UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

Form 10-Q
 
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
For the quarterly period ended JuneSeptember 30, 2007
  
 
OR
  
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
 
For the transition period from          to
 
Commission File Number 001-31617
 
Bristow Group Inc.
 
(Exact name of registrant as specified in its charter)

Delaware
72-0679819
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification Number)
  
2000 W.  Sam Houston Pkwy. S.,
77042
Suite 1700
(Zip Code)
Houston, Texas
 
(Address of principal executive offices)
 

Registrant’s telephone number, including area code:
 
(713) 267-7600
 
None
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes R     No £
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer R    Accelerated filer £   Non-accelerated filer £
 
Indicate by check mark whether the registrant is shell company (as defined in Rule 12b-2 of the Exchange Act).
£  Yes      R  No
 
Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of July 27,October 31, 2007.
 
23,731,53823,757,638 shares of Common Stock, $.01 par value








BRISTOW GROUP INC.
INDEX — FORM 10-Q

  
Page
PART I
 
   
Item 1.2 
   
Item 2.2729 
   
Item 3.4551 
   
Item 4.
Controls and Procedures                                                                                                                          
4552 
   
PART II
 
   
Item 1.4652 
   
Item 1A.4652 
   
Item 2.46
Item 4.4653 
   
Item 6.4854 
   
Signatures                                                                                                                                      0;     
4955 



PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements.Statements.

BRISTOW GROUP INC.  AND SUBSIDIARIES

Condensed Consolidated Statements of Income

Three Months Ended
June 30,
 
Three Months Ended
September  30,
  
Six Months Ended
September 30,
 
2006
  
2007
 
2006
  
2007
  
2006
  
2007
 
 
(Unaudited)
  
(Unaudited)
 
(In thousands, except per
share amounts)
 
(In thousands, except per share amounts)
 
Gross revenue:                      
Operating revenue from non-affiliates$181,786  $212,454 $191,341  $231,475  $373,127  $443,929 
Operating revenue from affiliates 12,079   11,097  11,631   13,858   23,710   24,955 
Reimbursable revenue from non-affiliates 26,125   20,348  20,091   25,505   46,216   45,853 
Reimbursable revenue from affiliates 1,072   1,103  1,146   2,498   2,218   3,601 
 221,062   245,002  224,209   273,336   445,271   518,338 
Operating expense:                      
Direct cost 138,470   163,836  148,872   162,764   287,341   326,600 
Reimbursable expense 26,898   21,241  20,879   25,793   47,778   47,034 
Depreciation and amortization 10,283   11,373  10,737   12,395   21,020   23,768 
General and administrative 15,349   19,262  16,527   21,039   31,876   40,301 
Gain on disposal of assets (998)  (584)
Loss (gain) on disposal of assets (3,667)  754   (4,665)  170 
 190,002   215,128  193,348   222,745   383,350   437,873 
Operating income 31,060   29,874  30,861   50,591   61,921   80,465 
Earnings from unconsolidated affiliates, net of losses 1,559   3,390  1,728   4,118   3,287   7,508 
Interest income 1,290   2,198  1,069   4,049   2,359   6,247 
Interest expense (3,236)  (2,933) (2,871)  (6,523)  (6,107)  (9,456)
Other income (expense), net (4,785)  426  (1,308)  360   (6,093)  786 
Income before provision for income taxes and minority interest 25,888   32,955  29,479   52,595   55,367   85,550 
Provision for income taxes (8,543)  (9,834) (9,728)  (18,641)  (18,271)  (28,475)
Minority interest (116)  (449) (676)  (4)  (792)  (453)
Net income 17,229   22,672  19,075   33,950   36,304   56,622 
Preferred Stock dividends    (3,162)
Preferred stock dividends (321)  (3,163)  (321)  (6,325)
Net income available to common stockholders$17,229  $19,510 $18,754  $30,787  $35,983  $50,297 
Earnings per common share:                      
Basic$0.74  $0.83 $0.80  $1.30  $1.54  $2.13 
Diluted$0.73  $0.75 $0.79  $1.12  $1.52  $1.87 






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


2


BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
 
March 31,
 
June 30,
 
 
2007
 
2007
   
March 31,
2007
 
September 30,
2007
 
   
(Unaudited)
     
(Unaudited)
 
 
(In thousands)
   
(In thousands)
 
ASSETS
ASSETS
ASSETS
Current assets:Current assets:      Current assets:      
Cash and cash equivalents $184,188 $339,542 Cash and cash equivalents $184,188 $276,439 
Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $2.0
million and $1.4 million, respectively 
 158,770  187,836 
Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $2.0
million and $1.8 million, respectively
  158,770 191,962 
Accounts receivable from affiliates, net of allowance for doubtful accounts of $3.2
million and $2.9 million, respectively
 17,199  19,694 
Accounts receivable from affiliates, net of allowance for doubtful accounts of $3.2
million and $3.0 million, respectively
  17,199 14,862 
Inventories  157,870  169,635 Inventories  157,870 176,459 
Prepaid expenses and other  17,947  17,768 Prepaid expenses and other  17,947  26,244 
 Total current assets  535,974  734,475 Total current assets  535,974 685,966 
Investment in unconsolidated affiliatesInvestment in unconsolidated affiliates 46,828  47,561 Investment in unconsolidated affiliates  46,828 54,314 
Property and equipment – at cost:Property and equipment – at cost:      Property and equipment – at cost:      
Land and buildings  51,850  56,339 Land and buildings  51,850 55,619 
Aircraft and equipment   1,141,578  1,269,390 Aircraft and equipment  1,141,578  1,353,975 
   1,193,428  1,325,729     1,193,428 1,409,594 
Less – Accumulated depreciation and amortization  (301,520) (308,258)Less – Accumulated depreciation and amortization  (301,520) (309,726)
   891,908  1,017,471     891,908 1,099,868 
Goodwill Goodwill  20,368  27,119 Goodwill  20,368 29,302 
Other assetsOther assets  10,725  17,814 Other assets  10,725  29,793 
   $1,505,803 $1,844,440   $1,505,803 $1,899,243 
               
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:Current liabilities:      Current liabilities:      
Accounts payable $42,343 $43,556 Accounts payable $42,343 $49,055 
Accrued wages, benefits and related taxes  38,281  38,877 Accrued wages, benefits and related taxes  38,281 39,414 
Income taxes payable 4,377  2,240 Income taxes payable  4,377 9,489 
Other accrued taxes 9,084  9,944 Other accrued taxes  9,084 5,118 
Deferred revenues 16,283  17,372 Deferred revenues  16,283 14,703 
Accrued maintenance and repairs  12,309  13,083 Accrued maintenance and repairs  12,309 13,556 
Other accrued liabilities  22,828  22,027 Other accrued liabilities  22,828 27,167 
Deferred taxes  17,611  17,962 Deferred taxes  17,611 18,479 
Short-term borrowings and current maturities of long-term debt   4,852  7,923 Short-term borrowings and current maturities of long-term debt  4,852  6,764 
 Total current liabilities  167,968  172,984 Total current liabilities  167,968 183,745 
Long-term debt, less current maturities Long-term debt, less current maturities  254,230  553,382 Long-term debt, less current maturities  254,230 550,571 
Accrued pension liabilitiesAccrued pension liabilities 113,069  112,992 Accrued pension liabilities  113,069 112,121 
Other liabilities and deferred creditsOther liabilities and deferred credits 17,345  15,112 Other liabilities and deferred credits  17,345 15,312 
Deferred taxesDeferred taxes 76,089  81,795 Deferred taxes  76,089 89,914 
Minority interestMinority interest 5,445  5,267 Minority interest  5,445 5,258 
Commitments and contingencies (Note 6)Commitments and contingencies (Note 6)      Commitments and contingencies (Note 6)      
Stockholders’ investment:Stockholders’ investment:      Stockholders’ investment:      
5.50% mandatory convertible preferred stock, $.01 par value, authorized and outstanding
4,600,000 shares; entitled in liquidation to $230 million; net of offering costs of
$7.4 million
 222,554  222,554 
5.50% mandatory convertible preferred stock, $.01 par value, authorized and
outstanding 4,600,000 shares; entitled on liquidation to $230 million; net of
offering costs of $7.4 million
  222,554 222,554 
Common stock, $.01 par value, authorized 35,000,000 shares; outstanding: 23,585,370 as
of March 31 and 23,723,345 as of June 30 (exclusive of 1,281,050 treasury shares)
 236  237 
Common stock, $.01 par value, authorized 35,000,000 shares as of March 31 and
90,000,000 shares as of September 30; outstanding: 23,585,370 as of March 31
and 23,731,638 as of September 30 (exclusive of 1,281,050 treasury shares)
  236 237 
Additional paid-in capital  169,353  172,373 Additional paid-in capital  169,353 174,383 
Retained earnings 515,589  535,099 Retained earnings  515,589 565,886 
Accumulated other comprehensive loss  (36,075) (27,355)Accumulated other comprehensive loss  (36,075) (20,738)
   871,657  902,908    871,657  942,322 
   $1,505,803 $1,844,440   $1,505,803 $1,899,243 
The accompanying notes are an integral part of these financial statements.

3



BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

  
Three Months Ended
June  30,
 
  
2006
 
2007
 
  
(Unaudited)
 
  
(In thousands)
 
Cash flows from operating activities:       
 Net income $17,229 $22,672 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:       
 Depreciation and amortization  10,283  11,373 
 Deferred income taxes  1,407  5,857 
 Gain on asset dispositions  (998) (584)
 Stock-based compensation expense  752  1,514 
 Equity in earnings from unconsolidated affiliates under (over) dividends received  845  (180)
 Minority interest in earnings  116  449 
 Tax benefit related to exercise of stock options  (303) (410)
Increase (decrease) in cash resulting from changes in:       
 Accounts receivable  (6,485) (29,861)
 Inventories  (3,273) (7,999)
 Prepaid expenses and other  (1,180) 2,174 
 Accounts payable  5,847  105 
 Accrued liabilities  8,536  (2,089)
 Other liabilities and deferred credits  (599) (5,340)
Net cash provided by (used in) operating activities  32,177  (2,319)
Cash flows from investing activities:       
 Capital expenditures  (46,882) (121,780)
 Proceeds from asset dispositions  2,556  451 
 Acquisition, net of cash received    (12,926)
Net cash used in investing activities  (44,326) (134,255)
Cash flows from financing activities:       
 Proceeds from borrowings    300,000 
 Debt issuance costs    (4,249)
 Repayment of debt and debt redemption premiums  (3,957) (3,166)
 Partial prepayment of put/call obligation  (30) (37)
 Preferred Stock dividends paid    (3,163)
 Issuance of common stock  764  1,095 
 Tax benefit related to exercise of stock options  303  410 
Net cash provided by (used in) financing activities  (2,920) 290,890 
Effect of exchange rate changes on cash and cash equivalents  2,221  1,038 
Net increase (decrease) in cash and cash equivalents  (12,848) 155,354 
Cash and cash equivalents at beginning of period  122,482  184,188 
Cash and cash equivalents at end of period $109,634 $339,542 
Supplemental disclosure of cash flow information:       
Cash paid during the period for:       
 Interest, net of interest capitalized $6,357 $7,504 
 Income taxes $2,562 $6,144 



  
Six Months Ended
 
  
September  30,
 
  
2006
 
2007
 
  
(Unaudited)
 
  
(In thousands)
 
Cash flows from operating activities:       
 Net income $36,304 $56,622 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:       
 Depreciation and amortization  21,020  23,768 
 Deferred income taxes  8,250  12,431 
 Loss (gain) on asset dispositions  (4,665) 170 
 Stock-based compensation expense  2,138  3,689 
 Equity in earnings from unconsolidated affiliates in excess of dividends received  (970) (4,229)
 Minority interest in earnings  792  453 
 Tax benefit related to exercise of stock options  (607) (494)
Increase (decrease) in cash resulting from changes in:       
 Accounts receivable  (3,172) (29,400)
 Inventories  (5,241) (13,460)
 Prepaid expenses and other  (3,798) (5,676)
 Accounts payable  (7,949) 4,635 
 Accrued liabilities  7,099  2,230 
 Other liabilities and deferred credits  (502) (7,241)
Net cash provided by operating activities  48,699  43,498 
Cash flows from investing activities:       
 Capital expenditures  (108,556) (221,095)
 Proceeds from asset dispositions  8,590  3,144 
 Acquisition, net of cash received    (12,926)
 Note issued to unconsolidated affiliate    (4,141)
 Investment in unconsolidated affiliate    (1,960)
Net cash used in investing activities  (99,966) (236,978)
Cash flows from financing activities:       
 Proceeds from borrowings    300,000 
 Debt issuance costs    (4,889)
 Issuance of Preferred Stock  194,450   
 Preferred Stock issuance costs  (346)  
 Repayment of debt and debt redemption premiums  (1,541) (7,205)
 Partial prepayment of put/call obligation  (80) (78)
 Preferred Stock dividends paid    (6,325)
 Issuance of common stock  2,169  1,265 
 Tax benefit related to exercise of stock options  607  494 
Net cash provided by financing activities  195,259  283,262 
Effect of exchange rate changes on cash and cash equivalents  1,801  2,469 
Net increase in cash and cash equivalents  145,793  92,251 
Cash and cash equivalents at beginning of period  122,482  184,188 
Cash and cash equivalents at end of period $268,275 $276,439 
Supplemental disclosure of cash flow information:       
Cash paid during the period for:       
 Interest, net of interest capitalized $5,267 $13,639 
 Income taxes $6,187 $11,539 
Non-cash investing activities:       
 Capital expenditures funded by accounts payable and short-term notes, net $12,859 $ 

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

4


BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

NOTE 1 — BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following consolidated financial statements include the accounts of Bristow Group Inc. and its consolidated entities (“Bristow Group,” the “Company,” “we,” “us,” or “our”) after elimination of all significant intercompany accounts and transactions. Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the information contained in the following condensed notes to consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2007 Annual Report (“fiscal year 2007 Financial Statements”).  Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.
 
The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position of the Company as of JuneSeptember 30, 2007, the consolidated results of operations for the three and six months ended JuneSeptember 30, 2006 and 2007, and the consolidated cash flows for the threesix months ended JuneSeptember 30, 2006 and 2007.
 
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, 2008 is referred to as fiscal year 2008.
 
Foreign Currency Translation
 
See “Foreign Currency Translation” in Note 1 to the fiscal year 2007 Financial Statements for a discussion of the related accounting policies.
 
The following table presents the applicable exchange rates (of one British pound sterling into U.S. dollars) for the indicated periods:
 
      Three Months Ended June 30, 
 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
2006
  
2007
 
2006
  
2007
  
2006
  
2007
 
High$1.89  $2.01 $1.91  $2.06  $1.91  $2.06 
Average 1.83   1.99  1.87   2.02   1.85   2.00 
Low 1.74   1.97  1.82   1.98   1.74   1.97 

As of March 31 and JuneSeptember 30, 2007, the exchange rate was $1.96 and $2.01,$2.04, respectively.

5

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
 
On November 14, 2006, we entered into a derivative contract to mitigate our exposure to exchange rate fluctuations on our U.S. dollar-denominated intercompany loans.  This derivative contract provided us with a call option on £12.9 million and a put option on $24.5 million, with a strike price of 1.895 U.S. dollars per British pound sterling, and expired on May 14, 2007, resulting in a cumulative gain of $0.6 million, of which $0.1 million related to the threesix months ended JuneSeptember 30, 2007 and is included in other income (expense), net in our condensed consolidated statement of income.
 
On April 2, 2007, primarily as a result of changes in the manner in which certain of our consolidated subsidiaries create and manage intercompany balances, we changed the functional currency of two of our consolidated subsidiaries, Bristow Helicopters (International) Ltd. and Caledonia Helicopters Ltd., from the British pound sterling to the U.S. dollar, which reduced our exposure to U.S. dollar denominated intercompany loans and advances.  Additionally, in April 2007, we reduced our Euro-denominated intercompany loans, thereby reducing our exposure to fluctuations in exchange rates for this foreign currency.
 

5

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Recent Accounting Pronouncements
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”  SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements.  See “Recent Accounting Pronouncements” in Note 1 to our fiscal year 2007 Financial Statements for further information on the requirements of SFAS No. 157.  SFAS No. 157 is effective for fiscal year 2009 and interim periods therein.  We have not yet completed our evaluation of the impact of SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115.” This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS No. 159 becomes effective for fiscal year 2009, with early adoption permitted.  We have not yet completed our evaluation of the impact of SFAS No. 159.
 
On April 1, 2007, we adopted FASB Staff Position AUG AIR-1, “Accounting for Planned Major Maintenance Activities,” which prohibits the accruing as a liability the future costs of periodic major overhauls and maintenance of plant and equipment.  Other previously acceptable methods of accounting for planned major overhauls and maintenance continue to be permitted.  Since we do not accrue as a liability the future costs related to periodic major overhauls and maintenance activities, the adoption of this staff position did not have a material impact on our consolidated results of operations, cash flows or financial position.
 
On April 1, 2007, we adopted the provisions of FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.”  FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”  See Note 7 for discussion of FIN No. 48 and the related disclosures.
 
NOTE 2 ¾ ACQUISITION— ACQUISITIONS AND DISPOSITIONS
 
On November 2, 2007, we sold our Grasso Production Management (“Grasso”) business, which comprised our entire Production Management Services segment, for approximately $22.5 million, subject to post-closing adjustments.  We sold Grasso for approximately book value with a net loss of approximately $6 million related to taxes on non-deductible goodwill and transaction costs which will be recorded in our fiscal quarter ending December 31, 2007.  The financial results for our Production Management Services segment will be classified as discontinued operations beginning in our fiscal quarter ending December 31, 2007.  The Production Management Services segment had current assets, goodwill, total assets, current liabilities and total liabilities of $21.9 million, $13.8 million, $36.1 million, $6.5 million and $6.6 million, respectively, as of  September 30, 2007.  In conjunction with the sale of Grasso, we agreed to continue to provide helicopter services to Grasso through December 31, 2010.  In connection with the sale of Grasso, we executed Supplemental Indentures with the Trustees for our 7 ½% and 6 ⅛% Senior Notes releasing Grasso Corporation and its subsidiaries as guarantors under the Indentures.
On April 2, 2007, we acquired all of the common equity of Helicopter Adventures, Inc. (“HAI”), a leading flight training provider with operations located in Titusville, Florida, and Concord, California, for $15.0approximately $15 million in cash.  We also assumed $5.7 million of debt as part of this transaction.  Upon purchase, HAI was renamed Bristow Academy, Inc. (“Bristow Academy”), which, when combined with our existing training facilities in Norwich, England, formed a central core of our new Global Training division within the Helicopter Services segment.  As of the acquisition date, Bristow Academy operated 51 aircraft (including 38 owned and 13 leased aircraft) and employed 122 people, including 48 flight instructors and is the only school approved to provide helicopter flight training to the Commercial Pilot level by both the U.S. Federal Aviation Administration (“FAA”) and the European Joint Aviation Authority.  The Global Training division will support, coordinate, standardize, and in the case of the Bristow Academy schools, directly manage all flight and maintenance training activities within the Helicopter Services segment.
 

6

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
The acquisition was accounted for under the purchase method, and we have consolidated the results of Bristow Academy from the date of acquisition.  The purchase price has been allocated based on preliminary estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date and resulted in goodwill of approximately $6.7$8.6 million. The purchase price allocation is subject to adjustment as additional information becomes available and will be finalized by April 2008.
 

6

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

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
  
April 2, 2007
  
(In thousands)
Current assets $2,930 
Property and equipment  8,656 
Other assets  10,084 
Total assets acquired  21,670 
Current liabilities, including debt  6,639 
Total liabilities assumed  6,639 
Net assets acquired $15,031 
 
 
April 2, 2007
 
(In thousands)
Current assets $2,925 
Property and equipment  8,689 
Other assets  12,011 
Total assets acquired  23,625 
 
Current liabilities, including debt
  8,461 
Total liabilities assumed  8,461 
Net assets acquired $15,164 
The pro forma effect of operations of Bristow Academy presented as of the beginning of the periods presented was approximately 1% of our consolidated gross revenue, operating income and net income.
 
NOTE 3 — INVESTMENTS IN AFFILIATES
 
Consolidated Affiliates
 
Bristow Helicopters Leasing Ltd. and Sakhalin Bristow Air Services Ltd — On May 25, 2007, we acquired an additional 9% interest in Bristow Helicopters Leasing Ltd. and Sakhalin Bristow Air Services Ltd., two U.K. joint ventures whose primary purpose is to hold the contracts for our Russian operations and to lease aircraft to Aviashelf Aviation Co. (“Aviashelf”), for $300,000 in accordance with the put and call option agreement.  Aviashelf is our 48.5% owned Russian joint venture.  In addition, on May 25, 2007, we entered into an agreement for grant of a new call option under which we can acquire an additional 8.5% interest in Aviashelf.  This agreement replaces the previous put and call option.
 
Heliair Leasing Limited — Heliair Leasing Limited (“Heliair”) is a Cayman Islands company that as of March 31, 2007 owned two aircraft that it leased to BriLog Leasing Ltd. (“BriLog”), a wholly-owned subsidiary of ours.  In fiscal year 1999, Heliair purchased the aircraft with proceeds from two limited recourse term loans with a U.K. bank.  The term loans were secured by both aircraft and our guarantee of the underlying lease obligations.  In addition, we provided asset value guarantees totaling up to $3.8 million, which were payable at expiration of the leases depending on the value received for the aircraft at the time of disposition.  The sole purpose of Heliair was to finance the purchase of the two aircraft.  As a result of the guarantees and the terms of the underlying leases, for financial statement purposes, the aircraft and associated term loans had been reflected on our consolidated balance sheet, effectively consolidating Heliair.
 
As discussed in Note 5, in May 2007, we completed a long-term financing, the proceeds of which were used to purchase the two aircraft discussed above from Heliair in May and July 2007.  Heliair used the sales proceeds to repay the term loans concurrently.  As a result of the sale of the aircraft and repayment of the term loans, Heliair has no assets and liabilities and no longer leases any aircraft to BriLog.  Additionally, as we no longer guarantee any obligations of Heliair, we no longer consolidate this entity as of July 2, 2007 upon repayment of the second term loan.
 

7

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Unconsolidated Affiliates
 
HC — After the conclusion of the contract with Petróleos Mexicanos (“PEMEX”) in February 2005, our 49% owned unconsolidated affiliates, Hemisco Helicopters International, Inc. and Heliservicio Campeche S.A. de C.V. (“Heliservicio” and collectively,(collectively, “HC”), experienced difficulties during fiscal year 2006 in meeting their obligations to make lease rental payments to us and to another one of our unconsolidated affiliates, Rotorwing Leasing Resources, L.L.C. (“RLR”).  During fiscal year 2006, RLR and we made a determination that because of the uncertainties as to collectibility, lease revenues from HC would be recognized as they were collected.  As of JuneSeptember 30, 2007, $0.8$0.9 million of amounts billed but not collected from HC have not been recognized in our results, and our 49% share of the equity in earnings of RLR has been reduced by $2.7 million for amounts billed but not collected from HC.  During the threesix months ended JuneSeptember 30, 2007, we recognized revenue of $0.6$0.5 million upon receipt of payment from HC for amounts billed in fiscal year 2007 and recorded equity earnings from RLR of $0.8 million related to receipt of payment by RLR from HC for amounts billed in fiscal year 2007.

7

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes  No amounts collected from HC by the Company or RLR during the three months ended September 30, 2007 related to Consolidated Financial Statements — (Continued)
Prioramounts billed prior to June 30, 2006, we tookfiscal year 2008.  We have taken several actions to improvewhich have improved the financial condition and profitability of HC, including relocating several aircraft to other markets, restructuring our profit sharing arrangement with our partner, and completing a recapitalization of Heliservicio on August 19, 2005.  In June 2006, Heliservicio began providing and operating three medium helicopters in support of PEMEX’s oil and gas operations under a two-year contract.  Wewe will continue to evaluate the improving results for HC to determine if and when we will change our accounting for this joint venture from the cash to accrual basis.
RLR During September 2007, we and our partners each contributed additional capital of approximately $2.0 million to RLR and we loaned RLR $4.1 million under a three-year term loan arrangement, which is included in other assets in the condensed consolidated balance sheet as of September 30, 2007.  The funds were used by RLR to purchase an aircraft delivered in September which will be leased to HC.
 
NOTE 4 — PROPERTY AND EQUIPMENT
 
During the threesix months ended JuneSeptember 30, 2007, we disposed of threefour aircraft and certain other equipment, incurred a total loss on one medium aircraft that crashed in Nigeria, a total loss on one small aircraft in a flight accident in the Gulf of Mexico and incurred a total loss from storm damage to one medium aircraft, (which was fully insured), resulting in a net gainloss on asset disposals of $0.6$0.2 million.  All of these losses were insured.
 
Additionally, during the threesix months ended JuneSeptember 30, 2007, we made final payments in connection with the delivery of fivetwo small, ten medium, two large aircraft and two largetraining aircraft, progress payments on the construction of new aircraft to be delivered in future periods in conjunction with our aircraft commitments (see Note 6), and purchased two training aircraft and aone fixed wing aircraft, for a total of $109.9$196.1 million.  Also, during the threesix months ended JuneSeptember 30, 2007, we spent $8.3$17.5 million to upgrade aircraft within our existing fleet and to customize new aircraft delivered for our operations, and spent $3.6$7.5 million for additions to land and buildings.
 
As of JuneSeptember 30, 2007, we had twelve12 aircraft held for sale and classified in prepaid expenses and other current assets in our condensed consolidated balance sheet.  We sold one

8

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to June 30, 2007.Consolidated Financial Statements — (Continued)

NOTE 5 — DEBT
 
Debt as of March 31 and JuneSeptember 30, 2007 consisted of the following (in thousands):
 
March 31,
2007
 
June 30,
2007
 
March 31,
2007
 
September 30,
2007
 
7 ½% Senior Notes due 2017$ $300,000 $ $300,000 
6 ⅛% Senior Notes due 2013 230,000 230,000  230,000 230,000 
Term loans 18,848 18,409  18,848 17,833 
Hemisco Helicopters International, Inc. note 4,380 4,380  4,380 4,380 
Short-term advance from customer 1,400 1,400  1,400 1,400 
Note to Sakhalin Aviation Services Ltd. 389 336  389 296 
Sakhalin debt 4,065 3,680  4,065 3,417 
Bristow Academy aircraft loans   3,100 
Bristow Academy debt   9 
Total debt 259,082 561,305  259,082 557,335 
Less short-term borrowings and current maturities of long-term debt (4,852) (7,923) (4,852) (6,764)
Total long-term debt $254,230 $553,382 $254,230 $550,571 
 
7 ½% Senior Notes due 2017 — On June 13, 2007, we completed an offering of $300 million of 7 ½% Senior Notes due 2017 (the “7 ½% Senior Notes”).  These notes are unsecured senior obligations and rank effectively junior in right of payment to all of the Company’s existing and future secured indebtedness, rank equally in right of payment with our existing and future senior unsecured indebtedness and rank senior in right of payment to any of our existing and future subordinated indebtedness.  The 7 ½% Senior Notes are guaranteed by certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”).  We intend to use the net proceeds from the offering to fund additional aircraft purchases, including aircraft under options, and for general corporate purposes.  The indenture to the 7 ½% Senior Notes restricts, among other things, our

8

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
ability to pay dividends or make other distributions to stockholders.  We will pay interest on the 7 ½% Senior Notes on March 15 and September 15 of each year, beginningwhich began on September 15, 2007, and the 7 ½% Senior Notes mature on September 15, 2017.  The 7 ½% Senior Notes are redeemable at our option; however, any payment or re-financing of these notes prior to September 15, 2012 is subject to a make-whole premium, and any payment or re-financing after September 15, 2012 but prior to September 15, 2015 is subject to a prepayment premium (103.75%of 103.75%, 102.50% and 101.25% if redeemed during the twelve-month period beginning on September 15 of 2012, 2013 and 2014, respectively).
respectively.
 
Senior Secured Credit Facilities — Our syndicated senior secured credit facilities consist of a $100 million revolving credit facility (with a subfacility of $25 million for letters of credit) and a $25 million letter of credit facility (the “Credit Facilities”). See Note 5 to the fiscal year 2007 Financial Statements for further information on the terms of these facilities.  As of JuneSeptember 30, 2007, we had $3.8 million in letters of credit outstanding under the letter of credit facility and no borrowings or letters of credit outstanding under the revolving credit facility.
 
Term Loans — Two limited recourse term loans were created in connection with sale and lease transactions for two aircraft entered into with Heliair in fiscal year 1999.  The limited recourse term loans were secured by both aircraft and our guarantee of the underlying lease obligations.  In addition, we provided asset value guarantees totaling up to $3.8 million, payable at expiration of the leases depending on the value received for the aircraft at the time of disposition.  As a result of these guarantees and the terms of the underlying leases, for financial statement purposes, the aircraft and associated limited recourse term loans were reflected on our consolidated balance sheet.  In May 2007, BrilogBriLog completed a new $18.7 million term loan financing, the proceeds of which were used by BriLog to purchase the two aircraft from Heliair in May and July 2007.  Heliair used the sales proceeds to repay the limited recourse term loans concurrently.  This financing and aircraft purchase did not involve the transfer of cash.  As a result of the completion of this financing, we have classified all but the current portion due under the new debt as long-term in our consolidated balance sheet as of June 30, 2007.  See Note 3 for a discussion of our relationship with Heliair.
 
The new term loan is repayable by BriLog in quarterly installments with the first payment of $0.3 million having been made in June 2007, which will be followed by thirty-two consecutive quarterly principal payments of $0.6 million, beginningthe first of which was paid in September 2007.  Interest is payable on the new term loan at LIBOR plus a margin of 1.25% (about 6.60%6.48% as of JuneSeptember 30, 2007).  The new term loan is secured by the two aircraft and we have provided a parent guarantee of the loan.
 
Aircraft Loans — In conjunction with the purchase of HAI on April 2, 2007 (see Note 2), we assumed various aircraft loans for an aggregate of $5.7 million, of which an aggregate of $3.1 million was outstanding as of June 30, 2007.  The remainder of these loans were repaid during July 2007 and were therefore classified in current liabilities as of June 30, 2007.

9

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

NOTE 6 — COMMITMENTS AND CONTINGENCIES
 
Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the current and next sixfive fiscal years to purchase additional aircraft.  As of JuneSeptember 30, 2007, we had 32 aircraft on order and options to acquire an additional 5242 aircraft.  Six options for medium sized aircraft expired during the three months ended September 30, 2007.  Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order will provide incremental fleet capacity in terms of revenue and operating margin.

 
Nine
 Months Ending
 March 31,
 
Fiscal Year Ending March 31,
   
Six
 Months Ending March 31,
 
Fiscal Year Ending March 31,
  
 
2008
 
2009
 
2010
 
2011
 
2012-2013
 
Total
 
2008
 
2009
 
2010
 
2011
 
2012-2013
 
Total
Commitments as of June 30, 2007:
             
Commitments as of September 30, 2007:
             
Number of aircraft:                          
Small  3      3 1      1
Medium  8 3    11 4 6    10
Large  6 6    12 6 10    16
Training   6          6  5          5
  23
(1)
  9
(2)
        32  16
(1)
 16
(2)
       32
Related expenditures (in thousands) (3)
 $165,030 $89,956 $ $ $ $254,986 $113,817 $162,661 $ $ $ $276,478
             
Options as of June 30, 2007:
             
Options as of September 30, 2007:
             
Number of aircraft:                          
Medium   1 9  8 12 30   5  8 11 24
Large     5  11  6    22    1  11  6    18
    6  20  14  12  52    1  16  14  11  42
Related expenditures (in thousands) (3)
 $36,973 $191,661 $289,399 $132,102 $82,733 $732,868 $17,714 $112,745 $264,746 $132,174 $80,586 $607,965
_________

(1)
Signed customer contracts are currently in place for 810 of the 1711 non-training aircraft.
  
(2)
No signedSigned customer contracts are currently in place for 4 of these 916 aircraft.
  
(3)
Includes progress payments on aircraft scheduled to be delivered in future periods.
 
The following chart presents an analysis of our aircraft orders and options during the three months ended June 30, 2007:fiscal year 2008:

Three Months Ended
Three Months Ended
 
 
June 30, 2007
 
June 30, 2007
  
September 30, 2007
 
 
Orders
  
Options
 
Orders
  
Options
  
Orders
  
Options
 
Beginning of quarter  31   52  31   52   32   52 
Aircraft delivered  (7)    (7)     (9)   
Aircraft ordered  2     2      5    
Training aircraft   6     6          
Options converted to orders       4   (4)
Options expired          (6)
End of quarter   32   52  32   52   32   42 
 
As occurred during fiscal year 2007, weWe periodically order aircraft for which we have no options.
 

10

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Collective Bargaining Agreements — We employ approximately 300 pilots in our North America operations who are represented by the Office and Professional Employees International Union (“OPEIU”) under a collective bargaining agreement.  We and the pilots represented by the OPEIU ratified an amended collective bargaining agreement on April 4, 2005.  The terms under the amended agreement are fixed until October 3, 2008 and include wage increases for the pilot group and improvements to several other benefit plans.
 

10

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
We are currently involved in negotiations with unions representing our pilots and engineers in the U.K.  As a result of the negotiations completed to date, labor rates under our existing contracts increased 4-5% starting in July 2007 and the new labor rates will continue through June 2008.  We expect to be able to pass these costs on to our customers through annual contract escalation charges built into existing contracts or through rate increases as customer contracts come up for renewal.
 
We are currently involved in annual contract negotiations with the unions in Nigeria and anticipate that we will increase certain benefits for union personnel as a result of these negotiations.
 
We are currently involved in discussions with the pilot’s union in Australia, and we expect that the labor rates on our existing contracts could increase 10-14% starting in the last half of fiscal year 2008.
 
Our ability to attract and retain qualified pilots, mechanics and other highly-trained personnel is an important factor in determining our future success.  For example, many of our customers require pilots with very high levels of flight experience. The market for these experienced and highly-trained personnel is competitive and will become more competitive if oil and gas industry activity levels increase.  In addition, some of our pilots, mechanics and other personnel, as well as those of our competitors, are members of the U.S. or U.K. military reserves and have been, or could be, called to active duty.  If significant numbers of such personnel are called to active duty, it would reduce the supply of such workers and likely increase our labor costs.
 
Restrictions on Foreign Ownership of Common Stock — Under the Federal Aviation Act, it is unlawful to operate certain aircraft for hire within the U.S. unless such aircraft are registered with the FAA and the FAA has issued an operating certificate to the operator.  As a general rule, aircraft may be registered under the Federal Aviation Act only if the aircraft are owned or controlled by one or more citizens of the U.S. and an operating certificate may be granted only to a citizen of the U.S.  For purposes of these requirements, a corporation is deemed to be a citizen of the U.S. only if, among other things, at least 75% of its voting interests are owned or controlled by U.S. citizens.  If persons other than U.S. citizens should come to own or control more than 25% of our voting interest, we have been advised that our aircraft may be subject to deregistration under the Federal Aviation Act, and we may lose our ability to operate within the U.S.  Deregistration of our aircraft for any reason, including foreign ownership in excess of permitted levels, would have a material adverse effect on our ability to conduct operations within our North America business unit.  Therefore, our organizational documents currently provide for the automatic suspension of voting rights of shares of our common stock owned or controlled by non-U.S. citizens, and our right to redeem those shares, to the extent necessary to comply with these requirements.  As of JuneSeptember 30, 2007, approximately 2,050,0002,231,000 shares of our common stock were held by persons with foreign addresses.  These shares represented approximately 8.6%9.4% of our total outstanding common shares as of JuneSeptember 30, 2007.  Because a substantial portion of our common stock and our 5.50% mandatory convertible preferred stock (“Preferred Stock”) is publicly traded, our foreign ownership may fluctuate on each trading day.
 
Internal Review — In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by such special outside counselthe Audit Committee to cover operations in other countries and other issues (the “Internal Review”).  In connection with this review, special outside counsel to the Audit Committee retained forensic accountants.  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review, which eventually resulted in a formal SEC investigation.  In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation.  The SEC did not impose any fine or other monetary sanction upon the Company.  Without admitting or denying the SEC’s findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records.  For further information on the restatements, see our Annual Report on Form 10-K for the fiscal year 2005 Annual Report.ended March 31, 2005.
In October 2005, the Audit Committee reached certain conclusions with respect to findings from the Internal Review.  The Audit Committee concluded that, over a considerable period of time, (1) improper payments were made by, and on behalf of, certain foreign affiliated entities directly or indirectly to foreign officials, (2) improper payments were made by certain foreign affiliated entities to employees of certain customers, (3) inadequate employee payroll declarations and, in certain instances, tax payments were made by us or our affiliated entities in certain jurisdictions, (4) inadequate valuations for customs purposes may have been declared in certain jurisdictions resulting in the underpayment of import duties, and (5) an affiliated entity, with the assistance of our personnel, engaged in transactions which appear to have assisted 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.
 

11

        BRISTOW GROUP INC. AND SUBSIDIARIES      
      
        Condensed Notes to Consolidated Financial Statements — (Continued)      
Based on the Audit Committee’s findings and recommendations, the board of directors took 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 also obtained the resignation of certain of its personnel.
We took remedial actions, including correcting underreported payroll taxes, disclosing to certain customers inappropriate payments made to customer personnel and terminating certain agency, business and joint venture relationships.  We also took steps to reinforce our commitment to conduct our business with integrity by creating an internal corporate compliance function, instituting a new code of business integrity, and developing and implementing a training program for all employees.  In addition to the disciplinary actions referred to above, we took steps to strengthen our control environment by hiring new key members of senior and financial management, including persons with appropriate technical accounting and legal expertise, expanding our corporate finance group and internal audit staff, realigning reporting lines within the accounting function so that field accounting reports directly to the corporate accounting function instead of operations management, and improving the management of our tax structure to comply with its intended design.  Our compliance program is in full operation, and clear corporate policies have been established and communicated to our relevant personnel.
We have communicated the Audit Committee’s conclusions with respect to the findings of the Internal Review to regulatory authorities in the jurisdictions in which the relevant activities took place where appropriate.  Until final resolution of all of these issues, 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 countries in which we operate, related proceedings could also result in sanctions requiring us to curtail our business operations in one or more such countries for a period of time and affect or limit our ability to export our aircraft from such countries.
Although we recorded an accrual of $3.0 million for the expected outcome, 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.  As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted. We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in their countries.  It is also possible 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 we continue to respond to the SEC investigation and other governmental authorities and take other actions relating to improper activities that have been identified in connection with the Internal Review, there can be no assurance that restatements, in addition to those reflected in our fiscal year 2005 Annual Report, will not be required or that our historical financial statements included in this Quarterly Report will not change or require further amendment.  In addition, as we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures.  As a result, new issues may be identified that may impact our financial statements and the scope of the restatements described above and lead us to take other remedial actions or otherwise adversely impact us.
12

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
During fiscal years 2005, 2006 and 2007, and the three months ended June 30, 2006, we incurred approximately $2.2 million, $10.5 million, $3.1 million and $0.1 million, respectively, in legal and other professional costs in connection with the Internal Review.  During the three months ended June 30, 2007, we incurred no legal or other professional costs in connection with the Internal Review.
 
In addition, we face legal actions relating to remedial actions which we have taken as a result of the Internal Review, and may face further legal action of this type in the future.  In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria.  The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million.  We have responded to this claim and are continuing to investigate this matter.
 
As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures.  As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.
During fiscal years 2005, 2006 and 2007, and the six months ended September 30, 2006, we incurred approximately $2.2 million, $10.5 million, $3.1 million and $0.1 million, respectively, in legal and other professional costs in connection with the Internal Review.  During the six months ended September 30, 2007, we reversed $1.0 million of previously accrued settlement costs due to the fact that we settled the investigation with the SEC.

Following the previously disclosed settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the U.S. Department of Justice (the “DOJ”) and was asked to provide certain information regarding the Audit Committee's related Internal Review. We previously provided disclosure regarding the Internal Review in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005. In addition, we were requested to enter into an agreement with the DOJ that would toll the statute of limitations relating to these matters. We intend to be responsive to the DOJ's requests. At this time, it is not possible to predict what the outcome of the DOJ's investigation into these matters will be for the Company.
Document Subpoena from U.S. Department of Justice — In June 2005, one of our subsidiaries received a document subpoena from the Antitrust Division of the U.S. Department of Justice (the “DOJ”).DOJ.  The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico.services.  The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005.  We believe we have submitted to the DOJ substantially all documents responsive to the subpoena.  We have had discussions with the DOJ and provided documents related to our operations in the U.S., as well as internationally.  We intend to continue to provide additional information as required by the DOJ in connection with the investigation.  There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred.  The period of time necessary to resolve the DOJ investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
 
The outcome of the DOJ investigation and any related legal proceedings in other countries could include civil injunctive or criminal proceedings involving us or our current or former officers, directors or employees, the imposition of fines and other penalties, remedies and/or sanctions, including potential disbarments, and referrals to other governmental agencies.  In addition, in cases where anti-competitive conduct is found by the government, there is greater likelihood for civil litigation to be brought by third parties seeking recovery.  Any such civil litigation could have serious consequences for our company, including the costs of the litigation and potential orders to pay restitution or other damages or penalties, including potentially treble damages, to any parties that were determined to be injured as a result of any impermissible anti-competitive conduct.  Any of these adverse consequences could have a material adverse effect on our business, financial condition and results of operations.  The DOJ investigation, any related proceedings in other countries and any third-party litigation, as well as any negative outcome that may result from the investigation, proceedings or litigation, could also negatively impact our relationships with customers and our ability to generate revenue.
 

12

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
In connection with this matter, we incurred $2.6 million, $1.9 million, $0.3 million and $0.6$0.9 million in legal and other professional fees in fiscal years 2006 and 2007, and the three and six months ended JuneSeptember 30, 2006, respectively.  We incurred no$0.5 million in legal orand other professional fees in connection with this matter for the threesix months ended JuneSeptember 30, 2007,2007; however, significant expenditures may continue to be incurred in the future in connection with this matter.
 
Environmental Contingencies — The U.S. Environmental Protection Agency, also referred to as the EPA, has in the past notified us that we are a potential responsible party, or PRP, at four former waste disposal facilities that are on the National Priorities List of contaminated sites.  Under the federal Comprehensive Environmental Response, Compensation, and Liability Act, also known as the Superfund law, persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites.  We were identified by the EPA as a PRP at the Western Sand and Gravel Superfund site in Rhode Island in 1984, at the Sheridan Disposal Services Superfund site in Waller County, Texas, in 1989, at the Gulf Coast Vacuum Services Superfund site near Abbeville, Louisiana, in 1989, and at the Operating Industries, Inc. Superfund site in Monterey Park, California, in 2003.  We have not received any correspondence from the EPA with respect to the Western Sand and Gravel Superfund site since February 1991, nor with respect to the Sheridan Disposal Services Superfund site since 1989.  Remedial activities at the Gulf Coast Vacuum Services Superfund site were completed in September 1999 and the site was removed from the National Priorities List in July 2001.  The EPA has offered to submit a settlement offer to us in return

13

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

for which we would be recognized as a de minimis party in regard to the Operating Industries Superfund site, but we have not yet received this settlement proposal.  Although we have not obtained a formal release of liability from the EPA with respect to any of these sites, we believe that our potential liability in connection with these sites is not likely to have a material adverse effect on our business, financial condition or results of operations.
 
Hurricanes Katrina and Rita — As a result of hurricanes Katrina and Rita in the fall of 2005, several of our shorebase facilities located along the U.S. Gulf Coast sustained significant hurricane damage.  In particular, hurricane Katrina caused a total loss of our Venice, Louisiana, shorebase facility, and hurricane Rita severely damaged the Creole, Louisiana, base and flooded the Intracoastal City, Louisiana, base.  These facilities have since been reopened.  Based on estimates of the losses, discussions with our property insurers and analysis of the terms of our property insurance policies, we believe that it is probable that we will receive a total of $2.8 million in insurance recoveries ($1.9 million has been received thus far).  We recorded a $0.2 million net gain during fiscal year 2006, ($2.8 million in probable insurance recoveries offset by $2.6 million of involuntary conversion losses) related to property damage to these facilities.
 
Supply Agreement with Timken — In conjunction with the sale of certain of the assets of Turbo Engines, Inc. to Timken Alcor Aerospace Technologies, Inc. (“Timken”) in November 2006, we signed a supply agreement with Timken through which we are obligated to purchase parts and components, and obtain repair services, from Timken totaling $10.5 million over a three-year period beginning December 1, 2006 at prices consistent with prior arrangements with Timken.  Through JuneSeptember 30, 2007, we purchased $1.4$2.3 million under this agreement.
 
Guarantees  We have guaranteed the repayment of up to £10 million ($20.120.4 million) of the debt of FBS Limited and $11.7$10.3 million of the debt of RLR, both unconsolidated affiliates.  See discussion of these commitments in Note 3 to our fiscal year 2007 Financial Statements.  As of JuneSeptember 30, 2007, we have recorded a liability of $0.7 million representing the fair value of the RLR guarantee, which is reflected in our condensed consolidated balance sheet in other liabilities and deferred credits.  Additionally, we provided an indemnity agreement to Afianzadora Sofimex, S.A. to support issuance of surety bonds on behalf of HC from time to time; as of JuneSeptember 30, 2007, surety bonds denominated in Mexican pesos with an aggregate value of 40.840.5 million Mexican pesos ($3.83.7 million) and surety bonds denominated in U.S. dollars with an aggregate value of $1.7 million were outstanding.
 
The following table summarizes our commitments under these guarantees as of JuneSeptember 30, 2007:
 
Amount of Commitment Expiration Per Period
Amount of Commitment Expiration Per Period
Amount of Commitment Expiration Per Period
Total
Total
 
Remainder
of Fiscal
Year 2008
 
Fiscal Years 2009-2010
 
Fiscal Years
2011-2012
 
Fiscal Year
2013 and Thereafter
Total
 
Remainder
of Fiscal
Year 2008
 
Fiscal Years 2009-2010
 
Fiscal Years 2011-2012
 
Fiscal Year
2013 and Thereafter
(In thousands)
(In thousands)
(In thousands)
$37,284 $3,769 $13,455 $20,060 $36,112 $3,709 $12,029 $20,374 $

13

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to a deductible.  We are a defendant in certain claims and litigation arising out of operations in the normal course of business.  In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.
 
NOTE 7 — TAXES
 
Our effective income tax rates from continuing operations were 33.0% and 29.8%35.4% for the three months ended JuneSeptember 30, 2006 and 2007, respectively, and 33.0% and 33.3% for the six months ended September 30, 2006 and 2007, respectively.  During the three months ended JuneSeptember 30, 2006, we benefited from tax contingency related items totaling $0.7 million and during the three months ended September 30, 2007, we accrued tax contingency items totaling $0.1 million.  During the six months ended September 30, 2006 and 2007, we benefited from tax contingency related items totaling $0.8$1.5 million and $0.9 million, respectively.  Our effective tax rate was also impacted by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
 
As discussed under “Recent Accounting Pronouncements” in Note 1, on April 1, 2007 we adopted FIN No. 48, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.  FIN No. 48 requires enterprises to evaluate tax positions using a two-step process consisting of recognition and

14

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

measurement.  The effects of a tax position are recognized in the period in which we determine that it is more likely than not (defined as a more than 50% likelihood) that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position.  A tax position that meets the more-likely-than-not recognition threshold is measured as the largest amount of tax benefit that is greater than 50% likely of being recognized upon ultimate settlement.
 
We have analyzed filing positions in the federal, state and foreign jurisdictions where we are required to file income tax returns for all open tax years.  The adoption of FIN No. 48 on April 1, 2007 did not affect our beginning retained earnings since we had previously reserved for uncertain tax positions.  Our policy is to accrue interest and penalties associated with uncertain tax positions in income tax expense.  As of March 31 and JuneSeptember 30, 2007, $0.3 million and $0.4 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.  The tax years that remain open to examination by the major taxing jurisdictions (the U.S., the U.K. and Nigeria) to which we are subject range from 2001 to 2007.
 
As of the April 1, 2007 date of adoption of FIN No. 48 and JuneSeptember 30, 2007, we had $6.3 million and $5.5$5.2 million, respectively, of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized.
During the three months ended September 30, 2007, we reversed a $5.4 million accrual for sales tax contingency in Nigeria.
 
NOTE 8 — EMPLOYEE BENEFIT PLANS
 
Pension Plans
 
The following table provides a detail of the components of net periodic pension cost:
 
Three Months Ended
June 30,
 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
 
2006
  
2007
 
2006
  
2007
  
2006
  
2007
 
(In thousands)
  
(In thousands)
 
Service cost for benefits earned during the period$63  $71 $65  $71  $128  $142 
Interest cost on pension benefit obligation 5,484   6,559  5,619   6,675   11,102   13,234 
Expected return on assets (5,674)  (6,790) (5,814)  (6,910)  (11,487)  (13,700)
Amortization of unrecognized losses 879   1,024 
Amortization of unrecognized experience losses 901   1,042   1,780   2,066 
Net periodic pension cost$752  $864 $771  $878  $1,523  $1,742 
 
The current estimate of our cash contributions to the pension plans for fiscal year 2008 is $14.7 million, $3.6$3.7 million and $7.3 million of which was paid during the three and six months ended JuneSeptember 30, 2007.2007, respectively.
 

14

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Stock-Based Compensation
 
We have a number of incentive and stock option plans which are described in Note 8 to our fiscal year 2007 Financial Statements.
 
On May 3, 2007, the board of directors of the Company approved the Bristow Group Inc. 2007 Long Term Incentive Plan (the “2007 Plan”), which was approved by the Company’s stockholders at the Company’s annual meeting of stockholders held on August 2, 2007.  The number of shares of common stock reserved under the 2007 Plan and available for incentive awards under the 2007 Plan is 1,200,000. The primary purpose of the 2007 Plan is to provide a means whereby we may advance the best interests of the Company by providing outside directors, employees and consultants with additional incentives through the grant of stock options to purchase common stock of the Company, shares of restricted stock, other stock-based awards (payable in cash or common stock) and performance awards, thereby increasing the personal stake of such persons in the continued success and growth of the Company.
 
For the three months ended June 30, 2006 and 2007, totalTotal stock-based compensation expense, which includes both stock options and restricted stock units, totaled $0.8$1.3 million and $1.5$2.2 million for the three months ended September 30, 2006 and 2007, respectively, and totaled $2.1 million and $3.7 million for the six months ended September 30, 2006 and 2007, respectively.  Stock-based compensation expense has been allocated to our various business units.
 

15

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

During the three and six months ended JuneSeptember 30, 2007, 191,80044,000 and 235,800 stock options were granted at an average exercise priceprices of $46.16$47.63 and $46.43 per share.share, respectively.  The key input variables used in valuing these options under the Black Scholes model were: risk-free interest rate range of 4.74%4.70% to 4.77%; dividend yield of zero; stock price volatility range of 45%43.07% to 44.98%; and expected option lives range of 3 to 4 years.  Also during the three and six months ended JuneSeptember 30, 2007, we awarded 127,6002,500 and 130,100 restricted stock units and 75,300925 and 76,225 shares of restricted stock at an average grant date fair value of $44.84$43.35 and $44.82 per share.share, respectively.
 
NOTE 9 — STOCKHOLDERS’ EQUITYINVESTMENT AND EARNINGS PER SHARE
 
On August 2, 2007, our stockholders approved an increase to the number of authorized shares of our common stock from 35,000,000 to 90,000,000.
 
Basic earnings per common share was computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per common share for the three and six months ended JuneSeptember 30, 2006 excluded options to purchase 176,880367,909 and 305,590 shares, respectively, at a weighted average exercise priceprices of $31.77,$32.85 and $32.14, respectively, which were outstanding during the period but were anti-dilutive.  Diluted earnings per common share for the three and six months ended JuneSeptember 30, 2007 excluded options to purchase 339,331471,442 and 390,755, respectively, shares at a weighted average exercise priceprices of $35.74,$38.79 and $37.29, respectively, which were outstanding during the period but were anti-dilutive.  Diluted earnings per common share for the three months ended June 30, 2007 also included weighted average shares resulting from the assumed conversion of our Preferred Stock at the conversion rate that results in the most dilution:  1.4180 shares of common stock for each share of Preferred Stock. The following table sets forth the computation of basic and diluted net income per share.
  
Three Months Ended
June 30,
 
  
2006
  
2007
 
Net income (in thousands):      
Income available to common stockholders – basic$17,229 $19,510 
Preferred Stock dividends   3,162 
Income available to common stockholders - diluted$17,229 $22,672 
Shares:      
Weighted average number of common shares outstanding – basic 23,393,010  23,602,696 
Assumed conversion of Preferred Stock outstanding during the period   6,522,972 
Net effect of dilutive stock options, restricted stock and restricted stock units
based on the treasury stock method
 114,498  93,357 
Weighted average number of common shares outstanding – diluted 23,507,508  30,219,025 
Basic earnings per common share$0.74 $0.83 
Diluted earnings per common share$0.73 $0.75 

 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
 
2006
 
2007
 
2006
 
2007
 
Earnings (in thousands):            
Income available to common stockholders – basic$18,754 $30,787 $35,983 $50,297 
Preferred Stock dividends 321  3,163  321  6,325 
Income available to common stockholders – diluted$19,075 $33,950 $36,304 $56,622 
Shares:            
Weighted average number of common shares outstanding – basic 23,453,429  23,731,265  23,423,384  23,634,628 
Assumed conversion of Preferred Stock outstanding during the period 678,192  6,522,800
(1)
340,949  6,522,800
(1)    
Net effect of dilutive stock options and restricted stock units based on the treasury stock method 115,963  153,577  117,484  105,313 
Weighted average number of common shares outstanding – diluted 24,247,584  30,407,642  23,881,817  30,262,741 
Basic earnings per common share$0.80 $1.30 $1.54 $2.13 
Diluted earnings per common share$0.79 $1.12 $1.52 $1.87 


1615

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

(1)
Diluted earnings per common share included weighted average shares resulting from the assumed conversion of our Preferred Stock at the conversion rate that results in the most dilution:  1.4180 shares of common stock for each share of Preferred Stock.  If the average of the closing price per share of our common stock on each of the 20 consecutive trading days ending on the third day immediately preceding the mandatory conversion date of September 15, 2009 is greater than $35.26 per share, then the Preferred Stock will convert into fewer shares than assumed for diluted earnings per common share.  If such average is $43.19 per share of more, then the Preferred Stock will convert into 1,197,840 fewer shares than assumed for diluted earnings per common share.
 
NOTE 10 — SEGMENT INFORMATION
 
We conductAs of September 30, 2007, we conducted our business in two segments: Helicopter Services and Production Management Services.  The Helicopter Services segment operations are conducted through three divisions:  Western Hemisphere, Eastern Hemisphere and Global Training, and eight business units within those divisions. Western Hemisphere and Eastern Hemisphere operate through seven of the business units:  North America and South and Central America within the Western Hemisphere, and Europe, West Africa, Southeast Asia, Other International and Eastern Hemisphere (“EH”) Centralized Operations within the Eastern Hemisphere. Our EH Centralized Operations business unit is comprised of our technical services business and other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Eastern Hemisphere business units) in the Eastern Hemisphere and division level expenses for our Eastern Hemisphere businesses. These operations are not included within any other business unit as they are managed centrally by our Eastern Hemisphere management separate and apart from these other operations.  Bristow Academy is the only business unit within our Global Training division within the Helicopter Services segment.
 
We provideAs of September 30, 2007, we provided 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 name.  As discussed in Note 2, on November 2, 2007, we sold Grasso, and therefore the financial results for our Production Management name.Services segment will be classified as discontinued operations beginning in our fiscal quarter ending December 31, 2007.
 
The tables that follow show reportable segment information for the three and six months ended JuneSeptember 30, 2006 and 2007, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements.  Amounts presented in the identifiable assets table as of March 31, 2007 have been reclassified from our prior presentation.
 
  
Three Months Ended
June 30,
 
  
2006
  
2007
 
  
(In thousands)
 
Segment gross revenue from external customers:        
Helicopter Services:        
North America $59,073  $57,339 
South and Central America  13,012   16,036 
Europe  70,594   82,927 
West Africa  31,736   33,283 
Southeast Asia  17,040   22,492 
Other International  8,955   11,276 
EH Centralized Operations  3,012   2,108 
Bristow Academy     3,019 
Total Helicopter Services  203,422   228,480 
Production Management Services  17,665   16,522 
Corporate  (25)   
Total segment gross revenue $221,062  $245,002 

Intersegment and intrasegment gross revenue:        
 
Three Months Ended
  
Six Months Ended
 
 
September 30,
  
September 30,
 
 
2006
  
2007
  
2006
  
2007
 
 
(In thousands)
 
Segment gross revenue from external customers:                
Helicopter Services:                        
North America $4,295  $3,600  $57,968  $59,353  $117,041  $116,692 
South and Central America        13,137   16,951   26,149   32,987 
Europe  1,387   430   71,508   92,948   142,102   175,875 
West Africa        31,210   45,799   62,946   79,082 
Southeast Asia        17,626   23,858   34,666   46,350 
Other International     179   12,165   11,971   21,120   23,247 
EH Centralized Operations  62   4,697   2,830   3,218   5,842   5,326 
Bristow Academy           3,228      6,247 
Total Helicopter Services  5,744   8,906   206,444   257,326   409,866   485,806 
Production Management Services  19   21   17,765   16,010   35,430   32,532 
Total intersegment and intrasegment gross revenue $5,763  $8,927 
Corporate        (25)   
Total segment gross revenue $224,209  $273,336  $445,271  $518,338 


1716

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


 
Three Months Ended
June 30,
  
Three Months Ended
  
Six Months Ended
 
 
2006
  
2007
  
September 30,
  
September 30,
 
 
(In thousands)
  
2006
  
2007
  
2006
  
2007
 
Consolidated gross revenue reconciliation:        
 
(In thousands)
 
Intersegment and intrasegment gross revenue:                
Helicopter Services:                        
North America $63,368  $60,939  $4,536  $2,706  $8,831  $6,306 
South and Central America  13,012   16,036             
Europe  71,981   83,357   1,198   511   2,585   941 
West Africa  31,736   33,283             
Southeast Asia  17,040   22,492             
Other International  8,955   11,455   19   75   19   254 
EH Centralized Operations  3,074   6,805   708   2,113   770   6,810 
Bristow Academy     3,019             
Intrasegment eliminations  (2,860)  (6,235)
Total Helicopter Services (1)
  206,306   231,151   6,461   5,405   12,205   14,311 
Production Management Services (2)
  17,684   16,543   19   20   38   41 
Corporate  (25)   
Intersegment eliminations  (2,903)  (2,692)
Total consolidated gross revenue $221,062  $245,002 
Total intersegment and intrasegment gross revenue $6,480  $5,425  $12,243  $14,352 

Consolidated operating income (loss) reconciliation:
        
Consolidated gross revenue reconciliation:                
Helicopter Services:                        
North America $9,233  $10,714  $62,504  $62,059  $125,872  $122,998 
South and Central America  3,970   3,685   13,137   16,951   26,149   32,987 
Europe  14,096   14,575   72,706   93,459   144,687   176,816 
West Africa  4,333   2,797   31,210   45,799   62,946   79,082 
Southeast Asia  2,435   4,127   17,626   23,858   34,666   46,350 
Other International  1,516   2,265   12,184   12,046   21,139   23,501 
EH Centralized Operations  (1,767)  (4,279)  3,538   5,331   6,612   12,136 
Bristow Academy     (91)     3,228      6,247 
Total Helicopter Services  33,816   33,793 
Production Management Services  1,413   1,089 
Gain on disposal of assets  998   584 
Intrasegment eliminations  (3,276)  (3,005)  (6,136)  (9,240)
Total Helicopter Services (1)
  209,629   259,726   415,935   490,877 
Production Management Services (2)
  17,784   16,030   35,468   32,573 
Corporate  (5,167)  (5,592)        (25)   
Total consolidated operating income $31,060  $29,874 
Intersegment eliminations  (3,204)  (2,420)  (6,107)  (5,112)
Total consolidated gross revenue $224,209  $273,336  $445,271  $518,338 

 
March 31,
  
June 30,
 
 
2007
  
2007
 
 
(In thousands)
 
Identifiable assets:
        
Consolidated operating income (loss) reconciliation:                
Helicopter Services:                        
North America $424,936  $434,535  $7,107  $10,869  $16,340  $21,583 
South and Central America  158,383   190,161   3,624   4,573   7,594   8,258 
Europe  391,356   417,662   13,527   21,895   27,623   36,470 
West Africa  134,128   173,353   2,848   15,492   7,181   18,289 
Southeast Asia  42,458   58,825   3,210   5,107   5,645   9,234 
Other International  71,679   85,182   3,771   1,781   5,287   4,046 
EH Centralized Operations  157,565   163,158   (2,584)  (3,247)  (4,351)  (7,526)
Bristow Academy     22,059      (391)     (482)
Total Helicopter Services  1,380,505   1,544,935   31,503   56,079   65,319   89,872 
Production Management Services  32,074   33,989   1,394   870   2,807   1,959 
Gain (loss) on disposal of assets  3,667   (754)  4,665   (170)
Corporate  93,224   265,516   (5,703)  (5,604)  (10,870)  (11,196)
Total identifiable assets $1,505,803  $1,844,440 
Total consolidated operating income $30,861  $50,591  $61,921  $80,465 


17

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

  
March 31,
2007
 
September 30,
2007
 
 
(In thousands)
Identifiable assets:
         
Helicopter Services:         
North America $268,984  $227,636  
South and Central America  158,383   175,657  
Europe  419,923   537,958  
West Africa  159,781   218,798  
Southeast Asia  59,400   104,990  
Other International  77,357   100,198  
EH Centralized Operations  71,918   82,157  
Bristow Academy     25,766  
Total Helicopter Services  1,215,746   1,473,160  
Production Management Services  32,074   34,598  
Corporate  (3)
  257,983   391,485  
Total consolidated identifiable assets $1,505,803  $1,899,243  
_________

(1)
Includes reimbursable revenue of $18.9 million and $26.1 million for the three months ended September 30, 2006 and 2007, respectively, and $42.2 million and $46.3 million for the six months ended September 30, 2006 and 2007, respectively.
(2)
Includes reimbursable revenue of $2.3 million and $1.9 million for the three months ended September 30, 2006 and 2007, respectively, and $6.2 million and $3.2 million for the six months ended September 30, 2006 and 2007, respectively, net of intercompany eliminations.
(3)
Includes $165.4 million and $198.9 million, respectively, in progress payments on aircraft scheduled to be delivered in future periods, which is included in construction in progress within property and equipment on our condensed consolidated balance sheets as of March 31 and September 30, 2007.
NOTE 11 — COMPREHENSIVE INCOME
Comprehensive income is as follows:
  
Three Months Ended
  
Six Months Ended
 
  
September 30,
  
September 30,
 
  
2006
  
2007
  
2006
  
2007
 
  
(In thousands)
 
Net income $19,075  $33,950  $36,304  $56,622 
Other comprehensive income:                
Currency translation adjustments  2,955   6,617   21,321   15,337 
Comprehensive income $22,030  $40,567  $57,625  $71,959 
During the three and six months ended September 30, 2006 and 2007, the U.S. dollar weakened against the British pound sterling, resulting in translation gains recorded as a component of stockholders’ investment as of September 30, 2006 and 2007.  See discussion of foreign currency translation in Note 1.

18

        BRISTOW GROUP INC. AND SUBSIDIARIES      
      
        Condensed Notes to Consolidated Financial Statements — (Continued)      
________
(1)
Includes reimbursable revenue of $23.3 million and $20.2 million for the three months ended June 30, 2006 and 2007, respectively.
(2)
Includes reimbursable revenue of $3.9 million and $1.3 million for the three months ended June 30, 2006 and 2007, respectively, net of intercompany eliminations.
NOTE 11 — COMPREHENSIVE INCOME
Comprehensive income is as follows:
 
Three Months Ended
June 30,
 
 
2006
 
2007
 
 
(In thousands)
 
Net income$17,229 $22,672 
Other comprehensive income (loss):      
Currency translation adjustments 18,367  8,720 
Comprehensive income (loss)$35,596 $31,392 
During the three months ended June 30, 2006, the U.S. dollar weakened against the British pound sterling, resulting in translation gains recorded as a component of stockholders’ investment as of June 30, 2006.  During the three months ended June 30, 2007, the U.S. dollar weakened against the British pound sterling, resulting in translation gains recorded as a component of stockholders’ investment as of June 30, 2007.  See discussion of foreign currency translation in Note 1.

NOTE 12 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
In connection with the sale of the 7 ½% Senior Notes and the 6 1/8%⅛% Senior Notes due 2013, the Guarantor Subsidiaries jointly, severally and unconditionally guaranteed the payment obligations under these notes.  The following supplemental financial information sets forth, on a consolidating basis, the balance sheet, statement of income and cash flow information for Bristow Group Inc.  (“Parent Company Only”), for the Guarantor Subsidiaries and for our other subsidiaries (the “Non-Guarantor Subsidiaries”).  We have not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.
 
The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although we believe that the disclosures made are adequate to make the information presented not misleading.  The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.
 
The allocation of the consolidated income tax provision was made using the with and without allocation method.
 

19

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Supplemental Condensed Consolidating Statement of Income
Three Months Ended September 30, 2006
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
Revenue:                    
Gross revenue $  $83,867  $140,342  $  $224,209 
Intercompany revenue     3,754   3,356   (7,110)   
      87,621   143,698   (7,110)  224,209 
Operating expense:                    
Direct cost  127   64,768   104,856      169,751 
Intercompany expenses     3,356   3,754   (7,110)   
Depreciation and amortization  56   4,526   6,155      10,737 
General and administrative  5,517   4,112   6,898      16,527 
Gain on disposal of assets     (58)  (3,609)     (3,667)
   5,700   76,704   118,054   (7,110)  193,348 
Operating income (loss)  (5,700)  10,917   25,644      30,861 
Earnings (losses) from unconsolidated
affiliates, net
  12,790   (353)  2,132   (12,841)  1,728 
Interest income  15,331   73   1,186   (15,521)  1,069 
Interest expense  (3,183)     (15,209)  15,521   (2,871)
Other expense, net  (5)  (17)  (1,286)     (1,308)
                     
Income before provision for income
taxes and minority interest
  19,233   10,620   12,467   (12,841)  29,479 
Allocation of consolidated income taxes  (116)  (1,357)  (8,255)     (9,728)
Minority interest  (42)     (634)     (676)
                     
Net income $19,075  $9,263  $3,578  $(12,841) $19,075 




20

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Supplemental Condensed Consolidating Statement of Income
Six Months Ended September 30, 2006
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
Revenue:                    
Gross revenue $(25) $168,316  $276,980  $  $445,271 
Intercompany revenue     6,680   5,721   (12,401)   
   (25)  174,996   282,701   (12,401)  445,271 
Operating expense:                    
Direct cost  194   127,095   207,830      335,119 
Intercompany expenses     5,721   6,630   (12,351)   
Depreciation and amortization  82   8,776   12,162      21,020 
General and administrative  10,566   8,478   12,882   (50)  31,876 
Gain on disposal of assets     (194)  (4,471)     (4,665)
   10,842   149,876   235,033   (12,401)  383,350 
Operating income (loss)  (10,867)  25,120   47,668      61,921 
Earnings (losses) from unconsolidated
affiliates, net
  24,660   (625)  4,017   (24,765)  3,287 
Interest income  29,961   133   2,063   (29,798)  2,359 
Interest expense  (6,466)     (29,439)  29,798   (6,107)
Other expense, net   (94)  (94)  (5,905)     (6,093)
                     
Income before provision for income
taxes and minority interest
  37,194   24,534   18,404   (24,765)  55,367 
Allocation of consolidated income taxes  (809)  (2,726)  (14,736)     (18,271)
Minority interest  (81)     (711)     (792)
                     
Net income $36,304  $21,808  $2,957  $(24,765) $36,304 



21

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
 Supplemental Condensed Consolidating Statement of Income
Three Months Ended September 30, 2007
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
Revenue:                    
Gross revenue $  $92,504  $180,832  $  $273,336 
Intercompany revenue                                                      3,998   3,382   (7,380)   
      96,502   184,214   (7,380)  273,336 
Operating expense:                    
Direct cost     63,381   125,176      188,557 
Intercompany expenses     3,405   3,975   (7,380)   
Depreciation and amortization  71   5,093   7,231      12,395 
General and administrative  5,507   4,189   11,343      21,039 
Loss on disposal of assets                                                       728   26      754 
   5,578   76,796   147,751   (7,380)  222,745 
Operating income (loss)  (5,578)  19,706   36,463      50,591 
Earnings from unconsolidated
affiliates, net
  28,256   138   3,980   (28,256)  4,118 
Interest income  22,732   124   481   (19,288)  4,049 
Interest expense  (8,249)     (17,562)  19,288   (6,523)
Other income (expense), net  (15)  (54)  429      360 
                     
Income before provision for income
taxes and minority interest
  37,146   19,914   23,791   (28,256)  52,595 
Allocation of consolidated income taxes  (3,145)  (2,667)  (12,829)     (18,641)
Minority interest  (51)     47      (4)
                     
Net income $33,950  $17,247  $11,009  $(28,256) $33,950 


22

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

Supplemental Condensed Consolidating Statement of Income
ThreeSix Months Ended JuneSeptember 30, 20062007

Parent
   
Non-
     
Parent
   
Non-
     
Company
 
Guarantor
 
Guarantor
     
Company
 
Guarantor
 
Guarantor
     
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
      
(In thousands)
              
(In thousands)
     
Revenue:                               
Gross revenue $(25) $84,449  $136,638 $  $221,062  $ $180,663 $337,675 $ $518,338 
Intercompany revenue    2,926   2,365  (5,291)       9,154  9,497  (18,651)   
  (25)  87,375   139,003  (5,291)  221,062     189,817  347,172  (18,651)  518,338 
Operating expense:                               
Direct cost  67  62,327   102,974     165,368     123,508 250,126  373,634 
Intercompany expenses    2,365   2,876  (5,241)       9,619 9,032 (18,651)  
Depreciation and amortization  26  4,250   6,007     10,283   142  10,539 13,087  23,768 
General and administrative  5,049  4,366   5,984  (50)  15,349   11,000  8,133 21,168  40,301 
Gain on disposal of assets    (136)  (862)     (998)
Loss on disposal of assets    20  150    170 
  5,142  73,172   116,979  (5,291)  190,002   11,142  151,819  293,563  (18,651)  437,873 
Operating income (loss)  (5,167)  14,203   22,024     31,060   (11,142)  37,998 53,609  80,465 
Earnings (losses) from unconsolidated
affiliates, net
  11,870  (272)  1,885  (11,924)  1,559 
Earnings from unconsolidated
affiliates, net
  43,881  313 7,195 (43,881) 7,508 
Interest income   14,630  60   877  (14,277)  1,290   42,379  207 1,168 (37,507) 6,247 
Interest expense   (3,283)     (14,230)  14,277   (3,236)  (11,061)  (5) (35,897) 37,507 (9,456)
Other income (expense), net  (89)  (77)  (4,619)     (4,785)  (40)  (97)  923    786 
                               
Income before provision for income
taxes and minority interest
  17,961  13,914   5,937  (11,924)  25,888   64,017  38,416 26,998 (43,881) 85,550 
Allocation of consolidated income taxes  (693)  (1,369)  (6,481)     (8,543)  (7,297)  (3,260) (17,918)  (28,475)
Minority interest   (39)     (77)     (116)  (98)    (355)    (453)
                               
Net income (loss)  $17,229 $12,545  $(621) $(11,924) $17,229 
Net income $56,622 $35,156 $8,725 $(43,881) $56,622 

 

2023

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

Supplemental Condensed Consolidating Statement of IncomeBalance Sheet
Three Months Ended June 30,As of March 31, 2007

 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
Revenue:                    
Gross revenue  $  $88,159  $156,843  $  $245,002 
Intercompany revenue     5,156   6,115   (11,271)   
      93,315   162,958   (11,271)  245,002 
Operating expense:                    
Direct cost     60,127   124,950      185,077 
Intercompany expenses     6,214   5,057   (11,271)   
Depreciation and amortization  71   5,446   5,856      11,373 
General and administrative  5,493   3,944   9,825      19,262 
Loss (gain) on disposal of assets     (708)  124      (584)
   5,564   75,023   145,812   (11,271)  215,128 
Operating income (loss)  (5,564)  18,292   17,146      29,874 
Earnings (losses) from unconsolidated
affiliates, net
  15,625   175   3,215   (15,625)  3,390 
Interest income  19,647   83   687   (18,219)  2,198 
Interest expense  (2,812)  (5)  (18,335)  18,219   (2,933)
Other income (expense), net  (25)  (43)  494      426 
                     
Income before provision for income
taxes and minority interest
  26,871   18,502   3,207   (15,625)  32,955 
Allocation of consolidated income taxes  (4,152)  (593)  (5,089)     (9,834)
Minority interest  (47)     (402)     (449)
                     
Net income (loss) $22,672  $17,909  $(2,284) $(15,625) $22,672 
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
ASSETS
 
Current assets:                    
Cash and cash equivalents $133,010  $3,434  $47,744  $  $184,188 
Accounts receivable  32,103   62,493   123,453   (42,080)  175,969 
Inventories     72,834   85,036      157,870 
Prepaid expenses and other  830   9,951   7,166      17,947 
Total current assets  165,943   148,712   263,399   (42,080)  535,974 
Intercompany investment  297,113   1,046      (298,159)   
Investment in unconsolidated affiliates  4,643   1,611   40,574      46,828 
Intercompany notes receivable  825,203      11,980   (837,183)   
Property and equipment – at cost:                    
Land and buildings  263   36,689   14,898      51,850 
Aircraft and equipment  2,259   550,611   588,708      1,141,578 
   2,522   587,300   603,606      1,193,428 
Less:  Accumulated depreciation and
amortization
  (1,471)  (123,367)  (176,682)     (301,520)
   1,051   463,933   426,924      891,908 
Goodwill     18,483   1,774   111   20,368 
Other assets  9,348   224   1,153      10,725 
  $1,303,301  $634,009  $745,804  $(1,177,311) $1,505,803 
  
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
Current liabilities:                    
Accounts payable $1,043  $16,628  $36,028  $(11,356) $42,343 
Accrued liabilities  10,736   20,009   103,141   (30,724)  103,162 
Deferred taxes  217      17,394      17,611 
Short-term borrowings and current
maturities of long-term debt
        4,852      4,852 
Total current liabilities  11,996   36,637   161,415   (42,080)  167,968 
Long-term debt, less current maturities  234,379      19,851      254,230 
Intercompany notes payable  14,569   230,773   591,841   (837,183)   
Other liabilities and deferred credits  4,529   9,644   116,241      130,414 
Deferred taxes  42,655   2,295   31,139      76,089 
Minority interest  2,042      3,403      5,445 
Stockholders’ investment:                    
5.50% mandatory convertible preferred
stock
  222,554            222,554 
Common stock  236   4,062   35,426   (39,488)  236 
Additional paid-in-capital  169,353   51,170   8,015   (59,185)  169,353 
Retained earnings  515,589   299,428   (82,414)  (217,014)  515,589 
Accumulated other comprehensive
income (loss)
  85,399      (139,113)  17,639   (36,075)
   993,131   354,660   (178,086)  (298,048)  871,657 
  $1,303,301  $634,009  $745,804  $(1,177,311) $1,505,803 

 

2124

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Supplemental Condensed Consolidating Balance Sheet
As of September 30, 2007
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
ASSETS
 
Current assets:                    
Cash and cash equivalents $224,143  $32  $52,264  $  $276,439 
Accounts receivable  39,041   101,846   136,031   (70,094)  206,824 
Inventories     74,671   101,788      176,459 
Prepaid expenses and other  597   10,380   15,267      26,244 
Total current assets  263,781   186,929   305,350   (70,094)  685,966 
Intercompany investment  409,123   1,046   14,831   (425,000)   
Investment in unconsolidated affiliates  4,538   3,883   45,893      54,314 
Intercompany notes receivable  958,345      (8,198)  (950,147)   
Property and equipment – at cost:                    
Land and buildings  262   42,457   12,900      55,619 
Aircraft and equipment  2,366   617,008   734,601      1,353,975 
   2,628   659,465   747,501      1,409,594 
Less:  Accumulated depreciation and
amortization
  (1,509)  (131,589)  (176,628)     (309,726)
   1,119   527,876   570,873      1,099,868 
Goodwill     18,594   10,597   111   29,302 
Other assets  13,722   4,286   11,785      29,793 
  $1,650,628  $742,614  $951,131  $(1,445,130) $1,899,243 
  
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
Current liabilities:                    
Accounts payable $1,609  $15,939  $65,133  $(33,626) $49,055 
Accrued liabilities  11,976   28,181   105,758   (36,468)  109,447 
Deferred taxes  1,272      17,207      18,479 
Short-term borrowings and current
maturities of long-term debt
        6,764      6,764 
Total current liabilities  14,857   44,120   194,862   (70,094)  183,745 
Long-term debt, less current maturities  534,380      16,191      550,571 
Intercompany notes payable     296,305   653,842   (950,147)   
Other liabilities and deferred credits  4,041   9,641   113,751      127,433 
Deferred taxes  47,992   2,700   39,222      89,914 
Minority interest  2,126      3,132      5,258 
Stockholders’ investment:                    
5.50% mandatory convertible preferred
 stock
  222,554            222,554 
Common stock  237   4,063   73,237   (77,300)  237 
Additional paid-in-capital  174,383   51,201   82,173   (133,374)  174,383 
Retained earnings  565,886   334,584   (73,689)  (260,895)  565,886 
Accumulated other comprehensive
income (loss)
  84,172      (151,590)  46,680   (20,738)
   1,047,232   389,848   (69,869)  (424,889)  942,322 
  $1,650,628  $742,614  $951,131  $(1,445,130) $1,899,243 


25

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

Supplemental Condensed Consolidating Balance SheetStatement of Cash Flows
As of March 31, 2007Six Months Ended September 30, 2006
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
                     
Net cash provided by (used in) operating
activities
 $(10,823) $21,740  $20,841  $16,941  $48,699 
                     
Cash flows from investing activities:                    
Capital expenditures  (377)  (95,036)  (13,143)     (108,556)
Proceeds from asset dispositions     1,725   6,865      8,590 
                     
Net cash used in investing activities  (377)  (93,311)  (6,278)     (99,966)
                     
Cash flows from financing activities:                    
Issuance of Preferred Stock  194,450            194,450 
Preferred Stock issuance costs  (346)           (346)
Repayment of debt and debt redemption
premiums
        (1,541)     (1,541)
Increases (decreases) in cash related to
intercompany advances and debt
  (67,575)  77,575   6,941   (16,941)   
Partial prepayment of put/call obligation  (80)           (80)
Issuance of common stock  2,169            2,169 
Tax benefit related to exercise of stock
options
  607            607 
Net cash provided by financing
activities
  129,225   77,575   5,400   (16,941)  195,259 
Effect of exchange rate changes on cash and
cash equivalents
  144      1,657      1,801 
Net increase in cash and
cash equivalents
  118,169   6,004   21,620      145,793 
Cash and cash equivalents at beginning
of period
  74,601   1,363   46,518      122,482 
Cash and cash equivalents at end of
period
 $192,770  $7,367  $68,138  $  $268,275 

 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
    
(In thousands)
    
ASSETS
 
Current assets:                   
Cash and cash equivalents$133,010  $3,434  $47,744  $  $184,188 
Accounts receivable 32,103   62,493   123,453   (42,080)  175,969 
Inventories    72,834   85,036      157,870 
Prepaid expenses and other 830   9,951   7,166      17,947 
Total current assets 165,943   148,712   263,399   (42,080)  535,974 
Intercompany investment 297,113   1,046      (298,159)   
Investment in unconsolidated affiliates 4,643   1,611   40,574      46,828 
Intercompany notes receivable 825,203      11,980   (837,183)   
Property and equipment – at cost:                   
Land and buildings 263   36,689   14,898      51,850 
Aircraft and equipment 2,259   550,611   588,708      1,141,578 
  2,522   587,300   603,606      1,193,428 
Less:  Accumulated depreciation and
amortization               
 (1,471)  (123,367)  (176,682)     (301,520)
  1,051   463,933   426,924      891,908 
Goodwill    18,483   1,774   111   20,368 
Other assets 9,348   224   1,153      10,725 
 $1,303,301  $634,009  $745,804  $(1,177,311) $1,505,803 
  
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
Current liabilities:                   
Accounts payable $1,043  $16,628  $36,028  $(11,356) $42,343 
Accrued liabilities 10,736   20,009   103,141   (30,724)  103,162 
Deferred taxes 217      17,394      17,611 
Short-term borrowings and current
maturities of long-term debt
       4,852      4,852 
Total current liabilities 11,996   36,637   161,415   (42,080)  167,968 
Long-term debt, less current maturities 234,379      19,851      254,230 
Intercompany notes payable 14,569   230,773   591,841   (837,183)   
Other liabilities and deferred credits 4,529   9,644   116,241      130,414 
Deferred taxes 42,655   2,295   31,139      76,089 
Minority interest 2,042      3,403      5,445 
Stockholders’ investment:                   
5.50% mandatory convertible preferred
 stock 
 222,554            222,554 
Common stock 236   4,062   35,426   (39,488)  236 
Additional paid-in-capital 169,353   51,170   8,015   (59,185)  169,353 
Retained earnings  515,589   299,428   (82,414)  (217,014)  515,589 
Accumulated other comprehensive
income (loss) 
 85,399      (139,113)  17,639   (36,075)
  993,131   354,660   (178,086)  (298,048)  871,657 
 $1,303,301  $634,009  $745,804  $(1,177,311) $1,505,803 




2226

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

Supplemental Condensed Consolidating Balance Sheet
As of June 30, 2007
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
    
(In thousands)
    
ASSETS
 
Current assets:                    
Cash and cash equivalents $295,055  $6,348  $38,139  $  $339,542 
Accounts receivable  37,296   82,067   141,198   (53,031)  207,530 
Inventories     73,997   95,638      169,635 
Prepaid expenses and other  665   8,907   8,196      17,768 
Total current assets  333,016   171,319   283,171   (53,031)  734,475 
Intercompany investment  312,145   1,046   15,031   (328,222)   
Investment in unconsolidated affiliates  4,591   1,783   41,187      47,561 
Intercompany notes receivable  946,008      (5,656)  (940,352)   
Property and equipment – at cost:                    
Land and buildings  262   40,006   16,071      56,339 
Aircraft and equipment   2,310   631,486   635,594      1,269,390 
   2,572   671,492   651,665      1,325,729 
Less:  Accumulated depreciation and
amortization 
  (1,480)  (127,309)  (179,469)     (308,258)
   1,092   544,183   472,196      1,017,471 
Goodwill      18,484   8,524   111   27,119 
Other assets  13,881   239   3,694      17,814 
  $1,610,733  $737,054  $818,147  $(1,321,494) $1,844,440 
  
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
 
Current liabilities:                    
Accounts payable  $2,736  $18,677  $42,161  $(20,018) $43,556 
Accrued liabilities   8,747   23,026   104,783   (33,013)  103,543 
Deferred taxes   221      17,741      17,962 
Short-term borrowings and current
maturities of long-term debt
        7,923      7,923 
Total current liabilities   11,704   41,703   172,608   (53,031)  172,984 
Long-term debt, less current maturities  534,380      19,002      553,382 
Intercompany notes payable     310,652   629,717   (940,369)   
Other liabilities and deferred credits  3,935   9,572   114,597      128,104 
Deferred taxes  46,375   2,527   32,893      81,795 
Minority interest   2,089      3,178      5,267 
Stockholders’ investment:                    
5.50% mandatory convertible preferred
stock
  222,554            222,554 
Common stock  237   4,062   69,992   (74,054)  237 
Additional paid-in-capital  172,373   51,201   8,045   (59,246)  172,373 
Retained earnings  535,099   317,337   (84,698)  (232,639)  535,099 
Accumulated other comprehensive
income (loss)
  81,987      (147,187)  37,845   (27,355)
   1,012,250   372,600   (153,848)  (328,094)  902,908 
  $1,610,733  $737,054  $818,147  $(1,321,494) $1,844,440 


23

BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements — (Continued)
Supplemental Condensed Consolidating Statement of Cash Flows
ThreeSix Months Ended June 30, 2006

 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
    
(In thousands)
    
                     
Net cash provided by (used in) operating
activities
 $(39,344) $40,613  $19,933  $10,975  $32,177 
                     
Cash flows from investing activities:                    
Capital expenditures  (228)  (42,248)  (4,406)     (46,882)
Proceeds from asset dispositions     1,700   856      2,556 
                     
Net cash used in investing activities  (228)  (40,548)  (3,550)     (44,326)
                     
Cash flows from financing activities:                    
Proceeds from borrowings  5,000      7,195   (12,195)   
Repayment of debt and debt redemption
premiums
        (3,957)     (3,957)
Repayment of intercompany debt        (1,220)  1,220    
Partial prepayment of put/call obligation  (30)           (30)
Issuance of common stock  764            764 
Tax benefit related to exercise of stock
    options
  303            303 
Net cash provided by (used in) financing
activities
  6,037      2,018   (10,975)  (2,920)
Effect of exchange rate changes on cash and
cash equivalents
  105      2,116      2,221 
Net increase (decrease) in cash and
cash equivalents
  (33,430)  65   20,517      (12,848)
Cash and cash equivalents at beginning
of period
  74,601   1,363   46,518      122,482 
Cash and cash equivalents at end of
period
 $41,171  $1,428  $67,035  $  $109,634 



24

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

Supplemental Condensed Consolidating Statement of Cash Flows
Three Months Ended JuneSeptember 30, 2007
 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
        
(In thousands)
        
                     
Net cash provided by (used in) operating
activities
 $(19,573) $28,472  $31,681  $2,918  $43,498 
                     
Cash flows from investing activities:                    
Capital expenditures  (133)  (166,602)  (54,360)     (221,095)
Proceeds from asset dispositions     2,761   383      3,144 
Acquisition, net of cash received  (15,031)     2,105      (12,926)
Notes issued to unconsolidated affiliate     (4,141)        (4,141)
Investment in unconsolidated affiliate     (1,960)        (1,960)
                     
Net cash used in investing activities  (15,164)  (169,942)  (51,872)     (236,978)
                     
Cash flows from financing activities:                    
Proceeds from borrowings  300,000            300,000 
Debt issuance costs  (4,889)           (4,889)
Repayment of debt and debt redemption
premiums
        (7,205)     (7,205)
Increases (decreases) in cash related to
intercompany advances and debt
  (165,293)  138,068   30,143   (2,918)   
Partial prepayment of put/call obligation  (78)           (78)
Preferred Stock dividends paid  (6,325)           (6,325)
Issuance of common stock  1,265            1,265 
Tax benefit related to exercise of stock
options
  494            494 
Net cash provided by financing
activities
  125,174   138,068   22,938   (2,918)  283,262 
Effect of exchange rate changes on cash and
cash equivalents
  696      1,773      2,469 
Net increase (decrease) in cash and
cash equivalents
  91,133   (3,402)  4,520      92,251 
Cash and cash equivalents at beginning
of period
  133,010   3,434   47,744      184,188 
Cash and cash equivalents at end of
period
 $224,143  $32  $52,264  $  $276,439 

 
Parent
   
Non-
     
 
Company
 
Guarantor
 
Guarantor
     
 
Only
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Consolidated
 
    
(In thousands)
    
                     
Net cash provided by (used in) operating
activities
 $(30,235) $1,517  $15,157  $11,242  $(2,319)
                     
Cash flows from investing activities:                    
Capital expenditures  (105)  (86,149)  (35,526)     (121,780)
Proceeds from asset dispositions     573   (122)     451 
Acquisition, net of cash received  (15,031)     2,105      (12,926)
                     
Net cash used in investing activities  (15,136)  (85,576)  (33,543)     (134,255)
                     
Cash flows from financing activities:                    
Proceeds from borrowings  300,000            300,000 
Debt issuance costs  (4,249)           (4,249)
Repayment of debt and debt redemption
premiums
        (3,166)     (3,166)
Increases (decreases) in cash related to
intercompany advances and debt
  (86,973)  86,973   11,242   (11,242)   
Partial prepayment of put/call obligation  (37)           (37)
Preferred Stock dividends paid  (3,163)           (3,163)
Issuance of common stock  1,095            1,095 
Tax benefit related to exercise of stock
    options
  410            410 
Net cash provided by (used in) financing
activities
  207,083   86,973   8,076   (11,242)  290,890 
Effect of exchange rate changes on cash and
cash equivalents
  333      705      1,038 
Net increase (decrease) in cash and
cash equivalents
  162,045   2,914   (9,605)     155,354 
Cash and cash equivalents at beginning
of period
  133,010   3,434   47,744      184,188 
Cash and cash equivalents at end of
period
 $295,055  $6,348  $38,139  $  $339,542 






Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Bristow Group Inc.:
 
We have reviewed the condensed consolidated balance sheet of Bristow Group Inc. and subsidiaries as of JuneSeptember 30, 2007, and the related condensed consolidated statements of income for the three-monththree and six-month periods ended JuneSeptember 30, 2006 and 2007, and the related condensed consolidated statements of cash flows for the three-monthsix-month periods ended JuneSeptember 30, 2006 and 2007.  These condensed consolidated financial statements are the responsibility of the Company’s management.
 
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.
 
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
 
/s/ KPMG LLP

Houston, Texas
August 2,November 5, 2007



 
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto as well as our Annual Report on Form 10-K for the fiscal year ended March 31, 2007 (the “fiscal year 2007 Annual Report”) and the MD&A contained therein.  In the discussion that follows, the terms “Comparable Quarter” and “Current Quarter” refer to the three months ended JuneSeptember 30, 2006 and 2007, respectively, and the terms “Comparable Period” and “Current Period” refer to the six months ended September 30, 2006 and 2007, respectively.  Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period.  Therefore, the fiscal year ending March 31, 2008 is referred to as “fiscal year 2008.”
 
Forward-Looking Statements
 
This Quarterly Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  Forward-looking statements are statements about our future business, strategy, operations, capabilities and results; financial projections; plans and objectives of our management; expected actions by us and by third parties, including our customers, competitors and regulators; and other matters.  Some of the forward-looking statements can be identified by the use of words such as “believes”, “belief”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “would”, “could” or other similar words; however, all statements in this Quarterly Report, other than statements of historical fact or historical financial results are forward-looking statements.
 
Our forward-looking statements reflect our views and assumptions on the date we are filing this Quarterly Report regarding future events and operating performance.  We believe that they are reasonable, but they involve known and unknown risks, uncertainties and other factors, many of which may be beyond our control, that may cause actual results to differ materially from any future results, performance or achievements expressed or implied by the forward-looking statements.  Accordingly, you should not put undue reliance on any forward-looking statements.  Factors that could cause our forward-looking statements to be incorrect and actual events or our actual results to differ from those that are anticipated include all of the following:
 
·  the risks and uncertainties described under “Part II. Item 1A. Risk Factors” and under “Item 1A. Risk Factors” in the fiscal year 2007 Annual Report;
 
·  the level of activity in the oil and natural gas industry is lower than anticipated;
 
·  production-related activities become more sensitive to variances in commodity prices;
 
·  the major oil companies do not continue to expand internationally;
 
·  market conditions are weaker than anticipated;
 
·  we are not able to re-deploy our aircraft to regions with the greater demand;
 
·  we do not achieve the anticipated benefit of our fleet renewal program;
·  the outcome of the United States Securities and Exchange Commission (“SEC”) investigation relating to the Foreign Corrupt Practices Act and other matters, or the Internal Review, has a greater than anticipated financial or business impact; and
 
·  the outcome of the United States Department of Justice (“DOJ”) antitrust investigation, which is ongoing, has a greater than anticipated financial or business impact.
 
All forward-looking statements in this Quarterly Report are qualified by these cautionary statements and are only made as of the date of this Quarterly Report.  We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 


Executive Overview
 
This Executive Overview only includes what management considers to be the most important information and analysis for evaluating our financial condition and operating performance.  It provides the context for the discussion and analysis of the financial statements which follows and does not disclose every item bearing on our financial condition and operating performance.
 
General
 
We are the leading provider of helicopter services to the worldwide offshore energy industry based on the number of aircraft operated.  We are one of two helicopter service providers to the offshore energy industry with global operations.  We have major operations in the U.S. Gulf of Mexico and the North Sea, and operations in most of the other major offshore oil and gas producing regions of the world, including Alaska, Australia, Mexico, Nigeria, Russia and Trinidad.  We have a long history in the helicopter services industry, with our two principal legacy companies, Bristow Helicopters Ltd. and Offshore Logistics, Inc., having been founded in 1955 and 1969, respectively.
 
We conductAs of September 30, 2007, we conducted our business in two segments:  Helicopter Services and Production Management Services.  The Helicopter Services segment operations are conducted through three divisions, Western Hemisphere, Eastern Hemisphere and Global Training, and through eight business units within those divisions:
 
·  Western Hemisphere
 
−  North America
 
−  South and Central America
 
·  Eastern Hemisphere
 
−  Europe
 
−  West Africa
 
−  Southeast Asia
 
−  Other International
 
−  Eastern Hemisphere (“EH”) Centralized Operations
 
·  Global Training
 
−  Bristow Academy
 
We provide helicopter services to a broad base of major, independent, international and national energy companies.  Customers charter our helicopters to transport personnel between onshore bases and offshore platforms, drilling rigs and installations.  A majority of our helicopter revenue is attributable to oil and gas production activities, which have historically provided a more stable source of revenue than exploration and development related activities.  As of JuneSeptember 30, 2007, we operated 403404 aircraft (including 369 owned aircraft, 2627 leased aircraft and 8 aircraft operated for one of our customers; 12 of the owned aircraft are held for sale) and our unconsolidated affiliates operated 142144 aircraft in addition to those aircraft leased from us.  In the Current Quarter,Period, our Helicopter Services segment contributed approximately 93%94% of our gross revenue.
 


On April 2, 2007, we acquired all of the common equity of Helicopter Adventures Inc. (“HAI”), a leading flight training provider with operations located in Titusville, Florida, and Concord, California, for $15.0 million in cash.  We also assumed $5.7 million in debt as part of this transaction.transaction which was repaid during the six months ended September 30, 2007.  Upon purchase, HAI was renamed Bristow Academy, Inc. (“Bristow Academy”), which, with our existing training facilities in Norwich, England, formed a central core of our new


Global Training division within the Helicopter Services segment beginning in the Current Quarter.  For further discussion of the acquisition see Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
We areAs of September 30, 2007, we were also a leading provider of production management services for oil and gas production facilities in the U.S. Gulf of Mexico.  Our services includeincluded furnishing specialized production operations personnel, engineering services, production operating services, paramedic services and providing marine and helicopter transportation of personnel and supplies between onshore bases and offshore facilities.  In connection with these activities, our Production Management Services segment usesused our helicopter services.  We also handlehandled regulatory and production reporting for some of our customers.  As of JuneSeptember 30, 2007, we managed or had personnel assigned to 329322 production facilities in the U.S. Gulf of Mexico.  As discussed in Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, on November 2, 2007, we sold our Grasso Production Management (“Grasso”) business, which comprised our entire Production Management Services segment.
 
The chart below presents (1) the number of helicopters in our fleet and their distribution among the business units of our Helicopter Services segment as of JuneSeptember 30, 2007; (2) the number of helicopters which we had on order or under option as of JuneSeptember 30, 2007; and (3) the percentage of gross revenues which each of our segments and business units provided during the Current Quarter.Period.  For additional information regarding our commitments and options to acquire aircraft, see Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Percentage of
 
Aircraft in Consolidated Fleet
   
Percentage of
 
Aircraft in Consolidated Fleet
   
Current
 
Helicopters
       
Current
 
Helicopters
       
Period
Revenue
 
Small
 
Medium
 
Large
 
Fixed
Wing
 
Total
 
Unconsolidated
Affiliates
 
Total
Helicopter Services
Quarter
Revenue
 
Small
 
Medium
 
Large
 
Fixed 
Wing
 
Total
 
Unconsolidated
Affiliates
 
Total
               
North America23% 136 29 4 1 170  17023% 134 28 4 1 167  167
South and Central America7% 2 33 1  36 14 507% 2 33 1  36 16 52
Europe34% 1 10 39  50 30 8034% 1 10 39  50 31 81
West Africa13% 12 28 2 7 49  4915% 12 27 2 7 48  48
Southeast Asia9% 3 9 9  21  219% 3 12 9  24  24
Other International5%  12 10 3 25 41 664%  13 10 3 26 41 67
EH Centralized Operations1%      57 571%      56 56
Bristow Academy1% 51   1 52  521% 52   1 53  53
Production Management 7%         6%        
Total (1)
 100% 205 121 65 12 403 142  545 100% 204 123 65 12 404 144  548
Aircraft not currently in fleet:                              
On order (2)
   9 11 12  32       6 10 16  32    
Under option    30 22  52        24 18  42    
_________
 
(1)
Includes 12 aircraft held for sale.
  
(2)
Small aircraft on order include orders for six5 training aircraft.
 
We expect that the additional aircraft on order and any aircraft we acquire pursuant to options will generally be deployed evenly across our global business units, but with a bias towards those units where we expect higher growth, such as our Other International and Southeast Asia units.
 
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — General” in the fiscal year 2007 Annual Report for a more in depth overview of our operations.
 


Our Strategy
 
Our goal is to advance our position as the leading helicopter services provider to the offshore energy industry.  For discussion of the strategies we intend to employ to achieve this goal see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Overview — Our Strategy” in the fiscal year 2007 Annual Report.
 
Consistent with our desire to maintain a conservative use of leverage to fund growth, we raised $222.6 million of capital through the sale of our 5.50% mandatory convertible preferred stock (“Preferred Stock”) completed in September and October 2006.  Additionally, we raised $295.8$295.1 million through the sale of 7 ½% Senior Notes due 2017 (the “7 ½% Senior Notes”) completed in June 2007.  As of JuneSeptember 30, 2007, we had commitments to purchase 1216 large, 1110 medium, 31 small and 65 training aircraft and options to purchase an additional 2218 large aircraft and 3024 medium aircraft.  Depending on market conditions, we expect to exercise some or all of these options to purchase aircraft and may elect to expand our business through acquisition, including acquisitions currently under consideration.  We intend to use the proceeds from the 7 ½% Senior Notes issued in June 2007 to fund these expenditures.
 
Market Outlook
 
We are currently experiencing significant demand for our helicopter services.  Based on our current contract level and discussions with our customers about their needs for aircraft related to their oil and gas production and exploration plans, we anticipate the demand for aircraft services will continue at a very high level for the near term.  Further, based on the projects planned by our customers in the markets in which we currently operate, we anticipate global demand for our services will grow in the long term and exceed the transportation capacity of the aircraft we and our competitors currently have in our fleets and on order.  In addition, this high level of demand has allowed us to increase the rates we charge for our services over the past several years.
 
We expect to see growth in demand for additional helicopter services, particularly in North and South America, West Africa and Southeast Asia.  We also expect that the relative importance of our other business units will continue to increase as the major oil and gas companies increasingly focus on prospects outside of North America and the North Sea.  This growth will provide us with opportunities to add new aircraft to our fleet, as well as opportunities to redeploy aircraft into markets that will sustain higher rates for our services.  Currently, helicopter manufacturers are indicating very limited supply availability during the next two to three years.years particularly for large and medium sized aircraft.  We expect that this tightness in aircraft availability from the manufacturers and the lack of suitable aircraft in the secondary market, coupled with the increase in demand for helicopter services, will result in upward pressure on the rates we charge for our services.  At the same time, we believe that our recent aircraft acquisitions and commitments position us to capture a portion of the upside created by the currentthese market conditions.
 
We have made and are in the process of making a number of changes in our West Africa business unit operations in Nigeria over the past year.  We are also negotiating employee wages and benefits with the unions in Nigeria.  This reorganization as well asDuring the Current Quarter we renegotiated two contracts with a large customer, extended a contract with a second customer and we are in contract negotiations with a third significant customer.  Further, we experience periodic disruption to our operations related to civil unrest and violenceviolence.  These factors have made and are expected to continue to make our operating results from Nigeria unpredictable through at least the end of calendar year 2007.
There has been a trend of major oil and gas companies outsourcing certain activities and transferring reserves located in the U.S. Gulf of Mexico to smaller, independent oil and gas producers.  These trends have generated, and are expected to continue to generate, additional demand for our production management services, as smaller producers are more likely to require the operational and manpower support that our Production Management Services segment provides.unpredictable.
 


Results of Operations
 
The following table presents our operating results and other income statement information for the applicable periods:
 
Three Months Ended
June 30,
 
Three Months Ended
September 30,
 
Six Months Ended
September 30,
 
2006
 
2007
 
2006
 
2007
 
2006
 
2007
 
(Unaudited)
(Unaudited)
(In thousands)
(In thousands)
Gross revenue:
               
Operating revenue$193,865 $223,551 $202,972 $245,333 $396,837 $468,884 
Reimbursable revenue 27,197  21,451  21,237  28,003  48,434  49,454 
Total gross revenue 221,062  245,002  224,209  273,336  445,271  518,338 
Operating expense:
              
Direct cost 138,470 163,836  148,872 162,764 287,341 326,600 
Reimbursable expense 26,898 21,241  20,879 25,793 47,778 47,034 
Depreciation and amortization 10,283 11,373  10,737 12,395 21,020 23,768 
General and administrative 15,349 19,262  16,527 21,039 31,876 40,301 
Gain on disposal of assets (998) (584)
Loss (gain) on disposal of assets (3,667) 754  (4,665) 170 
Total operating expense 190,002  215,128  193,348  222,745  383,350  437,873 
Operating income
 31,060 29,874  30,861 50,591 61,921 80,465 
Earnings from unconsolidated affiliates, net of losses 1,559 3,390  1,728 4,118 3,287 7,508 
Interest expense, net (1,946) (735) (1,802) (2,474) (3,748) (3,209)
Other income (expense), net (4,785) 426  (1,308) 360  (6,093) 786 
Income before provision for income taxes and minority interest 25,888 32,955  29,479 52,595 55,367 85,550 
Provision for income taxes (8,543) (9,834) (9,728) (18,641) (18,271) (28,475)
Minority interest (116) (449) (676) (4) (792) (453)
Net income
$17,229 $22,672 $19,075 $33,950 $36,304 $56,622 
 


3133


 
The following table presentstables present the impact on pre-tax earnings, net income and diluted earnings per share of certain items related to corporate activities that affect the comparability of our results from the Comparable Quarter:Quarter and Comparable Period:

Three Months Ended June 30,
 
Three Months Ended September 30,
 
2006
 
2007
 
2006
 
2007
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
 
(In thousands, except per share amounts)
  
(In thousands, except per share amounts)
 
Investigations:                            
SEC (1)
$(108)$(70)$ $ $ $ $ $ $ $1,000 $650 $0.02 
DOJ (1)
 (591) (384) (0.02)     (282) (183) (0.01) (488) (317) (0.01)
Tax contingency related items (2)
  800 0.03   918 0.03   700 0.03  5,396 3,407 0.11 
7 ½% Senior Notes due 2017 (3)
     (357) (232) (0.01)     (2,248) (1,461) (0.05)
Foreign currency transaction gains (losses) (4)
 (4,809) (3,126) (0.13) 401 261 0.01  (1,333) (867) (0.04) 334 217 0.01 
Preferred Stock (5)
       826  537  (0.19) 291  189  (0.01)     (0.30)
Total$(5,508)$(2,780)$(0.12)$870 $1,484 $(0.16)$(1,324)$(161)$(0.03)$3,994 $2,496 $(0.22)
_________
 
Six Months Ended September 30,
 
 
2006
 
2007
 
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
Pre-tax
Earnings
 
Net
Income
 
Diluted
Earnings
Per
Share
 
  
(In thousands, except per share amounts)
 
Investigations:                  
SEC (1)
$ $ $ $1,000 $650 $0.02 
DOJ (1)
 (873) (567) (0.02) (488) (317) (0.01)
Tax contingency related items (2)
   1,500  0.06  5,396  4,407  0.15 
7 ½% Senior Notes due 2017 (3)
       (2,605) (1,693) (0.06)
Foreign currency transaction gains (losses) (4)
 (6,142) (3,993) (0.17) 735  478  0.02 
Preferred Stock (5)
 291  189  (0.01) 826  537  (0.50)
Total$(6,724)$(2,871)$(0.14)$4,864 $4,062 $(0.38)
______
 
(1)
Included in general & administrative costs in our condensed consolidated statements of income.
  
(2)
Represents $5.4 million in reversal of accrual for sales tax contingency during the Current Quarter and Current Period in West Africa (see discussion included under “Business Unit Operating Results  Current Quarter Compared to Comparable Quarter West Africa” included elsewhere in this Quarterly Report) included in direct costs in our condensed consolidated statements of income and a direct reduction in our provision for income taxes in our condensed consolidated statements of income.income for income tax contingency items, which represents the remainder of the impact on net income and diluted earnings per share.
  
(3)
Represents the impact on interest expense, net of interest income earned on additional cash, resulting from the issuance of the 7 ½% Senior Notes in June 2007 (see discussion in Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report).
  
(4)
Included in other income (expense), net in our condensed consolidated statements of income.

34



(5)
Represents the impact on diluted earnings per share of the inclusion of weighted average shares resulting from the assumed conversion of Preferred Stock, partially offset by interest income earned on cash balances generated through the Preferred Stock offering in September and October 2006.  See Note 89 in the “Notes to Consolidated Financial Statements” in the fiscal year 2007 Annual Report for a further discussion of the Preferred Stock offering.
 
Current Quarter Compared to Comparable Quarter
 
Our gross revenue increased to $245.0$273.3 million for the Current Quarter from $221.1$224.2 million for the Comparable Quarter, an increase of 10.8%21.9%. Helicopter Services contributed to the increase in gross revenue with improvements for a majority of the business units within this segment as a result of increases in rates for helicopter services and the addition of new aircraft.  Our operating expense increased to $215.1$222.7 million for the Current Quarter from $190.0$193.3 million for the Comparable Quarter, an increase of 13.2%15.2%.  The increase primarily resulted from higher costs associated with higher activity levels, maintenance costs and salaries and benefits (associated with the addition of personnel and salary increases), primarily within the Europe, West Africa, Southeast Asia and EH Centralized Operations business units.  Primarily as a result of these cost increases,the improvement in rates, our operating income and operating margin for the Current Quarter decreasedincreased to $29.9$50.6 million and 12.2%18.5%, respectively, compared to $31.1$30.9 million and 14.1%13.8%, respectively, for the Comparable Quarter.  The Current Quarter also included a reversal of previously accrued settlement costs associated with the settlement of the U.S. Securities and Exchange Commission (“SEC”) investigation ($1.0 million) and items in Nigeria ($7.5 million), which collectively increased operating income by $8.5 million.  Excluding these items, operating income and operating margin would have been $42.1 million and 15.5%, respectively, for the Current Quarter.  For a discussion of the items in Nigeria, see “Business Unit Operating Results Current Quarter Compared to Comparable Quarter Helicopter Services  West Africa” included elsewhere in this Quarterly Report.  
 
Net income for the Current Quarter of $22.7$34.0 million represents a $5.4$14.9 million increase from the Comparable Quarter.  This increase in net income was driven by the improvements in operating income discussed above, foreign currency exchange gains of $0.4$0.3 million in the Current Quarter compared to foreign currency exchange losses of $4.8$1.3 million in the Comparable Quarter and increases in earnings from unconsolidated affiliates and interest income and a decrease in interest expense in the Current Quarter, partially offset by the lower level operating income and an increase in interest expense as well as our provision for income taxes (which resulted from an increase in pre-tax earnings).  The Current Quarter also included certain items as discussed above, which increased net income by $5.6 million.
Current Period Compared to Comparable Period
Our gross revenue increased to $518.3 million for the Current Period from $445.3 million for the Comparable Period, an increase of 16.4%. Helicopter Services contributed to the increase in gross revenue with improvements for a majority of the business units within this segment as a result of increases in rates for helicopter services and the addition of new aircraft.  Our operating expense increased to $437.9 million for the Current Period from $383.4 million for the Comparable Period, an increase of 14.2%.  The increase primarily resulted from higher costs associated with higher activity levels, maintenance costs, and salaries and benefits (associated with the addition of personnel and salary increases), across a majority of our business units.  Primarily as a result of the improvement in rates, our operating income and operating margin for the Current Period increased to $80.5 million and 15.5%, respectively, compared to $61.9 million and 13.9%, respectively, for the Comparable Period.  The Current Period also includes a reversal of previously accrued settlement costs associated with the SEC investigation ($1.0 million) and an item in Nigeria ($5.4 million), which collectively increased operating income by $6.4 million.  Excluding these items, operating income and operating margin would have been $74.1 million and 14.3%, respectively, for the Current Period.  For a discussion of the item in Nigeria, see “Business Unit Operating Results — Current Period Compared to Comparable Period — Helicopter Services — West Africa” included elsewhere in this Quarterly Report.
Net income for the Current Period of $56.6 million represents a $20.3 million increase from the Comparable Period.  This increase in net income was driven by the improvement in operating income discussed above, foreign currency exchange gains of $0.7 million in the Current Period compared to foreign currency exchange losses of $6.1 million in the Comparable Period, increases in earnings from unconsolidated affiliates and interest income in the Current Period, partially offset by a lower effective tax rate)an increase in interest expense as well as our provision for income taxes (which resulted from an increase in pre-tax earnings).  The Current Period also included certain items as discussed above, which increased net income by $4.1 million.
 

3235


Business Unit Operating Results
 
The following tables set forth certain operating information, which forms the basis for discussion of our Helicopter Services and Production Management Services segments, and for the eight business units comprising our Helicopter Services segment.
 
Beginning with the fiscal year 2007 Annual Report, we made changes to the manner in which intercompany lease charges and depreciation are presented within our segments.  Intercompany lease revenues and expenses have been eliminated from our segment reporting, and depreciation expense of aircraft is presented in the segment that operates the aircraft.  Intercompany lease revenue was previously included in gross revenue for the segment leasing the aircraft to other segments with the related lease and operating expenses being included in the segment operating the aircraft during the period.  Also, depreciation expense associated with aircraft was previously included within operating expense of the segment leasing the aircraft to other segments versus the segment operating the aircraft.  Amounts presented for Comparable Quarter and Comparable Period have been reclassified herein to conform to the Current Quarter and Current Period presentation.

Three Months Ended
June 30,
  
Three Months Ended
  
Six Months Ended
 
2006
 
2007
  
September 30,
  
September 30,
 
Flight hours (excludes Bristow Academy and unconsolidated affiliates):     
 
2006
  
2007
  
2006
  
2007
 
Flight hours (excludes unconsolidated affiliates):               
Helicopter Services:                    
North America (1)
 42,609 40,271  41,148   39,623   83,757   79,894 
South and Central America 9,285 11,367  9,631   10,810   18,916   22,177 
Europe 10,170 10,821  10,685   11,494   20,855   22,315 
West Africa 8,883 8,898  9,179   9,887   18,062   18,785 
Southeast Asia 3,206 3,344  3,063   3,644   6,269   6,988 
Other International 2,052  2,547   2,426   2,177   4,478   4,724 
Consolidated total 76,205  77,248   76,132   77,635   152,337   154,883 

 
Three Months Ended
  
Six Months Ended
 
Three Months Ended
June 30,
  
September 30,
  
September 30,
 
2006
 
2007
  
2006
  
2007
  
2006
  
2007
 
(In thousands)
 
(In thousands)
Gross revenue:                    
Helicopter Services:                    
North America$63,368 $60,939  $62,504  $62,059  $125,872  $122,998 
South and Central America 13,012 16,036  13,137   16,951   26,149   32,987 
Europe 71,981 83,357  72,706   93,459   144,687   176,816 
West Africa 31,736 33,283  31,210   45,799   62,946   79,082 
Southeast Asia 17,040 22,492  17,626   23,858   34,666   46,350 
Other International 8,955 11,455  12,184   12,046   21,139   23,501 
EH Centralized Operations 3,074 6,805  3,538   5,331   6,612   12,136 
Bristow Academy  3,019     3,228      6,247 
Intrasegment eliminations (2,860) (6,235)  (3,276)  (3,005)  (6,136)  (9,240)
Total Helicopter Services (2)
 206,306 231,151  209,629   259,726   415,935   490,877 
Production Management Services (3)
 17,684 16,543  17,784   16,030   35,468   32,573 
Corporate (25)         (25)   
Intersegment eliminations (2,903) (2,692)  (3,204)  (2,420)  (6,107)  (5,112)
Consolidated total$221,062 $245,002  $224,209  $273,336  $445,271  $518,338 

See notes beginning on  page 35.38.


3336



 
Three Months Ended
  
Six Months Ended
 
Three Months Ended
June 30,
  
September 30,
  
September 30,
 
2006
 
2007
  
2006
  
2007
  
2006
  
2007
 
(In thousands)
(In thousands)
 
Operating expense: (4)
                    
Helicopter Services:                    
North America$54,135 $50,225  $55,397  $51,190  $109,532  $101,415 
South and Central America 9,042 12,351  9,513   12,378   18,555   24,729 
Europe 57,885 68,782  59,179   71,564   117,064   140,346 
West Africa 27,403 30,486  28,362   30,307   55,765   60,793 
Southeast Asia 14,605 18,365  14,416   18,751   29,021   37,116 
Other International 7,439 9,190  8,413   10,265   15,852   19,455 
EH Centralized Operations 4,841 11,084  6,122   8,578   10,963   19,662 
Bristow Academy  3,110     3,619      6,729 
Intrasegment eliminations (2,860) (6,235)  (3,276)  (3,005)  (6,136)  (9,240)
Total Helicopter Services 172,490 197,358  178,126   203,647   350,616   401,005 
Production Management Services 16,271 15,454  16,390   15,160   32,661   30,614 
Gain on disposal of assets (998) (584)
Loss (gain) on disposal of assets (3,667)  754   (4,665)  170 
Corporate 5,142 5,592  5,703   5,604   10,845   11,196 
Intersegment eliminations (2,903) (2,692)  (3,204)  (2,420)  (6,107)  (5,112)
Consolidated total$190,002 $215,128  $193,348  $222,745  $383,350  $437,873 

Operating income:                    
Helicopter Services:                    
North America$9,233 $10,714  $7,107  $10,869  $16,340  $21,583 
South and Central America 3,970 3,685  3,624   4,573   7,594   8,258 
Europe 14,096 14,575  13,527   21,895   27,623   36,470 
West Africa 4,333 2,797  2,848   15,492   7,181   18,289 
Southeast Asia 2,435 4,127  3,210   5,107   5,645   9,234 
Other International(5) 1,516 2,265  3,771   1,781   5,287   4,046 
EH Centralized Operations (1,767) (4,279) (2,584)  (3,247)  (4,351)  (7,526)
Bristow Academy   (91)     (391)     (482)
Total Helicopter Services 33,816 33,793  31,503   56,079   65,319   89,872 
Production Management Services 1,413 1,089  1,394   870   2,807   1,959 
Gain on disposal of assets 998 584 
Gain (loss) on disposal of assets 3,667   (754)  4,665   (170)
Corporate (5,167) (5,592)  (5,703)  (5,604)  (10,870)  (11,196)
Consolidated operating income 31,060 29,874  30,861   50,591   61,921   80,465 
Earnings from unconsolidated affiliates 1,559 3,390  1,728   4,118   3,287   7,508 
Interest income 1,290 2,198  1,069   4,049   2,359   6,247 
Interest expense (3,236) (2,933) (2,871)  (6,523)  (6,107)  (9,456)
Other income (expense), net (4,785) 426   (1,308)  360   (6,093)  786 
Income before provision for income taxes and minority interest 25,888 32,955  29,479   52,595   55,367   85,550 
Provision for income taxes (8,543) (9,834) (9,728)  (18,641)  (18,271)  (28,475)
Minority interest (116) (449)  (676)  (4)  (792)  (453)
Net income$17,229 $22,672  $19,075  $33,950  $36,304  $56,622 

 
See notes beginning on following page.
 

3437



 
Three Months Ended
 
Six Months Ended
 
 
September 30,
 
September 30,
 
  
2006
 
2007
 
2006
 
2007
 
Operating margin: (6)
            
Helicopter Services:            
North America 11.4% 17.5% 13.0% 17.5%
South and Central America 27.6% 27.0% 29.0% 25.0%
Europe 18.6% 23.4% 19.1% 20.6%
West Africa 9.1% 33.8% 11.4% 23.1%
Southeast Asia 18.2% 21.4% 16.3% 19.9%
Other International 31.0% 14.8% 25.0% 17.2%
EH Centralized Operations (73.0)%(60.9)%(65.8)%(62.0)%
Bristow Academy N/A  (12.1)%N/A  (7.7)%
Total Helicopter Services 15.0% 21.6% 15.7% 18.3%
Production Management Services 7.8% 5.4% 7.9% 6.0%
Consolidated total 13.8% 18.5% 13.9% 15.5%
 
Three Months Ended
June 30,
 
 
2006
 
2007
 
Operating margin:(5)
       
Helicopter Services:       
North America 14.6 %17.6 %
South and Central America 30.5 %23.0 %
Europe 19.6 %17.5 %
West Africa 13.7 %8.4 %
Southeast Asia 14.3 %18.3 %
Other International 16.9 %19.8 %
EH Centralized Operations (57.5)%(62.9)%
Bristow Academy N/A  (3.0)%
Total Helicopter Services 16.4 %14.6 %
Production Management Services 8.0 %6.6 %
Consolidated total 14.1 %12.2 %
        
__________

(1)
Our presentation of flight hours for North America has been changed from our Quarterly Report for the Comparable Quarter to reflect total flight hours, which is consistent with the presentation of flight hours for our other business units.  North America flight hours in the prior report reflected only billed hours.
  
(2)
Includes reimbursable revenue of $23.3$18.9 million and $20.2$26.1 million for the three months ended JuneSeptember 30, 2006 and 2007, respectively, and $42.2 million and $46.3 million for the six months ended September 30, 2006 and 2007, respectively.
  
(3)
Includes reimbursable revenue of $3.9$2.3 million and $1.3$1.9 million for the three months ended JuneSeptember 30, 2006 and 2007, respectively, net of intercompany eliminations, and $6.2 million and $3.2 million for the six months ended September 30, 2006 and 2007, respectively, net of intercompany eliminations.
  
(4)
Operating expenses include depreciation and amortization in the following amounts for the periods presented:

 
Three Months Ended
  
Six Months Ended
 
 
Three Months Ended
June 30,
  
September 30,
  
September 30,
 
 
2006
  
2007
  
2006
  
2007
  
2006
  
2007
 
 
(In thousands)
 
(In thousands)
Helicopter Services:                      
North America $2,765  $3,056  $2,871  $2,952  $5,636  $6,008 
South and Central America  962   949  961   965   1,923   1,914 
Europe 2,653   3,416  2,831   4,201   5,484   7,617 
West Africa 1,576   1,600  1,692   1,988   3,268   3,588 
Southeast Asia  1,017   805  1,018   866   2,035   1,671 
Other International 826   729  863   767   1,689   1,496 
EH Centralized Operations  411   329  399   279   810   608 
Bristow Academy     376      264      640 
Total Helicopter Services 10,210   11,260  10,635   12,282   20,845   23,542 
Production Management Services 47   42  46   42   93   84 
Corporate   26   71   56   71   82   142 
Consolidated total  $10,283  $11,373  $10,737  $12,395  $21,020  $23,768 

(5)
Includes a gain on the sale of an aircraft used in our Italy operations of $2.1 million for the three and six months ended September 30, 2006.
(6)
Operating margin is calculated as gross revenuesrevenue less operating expensesexpense divided by gross revenues.revenue.

 

3538


Current Quarter Compared to Comparable Quarter
 
Set forth below is a discussion of operations of our segments and business units.  Our consolidated results are discussed under “Executive Overview — Overview of Operating Results” above.
 
Helicopter Services
 
Gross revenue for Helicopter Services increased to $231.2$259.7 million, an increase of 12.1%24.0%, for the Current Quarter from $206.3$209.6 million for the Comparable Quarter, and operating expense increased to $197.4$203.6 million, an increase of 14.4%14.3%, from $172.5$178.1 million for the Comparable Quarter.  This resulted in an operating margin of 14.6%21.6% for the Current Quarter compared to 16.4%15.0% for the Comparable Quarter, primarily impacteddriven by ourimproved results for our Europe, West Africa and EH Centralized Operations.Southeast Asia business units.  Helicopter Services results are further explained below by business unit.
 
North America
 
Gross revenue for North America decreased to $60.9remained essentially flat at $62.1 million for the Current Quarter from $63.4compared to $62.5 million for the Comparable Quarter, and flight activity decreased by 5.5%.  The decrease in gross revenue is due to a reduction in technical services revenue from Turbo Engines, Inc. (“Turbo”), which was sold in November 2006, partially offset by a favorable shift in the mix of aircraft type utilized in the Current Quarter.  Despite an overalla slight decrease in flight activityhours in this market, which resulted from a decrease in the number of contracts in place in the Current Quarter, revenue from flight operations were higher than the Comparable Quarter as a result of an increase in the usageincreased by $3.3 million due to increased utilization of medium and large aircraft, which earn higher rates.  Additionally, a rate increase for certain contracts (which isare being phased in beginning in March 2007) also contributed to the increase in revenue from flight operations in the Current Quarter.  The revenue increase from flight operations was offset by $3.7 million in lower technical services revenue resulting from the sale of Turbo Engines Inc. (“Turbo”) in November 2006.
 
Operating expense for North America decreased to $50.2$51.2 million for the Current Quarter from $54.1$55.4 million for the Comparable Quarter.  The decrease was primarily due to a $3.3$2.8 million reduction in operating expense attributable to the Turbo sale and a reductionan increase in costs associated withmaintenance cost allocations to the DOJ investigation (see “Document Subpoena from U.S. Department of Justice” in Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for further discussion),South and Central America business unit, partially offset by higher labor costs associated with increases in salaries.  The favorable aircraft mix and rate increases discussed above resulted in an increase in operating margin to 17.5% for the Current Quarter from 11.4% for the Comparable Quarter.  The North America business unit includes our Western Hemisphere (“WH”) Centralized Operations, which performs major maintenance on aircraft operated by our Western Hemisphere business units.  During the Current Quarter, WH Centralized Operations incurred lower maintenance costs than planned, which resulted in an increase in operating margin to 17.6% for the Current Quarter from 14.6% for the Comparable Quarter.
 
South and Central America
 
Gross revenue for South and Central America increased to $16.0$17.0 million for the Current Quarter from $13.0$13.1 million for the Comparable Quarter, primarily due to a 23.8%19.1% increase in flight activity in Trinidad (as a result ofresulting from the addition of three aircraft in this market since the Comparable Quarter).Quarter.  Flight activity also increased by 46.9%11.2% in Mexico, although it did not result in a corresponding increase in revenue.Mexico.  As discussed in Note 3 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, we recognize revenue on a cash basis from our 49% owned unconsolidated affiliates, Hemisco Helicopters International, Inc. and Heliservicio Campeche S.A. de C.V. (collectively, “HC”).  Cash receipts from HC totaled $1.6$2.1 million in the Current Quarter compared to $2.3 million inand the Comparable Quarter.
 
Operating expense for South and Central America increased to $12.4 million for the Current Quarter from $9.0$9.5 million for the Comparable Quarter, primarily due to increased expenses in Trinidad and Mexico (as a result ofresulting from the increase in flight activity in those markets).  Primarily as a result of themarkets and in Brazil resulting from an increase in operating expense in Mexico (including maintenance costs) for which there was no corresponding revenue increase (due to the lower level of cash receipts in the Current Quarter), the operatingcosts.  Operating margin for this business unit decreased to 23.0%was essentially flat at 27.0% for the Current Quarter from 30.5%compared to 27.6% for the Comparable Quarter.Quarter as the positive impact on margins from the addition of aircraft in Trinidad was offset by the impact of increased maintenance costs in Brazil.
 

36


In March 2007, we sold our ownership interest in a joint venture that operates in Brazil to our partners in the joint venture.  We anticipate that onceOnce our existing agreements expire, thatwhich will occur for a majority of the aircraft by the end of calendar year 2007, one aircraft in March 2008 and two aircraft in July 2009, we will evaluate the alternatives for these aircraft, which include leasingplan to other customers in Brazil, sellingsell or relocatingrelocate the aircraft.  Therefore, we mayWe expect to experience a substantial reduction in business activity in Brazil in future periods.
 

39


Europe
 
Gross revenue for Europe increased to $83.4$93.5 million for the Current Quarter from $72.0$72.7 million for the Comparable Quarter, primarily as a result of a 6.4%7.6% increase in flight activity.activity and an increase in amounts rebilled to our customers for out-of-pocket costs (reimbursable revenue).  The majority of the increase in flight hours related to the addition of threeone medium and fourfive large aircraft in the North Sea since the Comparable Quarter.  Additionally, revenue also improved as a result of increases in monthly standing charge rates and annual rate escalations under certain of our contracts.  The annual rate escalations recognized in the Current Quarter include an amount of $1.2 million related to prior quarters.
 
Operating expense for Europe increased to $68.8$71.6 million for the Current Quarter from $57.9$59.2 million for the Comparable Quarter primarily due to a $3.2 million increaseincreases in out-of-pocket costs rebilled to our customers (reimbursable expense), maintenance costs, salaries and benefits (resulting from the increase in activity, additions in personnel and salary increases), a $2.9 million increase in maintenance expense (resulting from and an increase in allocations of maintenance from EH Centralized Operations) and a $1.9 million increase inother operating costs (primarily third-party lease costs.costs).  As a result of additional personnel, salary increases and increased maintenance expense in the Current Quarter, all of which increased our operating expenses with no corresponding increase in revenue,rates, operating margin for Europe decreasedincreased to 17.5%23.4% for the Current Quarter from 19.6%18.6% for the Comparable Quarter.
We are currently involved in negotiations with unions representing our pilots and engineers in this market.  As a result of the negotiations completed to date, labor rates under our existing contracts increased 4-5% starting in July 2007 and will continue through June 2008.  We expect to be able to pass these costs on to our customers through rate increases as customer contracts come up for renewal.
 
In October 2006, we were awarded an amendment and extension of our existing contract in the North Sea with Integrated Aviation Consortium for the provision of helicopter transportation services to offshore facilities both east and west of the Shetland Islands.  The amendment extendsextended the contract until June 2010 and callscalled for the provision of five new Sikorsky S-92 helicopters to be delivered in the second and third quarters of fiscal year 2008 to replace the six AS332L Super Puma helicopters currently under contract which we intend to re-deploybe re-deployed to other markets.  In December 2006, the provision for a sixth Sikorsky S-92 was confirmed and a related aircraft option was exercised.  The first aircraft was delivered in the first quarter of fiscal year 2008 and was placed into service in the Current Quarter.  Four aircraft are expected to be delivered by the end of the third quarter of fiscal year 2008 with the final (sixth) aircraft expected to be delivered in the fourth quarter of fiscal year 2008.  Of the six AS332L Super Puma helicopters being displaced, four are expected to be re-deployed to Southeast Asia and one is expected to be deployed to West Africa.  The remaining aircraft is expected to stay to support the Aberdeen operations.
 
We provide search and rescue services using seven S-61 aircraft and operate four helicopter bases for the U.K. Maritime and Coastguard Agency (“MCA”).  We expect that the transition of work and certain of the associated staff to a successor operator will take place, one base at a time, over a period of at least one year.  The first base was transferred on July 1, 2007.  The MCA has the option to extend the contract through July 2009.April 2008.  At the end of the agreement and any transition period, we expect that we will either be able to employ these aircraft for other customers, trade the aircraft in as partial consideration towards the purchase of new aircraft or sell the aircraft.  In the Comparable Quarter and Current Quarter, we had $8.9$8.1 million and $8.1$7.9 million, respectively, in operating revenues associated with this contract.  In July 2006, we entered into a partnership with FB Heliservices Limited (“FBH”), an unconsolidated affiliate of ours, and a third party, Serco Limited, through which we will seek to obtain the future U.K.-wide search and rescue contract, including the provision of a significant number of aircraft, anticipated to start in 2012.
 
West Africa
 
Gross revenue for West Africa increased to $33.3$45.8 million for the Current Quarter from $31.7$31.2 million for the Comparable Quarter, primarily as a resultresulting from of the addition of two medium aircraft to this market since the Comparable Quarter and an increase in rates under our contracts with customers in Nigeria.  In September 2007, we renegotiated two different contracts with one of these customers to increase the rates and extend the terms.  One of the contracts is for helicopters and the other contract withfor fixed-wing aircraft.  The extension period for the helicopter contract is from October 2007 through September 2009 and calls for rate increases retroactive to April 1, 2007, which resulted in an additional $4.2 million in revenue in the Current Quarter ($2.1 million of which relates to the first quarter of fiscal year 2008).  The helicopter agreement also includes an additional rate escalation effective October 2008.  The agreement for the fixed-wing aircraft extends from August 2007 through December 2008 and includes rate increases effective August 2007 and January 2008.  In addition, a second major customer in Nigeria (beginninghas elected to extend its current contract for helicopter service from October 1, 2006)2007 through September 2008 and increasesthe extension period includes a rate increase.  This contract calls for a rate increase effective April 2008 for most of the equipment involved.  We are in certain of our standard monthly rates for other contracts, partially offset bycontract negotiations with a $1.9 million decrease in out-of-pocket expenses rebilled to our customers.  Although government-mandated national holidays (due to national elections) and a national labor strike contributed to a total of 14 non-operating days for our aircraft during the Current Quarter, flight activity remained mostly flat as many of those days were weekend days, and we were able to shift regular maintenance on our aircraft to these days.  In July 2007, we negotiated (but have not reached final agreement) to amend our contracts with two major customers in Nigeria for rate increases, extended terms,third significant customer.
 

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expanded scope, and modification of other contract terms.  In each case the customers have proposed improved terms which we are continuing to negotiate.  All rate increases will be recognized beginning in the period that we reach final agreement with the customers.
Operating expense for West Africa increased to $30.5$30.3 million for the Current Quarter from $27.4$28.4 million for the Comparable Quarter.  The increase was primarily a result of $6.7$5.4 million in safety and compensation related increases, including severance accruals, wage increases and additional pension costs, whichhigher maintenance costs and higher reimbursable expense.  Offsetting this increase was partially offset by decreases in out-of-pocket expenses rebilled to our customers ($1.9 million) andreduction in other expenses, including freight charges and travel costs.  We arethe reversal of a $5.4 million accrual for sales tax contingency in negotiations with the unions in Nigeria and anticipate that we will increase salaries and certain benefits for union personnel.Nigeria.  Operating margin for West Africa decreasedincreased to 8.4%33.8% for the Current Quarter from 13.7%9.1% for the Comparable Quarter, primarily as a result of these increased compensation costs.the rate increases and reversal of the accrual for sales tax contingency discussed above.  Excluding the portion of the rate increases related to the first quarter of fiscal year 2008 and the reversal of the accrual for sales tax contingency, our operating margin for the Current Quarter would have been 18.3%.
Additionally, consolidated operating expense for the Current Quarter also included $1.1 million for a loss associated with an aircraft crash in Nigeria in August 2007.  The loss is reported in loss on disposal of assets in our condensed consolidated income statement and is not included in the West Africa business unit operating income.
 
In fiscal year 2007, we reorganized our Nigerian operations, which included increased security, consolidation of two former operating businesses, expansion of several hangar facilities, integration of finance and administrative functions, and repositioning of major maintenance operations into our two largest operating facilities.  This reorganization as well asWe are in negotiations with the unions in Nigeria and anticipate that we will increase salaries and certain benefits for union personnel. We also experience periodic disruption to our operations related to civil unrest and violenceviolence.  These factors have made and are expected to continue to make our operating results from Nigeria unpredictable through at least the end of calendar year 2007.unpredictable.
 
Southeast Asia
 
Gross revenue for Southeast Asia increased to $22.5$23.9 million in the Current Quarter from $17.0$17.6 million for the Comparable Quarter, primarily due to higher revenue in Australia.  Australia’s flight activity and revenue increased 15.1%21.1% and 49.2%52.8%, respectively, from the Comparable Quarter, primarily due to the addition of twofour aircraft to this market since the Comparable Quarter and rate increases.
 
Operating expense increased to $18.4$18.8 million for the Current Quarter from $14.6$14.4 million for the Comparable Quarter as a result of costs associated with the increase in activity compared to the Comparable Quarter.  As a result of the increasesincrease in activity and rates in Australia during the Current Quarter, operating margin increased to 18.3%21.4% for the Current Quarter from 14.3%18.2% for the Comparable Quarter.
 
Other International
 
Gross revenue for Other International increased to $11.5was essentially flat at $12.0 million for the Current Quarter from $9.0compared to $12.2 million for the Comparable Quarter, primarily due to increases in flight activity in Egypt and India (which resulted from an additional aircraft operating in Egypt and an additional aircraft operating in India overQuarter.  Revenue was positively impacted by the Comparable Quarter), rate increases for our operations in Russia and our commencementaddition of operations in Libya since the Comparable Quarter.Quarter and the operation of new aircraft in Kazakhstan at higher rates than aircraft previously operating in this market, which was offset by lower revenue in Mauritania as we were operating one large and one medium aircraft in this market in the Comparable Quarter compared to two medium aircraft in the Current Quarter and the billing of an escalation charge in the Comparable Quarter on contracts in both Russia ($1.6 million in gross revenue) and Mauritania ($0.5 million in gross revenue).  Our operations in Libya ceased in August 2007, and we are no longer operating aircraft in this market.
 
Operating expense increased to $9.2$10.3 million for the Current Quarter from $7.4$8.4 million for the Comparable Quarter.  The increase in operating expense is primarily due to increased operational costs associated with the increases in flight activity and commencementaddition of operations in Libya.  As a result of the additional aircraft operating in Egypt and India, rateLibya, increases in lease fees for the new aircraft in Kazakhstan and increased operating costs in Russia, and the commencement of operationswhich drove a decrease in Libya, operating margin for Other International increased to 19.8%14.8% for the Current Quarter from 16.9%31.0% for the Comparable Quarter.
 

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EH Centralized Operations
 
Our EH Centralized Operations business unit is comprised of our technical services business, other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Eastern Hemisphere business units) and division level expenses.  Operating expense reflects costs associated with other non-flight services net of the related charge to the other Eastern Hemisphere business units.
 
Gross revenue for EH Centralized Operations increased to $6.8$5.3 million for the Current Quarter from $3.1$3.5 million for the Comparable Quarter as a result of increased parts sales and increased intercompany charges to other business units for overhead costs.
 

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Operating expense increased to $11.1$8.6 million for the Current Quarter from $4.8$6.1 million for the Comparable Quarter, primarily due to a $3.0 million increase in unrecovered maintenance costs and a $1.8$1.6 million increase in salaries and benefits resulting from additional personnel.  The levelthe addition of billings topersonnel and a $1.7 million increase in other business unitscosts associated with the increase in technical service operations (including the Current Quarter did not fully recover allcosts of parts sold), partially offset by a $0.9 million decrease in unrecovered maintenance costs incurred as had been the case in the Comparable Quarter.costs.
 
Bristow Academy
 
As discussed in Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, on April 2, 2007 we acquired Bristow Academy and formed our Global Training division.
 
Gross revenue and operating expense for Bristow Academy were $3.0$3.2 million and $3.1$3.6 million respectively, for the Current Quarter, respectively, resulting in essentially breakeven results.a $0.4 million loss for the Current Quarter.  The results for the Current Quarter were impacted by the stepped-up cost basis of assets resulting from purchase price accounting for this acquisition.  We expect the profitability of Bristow Academy to improve in future periods.periods, although the primary strategic value to the Company from this business is the supply of pilots for use in our global operations.
 
Production Management Services
 
Gross revenue for our Production Management Services segment decreased to $16.5$16.0 million for the Current Quarter, a decrease of 6.8%10.1%, from $17.7$17.8 million for the Comparable Quarter, primarily due to the previously announced reduction of the scope of our services under a contract with a major customer beginning in October 2006.  This has been partially offset by labor revenue associated with the addition of several new contracts.  Operating expense decreased to $15.5$15.2 million for the Current Quarter, a decrease of 7.3%, from $16.3$16.4 million for the Comparable Quarter, primarily due to a decrease in costs associated with the decrease in activity.  As a result of the reduction of the scope of our services with a major customer, our operating margin decreased to 6.6%5.4% for the Current Quarter from 8.0%7.8% in the Comparable Quarter.  Nevertheless, the operating margin for the Current Quarter has improved over the 4.4% margin experienced
As discussed in Note 2 in the three months ended March 31,“Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, on November 2, 2007, as a result of revenue associated with the new contracts.we sold Grasso which comprised our entire Production Management Services segment.
 
General and Administrative Costs
 
Consolidated general and administrative costs increased by $3.9$4.5 million during the Current Quarter compared to the Comparable Quarter.  The increase is primarily due to the addition of corporate personnel, and an overall increase in corporatesalaries in the Current Quarter and an increase in other general and administrative costs primarily related toresulting from the growth in our operations across our business units (including increased salaries and benefits.  The increaseprofessional fees), which were partially offset by a $1.0 million reversal of previously accrued settlement costs in costsconnection with our settlement of the investigation with the SEC in the Current Quarter was partially offset by the fact that we incurred no costs related to(see further discussion of the Internal Review and SEC investigation in Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report). Also, we incurred $0.5 million in legal and professional fees related to the DOJ investigation in the Current Quarter.  Professional feesGeneral and administrative costs in the Comparable Quarter included approximately $0.1 million and $0.6 millionno amounts in connection with the Internal Review and approximately $0.3 million in connection with the DOJ investigations, respectively.investigation.
 

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Earning from Unconsolidated Affiliates
 
Earnings from unconsolidated affiliates increased to $3.4$4.1 million during the Current Quarter compared to $1.6$1.7 million in the Comparable Quarter, primarily due to a $1.0 millionan increase in equity earnings from NorskFBH of $1.4 million (primarily resulting from increases in ad hoc flying and lower salary expenses resulting from a salary holiday in Norway) and a $0.4 million increasegain recorded in the equity earnings fromCurrent Quarter by FBH upon disposal of a medium aircraft that crashed in Belize), Norsk of $0.8 million and RLR of $0.5 million (resulting from an increase in the amount of cash received from HC during the Current Quarter compared to the Comparable Quarter).
We are in the process of completing a valuation and restructuring of Norsk, and it is possible that our equity earnings in Norsk will be reduced in future periods.
 
In March 2007, FBH was awarded a £9 million extension to its contract to provide helicopters and support to British Forces Cyprus and the Sovereign Base Areas Administration until March 31, 2010.  Under the contract, FBH provides four highly modified Civil Owned Military Registered Bell 412EP helicopters together with associated engineering and logistics support.
 
Interest Expense, Net
 
Interest expense, net of interest income, decreasedincreased to $0.7$2.5 million during the Current Quarter compared to $1.9$1.8 million during the Comparable Quarter, primarily due to an increase in capitalized interest from $1.0 million in the Comparable Quarter to $2.5 million in the Current Quarter and increased interest income, partially offset by additional interest expense of $1.1$5.6 million associated with the 7 ½% Senior Notes issued in June 2007.2007, partially offset by an increase in capitalized interest from $1.4 million in the Comparable Quarter to $3.4 million in the Current Quarter and increased interest income.  More interest was capitalized in the Current

39


Quarter as a result of the increase in capital expenditures discussed under “Liquidity and Capital Resources — Cash Flows — Investing Activities” below.  The increase in interest income primarily resulted from an increase in cash on hand during the Current Quarter as a result of the issuance of the 7 ½% Senior Notes.
 
Other Income (Expense), Net
 
Other income (expense), net, for the Current Quarter was income of $0.4 million compared to expense of $4.8$1.3 million for the Comparable Quarter, and primarily represents foreign currency transaction gains and losses.  The gains in the Current Quarter primarily resulted from revaluation of intercompany balances between our Nigerian entity,entities whose functional currency is the U.S. dollar and our U.K. consolidated affiliates,entities whose functional currency is the British pound sterling, as the U.S. dollar weakened against the British pound sterling in the Current Quarter.  The losses in the Comparable Quarter primarily arose from operations performed by our U.K. consolidated affiliates and from operations which are outsideentities whose functional currency is the North SeaBritish pound sterling that were dominated in U.S. dollars, as a result of the weakening of the U.S. dollar in that period (see a discussion of foreign currency transactions in Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report).
 
Taxes
 
Our effective income tax rates from continuing operations were 33.0% and 29.8%35.4% for the Comparable Quarter and Current Quarter, respectively.  During the Comparable Quarter, and the Current Quarter, we benefited from tax contingency related items totaling $0.7 million and during the Current Quarter we accrued tax contingency items totaling $0.1 million.  Our effective tax rate was also reduced by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
Current Period Compared to Comparable Period
Set forth below is a discussion of operations of our segments and business units.  Our consolidated results are discussed under “Executive Overview — Overview of Operating Results” above.

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Helicopter Services
Gross revenue for Helicopter Services increased to $490.9 million, an increase of 18.0%, for the Current Period from $415.9 million for the Comparable Period, and operating expense increased to $401.0 million, an increase of 14.4%, from $350.6 million for the Comparable Period.  This resulted in an operating margin of 18.3% for the Current Period compared to 15.7% for the Comparable Period, primarily impacted by improved results for our Europe, West Africa and Southeast Asia business units.  Helicopter Services results are further explained below by business unit.
North America
Gross revenue for North America decreased to $123.0 million for the Current Period from $125.9 million for the Comparable Period.  The decrease in gross revenue is due to a reduction in technical services revenue of $7.4 million from the sale of Turbo, partially offset by a favorable shift in the mix of aircraft type utilized in the Gulf of Mexico in the Current Period.  Despite an overall decrease in flight activity in the Gulf of Mexico in the Current Period, revenue from flight operations were higher than the Comparable Period as a result of an increase in the usage of medium and large aircraft, which earn higher rates.  Additionally, a rate increase for certain contracts also contributed to the increase in revenue from flight operations in the Current Period.
Operating expense for North America decreased to $101.4 million for the Current Period from $109.5 million for the Comparable Period.  The decrease was primarily due to a $6.1 million reduction in operating expense attributable to the sale of Turbo and an increase in maintenance cost allocations to the South and Central America business unit, partially offset by higher labor costs associated with increases in salaries.  During the Current Period, WH Centralized Operations incurred lower maintenance costs than planned, which together with the favorable mix of aircraft utilized and the increase in rates discussed above resulted in an increase in operating margin to 17.5% for the Current Period from 13.0% for the Comparable Period.
South and Central America
Gross revenue for South and Central America increased to $33.0 million for the Current Period from $26.1 million for the Comparable Period, primarily due to a 21.6% increase in flight activity in Trinidad resulting from the addition of aircraft in this market since the Comparable Period.  Flight activity also increased by 27.2% in Mexico.  Cash receipts from HC totaled $3.7 million in the Current Period compared to $4.4 million in the Comparable Period.  For additional information on our investment in HC and RLR, see “— Current Quarter compared to Comparable Quarter — Helicopter Services — South and Central America” included elsewhere in this Quarterly Report.
Operating expense for South and Central America increased to $24.7 million for the Current Period from $18.6 million for the Comparable Period, primarily due to increased expenses in Trinidad and Mexico resulting from the increase in flight activity in those markets and in Brazil resulting from an increase in maintenance costs.  Primarily as a result of the increase in maintenance costs, the operating margin for this business unit decreased to 25.0% for the Current Period from 29.0% for the Comparable Period.
Europe
Gross revenue for Europe increased to $176.8 million for the Current Period from $144.7 million for the Comparable Period, primarily as a result of a 7.0% increase in flight activity.  The majority of the increase in flight hours related to the addition of one medium and five large aircraft in the North Sea since the Comparable Period.  Additionally, revenue also improved as a result of increases in monthly standing charge rates and annual rate escalations under certain of our contracts.  The annual rate escalations recognized in the Current Period include an amount of $1.9 million related to prior periods.
Operating expense for Europe increased to $140.3 million for the Current Period from $117.1 million for the Comparable Period, primarily due to an increase in salaries and benefits (resulting from the increase in activity, additions in personnel and salary increases), increases in maintenance expense (resulting from an increase in allocations of maintenance from EH Centralized Operations), other expense (including third-party lease costs) and in reimbursable expense.  As a result of the increase in rates in the Current Period, partially offset by higher maintenance costs, additional personnel and salary increases and increased lease costs, our operating margin for Europe increased to 20.6% for the Current Period from 19.1% for the Comparable Period.

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In connection with the contract with MCA, we had $16.1 million and $17.0 million, respectively, in operating revenues associated with this contract for the Current Period and Comparable Period.  For additional information relating to the contract with MCA, see “— Current Quarter Compared to Comparable Quarter — Helicopter Services — Europe” included elsewhere in this Quarterly Report.
West Africa
Gross revenue for West Africa increased to $79.1 million for the Current Period from $62.9 million for the Comparable Period, primarily as a result of the addition of two medium aircraft to this market since the Comparable Period and an increase in rates under our contracts with two major customers in Nigeria.  For further discussion of contract extensions in Nigeria, see “— Current Quarter Compared to Comparable Quarter — Helicopter Services — West Africa” included elsewhere in this Quarterly Report.
Operating expense for West Africa increased to $60.8 million for the Current Period from $55.8 million for the Comparable Period.  The increase was primarily a result of safety and compensation related increases, including severance accruals, wage increases and additional pension costs, which was partially offset by a reversal of a $5.4 million accrual for sales tax contingency in the Current Period and decreases in other expenses, including freight charges and travel costs.  Operating margin for West Africa increased to 23.1% for the Current Period from 11.4% for the Comparable Period, primarily as a result of the increases in rates and reversal of the accrual for sales tax contingency.  Excluding the reversal of the accrual for sales tax contingency, our operating margin for the Current Period would have been 16.3%.
For discussion of additional matters related to Nigeria operations, see “— Current Quarter Compared to Comparable Quarter — Helicopter Services — West Africa” included elsewhere in this Quarterly Report.
Southeast Asia
Gross revenue for Southeast Asia increased to $46.4 million in the Current Period from $34.7 million for the Comparable Period, primarily due to higher revenue in Australia.  Flight activity and revenue in Australia increased 18.1% and 51.0%, respectively, from the Comparable Period, primarily due to the addition of four aircraft to this market since the Comparable Period and rate increases.
Operating expense increased to $37.1 million for the Current Period from $29.0 million for the Comparable Period as a result of costs associated with the increase in activity compared to the Comparable Period.  As a result of the increase in rates in Australia during the Current Period, operating margin increased to 19.9% for the Current Period from 16.3% for the Comparable Period.
Other International
Gross revenue for Other International increased to $23.5 million for the Current Period from $21.1 million for the Comparable Period, primarily due to increases in flight activity in Egypt and India (which resulted from an aircraft that was offline for maintenance for a portion of the Comparable Period and an additional aircraft operating over the Comparable Period), rate increases for our operations in Russia and our commencement of operations in Libya since the Comparable Period offset by the billing of an escalation charge in the Comparable Period on contracts in both Russia ($1.6 million in gross revenue) and Mauritania ($0.5 million in gross revenue).
Operating expense increased to $19.5 million for the Current Period from $15.9 million for the Comparable Period.  The increase in operating expense is primarily due to increased operational costs associated with the increases in flight activity, commencement of operations in Libya and increased allocations of maintenance costs from EH Centralized Operations.  As a result of increased costs in a number of markets (primarily in Russia), operating margin for Other International decreased to 17.2% for the Current Period from 25.0% for the Comparable Period.

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EH Centralized Operations
Gross revenue for EH Centralized Operations increased to $12.1 million for the Current Period from $6.6 million for the Comparable Period as a result of increased intercompany charges to other business units for overhead costs.
 Operating expense increased to $19.7 million for the Current Period from $11.0 million for the Comparable Period, primarily due to a $2.1 million increase in unrecovered maintenance costs, a $3.5 million increase in salaries and benefits resulting from additional personnel and a $2.3 million increase in costs associated with the increase in technical service operations (including the costs of parts sold).
Bristow Academy
Gross revenue and operating expense for Bristow Academy were $6.2 million and $6.7 million for the Current Period, respectively, resulting in a $0.5 million loss for the period.  The results for the Current Period were impacted by the stepped-up cost basis of assets resulting from purchase price accounting for this acquisition.
Production Management Services
Gross revenue for our Production Management Services segment decreased to $32.6 million for the Current Period, a decrease of 8.2%, from $35.5 million for the Comparable Period, primarily due to the previously announced reduction of the scope of our services under a contract with a major customer beginning in October 2006.  This has been partially offset by labor revenue associated with the addition of several new contracts.  Operating expense decreased to $30.6 million for the Current Period, a decrease of 6.4%, from $32.7 million for the Comparable Period, primarily due to a decrease in costs associated with the decrease in activity.  As a result of the reduction of the scope of our services with a major customer, our operating margin decreased to 6.0% for the Current Period from 7.9% in the Comparable Period.
As discussed in Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, on November 2, 2007, we sold Grasso, which comprised our entire Production Management Services segment.
General and Administrative Costs
Consolidated general and administrative costs increased by $8.4 million during the Current Period compared to the Comparable Period.  The increase is primarily due to the addition of personnel, an overall increase in salaries and an increase in other general and administrative costs resulting from growth across a majority of our business units (including increased professional fees), which were partially offset by a $1.0 million reversal of previously accrued settlement costs in connection with our settlement of the investigation with the SEC in the Current Period (see further discussion of the Internal Review and SEC investigation in Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report). Also, we incurred $0.5 million in legal and professional fees related to the DOJ investigation in the Current Period.  General and administrative costs in the Comparable Period included approximately $0.1 million and $0.9 million in connection with the Internal Review and DOJ investigations, respectively.
Earning from Unconsolidated Affiliates
Earnings from unconsolidated affiliates increased to $7.5 million during the Current Period compared to $3.3 million in the Comparable Period, primarily due to an increase in equity earnings from Norsk of $1.8 million, FBH of $1.6 million (primarily resulting from a gain recorded in the Current Period by FBH upon disposal of a medium aircraft that crashed in Belize and reduced interest expense) and RLR of $0.9 million (resulting from an increase in the amount of cash received from HC during the Current Period compared to the Comparable Period).
We are in the process of completing a valuation and restructuring of Norsk, and it is possible that our equity earnings in Norsk will be reduced in future periods.
As discussed under “— Current Quarter Compared to Comparable Quarter — Earnings from Unconsolidated Affiliates” above, in March 2007, FBH was awarded a £9 million extension to its contract to provide helicopters and support to British Forces Cyprus and the Sovereign Base Areas Administration until March 31, 2010.

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Interest Expense, Net
Interest expense, net of interest income, decreased to $3.2 million during the Current Period compared to $3.7 million during the Comparable Period, primarily due to an increase in capitalized interest from $2.5 million in the Comparable Period to $5.9 million in the Current Period and increased interest income, partially offset by additional interest expense of $6.8 million associated with the 7 ½% Senior Notes issued in June 2007.  More interest was capitalized in the Current Period as a result of the increase in capital expenditures discussed under “Liquidity and Capital Resources — Cash Flows — Investing Activities” below.  The increase in interest income primarily resulted from an increase in cash on hand during the Current Period as a result of the issuance of the 7 ½% Senior Notes.
Other Income (Expense), Net
Other income (expense), net, for the Current Period was income of $0.8 million compared to expense of $6.1 million for the Comparable Period, and primarily represents foreign currency transaction gains and losses.  The gains in the Current Period primarily resulted from revaluation of intercompany balances between entities whose functional currency is the U.S. dollar and entities whose functional currency is the British pound sterling, as the U.S. dollar weakened against the British pound sterling in the Current Period.  The losses in the Comparable Period primarily arose from operations performed by entities whose functional currency is the British pound sterling that were dominated in U.S. dollars as a result of the weakening of the U.S. dollar in that period (see a discussion of foreign currency transactions in Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report).
Taxes
Our effective income tax rates from continuing operations were 33.0% and 33.3% for the Comparable Period and Current Period, respectively.  During the Comparable Period and the Current Period, we benefited from tax contingency related items totaling $1.5 million and $0.9 million, respectively.  Our effective tax rate was also reduced by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.
 
Liquidity and Capital Resources
 
Cash Flows
 
Operating Activities
 
Net cash flows used inprovided by operating activities totaled $2.3$43.5 million during the Current QuarterPeriod compared to net cash flows provided by operating activities of $32.2$48.7 million during the Comparable Quarter.Period.  Changes in non-cash working capital used $37.7$41.7 million in cash flows from operating activities for the Current QuarterPeriod compared to providing $3.4$13.1 million in the Comparable Quarter.
The $34.5 million decrease in net cash flows from operating activities is primarily the result of a $29.9 million increase in accounts receivable as collections on accounts receivable declined during the Current Quarter, particularly in West Africa.  In July 2007, $20.6 million of the receivables outstanding as of June 30, 2007 related to West Africa were collected.Period.
 

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Investing Activities
 
Cash flows used in investing activities were $134.3$237.0 million and $44.3$100.0 million for the Current QuarterPeriod and Comparable Quarter,Period, respectively, primarily for capital expenditures as follows:
Three Months Ended
 June 30,
  
Six Months
Ended September 30,
 
2006
  
2007
  
2006
 
2007
 
Number of aircraft delivered:          
Small   2 
Medium  2 5  4 10 
Large   2  2 2 
Fixed wing 
  1   1 
Training   2 
Total aircraft  2  8  6  17 
          
Capital expenditures (in thousands):          
Aircraft and related equipment $44,085 $118,191 $115,458 $213,552 
Other 2,797  3,589  5,957  7,543 
Total capital expenditures$46,882 $121,780 $121,415 $221,095 

During the Comparable Quarter,Period, we made final payments in connection with the delivery of twoone small, four medium and one large aircraft and progress payments on the construction of new aircraft to be delivered in future periods.periods totaling $87.7 million.  Also during the Comparable Quarter,Period, we spent an additional $6.7$14.9 million to upgrade aircraft within our existing aircraft fleet and to customize new aircraft delivered for our operations.operations, recorded accounts payable of $16.3 million for the final payment due on one large aircraft delivered in September 2006, and made payments of $3.4 million on short-term notes used to fund capital expenditures in prior periods.  During the Current Quarter,Period, we made final payments in connection with the delivery of fivetwo small, ten medium, two large and two largetraining aircraft, progress payments on the construction of new aircraft to be delivered in future periods in conjunction with our aircraft commitments (discussed below), and purchased two training aircraft and aone fixed wing aircraft, for a total of $109.9$196.1 million.  Also, during the Current Quarter,Period, we spent $8.3$17.5 million to upgrade aircraft within our existing aircraft fleet and to customize new aircraft delivered for our operations.
 
During the Current Quarter, we received proceeds from the disposal of three aircraft and certain other equipment and incurred a total loss from storm damage to one medium aircraft (which was fully insured), resulting in a net gain on asset disposals of $0.6 million.  During the Comparable QuarterPeriod we received proceeds of $2.6$8.6 million primarily from the disposal of fivetwelve aircraft, two airframes and certain other equipment, which together resulted in a net gain of $1.0$4.7 million.  During the Current Period, we received proceeds from the disposal of four aircraft and certain other equipment, incurred a total loss on one medium aircraft in a crash in Nigeria, a total loss on one small aircraft in the Gulf of Mexico in a flight accident and a total loss from storm damage to one medium aircraft, resulting in a net loss on asset disposals of $0.2 million.  All of these losses were insured.
 
Due to the significant investment in aircraft made in both the Comparable QuarterPeriod and Current Quarter,Period, net capital expenditures exceeded cash flow from operations, and we expect this will continue to be the case through the end of fiscal year 2008.2008 and in fiscal year 2009 if we continue to exercise our aircraft purchase options.  Also in fiscal year 2008, we expect to invest approximately $50 million in various infrastructure enhancements, including aircraft facilities, training centers and technology.  Through JuneSeptember 30, 2007, we had incurred $3.6$7.5 million towards these projects.
 
As discussed further in “Executive Overview — General” above, during the Current QuarterPeriod we acquired all of the common equity of HAI for $15.0 million in cash.  We also assumed $5.7 million in debt as part of this transaction.transaction which was repaid during the six months ended September 30, 2007.
 
Historically, in addition to the expansion of our business through purchases of new and used aircraft, we have also established new joint ventures with local partners or purchased significant ownership interests in companies with ongoing helicopter operations, particularly in countries where we have no operations or our operations are limited in scope, and we continue to evaluate similar opportunities which could enhance our operations.
 
Additionally, we contributed capital of approximately $2.0 million to RLR, and we loaned RLR $4.1 million under a three-year term loan arrangement, the funds of which were used by RLR towards the purchase of a medium sized aircraft.

48

Financing Activities
 
Cash flows provided by financing activities were $290.9$283.3 million during the Current QuarterPeriod compared to cash flows used inprovided by financing activities of $2.9$195.3 million during the Comparable Quarter.Period.  During the Current Quarter,Period, cash was provided by our issuance of the 7 ½% Senior Notes resulting in net proceeds of $295.8$295.1 million and by our receipt of proceeds of $1.1$1.3 million from the exercise of options to acquire shares of our common stock primarily by our employees.  Cash was used for the payment of Preferred Stock dividends of $3.2$6.3 million and the repayment of debt totaling $3.2$7.2 million.  See Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for discussion of the issuance of the 7 ½% Senior Notes.
 

41


During the Comparable Quarter,Period, cash was used forprovided by the repaymentissuance of debt totaling $4.0the Preferred Stock in September 2006, resulting in net proceeds of $194.1 million, and was provided by our receipt of proceeds of $0.8$2.2 million from the exercise of options to acquire shares of our common stock by our employees.
  Cash was used for the repayment of debt totaling $1.5 million.
 
Future Cash Requirements
 
Debt Obligations
 
As of JuneSeptember 30, 2007, total debt was $561.3$557.3 million, of which $7.9$6.8 million was classified as current.  Our outstanding debt obligations are described in Note 5 in the “Notes to Consolidated Financial Statements” in the fiscal year 2007 Annual Report and in Note 5 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Capital Commitments
 
We expect to make additional capital expenditures over the current and next sixfive fiscal years to purchase additional aircraft.  As of JuneSeptember 30, 2007, we had 32 aircraft on order and options to acquire an additional 5242 aircraft.  As of JuneSeptember 30, 2007, expenditures associated with these aircraft, including progress payments on aircraft expected to be delivered in future periods, are expected to total $255.0$276.5 million and $732.9$608.0 million for those aircraft under commitments and under options, respectively.  Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of revenue and operating margin.  See Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for a detail of the number of aircraft under commitments and the number of aircraft under options expected to be delivered in the current and subsequent five fiscal years by aircraft size along with the related expenditures, and for a rollforward of aircraft commitments and options by quarter for the Current Quarter.first two quarters of fiscal year 2008.
 
Other Obligations
 
Preferred Stock— Annual cumulative cash dividends of $2.75 per share of Preferred Stock are payable quarterly on the fifteenth day of each March, June, September and December.  If declared, dividends on the 4,600,000 shares of Preferred Stock would be $3.2 million on each quarterly payment date through the conversion date on September 15, 2009.  For a further discussion of the terms and conditions of the Preferred Stock, see Note 9 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2007 Annual Report.
 
Contractual Obligations, Commercial Commitments and Off Balance Sheet Arrangements
 
We have various contractual obligations which are recorded as liabilities in our consolidated financial statements.  Other items, such as certain purchase commitments, interest payments and other executory contracts are not recognized as liabilities in our consolidated financial statements but are included in the table below.  For example, we are contractually committed to make certain minimum lease payments for the use of property and equipment under operating lease agreements.
 

4249


The following tables summarize our significant contractual obligations and other commercial commitments on an undiscounted basis as of JuneSeptember 30, 2007 and the future periods in which such obligations are expected to be settled in cash.  In addition, the table reflects the timing of principal and interest payments on outstanding borrowings.  Additional details regarding these obligations are provided in Note 6 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2007 Annual Report and in Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report:
 
Payments Due by Period
Payments Due by Period
 
Nine Months
   
Six Months
  
 
Ending
 
Fiscal Year Ending March 31,
 
Ending
 
Fiscal Year Ending March 31,
Total
 
March 31,
2008
 
2009 - 2010
 
2011 - 2012
 
2013 and
beyond
Total
 
March 31,
2008
 
2009 - 2010
 
2011 - 2012
 
2013 and
beyond
(In thousands)
(In thousands)
Contractual obligations:                          
Long-term debt and short-term borrowings:                          
Principal $561,305 $7,101 $7,708 $4,637 $541,859 $557,335 $3,132 $7,708 $4,637 $541,858
Interest 320,067 28,681  75,550  74,788  141,048 310,423 19,112  75,515  74,764  141,032
Aircraft operating leases (1)
 60,575 4,725  12,830  14,471  28,549 59,000 3,150  12,830  14,471  28,549
Other operating leases (2)
 18,469 2,628  5,272  4,515  6,054 19,490 1,896  6,106  5,322  6,166
Pension obligations (3)
 180,592 14,685  29,370  29,370  107,167 175,959 7,457  29,830  29,830  108,842
Aircraft purchase obligations 254,986 165,030  89,956     276,478 113,817  162,661    
Other purchase obligations (4)
  41,519  35,241  6,278      41,909  35,585  6,324    
Total contractual cash obligations $1,437,513 $258,091 $226,964 $127,781 $824,677 $1,440,594 $184,149 $300,974 $129,024 $826,447
Other commercial commitments:                          
Debt guarantees (5)
 $31,776 $ $11,716 $20,060 $ $30,664 $ $10,290 $20,374 $
Other guarantees (5)
 5,508 3,769  1,739     5,448 3,709  1,739    
Letters of credit (6)
  4,437  4,437        4,012  4,012      
Total other commercial commitments $41,721 $8,206 $13,455 $20,060 $
Total commercial commitments
 $40,124 $7,721 $12,029 $20,374 $
_________

(1)
Represents nine aircraft that we sold on December 30, 2005 for $68.6 million in aggregate to a subsidiary of General Electric Capital Corporation and then leased back under separate operating leases with terms of ten years expiring in January 2016.  A deferred gain on the sale of the aircraft was recorded in the amount of approximately $10.8 million in aggregate, which is being amortized over the lease term.
  
(2)
Represents minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year.
  
(3)
Represents expected funding for pension benefits in future periods.  These amounts are undiscounted and are based on the expectation that the pension will be fully funded in approximately 1210 years.  As of JuneSeptember 30, 2007, we had recorded on our balance sheet a $113.0$112.1 million pension liability associated with this obligation.  Also, the timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees.
  
(4)
Other purchase obligations primarily represent unfilled purchase orders for aircraft parts, commitments associated with upgrading facilities at our bases and amounts committed under a supply agreement (See Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report).
  
(5)
See Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for further details.  Additionally, the bank has an option to put to us the remaining amount of the RLR debt of $12.2$10.3 million, which we have guaranteed in the event of default of our partner in RLR.  This amount is not included in the table above.
  
(6)
In January 2006, a letter of credit was issued for $2.5 million in conjunction with the additional collateral for the sale and leaseback financing discussed in Note 6 in the “Notes to Consolidated Financial Statements” included in the fiscal year 2007 Annual Report.  The letter of credit expires January 27, 2008.

We do not expect the guarantees shown in the table above to become obligations that we will have to fund.
 

4350


Financial Condition and Sources of Liquidity
 
Our future cash requirements include the contractual obligations discussed in the previous section and our normal operations. Normally our operating cash flows are sufficient to fund our cash needs.  Although there can be no assurances, we believe that our existing cash, future cash flows from operations and borrowing capacity under our revolving credit facility will be sufficient to meet our liquidity needs in the foreseeable future based on existing commitments.  However, the expansion of our business through purchases of additional aircraft and increases in flight hours from our existing aircraft fleet may require additional cash in the future to fund new aircraft purchases and working capital requirements.  Consistent with our desire to maintain a conservative use of leverage to fund growth, we raised capital through the sale of Preferred Stock in September and October 2006 and the issuance of the 7 ½% Senior Notes in June 2007.
 
As of JuneSeptember 30, 2007, we had options to acquire an additional 2218 large aircraft and an additional 3024 medium aircraft.  Depending on market conditions, we expect to exercise some or all of these additional options to acquire aircraft, purchase other aircraft or may elect to expand our business through acquisition, including acquisitions under consideration or negotiation.  Cash on hand, cash flow from operations and available borrowing capacity under the revolving credit facility are estimated to provide sufficient capital to exercise all of the aircraft purchase options and allow us to complete several small acquisitions (under $50 million) over the next five years without additional capital.  However, if we elect to make a major acquisition or purchase substantially more aircraft than available under the aircraft purchase options, additional capital may be necessary.  As discussed in Note 2 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report, on November 2, 2007, we sold Grasso for approximately $22.5 million, subject to post-closing adjustments.
 
Cash and cash equivalents were $184.2 million and $339.5$276.4 million, as of March 31 and JuneSeptember 30, 2007, respectively.  Working capital as of March 31 and JuneSeptember 30, 2007, was $368.0 million and $561.5$502.2 million, respectively.  The increase in working capital during the Current QuarterPeriod was primarily a result of the $155.4$92.2 million increase in cash and cash equivalents resulting from the issuance of the 7 ½% Senior Notes, partially offset by capital expenditures for aircraft.
 
Critical Accounting Policies and Estimates
 
See Item 7.  “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in the fiscal year 2007 Annual Report for a discussion of our critical accounting policies.  There have been no material changes to our critical accounting policies and estimates provided in the fiscal year 2007 Annual Report except for our adoption of Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” on April 1, 2007.  See discussion of the adoption of FIN No. 48 in Notes 1 and 7 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
 
Recent Accounting Pronouncements
 
See Note 1 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report for discussion of recent accounting pronouncements.
 
Internal Review and Governmental Investigations
Internal Review
In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by such special outside counsel to cover operations in other countries and other issues.  In connection with this review, special outside counsel to the Audit Committee retained forensic accountants.  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review, which eventually resulted in a formal SEC investigation.  For further information on the restatements, see our fiscal year 2005 Annual Report.

44


For additional discussion of the SEC investigation, the Internal Review, and related proceedings, see Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Document Subpoena from U.S. Department of Justice
In June 2005, one of our subsidiaries received a document subpoena from the DOJ.  The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico.  The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005. We believe we have submitted to the DOJ substantially all documents responsive to the subpoena.  We have had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally.  We intend to continue to provide additional information as required by the DOJ in connection with the investigation.  There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred.  The period of time necessary to resolve the DOJ investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.
For additional discussion of the DOJ investigation, see Note 6 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
Item 3.  Quantitative and Qualitative Disclosures about Market Risk.
 
We may be exposed to certain market risks arising from the use of financial instruments in the ordinary course of business. This risk arises primarily as a result of potential changes in the fair market value of financial instruments that would result from adverse fluctuations in foreign currency exchange rates, credit risk, and interest rates as discussed in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the fiscal year 2007 Annual Report.  Significant matters concerning market risk arising during the threesix months ended JuneSeptember 30, 2007 are discussed below.
 

51


Foreign Currency Risk
 
On November 14, 2006, we entered into a derivative contract to mitigate our exposure to exchange rate fluctuations on our U.S. dollar-denominated intercompany loans.  This derivative contract provided us with a call option on £12.9 million and a put option on $24.5 million, with a strike price of 1.895 U.S. dollars per British pound sterling, and expired on May 14, 2007, resulting in a cumulative gain of $0.6 million, of which $0.1 million related to the threesix months ended JuneSeptember 30, 2007 and is included in other income (expense), net in our condensed consolidated statement of income.
 
 On April 2, 2007, primarily as a result of changes in the manner in which certain of our consolidated subsidiaries create and manage intercompany balances, we changed the functional currency of two of our consolidated subsidiaries, Bristow Helicopters (International) Ltd. and Caledonia Helicopters Ltd., from the British pound sterling to the U.S. dollar, which reduced our exposure to U.S. dollar denominated intercompany loans and advances.  Additionally, in April 2007 we reduced our Euro-denominated intercompany loans, thereby reducing our exposure to fluctuations in exchange rates for this foreign currency.
 
Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
As of JuneSeptember 30, 2007, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of JuneSeptember 30, 2007 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act was (i) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 

45


Changes in Internal Control Over Financial Reporting
 
There were no changes during the three months ended JuneSeptember 30, 2007 in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
 
PART II — OTHER INFORMATION
 
Item 1.  Legal ProceedingsProceedings..
 
We have certain actions or claims pending that have been discussed and previously reported in Part I. Item 3. “Legal Proceedings” in the fiscal year 2007 Annual Report.  Developments in these previously reported matters are described in Note 6 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.
 
Item 1A.  Risk FactorsFactors.
 
There have been no material changes duringModified Risk Factors
The following are modified risk factors discussions that should be read in conjunction with the three months ended June 30, 2007risk factor discussion in our “Risk Factors” as discussed in ourthe fiscal year 2007 Annual Report.  Risks relating to Our Internal Review and Governmental Investigations have been modified as follows.
The SEC investigation, any related proceedings in other countries and the consequences of the activities identified in the Internal Review could result in civil or criminal proceedings, the imposition of fines and penalties, the commencement of third-party litigation, the incurrence of expenses, the loss of business and other adverse effects on our company.

52


In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country.  The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit Committee to cover operations in other countries and other issues (the “Internal Review”).  As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated.  We also provided the SEC with documentation resulting from the Internal Review which eventually resulted in a formal SEC investigation.  In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation. The SEC did not impose any fine or other monetary sanction upon the Company.  Without admitting or denying the SEC's findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records.  For further information on the restatements, see our Annual Report on Form 10-K.10-K for the fiscal year ended March 31, 2005.
As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers.  We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted. We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in their countries.  It is also possible that we may become subject to claims by third parties, possibly resulting in litigation.  The matters identified in the Internal Review and their effects could have a material adverse effect on our business, financial condition and results of operations.
In addition, we face legal actions relating to remedial actions which we have taken as a result of the Internal Review, and may face further legal action of this type in the future.  In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria.  The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million.  We have responded to this claim and are continuing to investigate this matter.
As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures. As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.
During fiscal years 2005, 2006 and 2007, and the six months ended September 30, 2006, we incurred approximately $2.2 million, $10.5 million, $3.1 million and $0.1 million, respectively, in legal and other professional costs in connection with the Internal Review.  During the six months ended September 30, 2007, we reversed $1.0 million of previously accrued settlement costs due to the fact that we settled the investigation with the SEC.
Following the previously disclosed settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the DOJ and was asked to provide certain information regarding the Audit Committee's related Internal Review. We previously provided disclosure regarding the Internal Review in our Annual Report on Form 10-K for the fiscal year ended March 31, 2005. In addition, we were requested to enter into an agreement with the DOJ that would toll the statute of limitations relating to these matters. We intend to be responsive to the DOJ's requests. At this time, it is not possible to predict what the outcome of the DOJ's investigation into these matters will be for the Company.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities.
 
Period (1)
 
Total Number of Shares
Purchased (2)
 
Average Price
Paid Per Share
 
Total Number of Shares
Purchased as
Part of Publicly Announced
Program
 
Approximate
Dollar Value of
Shares That May
Yet Be
Purchased Under
the Program
  
Total Number of
Shares Purchased (2)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program
 
Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program
 
                   
June 1, 2007 − June 30, 2007 9,113 $51.50  $ 
July 1, 2007 − July 31, 2007July 1, 2007 − July 31, 2007 107 $50.90  $ 
_________________
 
(1)  No shares were purchased during the periods of April 1, 2007 - April 30, 2007 and May 1, 2007 - May 31, 2007. 
(2)  The total number of shares purchased in the period consists of shares withheld by us in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to an employee under our 2004 Stock Incentive Plan.
Item 4.  Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders was held on August 2, 2007.  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  21,810,852   178,948 
Charles F. Bolden, Jr. 21,046,955  942,845 
Peter N.  Buckley 21,907,524  82,276 
Stephen J.  Cannon 21,805,368  184,432 
Jonathan H.  Cartwright 21,907,974  81,826 
William E.  Chiles 21,922,647  67,153 
Michael A.  Flick 21,816,365  173,435 
Thomas C.  Knudson  21,918,847  70,953 
Ken C.  Tamblyn  21,819,618  170,182 

(1)
No shares were purchased during the periods of August 1, 2007 August 31, 2007 and September 1, 2007 September 30, 2007.
(2)
The total number of shares purchased in the period consists of shares withheld by us in satisfaction of withholding taxes due upon the vesting of restricted stock units granted to an employee under our 2004 Stock Incentive Plan.

4653



2.  Proposal to approve an amendment to the Company’s CertificateTable of Incorporation to increase the number of authorized shares of common stock.  The results were as follows:

For
 
Against
 
Abstain
19,557,773 2,424,959 7,068

3.  Proposal to approve an amendment to the Company’s Certificate of Incorporation to eliminate the Series B Preference Shares.  The results were as follows:

For
 
Against
 
Abstain
21,958,930 21,667 9,203

4.  Proposal to approve the adoption of the Bristow Group Inc. 2007 Long Term Incentive Plan. The results were as follows:

For
 
Against
 
Abstain
 
 Broker No-Vote
16,707,661 3,543,442 16,144  1,722,553

5.  Proposal to approve and ratify the selection of KPMG LLP as the Company’s independent auditors for the fiscal year ending March 31, 2008.  The results were as follows:

For
 
Against
 
Abstain
20,859,557 1,125,851 4,392


47


Item 6. Exhibits.

The following exhibits are filed as part of this Quarterly Report:

Exhibit
Number
 
Description of Exhibit
  
Restated Certificate of Incorporation of Bristow Group Inc. dated August 2, 2007.
Supplemental Indenture dated June 13,as of November 2, 2007 among the Company, as issuer, the Guarantors named therein, as guarantors, and U.S. Bank National Bank Association as Trustee relating to the
Company’s 7 ½% Senior Notes due 2017.
Registration Rights Agreement,Supplemental Indenture dated June 13,as of November 2, 2007 among the Company, as issuer, the Guarantors named therein, as guarantors, and Goldman, Sachs & Co., Credit Suisse Securities (USA) LLC, BancU.S. Bank National Association as Trustee relating to the Company’s 6 ⅛% Senior Notes due 2013.
         10.1†  Bristow Group Inc. 2007 Long Term Incentive Plan (incorporated by reference to Appendix A of
America Securities LLC, J.P. Morgan Securities Inc., Suntrust Robinson Humphrey and Wells Fargo Securities, LLC.
the Company’s Proxy Statement on Form DEF14A filed with the SEC on June 25, 2007)
Form of 144A Global Note representing $299,000,000 principal amount of 7 ½% Senior Notes due 2017.
4.4
Form of Regulation S Global Note representing $1,000,000 principal amount of 7 ½% Senior Notes due 2017.
15.1* 
Letter from KPMG LLP dated August 2,November 5, 2007, regarding unaudited interim information.
Rule 13a-14(a) Certification by President and Chief Executive Officer of Registrant.
Rule 13a-14(a) Certification by Executive Vice President and Chief Financial Officer of Registrant.
Certification of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
____________

*Filed herewith.
**Furnished herewith.
Compensatory Plan or Arrangement.


4854


SIGNATURES

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

BRISTOW GROUP INC.

By: /s/ Perry LL. Elders
Perry L.  Elders
Executive Vice President and Chief Financial Officer

By: /s/ Elizabeth D. Brumley
Elizabeth D. Brumley
Vice President and Chief Accounting Officer

August 2,November 5, 2007





Index to Exhibits

Exhibit
Number
 
Description of Exhibit
  
3.1*            4.1*Restated Certificate of Incorporation of Bristow Group Inc. dated August 2, 2007.
4.1* 
Supplemental Indenture dated June 13,as of November 2, 2007 among the Company, as issuer, the Guarantors named therein, as guarantors, and U.S. Bank National Bank Association as Trustee relating to the
7 ½% Senior Notes due 2017.
4.2* 
Registration Rights Agreement, dated June 13, 2007, among the Company and Goldman, Sachs & Co., Credit Suisse Securities (USA) LLC, Banc of
America Securities LLC, J.P. Morgan Securities Inc., Suntrust Robinson Humphrey and Wells Fargo Securities, LLC.
4.3* Form of 144A Global Note representing $299,000,000 principal amount of Company’s 7 ½% Senior Notes due 2017.
4.4*            4.2*FormSupplemental Indenture dated as of Regulation S Global Note representing $1,000,000 principal amount of 7 ½%November 2, 2007 among the Company, as issuer, the Guarantors named therein, as guarantors, and U.S. Bank National Association as Trustee relating to the Company’s 6 ⅛% Senior Notes due 2017.2013.
10.1†  Bristow Group Inc. 2007 Long Term Incentive Plan (incorporated by reference to Appendix A of the Company’s Proxy Statement on Form DEF14A filed with the SEC on June 25, 2007)
15.1*  Letter from KPMG LLP dated August 2,November 5, 2007, regarding unaudited interim information.
31.1**Rule 13a-14(a) Certification by President and Chief Executive Officer of Registrant.
31.2**Rule 13a-14(a) Certification by Executive Vice President and Chief Financial Officer of Registrant.
32.1**Certification of Chief Executive Officer of registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**Certification of Chief Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
____________
 
*Filed herewith.
**Furnished herewith.
Compensatory Plan or Arrangement.