
amended agreement are fixed until October 3, 2008 and
include a wage increase for the pilot group and improvements to
several benefit plans. The Company does not believe that these
increases will place it at a competitive, financial or
operational disadvantage.
Document Subpoena from U.S. Department of
Justice On June 15, 2005, the Company
issued a press release stating that one of the Companys
subsidiaries had received a document subpoena from the Antitrust
15
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Division of the U.S. Department of Justice
(DOJ). The subpoena relates to a grand jury
investigation of potential antitrust violations among providers
of helicopter transportation services in the U.S. Gulf of
Mexico. The Company is continuing to investigate this matter and
intends to comply with requests for information from the DOJ in
connection with this investigation. The outcome of the DOJ
investigation and any related legal and administrative
proceedings could include civil injunctive or criminal
proceedings, the imposition of fines and other penalties,
remedies and/or sanctions, referral to other governmental
agencies and/or the payment of damages in civil litigation. In
connection with this matter, the Company has incurred
$1.0 million in legal and other professional fees for the
nine months ended December 31, 2005. It is not possible to
predict accurately at this time when this government
investigation will be completed. Based on current information,
the Company cannot predict the outcome of such investigation or
what, if any, actions may be taken by the DOJ or other
U.S. agencies or authorities or the effect that they may
have on the Company.
Environmental Contingencies The United States
Environmental Protection Agency, also referred to as the EPA,
has in the past notified the Company that it is 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. The Company was 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
Operating Industries, Inc. Superfund site in Monterey Park,
California in 2003. The Company has not received any
correspondence from the EPA with respect to the Western Sand and
Gravel Superfund site since February 1991, nor with respect to
the Sheridan Disposal Services Superfund site since 1989.
Remedial activities at the Gulf Coast Vacuum Services Superfund
site were completed in September 1999 and the site was removed
from the National Priorities List in July 2001. The EPA has
offered to submit a settlement offer to the Company in return
for which the Company would be recognized as a de minimis
party in regard to the Operating Industries Superfund site,
but the Company has not received this settlement proposal.
Although the Company has not obtained a formal release of
liability from the EPA with respect to any of these sites, the
Company believes that its potential liability in connection with
these sites is not likely to have a material adverse effect on
its business, financial condition or results of operations.
Flight Accident On August 18, 2005, one
of the Companys helicopters operating in the
U.S. Gulf of Mexico was involved in an accident that
resulted in two fatalities. The cause of the accident is still
under investigation by the Company and the National
Transportation Safety Board. The Companys liability in
connection with this accident is not expected to have a material
adverse effect on its business or financial condition.
Hurricanes Katrina and Rita As a result of
Hurricanes Katrina and Rita, several of the Companys
shorebase facilities located along the U.S. Gulf Coast
sustained significant hurricane damage. In particular, Hurricane
Katrina caused a total loss of the Companys Venice,
Louisiana shorebase facility, and Hurricane Rita severely
damaged the Creole, Louisiana base and flooded the Intracoastal
City, Louisiana base. The Company recorded a $0.3 million
net gain ($2.9 million in anticipated insurance recoveries
offset by $2.6 million of involuntary conversion losses)
during the nine months ended December 31, 2005 related to
property damage to these facilities. The Company reopened its
Intracoastal City, Louisiana base in December 2005 and expects
to reopen its Venice and Creole, Louisiana bases in the fourth
quarter of fiscal year 2006.
Other Matters The Company is 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 the
Companys financial position, results of operations or cash
flows.
16
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
NOTE F INCOME TAXES
Income Taxes on Distributions of Foreign
Earnings In September 2005, in response to the
tax-favored provisions on repatriation of foreign earnings into
the U.S. provided for in the American Jobs Creation Act of
2004 (the Act), the Companys senior management
approved a Domestic Reinvestment Plan (DRIP), as
required by the Act, documenting the Companys plan to
repatriate up to a maximum of $75 million from its foreign
subsidiaries. The Companys Board of Directors subsequently
approved the plan in November 2005. The favorable U.S. tax
rate on such repatriations under the Act applies to qualifying
distributions received by the Company through March 31,
2006. Through December 2005, the Company has received
distributions intended to qualify under the Act totaling
$30.9 million from one of its foreign subsidiaries. The
Company is currently exploring its options with respect to
sources of additional repatriations from its foreign
subsidiaries but cannot at this time estimate the total amount,
out of the $75 million approved in the DRIP, that will
ultimately be received by March 31, 2006.
NOTE G EMPLOYEE BENEFIT PLANS
Savings and Retirement Plans The following
table provides a detail of the components of net periodic
pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Service cost for benefits earned during the period
|
|
$ |
69 |
|
|
$ |
75 |
|
|
$ |
212 |
|
|
$ |
220 |
|
Interest cost on pension benefit obligation
|
|
|
5,220 |
|
|
|
5,240 |
|
|
|
16,094 |
|
|
|
15,417 |
|
Expected return on assets
|
|
|
(4,749 |
) |
|
|
(4,866 |
) |
|
|
(14,641 |
) |
|
|
(14,317 |
) |
Amortization of unrecognized experience losses
|
|
|
893 |
|
|
|
861 |
|
|
|
2,754 |
|
|
|
2,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$ |
1,433 |
|
|
$ |
1,310 |
|
|
$ |
4,419 |
|
|
$ |
3,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The current estimate of cash contributions to the pension plans
by the Company for the year ending March 31, 2006 is
$9.9 million, $2.4 million of which was paid during
the nine months ended December 31, 2005.
Stock Option and Restricted Stock Unit Grant
On December 29, 2005, the Company granted options to
purchase 105,915 shares at an exercise price of $29.17 per share
and granted 143,600 shares of restricted stock units pursuant to
the 2004 Stock Incentive Plan. The options vest ratably over
three years on each anniversary from the date of grant and
expire ten years from the date of grant. The restricted stock
units fully vest on the fifth anniversary from the date of grant
if the Cumulative Annual Shareholder Return (as
defined in the restricted stock unit agreements) exceeds an
annual average of 3% for the five year period. Partial vesting
occurs on the third or fourth anniversary after the date of
grant if the Cumulative Annual Shareholder Return equals or
exceeds 10%, with full vesting if such amount equals or exceeds
15%.
17
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
NOTE H COMPREHENSIVE INCOME
Comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Net income
|
|
$ |
13,400 |
|
|
$ |
10,108 |
|
|
$ |
40,004 |
|
|
$ |
38,346 |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
(8,027 |
) |
|
|
15,364 |
|
|
|
(25,144 |
) |
|
|
11,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$ |
5,373 |
|
|
$ |
25,472 |
|
|
$ |
14,860 |
|
|
$ |
49,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE I SEGMENT INFORMATION
The Company operates principally in two business segments:
Helicopter Services and Production Management Services.
Beginning in fiscal year 2006, the Company conducts the
operations of its Helicopter Services segment through six
business units: North America, South and Central America,
Europe, West Africa, Southeast Asia and Other International.
Previously, the Company conducted these operations through four
business units: North America, North Sea, International and
Technical Services. The Company provides Production Management
Services, contract personnel and medical support services in the
U.S. Gulf of Mexico to the domestic oil and gas industry
under the Grasso Production Management name. The change in
business units reflects changes made in fiscal year 2006 by the
Companys president and chief executive officer (its chief
decision maker) and other senior management to the way they
manage and evaluate the Companys results of operations.
Accordingly, the Company has modified its segment disclosure to
reflect the change in business units. The following shows
reportable segment information for the three and nine months
ended
18
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
December 31, 2005 and 2004, reconciled to consolidated
totals, and prepared on the same basis as the Companys
consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Segment operating revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
50,291 |
|
|
$ |
37,836 |
|
|
$ |
151,466 |
|
|
$ |
117,712 |
|
|
|
South and Central America
|
|
|
10,977 |
|
|
|
12,942 |
|
|
|
30,295 |
|
|
|
40,407 |
|
|
|
Europe
|
|
|
60,709 |
|
|
|
60,820 |
|
|
|
184,327 |
|
|
|
178,637 |
|
|
|
West Africa
|
|
|
29,830 |
|
|
|
25,749 |
|
|
|
85,605 |
|
|
|
71,343 |
|
|
|
Southeast Asia
|
|
|
15,789 |
|
|
|
14,990 |
|
|
|
44,197 |
|
|
|
39,533 |
|
|
|
Other International
|
|
|
6,340 |
|
|
|
4,608 |
|
|
|
18,221 |
|
|
|
11,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
173,936 |
|
|
|
156,945 |
|
|
|
514,111 |
|
|
|
459,158 |
|
|
Production Management Services
|
|
|
16,234 |
|
|
|
14,925 |
|
|
|
50,105 |
|
|
|
43,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating revenues
|
|
$ |
190,170 |
|
|
$ |
171,870 |
|
|
$ |
564,216 |
|
|
$ |
502,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment and intrasegment operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
6,578 |
|
|
$ |
4,996 |
|
|
$ |
19,104 |
|
|
$ |
16,597 |
|
|
|
South and Central America
|
|
|
450 |
|
|
|
225 |
|
|
|
1,350 |
|
|
|
850 |
|
|
|
Europe
|
|
|
4,755 |
|
|
|
4,418 |
|
|
|
13,194 |
|
|
|
12,321 |
|
|
|
West Africa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
Southeast Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other International
|
|
|
344 |
|
|
|
5 |
|
|
|
1,060 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
12,127 |
|
|
|
9,644 |
|
|
|
34,708 |
|
|
|
29,860 |
|
|
Production Management Services
|
|
|
19 |
|
|
|
18 |
|
|
|
58 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment and intrasegment operating revenues
|
|
$ |
12,146 |
|
|
$ |
9,662 |
|
|
$ |
34,766 |
|
|
$ |
29,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Consolidated operating revenues reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
56,869 |
|
|
$ |
42,832 |
|
|
$ |
170,570 |
|
|
$ |
134,309 |
|
|
|
South and Central America
|
|
|
11,427 |
|
|
|
13,167 |
|
|
|
31,645 |
|
|
|
41,257 |
|
|
|
Europe
|
|
|
65,464 |
|
|
|
65,238 |
|
|
|
197,521 |
|
|
|
190,958 |
|
|
|
West Africa
|
|
|
29,830 |
|
|
|
25,749 |
|
|
|
85,605 |
|
|
|
71,346 |
|
|
|
Southeast Asia
|
|
|
15,789 |
|
|
|
14,990 |
|
|
|
44,197 |
|
|
|
39,533 |
|
|
|
Other International
|
|
|
6,684 |
|
|
|
4,613 |
|
|
|
19,281 |
|
|
|
11,615 |
|
|
|
Intrasegment eliminations
|
|
|
(9,545 |
) |
|
|
(7,550 |
) |
|
|
(28,151 |
) |
|
|
(23,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
176,518 |
|
|
|
159,039 |
|
|
|
520,668 |
|
|
|
465,390 |
|
|
Production Management Services
|
|
|
16,253 |
|
|
|
14,943 |
|
|
|
50,163 |
|
|
|
43,264 |
|
|
Corporate
|
|
|
4,245 |
|
|
|
2,445 |
|
|
|
9,836 |
|
|
|
7,590 |
|
|
Intersegment eliminations
|
|
|
(4,749 |
) |
|
|
(4,260 |
) |
|
|
(13,058 |
) |
|
|
(13,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating revenues
|
|
$ |
192,267 |
|
|
$ |
172,167 |
|
|
$ |
567,609 |
|
|
$ |
503,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income (loss) reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
8,785 |
|
|
$ |
4,053 |
|
|
$ |
33,160 |
|
|
$ |
19,356 |
|
|
|
South and Central America
|
|
|
1,392 |
|
|
|
2,862 |
|
|
|
2,053 |
|
|
|
9,533 |
|
|
|
Europe
|
|
|
7,005 |
|
|
|
8,473 |
|
|
|
22,503 |
|
|
|
21,294 |
|
|
|
West Africa
|
|
|
2,596 |
|
|
|
1,672 |
|
|
|
7,041 |
|
|
|
6,713 |
|
|
|
Southeast Asia
|
|
|
1,701 |
|
|
|
1,791 |
|
|
|
2,785 |
|
|
|
3,858 |
|
|
|
Other International
|
|
|
1,402 |
|
|
|
43 |
|
|
|
3,198 |
|
|
|
(634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
22,881 |
|
|
|
18,894 |
|
|
|
70,740 |
|
|
|
60,120 |
|
|
Production Management Services
|
|
|
1,117 |
|
|
|
1,219 |
|
|
|
3,675 |
|
|
|
2,985 |
|
|
Gain (loss) on disposal of assets
|
|
|
(374 |
) |
|
|
2,021 |
|
|
|
(1,276 |
) |
|
|
8,177 |
|
|
Corporate
|
|
|
(5,892 |
) |
|
|
(2,918 |
) |
|
|
(18,267 |
) |
|
|
(7,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income
|
|
$ |
17,732 |
|
|
$ |
19,216 |
|
|
$ |
54,872 |
|
|
$ |
63,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE J SUPPLEMENTAL CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
In connection with the sale of the Senior Notes, certain of the
Companys 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
Bristow Group Inc.s other subsidiaries (the
Non-Guarantor Subsidiaries). The Company has 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
20
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
financial statements, although the Company believes that the
disclosures made are adequate to make the information presented
not misleading. Certain reclassifications were made to conform
all of the financial information to the financial presentation
on a consolidated basis. The principal eliminating entries
eliminate investments in subsidiaries, intercompany balances and
intercompany revenues and expenses.
The allocation of the consolidated income tax provision was made
using the with and without allocation method.
Supplemental Condensed Consolidating Statement of Income
Three Months Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
7 |
|
|
$ |
73,374 |
|
|
$ |
118,886 |
|
|
$ |
|
|
|
$ |
192,267 |
|
Intercompany revenues
|
|
|
|
|
|
|
1,934 |
|
|
|
2,693 |
|
|
|
(4,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
75,308 |
|
|
|
121,579 |
|
|
|
(4,627 |
) |
|
|
192,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
1,041 |
|
|
|
53,592 |
|
|
|
93,537 |
|
|
|
|
|
|
|
148,170 |
|
|
Intercompany expenses
|
|
|
|
|
|
|
2,695 |
|
|
|
1,823 |
|
|
|
(4,518 |
) |
|
|
|
|
|
Depreciation and amortization
|
|
|
37 |
|
|
|
4,564 |
|
|
|
6,052 |
|
|
|
|
|
|
|
10,653 |
|
|
General and administrative
|
|
|
4,747 |
|
|
|
5,048 |
|
|
|
5,652 |
|
|
|
(109 |
) |
|
|
15,338 |
|
|
Loss on disposal of assets
|
|
|
|
|
|
|
1 |
|
|
|
373 |
|
|
|
|
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,825 |
|
|
|
65,900 |
|
|
|
107,437 |
|
|
|
(4,627 |
) |
|
|
174,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(5,818 |
) |
|
|
9,408 |
|
|
|
14,142 |
|
|
|
|
|
|
|
17,732 |
|
Earnings (losses) from unconsolidated affiliates, net of losses
|
|
|
31,258 |
|
|
|
(922 |
) |
|
|
2,325 |
|
|
|
(31,310 |
) |
|
|
1,351 |
|
Interest income
|
|
|
13,733 |
|
|
|
50 |
|
|
|
985 |
|
|
|
(13,870 |
) |
|
|
898 |
|
Interest expense
|
|
|
(3,708 |
) |
|
|
(3 |
) |
|
|
(14,062 |
) |
|
|
13,870 |
|
|
|
(3,903 |
) |
Other income (expense), net
|
|
|
(261 |
) |
|
|
60 |
|
|
|
2,497 |
|
|
|
|
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
35,204 |
|
|
|
8,593 |
|
|
|
5,887 |
|
|
|
(31,310 |
) |
|
|
18,374 |
|
Allocation of consolidated income taxes
|
|
|
21,766 |
|
|
|
172 |
|
|
|
(16,954 |
) |
|
|
|
|
|
|
4,984 |
|
Minority interest
|
|
|
(38 |
) |
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13,400 |
|
|
$ |
8,421 |
|
|
$ |
22,889 |
|
|
$ |
(31,310 |
) |
|
$ |
13,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Nine Months Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues |
|
$ |
39 |
|
|
$ |
223,702 |
|
|
$ |
343,868 |
|
|
$ |
|
|
|
$ |
567,609 |
|
Intercompany revenues
|
|
|
|
|
|
|
5,566 |
|
|
|
6,534 |
|
|
|
(12,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
229,268 |
|
|
|
350,402 |
|
|
|
(12,100 |
) |
|
|
567,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
17 |
|
|
|
161,271 |
|
|
|
272,008 |
|
|
|
|
|
|
|
433,296 |
|
|
Intercompany expenses
|
|
|
|
|
|
|
6,535 |
|
|
|
5,236 |
|
|
|
(11,771 |
) |
|
|
|
|
|
Depreciation and amortization
|
|
|
69 |
|
|
|
13,642 |
|
|
|
18,449 |
|
|
|
|
|
|
|
32,160 |
|
|
General and administrative
|
|
|
18,873 |
|
|
|
11,396 |
|
|
|
16,065 |
|
|
|
(329 |
) |
|
|
46,005 |
|
|
Loss (gain) on disposal of assets
|
|
|
4 |
|
|
|
(142 |
) |
|
|
1,414 |
|
|
|
|
|
|
|
1,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,963 |
|
|
|
192,702 |
|
|
|
313,172 |
|
|
|
(12,100 |
) |
|
|
512,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(18,924 |
) |
|
|
36,566 |
|
|
|
37,230 |
|
|
|
|
|
|
|
54,872 |
|
Earnings (losses) from unconsolidated affiliates, net of losses
|
|
|
48,248 |
|
|
|
(2,959 |
) |
|
|
4,886 |
|
|
|
(48,405 |
) |
|
|
1,770 |
|
Interest income
|
|
|
40,938 |
|
|
|
138 |
|
|
|
3,160 |
|
|
|
(41,357 |
) |
|
|
2,879 |
|
Interest expense
|
|
|
(10,895 |
) |
|
|
(10 |
) |
|
|
(41,740 |
) |
|
|
41,357 |
|
|
|
(11,288 |
) |
Other income (expense), net
|
|
|
(717 |
) |
|
|
59 |
|
|
|
4,966 |
|
|
|
|
|
|
|
4,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
58,650 |
|
|
|
33,794 |
|
|
|
8,502 |
|
|
|
(48,405 |
) |
|
|
52,541 |
|
Allocation of consolidated income taxes
|
|
|
18,529 |
|
|
|
2,512 |
|
|
|
(8,588 |
) |
|
|
|
|
|
|
12,453 |
|
Minority interest
|
|
|
(117 |
) |
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
40,004 |
|
|
$ |
31,282 |
|
|
$ |
17,123 |
|
|
$ |
(48,405 |
) |
|
$ |
40,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended December 31, 2004
(Restated)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
253 |
|
|
$ |
61,027 |
|
|
$ |
110,887 |
|
|
$ |
|
|
|
$ |
172,167 |
|
Intercompany revenues
|
|
|
|
|
|
|
1,249 |
|
|
|
1,326 |
|
|
|
(2,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
62,276 |
|
|
|
112,213 |
|
|
|
(2,575 |
) |
|
|
172,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
8 |
|
|
|
47,880 |
|
|
|
85,219 |
|
|
|
|
|
|
|
133,107 |
|
|
Intercompany expenses
|
|
|
|
|
|
|
1,326 |
|
|
|
1,175 |
|
|
|
(2,501 |
) |
|
|
|
|
|
Depreciation and amortization
|
|
|
25 |
|
|
|
3,921 |
|
|
|
6,844 |
|
|
|
|
|
|
|
10,790 |
|
|
General and administrative
|
|
|
2,916 |
|
|
|
3,056 |
|
|
|
5,177 |
|
|
|
(74 |
) |
|
|
11,075 |
|
|
Gain on disposal of assets
|
|
|
|
|
|
|
(202 |
) |
|
|
(1,819 |
) |
|
|
|
|
|
|
(2,021 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,949 |
|
|
|
55,981 |
|
|
|
96,596 |
|
|
|
(2,575 |
) |
|
|
152,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(2,696 |
) |
|
|
6,295 |
|
|
|
15,617 |
|
|
|
|
|
|
|
19,216 |
|
Earnings from unconsolidated affiliates, net of losses
|
|
|
10,044 |
|
|
|
589 |
|
|
|
1,234 |
|
|
|
(10,098 |
) |
|
|
1,769 |
|
Interest income
|
|
|
13,028 |
|
|
|
31 |
|
|
|
1,048 |
|
|
|
(13,122 |
) |
|
|
985 |
|
Interest expense
|
|
|
(3,785 |
) |
|
|
(49 |
) |
|
|
(13,344 |
) |
|
|
13,122 |
|
|
|
(4,056 |
) |
Other expense, net
|
|
|
(137 |
) |
|
|
(5 |
) |
|
|
(2,457 |
) |
|
|
|
|
|
|
(2,599 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
16,454 |
|
|
|
6,861 |
|
|
|
2,098 |
|
|
|
(10,098 |
) |
|
|
15,315 |
|
Allocation of consolidated income taxes
|
|
|
6,306 |
|
|
|
4,999 |
|
|
|
(6,159 |
) |
|
|
|
|
|
|
5,146 |
|
Minority interest
|
|
|
(40 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
10,108 |
|
|
$ |
1,862 |
|
|
$ |
8,236 |
|
|
$ |
(10,098 |
) |
|
$ |
10,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Statement of Income
Nine Months Ended December 31, 2004
(Restated)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
703 |
|
|
$ |
188,147 |
|
|
$ |
314,345 |
|
|
$ |
|
|
|
$ |
503,195 |
|
Intercompany revenues
|
|
|
|
|
|
|
2,999 |
|
|
|
2,697 |
|
|
|
(5,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
703 |
|
|
|
191,146 |
|
|
|
317,042 |
|
|
|
(5,696 |
) |
|
|
503,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct costs
|
|
|
35 |
|
|
|
140,954 |
|
|
|
241,760 |
|
|
|
|
|
|
|
382,749 |
|
|
Intercompany expenses
|
|
|
|
|
|
|
2,697 |
|
|
|
2,609 |
|
|
|
(5,306 |
) |
|
|
|
|
|
Depreciation and amortization
|
|
|
87 |
|
|
|
11,256 |
|
|
|
20,477 |
|
|
|
|
|
|
|
31,820 |
|
|
General and administrative
|
|
|
8,292 |
|
|
|
8,978 |
|
|
|
16,204 |
|
|
|
(390 |
) |
|
|
33,084 |
|
|
Gain on disposal of assets
|
|
|
|
|
|
|
(1,774 |
) |
|
|
(6,403 |
) |
|
|
|
|
|
|
(8,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,414 |
|
|
|
162,111 |
|
|
|
274,647 |
|
|
|
(5,696 |
) |
|
|
439,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(7,711 |
) |
|
|
29,035 |
|
|
|
42,395 |
|
|
|
|
|
|
|
63,719 |
|
Earnings from unconsolidated affiliates, net of losses
|
|
|
26,404 |
|
|
|
1,784 |
|
|
|
4,064 |
|
|
|
(26,562 |
) |
|
|
5,690 |
|
Interest income
|
|
|
37,314 |
|
|
|
59 |
|
|
|
2,662 |
|
|
|
(37,867 |
) |
|
|
2,168 |
|
Interest expense
|
|
|
(11,272 |
) |
|
|
(195 |
) |
|
|
(38,370 |
) |
|
|
37,867 |
|
|
|
(11,970 |
) |
Other income (expense), net
|
|
|
(151 |
) |
|
|
12 |
|
|
|
(1,899 |
) |
|
|
|
|
|
|
(2,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
44,584 |
|
|
|
30,695 |
|
|
|
8,852 |
|
|
|
(26,562 |
) |
|
|
57,569 |
|
Allocation of consolidated income taxes
|
|
|
6,069 |
|
|
|
8,869 |
|
|
|
3,986 |
|
|
|
|
|
|
|
18,924 |
|
Minority interest
|
|
|
(169 |
) |
|
|
|
|
|
|
(130 |
) |
|
|
|
|
|
|
(299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
38,346 |
|
|
$ |
21,826 |
|
|
$ |
4,736 |
|
|
$ |
(26,562 |
) |
|
$ |
38,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
66,238 |
|
|
$ |
2,317 |
|
|
$ |
60,498 |
|
|
$ |
|
|
|
$ |
129,053 |
|
|
Accounts receivable
|
|
|
20,288 |
|
|
|
67,238 |
|
|
|
101,372 |
|
|
|
(33,992 |
) |
|
|
154,906 |
|
|
Inventories
|
|
|
|
|
|
|
73,595 |
|
|
|
76,209 |
|
|
|
|
|
|
|
149,804 |
|
|
Prepaid expenses and other
|
|
|
270 |
|
|
|
14,314 |
|
|
|
10,446 |
|
|
|
|
|
|
|
25,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
86,796 |
|
|
|
157,464 |
|
|
|
248,525 |
|
|
|
(33,992 |
) |
|
|
458,793 |
|
Intercompany investment
|
|
|
311,939 |
|
|
|
2,036 |
|
|
|
|
|
|
|
(313,975 |
) |
|
|
|
|
Investments in unconsolidated affiliates
|
|
|
4,905 |
|
|
|
1,164 |
|
|
|
33,959 |
|
|
|
|
|
|
|
40,028 |
|
Intercompany notes receivable
|
|
|
533,513 |
|
|
|
|
|
|
|
26,995 |
|
|
|
(560,508 |
) |
|
|
|
|
Property and equipment at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
171 |
|
|
|
24,852 |
|
|
|
9,662 |
|
|
|
|
|
|
|
34,685 |
|
|
Aircraft and equipment
|
|
|
1,505 |
|
|
|
335,004 |
|
|
|
488,510 |
|
|
|
|
|
|
|
825,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,676 |
|
|
|
359,856 |
|
|
|
498,172 |
|
|
|
|
|
|
|
859,704 |
|
Less: accumulated depreciation and amortization
|
|
|
(1,327 |
) |
|
|
(107,943 |
) |
|
|
(147,873 |
) |
|
|
|
|
|
|
(257,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349 |
|
|
|
251,913 |
|
|
|
350,299 |
|
|
|
|
|
|
|
602,561 |
|
Goodwill
|
|
|
|
|
|
|
18,593 |
|
|
|
8,133 |
|
|
|
111 |
|
|
|
26,837 |
|
Other assets
|
|
|
8,796 |
|
|
|
288 |
|
|
|
36,006 |
|
|
|
|
|
|
|
45,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
946,298 |
|
|
$ |
431,458 |
|
|
$ |
703,917 |
|
|
$ |
(908,364 |
) |
|
$ |
1,173,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,538 |
|
|
$ |
15,651 |
|
|
$ |
38,325 |
|
|
$ |
(13,757 |
) |
|
$ |
41,757 |
|
|
Accrued liabilities
|
|
|
18,468 |
|
|
|
20,195 |
|
|
|
103,928 |
|
|
|
(20,235 |
) |
|
|
122,356 |
|
|
Deferred taxes
|
|
|
(3,746 |
) |
|
|
(452 |
) |
|
|
10,037 |
|
|
|
|
|
|
|
5,839 |
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
|
|
|
|
4,548 |
|
|
|
|
|
|
|
4,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
16,260 |
|
|
|
35,394 |
|
|
|
156,838 |
|
|
|
(33,992 |
) |
|
|
174,500 |
|
Long-term debt, less current maturities
|
|
|
234,380 |
|
|
|
|
|
|
|
23,709 |
|
|
|
|
|
|
|
258,089 |
|
Intercompany notes payable
|
|
|
25,927 |
|
|
|
80,213 |
|
|
|
454,368 |
|
|
|
(560,508 |
) |
|
|
|
|
Other liabilities and deferred credits
|
|
|
3,427 |
|
|
|
10,205 |
|
|
|
146,811 |
|
|
|
|
|
|
|
160,443 |
|
Deferred taxes
|
|
|
35,650 |
|
|
|
914 |
|
|
|
30,937 |
|
|
|
|
|
|
|
67,501 |
|
Minority interest
|
|
|
1,814 |
|
|
|
|
|
|
|
2,372 |
|
|
|
|
|
|
|
4,186 |
|
Stockholders investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
233 |
|
|
|
4,062 |
|
|
|
21,418 |
|
|
|
(25,480 |
) |
|
|
233 |
|
|
Additional paid-in capital
|
|
|
157,837 |
|
|
|
51,170 |
|
|
|
13,476 |
|
|
|
(64,646 |
) |
|
|
157,837 |
|
|
Retained earnings
|
|
|
429,719 |
|
|
|
249,500 |
|
|
|
(19,500 |
) |
|
|
(230,000 |
) |
|
|
429,719 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
41,051 |
|
|
|
|
|
|
|
(126,512 |
) |
|
|
6,262 |
|
|
|
(79,199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628,840 |
|
|
|
304,732 |
|
|
|
(111,118 |
) |
|
|
(313,864 |
) |
|
|
508,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
946,298 |
|
|
$ |
431,458 |
|
|
$ |
703,917 |
|
|
$ |
(908,364 |
) |
|
$ |
1,173,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
23,947 |
|
|
$ |
7,907 |
|
|
$ |
114,586 |
|
|
$ |
|
|
|
$ |
146,440 |
|
|
Accounts receivable
|
|
|
19,108 |
|
|
|
41,253 |
|
|
|
97,484 |
|
|
|
(24,006 |
) |
|
|
133,839 |
|
|
Inventories
|
|
|
|
|
|
|
72,892 |
|
|
|
67,814 |
|
|
|
|
|
|
|
140,706 |
|
|
Prepaid expenses and other
|
|
|
470 |
|
|
|
2,529 |
|
|
|
8,460 |
|
|
|
|
|
|
|
11,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
43,525 |
|
|
|
124,581 |
|
|
|
288,344 |
|
|
|
(24,006 |
) |
|
|
432,444 |
|
Intercompany investment
|
|
|
297,709 |
|
|
|
1,046 |
|
|
|
|
|
|
|
(298,755 |
) |
|
|
|
|
Investments in unconsolidated affiliates
|
|
|
683 |
|
|
|
4,121 |
|
|
|
32,372 |
|
|
|
|
|
|
|
37,176 |
|
Intercompany notes receivable
|
|
|
554,655 |
|
|
|
|
|
|
|
10,727 |
|
|
|
(565,382 |
) |
|
|
|
|
Property and equipment at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
135 |
|
|
|
23,466 |
|
|
|
8,942 |
|
|
|
|
|
|
|
32,543 |
|
|
Aircraft and equipment
|
|
|
1,426 |
|
|
|
327,214 |
|
|
|
498,391 |
|
|
|
|
|
|
|
827,031 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,561 |
|
|
|
350,680 |
|
|
|
507,333 |
|
|
|
|
|
|
|
859,574 |
|
Less: accumulated depreciation and amortization
|
|
|
(1,398 |
) |
|
|
(100,549 |
) |
|
|
(148,565 |
) |
|
|
|
|
|
|
(250,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163 |
|
|
|
250,131 |
|
|
|
358,768 |
|
|
|
|
|
|
|
609,062 |
|
Goodwill
|
|
|
|
|
|
|
18,593 |
|
|
|
8,105 |
|
|
|
111 |
|
|
|
26,809 |
|
Other assets
|
|
|
6,543 |
|
|
|
634 |
|
|
|
36,908 |
|
|
|
|
|
|
|
44,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
903,278 |
|
|
$ |
399,106 |
|
|
$ |
735,224 |
|
|
$ |
(888,032 |
) |
|
$ |
1,149,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS INVESTMENT |
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
673 |
|
|
$ |
10,997 |
|
|
$ |
29,176 |
|
|
$ |
(5,206 |
) |
|
$ |
35,640 |
|
|
Accrued liabilities
|
|
|
9,364 |
|
|
|
22,868 |
|
|
|
88,472 |
|
|
|
(18,800 |
) |
|
|
101,904 |
|
|
Deferred taxes
|
|
|
4,740 |
|
|
|
|
|
|
|
13,000 |
|
|
|
|
|
|
|
17,740 |
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
|
|
|
|
6,413 |
|
|
|
|
|
|
|
6,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,777 |
|
|
|
33,865 |
|
|
|
137,061 |
|
|
|
(24,006 |
) |
|
|
161,697 |
|
Long-term debt, less current maturities
|
|
|
230,000 |
|
|
|
|
|
|
|
25,667 |
|
|
|
|
|
|
|
255,667 |
|
Intercompany notes payable
|
|
|
10,246 |
|
|
|
86,103 |
|
|
|
469,033 |
|
|
|
(565,382 |
) |
|
|
|
|
Other liabilities and deferred credits
|
|
|
3,065 |
|
|
|
416 |
|
|
|
161,247 |
|
|
|
|
|
|
|
164,728 |
|
Deferred taxes
|
|
|
37,307 |
|
|
|
1,773 |
|
|
|
30,897 |
|
|
|
|
|
|
|
69,977 |
|
Minority interest
|
|
|
2,131 |
|
|
|
|
|
|
|
2,383 |
|
|
|
|
|
|
|
4,514 |
|
Stockholders investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
233 |
|
|
|
4,062 |
|
|
|
13,941 |
|
|
|
(18,003 |
) |
|
|
233 |
|
|
Additional paid-in capital
|
|
|
157,100 |
|
|
|
51,169 |
|
|
|
13,477 |
|
|
|
(64,646 |
) |
|
|
157,100 |
|
|
Retained earnings
|
|
|
389,715 |
|
|
|
221,718 |
|
|
|
(5,723 |
) |
|
|
(215,995 |
) |
|
|
389,715 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
58,704 |
|
|
|
|
|
|
|
(112,759 |
) |
|
|
|
|
|
|
(54,055 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
605,752 |
|
|
|
276,949 |
|
|
|
(91,064 |
) |
|
|
(298,644 |
) |
|
|
492,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
903,278 |
|
|
$ |
399,106 |
|
|
$ |
735,224 |
|
|
$ |
(888,032 |
) |
|
$ |
1,149,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash
Flows
Nine Months Ended December 31, 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided by (used in) operating activities
|
|
$ |
42,014 |
|
|
$ |
20,813 |
|
|
$ |
7,735 |
|
|
$ |
(39,213 |
) |
|
$ |
31,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(331 |
) |
|
|
(78,391 |
) |
|
|
(23,585 |
) |
|
|
|
|
|
|
(102,307 |
) |
|
Proceeds from asset dispositions
|
|
|
73 |
|
|
|
70,373 |
|
|
|
2,174 |
|
|
|
|
|
|
|
72,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(258 |
) |
|
|
(8,018 |
) |
|
|
(21,411 |
) |
|
|
|
|
|
|
(29,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash collateral provided under operating leases
|
|
|
|
|
|
|
(10,285 |
) |
|
|
|
|
|
|
|
|
|
|
(10,285 |
) |
|
Repayment of debt
|
|
|
|
|
|
|
|
|
|
|
(3,160 |
) |
|
|
|
|
|
|
(3,160 |
) |
|
Repayment of intercompany debt
|
|
|
(1 |
) |
|
|
(4,600 |
) |
|
|
(212 |
) |
|
|
4,813 |
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
(3,500 |
) |
|
|
(30,900 |
) |
|
|
34,400 |
|
|
|
|
|
|
Partial prepayment of put/call obligation
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
|
Issuance of common stock
|
|
|
602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
535 |
|
|
|
(18,385 |
) |
|
|
(34,272 |
) |
|
|
39,213 |
|
|
|
(12,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(6,140 |
) |
|
|
|
|
|
|
(6,140 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
42,291 |
|
|
|
(5,590 |
) |
|
|
(54,088 |
) |
|
|
|
|
|
|
(17,387 |
) |
Cash and cash equivalents at beginning of period
|
|
|
23,947 |
|
|
|
7,907 |
|
|
|
114,586 |
|
|
|
|
|
|
|
146,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
66,238 |
|
|
$ |
2,317 |
|
|
$ |
60,498 |
|
|
$ |
|
|
|
$ |
129,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial
Statements (Continued)
Supplemental Condensed Consolidating Statement of Cash
Flows
Nine Months Ended December 31, 2004
(Restated)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent | |
|
|
|
Non- | |
|
|
|
|
|
|
Company | |
|
Guarantor | |
|
Guarantor | |
|
|
|
|
|
|
Only | |
|
Subsidiaries | |
|
Subsidiaries | |
|
Eliminations | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities
|
|
$ |
(4,560 |
) |
|
$ |
43,427 |
|
|
$ |
66,746 |
|
|
$ |
(25,741 |
) |
|
$ |
79,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(98 |
) |
|
|
(44,256 |
) |
|
|
(9,513 |
) |
|
|
2,178 |
|
|
|
(51,689 |
) |
|
Proceeds from asset dispositions
|
|
|
8,011 |
|
|
|
12,234 |
|
|
|
21,738 |
|
|
|
(2,178 |
) |
|
|
39,805 |
|
|
Acquisition, net of cash received
|
|
|
|
|
|
|
|
|
|
|
(1,986 |
) |
|
|
|
|
|
|
(1,986 |
) |
|
Investments
|
|
|
1,000 |
|
|
|
(1,150 |
) |
|
|
(8,016 |
) |
|
|
|
|
|
|
(8,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
8,913 |
|
|
|
(33,172 |
) |
|
|
2,223 |
|
|
|
|
|
|
|
(22,036 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
|
|
|
|
|
|
|
987 |
|
|
|
(987 |
) |
|
|
|
|
|
Repayment of debt
|
|
|
|
|
|
|
|
|
|
|
(1,794 |
) |
|
|
|
|
|
|
(1,794 |
) |
|
Repayment of intercompany debt
|
|
|
(18,415 |
) |
|
|
(8,000 |
) |
|
|
(313 |
) |
|
|
26,728 |
|
|
|
|
|
|
Partial prepayment of put/call obligation
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51 |
) |
|
Repurchase of shares from minority interests
|
|
|
(7,389 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,389 |
) |
|
Issuance of common stock
|
|
|
11,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(13,984 |
) |
|
|
(8,000 |
) |
|
|
(1,120 |
) |
|
|
25,741 |
|
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
3,768 |
|
|
|
|
|
|
|
3,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(9,631 |
) |
|
|
2,255 |
|
|
|
71,617 |
|
|
|
|
|
|
|
64,241 |
|
Cash and cash equivalents at beginning of period
|
|
|
31,106 |
|
|
|
5,990 |
|
|
|
48,583 |
|
|
|
|
|
|
|
85,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
21,475 |
|
|
$ |
8,245 |
|
|
$ |
120,200 |
|
|
$ |
|
|
|
$ |
149,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
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 (formerly, Offshore
Logistics, Inc.) as of December 31, 2005 and the related
condensed consolidated statements of income and cash flows for
the three-month and nine-month periods ended December 31,
2005 and 2004. These condensed consolidated financial statements
are the responsibility of the Companys management.
We conducted our reviews in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting
principles.
As discussed in Note A to the Condensed Notes to Consolidated
Financial Statements, the condensed consolidated statements of
income and cash flows for the three-month and nine-month periods
ended December 31, 2004 have been restated.
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, 2005, and the related
consolidated statements of income, stockholders
investment, and cash flows for the year then ended (not
presented herein); and in our report dated June 9, 2005,
except for the Restatement of Previously Reported
Amounts section in Note A, the ninth paragraph of Note B,
the Internal Review section of Note D, and Note M,
as to which the date is December 9, 2005, 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, 2005,
is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
New Orleans, Louisiana
February 3, 2006
29
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations. |
Managements Discussion and Analysis of Financial Condition
and Results of Operations, or MD&A, should be read in
conjunction with the accompanying unaudited condensed
consolidated financial statements and the notes thereto as well
as our Annual Report on
Form 10-K for the
fiscal year ended March 31, 2005 (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 December 31, 2005 and 2004, respectively, and the
terms Current Period and Comparable
Period refer to the nine months ended December 31,
2005 and 2004, respectively. As discussed further in Note A
in the Condensed Notes to Consolidated Financial
Statements, on February 1, 2006, the name of the
Company changed from Offshore Logistics, Inc. to Bristow Group
Inc.
Amounts previously reported for the Comparable Quarter and
Period have been restated to reflect adjustments to accrue for
liabilities and expenses identified in connection with the
Internal Review, to properly report customer reimbursables as
revenues rather than offsetting such amounts against the related
expenses and to properly record expenses for severance benefits
and payroll taxes associated with certain foreign subsidiaries.
See Restatement of Previously Reported Amounts in
Note A and Internal Review in Note E in
the Condensed Notes to Consolidated Financial
Statements as well as Investigations and
Restatement of Previously Reported Amounts below for
further discussion of these matters.
Forward-Looking Statements
This Form 10-Q for
December 31, 2005 (Quarterly Report) contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are statements about our future
business, strategy, operations, capabilities and results;
financial projections; plans and objectives of our management;
expected actions by us and by third parties, including our
customers, competitors and regulators; and other matters. Some
of the forward-looking statements can be identified by the use
of words such as believes, belief, expects, plans, anticipates,
intends, projects, estimates, may, might, would, could or other
similar words. All statements in this Quarterly Report, other
than statements of historical fact or historical financial
results, are forward-looking statements.
Our forward-looking statements reflect our views and assumptions
on the date of this Quarterly Report regarding future events and
operating performance. We believe that they are reasonable, but
they involve known and unknown risks, uncertainties and other
factors, many of which may be beyond our control, that may cause
actual results to differ materially from any future results,
performance or achievements expressed or implied by the
forward-looking statements. Accordingly, you should not put
undue reliance on any forward-looking statements. Factors that
could cause our forward-looking statements to be incorrect and
actual events or our actual results to differ from those that
are anticipated include those Risk Factors disclosed in our
Annual Report; the cautionary statements made in our Annual
Report with respect to our forward-looking statements; the risks
cited in, and the cautionary statements made in, our
Forms 10-Q
and 8-K filed
during the current fiscal year; the level of activity in the oil
and natural gas industry; production related activities becoming
more sensitive to variances in commodity prices; and the DOJ or
the SEC investigation having a greater than anticipated
financial 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 bearing on our financial condition and operating
performance.
30
We are a leading provider of helicopter transportation services
to the worldwide offshore oil and gas industry with major
operations in the U.S. Gulf of Mexico and the North Sea. We
also have operations, both directly and indirectly, in most of
the other major offshore oil and gas producing regions of the
world, including Alaska, Australia, Brazil, China, Mexico,
Nigeria, Russia and Trinidad. Additionally, we are a leading
provider of production management services for oil and gas
production facilities in the U.S. Gulf of Mexico. As of
December 31, 2005, we operated 324 aircraft (excluding
eight aircraft held for sale) and our unconsolidated affiliates
operated an additional 140 aircraft throughout the world.
The following table sets forth the number of our aircraft
operated as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, | |
|
As of December 31, | |
|
|
2005 | |
|
2005 | |
|
|
| |
|
| |
North America
|
|
|
166 |
|
|
|
166 |
|
South and Central America
|
|
|
34 |
|
|
|
33 |
|
Europe
|
|
|
45 |
|
|
|
45 |
|
West Africa
|
|
|
45 |
|
|
|
47 |
|
Southeast Asia
|
|
|
22 |
|
|
|
14 |
|
Other International
|
|
|
8 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
320 |
|
|
|
324 |
|
|
|
|
|
|
|
|
Additional aircraft operated by unconsolidated affiliates
|
|
|
113 |
|
|
|
140 |
|
|
|
|
|
|
|
|
Worldwide demand for hydrocarbons is expected to continue to
grow for the foreseeable future. This growth, driven largely by
economic expansion, is expected to result in sustained strength
in oil and natural gas prices, driving further increases in
offshore exploration and development activity by our customers.
We believe this increase in offshore exploration and development
activity is also likely to lead to growth in production related
activities as these development projects come on stream. As a
result of the current commodity price environment, we have
experienced an increase in aircraft fleet utilization in all of
our present markets and expect this trend to continue. In
addition, as operators increasingly pursue prospects in
deepwater and push further offshore, we expect demand for medium
and large helicopters to be further stimulated.
In particular, we expect growth in demand for additional
helicopter support in North and South America, West Africa and
Asia, including the Caspian Sea region. This growth will provide
us with opportunities to add new aircraft to our fleet, as well
as opportunities to redeploy aircraft from weaker markets into
markets that will sustain higher rates for our services.
Currently, helicopter manufacturers are indicating very limited
supply availability during the next three years. We expect that
this tightness in aircraft availability from the manufacturers
and the lack of suitable aircraft in the secondary market,
coupled with the increase in demand for helicopter support, will
result in upward pressure on the rates we charge for our
services. At the same time, we believe that our recent aircraft
acquisitions and commitments position us to capture a portion of
the upside created by the current market conditions.
Current activity levels in the Gulf of Mexico are at or near
all-time highs. In the near term, we also believe that the
impact of hurricanes Katrina and Rita will result in higher
activity levels as operators repair facilities and work to bring
production back on line. Furthermore, our North Sea activities
are under strong pricing pressure as one particular competitor
is aggressively seeking to gain market share with lower rates.
At the same time, while contracts in the North Sea are generally
long term, we have experienced a recent trend of increased spot
market contracting of helicopters as exploration activity has
increased in the North Sea. Our Other International operations
have experienced high aircraft utilization, and we expect this
trend to continue. Due to the current high levels of fleet
utilization, we have experienced, along with other helicopter
operators, some difficulty in meeting our customers needs
for short-notice exploration drilling support, particularly in
remote international locations. Our operations in Nigeria and a
South American country are likely to be negatively affected as a
result of our actions taken in connection with the Internal
Review, as discussed in more detail below under
Investigations.
31
The following table presents our operating results and other
income statement information for the applicable periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004(1) | |
|
2005 | |
|
2004(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Operating revenues
|
|
$ |
192,267 |
|
|
$ |
172,167 |
|
|
$ |
567,609 |
|
|
$ |
503,195 |
|
Direct costs
|
|
|
(148,170 |
) |
|
|
(133,107 |
) |
|
|
(433,296 |
) |
|
|
(382,749 |
) |
Depreciation and amortization
|
|
|
(10,653 |
) |
|
|
(10,790 |
) |
|
|
(32,160 |
) |
|
|
(31,820 |
) |
General and administrative
|
|
|
(15,338 |
) |
|
|
(11,075 |
) |
|
|
(46,005 |
) |
|
|
(33,084 |
) |
Gain (loss) on disposal of assets
|
|
|
(374 |
) |
|
|
2,021 |
|
|
|
(1,276 |
) |
|
|
8,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
17,732 |
|
|
|
19,216 |
|
|
|
54,872 |
|
|
|
63,719 |
|
Earnings from unconsolidated affiliates, net of losses
|
|
|
1,351 |
|
|
|
1,769 |
|
|
|
1,770 |
|
|
|
5,690 |
|
Interest expense, net
|
|
|
(3,005 |
) |
|
|
(3,071 |
) |
|
|
(8,409 |
) |
|
|
(9,802 |
) |
Other income, net
|
|
|
2,296 |
|
|
|
(2,599 |
) |
|
|
4,308 |
|
|
|
(2,038 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
18,374 |
|
|
|
15,315 |
|
|
|
52,541 |
|
|
|
57,569 |
|
Provision for income taxes
|
|
|
(4,984 |
) |
|
|
(5,146 |
) |
|
|
(12,453 |
) |
|
|
(18,924 |
) |
Minority interest
|
|
|
10 |
|
|
|
(61 |
) |
|
|
(84 |
) |
|
|
(299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
13,400 |
|
|
$ |
10,108 |
|
|
$ |
40,004 |
|
|
$ |
38,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Amounts previously reported for the Comparable Quarter and
Period have been restated to reflect adjustments to accrue for
liabilities and expenses identified in connection with the
Internal Review, to properly report customer reimbursables as
revenues rather than offsetting such amounts against the related
expenses and to properly record expenses for severance benefits
and payroll taxes associated with certain foreign subsidiaries.
See Restatement of Previously Reported Amounts in
Note A and Internal Review in Note E in
the Condensed Notes to Consolidated Financial
Statements as well as Investigations and
Restatement of Previously Reported Amounts below for
further discussion of these matters. |
In February 2005, we voluntarily advised the staff of the SEC
that the Audit Committee of our Board of Directors had engaged
special outside counsel to undertake a review of certain
payments made by two of our affiliated entities in a foreign
country. The Internal Review of these payments, which initially
focused on Foreign Corrupt Practices Act matters, was
subsequently expanded to cover operations in other countries and
other issues. In connection with this review, special outside
counsel to the Audit Committee retained forensic accountants.
The SEC then notified us that it had initiated an informal
inquiry and requested that we provide certain documents on a
voluntary basis. Subsequently, the SEC advised us that the
inquiry had become an investigation. We have responded to the
SECs requests for documents and are continuing to do so.
The Internal Review is complete and the accompanying financial
statements reflect all known required restatements. As a
follow-up to matters
identified during the course of the Internal Review, Special
Counsel to the Audit Committee is completing certain work, and
may be called upon to undertake additional work in the future to
assist in responding to inquiries from the SEC, from other
governmental authorities or customers, or as
follow-up to the steps
being performed by Special Counsel.
32
In October 2005, the Audit Committee reached certain conclusions
with respect to findings to date from the Internal Review. The
Audit Committee concluded that, over a considerable period of
time, (a) improper payments were made by, and on behalf of,
certain foreign affiliated entities directly or indirectly to
employees of the Nigerian government, (b) improper payments
were made by certain foreign affiliated entities to Nigerian
employees of certain customers with whom we have contracts,
(c) inadequate employee payroll declarations and, in
certain instances, tax payments were made by us or our
affiliated entities in certain jurisdictions,
(d) inadequate valuations for customs purposes may have
been declared in certain jurisdictions resulting in the
underpayment of import duties, and (e) an affiliated entity
in a South American country, with the assistance of our
personnel and two of our other affiliated entities, engaged in
transactions which appear to have assisted the South American
entity in the circumvention of currency transfer restrictions
and other regulations. In addition, as a result of the Internal
Review, the Audit Committee and management determined that there
were deficiencies in our books and records and internal controls
with respect to the foregoing and certain other activities.
Based on the Audit Committees findings and
recommendations, the Board of Directors has taken disciplinary
action with respect to our personnel who it determined bore
responsibility for these matters. The disciplinary actions
included termination or resignation of employment (including of
certain members of senior management), changes of job
responsibility, reductions in incentive compensation payments
and reprimands. One of our affiliates has also obtained the
resignation of certain of its personnel.
We have initiated remedial action, including initiating action
to correct underreporting of payroll tax, disclose to certain
customers inappropriate payments made to customer personnel and
terminate certain agency, business and joint venture
relationships. We also have taken steps to reinforce our
commitment to conduct our business with integrity by creating an
internal corporate compliance function, instituting a new code
of business conduct (our new code of business conduct entitled
Code of Business Integrity is available on our
website, http://www.bristowgroup.com), and developing and
implementing a training program for all employees. In addition
to the disciplinary actions referred to above, we have also
taken steps to strengthen our control environment by hiring new
personnel and realigning reporting lines within the accounting
function so that field accounting reports directly to the
corporate accounting function instead of operations management.
In connection with the Audit Committees conclusions, we
will voluntarily advise certain foreign governmental authorities
of the Audit Committees findings. We have not yet advised
such foreign governmental authorities of the Audit Committee
findings, but intend to do so. Such disclosure may result in
legal and administrative proceedings, the institution of
administrative, civil injunctive or criminal proceedings
involving us and/or current or former employees, officers and/or
directors who are within the jurisdictions of such authorities,
the imposition of fines and other penalties, remedies and/or
sanctions, including precluding us from participating in
business operations in their countries. To the extent that
violations of the law may have occurred in several countries in
which we operate, we do not yet know whether such violations can
be cured merely by the payment of fines or whether other actions
may be taken against us, including requiring us to curtail our
business operations in one or more such countries for a period
of time. In the event that we curtail our business operations in
any such country, we may face difficulties exporting our
aircraft. As of December 31, 2005, the book values of our
aircraft in Nigeria and the South American country where certain
improper activities took place were approximately
$117.0 million and $2.8 million, respectively.
We cannot predict the ultimate outcome of the SEC investigation,
nor can we predict whether other applicable U.S. and foreign
governmental authorities will initiate separate investigations.
The outcome of the SEC investigation and any related legal and
administrative proceedings could include the institution of
administrative, civil injunctive or criminal proceedings
involving us and/or current or former employees, officers and/or
directors, the imposition of fines and other penalties, remedies
and/or sanctions, modifications to business practices and
compliance programs and/or referral to other governmental
agencies for other appropriate actions. It is not possible to
accurately predict at this time when matters relating to the SEC
investigation will be completed, the final outcome of the SEC
investigation, what if any actions may be taken by the SEC or by
other governmental agencies in the U.S. or in foreign
jurisdictions, or the effect that such actions may have on our
consolidated financial statements. In addition, in view of the
findings of the Internal Review, we expect to encounter
difficulties in the future conducting business in Nigeria and a
South
33
American country, and with certain customers. It is also
possible that certain of our existing contracts may be cancelled
and that we may become subject to claims by third parties,
possibly resulting in litigation. The matters identified in the
Internal Review and their effects could have a material adverse
effect on our business, financial condition and results of
operations.
As discussed further in our Annual Report, in connection with
its conclusions regarding payroll declarations and tax payments,
the Audit Committee determined on November 23, 2005,
following the recommendation of our senior management, that
there was a need to restate our historical consolidated
financial statements, including those for the quarterly periods
in fiscal year 2005. As of December 31, 2005, we have
accrued $18.8 million for the taxes, penalties and interest
attributable to underreported employee payroll. Operating income
for the Current Quarter and Period includes $1.0 million
and $3.0 million, respectively, attributable to this
accrual. Operating income for the Comparable Quarter and Period
includes $0.9 million and $2.8 million, respectively,
attributable to this accrual. At this time, we cannot estimate
what additional payments, fines, penalties and/or litigation and
related expenses may be required in connection with the matters
identified as a result of the Internal Review, the SEC
investigation, any other regulatory investigation that may be
instituted or third-party litigation; however, such payments,
fines, penalties and/or expenses could have a material adverse
effect on our business, financial condition and results of
operations.
As we continue to respond to the SEC investigation and other
governmental authorities and take other actions relating to
improper activities that have been identified in connection with
the Internal Review, there can be no assurance that additional
restatements will not be required or that the historical
financial statements included in this Quarterly Report will not
change or require amendment. In addition, new issues may be
identified that may impact our financial statements and the
scope of the restatements described in this Quarterly Report and
our Annual Report and lead us to take other remedial actions or
that may otherwise adversely impact us.
Through December 31, 2005, we have incurred approximately
$12.4 million, including $2.2 million and
$10.3 million in the Current Quarter and Period,
respectively, in legal and other professional costs in
connection with the Internal Review. We expect to incur
additional costs associated with the Internal Review, which will
be expensed as incurred and which could be significant in the
fiscal quarters in which they are recorded.
As a result of the disclosure and remediation of a number of
activities identified in the Internal Review, we expect to
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 may be
significantly impacted.
We have commenced actions to disclose activities in Nigeria
identified in the Internal Review to affected customers, and one
or more of these customers may seek to cancel their contracts
with us. One such customer has already commenced its own
investigation. Among other things, we have been advised that
such customer intends to exercise its rights to audit a specific
contract, as well as to review its other relations with us.
Although we have no indication as to what the final outcome of
the audit and review will be, it is possible that such customer
may seek to cancel one or more existing contracts if it believes
that they were improperly obtained or that we breached any of
their terms. Since our customers in Nigeria are affiliates of
major international petroleum companies, with whom we do
business throughout the world, any actions which are taken by
certain customers could have a material adverse effect on our
business, financial position and results of operations, and
these customers may preclude us from bidding on future business
with them either locally or on a worldwide basis. In addition,
applicable governmental authorities may preclude us from bidding
on contracts to provide services in the countries where improper
activities took place.
In connection with the Internal Review, we also have terminated
our business relationship with certain agents and have taken
actions to terminate business relationships with other agents.
One of the terminated agents and his affiliated entity have
commenced litigation against two of our foreign affiliated
entities claiming damages of $16.3 million for breach of
contract. We may be required to indemnify certain of our agents
to the extent that regulatory authorities seek to hold them
responsible in connection with activities identified in the
Internal Review.
34
In a South American country where certain improper activities
took place, we are negotiating to terminate our ownership
interest in the joint venture that provides us with the local
ownership content necessary to meet local regulatory
requirements for operating in that country. During fiscal year
2005, we derived approximately $9.9 million of leasing and
other revenues, of which $3.2 million was paid by us to a
third party for the use of the aircraft, and received
approximately $0.3 of dividend income from this joint venture.
During the Current Period, we derived approximately
$6.3 million of leasing and other revenues, of which
$3.0 million was paid by us to a third party for the use of
the aircraft, and received no dividend income from this joint
venture. Without a joint venture partner, we will be unable to
maintain an operating license and our future activities in that
country may be limited to leasing our aircraft to unrelated
operating companies. Our joint venture partners and agents are
typically influential members of the local business community
and instrumental in aiding us in obtaining contracts and
managing our affairs in the local country. As a result of
terminating these relationships, our ability to continue
conducting business in these countries where the improper
activities took place may be negatively affected. We may not be
successful in our negotiations to terminate our ownership
interest in the joint venture, and the outcome of such
negotiations may negatively affect our ability to continue
leasing our aircraft to the joint venture or other unrelated
operating companies or conducting other business in that
country, to export our aircraft or to recover its investment in
the joint venture.
Many of the improper actions identified in the Internal Review
resulted in decreasing the costs incurred by us in performing
our services. The remedial actions we are taking will result in
an increase in these costs and, if we cannot raise our prices
simultaneously and to the same extent of our increased costs,
our operating income will decrease.
|
|
|
Document Subpoena from U.S. Department of
Justice |
On June 15, 2005, we issued a press release disclosing that
one of our subsidiaries received a document subpoena from the
Antitrust Division of the DOJ. The subpoena pertains to a grand
jury investigation of potential antitrust violations among
providers of helicopter transportation services in the
U.S. Gulf of Mexico. We are continuing to investigate this
matter and intend to comply with requests for information from
the DOJ in connection with this investigation. The outcome of
the DOJ investigation and any related legal and administrative
proceedings could include civil injunctive or criminal
proceedings, the imposition of fines and other penalties,
remedies and/or sanctions and/or referral to other governmental
agencies and/or the payment of damages in civil litigation. To
date, we have not identified any material adjustments to our
financial statements in connection with the investigation and do
not expect, based on information developed to date, that any
such adjustment is likely to be required. In connection with
this matter, we have incurred $1.0 million in legal and
professional fees for the Current Period. We expect to incur
further costs associated with this investigation, which will be
expensed as incurred and which could be significant in the
fiscal quarters in which they are recorded. For additional
information regarding the DOJ investigation, see Document
Subpoena from U.S. Department of Justice in
Note E in the Condensed Notes to Consolidated
Financial Statements.
|
|
|
Restatement of Previously Reported Amounts |
As a result of the Internal Review findings discussed further in
Note E in the Condensed Notes to Consolidated
Financial Statements, we restated our historical financial
statements to accrue for payroll taxes, penalties and interest
attributable to underreported employee payroll. For further
information regarding the Internal Review and related matters,
including our restatement of our historical financial
statements, refer to the Annual Report. Our restated condensed
consolidated statements of income included in this Quarterly
Report reflect reductions in operating income of
$0.9 million for the Comparable Quarter and
$2.8 million for the Comparable Period in connection with
this matter. As of December 31, 2005, accrued liabilities
includes $18.8 million related to this matter. At this
time, we cannot estimate what additional payments, fines and/or
penalties may be required in connection with the matters
identified as a result of the Internal Review or the related SEC
investigation; however, such payments, fines and/or penalties
could have a material adverse effect on our business, financial
condition and results of operations.
35
Our management has separately determined that we were not
reporting reimbursements received from our customers for costs
incurred on their behalf in accordance with GAAP. Our customers
reimburse us for certain costs incurred on their behalf, which
have historically been recorded by offsetting such amounts
against the related expenses. In addition, our management has
determined that we did not properly record expenses related to
severance benefits for certain employees of a foreign subsidiary
and we did not properly record expenses related to payroll taxes
incurred by one of our foreign subsidiaries. In accordance with
GAAP, we have restated our historical financial statements for
the Comparable Quarter and Period, to reflect such reimbursement
as an increase in revenue and a corresponding increase in
expense, and we increased direct costs to reflect the severance
obligation and payroll taxes in the applicable periods. With
respect to customer reimbursements, operating revenues and
direct costs were increased $16.2 million for the
Comparable Quarter and $41.1 million for the Comparable
Period, from previously reported amounts, with no impact on
income from operations or net income. With respect to the
severance benefits and payroll taxes, direct costs were
increased by $0.2 million for the Comparable Quarter and
$0.7 million for the Comparable Period.
The impact of these adjustments on the consolidated statements
of income and cash flows is reflected in the tables below (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, 2004 | |
|
December 31, 2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
|
|
As | |
|
|
|
As | |
|
|
|
|
Previously | |
|
|
|
Previously | |
|
|
|
|
Reported | |
|
Restated | |
|
Reported | |
|
Restated | |
Statements of Income |
|
| |
|
| |
|
| |
|
| |
Operating revenues
|
|
$ |
155,977 |
|
|
$ |
172,167 |
|
|
$ |
462,083 |
|
|
$ |
503,195 |
|
Direct costs
|
|
|
115,719 |
|
|
|
133,107 |
|
|
|
338,058 |
|
|
|
382,749 |
|
Total operating expenses
|
|
|
135,563 |
|
|
|
152,951 |
|
|
|
394,785 |
|
|
|
439,476 |
|
Operating income
|
|
|
20,414 |
|
|
|
19,216 |
|
|
|
67,298 |
|
|
|
63,719 |
|
Income before provision for taxes and minority interests
|
|
|
16,513 |
|
|
|
15,315 |
|
|
|
61,148 |
|
|
|
57,569 |
|
Provision for income taxes
|
|
|
4,953 |
|
|
|
5,146 |
|
|
|
18,344 |
|
|
|
18,924 |
|
Net income
|
|
|
11,499 |
|
|
|
10,108 |
|
|
|
42,505 |
|
|
|
38,346 |
|
Basic EPS
|
|
|
0.49 |
|
|
|
0.43 |
|
|
|
1.85 |
|
|
|
1.67 |
|
Diluted EPS
|
|
|
0.49 |
|
|
|
0.43 |
|
|
|
1.82 |
|
|
|
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
December 31, 2004 | |
|
|
| |
|
|
(Unaudited) | |
|
|
As | |
|
|
|
|
Previously | |
|
|
|
|
Reported | |
|
Restated | |
Statements of Cash Flows |
|
| |
|
| |
Net income
|
|
$ |
42,505 |
|
|
$ |
38,346 |
|
Deferred taxes
|
|
|
5,470 |
|
|
|
6,415 |
|
Decrease in accrued liabilities
|
|
|
(4,322 |
) |
|
|
(1,108 |
) |
Net cash provided by operating activities
|
|
|
79,872 |
|
|
|
79,872 |
|
In addition, certain information in Notes B, H, I and J in
the Condensed Notes to Consolidated Financial
Statements has been restated to reflect the effect of
these adjustments. Certain amounts in the above presentation for
2004 have been reclassified to conform to the current year
presentation. Specifically, gains and losses on asset disposals
were previously included in revenues but are now included in
operating expenses.
We employ approximately 300 pilots in our North American
Operations who are represented by the Office and Professional
Employees International Union (OPEIU) under a
collective bargaining agreement. We and the pilots represented
by the OPEIU ratified an amended collective bargaining agreement
on April 4, 2005. The terms under the amended agreement are
fixed until October 3, 2008 and include a wage increase for
36
the pilot group and improvements to several benefit plans. We do
not expect the new agreement to have a material effect on our
future operating expenses.
In January 2005, Bristow was awarded two contracts to provide
helicopter services in the North Sea. The first is a seven-year
contract that began on July 1, 2005 at the conclusion of
the current seven-year contract, and is for a total of two large
and four medium aircraft. The second contract is a five-year
contract that began on April 1, 2005 and utilizes two large
aircraft. Additionally, Bristow was awarded the renewal of a
contract in Nigeria with an international oil company in January
2005 for a minimum of five medium aircraft. The contract term is
for five years beginning on April 1, 2005.
In May 2005, Bristow was awarded a three-year extension to the
Integrated Aviation Consortium (IAC) contract. This
extension began on July 1, 2005 and will continue the
utilization of five large aircraft.
In December 2005, we were informed that we were not awarded the
contract extension commencing in mid-2007 to provide search and
rescue services using seven
S-61 aircraft and
operate four helicopter bases for the U.K. Maritime and
Coastguard Agency. During fiscal year 2005 and for the Current
Period, we had $26.4 million and $20.6 million,
respectively, in operating revenues associated with this
contract.
On December 30, 2005, we sold nine aircraft for
$68.6 million in aggregate to a subsidiary of General
Electric Capital Corporation, and then leased back each of the
nine aircraft under separate operating leases with terms of ten
years expiring in January 2016. There was a deferred gain on the
sale of the aircraft in the amount of approximately
$10.8 million in aggregate. See Liquidity and
Capital Resources Financing Activities for
further information related to this transaction.
General
We operate our business in two segments: Helicopter Services and
Production Management Services. We conduct our Helicopter
Services through the following six business units:
|
|
|
|
|
North America; |
|
|
|
South and Central America; |
|
|
|
Europe; |
|
|
|
West Africa; |
|
|
|
Southeast Asia; and |
|
|
|
Other International. |
For the Current Period, our North America, South and Central
America, Europe, West Africa, Southeast Asia and Other
International business units contributed 28%, 6%, 30%, 16%, 8%
and 3%, respectively, of our operating revenue. We expect that
the percentage of our operating revenue derived from our
Southeastern Asia and Other International business units will
continue to increase as the major oil and gas companies
increasingly focus on prospects outside of North America and the
North Sea. Our Production Management Services segment
contributed the remaining 9% of our operating revenue for the
Current Period.
Helicopter Services are seasonal in nature, as our flight
activities are influenced by the length of daylight hours and
weather conditions. The worst of these conditions typically
occurs during the winter months when our ability to safely fly
and our customers ability to safely conduct their
operations is inhibited. Accordingly, our flight activity is
generally lower in the fourth fiscal quarter.
Our operating revenue depends on the demand for our services and
the pricing terms of our contracts. We measure the demand for
our helicopter services in flight hours. Demand for our services
depends on the level of worldwide offshore oil and gas
exploration, development and production activities. We believe
that our customers exploration and development activities
are influenced by actual and expected trends in commodity prices
for oil and gas. Exploration and development activities
generally use medium-size and larger aircraft on which we
typically earn higher margins. We believe that
production-related activities are less sensitive to variances in
commodity prices, and accordingly provide a more stable activity
level and revenue stream. We
37
estimate that a majority of our operating revenue from
Helicopter Services is related to the production activities of
the oil and gas companies.
Our helicopter contracts are generally based on a two-tier rate
structure consisting of a daily or monthly fixed fee plus
additional fees for each hour flown. We also provide services to
customers on an ad hoc basis, which usually entails
a shorter notice period and shorter duration. Our charges for ad
hoc services are generally based on an hourly rate, or a daily
or monthly fixed fee plus additional fees for each hour flown.
We estimate that our ad hoc services have a higher margin than
our other helicopter contracts due to supply and demand
dynamics. Our rate structure is based on fuel costs remaining at
or below a predetermined threshold. Fuel costs in excess of this
threshold are generally reimbursed by the customer.
Our helicopter contracts are for varying periods and generally
permit the customer to cancel the charter before the end of the
contract term. In North America, we typically enter into
short-term contracts for twelve months or less, although we
occasionally enter into longer-term contracts. In Europe,
contracts are longer term, generally between two and five years.
In South and Central America, West Africa, Southeast Asia and
Other International, contract length generally ranges from three
to five years. At the expiration of a contract, our customers
often negotiate renewal terms with us for the next contract
period. In other instances, customers solicit new bids at the
expiration of a contract. Contracts are generally awarded based
on a number of factors, including price, quality of service,
equipment and record of safety. An incumbent operator has a
competitive advantage in the bidding process based on its
relationship with the customer, its knowledge of the site
characteristics and its understanding of the cost structure for
the operations.
Maintenance and repair expenses, training costs, employee wages
and insurance premiums represent a significant portion of our
overall expenses. Our production management costs also include
contracted transportation services. We expense maintenance and
repair costs, including major aircraft component overhaul costs,
as the costs are incurred. As a result, our earnings in any
given period are directly impacted by the amount of our
maintenance and repair expenses for that period. In certain
instances, major aircraft components, primarily engines and
transmissions, are maintained by third-party vendors under
contractual arrangements. The maintenance costs related to these
contractual arrangements are recorded ratably as the components
are used to generate flight revenue.
In addition to our variable operating expenses, we incur fixed
charges for depreciation of our property and equipment. For
accounting purposes, we depreciate our helicopters and fixed
wing aircraft on a straight-line basis over their estimated
useful lives, taking into account an estimated residual value of
30% to 50% of their original cost. We generally estimate the
useful life of a helicopter and fixed wing aircraft to be seven
to 15 years. Our estimates of useful lives and residual
values are based upon our historical experience, aircraft type
and aircraft condition, as well as our judgment and expectations
regarding future operations and market conditions.
As a result of local laws limiting foreign ownership of aviation
companies, we conduct helicopter services in many foreign
countries through interests in unconsolidated affiliates.
Generally, we realize revenue from these foreign operations by
leasing aircraft and providing services and technical support to
those entities. We also receive dividend income from the
earnings of some of these entities. We report lease revenue as
operating revenue and dividend income as part of earnings from
unconsolidated affiliates, as the results of these foreign
operations are not included in our revenue or operating income.
For additional information about these unconsolidated
affiliates, see Note C in the Notes to Consolidated
Financial Statements included in our Annual Report.
38
Results of Operations
The following tables set forth certain operating information,
which forms the basis for discussion of our Helicopter Services
and Production Management Services, and for the six business
units comprising our Helicopter Services segment. Certain
reclassifications have been made to prior year information to
conform to the current presentation of the Helicopter Services
segments business units. See Note I in the
Condensed Notes to Consolidated Financial Statements
for further information. The tables also present certain
operating information about our corporate activities which
primarily relate to intercompany leasing of aircraft and are
eliminated in consolidation. Amounts previously reported for
2004 have been restated to reflect adjustments to accrue for
liabilities and expenses identified in connection with the
Internal Review and to properly report customer reimbursables as
revenues rather than offsetting such amounts against the related
expenses. See above and Restatement of Previously Reported
Amounts in Note A and Internal Review in
Note E in the Condensed Notes to Consolidated
Financial Statements for further discussion of these
matters.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
Flight hours (excludes unconsolidated affiliates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
36,211 |
|
|
|
28,180 |
|
|
|
109,443 |
|
|
|
92,604 |
|
|
|
South and Central America
|
|
|
9,569 |
|
|
|
9,560 |
|
|
|
29,198 |
|
|
|
33,307 |
|
|
|
Europe
|
|
|
9,329 |
|
|
|
9,500 |
|
|
|
29,323 |
|
|
|
31,942 |
|
|
|
West Africa
|
|
|
9,108 |
|
|
|
8,971 |
|
|
|
26,647 |
|
|
|
25,374 |
|
|
|
Southeast Asia
|
|
|
3,117 |
|
|
|
3,341 |
|
|
|
8,844 |
|
|
|
8,850 |
|
|
|
Other International
|
|
|
1,487 |
|
|
|
460 |
|
|
|
4,209 |
|
|
|
1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
68,821 |
|
|
|
60,012 |
|
|
|
207,664 |
|
|
|
193,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004(2) | |
|
2005 | |
|
2004(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
56,869 |
|
|
$ |
42,832 |
|
|
$ |
170,570 |
|
|
$ |
134,309 |
|
|
|
South and Central America
|
|
|
11,427 |
|
|
|
13,167 |
|
|
|
31,645 |
|
|
|
41,257 |
|
|
|
Europe
|
|
|
65,464 |
|
|
|
65,238 |
|
|
|
197,521 |
|
|
|
190,958 |
|
|
|
West Africa
|
|
|
29,830 |
|
|
|
25,749 |
|
|
|
85,605 |
|
|
|
71,346 |
|
|
|
Southeast Asia
|
|
|
15,789 |
|
|
|
14,990 |
|
|
|
44,197 |
|
|
|
39,533 |
|
|
|
Other International
|
|
|
6,684 |
|
|
|
4,613 |
|
|
|
19,281 |
|
|
|
11,615 |
|
|
|
Intrasegment eliminations
|
|
|
(9,545 |
) |
|
|
(7,550 |
) |
|
|
(28,151 |
) |
|
|
(23,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
176,518 |
|
|
|
159,039 |
|
|
|
520,668 |
|
|
|
465,390 |
|
|
Production Management Services
|
|
|
16,253 |
|
|
|
14,943 |
|
|
|
50,163 |
|
|
|
43,264 |
|
|
Corporate
|
|
|
4,245 |
|
|
|
2,445 |
|
|
|
9,836 |
|
|
|
7,590 |
|
|
Intersegment eliminations
|
|
|
(4,749 |
) |
|
|
(4,260 |
) |
|
|
(13,058 |
) |
|
|
(13,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$ |
192,267 |
|
|
$ |
172,167 |
|
|
$ |
567,609 |
|
|
$ |
503,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004(2) | |
|
2005 | |
|
2004(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(Restated) | |
|
|
|
(Restated) | |
|
|
(In thousands) | |
Operating expenses(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
48,084 |
|
|
$ |
38,779 |
|
|
$ |
137,410 |
|
|
$ |
114,953 |
|
|
|
South and Central America
|
|
|
10,035 |
|
|
|
10,305 |
|
|
|
29,592 |
|
|
|
31,724 |
|
|
|
Europe
|
|
|
58,459 |
|
|
|
56,765 |
|
|
|
175,018 |
|
|
|
169,664 |
|
|
|
West Africa
|
|
|
27,234 |
|
|
|
24,077 |
|
|
|
78,564 |
|
|
|
64,633 |
|
|
|
Southeast Asia
|
|
|
14,088 |
|
|
|
13,199 |
|
|
|
41,412 |
|
|
|
35,675 |
|
|
|
Other International
|
|
|
5,282 |
|
|
|
4,570 |
|
|
|
16,083 |
|
|
|
12,249 |
|
|
|
Intrasegment eliminations
|
|
|
(9,545 |
) |
|
|
(7,550 |
) |
|
|
(28,151 |
) |
|
|
(23,628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
153,637 |
|
|
|
140,145 |
|
|
|
449,928 |
|
|
|
405,270 |
|
|
Production Management Services
|
|
|
15,136 |
|
|
|
13,724 |
|
|
|
46,488 |
|
|
|
40,279 |
|
|
Loss (gain) on disposal of assets
|
|
|
374 |
|
|
|
(2,021 |
) |
|
|
1,276 |
|
|
|
(8,177 |
) |
|
Corporate
|
|
|
10,137 |
|
|
|
5,363 |
|
|
|
28,103 |
|
|
|
15,153 |
|
|
Intersegment eliminations
|
|
|
(4,749 |
) |
|
|
(4,260 |
) |
|
|
(13,058 |
) |
|
|
(13,049 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$ |
174,535 |
|
|
$ |
152,951 |
|
|
$ |
512,737 |
|
|
$ |
439,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
8,785 |
|
|
$ |
4,053 |
|
|
$ |
33,160 |
|
|
$ |
19,356 |
|
|
|
South and Central America
|
|
|
1,392 |
|
|
|
2,862 |
|
|
|
2,053 |
|
|
|
9,533 |
|
|
|
Europe
|
|
|
7,005 |
|
|
|
8,473 |
|
|
|
22,503 |
|
|
|
21,294 |
|
|
|
West Africa
|
|
|
2,596 |
|
|
|
1,672 |
|
|
|
7,041 |
|
|
|
6,713 |
|
|
|
Southeast Asia
|
|
|
1,701 |
|
|
|
1,791 |
|
|
|
2,785 |
|
|
|
3,858 |
|
|
|
Other International
|
|
|
1,402 |
|
|
|
43 |
|
|
|
3,198 |
|
|
|
(634 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
22,881 |
|
|
|
18,894 |
|
|
|
70,740 |
|
|
|
60,120 |
|
|
Production Management Services
|
|
|
1,117 |
|
|
|
1,219 |
|
|
|
3,675 |
|
|
|
2,985 |
|
|
Gain (loss) on disposal of assets
|
|
|
(374 |
) |
|
|
2,021 |
|
|
|
(1,276 |
) |
|
|
8,177 |
|
|
Corporate
|
|
|
(5,892 |
) |
|
|
(2,918 |
) |
|
|
(18,267 |
) |
|
|
(7,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$ |
17,732 |
|
|
$ |
19,216 |
|
|
$ |
54,872 |
|
|
$ |
63,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Helicopter Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
15.4 |
% |
|
|
9.5 |
% |
|
|
19.4 |
% |
|
|
14.4 |
% |
|
|
South and Central America
|
|
|
12.2 |
% |
|
|
21.7 |
% |
|
|
6.5 |
% |
|
|
23.1 |
% |
|
|
Europe
|
|
|
10.7 |
% |
|
|
13.0 |
% |
|
|
11.4 |
% |
|
|
11.2 |
% |
|
|
West Africa
|
|
|
8.7 |
% |
|
|
6.5 |
% |
|
|
8.2 |
% |
|
|
9.4 |
% |
|
|
Southeast Asia
|
|
|
10.8 |
% |
|
|
11.9 |
% |
|
|
6.3 |
% |
|
|
9.8 |
% |
|
|
Other International
|
|
|
21.0 |
% |
|
|
0.9 |
% |
|
|
16.6 |
% |
|
|
(5.5 |
)% |
|
|
Total Helicopter Services
|
|
|
13.0 |
% |
|
|
11.9 |
% |
|
|
13.6 |
% |
|
|
12.9 |
% |
|
Production Management Services
|
|
|
6.9 |
% |
|
|
8.2 |
% |
|
|
7.3 |
% |
|
|
6.9 |
% |
|
|
|
|
Consolidated total
|
|
|
9.2 |
% |
|
|
11.2 |
% |
|
|
9.7 |
% |
|
|
12.7 |
% |
40
|
|
(1) |
Operating expenses include depreciation and amortization in the
following amounts for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended | |
|
Nine Months Ended | |
|
|
December 31, | |
|
December 31, | |
|
|
| |
|
| |
|
|
2005 | |
|
2004 | |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Helicopter Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
4,494 |
|
|
$ |
3,817 |
|
|
$ |
12,856 |
|
|
$ |
10,957 |
|
|
South and Central America
|
|
|
508 |
|
|
|
523 |
|
|
|
1,578 |
|
|
|
1,586 |
|
|
Europe
|
|
|
3,568 |
|
|
|
4,594 |
|
|
|
11,030 |
|
|
|
14,054 |
|
|
West Africa
|
|
|
324 |
|
|
|
290 |
|
|
|
1,433 |
|
|
|
836 |
|
|
Southeast Asia
|
|
|
96 |
|
|
|
70 |
|
|
|
311 |
|
|
|
190 |
|
|
Other International
|
|
|
470 |
|
|
|
447 |
|
|
|
1,393 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Helicopter Services
|
|
|
9,460 |
|
|
|
9,741 |
|
|
|
28,601 |
|
|
|
28,595 |
|
Production Management Services
|
|
|
49 |
|
|
|
50 |
|
|
|
148 |
|
|
|
145 |
|
Corporate
|
|
|
1,144 |
|
|
|
999 |
|
|
|
3,411 |
|
|
|
3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$ |
10,653 |
|
|
$ |
10,790 |
|
|
$ |
32,160 |
|
|
$ |
31,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
Amounts previously reported for the Comparable Quarter and
Period have been restated to reflect adjustments to accrue for
liabilities and expenses identified in connection with the
Internal Review, to properly report customer reimbursables as
revenues rather than netting such amounts against the related
expenses and to properly record expenses for severance benefits
and payroll taxes associated with certain foreign subsidiaries.
See Restatement of Previously Reported Amounts in
Note A and Internal Review in Note E in
the Condensed Notes to Consolidated Financial
Statements as well as Investigations and
Restatement of Previously Reported Amounts above for
further discussion of these matters. |
Quarter ended December 31, 2005 compared to Quarter
ended December 31, 2004
Our operating revenues increased to $192.3 million for the
Current Quarter from $172.2 million for the Comparable
Quarter. The increase in operating revenues occurred in both our
Helicopter Services segment and our Production Management
Services segment. Our operating expenses for the Current Quarter
increased to $174.5 million from $153.0 million for
the Comparable Quarter. The increase was primarily a result of
higher costs associated with higher activity levels, higher
labor costs, higher fuel rates and higher professional fees due
to the Internal Review and the DOJ investigation. In addition,
we had a loss on disposal of assets of $0.4 million in the
Current Quarter as compared to a gain of $2.0 million in
the Comparable Quarter. As a result, our operating income and
operating margin for the Current Quarter decreased to
$17.7 million and 9.2%, respectively, compared to
$19.2 million and 11.2%, respectively, for the Comparable
Quarter.
Net income for the Current Quarter of $13.4 million
represents a $3.3 million increase from the Comparable
Quarter. This increase primarily resulted from an increase in
other income, net for the Current Quarter as compared to the
Comparable Quarter. Set forth below is a discussion of the
results of operations of our segments and business units.
Operating revenues from Helicopter Services increased to
$176.5 million for the Current Quarter from
$159.0 million for the Comparable Quarter, and operating
expenses increased to $153.6 million from
$140.1 million. This resulted in an operating margin of
13.0% as compared to 11.9% in the Comparable Quarter. These
improvements are primarily attributable to results for North
America where flight hours and
41
operating revenues have increased quarter over quarter.
Helicopter Services results are further explained below by
business unit.
North America. Operating revenues from North America
increased to $56.9 million, or 32.9%, during the Current
Quarter from $42.8 million in the Comparable Quarter, and
flight activity increased by 28.5%. The increase in operating
revenues is due to a rate increase of 8% for the U.S. Gulf
of Mexico that is being phased in beginning in May 2005,
increases in fuel surcharges as fuel prices have increased and
an increase in the number of aircraft on month-to-month
contracts for the Current Quarter.
Operating expenses from North America increased to
$48.1 million for the Current Quarter from
$38.8 million for the Comparable Quarter. The increase was
primarily due to higher labor costs due to salary increases and
higher fuel costs associated with both the increase in flight
activity and a higher average cost per gallon.
Our operating margin in North America increased to 15.4% for the
Current Quarter from 9.5% for the Comparable Quarter primarily
due to the higher revenues discussed above.
South and Central America. Operating revenues for South
and Central America decreased by 13.2% for the Current Quarter
from the Comparable Quarter due to a 43.4% reduction in
operating revenues in Mexico and Brazil. The reduction in
operating revenues was offset in part by an increase in
Trinidad. In Mexico, operating revenues decreased 54.7% due to
the conclusion of the contract with Petroleós Mexicanos
(PEMEX) in February 2005. As a result, the
Companys 49% owned unconsolidated affiliates, Hemisco and
Heliservicio, have experienced difficulties in meeting their
obligations to make lease rental payments to the Company and
RLR. During the three months ended June 30, 2005, the
Company and RLR made a determination that because of the
uncertainties as to collectibility, lease revenues from HC would
be recognized as they were collected. For the three months ended
December 31, 2005, $1.0 million of revenues billed but
not collected from HC have not been recognized in the
Companys results, and the Companys 49% share of the
equity in earnings of RLR has been reduced by $0.9 million
for revenues billed but not collected from HC. Brazils
operating revenues decreased 18.6%, due to the conclusion of a
contract for one aircraft in October 2004. In Trinidad,
operating revenues increased 34.5% due to the renewal of a
contract in November 2004. We are negotiating the termination of
our ownership interest in the joint venture that operates in
Brazil and upon such termination, absent our development of a
satisfactory relationship with another local operating company,
we expect to experience a substantial reduction in business
activity in Brazil in future periods.
Since the conclusion of the PEMEX contract in February 2005, we
have taken several actions to improve the financial condition
and profitability of HC, and as discussed further in Note C
in the Condensed Notes to Consolidated Financial
Statements, on August 19, 2005, a recapitalization of
Heliservicio was completed. We are continuing to evaluate
certain actions to return HCs operations to profitability,
including reducing the number of aircraft to a lower level based
on current utilization, and we are actively seeking other
markets in which to redeploy the aircraft in Mexico that are
currently operating on an ad hoc basis. Although not
anticipated or known at this time, such actions could result in
future losses.
Operating income and the operating margin for South and Central
America decreased to $1.4 million and 12.2% for the Current
Quarter from $2.9 million and 21.7% for the Comparable
Quarter as a result of the lower operating revenues discussed
above.
Europe. Operating revenues from Europe increased for the
Current Quarter to $65.5 million, or 0.5% from
$65.2 million for the Comparable Quarter while flight hours
decreased by 1.8% between the Current Quarter and the Comparable
Quarter. The reduction in flight hours was due primarily to a
change in our lease arrangements in Norway and the sale of
certain technical services contracts in November 2004. While we
continue to lease aircraft to our unconsolidated affiliate,
Norsk Helikopter AS, we no longer provide maintenance services
for these aircraft. Therefore, we no longer report the flight
hours. Operating revenues for
42
technical services in the U.K. decreased to $3.2 million
for the Current Quarter from $5.2 million for the
Comparable Quarter due to the downsizing of our technical
services operations in the U.K. in fiscal year 2005.
Excluding the flight hours for Norway and the technical services
contracts that were sold, flight activity increased by 7.8%. The
majority of this increase in flight hours related to the start
of two contracts within the North Sea. One contract commenced in
April 2005 and the second contract commenced in July 2005.
Operating expenses for Europe increased $1.7 million or
3.0% for the Current Quarter compared to the Comparable Quarter.
The increase in operating expenses was due to an increase in
activity in the North Sea and higher fuel rates in the Current
Quarter versus the Comparable Quarter. The operating margin in
Europe for the Current Quarter was 10.7% and 13.0% for the
Comparable Quarter.
West Africa. Operating revenues from West Africa
increased in the Current Quarter to $29.8 million, or
16.0%, from $25.7 million in the Comparable Quarter,
primarily as a result of a 1.5% increase in flight activity from
the Comparable Quarter, as well as additional ad hoc flying at
higher rates in Nigeria.
Operating expenses for West Africa increased in the Current
Quarter to $27.2 million, or 12.9%, from $24.1 million
in the Comparable Quarter. The increase was primarily as a
result of higher salary expense due to the increase in activity.
The operating margin in West Africa increased to 8.7% in
the Current Quarter from 6.5% in the Comparable Quarter.
Approximately 15.3% of our revenues for the Current Quarter came
from Nigeria. As a result of the potential cancellation by
customers of their contracts with us, we may experience a
substantial reduction in business activity in Nigeria in future
periods.
Southeast Asia. Operating revenues from Southeast Asia
increased 5.3% from $15.0 million for the Comparable
Quarter to $15.8 million for the Current Quarter due to
higher revenues noted in Australia with an offset in China.
Australias activity decreased 9.1% but operating revenues
increased 8.8% over the Comparable Quarter primarily due to
higher ad hoc flying. Chinas operating revenues for the
Current Quarter decreased 14.7% from the Comparable Quarter
primarily due to having one less aircraft on contract.
Operating expenses increased to $14.1 million, or 6.8%,
during the Current Quarter from $13.2 million for the
Comparable Quarter. As a result of higher expenses during the
Current Quarter, the operating margin decreased to 10.8% from
11.9% in the Comparable Quarter.
Other International. Operating revenues for Other
International increased to $6.7 million during the Current
Quarter from $4.6 million for the Comparable Quarter. The
increase in operating revenues was primarily due to increased
flight activity of 1,027 hours. Higher activity was noted
throughout our Other International locations, particularly in
Russia, Egypt and Turkmenistan.
Operating expenses increased from $4.6 million for the
Comparable Quarter to $5.3 million for the Current Quarter.
The increase in operating expenses is primarily due to higher
salary and maintenance costs. As a result of the higher
operating revenues, our operating margin for Other International
increased to 21.0% in the Current Quarter from 0.9% in the
Comparable Quarter.
|
|
|
Production Management Services |
Operating revenues from the Production Management Services
segment increased to $16.3 million during the Current
Quarter, as compared to $14.9 million for the Comparable
Quarter primarily due to increased activity with a customer that
acquired additional properties. Operating expenses increased to
$15.1 million for the Current Quarter from
$13.7 million for the Comparable Quarter, primarily due to
higher transportation costs associated with the increase in
activity. As a result of the higher expenses, our operating
margin decreased to 6.9% from 8.2% in the Comparable Quarter.
43
|
|
|
General and Administrative Costs |
Excluding the restructuring changes for our U.K. operations
of $2.0 million that are included within the Comparable
Quarter, consolidated general and administrative costs increased
by $6.3 million for the Current Quarter primarily due to
higher professional fees. During the Current Quarter, we
incurred $2.2 million and $0.6 million, respectively,
in the connection with the Internal Review and DOJ investigation.
Other income, net, for the Current Quarter was $2.3 million
compared to a net loss of $2.6 million for the Comparable
Quarter and primarily represents foreign currency transaction
gains and losses. These gains and losses arise from the
consolidation of our United Kingdom operations, whose functional
currency is the British pound, yet contracts for a portion of
its revenue and expense in U.S. dollars and other
currencies for operations outside of the North Sea.
|
|
|
Provision for Income Taxes |
The provision for income taxes decreased in the Current Quarter
by $0.2 million as a result of a decrease in the
Companys overall effective tax rate from 33.6% for the
Comparable Quarter to 27.1% for the Current Quarter. This
decrease is primarily attributable to the impact of the reversal
of reserves for tax contingencies due to expiration of the
related statutes of limitations.
Nine months ended December 31, 2005 compared to Nine
months ended December 31, 2004
Our operating revenues increased to $567.6 million for the
Current Period from $503.2 million for the Comparable
Period. The increase in operating revenues was noted in both our
Helicopter Services segment and our Production Management
Services segment. Our operating expenses for the Current Period
increased to $512.7 million from $439.5 million for
the Comparable Period. The increase was primarily a result of
higher costs associated with higher activity levels, higher
labor costs, higher fuel rates and higher professional fees due
to the Internal Review and DOJ investigation. In addition, we
had a loss on disposal of assets of $1.3 million for the
Current Period as compared to a gain on disposal of assets of
$8.2 million for the Comparable Period. As a result, our
operating income and operating margin for the Current Period
decreased to $54.9 million and 9.7%, respectively, compared
to $63.7 million and 12.7%, respectively, for the
Comparable Period.
Net income for the Current Period of $40.0 million
represents a $1.7 million increase from the Comparable
Period. This increase primarily resulted from lower income taxes
and an increase in other income, net in the Current Period as
compared to the Comparable Period. Set forth below is a
discussion of the results of operations of our segments and
business units.
Operating revenues from Helicopter Services increased to
$520.7 million for the Current Period from
$465.4 million for the Comparable Period, and operating
expenses increased to $449.9 million from
$405.3 million. This resulted in an operating margin of
13.6% as compared to 12.9% in the Comparable Period. These
improvements are primarily attributable to results for North
America where flight hours and operating revenues have increased
period over period. Helicopter Services results are further
explained below by business unit.
North America. Operating revenues from North America
increased by 27.0% during the Current Period from the Comparable
Period, and flight activity increased by 18.2%. This increase in
operating revenues is due to the effect in the Current Period of
an 8% rate increase for the U.S. Gulf of Mexico that is
being phased in beginning in May 2005, fuel surcharges as fuel
prices have increased and an increase in the number of aircraft
on month-to-month contracts for the Current Period.
44
Operating expenses from North America increased to
$137.4 million for the Current Period from
$115.0 million for the Comparable Period. The increase was
primarily due to higher labor costs due to salary increases,
higher maintenance due to increased flight activity and higher
fuel costs associated with both the increase in flight activity
and a higher average cost per gallon.
Our operating margin in North America increased to 19.4% for the
Current Period from 14.4% for the Comparable Period primarily
due to the higher revenues discussed above.
South and Central America. Operating revenues for South
and Central America decreased to $31.6 million, or 23.5%,
from $41.3 million for the Current Period from the
Comparable Period due to a 16.4% reduction in flight activity in
Mexico and Brazil. In Mexico, flight activity decreased 17.1%
and operating revenue decreased 35.6% during the Current Period
as compared to the Comparable Period. The reduction in flight
activity and revenues is due to the conclusion of the contract
with PEMEX in February 2005. As a result, the Companys 49%
owned unconsolidated affiliates, Hemisco and Heliservicio, have
experienced difficulties in meeting their obligations to make
lease rental payments to the Company and RLR. During the three
months ended June 30, 2005, the Company and RLR made a
determination that because of the uncertainties as to
collectibility, lease revenues from HC would be recognized as
they were collected. For the nine months ended December 31,
2005, $5.7 million of revenues billed but not collected
from HC have not been recognized in the Companys results,
and the Companys 49% share of the equity in earnings of
RLR has been reduced by $3.7 million for revenues billed
but not collected from HC. Brazils activity and operating
revenues decreased 15.3% and 20.4%, respectively, due to the
conclusion of contracts for two aircraft, one in August 2004 and
the other in October 2004. We are negotiating the termination of
our ownership interest in the joint venture that operates in
Brazil, and upon such termination, absent our development of a
satisfactory relationship with another local operating company,
we expect to experience a substantial reduction in business
activity in Brazil in future periods.
Since the conclusion of the PEMEX contract in February 2005, we
have taken several actions to improve the financial condition
and profitability of HC, and as discussed further in Note C in
the Condensed Notes to Consolidated Financial
Statements, on August 19, 2005, a recapitalization of
Heliservicio was completed. We are continuing to evaluate
certain actions to return HCs operations to profitability,
including reducing the number of aircraft to a lower level based
on current utilization, and we are actively seeking other
markets in which to redeploy the aircraft in Mexico that are
currently operating on an ad hoc basis. Although not anticipated
or known at this time, such actions could result in future
losses.
Operating income for South and Central America decreased to
$2.1 million for the Current Period from $9.5 million
for the Comparable Period as a result of the lower operating
revenues discussed above. The operating margin for this business
unit was 6.5% for the Current Period as compared to 23.1% for
the Comparable Period.
Europe. Operating revenues from Europe increased for the
Current Period to $197.5 million, or 3.4%, from
$191.0 million for the Comparable Period. Excluding foreign
exchange effects, revenue from these operations increased by
5.6% while flight hours decreased by 8.2% between the Current
Period and the Comparable Period. The reduction in flight hours
was due primarily to a change in our lease arrangements in
Norway and the sale of certain technical services contracts in
November 2004. While we continue to lease aircraft to our
unconsolidated affiliate, Norsk Helikopter AS, we no longer
provide maintenance services for these aircraft. Therefore, we
no longer report the flight hours. Operating revenues for
technical services in the U.K. decreased to $9.0 million
for the Current Period from $18.4 million for the
Comparable Period due to the downsizing of our technical
services operations in the U.K. in fiscal year 2005.
Excluding the flight hours for Norway and the technical services
contracts that were sold, flight activity increased by 12.4%.
The majority of this increase in flight hours related to the
start of two contracts within the North Sea. One contract
commenced in April 2005 and the second contract commenced in
July 2005.
45
Operating expenses for Europe were $175.0 million for the
Current Period compared to $169.7 million for the
Comparable Period. The increase in operating expenses was due to
an increase in flight activity in our North Sea operations and
higher fuel rates. This increase was offset in part by the
downsizing of our technical services operation in the U.K. The
operating margin in Europe increased to 11.4% from 11.2% between
the Current Period and the Comparable Period.
West Africa. Operating revenues from West Africa
increased in the Current Period to $85.6 million, or 20.1%,
from $71.3 million in the Comparable Period primarily as a
result of a 5.0% increase in flight activity from the Comparable
Period. Additional ad hoc flying in Nigeria and a contract for
two medium aircraft in Mauritania that began in September 2004
were the principle drivers for the increased flight activity and
revenues.
Operating expenses for West Africa increased in the Current
Period to $78.6 million, or 21.7%, from $64.6 million
in the Comparable Period. The increase was primarily due to
higher salary and maintenance expense due to the increase in
activity. The operating margin in Africa decreased to 8.2% in
the Current Period from 9.4% in the Comparable Period.
Approximately 14.9% of our revenues for the Current Period came
from Nigeria. As a result of the potential cancellation by
customers of their contracts with us, we may experience a
substantial reduction in business activity in Nigeria in future
periods.
Southeast Asia. Operating revenues from Southeast Asia
increased 11.9% from $39.5 million for the Comparable
Period to $44.2 million. The higher revenues and flight
activity was noted in Australia with an offset in China.
Australias activity and operating revenues increased 5.7%
and 20.6%, respectively, over the Comparable Period primarily
due to the utilization of an additional large aircraft and
higher ad hoc flying. Chinas flight activity and operating
revenues for the Current Period decreased 19.4% and 26.4%,
respectively, from the Comparable Period primarily due to having
one less aircraft on contract.
Operating expenses increased to $41.4 million, or 16.0%,
during the Current Period from $35.7 million for the
Comparable Period. As a result of higher expenses during the
Current Period, the operating margin decreased to 6.3% from 9.8%
in the Comparable Period.
Other International. Operating revenues for Other
International increased to $19.3 million during the Current
Period from $11.6 million for the Comparable Period. The
increase in operating revenues was primarily due to increased
flight activity which more than doubled. Higher activity was
noted in Russia and Egypt.
Operating expenses increased from $12.2 million for the
Comparable Period to $16.1 million for the Current Period.
The increase in operating expenses is primarily due to higher
salary and maintenance costs and increased activity throughout
our Other International locations. As a result of the higher
operating revenues, our operating margin for Other International
increased to 16.6% in the Current Period from (5.5)% in the
Comparable Period.
|
|
|
Production Management Services |
Operating revenues from the Production Management Services
segment increased by 15.9% during the Current Period, as
compared to the Comparable Period primarily due to increased
activity with a customer that acquired additional properties.
Operating expenses increased to $46.5 million for the
Current Period from $40.3 million for the Comparable
Period, primarily due to higher labor and transportation costs
associated with the increase in activity. As a result of the
higher revenue, our operating margin increased to 7.3% from 6.9%
in the Comparable Period.
|
|
|
General and Administrative Costs |
Consolidated general and administrative costs increased by
$12.9 million for the Current Period. Excluding the
$2.0 million of restructuring charges for our U.K.
operations that are included within the Comparable Period,
general and administrative costs increased $14.9 million.
The increase is primarily due to
46
higher compensation costs and higher professional fees.
Professional fees in the Current Period included approximately
$10.3 million and $1.0 million, respectively, in
connection with the Internal Review and DOJ investigation.
Other income, net, for the Current Period was $4.3 million
compared to a net loss of $2.0 million for the Comparable
Period and primarily reflects foreign currency transaction gains
and losses. These gains and losses arise from the consolidation
of our U.K. operations, whose functional currency is the British
pound sterling, yet contracts for a portion of its revenue and
expense in U.S. dollars and other currencies for operations
outside of the North Sea.
|
|
|
Provision for Income Taxes |
The provision for income taxes decreased for the Current Period
by $6.5 million as a result of a decrease in the
Companys overall effective tax rate from 32.9% for the
Comparable Period to 23.7% for the Current Period. This decrease
is primarily attributable to the impact of the reversal of
reserves for tax contingencies due to expiration of the related
statutes of limitations.
Liquidity and Capital Resources
During the Current Period, our primary source of funds to meet
working capital needs, service debt and fund capital
expenditures was existing cash and cash equivalents. We believe
that our future cash flow from operations, our existing
U.S. revolving credit facility and alternative financing
sources will be sufficient to meet our working capital, capital
expenditure and debt service needs in the foreseeable future. We
will likely need to raise additional funds through public or
private debt or equity financings to finance existing
commitments under our fleet renewal program and to execute our
growth strategy. See Risk Factors In order to
grow our business, we may require additional capital in the
future, which may not be available to us in the Annual
Report.
Cash and cash equivalents were $129.1 million as of
December 31, 2005, a $17.4 million decrease from
March 31, 2005. Working capital as of December 31,
2005 was $284.3 million, a $13.5 million increase from
March 31, 2005.
For the Current Period, the Company had net cash flows provided
by operating activities of $31.3 million as compared to
$79.9 million for the Comparable Period. This decrease was
primarily a result of an increase in accounts receivable and
inventories during the Current Period and a decline in dividends
received from unconsolidated affiliates.
Cash flows used in investing activities were $29.7 million
and $22.0 million for the Current and Comparable Periods,
respectively. The following table shows capital expenditures
(including expenditures financed with
short-term notes) for
the period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
December 31, | |
|
|
| |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Aircraft and related equipment
|
|
$ |
107,872 |
|
|
$ |
48,687 |
|
Other
|
|
|
9,181 |
|
|
|
3,002 |
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$ |
117,053 |
|
|
$ |
51,689 |
|
|
|
|
|
|
|
|
47
During the Current Period, we received proceeds of
$72.6 million primarily from the disposal of ten aircraft
and certain equipment. During the Comparable Period, we received
proceeds of $39.8 million primarily from the disposal of
16 aircraft and certain equipment.
As shown in the table below, we expect to incur additional
capital expenditures over the next five to seven fiscal years to
replace certain of our aircraft and upgrade strategic base
facilities. As of December 31, 2005, we have
$381.1 million remaining under several aircraft purchase
agreements. To the extent they occur, any sales and trade-ins of
older aircraft will reduce these projected expenditures. We plan
to use internally generated funds and alternative financing
sources, if needed, to meet our obligations under these
agreements. Subsequent to December 31, 2005, we also
entered into firm purchase commitments for aircraft of
$5.0 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivered | |
|
Remaining to be Delivered | |
|
|
| |
|
| |
|
|
|
|
Nine Months | |
|
Three Months | |
|
|
|
|
Prior to | |
|
Ended | |
|
Ended | |
|
Fiscal Year Ended March 31, | |
|
|
April 1, | |
|
December 31, | |
|
March 31, | |
|
| |
|
|
2005 | |
|
2005 | |
|
2006 | |
|
2007 | |
|
2006 | |
|
2009-2013 | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Number of aircraft(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
7 |
|
|
|
4 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
Medium
|
|
|
10 |
|
|
|
8 |
|
|
|
1 |
|
|
|
12 |
|
|
|
11 |
|
|
|
15 |
|
|
|
57 |
|
|
|
Large
|
|
|
|
|
|
|
2 |
|
|
|
1 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
14 |
|
|
|
3 |
|
|
|
16 |
|
|
|
11 |
|
|
|
15 |
|
|
|
76 |
|
|
Used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
Medium
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
19 |
|
|
|
3 |
|
|
|
16 |
|
|
|
11 |
|
|
|
15 |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related expenditures
|
|
$ |
104,370 |
|
|
$ |
89,668 |
|
|
$ |
35,964 |
|
|
$ |
166,573 |
|
|
$ |
66,844 |
|
|
$ |
111,758 |
|
|
$ |
575,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company also has options to purchase 24 additional aircraft.
As of December 31, 2005, the options with respect to six of
the aircraft are now subject to availability. |
Cash flows provided by (used in) financing activities were
$(12.9) million and $2.6 million for the Current and
Comparable Periods, respectively. Total debt as of
December 31, 2005 was $262.6 million, an increase of
$0.6 million since March 31, 2005.
Sale and Leaseback Financing On
December 30, 2005, we sold nine aircraft for
$68.6 million in aggregate to a subsidiary of General
Electric Capital Corporation, and then leased back each of the
nine aircraft under separate operating leases with terms of ten
years expiring in January 2016. Each net lease
agreement requires us to be responsible for all operating costs
and has an effective interest rate of approximately 5%. Rent
payments under each lease are payable monthly and total
$6.3 million and $7.6 million annually during the
first 60 months and second 60 months, respectively,
for all nine leases. Each lease has an end of lease purchase
option at ten years, an early purchase option at 60 months
(December 2010), and an early termination option at
24 months (December 2007). The early purchase option
price for the nine aircraft at 60 months is approximately
$52 million in aggregate. There was a deferred gain on the
sale of the aircraft in the amount of approximately
$10.8 million in aggregate. The deferred gain will be
amortized as a reduction in lease expense over the 10 year
lease term in proportion to the rent payments. Additional
collateral in the amount of at least $11.8 million is to be
provided until the conclusion of the SEC investigation related
to the Internal Review. A portion of the proceeds
($10.3 million) was retained by the lessor until
January 30, 2006 when the additional collateral, which
consisted of five aircraft and a $2.5 million letter of
credit, was provided.
48
Revolving Credit Facility. As of December 31, 2005,
we had a $30.0 million revolving credit facility with a
U.S. bank that expires on August 31, 2006. This
facility is subject to a sub-limit of $10.0 million for the
issuance of letters of credit. Borrowings bear interest at a
rate equal to one month LIBOR plus a spread ranging from 1.25%
to 2.0%. The rate of the spread depends on a financial covenant
ratio under this facility. Borrowings under this facility are
unsecured and are guaranteed by certain of our
U.S. subsidiaries. We had no amounts drawn under this
facility as of December 31, 2005, but did have
$0.7 million of letters of credit utilized which reduced
availability under this facility. As of June 30, 2005, we
were in default of various financial information reporting
covenants for not providing financial information for fiscal
year 2005 when due, and also for not providing similar
information to other creditors. This situation resulted from the
activities identified in the Internal Review discussed earlier
which prevented us from filing our financial report for fiscal
year 2005 on time. The bank initially provided a waiver through
August 14, 2005, and subsequently provided a second waiver
through November 15, 2005. Waivers were extended through
December 15, 2005 upon payment of a fee of $30,000, and
further extended through January 16, 2006 upon payment of
an additional fee of $30,000. In January 2006, the default
was cured.
U.K. Facilities. As of December 31, 2005, Bristow
Aviation had a £6.0 million ($10.3 million)
facility for letters of credit, of which £1.7 million
($2.9 million) was outstanding, and a
£1.0 million ($1.7 million) net overdraft
facility, of which no borrowings were outstanding. Both
facilities are with a U.K. bank. The letter of credit facility
is provided on an uncommitted basis, and outstanding letters of
credit bear a rate of 0.7% per annum. Borrowings under the
net overdraft facility are payable on demand and bear interest
at the banks base rate plus a spread that can vary between
1% and 3% per annum depending on the net overdraft amount.
The net overdraft facility was scheduled to expire on
August 31, 2005, but has been extended to August 31,
2006.
61/8% Senior
Notes. We have $230.0 million aggregate principal
amount outstanding of
61/8% senior
notes due 2013 (Senior Notes). The Senior Notes are
unsecured and are guaranteed by certain of our
U.S. subsidiaries. The Senior Notes are redeemable at our
option. On June 16, 2005, we received notice from the
trustee of the indenture underlying the Senior Notes that we
were in default of financial reporting covenants in the
indenture as we were not able to provide the required financial
reporting information within the time period specified in the
covenants and that, unless the deficiency was remedied within
60 days, an event of default would occur under the
indenture. On August 16, 2005, we completed a consent
solicitation with the holders of the Senior Notes to waive
defaults under and make amendments to the indenture. Under the
terms of the consent solicitation, a consent fee of
$1.4 million was paid on August 17, 2005 to consenting
holders of Senior Notes. The majority of Senior Note holders
waived the defaults under the indenture through
November 15, 2005. Further, we extended the waivers through
December 15, 2005 upon payment of an additional fee of
$0.6 million, and further extended the waivers through
January 16, 2006 upon payment of another additional fee of
$0.6 million. In January 2006, the default was cured.
See Note D in the Condensed Notes to Consolidated
Financial Statements for further discussion.
RLR Note. As of June 30, 2005, we were in default of
the various financial information reporting covenants in its
revolving credit facility and a five-year $31.8 million
term loan (the RLR Note) under which an
unconsolidated affiliate, Rotorwing Leasing Resources, L.L.C.,
is a borrower and we are a guarantor. The defaults were as a
result of not providing financial information for fiscal year
2005 when due, and also for not providing similar information to
other creditors. This situation resulted from activities
identified in connection with the Internal Review discussed in
Note E in the Condensed Notes to Consolidated
Financial Statements which prevented us from filing the
financial report for fiscal year 2005 on time. The bank
initially provided waivers through August 14, 2005, and
subsequently provided additional waivers through
November 15, 2005. The waivers were extended at our
election through December 15, 2005 upon payment of $26,000,
and were further extended through January 16, 2006 upon
payment of an additional fee of $26,000. In January 2006,
the default was cured.
Pension Plan. As of December 31, 2005, we had
recorded on our balance sheet a $143.7 million pension
liability and a $35.7 million prepaid pension asset related
to the Bristow Aviation pension plan. The liability represents
the excess of the present value of the defined benefit pension
plan liabilities over the fair value of plan assets that existed
at that date. The asset represents the cumulative contributions
made by Bristow Aviation in excess of accrued net periodic
pension cost. In addition to the recognition of the minimum
pension
49
liability, the U.K. rules governing pension plan funding require
us to make additional cash contributions to the plan. In March
2005, we agreed, subject to our review every three years, to
increase the monthly contributions to £0.4 million
($0.8 million) for the next 20 years beginning May
2005. Nevertheless, regulatory agencies in the U.K. may require
us to increase the monthly contributions further.
Contractual Obligations and Commercial Commitments. We
have the following contractual obligations and commercial
commitments as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period | |
|
|
| |
|
|
|
|
Less Than | |
|
1-3 | |
|
4-5 | |
|
After 5 | |
|
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Contractual obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
262,637 |
|
|
$ |
4,548 |
|
|
$ |
23,709 |
|
|
$ |
|
|
|
$ |
234,380 |
|
|
Aircraft operating leases
|
|
|
69,564 |
|
|
|
6,300 |
|
|
|
18,900 |
|
|
|
13,913 |
|
|
|
30,451 |
|
|
Other operating leases
|
|
|
16,204 |
|
|
|
789 |
|
|
|
7,486 |
|
|
|
2,926 |
|
|
|
5,003 |
|
|
Pension obligation
|
|
|
185,600 |
|
|
|
9,600 |
|
|
|
28,800 |
|
|
|
19,200 |
|
|
|
128,000 |
|
|
Aircraft purchase obligations(2)
|
|
|
381,139 |
|
|
|
174,036 |
|
|
|
108,173 |
|
|
|
49,096 |
|
|
|
49,834 |
|
|
Other purchase obligations
|
|
|
25,632 |
|
|
|
21,525 |
|
|
|
4,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
940,776 |
|
|
$ |
216,798 |
|
|
$ |
191,175 |
|
|
$ |
85,135 |
|
|
$ |
447,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration per Period | |
|
|
| |
|
|
|
|
Less Than | |
|
1-3 | |
|
4-5 | |
|
Over 5 | |
|
|
Total | |
|
1 Year | |
|
Years | |
|
Years | |
|
Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(In thousands) | |
Other commercial commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt guarantee(1)
|
|
$ |
30,264 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
13,079 |
|
|
$ |
17,185 |
|
|
Letters of credit and surety bond(3)
|
|
|
11,573 |
|
|
|
11,306 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial commitments
|
|
$ |
41,837 |
|
|
$ |
11,306 |
|
|
$ |
267 |
|
|
$ |
13,079 |
|
|
$ |
17,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
We have guaranteed the repayment of up to £10 million
($17.2 million) of the debt of FBS Limited
(FBS) and $13.1 million of the debt of RLR,
both unconsolidated affiliates. |
|
(2) |
Since December 31, 2005, we have entered into purchase
obligations of $5.0 million for additional aircraft which
are not reflected in the table above. |
|
(3) |
In January 2006, a letter of credit was issued against the
Revolving Credit Facility for $2.5 million in conjunction
with the additional collateral for the sale and leaseback
financing discussed in Notes E in the Condensed Notes
to Consolidated Financial Statements. The letter of credit
expires January 27, 2007. |
Critical Accounting Policies and Estimates
See Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Critical Accounting Policies and Estimates in the Annual
Report for a discussion of our critical accounting policies.
There have been no material changes to our critical accounting
policies and estimates provided in this Quarterly Report.
Recent Accounting Pronouncements
See Note A in the Condensed Notes to Consolidated
Financial Statements for a discussion of certain new
accounting pronouncements and their potential impact on the
Company.
50
|
|
Item 3. |
Quantitative and Qualitative Disclosures about Market
Risk. |
As of December 31, 2005, we have $262.6 million of
debt outstanding, none of which carries a variable rate of
interest. However, the market value of our fixed rate debt
fluctuates with changes in interest rates.
We occasionally use off-balance sheet hedging instruments to
manage our risks associated with our operating activities
conducted in foreign currencies. In limited circumstances and
when considered appropriate, we will use forward exchange
contracts to hedge anticipated transactions. We have
historically used these instruments primarily in the buying and
selling of certain spare parts, maintenance services and
equipment. We attempt to minimize our exposure to foreign
currency fluctuations by matching our revenue and expenses in
the same currency for our contracts. Most of our revenue and
expenses from our North Sea Operations are denominated in
British pounds sterling. Approximately 30.4% of our operating
revenue for the Current Period was translated for financial
reporting purposes from British pounds sterling into
U.S. dollars. As of December 31, 2005, we did not have
any nominal forward exchange contracts outstanding. Subsequent
to December 31, 2005, we have not entered into any nominal
forward exchange contracts.
|
|
Item 4. |
Controls and Procedures. |
|
|
|
Material Weaknesses Previously Disclosed |
As discussed in Item 9a of our Annual Report, our
management, including our Chief Executive Officer (principal
executive officer, CEO) and Chief Financial Officer
(principal financial officer, CFO), concluded that,
as of March 31, 2005, the Company did not maintain
effective internal control over financial reporting because of
the material weaknesses described below.
Our former senior management and other personnel failed to
establish or adhere to appropriate internal controls related to
the control environment of the Company. Specifically, former
management failed to establish and act with appropriate
integrity and ethical values. As a result of this deficiency the
following incidents occurred (as further described in
Note E in the Condensed Notes to Consolidated
Financial Statements):
|
|
|
(a) improper payments to government officials and personnel
of customers, |
|
|
(b) understated employee payroll tax declarations and
payments, |
|
|
(c) improper valuations for customs purposes may have been
declared in certain jurisdictions resulting in the underpayment
of import duties, |
|
|
(d) assistance in the apparent circumvention of legal
requirements in at least one country in which we operate,
through the use of false invoices and misleading
representations and |
|
|
(e) the related balance sheet amounts being not properly
described or classified in the Companys books and records. |
Furthermore:
|
|
|
|
|
We did not follow accounting controls related to the affiliate
accounts receivable reconciliation process that would have
detected the false invoices described above. |
|
|
|
We failed to follow procedures that addressed concerns raised by
employees about improper activities, and certain members of our
former senior management failed to set the proper ethical tone. |
|
|
|
We did not provide sufficient training to personnel engaged in
key elements of the financial reporting process, including
training on relevant regulations such as the Foreign Corrupt
Practices Act. |
|
|
|
We failed to educate and train employees in identifying,
monitoring or reporting and responding to alleged misconduct or
unethical behavior. |
This material weakness resulted in an under payment and accrual
of payroll and other taxes. Accordingly, we restated our
Consolidated Financial Statements for fiscal years 2004 and 2003
and for the first three quarters of fiscal year 2005 to accrue
payroll and other taxes, penalties and interest.
51
We did not have sufficient technical expertise to address or
establish adequate policies and procedures associated with
accounting matters. In addition, we did not maintain policies
and procedures to ensure adequate management review of the
information supporting the financial statements. As a result:
|
|
|
|
|
We did not have personnel with adequate technical expertise to
effectively carry out the Companys policies and procedures
related to the review of technical accounting matters and to
ensure adequate management review of information supporting the
financial statements. |
|
|
|
We did not establish or maintain adequate policies and
procedures over the selection and application of appropriate
accounting policies. |
|
|
|
We failed to establish controls to properly identify and record
expenses related to severance benefits for certain employees of
a foreign subsidiary. |
This material weakness resulted in an underreporting of revenue
and direct costs. Accordingly, we restated our Consolidated
Financial Statements for fiscal years 2004 and 2003 and for the
first three quarters of fiscal year 2005 to report customer
reimbursements in revenue and direct costs and to record
additional operating expense for the severance benefits.
We did not have sufficient technical tax expertise to establish
and maintain adequate policies and procedures associated with
the operation of certain complex tax structures. As a result, we
failed to establish proper procedures to ensure the actions
required to enable us to realize the benefits of these
structures as previously recognized in our financial statements
were performed.
This material weakness resulted in an underreporting of direct
costs and income tax expense. Accordingly, we restated our
Consolidated Financial Statements for fiscal years 2004 and 2003
and for the first three quarters of fiscal year 2005 to report
an increase in direct costs and income tax expense.
As also disclosed in our Annual Report, management has taken a
series of actions to remediate these weaknesses in the control
environment, including the following:
|
|
|
|
|
Former senior management and other management personnel were
terminated or required to resign. |
|
|
|
New key members of senior and financial management were or are
being hired, including persons with appropriate technical
accounting expertise. |
|
|
|
Functional reporting lines of field accounting personnel were
realigned to report directly to the corporate accounting
function and not through operations management. |
|
|
|
Policies and procedures over the selection and application of
appropriate accounting policies and account analyses and
reconciliations have been or will be developed and implemented. |
|
|
|
A comprehensive compliance program was adopted and implemented,
including the introduction and dissemination of a new Code of
Business Integrity to all employees, which included the
following: |
|
|
|
|
|
A position for a Chief Compliance Officer with primary
responsibility to administer and set compliance policy and
report to the CEO and Board of Directors on matters concerning
legal and ethical compliance; |
|
|
|
A zero tolerance policy with respect to facilitation payments; |
|
|
|
Mandatory employee and director participation in company-wide
business integrity training; |
|
|
|
Strict requirements on engaging or conducting business through
intermediaries, including joint venture partners and agents; |
|
|
|
Membership in a non-profit organization that specializes in
anti-bribery due diligence reviews and compliance training for
international commercial intermediaries; and |
|
|
|
An enhanced Whistleblower hotline. |
|
|
|
|
|
Internal audits to ensure that the compliance program is
followed are planned. |
52
While we have made progress in remediating the material weakness
associated with the overall control environment, we are
continuing to address the issues underlying the material
weaknesses.
|
|
|
Evaluation of Disclosure Controls and Procedures |
As of December 31, 2005, we carried out an evaluation,
under the supervision of our CEO and CFO, of the
effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act
Rule 13a-15. In
light of the material weaknesses associated with the control
environment previously disclosed, which had not been completely
remediated as of December 31, 2005, our CEO and CFO
concluded, after the evaluation described above, that our
disclosure controls and procedures were not effective, as of
such date.
|
|
|
Changes in Internal Control Over Financial
Reporting |
As discussed under Material Weaknesses Previously
Disclosed above, the CEO and CFO concluded that as of
March 31, 2005, the Company did not maintain effective
internal control over financial reporting because of several
material weaknesses. This section also describes the series of
actions we have undertaken to remediate these weaknesses in the
control environment. These remediation actions began in the
first quarter of fiscal 2006 and continued into the third
quarter of fiscal 2006, and will favorably impact our control
over financial reporting. Outside of these remediation efforts
there has been no change in our internal control over financial
reporting that occurred during the period covered by this
Quarterly Report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
53
PART II OTHER INFORMATION
|
|
Item 1. |
Legal Proceedings. |
We have certain actions or claims pending that have been
discussed and previously reported in Part I. Item 3.
Legal Proceedings in the Annual Report. There have
been no material developments in these previously reported
matters.
See also Note E in the Condensed Notes to
Consolidated Financial Statements in Part I.
Item 1. Financial Statements of this Quarterly
Report, which is incorporated herein by reference, for
discussion of certain of our legal matters.
If you hold our securities or are considering an investment in
our securities, you should carefully consider the risks
discussed under Risk Factors beginning on
page 3 of our Annual Report, which is incorporated herein
by reference.
|
|
Item 3. |
Defaults Upon Senior Securities. |
As of December 31, 2005, we were in default of the various
financial information reporting covenants in our revolving
credit facility and the limited recourse term loans as a result
of not providing financial information for fiscal 2005 when due,
and also for not providing similar information to other
creditors. These defaults were cured in January 2006. For a
discussion of these defaults, see Defaults Under Certain
Long-Term Debt Agreements in Note D in the
Condensed Notes to Consolidated Financial Statements
and Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources Financing
Activities of this Quarterly Report, which are
incorporated herein by reference.
|
|
Item 4. |
Submission of Matters to a Vote of Security
Holders. |
The annual meeting of stockholders was held on February 6,
2006. Matters voted on at the meeting consisted of:
|
|
|
1. For the election of directors, all nominees were
approved. The results were as follows: |
|
|
|
|
|
|
|
|
|
Nominee |
|
For | |
|
Withheld | |
|
|
| |
|
| |
Thomas N. Amonett
|
|
|
21,981,558 |
|
|
|
278,520 |
|
Peter N. Buckley
|
|
|
21,823,072 |
|
|
|
437,006 |
|
Stephen J. Cannon
|
|
|
21,916,788 |
|
|
|
343,290 |
|
Jonathan H. Cartwright
|
|
|
20,127,887 |
|
|
|
2,132,191 |
|
William E. Chiles
|
|
|
21,914,412 |
|
|
|
345,666 |
|
Michael A. Flick
|
|
|
21,977,744 |
|
|
|
282,334 |
|
Kenneth M. Jones
|
|
|
21,824,878 |
|
|
|
435,200 |
|
Pierre H. Jungels, CBE
|
|
|
20,796,321 |
|
|
|
1,463,757 |
|
Thomas C. Knudson
|
|
|
21,981,770 |
|
|
|
278,308 |
|
Ken C. Tamblyn
|
|
|
21,916,777 |
|
|
|
343,301 |
|
Robert W. Waldrup
|
|
|
21,981,769 |
|
|
|
278,309 |
|
|
|
|
2. Proposal to approve and ratify the selection of KPMG LLP
as auditors for the Company for the fiscal year ending
March 31, 2006. The results were as follows: |
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
|
|
|
|
21,912,697
|
|
345,475 |
|
1,906 |
54
The following exhibits are filed as part of this quarterly
report:
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
10 |
.1 |
|
Employment Agreement effective as of June 1, 2005 between
the Company and Michael R. Suldo (filed as Exhibit 10.1 to
the Form 8-K filed on February 8, 2006 and
incorporated by reference). |
|
*10 |
.2 |
|
Form of Aircraft Lease agreement between CFS Air, LLC and Air
Logistics, L.L.C. (a Schedule I has been filed as part of
this exhibit setting forth certain terms omitted from the Form
of Aircraft Lease Agreement)+ |
|
*15 |
.1 |
|
Letter from KPMG LLP dated February 3, 2006, regarding
unaudited interim financial information. |
|
*31 |
.1 |
|
Rule 13a-14(a) Certification by the Chief Executive
Officer, President and Chief Financial Officer of the Registrant. |
|
*32 |
.1 |
|
Section 1350 Certification of the Chief Executive Officer,
President and Chief Financial Officer of the Registrant. |
|
|
+ |
Confidential information has been omitted from this exhibit and
filed separately with the SEC pursuant to a confidential
treatment request under
Rule 24(b)-2
|
55
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.
|
|
|
|
By: |
/s/ William E. Chiles |
|
|
|
|
|
William E. Chiles |
|
Chief Executive Officer, President and Chief Financial
Officer |
|
|
|
|
By: |
/s/ Elizabeth D. Brumley |
|
|
|
|
|
Elizabeth D. Brumley |
|
Vice President and Chief Accounting Officer |
February 9, 2006
56
Index to Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
10 |
.1 |
|
Employment Agreement effective as of June 1, 2005 between
the Company and Michael R. Suldo (filed as Exhibit 10.1 to
the Form 8-K filed on February 8, 2006 and
incorporated by reference). |
|
*10 |
.2 |
|
Form of Aircraft Lease Agreement between CFS Air, LLC and Air
Logistics, L.L.C. (a Schedule I has been filed as part of
this exhibit setting forth certain terms omitted from the Form
of Aircraft Lease Agreement)+ |
|
*15 |
.1 |
|
Letter from KPMG LLP dated February 3, 2006, regarding
unaudited interim financial information. |
|
*31 |
.1 |
|
Rule 13a-14(a) Certification by the Chief Executive
Officer, President and Chief Financial Officer of the Registrant. |
|
*32 |
.1 |
|
Section 1350 Certification of the Chief Executive Officer,
President and Chief Financial Officer of the Registrant. |
* Furnished herewith.
|
|
+ |
Confidential information has been omitted from this exhibit and
filed separately with the SEC pursuant to a confidential
treatment request under
Rule 24(b)-2.
|