BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of Bristow Group Inc. and its consolidated entities (“Bristow Group”, the “Company”, “we”, “us”, or “our”) after elimination of all significant intercompany accounts and transactions. Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period. Therefore, the fiscal year ending March 31, 2019 is referred to as “fiscal year 2019”. Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, the information contained in the following notes to condensed consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2018 Annual Report (the “fiscal year 2018 Financial Statements”). Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the consolidated balance sheet of the Company as of June 30, 2018, the consolidated statements of operations and comprehensive loss for the three months ended June 30, 2018 and 2017, the consolidated cash flows for the three months ended June 30, 2018 and 2017, and the consolidated statements of changes in stockholders’ investment for the three months ended June 30, 2018.

Foreign Currency

During the three months ended June 30, 2018 and 2017, our primary foreign currency exposure was to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira. The value of these currencies has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended June 30,
	2018	2017
One British pound sterling into U.S. dollars
High	1.43	1.30
Average	1.36	1.28
Low	1.31	1.24
At period-end	1.32	1.30
One euro into U.S. dollars
High	1.24	1.14
Average	1.19	1.10
Low	1.16	1.06
At period-end	1.17	1.14
One Australian dollar into U.S. dollars
High	0.78	0.77
Average	0.76	0.75
Low	0.73	0.74
At period-end	0.74	0.77
One Norwegian kroner into U.S. dollars
High	0.1290	0.1199
Average	0.1247	0.1174
Low	0.1209	0.1152
At period-end	0.1227	0.1194
One Nigerian naira into U.S. dollars
High	0.0028	0.0033
Average	0.0028	0.0032
Low	0.0028	0.0032
At period-end	0.0028	0.0032

_____________

Source: FactSet

Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction losses of $3.0 million and $1.7 million for the three months ended June 30, 2018 and 2017, respectively. Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies, with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar versus those other currencies.

Our earnings from unconsolidated affiliates, net of losses, are also affected by the impact of changes in foreign currency exchange rates on the reported results of our unconsolidated affiliates. During the three months ended June 30, 2018 and 2017, earnings from unconsolidated affiliates, net of losses, decreased by $2.6 million and $1.1 million, respectively, as a result of the impact of changes in foreign currency exchange rates on the earnings of our unconsolidated affiliates, primarily the impact of changes in the Brazilian real to U.S. dollar exchange rate on earnings for our affiliate in Brazil. The value of the Brazilian real has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended June 30,
	2018	2017
One Brazilian real into U.S. dollars
High	0.3020	0.3233
Average	0.2778	0.3113
Low	0.2571	0.2995
At period-end	0.2599	0.3018

_____________

Source: FactSet

We estimate that the fluctuation of currencies versus the same period in the prior fiscal year had the following effect on our financial condition and results of operations (in thousands):



	Three Months Ended June 30, 2018
Revenue	$	10,450
Operating expense	(5,301		)
Earnings from unconsolidated affiliates, net of losses	(1,454		)
Non-operating expense	(1,351		)
Income before provision for income taxes	2,344
Provision for income taxes	445
Net income	2,789
Cumulative translation adjustment	(29,172		)
Total stockholders’ investment	$	(26,383	)

Interest Expense, Net

During the three months ended June 30, 2018 and 2017, interest expense, net consisted of the following (in thousands):



	Three Months Ended June 30,
	2018			2017
Interest income	$	179		$	214
Interest expense	(27,323		)	(16,235		)
Interest expense, net	$	(27,144	)	$	(16,021	)

Accounts Receivable

As of June 30 and March 31, 2018, the allowance for doubtful accounts for non-affiliates was $3.2 million and $3.3 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of June 30 and March 31, 2018. The allowance for doubtful accounts for non-affiliates as of June 30 and March 31, 2018 primarily relates to amounts due from a customer in Nigeria for which we no longer believe collection is probable.

Inventories

As of June 30 and March 31, 2018, inventories were net of allowances of $24.6 million and $26.0 million, respectively. During the three months ended June 30, 2017, as a result of changes in expected future utilization of aircraft within our training fleet we recorded a $1.2 million charge to impair inventory used on our training fleet, which is included in loss on impairment on our condensed consolidated statement of operations.

Prepaid Expenses and Other Current Assets

As of June 30 and March 31, 2018, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $10.1 million and $10.8 million, respectively, related to the search and rescue (“SAR”) contracts in the U.K. and two customer contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three months ended June 30, 2018 and 2017, we expensed $2.7 million and $2.9 million, respectively, related to these contracts.

Goodwill

Goodwill is recorded when the cost of acquired businesses exceeds the fair value of the identifiable net assets acquired. Goodwill has an indefinite useful life and is not amortized, but is assessed for impairment annually or when events or changes in circumstances indicate that a potential impairment exists.

Goodwill of $19.2 million and $19.9 million as of June 30 and March 31, 2018, respectively, related to our Asia Pacific reporting unit was as follows (in thousands):



March 31, 2018	$	19,907
Foreign currency translation	(732		)
June 30, 2018	$	19,175

Accumulated goodwill impairment of $50.9 million as of both June 30 and March 31, 2018 related to our reporting units were as follows (in thousands):



Europe Caspian	$	(33,883	)
Africa	(6,179		)
Americas	(576		)
Corporate and other	(10,223		)
Total accumulated goodwill impairment	$	(50,861	)

Other Intangible Assets

Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values. Intangible assets by type were as follows (in thousands):



	Customer contracts			Customer relationships			Trade name and trademarks			Internally developed software			Licenses			Total

	Gross Carrying Amount
March 31, 2018	$	8,169		$	12,777		$	4,878		$	1,107		$	755		$	27,686
Foreign currency translation	—			(52		)	(208		)	(11		)	(1		)	(272		)
June 30, 2018	$	8,169		$	12,725		$	4,670		$	1,096		$	754		$	27,414

	Accumulated Amortization
March 31, 2018	$	(8,169	)	$	(11,372	)	$	(1,213	)	$	(915	)	$	(719	)	$	(22,388	)
Amortization expense	—			(72		)	(72		)	(54		)	(15		)	(213		)
June 30, 2018	$	(8,169	)	$	(11,444	)	$	(1,285	)	$	(969	)	$	(734	)	$	(22,601	)

Weighted average remaining contractual life, in years	0.0			4.4			11.8			0.6			0.3			5.6

Future amortization expense of intangible assets for each of the years ending March 31 is as follows (in thousands):



2019	$	527
2020	452
2021	452
2022	452
2023	452
Thereafter	2,478
	$	4,813

The Bristow Norway AS and Eastern Airways International Limited (“Eastern Airways”) acquisitions, included in our Europe Caspian region, resulted in intangible assets for customer contracts, customer relationships, trade names and trademarks, internally developed software and licenses. The Capiteq Limited, operating under the name Airnorth, acquisition included in our Asia Pacific region, resulted in intangible assets for customer contracts, customer relationships and trade name and trademarks.

Other Assets

In addition to the other intangible assets described above, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $45.2 million and $50.6 million, respectively, as of June 30 and March 31, 2018, related to the SAR contracts in the U.K. and two customer contracts in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts.

Property and Equipment, Assets Held for Sale and OEM Cost Recoveries

During the three months ended June 30, 2018 and 2017, we took delivery of aircraft and made capital expenditures as follows:



	Three Months Ended June 30,
	2018		2017

Number of aircraft delivered:
Medium	—		3
Total aircraft	—		3
Capital expenditures (in thousands):
Aircraft and equipment ⁽¹⁾	$	8,337	$	10,810
Land and buildings	558		1,743
Total capital expenditures	$	8,895	$	12,553

_____________


⁽¹⁾	During the three months ended June 30, 2017, we spent $1.3 million on progress payments for aircraft to be delivered in future periods. During the three months ended June 30, 2018, we made no progress payments.

The following table presents details on the aircraft sold or disposed of and impairments on assets held for sale during the three months ended June 30, 2018 and 2017:



	Three Months Ended June 30,
	2018			2017

	(In thousands, except for number of aircraft)
Number of aircraft sold or disposed of	3			6
Proceeds from sale or disposal of assets	$	7,774		$	41,975
Gain (loss) from sale or disposal of assets ⁽¹⁾	$	(1,678	)	$	2,263

Number of aircraft impaired	—			2
Impairment charges on assets held for sale ⁽¹⁾	$	—		$	1,564

_____________


⁽¹⁾	Included in gain (loss) on disposal of assets on our condensed consolidated statements of operations.

During fiscal year 2018, we reached agreements with original equipment manufacturers (“OEM”) to recover approximately $136.0 million related to ongoing aircraft issues, of which $125.0 million was realized during fiscal year 2018 and $11.0 million was recovered during the three months ended June 30, 2018. To reflect the amount realized from these OEM cost recoveries during fiscal year 2018, we recorded a $94.5 million decrease in the carrying value of certain aircraft in our fleet through a decrease in property and equipment – at cost, reduced rent expense by $16.6 million and recorded a deferred liability of $13.9 million, included in other accrued liabilities and other liabilities and deferred credits, related to a reduction in rent expense to be recorded in future periods, of which $3.5 million was recognized during the three months ended June 30, 2018. We determined the realized portion of the cost recoveries related to a long-term performance issue with the aircraft, requiring a reduction of carrying value for owned aircraft and a reduction in rent expense for leased aircraft. For the owned aircraft, we allocated the $94.5 million as a reduction in carrying value by reducing the historical acquisition value of each affected aircraft on a pro-rata basis utilizing the historical acquisition value of the aircraft. We revised our salvage values for each affected aircraft by reducing the historical acquisition value by the applicable amount and applying our stated salvage value percentage for owned aircraft of 50%. In accordance with accounting standards, we will recognize the change in depreciation due to the reduction in carrying value and revision of salvage values on a prospective basis over the remaining life of the aircraft. This will result in a reduction of depreciation expense of $6.4 million during the remainder of fiscal year 2019, $8.4 million during fiscal year 2020, $5.6 million during fiscal year 2021 and $21.3 million during fiscal year 2022 and beyond. For the leased aircraft, we will recognize the remaining deferred liability of $10.4 million as a reduction in rent expense prospectively on a straight-line basis over the remaining lease terms. This will result in a reduction to rent expense of $4.4 million during the remainder of fiscal year 2019, $4.0 million during fiscal year 2020 and $2.0 million during fiscal year 2021.

During the three months ended June 30, 2018, we recovered the remaining $11.0 million in OEM cost recoveries by agreeing to net certain amounts previously accrued for aircraft leases and capital expenditures against those recoveries. During the three months ended June 30, 2018, we recorded a $7.6 million increase in revenue and a $1.1 million decrease in direct cost. We expect to realize the remaining $2.3 million recovery during fiscal year 2019 as follows: $1.0 million decrease in direct cost in the three months ended September 30, 2018, $1.0 million decrease in direct cost in the three months ended December 31, 2018 and $0.3 million decrease in direct cost in the three months ended March 31, 2019. The increase in revenue relates to compensation for lost revenue in prior periods from the late delivery of aircraft and the decreases in direct cost over fiscal year 2019 relate to prior costs we have incurred and future costs we expect to incur.

Other Accrued Liabilities

Other accrued liabilities of $51.3 million and $66.0 million as of June 30 and March 31, 2018, respectively, includes the following:



	June 30, 2018		March 31, 2018

	(In thousands)
Accrued lease costs	$	7,079	$	11,708
Deferred OEM cost recovery	5,378		8,082
Eastern overdraft liability	6,230		8,989
Accrued property and equipment	468		4,874
Deferred gain on sale leasebacks	1,305		1,305
Other operating accruals	30,865		31,020
	$	51,325	$	65,978

Recent Accounting Pronouncements

We consider the applicability and impact of all accounting standard updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition replacing the existing accounting standard and industry-specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the new standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. This new standard is effective for annual reporting periods beginning after December 15, 2017. We adopted the standard as of April 1, 2018 using the modified retrospective method applied to open contracts and only to the version of the contracts in effect as of April 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance with our historical accounting policy. There was no impact on our condensed consolidated financial statements and no cumulative effect adjustment was recognized. For further details, see Note 2.

In February 2016, the FASB issued accounting guidance which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. Additionally, this accounting guidance requires a modified retrospective transition approach for all leases existing at, or entered into after the date of initial application, with an option to use certain transition relief. We have not yet adopted this standard and are currently evaluating the effect this standard will have on our financial statements.

In October 2016, the FASB issued accounting guidance related to current and deferred income taxes for intra-entity transfer of assets other than inventory. This accounting guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. We adopted this accounting guidance effective April 1, 2018 using the modified retrospective method, through a cumulative-effect adjustment directly to retained earnings. Upon adoption, we increased deferred tax liabilities by approximately $1.7 million and recognized an offsetting decrease to retained earnings.

In January 2017, the FASB issued accounting guidance which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides criteria for determining when a transaction involves the acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction does not involve the acquisition of a business. If the criteria are not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The amendments should be applied prospectively, and no disclosures are required at the effective date. We adopted this accounting guidance effective April 1, 2018. This accounting guidance has had no impact on our financial statements since adoption as we have not entered into any transactions during this period.

In March 2017, the FASB issued accounting guidance related to the presentation of net periodic pension cost and net periodic post-retirement benefit cost. The accounting guidance requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount of net benefit cost that is included in the statement of operations or capitalized in assets, by line item. The accounting guidance requires employers to report the service cost component in the same line item(s) as other compensation costs and to report other pension-related costs (which include interest costs, amortization of pension-related costs from prior periods, and the gains or losses on plan assets) separately and exclude them from the subtotal of operating income. The accounting guidance also allows only the service cost component to be eligible for capitalization when applicable. This accounting guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted as of the first interim period of an annual period for which interim or annual financial statements have not been issued. The accounting guidance requires application on a retrospective basis for the presentation of the service cost component and the other components of net periodic pension cost and net periodic post-retirement benefit cost in the statement of operations and on a prospective basis for the capitalization of the service cost component of net periodic pension cost and net periodic post-retirement benefit in assets. We adopted this accounting guidance effective April 1, 2018 and our statement of operations was retrospectively adjusted by $0.1 million with an increase in direct cost and a corresponding credit in other income (expense), net for the three months ended June 30, 2017.

In May 2017, the FASB issued accounting guidance on determining which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. We have adopted this accounting guidance effective April 1, 2018 with no impact on our financial statements as there were no changes to the terms or conditions of share-based payment awards.

In February 2018, the FASB issued new accounting guidance on income statement reporting of comprehensive income, specifically pertaining to reclassification of certain tax effects from accumulated other comprehensive income. This pronouncement is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2018, with early adoption permitted, and is applied prospectively to changes in terms or conditions of awards occurring on or after the adoption date. We have not yet adopted this accounting guidance and are currently evaluating the effect this accounting guidance will have on our financial statements.