BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 9 — FAIR VALUE DISCLOSURES
Assets and liabilities subject to fair value measurement are categorized into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:
| • | Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| • | Level 2 – inputs that reflect quoted prices for identical assets or liabilities in markets which are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
Recurring Fair Value Measurements
The following table summarizes the financial instruments the Company had as of March 31, 2020 (Successor), valued at fair value on a recurring basis (in thousands):
| | Successor |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance of
March 31, 2020 | | Balance Sheet Classification |
Derivative financial instrument
| | $ | — | | | $ | 2,747 | | | $ | — | | | $ | 2,747 | | Prepaid expenses |
Rabbi Trust investments | | | 2,327 | | | | — | | | | — | | | | 2,327 | | Other assets |
| Total assets | | $ | 2,327 | | | $ | 2,747 | | | $ | — | | | $ | 5,074 | | |
The following table summarizes the financial instruments the Company had as of March 31, 2019 (Predecessor), valued at fair value on a recurring basis (in thousands):
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance at March 31, 2019 | | Balance Sheet Classification |
Derivative financial instrument | | $ | — | | | $ | 1,845 | | | $ | — | | | $ | 1,845 | | Prepaid expenses |
Rabbi Trust investments | | | 2,544 | | | | — | | | | — | | | | 2,544 | | Other assets |
Total assets
| | $ | 2,544 | | | $ | 1,845 | | | $ | — | | | $ | 4,389 | | |
Rabbi Trust Investments
The rabbi trust investments consist of cash and mutual funds whose fair value are based on quoted prices in active markets for identical assets and are designated as Level 1 within the valuation hierarchy. The rabbi trust holds investments related to the Company’s non-qualified deferred compensation plan for the Company’s senior executives. The derivative financial instruments consist of foreign currency put option contracts whose fair value is determined by quoted market prices of the same or similar instruments, adjusted for counterparty risk. See Note 10 for a discussion of the Company’s derivative financial instruments.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New Preferred Stock Embedded Derivative
The following table provides a rollforward of the preferred stock embedded derivative Level 3 fair value measurements for the five months ended March 31, 2020 (Successor):
| | | Significant Unobservable Inputs (Level 3) | |
Derivative financial instruments: | | | |
Balance October 31, 2019
| | $ | 470,322 | |
Change in fair value
| | | (184,140 | ) |
Balance March 31, 2020
| | $ | 286,182 | |
The fair value of the New Preferred Stock embedded derivative relies on the income approach, which was derived from Level 3, unobservable inputs that require significant estimates, judgments and assumptions relating to the Company’s equity volatility, capitalization tables, term to exit and equity value. See Notes 10 and 15 for further explanation of the compound embedded derivatives and New Preferred Stock.
The New Preferred Stock embedded derivative considers settlement scenarios that are further defined in Note 15. A number of the settlement scenarios requires a settlement premium. The specified premium depends on the timing of the liquidity event, ranging from a minimum of (a) 17% Internal Rate of Return (the “IRR”) (b) 2.1x Multiple of Invested Capital (the “MOIC”) and (c) 14% IRR if the liquidity event is prior to 3 years, to (y) a 2.1x MOIC and (z) 17% IRR if the liquidity event is in 5 years or more. At emergence, the fair value for the embedded derivative was determined using a “with” and “without” approach, first determining the fair value of the New Preferred Stock (inclusive of all bifurcated features) with the features and comparing it with the fair value of an instrument with identical terms of the New Preferred Stock without any of the bifurcated features (i.e., the preferred stock host).
The fair value of the New Preferred Stock was estimated using an option pricing method (“OPM”) allocating the total equity value to the various classes of equity. As of March 31, 2020 (Successor), the Company assumed a term to exit of 3 years, a risk-free rate of 1.61%, volatility of 45%, a 10% weighting on a three-year exit scenario and a 90% weight on a nearer-term exit scenario. Without the redemption or conversion features, the holders of the New Preferred Stock would have the right to perpetual preferred with 10% paid-in-kind (“PIK”) dividends, or the right to any upside value from conversion into common stock if the value exceeds the minimum return provided for under the Certificate of Designations (as defined herein). The Company will necessarily repay the Liquidation Preference (as defined in the Certificate of Designations) in cash upon an act of bankruptcy. Since the host is an instrument that accrues PIK dividends in perpetuity and includes no cash flows, the value of the right within the host to the Liquidation Preference plus accrued PIK dividends obligation is de minimis. The value of converting to common stock on the upside would be measured as the residual upon a liquidity event. Therefore, the fair value of the host was estimated as the value of the upside conversion into common shares, which was also estimated using the OPM.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-recurring Fair Value Measurements
The majority of the Company’s non-financial assets, which include inventories, property and equipment, assets held for sale, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial asset is required to be evaluated for impairment and deemed to be impaired, the impaired non-financial asset is recorded as its fair value.
There were no assets as of March 31, 2020 (Successor) valued at fair value on a non-recurring basis.
The following table summarizes the assets as of March 31, 2019 (Predecessor), valued at fair value on a non-recurring basis (in thousands):
| | Predecessor | |
| | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Balance as of March 31, 2019 | | | Total Loss for Fiscal Year 2019 | |
Inventories (1) | | $ | — | | | $ | — | | | $ | 7,697 | | | $ | 7,697 | | | $ | 9,276 | |
Assets held for sale (2) | | | — | | | | — | | | | 5,350 | | | | 5,350 | | | | 8,149 | |
Aircraft and equipment (1) | | | — | | | | — | | | | 136,338 | | | | 136,338 | | | | 104,939 | |
Other intangible assets (1) | | | — | | | | — | | | | — | | | | — | | | | 3,005 | |
Total assets | | $ | — | | | $ | — | | | $ | 149,385 | | | $ | 149,385 | | | $ | 125,369 | |
| (1) | Fair value as of September 30, 2018. |
| (2) | Fair value as of March 31, 2019. |
The fair value of inventories using Level 3 inputs is determined by evaluating the current economic conditions for sale and disposal of spare parts, which includes estimates as to the recoverability of the carrying value of the parts based on historical experience with sales and disposal of similar spare parts, the expected time frame of sales or disposals, the location of the spare parts to be sold and the condition of the spare parts to be sold or otherwise disposed of. See Note 1 for further discussion of the impairment of inventories.
The fair value of aircraft and equipment, using Level 3 inputs, is determined using a market approach. The market approach consisted of a thorough review of recent market activity, available transaction data involving the subject aircraft, current demand and availability on the market. The Company also took into account the age, specifications, accrued hours and cycles, and the maintenance status of each subject aircraft.
The fair value of other intangible assets, using Level 3 inputs, is estimated using the income approach. The estimate of fair value includes unobservable inputs, including assumptions related to future performance, such as projected demand for services, rates, and levels of expenditures. For further details on other intangible assets and goodwill, see Note 1.
The fair value of assets held for sale using Level 3 inputs is determined through evaluation of expected sales proceeds for aircraft. This analysis includes estimates based on historical experience with sales, recent transactions involving similar assets, quoted market prices for similar assets and condition and location of aircraft to be sold or otherwise disposed of. See Note 7 for details on assets held for sale.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value of Debt
The fair value of the Company’s debt has been estimated in accordance with the accounting standard regarding fair value. The fair value of the Company’s long-term debt as of March 31, 2020 (Successor) is estimated based on consideration of future cash flows of the instruments based on the contractual interest rates and then discounted, based on the implied market yield and the Company’s credit rating. The fair value of the Company’s fixed rate long-term debt as of March 31, 2019 (Predecessor) was estimated based on quoted market prices and was not updated for any possible acceleration provisions in the Company’s debt instruments.
In connection with the Company’s emergence from bankruptcy and in accordance with ASC 852, the Company applied the provisions of fresh-start accounting to its consolidated financial statements on the Effective Date. As a result, the Company adjusted its debt to its respective fair value at the Effective Date by $57.7 million. See Note 3 for further details. The carrying and fair value of the Company’s debt, excluding unamortized debt issuance costs, are as follows (in thousands):
| | | Successor | | | Predecessor | |
| | | March 31, 2020 | | | March 31, 2019 | |
| | Carrying Value | | | Fair Value | | | Carrying Value | | | Fair Value | |
8.75% Senior Secured Notes (1)(2) | | $ | — | | | $ | — | | | $ | 347,400 | | | $ | 252,000 | |
4½% Convertible Senior Notes (1)(3)
| | | — | | | | — | | | | 112,944 | | | | 28,923 | |
6¼% Senior Notes (1)
| | | — | | | | — | | | | 401,535 | | | | 75,288 | |
Term Loan | | | 61,500 | | | | 56,894 | | | | — | | | | — | |
Lombard Debt (4) | | | 136,180 | | | | 122,165 | | | | 183,450 | | | | 183,450 | |
Macquarie Debt (4) | | | 148,165 | | | | 138,133 | | | | 171,028 | | | | 171,028 | |
PK Air Debt (4)
| | | 207,326 | | | | 180,290 | | | | 212,041 | | | | 212,041 | |
Airnorth Debt (4) | | | 7,618 | | | | 7,221 | | | | 11,058 | | | | 11,058 | |
Humberside Debt | | | 335 | | | | 335 | | | | — | | | | — | |
Other Debt | | | — | | | | — | | | | 9,168 | | | | 9,168 | |
| | | $ | 561,124 | | | $ | 505,038 | | | $ | 1,448,624 | | | $ | 942,956 | |
| (1) | These debt instruments were settled in accordance with the Plan. See Note 8 for further details. |
| (2) | The carrying value is net of unamortized discount of $2.6 million as of March 31, 2019 (Predecessor). |
| (3) | The carrying value is net of unamortized discount of $30.8 million as of March 31, 2019 (Predecessor). |
| (4) | In connection with the Company’s emergence from bankruptcy and the application of ASC 852, the Company adjusted debt to its respective fair value at the Effective Date by a reduction of $57.7 million. The unamortized discounts as of March 31, 2020 (Successor) were as follows: $26.4 million for the Lombard Debt, $11.1 million for the Macquarie Debt, $12.6 million for the PK Air Debt and $0.6 million for the Airnorth Debt. |
Other
The fair values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to the short-term nature of these items.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 10 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Embedded Derivatives
The Company has determined that the contingent redemption features upon a liquidation or deemed liquidation event, holder optional redemption, and fundamental transaction make-whole redemption features are required to be accounted for separately from the New Preferred Stock as derivative liabilities. The economic characteristics of the New Preferred Stock are considered more akin to a debt instrument because the shares are redeemable at the holder’s option and the redemption value is significantly greater than the original issue price, the shares carry a fixed mandatory dividend (paid in kind), and specified rate of return. Such factors indicate the New Preferred Stock’s most likely method of settlement is the exercise of a redemption feature rather than through conversion; therefore, the embedded features were analyzed against a debt-like host when determining if such features should require bifurcation. The Company determined that each of the redemption features described above must be bifurcated and accounted for separately from the New Preferred Stock because exercise of each feature would result in substantial premiums to the holder. See Note 15 for description of the New Preferred Stock.
ASC 815, Derivatives and Hedging does not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be combined and fair valued as a single compound embedded derivative. Accordingly, the Company recorded a compound derivative liability representing the combined fair value of redemption options described above. The Preferred Stock embedded derivative liability will be remeasured each period with changes in fair value recognized in earnings.
The following tables summarize the fair value of the compound derivative linked to the New Preferred Stock:
| Derivatives not designated as hedging instruments | | Successor Five Months Ended March 31, 2020 Fair Value | |
Preferred stock embedded derivative | | $ | 286,182 | |
| Total derivatives not designated as hedging instruments | | $ | 286,182 | |
| | | Successor Five Months Ended March 31, 2020 | |
| Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value are recorded | | Change in fair value of preferred stock derivative liability | |
Gain or (loss) on derivatives not designated as hedging instruments: | | | |
Preferred stock embedded derivative | | $ | 184,140 | |
Changes in the fair value of the New Preferred Stock derivative liability, carried at fair value, are reported as change in fair value of the Preferred Stock derivative liability in the consolidated statements of operations. For the five months ended March 31, 2020 (Successor), the Company recognized non-cash benefit of $184.1 million due to a decrease in the Preferred Stock derivative liability related to the embedded derivative in the New Preferred Stock.
The Company uses a binomial option pricing method to value the compound derivative. The option pricing method requires the development and use of assumptions. These assumptions include estimated volatility of the value of the Company’s common stock, assumptions regarding possible conversion or early redemption dates, an appropriate risk-free interest rate, risky bond rate, and dividend yields. For further details on fair value, see Note 9.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivatives Designated as Hedging Instruments
From time to time, the Company enters into forward exchange contracts as a hedge against foreign currency asset and liability commitments and anticipated transaction exposures, including intercompany purchases. All derivatives are recognized as assets or liabilities and measured at fair value. The Company does not use financial instruments for trading or speculative purposes.
During fiscal year 2019 (Predecessor), the seven months ended October 31, 2019 (Predecessor) and the five months ended March 31, 2020 (Successor), the Company entered into foreign currency put option contracts of £5 million per month through February 2021 to mitigate a portion of the Company’s foreign currency exposure. Upon emergence from bankruptcy, these derivatives were re-designated as cash flow hedges.
The designation of a derivative instrument as a hedge and its ability to meet relevant hedge accounting criteria determines how the change in fair value of the derivative instrument will be reflected in the consolidated financial statements. A derivative qualifies for hedge accounting if, at inception of the hedging relationship, the derivative is expected to be highly effective in offsetting the hedged item’s underlying cash flows or fair value and the documentation requirements of the accounting standard for derivative instruments and hedging activities are fulfilled at the time the Company entered into the derivative contract. A hedge is designated as a cash flow hedge, fair value hedge, or a net investment in foreign operations hedge based on the exposure being hedged. The asset or liability value of the derivative will change in tandem with its fair value. For derivatives designated as cash flow hedges, the changes in fair value are recorded in accumulated other comprehensive income (loss). The derivative’s gain or loss is released from accumulated other comprehensive income (loss) to match the timing of the effect on earnings of the hedged item’s underlying cash flows.
The Company reviews the effectiveness of hedging instruments on a quarterly basis. The Company discontinues hedge accounting for any hedge that the Company no longer considers to be highly effective. Changes in fair value for derivatives not designated as hedges or those not qualifying for hedge accounting are recognized in current period earnings.
None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s derivative contracts are high credit quality financial institutions.
The following table presents the balance sheet location and fair value of the portions of the Company’s derivative instruments that were designated as hedging instruments as of March 31, 2020 (Successor) (in thousands):
| | | Derivatives designated as hedging instruments under ASC 815 | | | Derivatives not designated as hedging instruments under ASC 815 | | | Gross amounts of recognized assets and liabilities | | | Gross amounts offset in the Balance Sheet | | | presented in the Balance Sheet | |
Prepaid expenses and other current assets | | $ | 2,747 | | | $ | — | | | $ | 2,747 | | | $ | — | | | $ | 2,747 | |
Net
| | $ | 2,747 | | | $ | — | | | $ | 2,747 | | | $ | — | | | $ | 2,747 | |
The following table presents the balance sheet location and fair value of the portions of the Company’s derivative instruments that were designated as hedging instruments as of March 31, 2019 (Predecessor) (in thousands):
| | | Derivatives designated as hedging instruments under ASC 815 | | | Derivatives not designated as hedging instruments under ASC 815 | | | Gross amounts of recognized assets and liabilities | | | Gross amounts offset in the Balance Sheet | | Net amounts of assets and liabilities presented in the Balance Sheet | |
Prepaid expenses and other current assets
| | $ | 1,845 | | | $ | — | | | $ | 1,845 | | | $ | — | | | $ | 1,845 | |
Net
| | $ | 1,845 | | | $ | — | | | $ | 1,845 | | | $ | — | | | $ | 1,845 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the impact that derivative instruments, designated as cash flow hedges, had on accumulated other comprehensive loss (net of tax) and consolidated statements of operations (in thousands):
| | Successor | | | Predecessor | |
|
| Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | Financial statement location |
| Amount of income (loss) recognized in accumulated other comprehensive loss | | $ | — | | | $ | (1,828 | ) | Accumulated other comprehensive loss |
| | | | | | | | | |
Amount of income (loss) reclassified from accumulated other comprehensive loss into earnings
| | $ | — | | | $ | (1,146 | ) | Statements of operations |
The following table presents the impact that derivative instruments, designated as cash flow hedges, had on accumulated other comprehensive loss (net of tax) and consolidated statements of operations for fiscal year 2019 (Predecessor) (in thousands):
| | | | | Financial statement location |
Amount of loss recognized in accumulated other comprehensive loss
| | $ | (506 | ) | Accumulated other comprehensive loss |
Amount of loss reclassified from accumulated other comprehensive loss into earnings
| | $ | (464 | ) | Statement of operations |
The Company estimates that $1.4 million of net losses in accumulated other comprehensive loss associated with its derivative instruments is expected to be reclassified into earnings within the next twelve months.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 11 — COMMITMENTS AND CONTINGENCIES
Aircraft Purchase Contracts — As of March 31, 2020 (Successor), the Company had no aircraft on order and no options to acquire additional aircraft. The following chart presents a rollforward of the Company’s aircraft orders and options:
| | Successor | | | | | | Predecessor | |
| | Five Months Ended March 31, | | | Seven Months Ended October 31, | | | Fiscal Year Ended March 31, | |
| | 2020 | | | 2019 | | | 2019 | | | 2018 | |
| | | Orders | | | Options | | | Orders | | | Options | | | Orders | | | Options | | | Orders | | | Options | |
Beginning of period
| | | 2 | | | | — | | | | 26 | | | | — | | | | 27 | | | | 4 | | | | 32 | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Aircraft delivered (1) | | | (2 | ) | | | — | | | | (2 | ) | | | — | | | | — | | | | — | | | | (5 | ) | | | — | |
Aircraft rejected (2) | | | — | | | | — | | | | (22 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Cancelled order (3)
| | | — | | | | — | | | | — | | | | — | | | | (1 | ) | | | — | | | | — | | | | — | |
| Expired options | | | — | | | | — | | | | — | | | | — | | | | — | | | | (4 | ) | | | — | | | | — | |
End of period
| | | — | | | | — | | | | 2 | | | | — | | | | 26 | | | | — | | | | 27 | | | | 4 | |
| (1) | On July 25, 2019 (Predecessor), the Company entered into an amendment to its agreement for the purchase of four AW189 U.K. SAR configuration helicopters. Pursuant to the amendment, the parties mutually agreed to postpone the delivery dates for three helicopters to the second half of fiscal year 2020 and the first quarter of fiscal year 2021. The postponement in deliveries resulted in deferral of approximately $14.4 million in capital expenditures scheduled for fiscal years 2020 into fiscal year 2021. One of the four AW189s was purchased in August 2019, one was purchased in October 2019 and two were purchased ahead of schedule in December 2019. |
| (2) | In October 2019 (Predecessor), the Bankruptcy Court approved the Company’s agreement with Airbus to reject its aircraft purchase contract for 22 large aircraft. |
| (3) | In December 2018 (Predecessor), a large aircraft order was terminated and the Company recorded contract termination costs of $14.0 million included in loss on disposal of assets on its consolidated statements of operations for amounts previously included in construction in progress on its consolidated balance sheets. |
The Company periodically purchases aircraft for which it has no orders. During fiscal years 2020 and 2018, the Company did not purchase any aircraft for which it did not have an order. During fiscal year 2019, the Company purchased one aircraft that was not on order.
Employee Agreements — Approximately 69% of the Company’s employees are represented by collective bargaining agreements and/or unions with 87% of these employees being represented by collective bargaining agreements and/or unions that have expired or will expire in one year. These agreements generally include annual escalations of up to 4.5%. Periodically, certain groups of employees who are not covered by a collective bargaining agreement consider entering into such an agreement.
Environmental Contingencies — The U.S. Environmental Protection Agency (the “EPA”) has in the past notified the Company that it is a potential responsible party, or PRP, at three 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. Although the Company has not yet obtained a formal release of liability from the EPA with respect to any of the sites, the Company believes that its potential liability in connection with the sites is not likely to have a material adverse effect on its business, financial condition or results of operations.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Purchase Obligations — As of March 31, 2020 (Successor), the Company had $39.8 million of other purchase obligations representing unfilled purchase orders for aircraft parts and non-cancelable PBH maintenance commitments. For further details on the non-cancelable PBH maintenance commitments, see Note 1.
Sikorsky Lawsuit — On January 8, 2019 (Predecessor), the Company filed suit in the District Court of Harris County, Texas against Sikorsky Aircraft Corporation (“Sikorsky”) for breach of contract, unjust enrichment and conversion as a result of Sikorsky terminating a sales agreement after the Company sought to delay delivery of a helicopter and retaining the Company’s $11.7 million deposit as liquidated damages. The Company is seeking a ruling that Sikorsky be required to return the deposit and provide an accurate calculation of its damages under the sales agreement. Bristow removed the claim to the Southern District of Texas bankruptcy court based on Sikorsky’s decision to file a claim in bankruptcy related to this case. The Company filed an amended complaint on January 21, 2020, and defendants filed an answer on February 12, 2020. The Company expects a resolution in the next six to nine months.
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 deductible, self-insured retention and loss sensitive factors.
On November 6, 2017, the Huntington National Bank (“Huntington”) filed suit against the Company and Bristow U.S. LLC in the U.S. District Court for the Southern District of New York (the “Southern District of New York Court”). Huntington alleges violation of an addendum of a lease agreement for failure to arrange for the enrollment of the aircraft engines in a maintenance agreement and seeks approximately $2.5 million in damages. The Company submitted a counterclaim for approximately $100,000 of costs related to storage, maintenance and insurance of the aircraft following the expiration of the lease. On March 1, 2019, the Southern District of New York Court denied Huntington’s motion for summary judgment. The Company initiated discovery; however, on May 16, 2019, the proceedings were stayed as a result of the Chapter 11 Cases. Huntington filed a claim in the bankruptcy proceedings for the damages alleged in its initial lawsuit and for damages allegedly incurred as a result of Bristow returning a second leased aircraft. The Company, Bristow U.S. LLC, and Huntington entered into a Settlement Agreement on October 17, 2019 that provides a framework for resolution of Huntington’s claims with respect to both leased aircraft. The Bankruptcy Court approved the settlement on October 23, 2019. The parties continue to work on finalizing the settlement. A pre-trial conference before the Southern District of New York Court is scheduled for July 29, 2020, if the settlement has not been consummated by then.
Two purported class action complaints, Kokareva v. Bristow Group Inc., Case No. 4:19-cv-0509 and Lilienfield v. Bristow Group Inc., Case No. 4:19-cv-1064, were filed in the U.S. District Court for the Southern District of Texas (the “Southern District of Texas Court”) on February 14, 2019 and March 21, 2019, respectively. The complaints, which also named Jonathan E. Baliff and L. Don Miller as defendants, alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising out of the Company’s disclosures and alleged failure to make timely disclosure of inadequate monitoring control processes related to non-financial covenants within certain of its secured financing and lease agreements. On May 17, 2019, the Southern District of Texas Court appointed BRS Investor Group as Lead Plaintiff and consolidated both actions under Kokareva v. Bristow Group Inc., Case No. 4:19-cv-0509. When the Company filed the Chapter 11 Cases on May 11, 2019, the litigation against the Company was automatically stayed. When the Company emerged from bankruptcy, all the claims against the Company were released, but the case is still proceeding against the individual defendants. Plaintiffs filed a Consolidated Amended Complaint on November 4, 2019, and the defendants filed a motion to dismiss on January 3, 2020. The Southern District of Texas Court had a hearing on the defendant’s motion to dismiss on May 22, 2020 and the Southern District of Texas Court denied the motion to dismiss the same day. The case is now proceeding into discovery and the defendants intend to litigate vigorously against them.
On June 7, 2019, Marilyn DeVault filed a Stockholder Derivative Complaint against Thomas N. Amonett, Gaurdie Banister Jr., Ian A. Godden, Lori A. Gobillot, A. William Higgins, Thomas C. Knudson, Biggs C. Porter, Jonathan E. Baliff, Stephen A. King, Matthew Masters, David C. Gompert, Bruce H. Stover, L. Don Miller, and Brian J. Allman (the “Derivative Defendants”) in the United States District Court for the District of Delaware. The complaint alleges breaches of fiduciary duties and violations of Section 10(b) of the Securities Exchange Act of 1934 arising out of Company disclosures and failing to have adequate monitoring control processes related to non-financial covenants within certain of the Company’s secured financing and lease agreements. The complaint also alleges waste of corporate assets, gross mismanagement, and unjust enrichment. On July 19, 2019, the parties submitted a Joint Stipulation to stay the case pending the resolution of any motion to dismiss filed in the actions in the Southern District of Texas Court. Because the Southern District of Texas Court denied the motion to dismiss on May 22, 2020, the stay is now lifted, and the parties plan to contact the Southern District of Texas Court shortly regarding their next steps. Defendants intend to litigate vigorously against them.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company operates in jurisdictions internationally where it is subject to risks that include government action to obtain additional tax revenue. In a number of these jurisdictions, political unrest, the lack of well-developed legal systems and legislation that is not clear enough in its wording to determine the ultimate application, can make it difficult to determine whether legislation may impact the Company’s earnings until such time as a clear court or other ruling exists. The Company operates in jurisdictions currently where amounts may be due to governmental bodies that the Company is not currently recording liabilities for as it is unclear how broad or narrow legislation may ultimately be interpreted. The Company believes that payment of amounts in these instances is not probable at this time, but is reasonably possible.
The Company is a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to the Company’s financial position, results of operations or cash flows.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12 — LEASES
As discussed in Note 1, the Company adopted ASC 842 on a prospective basis on April 1, 2019 and used the effective date as the date of initial application. Therefore, prior period financial information has not been adjusted and continues to be reflected in accordance with the Company’s historical accounting policies. The lease standard establishes a ROU model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.
The Company elected to adopt the “package of practical expedients,” which allows the Company to carry forward historical assessments of whether existing agreements contain a lease, classification of existing lease agreements and treatment of initial direct lease costs. The Company also elected to account for non-lease and lease components as a single lease component for all asset classes and exclude short-term leases (those with terms of 12 months or less) from balance sheet presentation.
The effects related to the adoption of this accounting standard are specified in Note 1.
Accounting Policy for Leases
The Company determines if an arrangement is a lease at inception. All of the Company’s leases are operating leases and are recorded in ROU assets, accounts payable and operating lease liabilities in its consolidated balance sheet as of March 31, 2020 (Successor).
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of a lease based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company’s lease terms may include options to extend or terminate the lease. The lease term includes options to extend when the Company is reasonably certain to exercise the option. The Company is not, however, reasonably certain that the Company will exercise any option(s) to extend at commencement of a lease as each extension would be based on the relevant facts and circumstances at the time of the decision to exercise or not exercise an extension option, and as such, they have not been included in the remaining lease terms. The Company will evaluate the impact of lease extensions, if and when the exercise of an extension option is probable.
Overview
The Company has non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities used in its operations. The related lease agreements, which range from non-cancelable and month-to-month terms, generally provide for fixed monthly rentals, and can also include renewal options. The Company generally pays all insurance, taxes and maintenance expenses associated with these leases, and these costs are not included in the lease liability and are recognized in the period in which they are incurred.
The aircraft leases range from base terms of up to 180 months with renewal options of up to 60 months in some cases, include purchase options upon expiration and some include early purchase options. The leases contain terms customary in transactions of this type, including provisions that allow the lessor to repossess the aircraft and requires the Company to pay a stipulated amount if the Company defaults on its obligations under the agreements. The following is a summary of the terms related to aircraft leased under operating leases with original terms in excess of one year as of March 31, 2020 (Successor).
| Successor | | | | |
| End of Lease Term | | | Number of Aircraft | |
Fiscal year 2021 to fiscal year 2022 | | | | 17 | |
Fiscal year 2023 to fiscal year 2026
| | | | 29 | |
| | | | | 46 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Rent expense incurred is as follows (in thousands):
| | Successor | | | Predecessor | |
| | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | | Fiscal Year Ended March 31, | |
| | | | 2019 | | | | 2018 | |
Rent expense under all operating leases | | $ | 50,061 | | | $ | 101,543 | | | $ | 192,316 | | | | 208,691 | |
Rent expense under operating leases for aircraft | | $ | 43,044 | | | $ | 88,599 | | | $ | 168,299 | | | | 181,318 | |
Operating leases as of March 31, 2020 (Successor) were as follows (in thousands, except years and percentages):
| | | Successor | |
Operating lease right-of-use assets | | $ | 305,962 | |
Current portion of operating lease liabilities
| | | 81,484 | |
Operating lease liabilities
| | | 224,595 | |
Total operating lease liabilities | | $ | 306,079 | |
| | | Successor | | | | Predecessor | |
| | | Five Months Ended March 31, 2020 | | | | Seven Months Ended October 31, 2019 | |
Cash paid for operating leases
| | $ | 48,967 | | | | | $ | 95,601 | |
ROU assets obtained in exchange for lease obligations | | $ | 338,257 | | | | | $ | 256,242 | |
Weighted average remaining lease term | | 4 years | | | | | 5 years | |
Weighted average discount rate
| | | 6.27 | % | | | | | 7.14 | % |
As of March 31, 2020 (Successor), aggregate future payments under all non-cancelable operating leases that have initial terms in excess of one year, including leases for 46 aircraft, are as follows (in thousands):
| | | | | | | Successor | | | | |
| | | | Aircraft | | | Other | | | Total | |
Fiscal year ending March 31, | | | | | | | | | | |
| 2021 | | | $ | 89,736 | | | $ | 7,680 | | | $ | 97,416 | |
2022
| | | | 77,229 | | | | 6,435 | | | | 83,664 | |
2023
| | | | 58,583 | | | | 6,468 | | | | 65,051 | |
2024
| | | | 46,005 | | | | 6,086 | | | | 52,091 | |
2025
| | | | 28,370 | | | | 5,005 | | | | 33,375 | |
Thereafter
| | | | 2,170 | | | | 16,382 | | | | 18,552 | |
| | | | $ | 302,093 | | | $ | 48,056 | | | $ | 350,149 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of March 31, 2019 (Predecessor), aggregate future payments under all non-cancelable operating leases that have initial terms in excess of one year, including leases for 75 aircraft, are as follows (in thousands):
| | | | | Predecessor | | | |
| | | Aircraft | | Other | | Total | |
Fiscal year ending March 31, | | | | | | | |
| 2020 | | | $ | 121,516 | | | $ | 11,367 | | | $ | 132,883 | |
2021
| | | | 59,999 | | | | 9,814 | | | | 69,813 | |
2022
| | | | 39,035 | | | | 8,797 | | | | 47,832 | |
2023
| | | | 16,605 | | | | 8,396 | | | | 25,001 | |
2024
| | | | 5,086 | | | | 8,513 | | | | 13,599 | |
| Thereafter | | | | — | | | | 29,256 | | | | 29,256 | |
| | | | $ | 242,241 | | | $ | 76,143 | | | $ | 318,384 | |
The Company leases six S-92 model aircraft and one AW139 model aircraft from VIH Aviation Group Ltd., which is a related party due to common ownership of Cougar and paid lease fees of $5.5 million, $8.6 million, $16.1 million and $19.3 million during the five months ended March 31, 2020 (Successor), seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively. The Company leases a facility in Galliano, Louisiana from VIH Helicopters USA, Inc., another related party due to common ownership of Cougar, and paid lease fees of $0.1 million, $0.1 million, $0.2 million and $0.2 million in lease fees during the five months ended March 31, 2020 (Successor), seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively.
In April and May 2019 (Predecessor), the Company returned its remaining four H225 leased aircraft and paid $4.3 million in lease return costs. As of June 30, 2019 (Predecessor), the Company accrued an additional $2.8 million in lease return costs, $9.7 million in future rent and $9.4 million in deferred rent related to these four H225 lease returns. Also, the Company reduced its ROU assets by $11.9 million and operating lease liabilities by $12.4 million in connection with these lease returns during the three months ended June 30, 2019 (Predecessor). For further information regarding the Omnibus Agreement, see Note 8.
In June 2019 (Predecessor), the Company rejected ten aircraft leases, including nine S-76C+s and one S-76D, and recorded $26.0 million of lease termination costs, net. In September 2019 (Predecessor), the Company recorded an additional $4.2 million of lease termination costs to adjust its liabilities subject to compromise to the allowed claim. Also, in connection with these ten aircraft lease returns, the Company reduced its ROU assets by $18.6 million and operating lease liabilities by $20.2 million in the Predecessor period. On October 31, 2019 (Predecessor), as part of the Plan, the Company settled and paid these liabilities in full for $3.9 million.
In September 2019 (Predecessor), the Company rejected the lease for its corporate headquarters in Houston, Texas. As of September 30, 2019 (Predecessor), the Company recorded an allowed claim of $5.3 million, which was settled and paid in full for $0.6 million on October 31, 2019 (Predecessor), as part of the Plan. Also, in connection with the corporate lease rejection, as of September 30, 2019 (Predecessor), the Company reduced its ROU assets by $13.2 million and operating lease liabilities by $18.9 million.
In connection with the adoption of fresh-start accounting, the Company made the accounting policy election in accordance with ASC 805 to not recognize lease assets or liabilities upon emergence for any leases that have a remaining lease term of 12 months or less as of the Effective Date. Any ROU asset or lease liability that meets the criteria was written off by offsetting each other with any resulting gain or loss recognized as a fresh-start adjustment on the Predecessor’s consolidated statements of operations. Any future lease expenses will be expensed on a straight-line basis over the lease term or for variable lease payments in the period in which the obligation for those payments is incurred. Further, the ROU asset was reduced on a net basis by $2.6 million for changes in fair value related to favorable or unfavorable lease terms with the offset recorded as reorganization expense, net in the Predecessor’s consolidated statement of operations.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 13 — TAXES
The components of deferred tax assets and liabilities are as follows (in thousands):
| | | Successor | | | Predecessor | |
| | | March 31, 2020 | | | March 31, 2019 | |
Deferred tax assets: | | | | | | |
| Foreign tax credits | | $ | 39,554 | | | $ | 39,554 | |
State net operating losses
| | | 9,140 | | | | 12,448 | |
Net operating losses
| | | 68,919 | | | | 102,074 | |
Accrued pension liability
| | | 2,869 | | | | 4,254 | |
Accrued equity compensation
| | | 440 | | | | 9,115 | |
Interest expense limitation
| | | 33,567 | | | | 17,852 | |
Deferred revenue
| | | 375 | | | | 511 | |
Employee award programs
| | | 86 | | | | 387 | |
| Employee payroll accruals | | | 1,656 | | | | 3,476 | |
Inventories
| | | 6,853 | | | | 1,263 | |
Investment in unconsolidated affiliates
| | | — | | | | 30,783 | |
Convertible note
| | | — | | | | 2,013 | |
Capital loss carryover
| | | — | | | | 4,200 | |
Accrued expenses not currently deductible
| | | 9,000 | | | | 6,339 | |
Lease liabilities
| | | 22,369 | | | | — | |
Other
| | | 8,992 | | | | 7,005 | |
Valuation allowance - foreign tax credits
| | | (39,554 | ) | | | (39,554 | ) |
Valuation allowance - state
| | | (9,140 | ) | | | (12,448 | ) |
Valuation allowance - interest expense limitation
| | | (11,603 | ) | | | — | |
Valuation allowance
| | | (58,264 | ) | | | (76,212 | ) |
Total deferred tax assets
| | $ | 85,259 | | | $ | 113,060 | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment
| | $ | (38,299 | ) | | $ | (136,175 | ) |
Inventories
| | | (987 | ) | | | (1,754 | ) |
Investment in unconsolidated affiliates
| | | (23,112 | ) | | | (27,595 | ) |
ROU asset
| | | (21,552 | ) | | | — | |
Intangibles
| | | (18,539 | ) | | | — | |
Deferred gain
| | | — | | | | (1,872 | ) |
Other
| | | (5,545 | ) | | | (4,872 | ) |
| Total deferred tax liabilities | | $ | (108,034 | ) |
| $ | (172,268 | ) |
Net deferred tax liabilities
| | $ | (22,775 | ) | | $ | (59,208 | ) |
Companies may use foreign tax credits to offset the U.S. income taxes due on income earned from foreign sources. However, the credit that may be claimed for a particular taxable year is limited by the total income tax on the U.S. income tax return as well as by the ratio of foreign source net income in each statutory category to total net income. The amount of creditable foreign taxes available for the taxable year that exceeds the limitation (i.e., “excess foreign tax credits”) may be carried back one year and forward ten years. The Company has $39.6 million of excess foreign tax credits as of March 31, 2020 (Successor), of which $6.6 million will expire in fiscal year 2021, $4.0 million will expire in fiscal year 2022, $0.2 million will expire in fiscal year 2023, $15.6 million will expire in fiscal year 2024 and $13.2 million will expire in fiscal year 2025. As of March 31, 2020 (Successor), the Company has $0.5 million of net operating losses in the U.S., all of which will expire in fiscal year 2038. In addition, the Company has net operating losses in certain states totaling $147.8 million which will begin to expire in fiscal year 2022. The valuation adjustments related to the Company’s equity method investments discussed in Note 3 resulted in the write-off of the related deferred tax asset on October 31, 2019 (Predecessor) for such investments. As part of the Chapter 11 Cases, indebtedness related to the 4½% Convertible Senior Notes was cancelled, therefore the deferred tax asset was reduced to zero as of October 31, 2019 (Predecessor).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain limitations on the deductibility of interest expense pursuant to the Tax Cuts and Jobs Act (the “Act”) became effective for Bristow on April 1, 2018. As of March 31, 2020 (Successor) and March 31, 2019 (Predecessor), the Company had $159.8 million and $85.0 million gross disallowed U.S. interest expense carryforward, respectively. The disallowed interest expense can be carried forward indefinitely. As of March 31, 2020 (Successor), a valuation allowance has been recorded for a portion of the deferred tax asset related to interest expense limitations.
The realization of deferred income tax assets is dependent upon the generation of sufficient taxable income during future periods in which the temporary differences are expected to reverse. The valuation allowance is reviewed on a quarterly basis and if the assessment of the “more likely than not” criteria changes, the valuation allowance is adjusted accordingly. The valuation allowance continues to be applied against certain deferred income tax assets where the Company has assessed that the realization of such assets does not meet the “more likely than not” criteria. As of March 31, 2020 (Successor), valuation allowances were $58.0 million for foreign operating loss carryforwards, $9.1 million for state operating loss carryforwards, $11.6 million for interest expense limitation carryforwards, $0.2 million for charitable contribution carryforwards and $39.6 million for foreign tax credits.
The following table is a rollforward of the valuation allowance against the Company’s deferred tax assets (in thousands):
| | | Successor | | | Predecessor | |
| | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | |
Fiscal Year Ended March 31, | |
| | |
| | 2019 | | | 2018 | |
Balance – beginning of fiscal year | | $ | (124,700 | ) | | $ | (128,214 | ) | | $ | (71,987 | ) | | $ | (74,727 | ) |
| | | (19,434 | ) | | | (5,381 | ) | | | (59,493 | ) | | | (20,259 | ) |
Reversals and other changes | | | 25,573 | | | | 8,895 | | | | 3,266 | | | | 22,999 | |
Balance – end of fiscal year
| | $ | (118,561 | ) | | $ | (124,700 | ) | | $ | (128,214 | ) | | $ | (71,987 | ) |
The components of loss before benefit (provision) for income taxes are as follows (in thousands):
| | | Successor | | | Predecessor | |
|
| Five Months Ended March 31, 2020 |
|
| Seven Months Ended October 31, 2019 |
|
|
Fiscal Year Ended March 31, |
|
| 2019 |
| | 2018 |
Domestic | | $ | 163,866 | | | $ | (568,781 | ) | | $ | (263,377 | ) | | $ | (91,002 | ) |
Foreign | | | (24,308 | ) | | | (318,603 | ) | | | (72,922 | ) | | | (136,998 | ) |
Total | | $ | 139,558 | | | $ | (887,384 | ) | | $ | (336,299 | )
| | $ | (228,000 | ) |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The provision (benefit) for income taxes consisted of the following (in thousands):
| | | Successor | | | | | | Predecessor | |
| | | Five Months Ended March 31, | | | Seven Months Ended October 31, | | | Fiscal Year Ended March 31, | |
Current: | | 2020 | | | 2019 | | | 2019 | | | 2018 | |
Domestic
| | $ | (1,542 | ) | | $ | 2,516 | | | $ | 1,337 | | | $ | 1,247 | |
Foreign
| | | 6,572 | | | | 9,178 | | | | 15,313 | | | | 13,607 | |
| | $ | 5,030 | | | $ | 11,694 | | | $ | 16,650 | | | $ | 14,854 | |
Deferred: | | | | | | | | | | | | | | | | |
| Domestic | | $ | (5,072 | ) | | $ | (49,634 | ) | | $ | (16,523 | ) | | $ | (39,079 | ) |
Foreign
| | | 524 | | | | (13,238 | ) | | | (288 | ) | | | (6,666 | ) |
| | | $ | (4,548 | ) | | $ | (62,872 | ) | | $ | (16,811 | ) | | $ | (45,745 | ) |
Total | | $ | 482 | | | $ | (51,178 | ) | | $ | (161 | ) | | $ | (30,891 | ) |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of the U.S. Federal statutory tax rate to the effective income tax rate for the (provision) benefit for income taxes is shown below:
| | | | Successor | | | | | | | | Predecessor | |
| | | | Five Months Ended March 31, | | | | Seven Months Ended October 31, | | | |
Fiscal Year Ended March 31, | |
| | | | 2020 | | | | 2019 | | | | 2019 | | | | 2018 | |
| | | | | | | | | | | | | | | | | |
Statutory rate
| | | 21.0 | % | | | 21.0 | % | | | 21.0 | % | | | 31.6 | % |
Effect of U.S. tax reform
| | | — | % | | | — | % | | | (3.5 | )% | | | 9.9 | % |
Net foreign tax on non-U.S. earnings | | | (4.2 | )% | | | (0.7 | )% | | | (0.3 | )% | | | 0.8 | % |
Benefit of foreign tax deduction in the U.S.
| | | (0.2 | )% | | | — | % | | | — | % | | | — | % |
Foreign earnings indefinitely reinvested abroad | | | 2.2 | % | | | (5.9 | )% | | | (4.4 | )% | | | (8.1 | )% |
Change in valuation allowance
| | | (0.4 | )% | | | (0.6 | )% | | | (15.2 | )% | | | 1.1 | % |
Foreign earnings that are currently taxed in the U.S. | | | 0.8 | % | | | — | % | | | (0.7 | )% | | | (33.0 | )% |
Sales of subsidiaries | | | — | % | | | (1.1 | )% | | | — | % | | | — | % |
Effect of change in foreign statutory corporate income tax rates
| | | — | %
| | | — | %
| | | 0.4 | %
| | | — | %
|
Preferred stock embedded derivative | | | (27.7 | )% | | | — | % | | | — | % | | | — | % |
Contingent beneficial conversion feature
| | | — | % | | | (1.0 | )% | | | — | % | | | — | % |
Impairment of foreign investments | | | 1.4 | % | | | (0.6 | )% | | | — | % | | | 11.9 | % |
Fresh start accounting and reorganization
| | | 6.7 | % | | | (3.6 | )% | | | — | % | | | — | % |
Professional fees to be capitalized for tax
| | | 1.3 | % | | | (1.3 | )% | | | — | % | | | — | % |
Changes in tax reserves
| | | 0.1 | % | | | — | % | | | 0.7 | % | | | (2.3 | )% |
Other, net
| | | (0.7 | )% | | | (0.4 | )% | | | 2.0 | % | | | 1.6 | % |
| Effective tax rate | | | 0.3 | % | | | 5.8 | % | | | — | % | | | 13.5 | % |
In the five months ended March 31, 2020 (Successor), the Company’s effective tax rate is 0.3% and includes (a) $11.1 million of tax expense for fresh start accounting and reorganization related expenses, (b) $38.7 million of tax benefit from the preferred stock embedded derivative and (c) $2.0 million of tax expense for impairment of its investment in unconsolidated affiliates.
In the seven months ended October 31, 2019 (Predecessor), the Company’s effective tax rate is 5.8% and includes (a) $43.4 million of tax expense for fresh start accounting and reorganization related expenses, (b) $8.9 million of tax expense related to the contingent beneficial conversion feature, (c) $9.8 million of tax expense from the sale of foreign subsidiaries, (d) $5.3 million of tax expense for impairments and write-offs of certain investments and (d) $5.4 million of tax expense for an increase in valuation allowances.
In fiscal year 2019 (Predecessor), the Company’s effective tax rate is 0.0% and includes (a) $51.0 million of tax expense for an increase in valuation allowances and (b) a reduction to its previously-recorded U.S. statutory tax rate reduction adjustment of $19.0 million offset by a one-time non-cash transition tax expense of $30.6 million.
On December 22, 2017, the president of the United States signed into law the Act. The Act includes numerous changes in existing U.S. tax law, including a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. Further, the Act provided for a one-time “deemed repatriation” of accumulated foreign earnings of certain foreign corporations. Under GAAP, the Company’s net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. The Company completed its analysis of the income tax implications of the Act during the third quarter of fiscal year 2019. Pursuant to the issuance of additional guidance by the U.S. Internal Revenue Service related to the calculation of the one-time deemed repatriation tax, the Company adjusted its previously reported provisional amounts by recording an additional tax expense of $11.6 million related to remeasurement of deferred taxes offset by one-time mandatory deemed repatriation.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain provisions under the Act became applicable to the Company on April 1, 2018 and the Company’s tax provision for fiscal year 2019 includes the tax implications of these provisions. These provisions include Global Intangible Low-Taxed Income, Base Erosions and Anti-Avoidance Tax, Foreign Derived Intangible Income and certain limitations on the deduction of interest expense and utilization of net operating losses.
In fiscal year 2018 (Predecessor), the Company’s effective tax rate was 13.5% and includes: (i) tax benefit of $27.0 million related to the impairment of its investment in unconsolidated affiliates; (ii) tax impact of one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act of $52.9 million, which is partially offset by the utilization of foreign tax credits of $22.6 million; (iii) tax benefit of $53.0 million as a result of the revaluation of its net deferred tax liabilities; and (iv) tax benefit due to release of $22.8 million of foreign tax credit valuation allowances.
A portion of the Company’s aircraft fleet is owned directly or indirectly by its wholly owned Cayman Island subsidiaries. The Company’s foreign operations combined with its leasing structure provided a material benefit to the effective tax rates for fiscal years 2020, 2019 and 2018. Also, the Company’s effective tax rates for fiscal years 2020, 2019 and 2018 benefited from the permanent investment outside the U.S. of foreign earnings, upon which no U.S. tax had been provided until the one-time transition tax on unrepatriated earnings of foreign subsidiaries under the Act.
The Company’s operations are subject to the jurisdiction of multiple tax authorities, which impose various types of taxes on the Company, including income, value added, sales and payroll taxes. Determination of taxes owed in any jurisdiction requires the interpretation of related tax laws, regulations, judicial decisions and administrative interpretations of the local tax authority. As a result, the Company is subject to tax assessments in such jurisdictions including the re-determination of taxable amounts by tax authorities that may not agree with its interpretations and positions taken. The following table summarizes the years open by jurisdiction as of March 31, 2020 (Successor):
Jurisdiction | Years Open |
U.S.
| Fiscal year 2018 to present |
U.K.
| Fiscal year 2017 to present |
Guyana
| Fiscal year 2013 to present |
Nigeria
| Fiscal year 2012 to present |
Trinidad
| Fiscal year 2010 to present |
Australia
| Fiscal year 2016 to present |
Norway
| Fiscal year 2016 to present |
The effects of a tax position are recognized in the period in which the Company determines 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.
The Company has analyzed filing positions in the federal, state and foreign jurisdictions where it is required to file income tax returns for all open tax years. The Company believes that the settlement of any tax contingencies would not have a significant impact on its consolidated financial position, results of operations or liquidity. In the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), the Company had a net (benefit) provision of $0.2 million, $(0.2) million, $(2.3) million and $5.4 million, respectively, of reserves for tax contingencies primarily related to non-U.S. income tax on foreign leasing operations. The Company’s policy is to accrue interest and penalties associated with uncertain tax positions in its provision for income taxes. In the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), $0.2 million, $0.2 million, $0.0 million and $0.1 million, respectively, in interest and penalties were accrued in connection with uncertain tax positions.
As of March 31, 2020 (Successor) and March 31, 2019 (Predecessor), the Company had $4.3 million and $4.3 million, respectively, of unrecognized tax benefits, all of which would have an impact on its effective tax rate, if recognized.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company believes that it is reasonably possible that a decrease of up to $0.4 million in unrecognized tax benefits may be necessary within the coming year. In addition, the Company believes that it is reasonably possible that approximately $3.8 million of current other remaining unrecognized tax benefits may be recognized by the end of fiscal year 2023 as a result of a lapse of the statute of limitations.
The activity associated with unrecognized tax benefit is as follows (in thousands):
| | | Successor | | | Predecessor | |
| | | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | | Fiscal year ended March 31, 2019 | |
Unrecognized tax benefits – beginning of period | | $ | 4,060 | | | $ | 4,337 | | | $ | 6,682 | |
Increases for tax positions taken in prior periods | | | 213 | | | | 170 | | | | 100 | |
Decreases for tax positions taken in prior periods
| | | — | | | | (442 | ) | | | (2,445 | ) |
Decrease related to statute of limitation expirations
| | | (21 | ) | | | (5 | ) | | | — | |
Unrecognized tax benefits – end of period | | $ | 4,252 | | | $ | 4,060 | | | $ | 4,337 | |
As of March 31, 2020 (Successor), the Company has aggregated approximately $102.1 million in unremitted earnings generated by foreign subsidiaries. The Company expects to indefinitely reinvest these earnings. Accordingly, the Company has not provided deferred taxes on these unremitted earnings. If the Company’s expectations were to change, withholding and other applicable taxes incurred upon repatriation, if any, are not expected to have a material impact on its results of operations. Pursuant to the Act, the Company subjected a significant portion of its accumulated foreign earnings from certain foreign corporations to the one-time “deemed repatriation” tax. Any additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of our foreign investments would generally be limited to foreign and state taxes.
Income taxes paid were $7.6 million, $9.5 million, $19.4 million and $26.7 million during the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively.
As described in Note 2, elements of the Plan provided that certain secured and unsecured debt that the Company held was exchanged for New Common Stock and New Preferred Stock. Absent an exception, a debtor recognizes cancellation of indebtedness income (“CODI”) upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The Internal Revenue Code of 1986, as amended (“IRC”), provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from the Chapter 11 Cases, the estimated amount of CODI is approximately $487.7 million, which reduced most of the value of the Company’s net operating loss carryover, the entire capital loss carryover and partially reduced the tax basis in the Company’s other assets. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of emergence, or April 1, 2020. The Company previously reported $93.8 million deferred tax expense for the seven months ended October 31, 2019 (Predecessor) related to the reduction of net operating losses, tax basis in fixed assets and other assets. The Company has updated its estimate during the fourth quarter and reported a $4.2 million deferred tax benefit for the five months ended March 31, 2020 (Successor) for total deferred tax expense of $89.6 million. Due to the uncertainty of the amounts and allocations of the reduction in tax attributes there may be changes in the amount of deferred taxes that should be recorded. The Company has estimated its attributes subject to reduction based on current results from operations and gains and losses from sale of assets. Although the Company believes the income tax estimates are reasonable, any changes in the anticipated results may have a material effect on the Company's results of operations.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
IRC Section 382 provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-in-losses, against future taxable income in the event of a change in ownership. Emergence from the Chapter 11 Cases resulted in a change in ownership for purposes of IRC Section 382. As part of the attribute reduction the Company reduced all but $0.5 million of its net operating losses, however certain future tax deductions available after the reduction for CODI are expected to be subject to an annual limitation under IRC Section 382.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 14 — EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Bristow Group Inc. Employee Savings and Retirement Plan (the “Bristow Plan”) covers certain of the Company’s U.S. employees. Under the Bristow Plan, the Company matches each participant’s contributions up to 3% of the employee’s compensation. In addition, under the Bristow Plan, the Company contributes an additional 3% of the employee’s compensation after the end of each calendar year.
Bristow Helicopters and Bristow International Aviation (Guernsey) Limited (“BIAGL”) each have a defined contribution plan. These defined contribution plans replaced the defined benefit pension plans described below for future accruals.
The Company’s contributions to its defined contribution plans were $8.5 million, $13.6 million, $22.2 million and $22.0 million for the five months ended March 31, 2020 (Successor), seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively.
Defined Benefit Plans
The defined benefit pension plans of Bristow Helicopters and BIAGL replaced by the defined contribution plans described above covered all full-time employees of Bristow Aviation and BIAGL employed on or before December 31, 1997. Both plans were closed to future accrual as of February 1, 2004. The defined benefits for employee members were based on the employee’s annualized average last three years’ pensionable salaries up to February 1, 2004, increasing thereafter in line with retail price inflation (prior to 2011) and consumer price inflation (from 2011 onwards), and subject to maximum increases of 5% per year over the period to retirement. Any valuation deficits are funded by contributions by Bristow Helicopters and BIAGL. Plan assets are held in separate funds administered by the plans’ trustee (the “Plan Trustee”), which are primarily invested in equities and debt securities. For members of the two closed defined benefit pension plans, since January 2005, Bristow Helicopters contributes a maximum of 7% of a participant’s non-variable salary, and since April 2006, the maximum employer contribution into the plan has been 7.35% for pilots. Each member is required to contribute a minimum of 5% of non-variable salary for Bristow Helicopters to match the contribution. In addition, there are three defined contribution plans for staff who were not members of the original defined benefit plans, two of which are closed to new members.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables provide a rollforward of the projected benefit obligation and the fair value of plan assets, set forth the defined benefit retirement plans’ funded status and provide detail of the components of net periodic pension cost calculated for the U.K. pension plans. The measurement date adopted is March 31. For the purposes of amortizing gains and losses, the 10% corridor approach has been adopted and assets are taken at fair market value. Any such gains or losses are amortized over the average remaining life expectancy of the plan members.
| | | Successor | | | Predecessor | |
| | | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | | Fiscal Year Ended March 31, 2019 | |
Change in benefit obligation: | | | | | (In thousands) | |
| Projected benefit obligation (PBO) at beginning of period | | $ | 528,858 | | | $ | 504,076 | | | $ | 545,128 | |
| Service cost | | | 594 | | | | 29 | | | | 655 | |
| Interest cost | | | 4,109 | | | | 6,705 | | | | 12,984 | |
| Actuarial loss (gain) | | | (5,545 | ) | | | 34,618 | | | | 9,702 | |
| Benefit payments and expenses | | | (11,394 | ) | | | (13,882 | ) | | | (28,593 | ) |
| Plan amendments | | | — | | | | — | | | | 3,020 | |
| Effect of exchange rate changes | | | (21,630 | ) | | | (2,688 | ) | | | (38,820 | ) |
| Projected benefit obligation (PBO) at end of period | | $ | 494,992 | | | $ | 528,858 | | | $ | 504,076 | |
| Change in plan assets: | | | | | | | | | | | | |
| Market value of assets at beginning of period | | $ | 495,343 | | | $ | 478,350 | | | $ | 508,375 | |
| Actual return on assets | | | 6,827 | | | | 24,633 | | | | 18,121 | |
| Employer contributions | | | 7,144 | | | | 9,032 | | | | 16,644 | |
| Benefit payments and expenses | | | (11,394 | ) | | | (13,882 | ) | | | (28,593 | ) |
| Effect of exchange rate changes | | | (20,783 | ) | | | (2,790 | ) | | | (36,197 | ) |
| Market value of assets at end of period | | $ | 477,137 | | | $ | 495,343 | | | $ | 478,350 | |
| Reconciliation of funded status: | | | | | | | | | | | | |
| Accumulated benefit obligation (ABO) | | $ | 494,992 | | | $ | 528,858 | | | $ | 504,076 | |
| Projected benefit obligation (PBO) | | $ | 494,992 | | | $ | 528,858 | | | $ | 504,076 | |
| Fair value of assets | | | (477,137 | ) | | | (495,343 | ) | | | (478,350 | ) |
| Net recognized pension liability | | $ | 17,855 | | | $ | 33,515 | | | $ | 25,726 | |
| Amounts recognized in accumulated other comprehensive loss | | $ | (6,389 | ) | | $ | — | | | $ | 219,232 | |
| | | Successor | | | | | | | | | | |
| | Five Months Ended March 31, | | | Seven Months Ended October 31, | | |
Fiscal Year Ended March 31, | |
| | | 2020 | | | 2019 | | | 2019
| | | 2018
| |
| | | | | | | | | (In thousands) | | | | |
Components of net periodic pension cost: | | | | | | | | | | | | |
Service cost for benefits earned during the period
| | $ | 594 | | | $ | 29 | | | $ | 655 | | | $ | 856 | |
| Interest cost on PBO | | | 4,109 | | | | 6,705 | | | | 12,984 | | | | 12,914 | |
| Expected return on assets | | | (5,735 | ) | | | (5,610 | ) | | | (17,118 | ) | | | (21,184 | ) |
Amortization of unrecognized losses
| | | — | | | | — | | | | 8,001 | | | | 8,151 | |
Net periodic pension cost
| | $ | (1,032 | ) | | $ | 1,124 | | | $ | 4,522 | | | $ | 737 | |
Service cost component is reported in the Company’s statement of operations in direct cost. All other components of net periodic pension cost are reported in the other expenses, net.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amount in accumulated other comprehensive loss as of March 31, 2020 (Successor) expected to be recognized as a component of net periodic pension cost in fiscal year 2021 is zero, net of tax, and represents amortization of the net actuarial losses.
In October 2018, the U.K. High Court ruled that the U.K. defined pension schemes will be required to equalize for the effect of unequal guaranteed minimum pensions (“GMPs”) accrued between 1990 and 1997 by adjusting other non-GMP benefits. The Company recorded additional pension liability of $2.9 million as of December 31, 2018 (Predecessor) related to this ruling that will be recorded as additional service cost over the future service period of approximately 20 years.
Actuarial assumptions used to develop the components of the U.K. plans were as follows:
| | | Successor | | | | | | Predecessor | |
| | | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | | | |
| | Fiscal Year Ended March 31, | |
| | | 2019 | | | | 2018 | |
Discount rate
| | | 1.90 | % | | | 1.90 | % | | | 2.60 | % | | | 2.40 | % |
Expected long-term rate of return on assets
| | | 2.80 | % | | | 2.80 | % | | | 3.62 | % | | | 4.41 | % |
Pension increase rate . | | | 2.80 | % | | | 2.80 | % | | | 2.90 | % | | | 3.00 | % |
The Company utilizes a British pound sterling denominated AA corporate bond index as a basis for determining the discount rate for its U.K. plans. The expected rate of return assumptions have been determined following consultation with the Company’s actuarial advisors. In the case of bond investments, the rates assumed have been directly based on market redemption yields at the measurement date, and those on other asset classes represent forward-looking rates that have typically been based on other independent research by investment specialists.
Under U.K. and Guernsey legislation, it is the Plan Trustee who is responsible for the investment strategy of the plans, although day-to-day management of the assets is delegated to a team of regulated investment fund managers. The Plan Trustee of the Bristow Staff Pension Scheme (the “Scheme”) has the following three stated primary objectives when determining investment strategy:
| (i) | “funding objective” — to ensure that the Scheme is fully funded using assumptions that contain a modest margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial covenant to the employer; |
| (ii) | “stability objective” — to have due regard to the likely level and volatility of required contributions when setting the Scheme’s investment strategy; and |
| (iii) | “security objective” — to ensure that the solvency position of the Scheme (as assessed on a gilt basis) is expected to improve. The Plan Trustee will take into account the strength of the employer’s covenant when determining the expected improvement in the solvency position of the Scheme. |
The types of investments are held, and the relative allocation of assets to investments is selected, in light of the liability profile of the Scheme, its cash flow requirements, the funding level and the Plan Trustee’s stated objectives. In addition, in order to avoid an undue concentration of risk, assets are diversified within and across asset classes.
In determining the overall investment strategy for the plans, the Plan Trustee undertakes regular asset and liability modeling (the “ALM”) with the assistance of their U.K. actuary. The ALM looks at a number of different investment scenarios and projects both a range and a best estimate of likely return from each one. Based on these analyses, and following consultation with the Company, the Trustee determines the benchmark allocation for the plans’ assets.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The market value of the plan’s assets as of March 31, 2020 (Successor) and March 31, 2019 (Predecessor) was allocated between asset classes as follows. Details of target allocation percentages under the Plan Trustee’s investment strategies as of the same dates are also included.
| | | Successor | | | | Predecessor | | | Successor | | | | Predecessor | |
| Asset Category | | Target Allocation as of March 31, 2020 | | | | Target Allocation as of March 31, 2019 | | | Actual Allocation as of March 31, 2020 | | | | Actual Allocation as of March 31, 2019 | |
| Equity securities | | | 25.3 | % | | | | 25.4 | % | | | 23.0 | % | | | | 24.1 | % |
Debt securities
| | | 25.0 | % | | | | 34.8 | % | | | 27.1 | % | | | | 44.5 | % |
Property
| | | 7.4 | % | | | | 7.4 | % | | | 6.5 | % | | | | 6.1 | % |
Other assets
| | | 42.3 | % | | | | 32.4 | % | | | 43.4 | % | | | | 25.3 | % |
| Total | | | 100.0 | % | | | | 100.0 | % | | | 100.0 | % | | | | 100.0 | % |
The following table summarizes, by level within the fair value hierarchy, the plan assets as of March 31, 2020 (Successor), which are valued at fair value (in thousands):
| | | | | | | |
Successor | | | | | |
| | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | | Significant Other Observable Inputs (Level 2) | | | | Significant Unobservable Inputs (Level 3) | | | | Balance as of March 31, 2020 | |
Cash and cash equivalents
| | $ | 8,680 | | | $ | — | | | $ | — | | | $ | 8,680 | |
Cash plus
| | | — | | | | 10,788 | | | | — | | | | 10,788 | |
Equity investments - U.K. | | | 992 | | | | — | | | | — | | | | 992 | |
Equity investments - Non-U.K.
| | | 1,488 | | | | — | | | | — | | | | 1,488 | |
Insurance Linked Securities | | | — | | | | 24,303 | | | | — | | | | 24,303 | |
Illiquid credit | | | — | | | | — | | | | 28,271 | | | | 28,271 | |
Diversified growth (absolute return) funds
| | | 868 | | | | 40,919 | | | | — | | | | 41,787 | |
Government debt securities
| | | 248 | | | | 86,549 | | | | — | | | | 86,797 | |
Corporate debt securities
| | | 1,612 | | | | — | | | | — | | | | 1,612 | |
Alternatives
| | | — | | | | 41,167 | | | | — | | | | 41,167 | |
Property debt | | | — | | | | — | | | | 31,247 | | | | 31,247 | |
Multi asset credit | | | — | | | | 40,918 | | | | — | | | | 40,918 | |
Insurance policies
| | | — | | | | — | | | | 159,087 | | | | 159,087 | |
Total investments
| | $ | 13,888 | | | $ | 244,644 | | | $ | 218,605 | | | $ | 477,137 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes, by level within the fair value hierarchy, the plan assets as of March 31, 2019 (Predecessor), which are valued at fair value (in thousands):
| | | | | Predecessor | | | | |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Balance as of March 31, 2019 | |
| | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 26,191 | | | $ | — | | | $ | — | | | $ | 26,191 | |
Cash plus | | | — | | | | 84,438 | | | | — | | | | 84,438 | |
Equity investments - U.K.
| | | — | | | | 2,476 | | | | — | | | | 2,476 | |
Equity investments - Non-U.K.
| | | — | | | | 1,303 | | | | — | | | | 1,303 | |
Insurance Linked Securities
| | | — | | | | — | | | | 25,279 | | | | 25,279 | |
Illiquid credit
| | | — | | | | — | | | | 40,004 | | | | 40,004 | |
Diversified growth (absolute return) funds
| | | — | | | | 86,001 | | | | — | | | | 86,001 | |
Government debt securities
| | | — | | | | 138,384 | | | | — | | | | 138,384 | |
Corporate debt securities
| | | — | | | | 74,274 | | | | — | | | | 74,274 | |
| Total investments | | $ | 26,191 | | | $ | 386,876 | | | $ | 65,283 | | | $ | 478,350 | |
The investments’ fair value measurement level within the fair value hierarchy is classified in its entirety based on the lowest level of input that is significant to the measurement. The fair value of assets using Level 2 inputs is determined based on the fair value of the underlying investment using quoted prices in active markets or other significant inputs that are deemed observable.
Estimated future benefit payments over each of the next five fiscal years from March 31, 2020 (Successor) and in the aggregate for the following five fiscal years after fiscal year 2025 are as follows (in thousands):
| | | | Successor | |
| Projected Benefit Payments by the Plans for Fiscal Years Ending March 31, | | | Payments | |
| 2021 | | | $ | 21,451 | |
| 2022 | | | | 21,823 | |
| 2023 | | | | 22,567 | |
| 2024 | | | | 22,815 | |
| 2025 | | | | 23,187 | |
Aggregate 2026 - 2030
| | | | 119,408 | |
The Company expects to fund these payments with cash contributions to the plans, plan assets and earnings on plan assets. The current estimates of cash contributions for the Company’s pension plans required for fiscal year 2021 (Successor) are expected to be $16.4 million.
Incentive Compensation
Prior to May 11, 2019, stock-based awards were made under the Bristow Group Inc. 2007 Long-Term Incentive Plan (the “2007 Plan”). A maximum of 10,646,729 shares of common stock were reserved. Awards granted under the 2007 Plan were in the form of stock options, stock appreciation rights, shares of restricted stock, other stock-based awards (payable in cash or common stock) or performance awards, or any combination thereof, and were made to outside directors, employees or consultants.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In June 2018 and 2017, the Compensation Committee of the Company’s prior board of directors authorized the grant of stock options, time vested restricted stock and long-term performance cash awards to participating employees. Each of the stock options had a ten-year term and an exercise price equal to the fair market value (as defined in the 2007 Plan) of common stock on the grant date. The options would vest in annual installments of one-third each, beginning on the first anniversary of the grant date. Restricted stock grants vested at the end of three years. Performance cash awards granted in June 2017 and 2018 had two components. One half of each performance cash award would vest and pay out in cash three years after the date of grant at varying levels depending on the Company’s performance in total shareholder return against a peer group of companies. The other half of each performance cash award would be earned based on absolute performance in respect of improved average adjusted earnings per share for the Company over the three-year performance period beginning on April 1, 2017 and 2018. The value of the performance cash awards was calculated on a quarterly basis by comparing the performance of the Company’s common stock, including any dividends paid since the award date, against the peer group. The total value of the awards was recognized as compensation expense over a three-year vesting period with the recognition amount being adjusted quarterly. Compensation (benefit) expense related to the performance cash awards during the seven months ended October 31, 2019 (Successor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) was $(0.2) million, $(2.0) million and $1.5 million, respectively. Performance cash compensation (benefit) expense has been allocated to the Company’s various regions.
Total share-based compensation expense related to the 2007 Plan, which includes stock options and restricted stock, was $1.9 million, $6.4 million and $10.4 million for the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively. Stock-based compensation expense is included in general and administrative expense in the consolidated statements of operations and has been allocated to the Company’s various regions.
No stock-based compensation was awarded in fiscal year 2020 under the 2007 Plan. The 2007 Plan and all awards thereunder were cancelled effective upon emergence from bankruptcy on October 31, 2019 (Predecessor).
| | | Weighted Average Exercise Prices | | | Number of Shares | |
| |
| | | | | | | |
Outstanding at March 31, 2019 (Predecessor)
| | $ | 26.49 | | | | 3,217,723 | |
Expired or forfeited
| | | 25.74 | | | | (130,023 | ) |
Cancelled
| | | 26.54 | | | | (3,087,700 | ) |
Outstanding at October 31, 2019 (Predecessor)
| | | — | | | | — | |
Stock options granted to employees under the 2004 and 2007 Plans vested ratably over three years on each anniversary from the date of grant and expired ten years from the date of grant.
The Company used a Black-Scholes option pricing model to estimate the fair value of share-based awards. The Black-Scholes option pricing model incorporates various assumptions, including the risk-free interest rate, volatility, dividend yield and the expected term of the options.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for a period equal to the expected term of the option. Expected volatilities are based on the historical volatility of shares of the Company’s common stock, which had not been adjusted for any expectation of future volatility given uncertainty related to the future performance of its common stock at this time. The Company also uses historical data to estimate the expected term of the options within the option pricing model and groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of the options represents the period of time that the options granted are expected to be outstanding. Additionally, the Company recorded forfeitures based on actual forfeitures.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the assumptions used to compute the stock-based compensation expense for stock option grants issued during fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor).
| | | Predecessor | |
|
| Fiscal Year Ended March 31, | |
| | 2019 | | | 2018 | |
Risk free interest rate | | | 2.76 | % | | | 1.78 | % |
Expected life (years)
| | | 5 | | | | 5 | |
Volatility | | | 62.8 | % | | | 56.1 | % |
Dividend yield | | | — | % | | | 3.98 | % |
Weighted average grant-date fair value of options granted | | $ | 6.71 | | | $ | 2.53 | |
No options vested during the seven months ended October 31, 2019 (Predecessor). The total fair value of options vested during fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) was approximately $2.9 million and $4.7 million, respectively.
No options were exercised during the seven months ended October 31, 2019 (Predecessor). The total intrinsic value, determined as of the date of exercise, of options exercised during fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) was $0.3 million and zero, respectively. The total tax benefit attributable to options exercised during fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) was $0.1 million and zero, respectively.
The Company had restricted stock awards that cliff vest on the third anniversary from the date of grant provided the grantee was still employed by the Company, subject to its retirement policy. Restricted stock granted to non-employee directors under the 2003 Non-qualified Stock Option Plan for Non-employee Directors vested after six months.
The Company recorded compensation expense for restricted stock awards based on an estimate of the service period related to the awards, which was tied to the future performance of its stock over certain time periods under the terms of the award agreements. The estimated service period was reassessed quarterly. Changes in this estimate may cause the timing of expense recognized in future periods to accelerate. Compensation expense related to awards of restricted stock for the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) was $1.0 million, $4.0 million and $6.7 million, respectively.
The following is a summary of non-vested restricted stock:
| | | Units | | | Weighted Average Grant Date Fair Value per Unit | |
Non-vested as of March 31, 2019 (Predecessor)
| | | 860,362 | | | $ | 9.43 | |
Forfeited
| | | (18,788 | ) | | | 9.39 | |
Cancelled
| | | (841,574 | ) | | | 9.43 | |
Non-vested as of October 31, 2019 (Predecessor) | | | — | | | | — | |
During June 2017 and 2018, the Company awarded certain members of management phantom restricted stock, which would have paid out in cash after three years. The Company accounted for these awards as liability awards. As of March 31, 2019 (Predecessor), the Company had $0.2 million in other liabilities and deferred credits on its consolidated balance sheet. The Company recognized a benefit of $0.2 million for the seven months ended October 31, 2019 (Predecessor), $0.5 million in fiscal year 2019 (Predecessor) and an expense of $1.1 million in fiscal year 2018 (Predecessor) in general and administrative expense on its consolidated statement of operations related to these awards.
The Annual Incentive Compensation Plan provides for an annual award of cash bonuses to key employees based primarily on pre-established objective measures of performance. The accrued bonuses related to this plan were $3.9 million and $10.1 million during fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively. See “Key Employee Incentive Plans” below for further details on the cash bonuses for the five months ended March 31, 2020 (Successor) and the seven months ended October 31, 2019 (Predecessor).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additionally, the Company has a non-qualified deferred compensation plan for senior executives (the “Deferred Compensation Plan”). Under the terms of the Deferred Compensation Plan, participants can elect to defer a portion of their compensation for distribution at a later date. Prior to December 31, 2018, the Company had the discretion to make annual tax deferred contributions to the Deferred Compensation Plan on the participants’ behalf. The Company contributed $0.3 million and $0.1 million to the Deferred Compensation Plan for fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), respectively. Effective as of December 31, 2018, the Deferred Compensation Plan was amended to eliminate the Company’s mandatory annual contributions to each participant’s Employer Contribution Account (as such term is defined in the Deferred Compensation Plan), other than the Company’s contributions allocated in calendar year 2018 but settled in calendar year 2019. The Company did not make any contributions to the Deferred Compensation Plan for the five months ended March 31, 2020 (Successor) or the seven months ended October 31, 2019 (Predecessor). The assets of the plan are held in a rabbi trust and are subject to the Company’s general creditors. As of March 31, 2020 (Successor), the amount held in trust was $2.3 million.
Separation Agreements — In prior years, the Company offered voluntary separation programs (“VSPs”) to certain employees as part of its ongoing efforts to improve efficiencies and reduce costs. Additionally, beginning in March 2015, the Company initiated involuntary separation programs (“ISPs”) in certain regions. The expense related to the VSPs and ISPs is follows (in thousands):
| | | Successor | | | | | | Predecessor | |
| | | Five Months Ended March 31, | | | Seven Months Ended October 31, | | | Fiscal Year Ended March 31, | |
VSP: | | 2020
| | | 2019
| | | 2019 | | | 2018
| |
Direct cost
| | $ | — | | | $ | — | | | $ | — | | | $ | 105 | |
General and administrative
| | | | | | | — | | | | — | | | | 1,017 | |
Total
| | $ | — | | | $ | — | | | $ | — | | | $ | 1,122 | |
ISP: | | | | | | | | | | | | | | | | |
Direct cost
| | $ | 104 | | | $ | 4,376 | | | $ | 7,125 | | | $ | 11,538 | |
General and administrative
| | | 123 | | | | 163 | | | | 2,110 | | | | 9,676 | |
Total
| | $ | 227 | | | $ | 4,539 | | | $ | 9,235 | | | $ | 21,214 | |
Key Employee Incentive Plans
In connection with the Chapter 11 Cases, the Compensation Committee of the Board adopted on behalf of the Company an Executive Key Employee Incentive Plan (the “Executive KEIP”) and a Non-Executive Key Employee Incentive Plan (“Non-Executive KEIP”), each approved by the Bankruptcy Court on August 22, 2019. The Executive KEIP is designed to incentivize ten of the Company’s senior executives by providing a total potential cash award pool of approximately $3.1 million at threshold, $6.1 million at target and up to $12.3 million for exceeding target, and was contingent upon achievement of certain financial targets and safety metrics, and the timing of confirmation of the Plan by the Bankruptcy Court. The Non-Executive KEIP is designed to enhance retention of up to 183 other non-insider employees and provides a total potential cash award pool of approximately $7.7 million at threshold, $10.3 million at target and up to $15.4 million for exceeding target, with 50 percent of the payment contingent upon achievement of certain financial targets and safety metrics, and 50 percent of the payment being based on continued employment with the Company. The payments for the Executive KEIP are made on a quarterly basis with the first payment made in October 2019. The payments for the Non-Executive KEIP will be made quarterly with the first payment made in October 2019.
In addition to the key employee incentive plans approved by the Bankruptcy Court, the Company made retention payments in April and October 2019 (Predecessor) totaling $3.2 million to non-executives and retention payments in April 2019 (Predecessor) totaling $3.1 million to executives. The Company made payments for the management incentive plan of $3.5 million in May 2019 (Predecessor) for the first quarter of fiscal year 2020, $9.2 million in October 2019 (Predecessor) for the second quarter of fiscal year and $6.7 million in January 2020 (Successor) for the third quarter of fiscal year 2020 and accrued $8.4 million for the fourth quarter of fiscal year 2020 (Successor).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Management Incentive Plan
As of the Effective Date, the Compensation Committee of the Board adopted the 2019 Management Incentive Plan (the “MIP”). The MIP is an equity-based compensation plan for directors, officers and participating employees and other service providers of the Company and its affiliates, pursuant to which the Company may issue awards covering shares of the New Common Stock and New Preferred Stock. As adopted, the share reserve of the MIP was initially comprised of 473,218 shares of New Common Stock and 284,358 shares of New Preferred Stock, representing in the aggregate 4.0% of the Company’s outstanding New Stock on a fully diluted basis. On December 6, 2019, the Board approved an increase to the share reserve of the MIP, bringing the total share reserve to 699,890 shares of New Common Stock and 323,664 shares of New Preferred Stock, which represents in the aggregate 5.0% of the Company’s outstanding New Stock on a fully diluted basis.
During the five months ended March 31, 2020 (Successor), the Company awarded 313,681 shares of restricted common stock at an average grant date fair value of $25.50 and 188,869 shares of restricted preferred stock at an average grant date fair value of $89.99 under the MIP. Also, during the five months ended March 31, 2020 (Successor), 267,771 common stock options and 113,081 preferred stock options were granted under the MIP. Total stock-based compensation expense related to the MIP was $2.4 million for the five months ended March 31, 2020 (Successor). The following table shows the assumptions used to compute the stock-based compensation expense for stock options granted during the five months ended March 31, 2020 (Successor):
| | | Common Stock Options | | | Preferred Stock Options | |
Risk free interest rate
| | 1.61% to 1.91% | | | 1.61% to 1.66% | |
Expected life (years)
| | 3 to 10 years | | | 3 to 4 years | |
Volatility
| | | 44% – 45 | % | | | 45% – 47 | % |
Dividend yield
| | | — | % | | | — | % |
Weighted average exercise price of options granted
| | $36.37 per option | | | $36.37 per option | |
Weighted average grant-date fair value of options granted
| | $13.00 per option | | | $59.52 per option | |
Compensation expense related to the restricted common stock awards and common stock options was $0.8 million and $0.4 million, respectively, for the five months ended March 31, 2020 (Successor). Unrecognized stock-based compensation expense related to non-vested restricted common stock awards was approximately $7.1 million as of March 31, 2020 (Successor), relating to a total of 313,681 shares of unvested restricted common stock awards. Unrecognized stock-based compensation expense related to non-vested common stock options was approximately $3.8 million as of March 31, 2020 (Successor), relating to a total of 267,771 units of unvested common stock options. The Company expects to recognize this stock-based compensation expense over a weighted average period of approximately four years.
The restricted preferred stock awards and preferred stock options are accounted for as liability awards. The total value of the awards is recognized as compensation expense over a four-year vesting period with the recognition amount being adjusted quarterly. Compensation expense related to the restricted preferred stock awards and preferred stock options was $0.9 million and $0.3 million, respectively, for the five months ended March 31, 2020 (Successor).
No common stock options or preferred stock options were exercised, expired or forfeited during the five months ended March 31, 2020 (Successor). As of March 31, 2020 (Successor), 2,592 common stock options were exercisable at a price of $15.43 and no preferred stock options were exercisable. Restricted common stock awards and restricted preferred stock awards totaling 19,693 and 52,649, respectively, vested during the five months ended March 31, 2020 (Successor). No common stock awards and restricted stock awards were forfeited or expired during the five months ended March 31, 2020 (Successor).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Severance Plan and Participation Agreements
As of the Effective Date, the Company adopted the Amended and Restated 2019 Management Severance Benefits Plan for U.S. Employees (the “Severance Plan”), which provides severance benefits to certain key employees, which are categorized into five “tiers” based on job title or job grade level, including L. Don Miller (President and Chief Executive Officer), who is a Tier 1 participant, and each of Brian J. Allman (Senior Vice President and Chief Financial Officer), Robert Phillips (Senior Vice President, Americas), Alan Corbett (Senior Vice President, EAMEA) and Victoria Lazar (Senior Vice President, General Counsel and Corporate Secretary), all of whom are Tier 2 participants (collectively, the “Specified Officers”) and those with a title of Vice President being Tier 3 participants. Each of the Tier 1, Tier 2 and Tier 3 participants will also be required to enter into a separate participation agreement to the Severance Plan (a “Participation Agreement”), which provides for certain enhanced benefits and imposes additional requirements in addition to the terms of the Severance Plan.
The Severance Plan provides participants with severance benefits in the event of a termination by the Company without Cause (as defined therein) or, in the case of Tier 1 through 3 participants, by the participant for Good Reason (as defined therein) (each, a “Qualifying Termination”), with such severance benefits consisting of the following for the Specified Officers:
(i) cash severance in the form of continued base salary payments for 24 months (Tier 1 participant) or 12 months (Tier 2 participant) post-termination; (ii) subsidized COBRA coverage for 18 months post-termination (both Tier 1 and 2 participants); (iii) outplacement services for 12 months post-termination (both Tier 1 and 2 participants); and (iv) if the Qualifying Termination occurs after fiscal year 2020, a pro-rata annual bonus for the year of termination based on actual performance (both Tier 1 and 2 participants).
For Tier 1 and 2 participants (i.e., all of the Specified Officers), the Severance Plan and Participation Agreements provide for enhanced severance benefits in the event that the Qualifying Termination occurs within the two-year period following a Change in Control (as defined therein), with such enhanced severance benefits consisting of the same severance benefits as described in the preceding paragraph, subject to the following enhancements: (i) the cash severance consists of an amount equal to 2.0x (Tier 1 participant) or 1.5x (Tier 2 participants) the sum of the participant’s (x) base salary and (y) target bonus (initially 110% of base salary (Tier 1 participant) and 65% of base salary (Tier 2 participants, other than Mr. Allman, whose target bonus is initially 75% of base salary)), payable in installments over the 24-month (Tier 1 participant) or 18-month (Tier 2 participants) post-termination period; and (ii) the pro-rata annual bonus is based on target (as opposed to actual) performance. If the Qualifying Termination occurs after the date that the Compensation Committee of the Board determines annual compensation for fiscal year 2021, then the amount in clause (i)(y) above will equal to the greatest of (x) the Specified Officer’s initial target bonus amount described above, (y) 100% of the Specified Officer’s target bonus for the fiscal year in which the Qualifying Termination occurs and (z) 100% of the Specified Officer’s target bonus for the prior fiscal year (excluding fiscal year 2020 and all prior years).
The Participation Agreements also subject Tier 1 through Tier 3 participants, including the Specified Officers, to restrictive covenants as a condition of participating therein, with such covenants consisting of the following: (i) 12-month (or, if longer, the length of the base salary continuation period) post-termination non-compete; (ii) 24-month post-termination non-solicitation/non-hire; (iii) assignment of inventions; and (iv) perpetual confidentiality and non-disparagement. The Participation Agreements also provide that the Severance Plan may not be amended in an adverse manner to the Tier 1 through Tier 3 participants during the three-year period following the Effective Date.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 15 — STOCKHOLDERS’ INVESTMENT, EARNINGS PER SHARE AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Stockholders’ Investment, Common Stock and Preferred Stock
Pursuant to the Plan, upon the Effective Date, all existing equity interests in the Company (Predecessor) were cancelled and discharged, including the options and restricted stock awards.
On the Effective Date, the Predecessor Common Stock, including options, warrants, rights, restricted stock units or other securities or agreements to acquire such Predecessor Common Stock, was cancelled pursuant to the Plan, and the Company (Successor) issued the following in accordance with the Plan:
| • | Approximately 1,300,000 shares of New Common Stock to holders of the 8.75% Senior Secured Notes; |
| • | Approximately 9,900,000 shares of New Common Stock to holders of the Unsecured Notes and holders of General Unsecured Claims; |
| • | Approximately 900,000 shares of New Preferred Stock to holders of the 8.75% Senior Secured Notes; and |
| • | Approximately 5,900,000 shares of New Preferred Stock to holders of the Unsecured Notes. |
The New Stock was issued under the Plan pursuant to exemptions from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code and Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
On the Effective Date, the Company executed the Certificate of Designation of 13,000,000 shares of New Preferred Stock designated as “10.000% Series A Convertible Preferred Stock”, by filing the certificate of designations relating to the New Preferred Stock (the “Certificate of Designations”).
As of March 31, 2020 (Successor), there were 11,235,566 shares of New Common Stock and 6,824,582 shares of New Preferred Stock issued and outstanding.
At any time and from time to time following the Effective Date, each holder of shares of the New Preferred Stock shall have the right to convert all or any portion of such holder’s shares of New Preferred Stock, at such holder’s sole discretion, into a whole number of fully-paid and non-assessable shares of New Common Stock equal to (i) the Initial Liquidation Preference of $48.51 (as defined in the Certificate of Designations) divided by (ii) the conversion price of $36.37 (such amount, the “Conversion Return”) and then multiplied by (iii) the number of shares of New Preferred Stock being converted (the “Converted Shares”).
In addition, from time to time following the Effective Date, holders of a majority of the then-outstanding shares of New Preferred Stock, voting as a separate class, shall have the right to (i) convert all of the shares of New Preferred Stock into a number of shares of New Common Stock equal to (a) the Conversion Return multiplied by (b) the Converted Shares, or (ii) convert all of the shares of New Preferred Stock into substantially equivalent securities of one or more of the Company’s domestic subsidiaries.
Dividends with respect to each share of New Preferred Stock accrue together with any previously declared but unpaid dividends in respect of the New Preferred Stock, and accumulate annually at ten percent (10.0%) for each year that such share is outstanding, to and including the dividend payment date with respect to such year. In the event of a breach by the Company, including, but not limited to, the failure by the Company to timely pay the holders any PIK Dividend (as defined below), the holders shall be entitled to an increase in the dividend rate by an increment of two percent (2.0%) per annum.
Holders shall be entitled to receive prior to any distributions made in respect of any junior stock in respect of the same year the amount that would have been payable if such dividend had been paid in cash (the “PIK Dividend Amount”) to be paid by delivering to the holders a number of PIK shares equal to the quotient of (x) the applicable PIK Dividend Amount divided by (y) the New Preferred Stock purchase price (such dividend, a “PIK Dividend”).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Base Return Amount means, at the applicable date of determination, an amount equal to: (i) prior to the third anniversary of the Issue Date, an amount per share of the Initially Issued New Preferred Stock necessary to achieve, with respect to each such share of Initially Issued New Preferred Stock, the greater of (a) an IRR of 14% and (b) a 1.5x MOIC; (ii) on or after the third anniversary of the Issue Date, but prior to the fourth anniversary, an amount per share of the Initially Issued New Preferred Stock necessary, with respect to each such share to achieve the greater of (a) an IRR of 15% and (b) a 1.7x MOIC; (iii) on or after the fourth anniversary of the Issue Date, but prior to the fifth anniversary, an amount per share of Initially Issued New Preferred Stock necessary, with respect of each such share to achieve the greater of (a) an IRR of 16% and (b) 1.9x MOIC; or (iv) on or after the fifth anniversary of the Issue Date, an amount per share of Initially Issued New Preferred Stock equal to the greater of (a) an IRR of 17% and (b) a 2.1x MOIC.
In lieu of receiving the Liquidation Preference in cash (if applicable), each holder may elect to convert his or her shares of New Preferred Stock into shares of New Common Stock immediately prior to (and subject to the consummation of) a liquidation event or deemed liquidation event and share in the proceeds and other consideration with such conversion being sufficient to result in each holder receiving a number of shares of New Common Stock that would be economically equivalent to such holder receiving the Liquidation Preference in cash.
The New Preferred Stock will become redeemable at the holder’s option on or after the fifth anniversary of the issuance date, at a price equal to the Liquidation Preference. Prior to the fifth anniversary of the issuance date, New Preferred Stock will become redeemable at the holder’s option upon the occurrence of a breach of the Certificate of Designations but only during the continuation thereof or on or immediately prior to the consummation of any liquidation event or deemed liquidation event.
Upon a fundamental transaction, the Company shall have a call right to convert all of the then-outstanding shares of Preferred Stock (including any accrued and unpaid PIK Dividends thereon) into shares of New Common Stock immediately prior to and subject to the consummation of such fundamental transaction so that the holders share in the proceeds and other consideration of the fundamental transaction as holders of New Common Stock, with such conversion being sufficient to result in each holder receiving a number of shares of New Common Stock that would be economically equivalent to such holder receiving, as determined in good faith by the Board, (i) the Liquidation Preference, multiplied by the applicable make-whole redemption percentage plus (ii) if positive, the present value as of the call date of the expected amount of all remaining dividends that would accrue had the Company not exercised the call right between (inclusive of such dates) the call date and 5th anniversary of the issue date multiplied by the applicable make-whole redemption percentage.
Holders of New Preferred Stock are entitled to vote on an as-converted basis, giving hypothetical effect to the Conversion Return in the hypothetical conversion of New Preferred Stock to New Common Stock. The affirmative consent of the holders of a majority of the then-outstanding shares of New Preferred Stock, voting as a separate class, is required for certain matters related to New Preferred Stock.
As of March 31, 2020 (Successor), the New Preferred Stock had accumulated PIK Dividends of $3.78 per share and $25.8 million in the aggregate.
Because the New Preferred Stock may be redeemed in certain circumstances outside of the sole control of the Company (including at the option of the holder), but it is not mandatorily redeemable, the New Preferred Stock has been classified as mezzanine equity and initially recognized at fair value of $618.9 million as of October 31, 2019 (Successor). This amount has been reduced by the fair value of the bifurcated derivative liability as of October 31, 2019 (Successor) of $470.3 million, resulting in an initial value of $148.6 million.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Redeemable equity securities that are not currently redeemable, but are probable of becoming redeemable should be accreted to their redemption values. The Company assessed whether the New Preferred Stock is probable of becoming cash redeemable. An event outside the holder’s control may prevent an instrument from becoming otherwise redeemable, and in such circumstances, the probability that an intervening event will occur should be considered in determining whether an instrument is probable of becoming redeemable (and thus whether subsequent measurement is required). The Company determined that it is not probable that the New Preferred Stock will become cash redeemable as the Company expects that (1) settlement events outside of the holder’s control are more probable than not of occurring prior to a potential cash redemption date, and (2) upon occurrence of these events, the Company controls the ability to settle the New Preferred Stock using shares of New Common Stock, and (3) it is probable that the Company will have sufficient authorized, unissued shares of New Common Stock (in other words, it is not probable that the Company would be unable to settle in shares upon the occurrence of a triggering event). The Company continues to monitor the likelihood of any circumstance that would require the Company to settle the New Preferred Stock using cash. If it becomes probable that the New Preferred Stock will become cash redeemable, the Company will accrete to redemption value using an appropriate method.
The Company entered into an agreement to repurchase 142,721 shares of its New Common Stock and 98,784 shares of its New Preferred Stock at an aggregate purchase price of approximately $4.8 million in privately negotiated transactions (collectively, the “Repurchases”). The closing of the Repurchases is expected to occur immediately prior to the completion of the contemplated Merger and repurchased shares will be canceled.
The following is a summary of changes in outstanding shares of common stock:
| | | Shares | | | Weighted Average Price Per Share | |
Outstanding as of March 31, 2018 (Predecessor)
| | | 35,526,625 | | | | |
Exercise of stock options
| | | 174,578 | | | $ | 16.21 | |
Issuance of restricted stock
| | | 217,713 | | | $ | 6.93 | |
Outstanding as of March 31, 2019 (Predecessor)
| | | 35,918,916 | | | | | |
Cancellation and discharged
| | | (35,918,916 | ) | | | | |
Outstanding as of October 31, 2019 (Predecessor)
| | | — | | | | | |
Issuance of Successor Common Stock
| | | 11,235,535 | | | | | |
Outstanding as of October 31, 2019 (Successor) | | | 11,235,535 | | | | | |
Issuance of Successor Common Stock
| | | 31 | | | $ | 19.25 | |
Outstanding as of March 31, 2020 (Successor)
| | | 11,235,566 | | | | | |
Dividends — In August 2017 (Predecessor), the Company suspended its quarterly dividend as part of a broader plan of reducing costs and improving liquidity. Prior to that, the Company paid quarterly dividends of $0.07 per share during the first quarter of fiscal year 2018 (Predecessor). For fiscal year 2018 (Predecessor), the Company paid dividends totaling $2.5 million to its stockholders. The declaration of future dividends is at the discretion of the Board and subject to the Company’s results of operations, financial condition, cash requirements and other factors and restrictions under applicable law and its debt instruments. No dividends were paid out in the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor) and fiscal year 2019 (Predecessor).
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings per Share
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The New Preferred Stock is not included on an if-converted basis under diluted earnings per common share because the conversion of the shares would be anti-dilutive. Diluted earnings per common share excludes options to purchase shares and restricted stock awards, which were outstanding during the period but were anti-dilutive, as follows:
| | | | | | | Predecessor | | | | | |
| | | Seven Months Ended October 31, | | | | Fiscal Year Ended March 31, | |
| | 2019 | | | | 2019
| | | | 2018
| |
| Options: | | | | | | | | | | | | |
| Outstanding | | | 3,175,849 | | | | 2,490,483 | | | | 2,890,140 | |
| Weighted average exercise price | | $ | 26.58 | | | $ | 34.20 | | | $ | 38.77 | |
Restricted stock awards: | | | | | | | | | | | | |
| Outstanding | | | 646,714 | | | | 581,677 | | | | 547,927 | |
Weighted average price | | $ | 8.51 | | | $ | 9.33 | | | $ | 21.00 | |
The following table sets forth the computation of basic and diluted earnings per share:
| | | | | | Predecessor
| | | | |
| | | Seven Months Ended October 31, | | |
Fiscal Year Ended March 31,
| |
| | | 2019
| | | 2019 | | | 2018 | |
Loss (in thousands): | | | | | | | | | |
Loss available to common stockholders – basic
| | $ | (836,414 | ) | | $ | (336,847 | ) | | $ | (194,684 | ) |
Interest expense on assumed conversion of 4½% Convertible Senior Notes, net of tax (1)
| | | — | | | | — | | | | — | |
Loss available to common stockholders
| | $ | (836,414 | ) | | $ | (336,847 | ) | | $ | (194,684 | ) |
Shares: | | | | | | | | | | | | |
Weighted average number of common shares outstanding – basic
| | | 35,918,916 | | | | 35,740,933 | | | | 35,288,579 | |
Assumed conversion of 4½% Convertible Senior Notes outstanding during period (1)
| | | — | | | | — | | | | — | |
Net effect of dilutive stock options, restricted stock units and restricted stock awards based on the treasury stock method | | | — | | | | — | | | | — | |
Weighted average number of common shares outstanding – diluted (2) | | | 35,918,916 | | | | 35,740,933 | | | | 35,288,579 | |
Basic loss per common share | | $ | (23.29 | ) | | $ | (9.42 | ) | | $ | (5.52 | ) |
Diluted loss per common share
| | $ | (23.29 | ) | | $ | (9.42 | ) | | $ | (5.52 | ) |
| (1) | Potentially dilutive shares issuable pursuant to the Warrant Transactions were not included in the computation of diluted income per share for the seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor) because to do so would have been anti-dilutive. |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | Successor | |
| | | Five Months Ended March 31, 2020 | |
Net income (in thousands): | | | |
Net income attributable to Bristow Group
| | $ | 139,228 | |
Less: PIK dividends (1) | | | (25,788 | ) |
| Income available to common stockholders – basic | | $ | 113,440 | |
Add: PIK dividends
| | | 25,788 | |
| Less: Change in fair value of preferred stock derivative liability | | $ | (184,140 | ) |
Loss available to common stockholders – diluted
| | $ | (44,912 | ) |
Shares: | | | | |
| Weighted average number of common shares outstanding – basic | | | 11,235,541 | |
Net effect of dilutive stock options and restricted stock awards (2) | | | — | |
Preferred shares as converted basis
| | | 9,292,207 | |
| Weighted average number of common shares outstanding – diluted | | | 20,527,748 | |
| | | | | |
Basic earnings per common share | | $ | 10.10 | |
Diluted loss per common share
| | $ | (2.19 | ) |
| (1) | See “Stockholders’ Investment, Common Stock and Preferred Stock” above for further details on PIK Dividends. |
| (2) | Potentially dilutive shares were not included in the calculation because to do so would have been anti-dilutive. See Note 14 for further details on stock options and restricted stock awards. |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accumulated Other Comprehensive Income (Loss)
The following table sets forth the changes in the balances of each component of accumulated other comprehensive income:
| | | Currency Translation Adjustments | | | Pension Liability Adjustments (1) | | | Unrealized loss on cash flow hedges (2) | | | Total | |
Balance as of March 31, 2017 (Predecessor)
| | $ | (149,721 | ) | | $ | (178,556 | ) | | $ | — | | | $ | (328,277 | ) |
Other comprehensive income (loss) before reclassification
| | | 30,196 | | | | 3,713 | | | | (414 | ) | | | 33,495 | |
| Reclassified from accumulated other comprehensive loss . | | | — | | | | 8,620 | | | | 68 | | | | 8,688 | |
Net current period other comprehensive income (loss)
| | | 30,196 | | | | 12,333 | | | | (346 | ) | | | 42,183 | |
Foreign currency exchange rate impact
| | | 40,459 | | | | (40,459 | ) | | | — | | | | — | |
Balance as of March 31, 2018 (Predecessor) | | | (79,066 | ) | | | (206,682 | ) | | | (346 | ) | | | (286,094 | ) |
Other comprehensive loss before reclassification
| | | (36,562 | ) | | | (13,175 | ) | | | (506 | ) | | | (50,243 | ) |
Reclassified from accumulated other comprehensive loss
| | | — | | | | 7,884 | | | | 464 | | | | 8,348 | |
| Net current period other comprehensive loss | | | (36,562 | ) | | | (5,291 | ) | | | (42 | ) | | | (41,895 | ) |
| Foreign currency exchange rate impact | | | (22,239 | ) | | | 22,239 | | | | — | | | | — | |
Balance as of March 31, 2019 (Predecessor)
| | | (137,867 | ) | | | (189,734 | ) | | | (388 | ) | | | (327,989 | ) |
Other comprehensive income (loss) before reclassification
| | | 23,004 | | | | — | | | | (1,828 | ) | | | 21,176 | |
| Reclassified from accumulated other comprehensive loss . | | | — | | | | — | | | | 1,146 | | | | 1,146 | |
Net current period other comprehensive income (loss)
| | | 23,004 | | | | — | | | | (682 | ) | | | 22,322 | |
Foreign currency exchange rate impact
| | | (1,551 | ) | | | 1,551 | | | | — | | | | — | |
Balance as of October 31, 2019 (Predecessor) . | | | (116,414 | ) | | | (188,183 | ) | | | (1,070 | ) | | | (305,667 | ) |
Fair value fresh-start adjustment
| | | 116,414 | | | | 188,183 | | | | 1,070 | | | | 305,667 | |
Balance as of October 31, 2019 (Predecessor)
| | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Balance as of October 31, 2019 (Successor) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Net current period other comprehensive income (loss) | | | (16,440 | ) | | | 6,389 | | | | 1,410 | | | | (8,641 | ) |
Balance as of March 31, 2020 (Successor) | | $ | (16,440 | ) | | $ | 6,389 | | | $ | 1,410 | | | $ | (8,641 | ) |
| (1) | Reclassification of amounts related to pension liability adjustments were included as a component of net periodic pension cost. For further details on additional pension liability recorded during fiscal year 2019, see Note 14. |
| (2) | Reclassification of amounts related to cash flow hedges were included as direct costs. |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 16 — SEGMENT INFORMATION
The Company conducts its business in one segment: industrial aviation services. The industrial aviation services global operations are conducted primarily through two hubs that include four regions as follows: Europe Caspian, Africa, Americas and Asia Pacific. The Europe Caspian region comprises all of the Company’s operations and affiliates in Europe and Central Asia, including Norway, the U.K. and Turkmenistan. The Africa region comprises all of the Company’s operations and affiliates on the African continent, including Nigeria and Egypt. The Americas region comprises all of the Company’s operations and affiliates in North America and South America, including Brazil, Canada, Guyana, Trinidad and the U.S. Gulf of Mexico. The Asia Pacific region comprises all of the Company’s operations and affiliates in Australia and Southeast Asia. Prior to the sale of BHLL and Aviashelf during the seven months ended October 31, 2019 (Predecessor), the Company had operations in Sakhalin, Russia, which is included in the Asia Pacific region. Prior to the sale of Eastern Airways on May 10, 2019 (Predecessor), the Company had fixed wing operations in the Europe Caspian region.
The following tables show region information reconciled to consolidated totals, and prepared on the same basis as the Company’s consolidated financial statements (in thousands):
| | | Successor | | | | | | Predecessor | |
| | | Five Months Ended March 31, | | | Seven Months Ended October 31, | | | Fiscal Year Ended March 31, | |
| | | 2020
| | | 2019
| | | 2019
| | | 2018
| |
| | | | | | | | | | | | | |
Region gross revenue from external customers: | | | | | | | | | | | | |
| Europe Caspian | | $ | 284,844 | | | $ | 428,660 | | | $ | 791,204 | | | $ | 793,630 | |
Africa
| | | 70,305 | | | | 111,896 | | | | 164,835 | | | | 195,681 | |
Americas
| | | 99,634 | | | | 140,551 | | | | 218,278 | | | | 217,671 | |
Asia Pacific
| | | 30,605 | | | | 75,722 | | | | 193,510 | | | | 222,500 | |
Corporate and other
| | | 375 | | | | 394 | | | | 1,835 | | | | 4,493 | |
| Total region gross revenue | | $ | 485,763 | | | $ | 757,223 | | | $ | 1,369,662 | | | $ | 1,433,975 | |
Intra-region gross revenue: | | | | | | | | | | | | | | | | |
Europe Caspian
| | $ | 599 | | | $ | 1,719 | | | $ | 7,577 | | | $ | 5,655 | |
Africa
| | | — | | | | 122 | | | | — | | | | — | |
Americas
| | | 2,038 | | | | 1,911 | | | | 5,100 | | | | 8,995 | |
Asia Pacific
| | | 1 | | | | 73 | | | | 58 | | | | — | |
Corporate and other
| | | — | | | | — | | | | 2 | | | | 27 | |
Total intra-region gross revenue
| | $ | 2,638 | | | $ | 3,825 | | | $ | 12,737 | | | $ | 14,677 | |
Consolidated gross revenue reconciliation: | | | | | | | | | | | | | | | | |
| Europe Caspian | | $ | 285,443 | | | $
| 430,379 | | | $ | 798,781 | | | $ | 799,285 | |
Africa
| | | 70,305 | | | | 112,018 | | | | 164,835 | | | | 195,681 | |
Americas
| | | 101,672 | | | | 142,462 | | | | 223,378 | | | | 226,666 | |
Asia Pacific
| | | 30,606 | | | | 75,795 | | | | 193,568 | | | | 222,500 | |
Corporate and other
| | | 375 | | | | 394 | | | | 1,837 | | | | 4,520 | |
Intra-region eliminations
| | | (2,638 | ) | | | (3,825 | ) | | | (12,737 | ) | | | (14,677 | ) |
| Total consolidated gross revenue | | $ | 485,763 | | | $ | 757,223 | | | $ | 1,369,662 | | | $ | 1,433,975 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(1) The above table represents disaggregated revenue from contracts with customers except for the following (in thousands):
| | | Successor | | | Predecessor | |
| | | Five Months Ended March 31, 2020 | | | Seven Months Ended October 31, 2019 | | | Fiscal Year Ended March 31, 2019 | |
Region revenue from external customers: | | | | | | | | | |
Europe Caspian
| | $ | 535 | | | $ | 726 | | | $ | 20,037 | |
Africa
| | | — | | | | — | | | | — | |
Americas
| | | 14,971 | | | | 18,627 | | | | 30,799 | |
Asia Pacific
| | | 20 | | | | 191 | | | | 274 | |
| Corporate and other | | | 70 | | | | — | | | | — | |
| Total region revenue | | $ | 15,596 | | | $ | 19,544 | | | $ | 51,110 | |
| | | Successor | | | | | | Predecessor | |
| | | March 31, | | | October 31, | | | Fiscal Year Ended March 31, | |
| | 2020 | | | 2019 | | | 2019 | | | 2018 | |
Earnings from unconsolidated affiliates, net of losses – equity method investments: | | | | | | | | | | | | |
Europe Caspian | | $ | 248 | | | $ | 168 | | | $ | 161 | | | $ | 191 | |
Americas
| | | 4,046 | | | | 6,100 | | | | 2,041 | | | | 16,263 | |
Corporate and other
| | | — | | | | 321 | | | | (403 | ) | | | (273 | ) |
| Total earnings from unconsolidated affiliates, net of losses – equity method investments | | $ | 4,294 | | | $ | 6,589 | | | $ | 1,799 | | | $ | 16,181 | |
Consolidated operating income (loss) reconciliation: | | | | | | | | | | | | | | | | |
Europe Caspian
| | $ | 19,334 | | | $ | 26,143 | | | $ | 12,874 | | | $ | 22,624 | |
Africa
| | | 10,154 | | | | 17,255 | | | | 13,499 | | | | 32,326 | |
Americas (1)
| | | 9,762 | | | | 13,391 | | | | 3,530 | | | | (72,083 | ) |
Asia Pacific
| | | (6,921 | ) | | | (33,653 | ) | | | (23,645 | ) | | | (24,290 | ) |
Corporate and other
| | | (36,970 | ) | | | (101,559 | ) | | | (195,740 | ) | | | (88,965 | ) |
Loss on disposal of assets
| | | (451 | ) | | | (3,768 | ) | | | (27,843 | ) | | | (17,595 | ) |
Total consolidated operating income (loss) (2) | | $ | (5,092 | ) | | $ | (82,191 | ) | | $ | (217,325 | ) | | $ | (147,983 | ) |
Capital expenditures: | | | | | | | | | | | | | | | | |
Europe Caspian
| | $ | 30,888 | | | $ | 34,670 | | | $ | 11,957 | | | $ | 24,797 | |
Africa
| | | 508 | | | | 609 | | | | 777 | | | | 3,769 | |
Americas
| | | 864 | | | | 1,281 | | | | 13,777 | | | | 2,523 | |
Asia Pacific
| | | 1,363 | | | | 1,593 | | | | 7,957 | | | | 6,795 | |
Corporate and other (3)
| | | 2,492 | | | | 3,421 | | | | 6,434 | | | | 8,403 | |
Total capital expenditures
| | $ | 36,115 | | | $ | 41,574 | | | $ | 40,902 | | | $ | 46,287 | |
Depreciation and amortization: | | | | | | | | | | | | | | | | |
Europe Caspian
| | $ | 14,898 | | | $ | 28,155 | | | $ | 50,737 | | | $ | 48,854 | |
Africa
| | | 2,274 | | | | 10,829 | | | | 16,113 | | | | 13,705 | |
Americas
| | | 4,168 | | | | 16,654 | | | | 28,300 | | | | 27,468 | |
Asia Pacific
| | | 3,836 | | | | 7,463 | | | | 16,735 | | | | 19,695 | |
Corporate and other
| | | 3,062 | | | | 7,763 | | | | 13,014 | | | | 14,320 | |
Total depreciation and amortization
| | $ | 28,238 | | | $ | 70,864 | | | $ | 124,899 | | | $ | 124,042 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | Successor | | | Predecessor | |
| | | March 31, 2020 | | | March 31, 2019 | |
Identifiable assets: | | | | | | |
Europe Caspian
| | $ | 1,096,022 | | | $ | 1,070,863 | |
Africa
| | | 235,165 | | | | 325,502 | |
Americas
| | | 319,015 | | | | 661,266 | |
Asia Pacific
| | | 166,229 | | | | 255,136 | |
Corporate and other (4)
| | | 128,830 | | | | 339,832 | |
| Total identifiable assets | | $ | 1,945,261 | | | $ | 2,652,599 | |
| | | Successor | | | Predecessor | |
| | | March 31, 2020 | | | March 31, 2019 | |
Investments in unconsolidated affiliates – equity method investments: | | | | | | |
Europe Caspian
| | $ | 575 | | | $ | 375 | |
Americas
| | | 76,483 | | | | 108,831 | |
Corporate and other
| | | — | | | | 2,711 | |
| Total investments in unconsolidated affiliates – equity method investments | | $ | 77,058 | | | $ | 111,917 | |
| (1) | Includes an impairment of the Company’s investment in Líder of $9.6 million for the five months ended March 31, 2020 (Successor) and $85.7 million for fiscal year 2018 (Predecessor). For further details, see Note 1. |
| (2) | Results for fiscal year 2019 (Predecessor) were positively impacted by a reduction to rent expense of $7.9 million (included in direct costs) impacting the Europe Caspian and Asia Pacific regions by $4.9 million and $3.0 million, respectively, related to OEM cost recoveries for ongoing aircraft issues. For further details, see Note 7. |
| (3) | Includes $2.3 million of construction in progress payments that were not allocated to business units in fiscal year 2018 (Predecessor). There were no construction in progress payments made in the five months ended March 31, 2020 (Successor), the seven months ended October 31, 2019 (Predecessor) and fiscal year 2019 (Predecessor). |
| (4) | Includes $7.8 million and $51.7 million of construction in progress within property and equipment on the Company’s consolidated balance sheets as of March 31, 2020 (Successor) and March 31, 2019 (Predecessor). The balance as of March 31, 2020 (Successor) primarily represents aircraft modifications and other miscellaneous equipment, tooling and building improvements currently in progress. The balance as of March 31, 2019 (Predecessor) primarily represents progress payments on aircraft to be delivered in future periods. During the seven months ended October 31, 2019 (Predecessor), the Company rejected its aircraft purchase agreement with Airbus and wrote-off $30.6 million of construction in progress. |
The Company attributes revenue to various countries based on the location where services are actually performed. Long-lived assets consist primarily of helicopters and fixed wing aircraft and are attributed to various countries based on the physical location of the asset at a given fiscal year-end. Information by geographic area is as follows (in thousands):
| | | | Successor
| | | | | | | | Predecessor | |
| | | | Five Months Ended March 31, | | | | Seven Months Ended October 31, | | | | Fiscal Year Ended March 31
| |
| | | | 2020 | | | | 2019 | | | | 2019 | | | | 2018 | |
Gross revenue:
| | | | | | | | | | | | | | | | |
United Kingdom
| | $ | 178,702 | | | $ | 265,189 | | | $ | 515,854 | | | $ | 530,948 | |
Norway
| | | 104,073 | | | | 160,695 | | | | 272,547 | | | | 258,878 | |
Nigeria
| | | 68,425 | | | | 111,896 | | | | 164,835 | | | | 195,681 | |
United States
| | | 43,901 | | | | 60,440 | | | | 105,243 | | | | 103,047 | |
Australia
| | | 30,606 | | | | 70,144 | | | | 170,461 | | | | 199,264 | |
Trinidad
| | | 18,563 | | | | 32,896 | | | | 52,463 | | | | 53,144 | |
Canada
| | | 21,139 | | | | 27,479 | | | | 43,970 | | | | 50,714 | |
Other countries
| | | 20,354 | | | | 28,484 | | | | 44,289 | | | | 42,299 | |
| | | $ | 485,763 | | | $ | 757,223 | | | $ | 1,369,662 | | | $ | 1,433,975 | |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | Successor | | | Predecessor | |
| | | March 31, 2020 | | | March 31, 2019 | |
Long-lived assets: | | | | | | |
United Kingdom
| | $ | 394,394 | | | $ | 600,714 | |
Nigeria
| | | 114,219 | | | | 255,989 | |
| United States | | | 106,046 | | | | 255,439 | |
Norway
| | | 77,836 | | | | 206,597 | |
Australia
| | | 95,110 | | | | 162,681 | |
Canada
| | | 50,068 | | | | 155,594 | |
Trinidad
| | | 16,676 | | | | 126,892 | |
Other countries
| | | 14,622 | | | | 18,560 | |
Construction in progress
| | | 7,783 | | | | 51,714 | |
| | | $ | 876,754 | | | $ | 1,834,180 | |
During the five months ended March 31, 2020 (Successor) and the seven months ended October 31, 2019 (Predecessor), the Company conducted operations in over 10 countries. Due to the nature of the Company’s principal assets, aircraft are regularly and routinely moved between operating areas (both domestic and foreign) to meet changes in market and operating conditions. During the five months ended March 31, 2020 (Successor), seven months ended October 31, 2019 (Predecessor), fiscal year 2019 (Predecessor) and fiscal year 2018 (Predecessor), one client accounted for 10% or more of the Company’s consolidated gross revenue. During the five months ended March 31, 2020 (Successor) and the seven months ended October 31, 2019 (Predecessor), the Company’s top ten customers accounted for 62% of consolidated gross revenue.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 17 — QUARTERLY FINANCIAL INFORMATION (Unaudited)
| | | | Predecessor
| | | | Successor | |
| | | | Three Months Ended June 30(1) | | | | Ended September 30(3) | | | | One Month Ended October 31(5) | | | | Two Months Ended December 31(5) | | | | Three Months Ended March 31(7) | |
| Fiscal year 2020 | | | | | | | (In thousands, except per share amounts) | | | | | |
Gross revenue
| | $ | 333,176 | | | $ | 318,220 | | | $ | 105,827 | | | $ | 200,924 | | | $ | 284,839 | |
Operating income (loss) (9) | | | (21,742 | ) | | | (62,096 | ) | | | 1,647 | | | | (1,885 | ) | | | (3,207 | ) |
Net income (loss) attributable to Bristow Group (9)
| | | (169,246 | ) | | | (162,974 | ) | | | (504,194 | ) | | | (152,512 | ) | | | 291,740 | |
Earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | |
Basic
| | $ | (4.71 | ) | | $ | (4.54 | ) | | $ | (14.04 | ) | | $ | (14.49 | ) | | $ | 24.59 | |
Diluted
| | $ | (4.71 | ) | | $ | (4.54 | ) | | $ | (14.04 | ) | | $ | (14.49 | ) | | $ | (1.26 | ) |
| | | Predecessor | |
| | | | | | Fiscal Quarter Ended | | | | |
| | | Three Months Ended June 30(2) | | | Three Months Ended September 30(4) | | | December 31(6) | | | Ended March 31(8) | |
| | | (In thousands, except per share amounts) |
| Fiscal year 2019 | | | | | | | | | | | | |
Gross revenue
| | $ | 366,668 | | | $ | 349,343 | | | $ | 329,858 | | | $ | 323,793 | |
Operating loss (9)
| | | (3,555 | ) | | | (129,448 | ) | | | (30,919 | ) | | | (53,403 | ) |
Net loss attributable to Bristow Group (9)
| | | (31,865 | ) | | | (143,947 | ) | | | (85,699 | ) | | | (75,336 | ) |
Loss per share: | | | | | | | | | | | | | | | | |
Basic
| | $ | (0.89 | ) | | $ | (4.02 | ) | | $ | (2.39 | ) | | $ | (2.10 | ) |
| Diluted | | $ | (0.89 | ) | | $ | (4.02 | ) | | $ | (2.39 | ) | | $ | (2.10 | ) |
| (1) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended June 30, 2019 (Predecessor) included: (a) a negative impact of $91.4 million, $78.7 million and $2.19, respectively, from organizational restructuring costs resulting professional fees related to the Chapter 11 Cases, lease termination costs resulting from the rejection of ten aircraft leases, debt related expenses from write-offs of discounts and financing fees and separation programs across the Company’s global organization designed to increase efficiency and reduce costs, (b) a negative impact of $56.3 million, $56.3 million and $1.57, respectively, on loss on sale of subsidiaries resulting from the sale of Eastern Airways, BHLL and Aviashelf and (c) negative impact of $10.8 million, $10.8 million and $0.30, respectively, from cost associated with the lease return costs of H225 aircrafts. Net loss and diluted loss per share for the fiscal quarter ended June 30, 2019 included: (a) a negative impact of $2.1 million and $0.06, respectively, related to the DIP Credit Agreement and (b) a negative impact of $0.7 million and $0.02, respectively, due to tax valuation allowances on deferred tax assets. |
| (2) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended June 30, 2018 (Predecessor) included: (a) a negative impact of $1.7 million, $1.7 million and $0.05, respectively, from organizational restructuring costs resulting from separation programs across the Company’s global organization designed to increase efficiency and reduce costs. |
| (3) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended September 30, 2019 (Predecessor) included: (a) a negative impact of $96.5 million, $83.8 million and $2.33, respectively, resulting from organizational restructuring costs related to professional fees related to the Chapter 11 Cases, H175 settlement charges from the rejection of the Company’s aircraft purchase contract for the 22 H175 helicopters, Backstop Commitment Agreement estimated fees, lease termination costs resulting from the rejection of ten aircraft leases, debt related expenses related to its DIP Credit Agreement, separation programs across its global organization designed to increase efficiency and reduce costs, corporate lease termination cost offset by a termination credit from the rejection of four H225 aircraft and (b) a negative impact of $62.1 million, $53.3 million and $1.48, respectively, from the impairments of $42.0 million of the H225 aircrafts, $17.5 million of Airnorth goodwill and $2.6 million of its investment in Sky Future Partners, (c) offset by a positive impact of $0.4 million, $0.4 million and $0.01, respectively, resulting from the cash received from the sale of Aviashelf. Net loss and diluted loss per share for the fiscal quarter ended September 30, 2019 included: (a) a negative impact of $1.5 million and $0.04, respectively, from the write-off of a portion of the deferred financing fees and discount related to a portion of its 8.75% Senior Secured Notes and (b) a negative impact of $2.6 million and $0.07, respectively, due to tax valuation allowances on deferred tax assets. |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(4) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended September 30, 2018 (Predecessor) included: (a) a negative impact of $2.7 million, $2.4 million and $0.07, respectively, from organizational restructuring costs resulting from separation programs across the Company’s global organization designed to increase efficiency and reduce costs, (b) a negative impact of $1.2 million, $1.0 million and $0.03, respectively, due to transaction cost resulting from announced agreement to acquire Columbia and (c) a negative impact of $117.2 million, $101.1 million and $2.83, respectively, due to loss on impairment ($87.5 million on H225 aircraft, $8.9 million impairment of H225 inventory and $20.8 million of Eastern Airways asset). Net loss and diluted loss per share for the fiscal quarter ended September 30, 2018 included a negative impact of $10.3 million and $0.29, respectively, due to tax valuation allowances on deferred tax assets. |
| (5) | Operating loss and net loss for the combined one month ended October 31, 2019 (Predecessor) and two months ended December 31, 2019 (Successor) included: (a) a negative impact of $448.1 million and $430.8 million, respectively, resulting from organizational restructuring costs relating to fresh-start accounting adjustments loss, professional fees related to emergence from Chapter 11, debt related expenses from write-offs of discounts and financing fees as well as fees incurred relating to the DIP Credit Agreement and the ABL Facility, write-off of corporate lease leasehold improvements offset by the gain on settlement of liabilities subject to compromise and the reversal of the Backstop Commitment Agreement, (b) a negative impact of $133.3 million and $133.3 million, respectively, from the fair value of preferred stock derivative liability, (c) a negative impact of $56.9 million and $56.9 million, respectively, resulting from conversion features in the DIP Facility triggered upon emergence from Chapter 11, (d) a negative impact of $15.0 million and $5.0 million, respectively, resulting from the DIP claims liability expense, (e) a negative impact of $10.0 million and $9.8 million, respectively, resulting from the non-cash amortization of PBH contract intangible assets, (f) a negative impact of $0.3 million and $0.3 million, respectively, resulting from transaction costs incurred as a result of the pending Merger with Era. Net loss for the combined one month ended October 31, 2019 (Predecessor) and two months ended December 31, 2019 (Successor) included: (a) a negative impact of $5.4 million due to tax valuation allowances on deferred tax assets. |
| (6) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended December 31, 2018 (Predecessor) included: (a) a negative impact of $2.4 million, $2.4 million and $0.07, respectively, from organizational restructuring costs resulting from separation programs across the Company’s global organization designed to increase efficiency and reduce costs and (b) a negative impact of $7.2 million, $5.7 million and $0.16, respectively, due to transaction cost resulting from announced agreement to acquire Columbia. Net loss and diluted loss per share for the fiscal quarter ended December 31, 2018 included a negative impact of $45.2 million and $1.26, respectively, due to tax valuation allowances and the Act. |
| (7) | Operating income and net income for the fiscal quarter ended March 31, 2020 (Successor) included: (a) a negative impact of $7.2 million and $5.7 million, respectively, resulting from professional fees related to post bankruptcy professional fees and organizational restructuring costs, (b) a negative impact of $6.0 million and $4.7 million, respectively, resulting from transaction costs incurred as a result of the pending Merger with Era, and (c) a negative impact of $5.5 million and $5.1 million, respectively, resulting from the non-cash amortization of PBH contract intangible assets. Net income for the fiscal quarter ended March 31, 2020 (Successor) included: (a) a positive impact of $317.5 million from the fair value of preferred stock derivative liability and (b) a negative impact of $0.1 million due to tax valuation allowances on deferred tax assets. |
| (8) | Operating loss, net loss and diluted loss per share for the fiscal quarter ended March 31, 2019 (Predecessor) included: (a) a negative impact of $5.0 million, $4.5 million and $0.13, respectively, from organizational restructuring costs resulting from separation programs across the Company’s global organization designed to increase efficiency and reduce costs, (b) a negative impact of $24.4 million, $19.3 million and $0.54, respectively, due to transaction cost resulting from announced agreement to acquire Columbia and (c) a negative impact of $1.0 million, $0.8 million and $0.02, respectively, due to CEO succession cost. Net loss and diluted loss per share for the fiscal quarter ended March 31, 2019 included a negative impact of $7.2 million and $0.20, respectively, due to tax valuation allowances and the Act. |
| (9) | The fiscal quarters ended June 30, 2019 (Predecessor), September 30, 2019 (Predecessor), combined one month ended October 31, 2019 (Predecessor) and two months ended December 31, 2019 (Successor) and March 31, 2020 (Successor) included $(3.8) million, $(0.2) million, $0.1 million and $(0.3) million, respectively, in gain (loss) on disposal of assets included in operating income (loss), which impacted net income (loss) by $(3.7) million, $(0.2) million, $1.3 million and $(1.5) million, respectively. The loss on disposal of assets included the fiscal quarters ended June 30, 2019 (Predecessor) and September 30, 2019 (Predecessor) increased diluted loss per share by $0.10 and $0.00, respectively. The fiscal quarters ended June 30, 2018 (Predecessor), September 30 2018 (Predecessor), December 31, 2018 (Predecessor) and March 31, 2019 (Predecessor) included $1.7 million, $1.3 million, $16.0 million and $8.9 million, respectively, in loss on disposal of assets included in operating loss, which also increased net loss by $1.3 million, $1.4 million, $12.5 million and $7.3 million, respectively, and diluted loss per share by $0.04, $0.04, $0.35 and $0.20, respectively. |
