UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
|
| | |
☒☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | September 30, 2020 |
For the quarterly period ended March 31, 2020 or OR
|
| |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from to |
For the transition period from_________to_________
Commission file number 1-35701
Era Group Inc.
(Exact Name of Registrant as Specified in Its Charter)
________________________________________
|
| | | | |
| Commission File Number | 001-35701 | |
Bristow Group Inc. |
(Exact name of registrant as specified in its charter) |
|
| | | |
Delaware | | 72-1455213 |
(State or Other Jurisdiction of Incorporation or Organization) | | (IRS Employer Identification No.) |
| | | |
945 Bunker Hill Rd.,3151 Briarpark Drive, Suite 650700
| | |
Houston, | Texas | | 7702477042 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(713-) 369-4700267-7600
(Registrant’s Telephone Number, Including Area Code)________________________________________ (Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
|
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | ERAVTOL | NYSE |
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | | | | | | | |
Large accelerated filer | | Accelerated filer | | Non-accelerated filer | | Smaller reporting company | | Emerging growth company |
¨☐ | | ý | | ¨ | ☑ | ☐ | ☐ | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒☑
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☑ No ☐
The total number of shares of common stock, par value $0.01 per share, outstanding as of May 1,November 2, 2020 was 21,525,383.29,710,809. The Registrant has no other class of common stock outstanding.
BRISTOW GROUP INC.
Table of Contents
INDEX
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| | | |
Part I. | | |
| | |
| Item 1. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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Part II. | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 5. | | |
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| Item 6. | | |
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PART I—I — FINANCIAL INFORMATION
| |
ITEM 1. | FINANCIAL STATEMENTS |
Item 1. Financial Statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Revenue: | | | | | | | | | | |
Operating revenue from non-affiliates | $ | 282,507 |
| | | $ | 291,348 |
| | | $ | 529,056 |
| | | $ | 595,478 |
|
Operating revenue from affiliates | 13,215 |
| | | 13,336 |
| | | 28,174 |
| | | 25,782 |
|
Reimbursable revenue from non-affiliates | 8,918 |
| | | 13,536 |
| | | 17,603 |
| | | 30,136 |
|
| 304,640 |
| | | 318,220 |
| | | 574,833 |
| | | 651,396 |
|
Costs and expenses: | | | | | | | | | | |
Operating expense | 231,953 |
| | | 236,655 |
| | | 422,389 |
| | | 494,414 |
|
Reimbursable expense | 8,919 |
| | | 12,840 |
| | | 17,567 |
| | | 28,974 |
|
Prepetition restructuring charges | 0 |
| | | 0 |
| | | 0 |
| | | 13,476 |
|
General and administrative | 39,268 |
| | | 37,820 |
| | | 74,791 |
| | | 72,590 |
|
Merger-related costs | 4,497 |
| | | 0 |
| | | 21,917 |
| | | 0 |
|
Depreciation and amortization | 18,537 |
| | | 31,303 |
| | | 34,893 |
| | | 62,642 |
|
Total costs and expenses | 303,174 |
| | | 318,618 |
| | | 571,557 |
| | | 672,096 |
|
| | | | | | | | | | |
Loss on impairment | (17,596 | ) | | | (62,101 | ) | | | (36,829 | ) | | | (62,101 | ) |
Loss on disposal of assets | (8,473 | ) | | | (230 | ) | | | (2,951 | ) | | | (4,017 | ) |
Earnings (losses) from unconsolidated affiliates, net of losses | 1,948 |
| | | 633 |
| | | (30 | ) | | | 2,980 |
|
Operating loss | (22,655 | ) | | | (62,096 | ) | | | (36,534 | ) | | | (83,838 | ) |
| | | | | | | | | | |
Interest income | 434 |
| | | 270 |
| | | 696 |
| | | 657 |
|
Interest expense | (13,445 | ) | | | (22,715 | ) | | | (25,949 | ) | | | (49,423 | ) |
Reorganization items | 0 |
| | | (93,943 | ) | | | 0 |
| | | (170,299 | ) |
Gain (loss) on sale of subsidiaries | 0 |
| | | 420 |
| | | 0 |
| | | (55,883 | ) |
Change in fair value of preferred stock derivative liability | 0 |
| | | 0 |
| | | 15,416 |
| | | 0 |
|
Gain on bargain purchase | 5,660 |
| | | 0 |
| | | 81,093 |
| | | 0 |
|
Other income (expense), net | 10,592 |
| | | (6,637 | ) | | | 13,978 |
| | | (10,510 | ) |
Total other income (expense) | 3,241 |
| | | (122,605 | ) | | | 85,234 |
| | | (285,458 | ) |
Income (loss) before income taxes | (19,414 | ) | | | (184,701 | ) | | | 48,700 |
| | | (369,296 | ) |
Benefit (provision) for income taxes | (8,578 | ) | | | 21,782 |
| | | (5,288 | ) | | | 37,289 |
|
Net income (loss) | (27,992 | ) | | | (162,919 | ) | | | 43,412 |
| | | (332,007 | ) |
Net (income) loss attributable to noncontrolling interests | 131 |
| | | (55 | ) | | | 204 |
| | | (213 | ) |
Net income (loss) attributable to Bristow Group | $ | (27,861 | ) | | | $ | (162,974 | ) | | | $ | 43,616 |
| | | $ | (332,220 | ) |
Income (loss) per common share(1): | | | | | | | | | | |
Basic | $ | (0.95 | ) | | | $ | (4.54 | ) | | | $ | 8.73 |
| | | $ | (9.25 | ) |
Diluted | $ | (0.95 | ) | | | $ | (4.54 | ) | | | $ | 5.09 |
| | | $ | (9.25 | ) |
Weighted average common shares outstanding(1): | | | | | | | | | | |
Basic | 29,357,959 |
| | | 35,918,916 |
| | | 20,230.285 |
| | | 35,918,916 |
|
Diluted | 29,357,959 |
| | | 35,918,916 |
| | | 34,031.657 |
| | | 35,918,916 |
|
(1) See Note 11 to the condensed consolidated financial statements for details on income (loss) per share and weighted average common shares outstanding.
The accompanying notes are an integral part of these condensed consolidated financial statements.
ERA GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) |
| | | | | | | |
| March 31, 2020 | | December 31, 2019 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 113,518 |
| | $ | 117,366 |
|
Receivables: | | | |
Trade, operating, net of allowance for doubtful accounts | 34,102 |
| | 32,730 |
|
Trade, dry-leasing | 5,754 |
| | 5,234 |
|
Tax receivables | 2,159 |
| | 2,860 |
|
Other | 15,006 |
| | 15,421 |
|
Inventories, net | 19,941 |
| | 20,066 |
|
Prepaid expenses | 3,412 |
| | 2,184 |
|
Total current assets | 193,892 |
| | 195,861 |
|
Property and equipment | 893,585 |
| | 895,063 |
|
Accumulated depreciation | (345,457 | ) | | (338,164 | ) |
Property and equipment, net | 548,128 |
| | 556,899 |
|
Operating lease right-of-use | 8,672 |
| | 9,468 |
|
Intangible assets | 92 |
| | 96 |
|
Other assets | 1,726 |
| | 2,191 |
|
Total assets | $ | 752,510 |
| | $ | 764,515 |
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued expenses | $ | 12,475 |
| | $ | 12,923 |
|
Accrued wages and benefits | 6,565 |
| | 10,554 |
|
Accrued interest | 3,309 |
| | 520 |
|
Accrued income taxes | 2,297 |
| | 3,612 |
|
Accrued other taxes | 1,539 |
| | 937 |
|
Accrued contingencies | 701 |
| | 598 |
|
Current portion of long-term debt | 17,901 |
| | 18,317 |
|
Other current liabilities | 3,310 |
| | 3,315 |
|
Total current liabilities | 48,097 |
| | 50,776 |
|
Long-term debt | 142,004 |
| | 141,832 |
|
Deferred income taxes | 101,984 |
| | 103,793 |
|
Operating lease liabilities | 7,103 |
| | 7,815 |
|
Deferred gains and other liabilities | 920 |
| | 745 |
|
Total liabilities | 300,108 |
| | 304,961 |
|
Commitments and contingencies (see Note 7) |
| |
|
Redeemable noncontrolling interest | 2,752 |
| | 2,812 |
|
Equity: | | | |
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,756,272 and 21,285,613 outstanding in 2020 and 2019, respectively, exclusive of treasury shares | 230 |
| | 224 |
|
Additional paid-in capital | 452,701 |
| | 452,009 |
|
Retained earnings | 7,463 |
| | 14,692 |
|
Treasury shares, at cost; 1,236,282 and 1,152,826 shares in 2020 and 2019, respectively | (10,744 | ) | | (10,183 | ) |
Total equity | 449,650 |
| | 456,742 |
|
Total liabilities, redeemable noncontrolling interest and stockholders’ equity | $ | 752,510 |
| | $ | 764,515 |
|
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Net income (loss) | $ | (27,992 | ) | | | $ | (162,919 | ) | | | $ | 43,412 |
| | | $ | (332,007 | ) |
Other comprehensive income (loss): | | | | | | | | | | |
Currency translation adjustments | 15,340 |
| | | (12,334 | ) | | | 18,486 |
| | | 4,565 |
|
Unrealized gain (loss) on cash flow hedges, net of tax benefit | (1,283 | ) | | | 1,124 |
| | | (2,164 | ) | | | 1,598 |
|
Currency translation adjustments attributable to noncontrolling interests | (14 | ) | | | 35 |
| | | (1 | ) | | | 24 |
|
Total comprehensive income (loss) | (13,949 | ) | | | (174,094 | ) | | | 59,733 |
| | | (325,820 | ) |
| | | | | | | | | | |
Net (income) loss attributable to noncontrolling interests | 131 |
| | | (55 | ) | | | 204 |
| | | (213 | ) |
Total comprehensive income (loss) attributable to Bristow Group Inc. | $ | (13,818 | ) | | | $ | (174,149 | ) | | | $ | 59,937 |
| | | $ | (326,033 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
|
| | | | | | | |
| Successor |
| September 30, 2020 | | March 31, 2020 |
| (Unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 301,404 |
| | $ | 196,662 |
|
Restricted cash | 2,789 |
| | 2,459 |
|
Accounts receivable | 216,638 |
| | 180,683 |
|
Inventories | 99,996 |
| | 82,419 |
|
Assets held for sale | 22,463 |
| | 32,401 |
|
Prepaid expenses and other current assets | 29,455 |
| | 29,527 |
|
Total current assets | 672,745 |
| | 524,151 |
|
Property and equipment | 1,085,087 |
| | 901,314 |
|
Less – Accumulated depreciation and amortization | (55,557 | ) | | (24,560 | ) |
Property and equipment, net | 1,029,530 |
| | 876,754 |
|
Investment in unconsolidated affiliates | 89,924 |
| | 110,058 |
|
Right-of-use assets | 281,164 |
| | 305,962 |
|
Other assets | 139,022 |
| | 128,336 |
|
Total assets | $ | 2,212,385 |
| | $ | 1,945,261 |
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ INVESTMENT | | | |
Current liabilities: | | | |
Accounts payable | $ | 62,668 |
| | $ | 52,110 |
|
Accrued wages, benefits and related taxes | 56,722 |
| | 42,852 |
|
Income taxes payable | 14,206 |
| | 1,743 |
|
Other accrued taxes | 7,950 |
| | 4,583 |
|
Deferred revenue | 14,829 |
| | 12,053 |
|
Accrued maintenance and repairs | 24,500 |
| | 31,072 |
|
Current portion of operating lease liabilities | 82,334 |
| | 81,484 |
|
Accrued interest and other accrued liabilities | 23,995 |
| | 26,342 |
|
Short-term borrowings and current maturities of long-term debt | 64,027 |
| | 45,739 |
|
Total current liabilities | 351,231 |
| | 297,978 |
|
Long-term debt, less current maturities | 580,342 |
| | 515,385 |
|
Accrued pension liabilities | 8,923 |
| | 17,855 |
|
Preferred stock embedded derivative | 0 |
| | 286,182 |
|
Other liabilities and deferred credits | 6,760 |
| | 4,490 |
|
Deferred taxes | 55,699 |
| | 22,775 |
|
Long-term operating lease liabilities | 197,888 |
| | 224,595 |
|
Total liabilities | $ | 1,200,843 |
| | $ | 1,369,260 |
|
Commitments and contingencies (Note 10) |
|
| |
|
Redeemable noncontrolling interests | 1,483 |
| | 0 |
|
Mezzanine equity preferred stock: $.0001 par value, 6,824,582 issued and outstanding as of March 31, 2020 (1) | 0 |
| | 149,785 |
|
Stockholders’ investment: | | | |
Common stock, $0.01 par value, 110,000,000 authorized; 29,813,734 and 11,235,566 outstanding as of September 30 and March 31, 2020, respectively (1) | 303 |
| | 1 |
|
Additional paid-in capital | 683,390 |
| | 295,897 |
|
Retained earnings | 326,721 |
| | 139,228 |
|
Treasury shares, at cost; 345,757 shares as of September 30, 2020 | (7,579 | ) | | 0 |
|
Accumulated other comprehensive income (loss) | 7,680 |
| | (8,641 | ) |
Total Bristow Group Inc. stockholders’ investment | 1,010,515 |
| | 426,485 |
|
Noncontrolling interests | (456 | ) | | (269 | ) |
Total stockholders’ investment | 1,010,059 |
| | 426,216 |
|
Total liabilities, mezzanine equity and stockholders’ investment | $ | 2,212,385 |
| | $ | 1,945,261 |
|
(1) Share information displayed as of March 31, 2020 does not take into account the impact of the 3:1 reverse stock split or the Merger.The accompanying notes are an integral part of these condensed consolidated financial statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands) |
| | | | | | | | |
| Six Months Ended September 30, |
| Successor | | | Predecessor |
| 2020 | | | 2019 |
Cash flows from operating activities: | | | | |
Net income (loss) | $ | 43,412 |
| | | $ | (332,007 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Depreciation and amortization | 45,675 |
| | | 62,642 |
|
Deferred income taxes | (1,345 | ) | | | (45,252 | ) |
Loss from extinguishment of debt | 615 |
| | | 0 |
|
Write-off of deferred financing fees | 0 |
| | | 4,038 |
|
Discount amortization on long-term debt | 7,957 |
| | | 1,520 |
|
Reorganization items, net | 0 |
| | | 119,333 |
|
(Gain) loss on disposal of assets | 2,951 |
| | | 4,017 |
|
Loss on impairment | 36,829 |
| | | 62,101 |
|
Loss on sale of subsidiaries | 0 |
| | | 55,883 |
|
Deferral of lease payments | 0 |
| | | 285 |
|
Gain on bargain purchase | (81,093 | ) | | | 0 |
|
Change in fair value of preferred stock derivative liability | (15,416 | ) | | | 0 |
|
Stock-based compensation | 7,192 |
| | | 1,526 |
|
Equity in earnings from unconsolidated affiliates less than (greater than) dividends received | 2,935 |
| | | 636 |
|
Increase (decrease) in cash resulting from changes in: | | | | |
Accounts receivable | 21,556 |
| | | (20,805 | ) |
Inventory, prepaid expenses and other assets | (8,075 | ) | | | (2,876 | ) |
Accounts payable, accrued expenses and other liabilities | (28,202 | ) | | | 31,794 |
|
Net cash provided by (used in) operating activities | 34,991 |
| | | (57,165 | ) |
Cash flows from investing activities: | | | | |
Capital expenditures | (7,372 | ) | | | (25,950 | ) |
Proceeds from asset dispositions | 52,140 |
| | | 5,003 |
|
Deposits on assets held for sale | 3,437 |
| | | 0 |
|
Cash transferred in sale of subsidiaries, net of cash received | 0 |
| | | (22,458 | ) |
Increase in cash from Era merger | 120,236 |
| | | 0 |
|
Net cash provided by (used in) investing activities | 168,441 |
| | | (43,405 | ) |
Cash flows from financing activities: | | | | |
Proceeds from borrowings | 0 |
| | | 225,585 |
|
Debt issuance costs | 0 |
| | | (14,130 | ) |
Repayment of debt and debt redemption premiums | (85,369 | ) | | | (99,228 | ) |
Partial prepayment of put/call obligation | 0 |
| | | (1,323 | ) |
Purchase of treasury shares | (6,428 | ) | | | 0 |
|
Old Bristow share repurchases | (4,807 | ) | | | 0 |
|
Net cash provided by (used in) financing activities | (96,604 | ) | | | 110,904 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (1,756 | ) | | | 4,406 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | 105,072 |
| | | 14,740 |
|
Cash, cash equivalents and restricted cash at beginning of period | 199,121 |
| | | 178,055 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 304,193 |
| | | $ | 192,795 |
|
Cash paid during the period for: | | | | |
Interest | $ | 14,467 |
| | | $ | 37,165 |
|
Income taxes | $ | 7,726 |
| | | $ | 8,631 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Investment and Mezzanine Equity
(Unaudited)
(In thousands, except share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Total Bristow Group Inc. Stockholders’ Investment | | | | |
| Redeemable Noncontrolling Interests | | Mezzanine equity preferred stock | | Common Stock | | Common Stock (Shares)(1) | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interests | | Total Stockholders’ Investment |
March 31, 2020 (Successor) | $ | 0 |
| | $ | 149,785 |
| | $ | 1 |
| | 11,235,566 |
| | $ | 295,897 |
| | $ | 139,228 |
| | $ | (8,641 | ) | | $ | 0 |
| | $ | (269 | ) | | $ | 426,216 |
|
Share repurchases | — |
| | (2,151 | ) | | — |
| | (142,721 | ) | | — |
| | 1,263 |
| | — |
| | — |
| | — |
| | 1,263 |
|
Preferred stock share conversion | — |
| | (146,448 | ) | | 4 |
| | 34,836,688 |
| | 270,678 |
| | 142,614 |
| | — |
| | — |
| | — |
| | 413,296 |
|
Elimination of Old Bristow stock | — |
| | — |
| | (5 | ) | | (45,929,533 | ) | | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exchange of common stock | — |
| | — |
| | 231 |
| | 23,026,894 |
| | (231 | ) | | — |
| | — |
| | — |
| | — |
| | — |
|
Era purchase price | — |
| | — |
| | 72 |
| | 7,175,029 |
| | 108,268 |
| | — |
| | — |
| | — |
| | — |
| | 108,340 |
|
Preferred stock compensation activity and conversion | — |
| | (1,186 | ) | | — |
| | — |
| | 6,370 |
| | — |
| | — |
| | — |
| | — |
| | 6,370 |
|
Restricted stock awards | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Purchase of Company common stock (tax withholding) | — |
| | — |
| | — |
| | (42,199 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 71,477 |
| | — |
| | — |
| | (73 | ) | | 71,404 |
|
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,278 |
| | — |
| | — |
| | 2,278 |
|
June 30, 2020 (Successor) | 0 |
| | 0 |
| | 303 |
| | 30,159,724 |
| | 680,987 |
| | 354,582 |
| | (6,363 | ) | | 0 |
| | (329 | ) | | 1,029,180 |
|
Share award amortization | — |
| | — |
| | — |
| | — |
| | 2,008 |
| | — |
| | — |
| | — |
| | — |
| | 2,008 |
|
Purchase of treasury shares | — |
| | — |
| | — |
| | (345,757 | ) | | — |
| | — |
| | — |
| | (7,579 | ) | | — |
| | (7,579 | ) |
Era purchase price adjustment | 1,501 |
| | — |
| | — |
| | (233 | ) | | 395 |
| | — |
| | — |
| | — |
| | — |
| | 395 |
|
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (14 | ) | | (14 | ) |
Net income (loss) | (18 | ) | | — |
| | — |
| | — |
| | — |
| | (27,861 | ) | | — |
| | — |
| | (113 | ) | | (27,974 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,043 |
| | — |
| | — |
| | 14,043 |
|
September 30, 2020 (Successor) | $ | 1,483 |
| | $ | 0 |
| | $ | 303 |
| | 29,813,734 |
| | $ | 683,390 |
| | $ | 326,721 |
| | $ | 7,680 |
| | $ | (7,579 | ) | | $ | (456 | ) | | $ | 1,010,059 |
|
(1) Certain shares were reclassified out of common stock issued and into un-issued
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Investment and Mezzanine Equity
(Unaudited)
(In thousands, except share amounts)
ERA GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except share and per share amounts) |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Revenues:
| | | |
Operating revenues | $ | 53,980 |
| | $ | 47,830 |
|
Dry-leasing revenues | 3,076 |
| | 3,463 |
|
Total revenues | 57,056 |
| | 51,293 |
|
Costs and expenses: | | | |
Operating | 38,506 |
| | 36,696 |
|
Administrative and general | 12,745 |
| | 8,875 |
|
Depreciation and amortization | 9,507 |
| | 9,450 |
|
Total costs and expenses | 60,758 |
| | 55,021 |
|
Loss on asset dispositions, net | (34 | ) | | (124 | ) |
Operating loss | (3,736 | ) | | (3,852 | ) |
Other income (expense): | | | |
Interest income | 749 |
| | 752 |
|
Interest expense | (3,439 | ) | | (3,461 | ) |
Foreign currency losses, net | (1,704 | ) | | (126 | ) |
Other, net | 10 |
| | (11 | ) |
Total other income (expense) | (4,384 | ) | | (2,846 | ) |
Loss before income taxes and equity earnings | (8,120 | ) | | (6,698 | ) |
Income tax benefit | (831 | ) | | (1,588 | ) |
Loss before equity earnings | (7,289 | ) | | (5,110 | ) |
Equity loss, net of tax | — |
| | (975 | ) |
Net loss | (7,289 | ) | | (6,085 | ) |
Net loss attributable to noncontrolling interest in subsidiary | 60 |
| | 142 |
|
Net loss attributable to Era Group Inc. | $ | (7,229 | ) | | $ | (5,943 | ) |
| | | |
Loss per common share, basic and diluted | $ | (0.35 | ) | | $ | (0.28 | ) |
| | | |
Weighted average common shares outstanding: | | | |
Basic | 20,702,670 |
| | 21,323,312 |
|
Diluted | 20,702,670 |
| | 21,323,312 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Bristow Group Inc. Stockholders’ Investment | | | | |
| Common Stock | | Common Stock (Shares) | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock | | Noncontrolling Interests | | Total Stockholders’ Investment |
March 31, 2019 (Predecessor) | $ | 386 |
| | 35,918,916 |
| | $ | 862,020 |
| | $ | 455,598 |
| | $ | (327,989 | ) | | $ | (184,796 | ) | | $ | 7,148 |
| | $ | 812,367 |
|
Issuance of common stock | — |
| | — |
| | 824 |
| | — |
| | — |
| | — |
| | — |
| | 824 |
|
Sale of subsidiaries | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (5,612 | ) | | (5,612 | ) |
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (11 | ) | | (11 | ) |
Net income (loss) | — |
| | — |
| | — |
| | (169,246 | ) | | 0 |
| | 0 |
| | 158 |
| | (169,088 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 17,362 |
| | — |
| | — |
| | 17,362 |
|
June 30, 2019 (Predecessor) | 386 |
| | 35,918,916 |
| | 862,844 |
| | 286,352 |
| | (310,627 | ) | | (184,796 | ) | | 1,683 |
| | 655,842 |
|
Issuance of common stock | — |
| | — |
| | 702 |
| | — |
| | — |
| | — |
| | — |
| | 702 |
|
Distributions paid to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,323 | ) | | (1,323 | ) |
Currency translation adjustments | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 35 |
|
Net income (loss) | — |
| | — |
| | — |
| | (162,974 | ) | | 0 |
| | 0 |
| | 55 |
| | (162,919 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | — |
| | (11,175 | ) | | — |
| | — |
| | (11,175 | ) |
September 30, 2019 (Predecessor) | $ | 386 |
| | 35,918,916 |
| | $ | 863,546 |
| | $ | 123,378 |
| | $ | (321,802 | ) | | $ | (184,796 | ) | | $ | 450 |
| | $ | 481,162 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ERA GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited, in thousands) |
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Net loss | | $ | (7,289 | ) | | $ | (6,085 | ) |
Comprehensive loss | | (7,289 | ) | | (6,085 | ) |
Comprehensive loss attributable to noncontrolling interest in subsidiary | | 60 |
| | 142 |
|
Comprehensive loss attributable to Era Group Inc. | | $ | (7,229 | ) | | $ | (5,943 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
ERA GROUP INC. CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN REDEEMABLE NONCONTROLLING INTEREST AND EQUITY (unaudited, in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2020 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | Era Group Inc. Stockholders’ Equity |
| | Redeemable Noncontrolling Interest | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income | | Total Equity |
December 31, 2019 | | $ | 2,812 |
| | | $ | 224 |
| | $ | 452,009 |
| | $ | 14,692 |
| | $ | (10,183 | ) | | $ | — |
| | $ | 456,742 |
|
Issuance of common stock: | | | | | | | | | | | | | | | |
Restricted stock grants | | — |
| | | 6 |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
|
Share award amortization | | — |
| | | — |
| | 698 |
| | — |
| | — |
| | — |
| | 698 |
|
Purchase of treasury shares | | — |
| | | — |
| | — |
| | — |
| | (561 | ) | | — |
| | (561 | ) |
Net loss | | — |
| | | — |
| | — |
| | (7,289 | ) | | — |
| | — |
| | (7,289 | ) |
Net loss attributable to redeemable noncontrolling interest | | (60 | ) | | | — |
| | — |
| | 60 |
| | — |
| | — |
| | 60 |
|
March 31, 2020 | | $ | 2,752 |
| | | $ | 230 |
| | $ | 452,701 |
| | $ | 7,463 |
| | $ | (10,744 | ) | | $ | — |
| | $ | 449,650 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2019 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | Era Group Inc. Stockholders’ Equity |
| | Redeemable Noncontrolling Interest | | | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Shares | | Accumulated Other Comprehensive Income | | Total Equity |
December 31, 2018 | | $ | 3,302 |
| | | $ | 219 |
| | $ | 447,298 |
| | $ | 18,285 |
| | $ | (2,476 | ) | | $ | 110 |
| | $ | 463,436 |
|
Issuance of common stock: | | | | | | | | | | | | | | | |
Restricted stock grants | | — |
| | | 4 |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
|
Employee Stock Purchase Plan | | — |
| | | 1 |
| | 589 |
| | — |
| | — |
| | — |
| | 590 |
|
Share award amortization | | — |
| | | — |
| | 807 |
| | — |
| | — |
| | — |
| | 807 |
|
Purchase of treasury shares | | — |
| | | — |
| | — |
| | — |
| | (5 | ) | | — |
| | (5 | ) |
Net loss | | — |
| | | — |
| | — |
| | (6,085 | ) | | — |
| | — |
| | (6,085 | ) |
Net loss attributable to redeemable noncontrolling interest | | (142 | ) | | | — |
| | — |
| | 142 |
| | — |
| | — |
| | 142 |
|
March 31, 2019 | | $ | 3,160 |
| | | $ | 224 |
| | $ | 448,690 |
| | $ | 12,342 |
| | $ | (2,481 | ) | | $ | 110 |
| | $ | 458,885 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ERA GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) |
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net loss | $ | (7,289 | ) | | $ | (6,085 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 9,507 |
| | 9,450 |
|
Share-based compensation | 698 |
| | 807 |
|
Interest income | (112 | ) | | (157 | ) |
Loss on asset dispositions, net | 34 |
| | 124 |
|
Debt discount amortization | 72 |
| | 67 |
|
Amortization of deferred financing costs | 246 |
| | 239 |
|
Foreign currency losses, net | 1,648 |
| | 126 |
|
Deferred income tax (benefit) expense | (1,809 | ) | | (3,533 | ) |
Equity earnings, net of tax | — |
| | 975 |
|
Changes in operating assets and liabilities: | | | |
(Increase) decrease in receivables | (1,440 | ) | | 493 |
|
(Increase) decrease in prepaid expenses and other assets | (743 | ) | | (452 | ) |
Decrease (increase) in accounts payable, accrued expenses and other liabilities | (2,944 | ) | | 581 |
|
Net cash provided by (used in) operating activities | (2,132 | ) | | 2,635 |
|
Cash flows from investing activities: | | | |
Purchases of property and equipment | (400 | ) | | (1,312 | ) |
Purchase of investments | — |
| | (5,000 | ) |
Principal payments on notes due from equity investees | — |
| | 2,334 |
|
Principal payments on third party notes receivable | 55 |
| | 104 |
|
Net cash used in investing activities | (345 | ) | | (3,874 | ) |
Cash flows from financing activities: | | | |
Payments on long-term debt | (416 | ) | | (542 | ) |
Proceeds from share award plans | — |
| | 590 |
|
Purchase of treasury shares | (561 | ) | | (5 | ) |
Net cash provided by (used in) financing activities | (977 | ) | | 43 |
|
Effects of exchange rate changes on cash and cash equivalents | (394 | ) | | 55 |
|
Net decrease in cash, cash equivalents and restricted cash | (3,848 | ) | | (1,141 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 117,366 |
| | 50,753 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 113,518 |
|
| $ | 49,612 |
|
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 332 |
| | $ | 353 |
|
Cash paid for income taxes | $ | 2,300 |
| | 14 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
ERABRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)(Unaudited)
| |
1. | BASIS OF PRESENTATION AND ACCOUNTING POLICY |
Note 1 — BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements include the accounts of EraBristow Group Inc. and its consolidated subsidiaries.entities. On January 23, 2020, Era Group Inc. (“Era”), Ruby Redux Merger Sub, Inc., a wholly owned subsidiary of Era (“Merger Sub”) and Bristow Group Inc. (“Old Bristow”) entered into an Agreement and Plan of Merger, as amended on April 22, 2020 (the “Merger Agreement”). On June 11, 2020, the merger (the “Merger”) contemplated by the Merger Agreement was consummated and Merger Sub merged with and into Old Bristow, with Old Bristow continuing as the surviving corporation and as a direct wholly owned subsidiary of Era. Following the Merger, Era changed its name to Bristow Group Inc., and Old Bristow changed its name to Bristow Holdings U.S. Inc. Unless the context otherwise indicates, any reference in this Quarterly Report on Form 10-Q, references to:
the “Company”, “Combined Company,” “Bristow”, “we”, “us” and “our” refer to the “Company”entity currently known as Bristow Group Inc. and formerly known as Era Group Inc., together with all of its current subsidiaries;
“Old Bristow” refers to the entity formerly known as Bristow Group Inc. and now known as Bristow Holdings U.S. Inc., together with its subsidiaries prior to the consummation of the Merger; and
“Era” refers to Era Group Inc. (currently known as Bristow Group Inc., the parent of the Combined Company) and its consolidated subsidiaries prior to consummation of the Merger.
Pursuant to the United States (“U.S.”) generally accepted accounting principles (“GAAP”), the Merger was accounted for as an acquisition by Old Bristow of Era even though Era was the legal acquirer and anyremained the ultimate parent of the Combined Company. As a result, upon the closing of the Merger, Old Bristow’s historical financial statements replaced Era’s historical financial statements for all periods prior to the completion of the Merger, and the financial condition, results of operations, comprehensive income and cash flows of Era have been included in those financial statements since June 12, 2020. Any reference to “Era Group”comparative period disclosures in the Quarterly Report on Form 10-Q refers to Era Group Inc. withoutOld Bristow.
Effective upon the closing of the Merger, the Company changed its subsidiaries. fiscal year-end from December 31 to March 31, to correspond with Old Bristow’s fiscal year-end. The Company’s fiscal year ends March 31, and fiscal years are referenced based on the end of such period. Therefore, the fiscal year ending March 31, 2021 is referred to as “fiscal year 2021”.
The condensed consolidated financial information for the three and six months ended March 31,September 30, 2020 (Successor) and September 30, 2019 (Predecessor) has been prepared by the Company in accordance with GAAP and has not been audited by its independent registered public accounting firm. Inpursuant to the opinionrules and regulations of management, all adjustments (consisting of normal recurring adjustments) have been made to fairly present the Company’sSEC for interim financial position as of March 31, 2020, its results of operations for the three months ended March 31, 2020information reporting on Quarterly Form 10-Q and 2019, its comprehensive income for the three months ended March 31, 2020 and 2019, its changes in equity for the three months ended March 31, 2020, and 2019, and its cash flows for the three months ended March 31, 2020 and 2019. Results of operations for the interim periods presented are not necessarily indicative of operating results for the full year or any future periods.
Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”)GAAP in the United States (“U.S.”) have been condensed or omitted.omitted from that which would appear in the annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s AnnualCurrent Report on Form 10-K8-K for the fiscal year ended December 31, 2019.
Certain of the Company’s operations are subject to seasonal factors. Operations in the U.S. Gulf of Mexico are often at their highest levels from April to September, as daylight hours increase, and are at their lowest levels from December through February, as daylight hours decrease.
The outbreak of the novel coronavirus (“COVID-19”) caused a significant decrease in oil and natural gas prices resulting from oversupply and demand weakness and also caused significant disruptions and volatility in the global marketplace towards the end the first quarter of 2020. These conditions continued through April 2020 and are expected to continue for at least the near future. These conditions were initially exacerbated by decisions by large oil producing countries that have now been altered, but the resolution has not led to a meaningful increase in oil and gas prices. While the decline in oil and natural gas prices did not have a material impact on the Company’s results of operations or financial condition during the three months ended March 31, 2020 (the “fiscal year 2020 Financial Statements”) filed with the Securities and Exchange Commission (the “SEC”) on June 17, 2020, referred to hereafter as the “ Financial Statement Form 8-K”.
The preparation of these financial statements and accompanying footnotes requires the Company to make estimates and assumptions; however, they include all adjustments of a sustained environmentnormal recurring nature which, in the opinion of depressed prices could havemanagement, are necessary for a material impactfair presentation of the condensed consolidated balance sheet, the condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of cash flows and the condensed consolidated statements of changes in stockholders’ investment and mezzanine equity. Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.
The condensed consolidated financial information found on its business and its liquidity. this Quarterly Form 10-Q has not been audited by the Company’s independent registered public accounting firm.
Basis of Consolidation.Consolidation
The consolidated financial statements include the accounts of EraBristow Group Inc., its wholly and majority-owned subsidiaries and entities that meet the criteria of variable interest entities (“VIEs”) of which the Company is the primary beneficiary. All significant inter-company accounts and transactions are eliminated in consolidation.
Revenue Recognition.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Coronavirus Update
The Company recognizes revenuesoutbreak of the disease caused by the novel coronavirus (“COVID-19”) caused a significant decrease in oil and natural gas prices resulting from demand weakness and over supply and also caused significant disruptions and volatility in the global marketplace in calendar year 2020. These conditions are expected to continue for flight servicesat least the near future. The depressed oil and emergency response servicesnatural gas price environment was initially exacerbated by decisions by large oil producing countries that have now been altered, but the resolution has not led to a meaningful increase in oil and gas prices, which remain below historical averages. For additional information, see Part II Item 1A “Risk Factors” and the “Recent Developments” section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).
Emergence from Voluntary Reorganization under Chapter 11
On May 11, 2019 (the “Petition Date”), Old Bristow and certain of its subsidiaries (collectively the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) seeking relief under Chapter 11 of Title 11 of the U.S. Code (the “Bankruptcy Code”). The Debtors’ Chapter 11 Cases were jointly administered under the caption In re: Bristow Group Inc., et al., Main Case No. 19-32713. During the pendency of the Chapter 11 Cases, the Debtors continued to operate their businesses and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the passingapplicable provisions of each day as the Company hasBankruptcy Code and orders of the right to consideration from its customers in an amount that corresponds directlyBankruptcy Court. On August 1, 2019, the Debtors filed with the valueBankruptcy Court their Joint Chapter 11 Plan of Reorganization, and on August 20, 2019, the Debtors filed their Amended Joint Chapter 11 Plan of Reorganization (as further modified on August 22, 2019, the “Amended Plan”) and the related Disclosure Statement (as further modified on August 22, 2019, the “Amended Disclosure Statement”). On October 8, 2019, the Bankruptcy Court entered an order approving the Amended Disclosure Statement and confirming the Amended Plan. The effective date of the Amended Plan (the “Effective Date”) occurred on October 31, 2019 at which point the Debtors emerged from the Chapter 11 Cases. Claims under the Bankruptcy Court approved debtor in possession (DIP) financing Old Bristow obtained while in bankruptcy were settled with the issuance of new common stock (the “Old Bristow Common Stock”) and new preferred stock (the “Old Bristow Preferred Stock”), both at a par of $0.0001, pursuant to the Company’s customerAmended Plan.
Upon Old Bristow’s emergence from bankruptcy, Old Bristow adopted fresh-start accounting in accordance with provisions of the performance completed to date. Therefore,Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) No. 852, “Reorganizations” (“ASC 852”), which resulted in Old Bristow becoming a new entity for financial reporting purposes on the Company has elected to exerciseEffective Date. Upon the right to invoice practical expedient in its adoption of ASC 606. The rightfresh-start accounting, the Company’s assets and liabilities were recorded at their fair values as of the fresh-start reporting date, October 31, 2019. As a result of the adoption of fresh-start accounting, Old Bristow’s consolidated financial statements subsequent to invoice represents a method for recognizing revenue over time using the output measure of “valueOctober 31, 2019 may not be comparable to the customer” which is an objective measureconsolidated financial statements prior to October 31, 2019. In this Quarterly Report on Form 10-Q, references to:
“Predecessor” refer to Old Bristow on and prior to October 31, 2019; and
“Successor” refer to the reorganized Old Bristow on and after November 1, 2019 until completion of an entity’s performance in a contract. The Company typically invoices its customers on a monthly basis for revenues earned during the prior month with payment termsMerger and after completion of 30 days. The Company’s customer arrangements do not contain any significant financing component for its customers.the Merger refer to the Combined Company.
Current Expected Credit Losses (CECL).(“CECL”) Customers
The Company’s customers are primarily international, independent and major integrated exploration, development and production companies, third party helicopter operators and the U.S. government.government agencies. The Company designates trade receivables as a single pool of assets based on itstheir short-term nature, similar customer base and risk characteristics. Customers are typically granted credit on a short-term basis, and related credit risks are considered minimal. The Company conducts periodic quantitative and qualitative analysis on historic customer payment trends, customer credit ratings and foreseeable economic conditions. Historically, losses on trade receivables have been immaterial and uncorrelated to each other. Based on these circumstances,analyses, the Company decides if additional reserve amounts are needed against the trade receivables asset pool on a case by case basis. Trade receivables are deemed uncollectible and removed from accounts receivable and the allowance for doubtful accounts when collection efforts have been exhausted. As of as of March 31,September 30, 2020 (Successor), the Company did not reserve any additional amounts for CECL.
Leases. As of September 30 and March 31, 2020 (Successor), the allowance for doubtful accounts related to accounts receivables was $1.3 million and $0.4 million, respectively, and primarily related to a customer in the U.S. Gulf of Mexico.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Guarantors of Securities
In March 2020, the SEC amended Rule 3-10 and 3-16 of Regulation S-X, CFR 210.1-01 through 210.3-16, regarding financial disclosure requirements for debt securities issued in registered offerings involving subsidiaries of the registrant as either issuers or guarantors. This amended rule narrows the circumstances that require separate financial statements or summarized financial disclosures of issuers and subsidiary guarantors and simplifies the summarized disclosures required in lieu of those statements. Under the new rule, comparative period information is no longer required. As a result of this amended rule, the Company has included narrative disclosures in lieu of separate financial statements. The Company determines if an arrangement is a lease at inceptionhas early adopted this new rule and has elected to provide the simplified disclosure related to its 7.750% Senior Notes due 2022 within the MD&A.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standard updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or during modification or renewal of an existing lease. Operating leases are maintained for a number of fixed assets including land, hangars, buildings, fuel tanks and tower sites. The right-of-use assets associated with these leases are reflected under long-term assets; the current portion of the long-term payables are reflected under other current liabilities; and the payables on lease agreements past one year are recorded as long-term liabilitiesexpected to have minimal impact on the Company’s consolidated balance sheets. For those contracts with termsfinancial position or results of twelve months or less, the lease expenseoperations.
Adopted
is recognized on a straight-line basis over the lease term and recorded in operating expenses on the consolidated statement of operations. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used to determine the present value of future payments. Most of the Company’s lease agreements allow the option of renewal or extension, which are considered a part of the lease term. When it is reasonably certain that a lease will be extended, this is incorporated into the calculations.
New Accounting Standards - Adopted.In June 2016, the FASB issued ASU No. 2016-13, 2019-04, “Measurement of Credit Losses on Financial Instruments” (ASU No. 2016-13), which sets forth the current expected credit loss model, a new forward-looking impairment model for certain financial instruments based on expected losses rather than incurred losses. The ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption of the standard was permitted. Entities were required to adopt ASU No. 2016-13 using a modified retrospective approach, subject to certain limited exceptions. Upon evaluating the impact of this ASU, the Company concluded that no additional reserves were necessary as historical losses were immaterial, and, based on the qualitative and quantitative analysis performed in accordance with ASC 326 requirements, the Company determined there was no reasonable expectation of credit losses associated with the Company’s trade receivables in the foreseeable future. The Company adopted ASU No. 2016-13 was adopted effective JanuaryApril 1, 2020, and such adoption did not have a material impact on itsthe condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurements” (ASU No. 2018-13, update to topic ASC-820), providing guidance for(Topic 820) modifying the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3disclosure requirements on fair value measurements. The amendment modifies, removes, and adds several disclosure requirements on fair value measurements in ASC 820, Fair Value Measurement. The amendment will be effective for the Company in fiscal year 2022, and early adoption is permitted. This disclosure requirement was adopted effective April 1, 2020 prospectively, and such adoption did not have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB modified ASU No. 2018-132018-14, “Compensation—Retirement Benefits—Defined Benefit Plans” (Subtopic 715-20), for changes to disclosure requirements for employers that sponsor defined benefit pension plans. Certain disclosure requirements were removed and certain disclosure requirements were added. The amendment also clarifies disclosure requirements for projected benefit obligations and accumulated benefit obligations in excess of respective plan assets. The amendment is effective Januarybeginning in the Company’s fiscal year 2021 financial statements, and early adoption is permitted. This disclosure requirement was adopted effective April 1, 2020 by removing the weighted-average expected long-term rate of return on assets in this Quarterly Report. Annual disclosure requirements will be reflected in the Annual Report.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software” (Subtopic
350-40), providing guidance that addresses the accounting for implementation costs associated with a hosted service. The guidance provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. The amendment is effective beginning in fiscal year 2021 financial statements, and early adoption is permitted. The guidance will be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. This disclosure requirement was adopted effective April 1, 2020 prospectively, and such adoption did not have a material impact on its condensed consolidated financial statements.
In October 2018, the FASB amended ASU No. 2018-17, “Targeted Improvements to Related Party Guidance for Variable Interest Entities” (Topic 810), the guidance for determining whether a decision-making fee is a variable interest. The amendments require organizations to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required in generally accepted accounting principles). Therefore, these amendments likely will result in more decision makers not consolidating VIEs. This amendment is effective beginning in the Company’s fiscal year 2021 financial statements, and early adoption is permitted. This disclosure requirement was adopted effective April 1, 2020, and such adoption did not have ana material impact on the condensed consolidated financial statements.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
In March 2020, the FASB issued ASU No. 2020-03, “Codification Improvements to Financial Instruments”, which makes improvements to financial instruments guidance. The standard is effective immediately for certain amendments and for fiscal years beginning after December 15, 2019. This accounting guidance was adopted effective April 1, 2020, and such adoption did not have a material impact on the condensed consolidated financial statements.
Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes” (Topic 740), new guidance to simplify the accounting for income taxes, which eliminates certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. This ASU also includes guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. The standard will be effective for the Company in fiscal year 2022 and early adoption is permitted. The Company is currently evaluating the effect this accounting guidance will have on its consolidated financial statements.
New Accounting Standards - Not Yet Adopted.In January 2020, the FASB issued ASU No. 2020-01, “Investments-Equity Securities” Topic 321,(Topic 321), “Investments-Equity Method and Joint Ventures” Topic 323 and “Derivatives and Hedging” Topic 815 (ASU No. 2020-01) as an update to ASU No. 2016-01 “Financial Instruments-Overall”, further clarifying the interactioncertain interactions between the guidance to account for certain equity securities under Topic 321, 323 and 815, and improve current GAAP by reducing diversity in practice and increasing comparability of accounting. The standard will be effective for the Company in fiscal year 2022, and early adoption is permitted. The Company has not yet adopted this accounting guidance and is currently evaluating the effect this accounting guidance will have on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform” (Topic 848). The guidance is intended to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The standard will be effective for the Company in fiscal year 2022. The Company has not yet adopted this accounting guidance and is currently evaluating the effect this accounting guidance will have on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options” (Subtopic 470-20) and “Derivatives and Hedging - Contracts in Entity's Own Equity” (Topic 815) as a means of simplifying and reducing the number of accounting models for convertible debt instruments and convertible preferred stock. The ASU also amends the guidance for derivatives scope exception for contracts in an entity's own equity. The goal being to reduce differences in accounting for similar contracts between different companies that are accounted for as derivatives by some and equity securities, equityby others. The standard will be effective for the Company in fiscal year 2022. The Company has not yet adopted this accounting guidance and is currently evaluating the effect this accounting guidance will have on its consolidated financial statements.
Note 2 — BUSINESS COMBINATIONS
Era Group Inc.
On June 11, 2020, the combination of Old Bristow with Era was successfully completed in an all-stock transaction with Era having issued shares of common stock (“Combined Company Common Stock”) to Old Bristow’s stockholders. The transaction was accounted for using the acquisition method investments,of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). In the Merger, Old Bristow merged with and certain derivative instruments. This ASU clarifies thatinto Merger Sub, a subsidiary of Era, with Old Bristow remaining as the surviving company should consider observable transactions that requireand as a companysubsidiary of Era, the ultimate parent of the Combined Company. Era is one of the largest helicopter operators in the world and the longest serving helicopter transport operator in the U.S., primarily servicing offshore oil and gas production platforms, drilling rigs and other installations. The transaction was structured as an all-stock, reverse-triangular merger, whereby Era issued shares of Combined Company Common Stock to either apply or discontinueOld Bristow stockholders, allowing it to qualify as a tax free reorganization for U.S. federal income tax purposes. Following the equityMerger, Era changed its name to Bristow Group Inc., and its common stock continued to trade on the NYSE under the new ticker symbol VTOL.
While Era was the legal acquirer in the Merger, Old Bristow was determined to be the accounting acquirer, based upon the terms of the Merger and other considerations including that: (i) immediately following completion of the Merger, Old Bristow stockholders owned approximately 77% of the outstanding shares of Combined Company Common Stock and pre-Merger holders of Era common stock (“Era Common Stockholders”) owned approximately 23% of the outstanding shares of Combined Company Common Stock and (ii) the board of directors of the Company consists of 8 directors, including 6 Old Bristow designees. The Merger was accounted for under the acquisition method of accounting under Topic 323,ASC 805, Business Combinations. The acquisition
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
method of accounting requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company completed its assessment of the fair value of assets acquired and liabilities assumed within the one-year period from the date of acquisition. The Company recorded measurement period adjustments due to additional information received primarily related to aircraft, redeemable noncontrolling interest and income taxes, resulting in an increase in bargain purchase gain of $5.7 million.
The acquisition date fair value of the consideration transferred consisted of the following (in thousands):
|
| | | |
Fair value of Combined Company Common Stock issued (1) | $ | 106,440 |
|
Fair value of accelerated stock awards (2) | 2,067 |
|
Fair value of exchanged stock awards (3) | 228 |
|
Total consideration transferred | $ | 108,735 |
|
Fair value of redeemable noncontrolling interest | 1,501 |
|
Total fair value of Era | $ | 110,236 |
|
___________________________
| |
(1) | Represents the fair value of Combined Company Common Stock retained by Era Common Stockholders based on the closing market price of Era shares on June 11, 2020, the acquisition date. |
| |
(2) | Represents the fair value of restricted share awards of Combined Company Common Stock held by Era employees that were accelerated upon consummation of the Merger. |
| |
(3) | Represents the amount of the fair value of restricted share awards of Combined Company Common Stock held by Era employees relating to the pre-Merger vesting period. |
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition, June 11, 2020 (in thousands):
|
| | | |
Assets acquired: | |
Cash and cash equivalents | $ | 120,236 |
|
Accounts receivable from non-affiliates | 35,079 |
|
Prepaid expenses and other current assets | 17,598 |
|
Inventories | 8,826 |
|
Property and equipment | 223,256 |
|
Right-of-use assets | 8,395 |
|
Other assets | 14,792 |
|
Total assets acquired | $ | 428,182 |
|
Liabilities assumed: | |
Accounts payable | $ | 9,686 |
|
Accrued wages, benefits and related taxes | 8,319 |
|
Income taxes payable | 1,791 |
|
Deferred revenue | 236 |
|
Current portion of operating lease liabilities | 1,711 |
|
Other accrued liabilities | 18,474 |
|
Short-term borrowings and current maturities of long-term debt | 17,485 |
|
Long-term debt, less current maturities | 136,704 |
|
Other liabilities and deferred credits | 1,404 |
|
Deferred taxes | 34,198 |
|
Long-term operating lease liabilities | 6,845 |
|
Total liabilities and redeemable noncontrolling interest assumed | $ | 236,853 |
|
| |
Net assets acquired | $ | 191,329 |
|
The Merger resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $81.1 million and is shown as a gain on bargain purchase on the condensed
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
consolidated statements of operations. The bargain purchase was a result of a combination of factors including depressed oil and gas prices and market volatility linked to the COVID-19 pandemic between the initial announcement and consummation of the Merger.
Specifically, the Era share price declined from $8.59 to $5.16 between the last trading day prior to the Merger announcement and the date the Merger closed. The aggregate Merger consideration was based on an exchange ratio that was fixed and did not fluctuate in the event that the value of Old Bristow’s common stock increased or Era’s common stock decreased, between the date of the Merger agreement and consummation of the Merger.
The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the purposesthree and six months ended September 30, 2020, as though the Merger had occurred on November 1, 2019, the effective date of applyingOld Bristow’s emergence from the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. With this update, the FASB aims to clarify that, when determining the accounting for certain forward contracts and purchase optionsChapter 11 Cases. The unaudited pro forma financial information is as follows (in thousands)(1):
|
| | | | | | | | |
| | Successor |
| | Three Months Ended September 30, 2020 | | Six Months Ended September 30, 2020 |
Total revenues | | $ | 304,640 |
| | $ | 609,963 |
|
Net income | | $ | (34,333 | ) | | $ | (10,015 | ) |
Net income attributable to Bristow Group Inc. | | $ | (34,200 | ) | | $ | (9,828 | ) |
_____________________(1) As a company should now consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. The FASB expects this ASU to reduce diversity in practice and increase comparabilityresult of the accounting for these interactions. This ASU is effective for interim and annual periods beginning after December 15,Merger, the Company was required to dispose of its investment in Lider which occurred on August 2020. The Company is evaluatinghad recorded an impairment in June 2020 of $18.7 million related to the potential impactfuture disposition of adopting this ASU but does not expect such adoptionthe investment. This impairment has been excluded from the pro forma combined Net income and Net income attributable to have a material impact onBristow Group Inc. due to its nonrecurring nature.
The amounts of revenue and earnings of Era included in the Company’s condensed consolidated financial statements.statements of operations from the acquisition date of June 11, 2020 are as follows (in thousands):
|
| | | | | | | | |
| | Successor |
| | Three Months Ended September 30, 2020 | | June 11, 2020 - September 30, 2020 |
Total revenues | | $ | 41,817 |
| | $ | 50,677 |
|
Net loss | | $ | (954 | ) | | $ | (5,247 | ) |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Note 3 — PROPERTY AND EQUIPMENT
Property and Equipment Acquisitions
The Company made capital expenditures as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Capital expenditures: | | | | | | | | | | |
Aircraft and equipment | $ | 4,291 |
| | | $ | 16,074 |
| | | $ | 7,048 |
| | | $ | 22,762 |
|
Land and buildings | 232 |
| | | 2,437 |
| | | 324 |
| | | 3,188 |
|
Total capital expenditures | $ | 4,523 |
| | | $ | 18,511 |
| | | $ | 7,372 |
| | | $ | 25,950 |
|
Property and Equipment Dispositions
The following table presents details on the aircraft sold or disposed of (in thousands, except for number of aircraft):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Number of aircraft sold or disposed of | 31 |
| | | 1 |
| | | 32 |
| | | 3 |
|
Deposits on assets held for sale | $ | 3,437 |
| | | $ | 0 |
| | | $ | 3,437 |
| | | $ | 0 |
|
Proceeds from sale or disposal of assets (1) | $ | 40,475 |
| | | $ | 1,799 |
| | | $ | 52,140 |
| | | $ | 5,003 |
|
Loss from sale or disposal of assets(2)
| $ | (8,473 | ) | | | $ | (230 | ) | | | $ | (2,951 | ) | | | $ | (4,017 | ) |
___________________________
| |
(1) | Includes proceeds received for sale of property and equipment (including aircraft) during each period. |
| |
(2) | Included in loss on disposal of assets on the condensed consolidated statements of operations. Includes gain (loss), net of sale or disposal of property and equipment (including aircraft) during each period. During the three and six months ended September 30, 2020 (Successor), 21 and 22 aircraft, respectively, were sold that were not in assets held for sale respectively. |
In connection with the sale of certain aircraft during the three months ended September 30, 2020, the Company agreed to sell certain related equipment and inventory. As a result, the Company recognized a $12.4 million loss on impairment to record those equipment and inventory items at the expected sales value. The equipment and inventory did not transfer title as of September 30, 2020; however, title is expected to transfer prior to March 31, 2021.
Note 4 — REVENUE RECOGNTION
Revenue Recognition
The Company derives its revenues primarily from oil and gas flight services and search and rescue services. A majority of the Company’s revenue is generated through 2 types of contracts: helicopter services and fixed wing services. Revenue is recognized when control of the identified distinct goods or services has been transferred to the customer, the transaction price is determined and allocated to the satisfied performance obligations and the Company has determined that collection has occurred or is probable of occurring.
The Company determines revenue recognition by applying the following steps:
| |
1. | Identify the contract with a customer; |
| |
2. | FAIR VALUE MEASUREMENTSIdentify the performance obligations in the contract;
|
| |
3. | Determine the transaction price; |
| |
4. | Allocate the transaction price to the performance obligations; and |
| |
5. | Recognize revenue as the performance obligations are satisfied. |
Operating revenue from the Company’s oil and gas line of service is derived mainly from fixed-term contracts with its customers. Fixed-term contracts typically have original terms of one to five years, subject to provisions permitting early termination by customers. Customers are typically invoiced on a monthly basis with payment terms of 30-60 days.
The following table shows the total revenue related to third party customers (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Revenue: | | | | | | | | | | |
Operating revenue from non-affiliates | $ | 282,060 |
| | | $ | 290,939 |
| | | $ | 528,189 |
| | | $ | 594,672 |
|
Operating revenue from affiliates | 3,267 |
| | | 5,365 |
| | | 7,861 |
| | | 9,840 |
|
Reimbursable revenue from non-affiliates | 8,918 |
| | | 13,536 |
| | | 17,603 |
| | | 30,136 |
|
Revenue from Contracts with Customers | 294,245 |
| | | 309,840 |
| | | 553,653 |
| | | 634,648 |
|
Other revenue from non-affiliates | 447 |
| | | 409 |
| | | 867 |
| | | 806 |
|
Other revenue from affiliates | 9,948 |
| | | 7,971 |
| | | 20,313 |
| | | 15,942 |
|
Total Revenue | $ | 304,640 |
| | | $ | 318,220 |
| | | $ | 574,833 |
| | | $ | 651,396 |
|
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Contract Assets, Liabilities and Receivables
The Company generally satisfies performance of contract obligations by providing helicopter and fixed wing services to its customers in exchange for consideration. The timing of performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. A contract asset exists when the Company has a contract with a customer for which revenue has been recognized (i.e., services have been performed), but customer payment is contingent on a future event (i.e., satisfaction of additional performance obligations). These contract assets are transferred to receivables when the right to consideration becomes unconditional. Contract liabilities relate to deferred revenue in which advance consideration is received from customers for contracts where revenue is recognized based on future performance of services.
As of September 30 and March 31, 2020 (Successor), receivables related to services performed under contracts with customers were $173.7 million and $148.3 million, respectively. During the six months ended September 30, 2020 (Successor), the Company recognized $2.2 million of revenue from outstanding contract liabilities. Contract liabilities related to services performed under contracts with customers were $7.9 million and $4.9 million as of September 30, 2020 (Successor) and March 31, 2020 (Predecessor), respectively. Contract liabilities are primarily generated by fixed wing services where customers pay for tickets in advance of receiving the Company’s services and advanced payments from helicopter services customers. There were 0 contract assets as of September 30 and March 31, 2020 (Successor).
There was $0.6 million and $1.0 million in revenues recognized from satisfied performance obligations related to prior periods (for example, due to changes in transaction price) for the three months and six months ended September 30, 2020 (Successor), respectively.
Remaining Performance Obligations
Remaining performance obligations represent firm contracts for which work has not been performed and future revenue recognition is expected. The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period and (2) the expected timing to recognize this revenue (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| Remaining Performance Obligations (Successor) |
| Six Months Ending March 31, 2021 | | Fiscal Year Ending March 31, | | Total |
| | 2022 | | 2023 | | 2024 | | 2025 and thereafter | |
Outstanding Service Revenue: | | | | | | | | | | | |
Helicopter contracts | $ | 223,773 |
| | $ | 243,575 |
| | $ | 198,487 |
| | $ | 171,741 |
| | 271,155 |
| | $ | 1,108,731 |
|
Fixed wing contracts | 718 |
| | 0 |
| | 0 |
| | 0 |
| | 0 |
| | 718 |
|
Total remaining performance obligation revenue | $ | 224,491 |
| | $ | 243,575 |
| | $ | 198,487 |
| | $ | 171,741 |
| | 271,155 |
| | $ | 1,109,449 |
|
Although substantially all of the Company’s revenue is derived under contract, due to the nature of the business, the Company does not have significant remaining performance obligations as its contracts typically include unilateral termination clauses that allow its customers to terminate existing contracts with a notice period of 30 to 365 days. The table above includes performance obligations up to the point where the parties can cancel existing contracts. Any applicable cancellation penalties have been excluded. As such, the Company’s actual remaining performance obligation revenue is expected to be greater than what is reflected in the table above. In addition, the remaining performance obligation disclosure does not include expected consideration related to performance obligations of a variable nature (i.e., flight services) as they cannot be reasonably and reliably estimated.
Note 5 — VARIABLE INTEREST ENTITIES AND OTHER INVESTMENTS IN SIGNIFICANT AFFILIATES
.
A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If the Company determines that it has operating power and the obligation to absorb losses or receive benefits, it will consolidate the VIE as the primary beneficiary, and if not, the Company does not consolidate.
As of September 30, 2020 (Successor), the Company had interests in 5 VIEs, Bristow Aviation Holdings Limited (“Bristow Aviation”), Impigra Aviation Holdings Limited (“Impigra”), Bristow Helicopters (Nigeria) Limited (“BHNL”), Pan African Airlines (Nigeria) Limited (“PAAN”) and YII 5668 Energy (“YII Energy”), of which the Company was the primary beneficiary, and had
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
no interests in VIEs of which the Company was not the primary beneficiary. See Note 3 to the fiscal year 2020 condensed consolidated financial statements for a description of these VIEs and other investments in significant affiliates.
Bristow Aviation — The Company owns 49% of Bristow Aviation’s common stock and a significant amount of its subordinated debt. Bristow Aviation is incorporated in England and, through its subsidiaries, holds all the outstanding shares in Bristow Helicopters Limited (“Bristow Helicopters”). Impigra, a British company owned 100% by U.K. Bristow employees is considered a VIE that the Company consolidates as the primary beneficiary and is expected to meet the requirements to satisfy a qualified U.K. investor requirement. As of September 30, 2020, the Company and Impigra owned 49% and 51%, respectively, of Bristow Aviation’s total outstanding ordinary shares. Bristow Aviation and its subsidiaries are exposed to similar operational risks as the Company and are therefore monitored and evaluated on a similar basis by management.
The following tables show summarized financial information for Bristow Aviation reflected on the Company’s condensed consolidated statements of operations and balance sheets (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Revenue | $ | 223,232 |
| | | $ | 276,568 |
| | | $ | 448,851 |
| | | $ | 571,723 |
|
Operating income (loss) | 259,435 |
| | | (13,692 | ) | | | 276,726 |
| | | (2,412 | ) |
Net income (loss) | 182,542 |
| | | (21,034 | ) | | | 121,207 |
| | | (383,882 | ) |
|
| | | | | | | |
| Successor |
| September 30, 2020 | | March 31, 2020 |
Total assets | $ | 1,092,018 |
| | $ | 1,030,096 |
|
Total liabilities | $ | 3,736,812 |
| | $ | 3,792,617 |
|
BHNL — is a joint venture in Nigeria in which Bristow Helicopters owns a 48% interest, a Nigerian company owned 100% by Nigerian employees owns a 50% interest and an employee trust fund owns the remaining 2% interest as of September 30, 2020 (Successor). BHNL provides aviation services to customers in Nigeria.
PAAN — is a joint venture in Nigeria with local partners in which the Company owns a 50.17% interest.
Other Significant Affiliates — Unconsolidated
Cougar — The Company owns a 25% voting interest and a 40% economic interest in Cougar Helicopters Inc. (“Cougar”), the largest offshore energy and SAR helicopter service provider in Canada. Cougar’s operations are primarily focused on serving the offshore oil and gas industry off Canada’s Atlantic coast and in the Arctic.
PAS— The Company has a 25% interest in Petroleum Air Services (“PAS”), an Egyptian corporation that provides helicopter and fixed wing transportation to the offshore energy industry in Egypt. As of September 30 and March 31, 2020 (Successor), the investment in PAS was $33.0 million and is included on the consolidated balance sheets in investment in unconsolidated affiliates.
Líder — During the six months ended September 30, 2020 (Successor), the Company recorded an $18.7 million non-cash impairment charge to its investment in Líder Táxi Aéreo S.A. (“Líder”), an unconsolidated affiliate in Brazil, upon evaluating its equity investment in the company. The Company initiated a partial dissolution process to exit its equity investment in Líder in July 2020. As a result of this process, the Company is no longer a shareholder of Líder.
The Company continues to evaluate its unconsolidated affiliates for indicators of other-than-temporary impairment in light of current market conditions. Changes in market conditions or contractual relationships in future periods could result in the identification of other-than-temporary impairment.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Note 6 — DEBT
Debt as of September 30 and March 31, 2020 (Successor) consisted of the following (in thousands):
|
| | | | | | | | |
| | September 30, 2020 | | March 31, 2020 |
PK Air Debt | | $ | 198,217 |
| | $ | 207,326 |
|
Macquarie Debt | | 145,232 |
| | 148,165 |
|
7.750% Senior Notes (1) | | 137,499 |
| | 0 |
|
Lombard Debt | | 139,399 |
| | 136,180 |
|
Promissory notes (2) | | 17,069 |
| | 0 |
|
Airnorth Debt | | 6,624 |
| | 7,618 |
|
Humberside Debt | | 329 |
| | 335 |
|
Term Loan | | 0 |
| | 61,500 |
|
Total debt | | 644,369 |
| | 561,124 |
|
Less short-term borrowings and current maturities of long-term debt | | (64,027 | ) | | (45,739 | ) |
Total long-term debt | | $ | 580,342 |
| | $ | 515,385 |
|
_________________
| |
(1) | The pre-Merger outstanding principal amount of Era’s 7.750% senior unsecured notes as of March 31, 2020 was $142.0 million, net of unamortized discounts and debt issuance costs. |
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(2) | The pre-Merger outstanding principal amount of Era’s promissory notes as of March 31, 2020 was $17.9 million. |
PK Air Debt — During the three and six months ended September 30, 2020 (Successor), the Company made $5.4 million and $10.6 million, respectively, in principal payments on the PK Air debt.
Macquarie Debt — During the three and six months ended September 30, 2020 (Successor), the Company made $2.4 million and $4.8 million, respectively, in principal payments on the Macquarie debt.
7.750% Senior Notes — On December 7, 2012, Era Group issued $200.0 million aggregate principal amount of its 7.750% senior unsecured notes due December 15, 2022 (the “7.750% Senior Notes”) and received net proceeds of $191.9 million. Interest on the 7.750% Senior Notes is payable semi-annually in arrears on June 15th and December 15th of each year. The 7.750% Senior Notes may be redeemed at any time and from time to time at the applicable redemption prices set forth in the indenture governing the 7.750% Senior Notes, plus accrued and unpaid interest, if any, to the redemption date. The indenture governing the 7.750% Senior Notes contains covenants that restrict the Company’s ability to, among other things, incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem the Company’s capital stock, prepay, redeem or repurchase certain debt, make loans and investments, sell assets, incur liens, enter into transactions with affiliates, enter into agreements restricting its subsidiaries’ ability to pay dividends, and consolidate, merge or sell all or substantially all of our assets. In addition, upon a specified change of control trigger event or specified asset sale, the Company may be required to repurchase the 7.750% Senior Notes. The payment obligations under the 7.750% Senior Notes are fully and unconditionally guaranteed by certain of the Company’s subsidiaries.
As of September 30, 2020 (Successor), the 7.750% Senior Notes had a carrying value of $137.5 million on the condensed consolidated balance sheets. In June 2020, in connection with and upon completion of the Merger, Era’s long-term debt less its current maturities were fair valued and a new value of $136.8 million was assigned to the 7.750% Senior Notes.
Lombard Debt — During the three and six months ended September 30, 2020 (Successor), the Company made $3.1 million and $6.1 million, respectively, in principal payment on the Lombard debt.
Promissory Notes — In 2010, Era entered into 2 promissory notes to purchase a heavy and medium helicopter, respectively. In December 2015, upon maturity of the notes, the then outstanding balances of $19.0 million and $5.9 million were refinanced. The notes require monthly principal payments of $0.1 million and less than $0.1 million with final payments of $12.8 million and $4.0 million, respectively. Both promissory notes are due in December 2020.
Term Loan Agreement — In connection with the closing of the Merger on June 11, 2020, the Company fully repaid the Term Loan by making $61.5 million in principal payments and $0.6 million in prepayment premiums.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
4½% Convertible Senior Notes due 2023— Prior to May 11, 2019, the remaining debt discount was being amortized to interest expense over the term of the 4½% Convertible Senior Notes using the effective interest rate. The effective interest rate for April 1, 2019 to May 11, 2019 (Predecessor) was 11.0%. Interest expense related to the 4½% Convertible Senior Notes was as follows (in thousands):
|
| | | |
| Predecessor |
| Six Months Ended September 30, 2019 |
Contractual coupon interest | $ | 715 |
|
Amortization of debt discount | 648 |
|
Total interest expense | $ | 1,363 |
|
As of May 11, 2019, Old Bristow determined that the 4½% Convertible Senior Notes were an allowed claim and therefore reclassified the balance to liabilities subject to compromise and discontinued accruing interest on these obligations. Contractual interest on the 4½% Convertible Senior Notes for the three and six months ended September 30, 2019 (Predecessor) was $1.6 million and $3.2 million, which is $1.6 million and $2.5 million in excess of reported interest expense for the three and six months ended September 30, 2019 (Predecessor).
ABL Facility— On April 17, 2018, 2 of Old Bristow’s subsidiaries entered into an asset-backed revolving credit facility (the “ABL Facility”). The ABL Facility matures in April 2023, subject to certain early maturity triggers related to maturity of other material debt or a change of control of the Company. Amounts borrowed under the ABL Facility are secured by certain accounts receivable owing to the borrower subsidiaries and the deposit accounts into which payments on such accounts receivable are deposited.
On August 18, 2020, the Company entered into a Deed of Amendment and Restatement, Accession, Transfer, Resignation and Confirmation Agreement (the “ABL Amendment”) relating to the ABL Facility (as amended by the ABL Amendment, the “Amended ABL”), by and among the Company, Old Bristow, Bristow Norway AS, Bristow Helicopters Limited and Bristow U.S. LLC, as borrowers and guarantors, the financial institutions from time to time party thereto as lenders and Barclays Bank PLC, in its capacity as agent and security trustee. The ABL Amendment amends the ABL Facility in order to, among other things, (i) make available to the borrowers an additional “last in, last out” tranche of revolving loan commitments available to the borrowers under the Amended ABL in an aggregate amount not to exceed $5.0 million, (ii) replace Old Bristow with the Company as the parent guarantor under the Amended ABL and (iii) permit the accession at a later date of certain domestic subsidiaries of the Company as borrowers under the Amended ABL and the addition of certain of their receivables to the borrowing base and the collateral for the Amended ABL. The interest rates applicable to loans made under the “last in, last out” tranche of revolving commitments under the Amended ABL are equal to either: (a) the ABR (as defined in the Amended ABL) plus 2.50% per annum or (b) LIBOR or NIBOR (each as defined in the Amended ABL) plus 3.50% per annum. Swingline loans made under the “last in, last out” tranche of revolving commitments under the Amended ABL bear interest at the ABR Rate (as defined in the Amended ABL) plus 2.50% per annum. As a result of the ABL Amendment, the Amended ABL provides for commitments in an aggregate amount of $80.0 million. The Company retains the ability under the Amended ABL to increase the total commitments up to a maximum aggregate amount of $115.0 million, subject to the terms and conditions therein.
As of September 30, 2020 (Successor), there were 0 outstanding borrowings under the Amended ABL nor had the Company made any draws during the three months ended September 30, 2020 (Successor). Letters of credit issued under the Amended ABL in the aggregate face amount of $9.2 million were outstanding on September 30, 2020 (Successor).
LIBOR Transition — In 2020, a number of regulators in conjunction with the FASB and the U.S. Federal Reserve announced their intention to suspend and replace the use of LIBOR by the beginning of calendar year 2021. The effects of this transition from LIBOR to an alternative reference rate may impact the Company’s current indebtedness that is tied to LIBOR, in addition to the potential overall financial market disruption as a result of this phase-out. The Company is currently evaluating the potential effects of this announcement on its underlying debt, but it does not expect the impact to be material.
Note 7 — FAIR VALUE DISCLOSURES
The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value. The fair values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these items.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
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 arethat reflect quoted prices in active markets(unadjusted) for identical assets or liabilities. liabilities in active markets.
Level 2 – inputs are inputs other thanthat reflect quoted prices includedfor identical assets or liabilities in Level 1 thatmarkets which are observable for the asset or liability, either directly or indirectly, includingnot active; quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active,markets; inputs other than quoted prices that are observable for the asset or liability,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.
Old Bristow Preferred Stock Embedded Derivative
The fair value of the Old Bristow Preferred Stock embedded derivative relied on the income approach which was derived from observable market data. Level 3, inputs are unobservable inputs that are supported by little or no market activityrequired significant estimates, judgments and are significantassumptions relating to the Company’s equity volatility, capitalization tables, term to exit and equity value. The Old Bristow Preferred Stock was converted into Old Bristow Common Stock immediately prior to consummation of the Merger.
Changes in the fair value of the assetsNew Preferred Stock derivative liability, carried at fair value, are reported as change in fair value of the Preferred Stock derivative liability in the condensed consolidated statements of operations. For the six months ended September 30, 2020 (Successor), the Company recognized non-cash expense of approximately $15.4 million due to an increase in the Preferred Stock derivative liability related to the embedded derivative in the New Preferred Stock.
The following table provides a rollforward of the preferred stock embedded derivative Level 3 fair value measurements for the six months ended September 30, 2020 (Successor):
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| | | | |
| | Significant Unobservable Inputs (Level 3) |
Derivative financial instruments: | | (in thousands) |
March 31, 2020 | | $ | 286,182 |
|
Change in fair value | | (15,416 | ) |
Preferred stock shares conversion | | (266,846 | ) |
Share repurchases | | (3,920 | ) |
September 30, 2020 | | $ | 0 |
|
The Old Bristow Preferred stock embedded derivative considered settlement scenarios which are further defined in Note 11 to the condensed consolidated financial statements. A number of the settlement scenarios required a settlement premium. The specified premium depended 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% Internal Rate of Return (the “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 liabilities.more. The fair value for the embedded derivative was determined using a “with” and “without” approach, first determining the fair value of the Old Bristow Preferred Stock (inclusive of all bifurcated features) with the features and comparing it with the fair value of an instrument with identical terms to the Old Bristow Preferred Stock without any of the bifurcated features (i.e., the preferred stock host).
The fair value of the Old Bristow Preferred Stock was estimated using an option pricing method (“OPM”) allocating the total equity value to the various classes of equity. As of June 11, 2020 (Successor), Old Bristow assumed an expected term of 6 years, a risk-free rate of 0.38% and volatility of 85%. Without the redemption or conversion features, the holders of the Old Bristow Preferred Stock would have had 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 exceeded the minimum return provided for under the COD (as defined herein). 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. The valuation as of June 11, 2020 resulted in a decline in fair value of the Old Bristow Preferred Stock embedded derivative of $15.4 million from March 31, 2020 and December 31, 2019,(Successor).
On June 11, 2020, immediately before the Company did not have any assets or liabilities that are measured at fair value on a recurring basis.
The estimated fair valuesMerger was executed, Old Bristow exercised its call right (the “Call Right’) pursuant to section 8 of the Company’s other financial assets and liabilities asCertificate of March 31, 2020 and December 31, 2019 were as follows (in thousands):Designation of the Old Bristow Preferred Stock (“COD”). This provision entitled Old Bristow to repurchase the shares upon a Fundamental Transaction (which included a merger or consolidation) for a repurchase price equal to (i) the Liquidation Preference plus (ii) the present value of the dividends that would have accrued from the call date
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
March 31, 2020 | | | | | | | |
LIABILITIES | | | | | | | |
Long-term debt, including current portion | $ | 159,905 |
| | $ | — |
| | $ | 155,120 |
| | $ | — |
|
| | | | | | | |
December 31, 2019 | | | | | | | |
LIABILITIES | | | | | | | |
Long-term debt, including current portion | $ | 160,149 |
| | $ | — |
| | $ | 166,691 |
| | $ | — |
|
to the 5th anniversary of the issuance date (had the Call Right not been exercised) multiplied by the Make-Whole Redemption Percentage (equal to 102% because the Call Right was exercised before the 3rd anniversary of the issuance date). Upon exercise of the Call Right, Old Bristow issued 5.17962 shares of Old Bristow Common Stock to the remaining holders of the Preferred Stock for each share of Preferred Stock held.
The carrying values of cashthe Old Bristow Preferred Stock were derecognized, including the Old Bristow Preferred Stock embedded derivative, and cash equivalents, receivablesrecognized the Old Bristow Common Stock issued to the holders of the Old Bristow Preferred Stock at its fair value. The difference between (a) the carrying value of the Old Bristow Preferred Stock embedded derivative plus the carrying value of the Old Bristow Preferred Stock host and accounts payable approximate(b) the fair value of the Old Bristow Common Stock paid as consideration for the Old Bristow Preferred Stock was recognized in retained earnings because the fair value of the Old Bristow Common Stock was less than the combined carrying values of the Old Bristow Preferred Stock host and embedded derivative. In addition, immediately prior to the Merger, Old Bristow repurchased 98,784 shares of the Old Bristow Preferred Stock and 142,721 shares of Old Bristow Common Stock. The repurchase of the Old Bristow Preferred Stock was accounted for in the same manner as the share-settled redemption described above in connection with the Merger.
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 was estimated using discounted cash flow analysis based on estimated current rates for similar types of arrangements. Considerable judgment was required in developing certain of the estimates of fair value, and, accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
Investments. In 2019, the Company purchased $5.0 millionThe carrying and fair value of corporate securities and later in 2019, the Company sold these corporate securities for cash proceeds of $4.4 million resulting in a net loss of $0.6 million.
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3. | ACQUISITIONS AND DISPOSITIONS |
Capital Expenditures. During the three months ended March 31, 2020, capital expenditures were $0.4 million and consisted primarily of helicopter spare parts. During the three months ended March 31, 2020 and 2019, the Company did 0t capitalize any interest. As of March 31, 2020 and December 31, 2019, construction in progress, which is a component of property and equipment, included capitalized interest of $0.7 million. A summary of changes to the Company’s operating helicopter fleet is as follows:
Equipment Additions - During the three months ended March 31, 2020 and 2019, the Company did 0t place any helicopters into service. The Company places helicopters in service once completion work has been finalized and the helicoptersdebt, excluding unamortized debt issuance costs, are ready for use.
Equipment Dispositions - During the three months ended March 31, 2020 and 2019, the Company did 0t sell or dispose of any material assets. During the three months ended March 31, 2020, the Company parted out 1 light-twin helicopter, and those parts are now available to repair and maintain other helicopters.
The Company leases land, hangars, buildings, fuel tanks and tower sites under operating lease agreements. The Company determines if an arrangement is a lease at inception, and many of these leases offer an option for renewal or extension. The adoption of ASC 842 allows the Company to retain its current classification of leases, and the optional practical expedience rule has allowed the use of the current-period adjustment method to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the current period rather than the restatement of prior year lease amounts. The majority of the bases from which the Company operates are leased, with current remaining terms between one and fifty-nine years. The lease expense on those contracts with initial terms of twelve months or less are recognized on a straight-line basis over the lease term and are not recorded on the balance sheet. The Company does not currently maintain any finance leases and has only operating lease agreements.
The Company’s maturity analysis of lease payments under operating leases that have a remaining term in excess of one year as of March 31, 2020 was as follows (in thousands):
|
| | | | |
| | Minimum Payments |
2020 | | $ | 1,657 |
|
2021 | | 1,715 |
|
2022 | | 1,234 |
|
2023 | | 1,186 |
|
2024 | | 987 |
|
Years subsequent to 2024 | | 8,498 |
|
Total future minimum lease payments | | 15,277 |
|
Less: imputed interest | | 6,452 |
|
Present value of lease liabilities | | $ | 8,825 |
|
|
| | | | | | | | | | | | | | | |
| Successor |
| Carrying Amount | | Level 1 | | Level 2 | | Level 3 |
September 30, 2020 | | | | | | | |
LIABILITIES | | | | | | | |
PK Air Debt | $ | 198,217 |
| | $ | 0 |
| | $ | 205,627 |
| | $ | 0 |
|
Macquarie Debt | 145,232 |
| | 0 |
| | 153,119 |
| | 0 |
|
7.750% Senior Notes | 137,499 |
| | 0 |
| | 136,889 |
| | 0 |
|
Lombard Debt | 139,399 |
| | 0 |
| | 150,211 |
| | 0 |
|
Promissory notes | 17,069 |
| | 0 |
| | 17,069 |
| | 0 |
|
Airnorth Debt | 6,624 |
| | 0 |
| | 6,778 |
| | 0 |
|
Humberside Debt | 329 |
| | 0 |
| | 329 |
| | 0 |
|
| $ | 644,369 |
| | $ | 0 |
| | $ | 670,022 |
| | $ | 0 |
|
March 31, 2020 | | | | | | | |
LIABILITIES | | | | | | | |
PK Air Debt | $ | 207,326 |
| | $ | 0 |
| | $ | 180,290 |
| | $ | 0 |
|
Macquarie Debt | 148,165 |
| | 0 |
| | 138,133 |
| | 0 |
|
Lombard Debt | 136,180 |
| | 0 |
| | 122,165 |
| | 0 |
|
Term Loan | 61,500 |
| | 0 |
| | 56,894 |
| | 0 |
|
Airnorth Debt | 7,618 |
| | 0 |
| | 7,221 |
| | 0 |
|
Humberside Debt | 335 |
| | 0 |
| | 335 |
| | 0 |
|
| $ | 561,124 |
| | $ | 0 |
| | $ | 505,038 |
| | $ | 0 |
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During the three months ended March 31, 2020 and 2019, the Company recognized $1.0 million and $0.9 millionThe carrying value is net of operating lease expense, respectively. Included in these amounts was $0.4 million and $0.3 million for contracts with remaining terms of less than one year for the three months ended March 31, 2020 and 2019, respectively.
Supplemental balance sheet information related to these leases as of March 31, 2020 and December 31, 2019 wereunamortized discount as follows (in thousands):
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| | | | | | | | |
| | March 31, 2020 | | December 31, 2019 |
Operating lease right-of-use asset | �� | $ | 8,672 |
| | $ | 9,468 |
|
Other current liabilities | | $ | 1,722 |
| | $ | 1,773 |
|
Long-term lease liabilities | | 7,103 |
| | 7,815 |
|
Total operating lease liabilities | | $ | 8,825 |
|
| $ | 9,588 |
|
|
| | | | | | | | |
| | Successor |
| | September 30, 2020 | | March 31, 2020 |
PK Air Debt | | $ | 11,095 |
| | $ | 12,620 |
|
Macquarie Debt | | 9,196 |
| | 11,063 |
|
7.750% Senior Notes | | 6,589 |
| | 0 |
|
Lombard Debt | | 23,817 |
| | 26,372 |
|
Airnorth Debt | | 339 |
| | 605 |
|
Total unamortized debt discount | | $ | 51,036 |
| | $ | 50,660 |
|
Other information related to these leases as of March 31, 2020 and December 31, 2019 were as follows: |
| | | | | | |
| | March 31, 2020 | | December 31, 2019 |
Weighted average remaining lease term | | 17 years |
| | 16 years |
|
Weighted average discount rate | | 6.15 | % | | 6.11 | % |
Cash paid for amounts included in the measurement of lease liabilities was $0.6 million and $0.5 million for the three months ended March 31, 2020 and 2019, respectively.BRISTOW GROUP INC. AND SUBSIDIARIES
The Company generates revenues as a lessor from its dry-leasing line of service that require a fixed monthly fee for the customer’s right to use the helicopter and, where applicable, additional charges as compensation for any support the Company may provide to the customer. Revenues from dry-leasing contracts are shown on the face of the statement of operations.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2018, the Company disposed of 6 H225 heavy helicopters through sales-type leases. In 2019, the Company completed the final sale of 2 of these helicopters and received cash proceeds of $5.0 million. During the three months ended March 31, 2020, the Company recognized $0.3 million of interest income on the remaining leases. As of March 31, 2020, the Company had remaining receivables of $13.4 million, all of which is due in 2020. These amounts are included in other receivables on the consolidated balance sheet.(Unaudited)
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5. | INCOME TAXESNote 8 — COMMITMENTS AND CONTINGENCIES |
During the three months ended March 31, 2020 and 2019, the Company recorded an income tax benefit of $0.8 million and $1.6 million, respectively, resulting in an effective tax rate of 10.2% and 23.7%, respectively.
During the three months ended March 31, 2020 and 2019, there were no new uncertain tax positions identified.
Amounts accrued for interest and penalties associated with unrecognized income tax benefits are included in other expense on the condensed consolidated statements of operations. As of March 31, 2020 and December 31, 2019, the gross amount of liability for accrued interest and penalties related to unrecognized tax benefits was less than $0.1 million.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security ("CARES") Act to provide certain relief as a result of the novel coronavirus pandemic (“COVID-19”). The Company is currently evaluating all aspects of the legislation for potential impacts on its financial statements.
On January 23, 2020, the Company entered into an agreement to merge (the “Merger”) with Bristow Group, Inc. (“Bristow”). The Merger is intended to qualify as a tax free ‘‘reorganization’’ within the meaning of Section 368(a) of the Internal Revenue Code (the "Code"). Transaction costs associated with the reorganization have been estimated for the three months ended March 31, 2020, and will be capitalized into the basis of the stock acquired upon execution of the Merger.
The Company’s borrowings as of March 31, 2020 and December 31, 2019 were as follows (in thousands):
|
| | | | | | | | |
| | March 31, 2020 | | December 31, 2019 |
7.750% Senior Notes (excluding unamortized discount) | | $ | 144,088 |
| | $ | 144,088 |
|
Senior secured revolving credit facility | | — |
| | — |
|
Promissory notes | | 17,901 |
| | 18,317 |
|
Total principal balance on borrowings | | 161,989 |
| | 162,405 |
|
Portion due within one year | | (17,901 | ) | | (18,317 | ) |
Unamortized debt issuance costs | | (1,219 | ) | | (1,320 | ) |
Unamortized discount, net | | (865 | ) | | (936 | ) |
Long-term debt | | $ | 142,004 |
| | $ | 141,832 |
|
7.750% Senior Notes. On December 7, 2012, Era Group issued $200.0 million aggregate principal amount of its 7.750% senior unsecured notes due December 15, 2022 (the “7.750% Senior Notes”) and received net proceeds of $191.9 million. Interest on the 7.750% Senior Notes is payable semi-annually in arrears on June 15th and December 15th of each year.
Revolving Credit Facility. On March 31, 2014, Era Group entered into the amended and restated senior secured revolving credit facility (the “Amended and Restated Revolving Credit Facility”). On March 7, 2018, Era Group entered into a Consent and Amendment No. 4 to the Amended and Restated Senior Secured Revolving Credit Facility Agreement (the “Amendment No. 4” and the Amended and Restated Revolving Credit Facility, as amended by Amendment No. 4, is referred to herein as the “Revolving Credit Facility”) that, among other things, (a) reduced the aggregate principal amount of revolving loan commitments from $200.0 million to $125.0 million, (b) extended the agreement’s maturity until March 31, 2021, (c) revised the definition of EBITDA to permit an add-back for certain litigation expenses related to the H225 helicopters, and (d) adjusted the maintenance covenant requirements to maintain an interest coverage ratio of not less than 1.75:1.00 and a senior secured leverage ratio of not more than 3.25:1.00.
The Revolving Credit Facility provides Era Group with the ability to borrow up to $125.0 million, with a sub-limit of up to $50.0 million for letters of credit, and matures in March 2021. Subject to the satisfaction of certain conditions precedent and the agreement by the lenders, the Revolving Credit Facility includes an “accordion” feature which, if exercised, will increase total commitments by up to $50.0 million.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at Era Group’s election, either a base rate or LIBOR, each as defined in the Revolving Credit Facility, plus an applicable margin. The applicable margin is based on the Company’s ratio of funded debt to EBITDA, as defined in the Revolving Credit Facility, and ranges from 1.25% to 2.50% on the base rate margin and 2.25% to 3.50% on the LIBOR margin. The applicable margin as of March 31, 2020 was 1.50% on the base rate margin and 2.50% on the LIBOR margin. In addition, the Company is required to pay a quarterly commitment fee based on the unfunded portion of the committed amount at a rate based on the Company’s ratio of funded debt to EBITDA, as defined in the Revolving Credit Facility, that ranges from 0.375% to 0.500%. As of March 31, 2020, the commitment fee was 0.375%.
The obligations under the Revolving Credit Facility are secured by a portion of the Company’s helicopter fleet and the Company’s other tangible and intangible assets and are guaranteed by Era Group’s wholly owned U.S. subsidiaries. The Revolving Credit Facility contains various restrictive covenants including an interest coverage ratio, a senior secured leverage ratio and an asset coverage ratio, each as defined in the Revolving Credit Facility, as well as other customary covenants including certain restrictions on the Company’s ability to enter into certain transactions, including those that could result in the incurrence of additional indebtedness and liens, the making of loans, guarantees or investments, sales of assets, payments of dividends or repurchases of capital stock, and entering into transactions with affiliates.
As of March 31, 2020, Era Group had 0 outstanding borrowings under the Revolving Credit Facility and issued letters of credit of $0.7 million. In connection with Amendment No. 4 entered into in 2018, the Company wrote off previously incurred debt issuance costs of $0.4 million and incurred additional debt issuance costs of $1.3 million. Such costs are included in other assets on the condensed consolidated balance sheets and are amortized to interest expense in the condensed consolidated statements of operations over the life of the Revolving Credit Facility.
Promissory Notes. During each of the three months ended March 31, 2020 and 2019, the Company made scheduled payments on other long-term debt of $0.4 million. The notes require monthly principal and interest payments of $0.1 million with a final payment of $16.8 million, due upon maturity in December 2020.
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7. | COMMITMENTS AND CONTINGENCIES
|
Fleet.Fleet — The Company’s unfunded capital commitments as of March 31,September 30, 2020 (Successor) consisted primarily of agreements to purchase helicopters and totaled $79.6$85.1 million, which is payable beginning in 2020fiscal year 2021 through 2021.fiscal year 2022. The Company also had $1.3 million of deposits paid on options not yet exercised. All of the Company’s capital commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability other than aggregate liquidated damages of $2.1 million.
Included in these commitments are orders to purchase 3 AW189 heavy helicopters and 5 AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered 2021.in fiscal year 2022. Delivery dates for the AW169 helicopters have yet to be determined. In addition, the Company had outstanding options to purchase up to 10 additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery in 2021fiscal year 2022 and 2022.fiscal year 2023. The Company may, from time to time, purchase aircraft for which it has no orders.
Brazilian Tax Disputes.Other Purchase Obligations — In connection with its ownershipAs of Aeróleo and its operations in Brazil,September 30, 2020 (Successor), the Company has several ongoing legal disputes related to the local, municipal and federal taxation requirements in Brazil, including assessments associated with the import and re-exporthad $9.6 million of its helicopters in Brazil. The legal disputes are related to: (i) municipal tax assessments arising under the authorities in Rio de Janeiro (for the period between 2000 and 2005) and Macaé (for the period between 2001 to 2006) (collectively, the “Municipal Tax Disputes”); (ii) social security contributions that one of its customers was required to remit from 1995 to 1998; (iii) penalties assessed due to its alleged failure to comply with certain deadlines related to the helicopters the Company imports and exports in and out of Brazil; and (iv) fines sought by taxing authorities in Brazil related to its use of certain tax credits used to offset certain social tax liabilities (collectively, the “Tax Disputes”).other purchase obligations representing non-cancelable PBH maintenance commitments.
The aggregate amount at issue for the Tax Disputes is $10.9 million. The Municipal Tax Disputes are the largest contributor to the total amount being sought from Aeróleo, with approximately $8.3 million at issue.
In addition to the foregoing Tax Disputes (and unrelated thereto), Aeróleo is engaged in two additional civil litigation matters relating to: (i) a dispute with its former tax consultant who has alleged that $0.7 million is due and payable as a contingency fee related to execution of certain tax strategies; and (ii) a fatal accident that occurred in 1983 that was previously settled with the plaintiffs’ in the U.S. (the “Civil Disputes”). With respect to the fatal accident, the plaintiffs are seeking to collect additional amounts in Brazil despite the previous settlement agreed upon by the parties in the U.S.
The Company continues to evaluate and assess various legal strategies for each of the Tax Disputes and the Civil Disputes. As is customary for certain legal matters in Brazil, Aeróleo has already deposited amounts as security into an escrow account to pursue further legal appeals in several of the Tax Disputes and the Civil Disputes. As of March 31, 2020, the Company has deposited $3.9 million into escrow accounts controlled by the court with respect to the Tax Disputes and the Civil Disputes, and the Company has fully reserved such amounts subject to final determination and the judicial release of such escrow deposits. These estimates are based on its assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s intentions and experience. Aeróleo plans to defend the cases vigorously. As of March 31, 2020, it is not possible to determine the outcome of the Tax Disputes or the Civil Disputes, but the Company does not expect that an outcome would have a material adverse effect on its business, financial position or results of operations.
General Litigation and Disputes
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.
In the normal course of business, the Company is involved in various litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. In addition, from time to time, the Company is involved in tax and other disputes with various government agencies. Management has used estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its condensed consolidated financial statements related thereto as appropriate. It is possible that a change in its estimates related to these exposures could occur, but the Company does not expect such changes in estimated costs or uninsured losses, if any, would have a material effect on its business, consolidated financial position or results of operations.
Note 9 — TAXES
The Company’s effective tax rate was (44.2)% and 11.8% during the three months ended September 30, 2020 (Successor) and September 30, 2019 (Predecessor), respectively, and 10.9% and 10.1% during the six months ended September 30, 2020 (Successor) and September 30, 2019 (Predecessor), respectively. The effective tax rate in the three and six months ended September 30, 2020 (Successor) includes the impact of utilization of net operating losses in certain foreign jurisdictions and adjustment to its valuation allowances against future realization of deductible business interest expense. The Company’s provision for income taxes for the interim period ended September 30, 2020 was prepared by applying the estimated annual income tax rate for the full fiscal year to income from continuing operations, excluding discrete items, for the reporting period. For the interim period ended June 30, 2020, the Company utilized the discrete effectively tax rate method to report its provision for income taxes.
The relationship between the Company’s provision for or benefit from income taxes and the Company’s pre-tax book income can vary significantly from period to period considering, among other factors, (a) the overall level of pre-tax book income, including asset sales, (b) changes in the blend of income that is taxed based on gross revenues or at high effective tax rates versus pre-tax book income or at low effective tax rates and (c) the Company’s geographical blend of pre-tax book income. Consequently, the Company’s income tax expense or benefit does not change proportionally with the Company’s pre-tax book income or loss. Significant decreases in the Company’s pre-tax book income typically result in higher effective tax rates, while significant increases in pre-tax book income can lead to lower effective tax rates, subject to the other factors impacting income tax expense noted above. The change in the Company’s effective tax rate excluding discrete items for the three and six months ended September 30, 2020 (Successor) compared to the three and six months ended September 30, 2019 (Predecessor) primarily related to changes in the blend of earnings taxed in relatively high taxed jurisdictions versus low taxed jurisdictions and nondeductible professional fees related to the Merger. The six months ended September 30, 2020 (Successor) income taxes include a benefit of $17.0 million related to the bargain purchase gain and an expense of $3.9 million from the impairment of the Company’s investment in Líder. Additionally, the Company increased its valuation allowances by $2.8 million and $3.6 million for the three months ended September 30, 2020 (Successor) and September 30, 2019 (Predecessor), respectively, and decreased its valuation allowances by
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
$6.2 million and increased its valuation allowances by $3.3 million for the six months ended September 30, 2020 (Successor) and September 30, 2019 (Predecessor), respectively, which also impacted the Company’s effective tax rate.
Valuation allowances represent the reduction of the Company’s deferred tax assets. The Company evaluates its deferred tax assets quarterly, which requires significant management judgment to determine the recoverability of these deferred tax assets by assessing whether it is more likely than not that some or all of the deferred tax asset will be realized before expiration. After considering all available positive and negative evidence using a “more likely than not” standard, the Company believes it is appropriate to value against deferred tax assets related to foreign tax credits and certain foreign net operating losses. For the three months ended September 30, 2019 (Predecessor), the Company released valuation allowances of $0.2 million related to net operating losses in certain foreign jurisdictions and deductible business interest expense. For the six months ended September 30, 2020 (Successor) and September 30, 2019 (Predecessor), the Company released valuation allowances of $9.6 million and $7.2 million, respectively, related to net operating losses in certain foreign jurisdictions and deductible business interest expense, respectively.
The benefit of an uncertain tax position taken or expected to be taken on an income tax return is recognized in the condensed consolidated financial statements at the largest amount that is more likely than not to be sustained upon examination by the relevant taxing authority. Interest and penalties, if any, related to uncertain tax positions would be recorded in interest expense and other expense, respectively.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Note 10 — SHARE-BASED COMPENSATION AND OTHER EMPLOYEE BENEFIT PLANS
Management Incentive Plan
On the Effective Date, the Compensation Committee of Old Bristow’s Board adopted the 2019 Management Incentive Plan (the “MIP”). At the time of its adoption, the MIP served as an equity-based compensation plan for directors, officers and participating employees and other service providers of Old Bristow and its affiliates, pursuant to which Old Bristow was permitted to issue awards covering shares of the Old Bristow Common Stock and Old Bristow Preferred Stock. During the five months ended March 31, 2020 (Successor), Old Bristow awarded 188,210 shares of restricted Old Bristow Preferred Stock, 312,606 shares of restricted Old Bristow Common Stock, 113,081 Old Bristow Preferred Stock options and 265,049 Old Bristow Common Stock options. Upon the closing of the Merger, these awards converted into 656,617 shares of restricted Combined Company Common Stock and 433,283 stock options to purchase Combined Company Common Stock, of which 73,131 shares of restricted Combined Company Common Stock and 48,448 Combined Company Common Stock options vested and 227,884 shares of restricted of Combined Company Common Stock and 151,307 Combined Company Common Stock options forfeited on June 11, 2020 (Successor). Upon the closing of the Merger, 151,768 shares of unvested Combined Company restricted stock awards previously issued under the Era Group Inc. 2012 Share Incentive Plan (the “2012 Incentive Plan”) remained unvested.
Total stock based compensation expense, which includes stock options and restricted stock was $2.0 million and $7.2 million for the three and six months ended September 30, 2020 (Successor), respectively.
On June 17, 2020 (Successor), the Company awarded 150,001 shares of Combined Company performance restricted stock units at an average grant date fair value of $7.73 and 150,001 stock options to purchase Combined Company Common Stock at a grant date fair value of $10.99 to certain senior executives. The performance restricted stock vests on a cliff-basis after three years based on certain stock price performance targets. The following table shows the assumptions used to compute the stock-based compensation expense for stock options granted on June 17, 2020 (Successor):
|
| | |
8. | EARNINGS (LOSS) PER COMMON SHARE Common Stock Options |
Risk free interest rate | 0.5 | % |
Expected life (years) | 6.5 |
|
Volatility | 80.0 | % |
Weighted average exercise price of options granted | 15.76 |
|
Weighted average grant-date fair value of options granted | 10.99 |
|
During the three months ended September 30, 2020, the Combined Company awarded 218,088 shares of restricted stock units at an average grant date fair value $19.41 per share and 11,667 stock options at a grant date fair value of $14.56.
Pension Plans
The components of net periodic pension cost (benefit) other than the service cost component are included in other income (expense), net on the Company’s condensed consolidated statement of operations. The following table provides a detail of the components of net periodic pension cost (benefit) (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Service cost for benefits earned during the period | $ | 304 |
| | | $ | 152 |
| | | $ | 595 |
| | | $ | 311 |
|
Interest cost on pension benefit obligation | 2,334 |
| | | 2,799 |
| | | 4,576 |
| | | 5,718 |
|
Expected return on assets | (3,233 | ) | | | (3,841 | ) | | | (6,340 | ) | | | (7,846 | ) |
Prior service costs | 0 |
| | | 34 |
| | | 0 |
| | | 69 |
|
Amortization of unrecognized losses | 0 |
| | | 1,976 |
| | | 0 |
| | | 4,037 |
|
Net periodic pension cost | $ | (595 | ) | | | $ | 1,120 |
| | | $ | (1,169 | ) | | | $ | 2,289 |
|
The current estimates of the Company’s cash contributions to the Company’s defined benefit pension plans to be paid in fiscal year 2021 are $16.3 million, of which $7.6 million was paid during the six months ended September 30, 2020 (Successor).
Note 11 — STOCKHOLDERS’ INVESTMENT, EARNINGS PER SHARE AND ACCUMULATED OTHER COMPREHENSIVE INCOME
Stockholders’ Investment, Common Stock and Preferred Stock
As of September 30, 2020 (Successor), there were 29,813,734 shares of Combined Company Common Stock and 0 shares of the Combined Company’s preferred stock issued and outstanding.
In connection with the Merger, the Old Bristow Preferred Stock which was previously defined, was converted into Old Bristow Common Stock which was previously defined, and then all Old Bristow Common Stock was converted into the Combined Company Common Stock.
Because the Old Bristow Preferred Stock could be redeemed in certain circumstances outside of the sole control of Old Bristow (including at the option of the holder), but was not mandatorily redeemable, the Old Bristow Preferred Stock was classified as mezzanine equity and initially recognized at fair value of $618.9 million as of October 31, 2019 (Successor). This amount was 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. The difference between (a) the carrying value of the embedded derivative of $270.8 million plus the carrying value of the Preferred Stock Host of $148.6 million and (b) the fair value of the Old Bristow Common Stock of $270.7 million paid as consideration for the Old Bristow Preferred Stock was recognized in retained earnings because the fair value of the Old Bristow Common Stock was less than the combined carrying values of the Old Bristow Preferred Stock host and embedded derivative.
Prior to the Merger, there were 11,092,845 shares of Old Bristow Common Stock and 6,725,798 shares of Old Bristow Preferred Stock issued and outstanding. As described in Note 7 to the condensed consolidated financial statements, Old Bristow repurchased certain shares of Old Bristow Common Stock and shares of Old Bristow Preferred Stock immediately prior to the conversion of the Old Bristow Preferred Stock into Old Bristow Common Stock. The repurchase was accounted for in the same manner as the share conversion and included in the calculation described above. The Old Bristow Preferred Stock was converted into Old Bristow Common Stock at a rate of 5.179562 shares of Old Bristow Common Stock for each share of Old Bristow Preferred Stock.
The Old Bristow Common Stock was then subsequently exchanged for the Combined Company Common Stock, resulting in a total of 24,195,693 shares of Combined Company Common Stock issued to legacy Old Bristow stockholders. This resulted in a total of 30,882,471 shares of Combined Company Common Stock issued and outstanding immediately after consummation of the Merger. Upon the closing of the Merger, 217,899 shares of restricted stock awards and 145,263 stock options to purchase common stock for certain employees, related to Old Bristow employees, were canceled as a result of separation from the Combined Company. Upon the closing of the Merger, vesting of 145,604 shares of restricted stock awards, related to the Combined Company’s employees were also accelerated.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Share Repurchases.
On September 16, 2020, the Board authorized a stock repurchase plan providing for the repurchase of up to $75.0 million of the Company's common stock. Repurchases under the program may be made in the open market, including pursuant to a Rule 10b5-1 plan, by block repurchases, in private transactions (including with related parties) or otherwise, from time to time, depending on market conditions. The share repurchase program has no expiration date and may be suspended or discontinued at any time without notice.
During the three months ended September 30, 2020, the Company repurchased 345,327 shares of common stock in open market transactions for gross consideration of $7.6 million, which is an average cost per share of $21.93. After these repurchases, as of September 30, 2020, $67.4 million remained of the $75.0 million share repurchase program.
Earnings per Share
Basic earnings per common share of the Company areis computed based onby dividing income available to common stockholders by the weighted average number of shares of common shares issued andstock outstanding during the relevant periods.period. Diluted earnings per common share of the Company are computed based on the weighted average number ofexcludes options to purchase common shares issued and outstanding plus the effect of potentially dilutive securities through the application of the if-converted method and/or treasury method. Dilutive securities for this purpose assume all common shares have been issuedrestricted stock units and awards which were outstanding during the relevant periods pursuant toperiod but were anti-dilutive. The following table shows the exercise of outstanding stock options.
Computationscomputation of basic and diluted earnings per common share of the Company for the three months ended March 31, 2020 and 2019 were as follows (in thousands, except share and per share data)amounts):
|
| | | | | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
Net loss attributable to Era Group Inc. | | $ | (7,229 | ) | | $ | (5,943 | ) |
Less: Net income attributable to participating securities | | — |
| | — |
|
Net loss attributable to fully vested common stock | | $ | (7,229 | ) | | $ | (5,943 | ) |
| | | | |
Weighted average common shares outstanding: | | | | |
Basic | | 20,702,670 |
| | 21,323,312 |
|
Diluted(1)
| | 20,702,670 |
| | 21,323,312 |
|
| | | | |
Loss per common share, basic and diluted | | $ | (0.35 | ) | | $ | (0.28 | ) |
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Income (loss): | | | | | | | | | | |
Net income (loss) attributable to Bristow Group Inc. | $ | (27,861 | ) | | | $ | (162,974 | ) | | | $ | 43,616 |
| | | $ | (332,220 | ) |
Less: PIK dividends (1) | 0 |
| | | 0 |
| | | (12,039 | ) | | | 0 |
|
Plus: Deemed contribution from conversion of preferred stock | 0 |
| | | 0 |
| | | 144,986 |
| | | 0 |
|
Income available to common stockholders – basic | $ | (27,861 | ) | | | $ | (162,974 | ) | | | $ | 176,563 |
| | | $ | (332,220 | ) |
Less: Preferred stock adjustments | 0 |
| | | 0 |
| | | (3,377 | ) | | | 0 |
|
Income available to common stockholders – diluted | $ | (27,861 | ) | | | $ | (162,974 | ) | | | $ | 173,186 |
| | | $ | (332,220 | ) |
Shares: | | | | | | | | | | |
Weighted average number of common shares outstanding – basic | 29,357,959 |
| | | 35,918,916 |
| | | 20,230,285 |
| | | 35,918,916 |
|
Net effect of dilutive stock options and restricted stock | 0 |
| | | 0 |
| | | 13,801,372 |
| | | 0 |
|
Weighted average number of common shares outstanding – diluted(2)(3) | 29,357,959 |
| | | 35,918,916 |
| | | 34,031,657 |
| | | 35,918,916 |
|
| | | | | | | | | | |
Earnings per common share - basic | $ | (0.95 | ) |
| | $ | (4.54 | ) | | | $ | 8.73 |
| | | $ | (9.25 | ) |
Earnings per common share - diluted | $ | (0.95 | ) |
| | $ | (4.54 | ) | | | $ | 5.09 |
| | | $ | (9.25 | ) |
_______________________________________________
| |
(1) | See “Stockholders’ Investment, Common Stock and Preferred Stock” above for further discussion on PIK dividends. |
| |
(2) | Excludes weighted average common shares of 203,6121,280,592 and 4,003,039 for each of the three months ended March 31,September 30, 2020 (Successor) and 2019 (Predecessor), respectively, and 1,267,315 and 3,825,187 for the six months ended September 30, 2020 (Successor) and 2019 (Predecessor), respectively, for certain share awards as the effect of their inclusion would have been antidilutive. |
Share Repurchases. On August 14, 2014, the Company’s Board of Directors (the “Board”) approved a share repurchase program authorizing up to $25.0 million of share repurchases. On January 23, 2020, this program was suspended in connection with the entry into the merger agreement with Bristow.
In connection with the entry into the merger agreement with Bristow, the Board has authorized a special stock repurchase program that would allow for the purchase of up to $10 million of its common stock from time to time and subject to market conditions on the open market or in privately negotiated transactions. The special repurchase program will end upon the mailing of the joint proxy statement/prospectus for the merger.
In April 2020, Era Group repurchased 230,889 shares of common stock in open market transactions for gross consideration of $1.0 million, which is an average cost per share of $4.14. As of May 1, 2020, $9.0 million remained authorized under the $10.0 million share repurchase program.
The Company derives its revenues primarily from oil and gas flight services, emergency response services and leasing activities. Dry-leasing revenues are recognized in accordance with ASC 842. Revenue is recognized when control of the promised goods or services is transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The following table presents the Company’s operating revenues disaggregated by geographical region in which services are provided:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Operating revenues: | | | |
U.S. | $ | 38,992 |
| | $ | 34,214 |
|
International | 14,988 |
| | 13,616 |
|
Total operating revenues | $ | 53,980 |
| | $ | 47,830 |
|
The following table presents the Company’s total revenues earned by service line:
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Revenues: | | | |
Oil and gas flight services: | | | |
U.S. | $ | 37,054 |
| | $ | 32,466 |
|
International | 13,281 |
| | 13,616 |
|
Total oil and gas | 50,335 |
| | 46,082 |
|
Emergency response services | 3,645 |
| | 1,748 |
|
Total operating revenues | $ | 53,980 |
| | $ | 47,830 |
|
Dry-leasing revenues: | | | |
U.S. | 190 |
| | 451 |
|
International | 2,886 |
| | 3,012 |
|
Total revenues | $ | 57,056 |
| | $ | 51,293 |
|
The Company determines revenue recognition by applying the following steps:
| |
1. | Identify The Old Bristow Preferred Stock is not included on an if-converted basis under diluted earnings per common share as the contract with a customer;conversion of the shares would have been anti-dilutive. |
| |
2.(3) | IdentifyPotentially dilutive shares issuable pursuant to the performance obligationswarrant transactions entered into concurrently with the issuance of the Combined Company’s 4½% Convertible Senior Notes (the “Warrant Transactions”) were not included in the contract;computation of diluted income per share for the three six months ended September 30, 2019, because to do so would have been anti-dilutive. |
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Accumulated Other Comprehensive Income (Loss)
The following table shows the changes in balances for accumulated other comprehensive income (loss) (in thousands):
|
| | | | | | | | | | | | | | | |
| Successor |
| Currency Translation Adjustments | | Pension Liability Adjustments (1) | | Unrealized gain (loss) on cash flow hedges (2) | | Total |
Balance as of March 31, 2020 | $ | (16,440 | ) | | $ | 6,389 |
| | $ | 1,410 |
| | $ | (8,641 | ) |
| | | | | | | |
Other comprehensive income (loss) before reclassification | 18,485 |
| | 0 |
| | (2,993 | ) | | 15,492 |
|
Reclassified from accumulated other comprehensive income | 0 |
| | 0 |
| | 829 |
| | 829 |
|
Net current period other comprehensive income (loss) | 18,485 |
| | 0 |
| | (2,164 | ) | | 16,321 |
|
Foreign exchange rate impact | (240 | ) | | 240 |
| | — |
| | — |
|
Balance as of September 30, 2020 | $ | 1,805 |
| | $ | 6,629 |
| | $ | (754 | ) | | $ | 7,680 |
|
__________________________
| |
(1) | Reclassification of amounts related to pension liability adjustments are included as a component of net periodic pension cost. |
| |
3.(2) | Determine the transaction price; |
| |
4. | Allocate the transaction priceReclassification of amounts related to the performance obligations; and |
| |
5. | Recognize revenuecash flow hedges were included as the performance obligations are satisfied.direct costs. |
The Company earns the majority of its revenue through master service agreements or subscription agreements, which typically include a fixed monthly or daily fee, incremental fees based on hours flown and fees for ancillary items such as fuel, security, charter services, etc. The Company’s arrangements to serve its customers represent a promise to stand ready to provide services at the customer’s discretion.
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
Note 12 — SEGMENT INFORMATION
The Company recognizes revenue for flightconducts business in 1 segment: aviation services. The aviation services global operations include 4 regions as follows: Europe Caspian, Africa, Americas and emergency response services withAsia Pacific. The Europe Caspian region comprises all of the passingCompany’s operations and affiliates in Europe and Central Asia, including Norway, the U.K. and Turkmenistan. The Africa region comprises all of each daythe 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, Colombia, Guyana, Suriname, 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 six months ended September 30, 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 hasCompany’s condensed consolidated financial statements (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Region revenue from external customers: | | | | | | | | | | |
Europe Caspian | $ | 164,920 |
| | | $ | 179,870 |
| | | $ | 331,913 |
| | | $ | 368,464 |
|
Africa | 23,056 |
| | | 47,165 |
| | | 54,778 |
| | | 96,681 |
|
Americas | 95,361 |
| | | 61,726 |
| | | 154,475 |
| | | 118,716 |
|
Asia Pacific | 21,112 |
| | | 29,449 |
| | | 33,370 |
| | | 67,260 |
|
Corporate and other | 191 |
| | | 10 |
| | | 297 |
| | | 275 |
|
Total region revenue (1) | $ | 304,640 |
| | | $ | 318,220 |
| | | $ | 574,833 |
| | | $ | 651,396 |
|
_________________________________________________ (1) The above table represents disaggregated revenue from contracts with customers except for the right to consideration from its customers in an amount that corresponds directly with the value to the customer of performance completed to date. The Company typically invoices customers on a monthly basis for revenues earned during the prior month, with payment terms of 30 days. The Company’s customer arrangements do not contain any significant financing component for customers. Amounts for taxes collected from customers and remitted to governmental authorities are reported on a net basis.following (in thousands): |
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Revenue not from contracts with customers: | | | | | | | | | | |
Europe Caspian | $ | 348 |
| | | $ | 318 |
| | | $ | 690 |
| | | $ | 622 |
|
Africa | 0 |
| | | 0 |
| | | 0 |
| | | 0 |
|
Americas | 9,019 |
| | | 7,983 |
| | | 18,026 |
| | | 15,966 |
|
Asia Pacific | 83 |
| | | 79 |
| | | 157 |
| | | 160 |
|
Corporate and other | 945 |
| | | 0 |
| | | 2,307 |
| | | 0 |
|
Total region revenue | $ | 10,395 |
| | | $ | 8,380 |
| | | $ | 21,180 |
| | | $ | 16,748 |
|
BRISTOW GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | Six Months Ended September 30, |
| Successor | | | Predecessor | | | Successor | | | Predecessor |
| 2020 | | | 2019 | | | 2020 | | | 2019 |
Earnings from unconsolidated affiliates, net of losses – equity method investments: | | | | | | | | | | |
Europe Caspian | $ | (43 | ) | | | $ | (3 | ) | | | $ | (19 | ) | | | $ | 168 |
|
Americas | 1,948 |
| | | 315 |
| | | (54 | ) | | | 2,491 |
|
Corporate and other | 0 |
| | | 321 |
| | | 0 |
| | | 321 |
|
Total earnings from unconsolidated affiliates, net of losses – equity method investments | $ | 1,905 |
| | | $ | 633 |
| | | $ | (73 | ) | | | $ | 2,980 |
|
| | | | | | | | | | |
Consolidated operating income (loss): | | | | | | | | | | |
Europe Caspian | $ | 19,614 |
| | | $ | 11,224 |
| | | $ | 46,926 |
| | | $ | 23,031 |
|
Africa | (13,790 | ) | | | 6,528 |
| | | (8,941 | ) | | | 14,273 |
|
Americas | 16,188 |
| | | 3,527 |
| | | 3,186 |
| | | 7,095 |
|
Asia Pacific | 4,535 |
| | | (19,848 | ) | | | 3,007 |
| | | (32,282 | ) |
Corporate and other | (40,729 | ) | | | (63,297 | ) | | | (77,761 | ) | | | (91,938 | ) |
Gain (loss) on disposal of assets | (8,473 | ) | | | (230 | ) | | | (2,951 | ) | | | (4,017 | ) |
Total consolidated operating income (loss) | $ | (22,655 | ) | | | $ | (62,096 | ) | | | $ | (36,534 | ) | | | $ | (83,838 | ) |
| | | | | | | | | | |
Depreciation and amortization: | | | | | | | | | | |
Europe Caspian | $ | 8,080 |
| | | $ | 12,395 |
| | | $ | 16,292 |
| | | $ | 24,834 |
|
Africa | 1,284 |
| | | 5,007 |
| | | 2,601 |
| | | 9,998 |
|
Americas | 5,098 |
| | | 7,590 |
| | | 8,053 |
| | | 14,470 |
|
Asia Pacific | 2,048 |
| | | 2,970 |
| | | 4,054 |
| | | 6,691 |
|
Corporate and other | 2,027 |
| | | 3,341 |
| | | 3,893 |
| | | 6,649 |
|
Total depreciation and amortization | $ | 18,537 |
| | | $ | 31,303 |
| | | $ | 34,893 |
| | | $ | 62,642 |
|
|
| | | | | | | |
| Successor |
| September 30, 2020 | | March 31, 2020 |
Identifiable assets: | | | |
Europe Caspian | $ | 1,193,599 |
| | $ | 1,096,022 |
|
Africa | 203,741 |
| | 235,165 |
|
Americas | 574,914 |
| | 319,015 |
|
Asia Pacific | 135,877 |
| | 166,229 |
|
Corporate and other (2) | 104,254 |
| | 128,830 |
|
Total identifiable assets | $ | 2,212,385 |
| | $ | 1,945,261 |
|
|
| | | | | | | |
Investments in unconsolidated affiliates – equity method investments: | | | |
Europe Caspian | $ | 604 |
| | $ | 575 |
|
Americas | 56,320 |
| | 76,483 |
|
Total investments in unconsolidated affiliates – equity method investments | $ | 56,924 |
| | $ | 77,058 |
|
_____________
| |
10. | RELATED PARTY TRANSACTIONS |
The Company purchased products and services from its Dart Holding Company Ltd. (“Dart”) joint venture totaling $0.6 million during the three months ended March 31, 2019. The Company also had a note receivable from Dart, which had a balance of $2.3 million as of December 31, 2018. The note was paid in full during the first quarter of 2019. Purchases from Dart are included in operating expenses on the consolidated statements of income, and the note receivable was included in equity investments and advances on the consolidated balance sheets.(2)
During the three months ended March 31, 2019, the Company in conjunction with its 50% joint venture partner entered into an agreement to sell Dart. The transaction closed on April 1, 2019, for gross proceeds of $38.0 million, including payment of the note receivable in March 2019, and net gains of $10.9 million.
| |
11. | SHARE-BASED COMPENSATIONIncludes $9.3 million and $7.8 million ofconstruction in progress within property and equipment on the Company’s condensed consolidated balance sheets as of September 30 and March 31, 2020 (Successor), respectively, which primarily represents aircraft modifications and other miscellaneous equipment, tooling and building improvements currently in progress.
|
Restricted Stock Awards. The number of shares and weighted average grant price of restricted stock awards during the three months ended March 31, 2020 were as follows: |
| | | | | | |
| Number of Shares | | Weighted Average Grant Price |
Non-vested as of December 31, 2019 | 626,399 |
| | $ | 10.31 |
|
Restricted stock awards granted: | | | |
Non-employee directors | 40,430 |
| | $ | 7.54 |
|
Employees | 513,685 |
| | $ | 7.54 |
|
Vested | (282,263 | ) | | $ | 10.44 |
|
Non-vested as of March 31, 2020 | 898,251 |
| | $ | 8.56 |
|
The total fair value of shares vested during the three months ended March 31, 2020 and 2019, determined using the closing price on the grant date, was $2.9 million and $2.5 million, respectively.
Stock Options. The Company did 0t grant any stock options during the three months ended March 31, 2020.
Employee Stock Purchase Plan (“ESPP”). In the first quarter of 2020, the Company, in connection with its entry into a definitive agreement to merge with Bristow, suspended the ESPP.
Total share-based compensation expense, which includes restricted stock and the ESPP, was $0.7 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.
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12. | GUARANTORS OF SECURITIES
|
Era Group’s payment obligations under the 7.750% Senior Notes are jointly and severally guaranteed by all of its existing 100% owned U.S. subsidiaries that guarantee the Revolving Credit Facility and any future U.S. subsidiaries that guarantee the Revolving Credit Facility or other material indebtedness Era Group may incur in the future (the “Guarantors”). All the Guarantors currently guarantee the Revolving Credit Facility, and the guarantees of the Guarantors are full and unconditional and joint and several.
As a result of the agreement by the Guarantors to guarantee the 7.750% Senior Notes, the Company presents the following condensed consolidating balance sheets and statements of operations, comprehensive income and cash flows for Era Group (“Parent”), the Guarantors and the Company’s other subsidiaries (“Non-guarantors”). These statements should be read in conjunction with the accompanying consolidated financial statements and notes of the Company.
Supplemental Condensed Consolidating Balance Sheet as of March 31, 2020 |
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands, except share data) |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 111,654 |
| | $ | — |
| | $ | 1,864 |
| | $ | — |
| | $ | 113,518 |
|
Receivables: | | | | | | | | | |
Trade, operating, net of allowance for doubtful accounts | — |
| | 28,738 |
| | 5,364 |
| | — |
| | 34,102 |
|
Trade, dry-leasing | — |
| | 5,754 |
| | — |
| | — |
| | 5,754 |
|
Tax receivable | — |
| | 2 |
| | 2,157 |
| | — |
| | 2,159 |
|
Other | — |
| | 14,594 |
| | 412 |
| | — |
| | 15,006 |
|
Inventories, net | — |
| | 19,927 |
| | 14 |
| | — |
| | 19,941 |
|
Prepaid expenses | 991 |
| | 2,108 |
| | 313 |
| | — |
| | 3,412 |
|
Total current assets | 112,645 |
| | 71,123 |
| | 10,124 |
| | — |
| | 193,892 |
|
Property and equipment | — |
| | 876,767 |
| | 16,818 |
| | — |
| | 893,585 |
|
Accumulated depreciation | — |
| | (340,873 | ) | | (4,584 | ) | | — |
| | (345,457 | ) |
Property and equipment, net | — |
| | 535,894 |
| | 12,234 |
| | — |
| | 548,128 |
|
Operating lease right-of-use | — |
| | 7,526 |
| | 1,146 |
| | — |
| | 8,672 |
|
Investments in consolidated subsidiaries | 189,347 |
| | — |
| | — |
| | (189,347 | ) | | — |
|
Intangible assets | — |
| | — |
| | 92 |
| | — |
| | 92 |
|
Deferred income taxes | 11,711 |
| | — |
| | — |
| | (11,711 | ) | | — |
|
Intercompany receivables | 285,926 |
| | — |
| | — |
| | (285,926 | ) | | — |
|
Other assets | 524 |
| | 873 |
| | 329 |
| | — |
| | 1,726 |
|
Total assets | $ | 600,153 |
| | $ | 615,416 |
| | $ | 23,925 |
| | $ | (486,984 | ) | | $ | 752,510 |
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable and accrued expenses | $ | 1,239 |
| | $ | 10,078 |
| | $ | 1,158 |
| | $ | — |
| | $ | 12,475 |
|
Accrued wages and benefits | 625 |
| | 4,767 |
| | 1,173 |
| | — |
| | 6,565 |
|
Accrued interest | 3,259 |
| | 50 |
| | — |
| | — |
| | 3,309 |
|
Accrued income taxes | 2,273 |
| | — |
| | 24 |
| | — |
| | 2,297 |
|
Accrued other taxes | — |
| | 1,201 |
| | 338 |
| | — |
| | 1,539 |
|
Accrued contingencies | — |
| | — |
| | 701 |
| | — |
| | 701 |
|
Current portion of long-term debt | — |
| | 17,901 |
| | — |
| | — |
| | 17,901 |
|
Other current liabilities | 1,126 |
| | 1,904 |
| | 280 |
| | — |
| | 3,310 |
|
Total current liabilities | 8,522 |
| | 35,901 |
| | 3,674 |
| | — |
| | 48,097 |
|
Long-term debt | 142,004 |
| | — |
| | — |
| | — |
| | 142,004 |
|
Deferred income taxes | — |
| | 112,788 |
| | 907 |
| | (11,711 | ) | | 101,984 |
|
Intercompany payables | — |
| | 220,529 |
| | 65,417 |
| | (285,946 | ) | | — |
|
Operating lease liabilities | — |
| | 6,219 |
| | 884 |
| | — |
| | 7,103 |
|
Deferred gains and other liabilities | — |
| | 920 |
| | — |
| | — |
| | 920 |
|
Total liabilities | 150,526 |
| | 376,357 |
| | 70,882 |
| | (297,657 | ) | | 300,108 |
|
Redeemable noncontrolling interest | — |
| | — |
| | 2,752 |
| | — |
| | 2,752 |
|
Equity: | | | | | | | | | |
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,756,272 outstanding, exclusive of treasury shares | 230 |
| | — |
| | — |
| | — |
| | 230 |
|
Additional paid-in capital | 452,703 |
| | 100,306 |
| | 4,562 |
| | (104,870 | ) | | 452,701 |
|
Retained earnings | 7,438 |
| | 138,753 |
| | (54,271 | ) | | (84,457 | ) | | 7,463 |
|
Treasury shares, at cost, 1,236,282 shares | (10,744 | ) | | — |
| | — |
| | — |
| | (10,744 | ) |
Total equity | 449,627 |
| | 239,059 |
| | (49,709 | ) | | (189,327 | ) | | 449,650 |
|
Total liabilities, redeemable noncontrolling interest and stockholders’ equity | $ | 600,153 |
| | $ | 615,416 |
| | $ | 23,925 |
| | $ | (486,984 | ) | | $ | 752,510 |
|
Supplemental Condensed Consolidating Balance Sheet as of December 31, 2019
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands, except share data) |
ASSETS | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 114,965 |
| | $ | — |
| | $ | 2,401 |
| | $ | — |
| | $ | 117,366 |
|
Receivables: | | | | | | | | | |
Trade, operating, net of allowance for doubtful accounts | — |
| | 27,230 |
| | 5,500 |
| | — |
| | 32,730 |
|
Trade, dry leasing | — |
| | 5,234 |
| | — |
| | — |
| �� | 5,234 |
|
Tax receivables | — |
| | 2 |
| | 2,858 |
| | — |
| | 2,860 |
|
Other | — |
| | 15,136 |
| | 285 |
| | — |
| | 15,421 |
|
Inventories, net | — |
| | 20,019 |
| | 47 |
| | — |
| | 20,066 |
|
Prepaid expenses | 488 |
| | 1,480 |
| | 216 |
| | — |
| | 2,184 |
|
Total current assets | 115,453 |
| | 69,101 |
| | 11,307 |
| | — |
| | 195,861 |
|
Property and equipment | — |
| | 878,281 |
| | 16,782 |
| | — |
| | 895,063 |
|
Accumulated depreciation | — |
| | (333,788 | ) | | (4,376 | ) | | — |
| | (338,164 | ) |
Property and equipment, net | — |
| | 544,493 |
| | 12,406 |
| | — |
| | 556,899 |
|
Operating lease right-of-use | — |
| | 7,694 |
| | 1,774 |
| | — |
| | 9,468 |
|
Investments in consolidated subsidiaries | 190,142 |
| | — |
| | — |
| | (190,142 | ) | | — |
|
Intangible assets | — |
| | — |
| | 96 |
| | — |
| | 96 |
|
Deferred income taxes | 9,909 |
| | — |
| | — |
| | (9,909 | ) | | — |
|
Intercompany receivables | 288,023 |
| | — |
| | — |
| | (288,023 | ) | | — |
|
Other assets | 670 |
| | 1,082 |
| | 439 |
| | — |
| | 2,191 |
|
Total assets | $ | 604,197 |
| | $ | 622,370 |
| | $ | 26,022 |
| | $ | (488,074 | ) | | $ | 764,515 |
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable and accrued expenses | $ | 405 |
| | $ | 10,937 |
| | $ | 1,581 |
| | $ | — |
| | $ | 12,923 |
|
Accrued wages and benefits | 122 |
| | 9,065 |
| | 1,367 |
| | — |
| | 10,554 |
|
Accrued interest | 468 |
| | 52 |
| | — |
| | — |
| | 520 |
|
Accrued income taxes | 3,595 |
| | 1 |
| | 16 |
| | — |
| | 3,612 |
|
Accrued other taxes | — |
| | 487 |
| | 450 |
| | — |
| | 937 |
|
Accrued contingencies | — |
| | — |
| | 598 |
| | — |
| | 598 |
|
Current portion of long-term debt | — |
| | 18,317 |
| | — |
| | — |
| | 18,317 |
|
Other current liabilities | 1,053 |
| | 1,866 |
| | 396 |
| | — |
| | 3,315 |
|
Total current liabilities | 5,643 |
| | 40,725 |
| | 4,408 |
| | — |
| | 50,776 |
|
Long-term debt | 141,832 |
| | — |
| | — |
| | — |
| | 141,832 |
|
Deferred income taxes | — |
| | 112,795 |
| | 907 |
| | (9,909 | ) | | 103,793 |
|
Intercompany payables | — |
| | 225,341 |
| | 62,702 |
| | (288,043 | ) | | — |
|
Operating lease liabilities | — |
| | 6,434 |
| | 1,381 |
| | — |
| | 7,815 |
|
Deferred gains and other liabilities | — |
| | 745 |
| | — |
| | — |
| | 745 |
|
Total liabilities | 147,475 |
| | 386,040 |
| | 69,398 |
| | (297,952 | ) | | 304,961 |
|
Redeemable noncontrolling interest | — |
| | — |
| | 2,812 |
| | — |
| | 2,812 |
|
Equity: | | | | | | | | | |
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,285,613 outstanding, exclusive of treasury shares | 224 |
| | — |
| | — |
| | — |
| | 224 |
|
Additional paid-in capital | 452,010 |
| | 100,307 |
| | 4,562 |
| | (104,870 | ) | | 452,009 |
|
Retained earnings | 14,671 |
| | 136,023 |
| | (50,750 | ) | | (85,252 | ) | | 14,692 |
|
Treasury shares, at cost, 1,152,826 shares | (10,183 | ) | | — |
| | — |
| | — |
| | (10,183 | ) |
Total equity | 456,722 |
| | 236,330 |
| | (46,188 | ) | | (190,122 | ) | | 456,742 |
|
Total liabilities, redeemable noncontrolling interest and stockholders’ equity | $ | 604,197 |
| | $ | 622,370 |
| | $ | 26,022 |
| | $ | (488,074 | ) | | $ | 764,515 |
|
Supplemental Condensed Consolidating Statements of Operations for the Three Months Ended March 31, 2020
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Revenues | $ | — |
| | $ | 51,918 |
| | $ | 12,150 |
| | $ | (7,012 | ) | | $ | 57,056 |
|
Costs and expenses: | | | | | | | | | |
Operating | — |
| | 32,441 |
| | 13,077 |
| | (7,012 | ) | | 38,506 |
|
Administrative and general | 4,583 |
| | 7,323 |
| | 839 |
| | — |
| | 12,745 |
|
Depreciation | — |
| | 9,295 |
| | 212 |
| | — |
| | 9,507 |
|
Total costs and expenses | 4,583 |
| | 49,059 |
| | 14,128 |
| | (7,012 | ) | | 60,758 |
|
Loss on asset dispositions, net | — |
| | (34 | ) | | — |
| | — |
| | (34 | ) |
Operating income (loss) | (4,583 | ) | | 2,825 |
| | (1,978 | ) | | — |
| | (3,736 | ) |
Other income (expense): | | | | | | | | | |
Interest income | 378 |
| | 337 |
| | 34 |
| | — |
| | 749 |
|
Interest expense | (3,281 | ) | | (158 | ) | | — |
| | — |
| | (3,439 | ) |
Foreign currency losses, net | (24 | ) | | (45 | ) | | (1,635 | ) | | — |
| | (1,704 | ) |
Other, net | — |
| | 12 |
| | (2 | ) | | — |
| | 10 |
|
Total other income (expense) | (2,927 | ) | | 146 |
| | (1,603 | ) | | — |
| | (4,384 | ) |
Income (loss) before income taxes and equity earnings | (7,510 | ) | | 2,971 |
| | (3,581 | ) | | — |
| | (8,120 | ) |
Income tax (benefit) expense | (1,072 | ) | | 241 |
| | — |
| | — |
| | (831 | ) |
Income (loss) before equity earnings | (6,438 | ) | | 2,730 |
| | (3,581 | ) | | — |
| | (7,289 | ) |
Equity in earnings (losses) of subsidiaries | (795 | ) | | — |
| | — |
| | 795 |
| | — |
|
Net income (loss) | (7,233 | ) | | 2,730 |
| | (3,581 | ) | | 795 |
| | (7,289 | ) |
Net loss attributable to noncontrolling interest in subsidiary | — |
| | — |
| | 60 |
| | — |
| | 60 |
|
Net income (loss) attributable to Era Group Inc. | $ | (7,233 | ) | | $ | 2,730 |
| | $ | (3,521 | ) | | $ | 795 |
| | $ | (7,229 | ) |
Supplemental Condensed Consolidating Statements of Operations for the Three Months Ended March 31, 2019
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Revenues | $ | — |
| | $ | 45,314 |
| | $ | 13,617 |
| | $ | (7,638 | ) | | $ | 51,293 |
|
Costs and expenses: | | | | | | | | | |
Operating | — |
| | 30,049 |
| | 14,285 |
| | (7,638 | ) | | 36,696 |
|
Administrative and general | 1,242 |
| | 6,672 |
| | 961 |
| | — |
| | 8,875 |
|
Depreciation | — |
| | 9,197 |
| | 253 |
| | — |
| | 9,450 |
|
Total costs and expenses | 1,242 |
| | 45,918 |
| | 15,499 |
| | (7,638 | ) | | 55,021 |
|
Loss on asset dispositions, net | — |
| | (124 | ) | | — |
| | — |
| | (124 | ) |
Operating loss | (1,242 | ) | | (728 | ) | | (1,882 | ) | | — |
| | (3,852 | ) |
Other income (expense): | | | | | | | | | |
Interest income | 196 |
| | 504 |
| | 52 |
| | — |
| | 752 |
|
Interest expense | (3,241 | ) | | (213 | ) | | (7 | ) | | — |
| | (3,461 | ) |
Foreign currency losses, net | (40 | ) | | (49 | ) | | (37 | ) | | — |
| | (126 | ) |
Other, net | — |
| | (1 | ) | | (10 | ) | | — |
| | (11 | ) |
Total other income (expense) | (3,085 | ) | | 241 |
| | (2 | ) | | — |
| | (2,846 | ) |
Loss before income taxes and equity earnings | (4,327 | ) | | (487 | ) | | (1,884 | ) | | — |
| | (6,698 | ) |
Income tax (benefit) expense | 336 |
| | (1,924 | ) | | — |
| | — |
| | (1,588 | ) |
Income (loss) before equity earnings | (4,663 | ) | | 1,437 |
| | (1,884 | ) | | — |
| | (5,110 | ) |
Equity in earnings (losses) of subsidiaries | (1,280 | ) | | (975 | ) | | — |
| | 1,280 |
| | (975 | ) |
Net income (loss) | (5,943 | ) | | 462 |
| | (1,884 | ) | | 1,280 |
| | (6,085 | ) |
Net loss attributable to noncontrolling interest in subsidiary | — |
| | — |
| | 142 |
| | — |
| | 142 |
|
Net income (loss) attributable to Era Group Inc. | $ | (5,943 | ) | | $ | 462 |
| | $ | (1,742 | ) | | $ | 1,280 |
| | $ | (5,943 | ) |
Supplemental Condensed Consolidating Statements of Comprehensive Income for the Three Months Ended March 31, 2020
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Net income (loss) | $ | (7,233 | ) | | $ | 2,730 |
| | $ | (3,581 | ) | | $ | 795 |
| | $ | (7,289 | ) |
Comprehensive income (loss) | (7,233 | ) | | 2,730 |
| | (3,581 | ) | | 795 |
| | (7,289 | ) |
Comprehensive loss attributable to noncontrolling interest in subsidiary | — |
| | — |
| | 60 |
| | — |
| | 60 |
|
Comprehensive income (loss) attributable to Era Group Inc. | $ | (7,233 | ) | | $ | 2,730 |
| | $ | (3,521 | ) | | $ | 795 |
| | $ | (7,229 | ) |
Supplemental Condensed Consolidating Statements of Comprehensive Income for the Three Months Ended March 31, 2019
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Net income (loss) | $ | (5,943 | ) | | $ | 462 |
| | $ | (1,884 | ) | | $ | 1,280 |
| | $ | (6,085 | ) |
Comprehensive income (loss) | (5,943 | ) | | 462 |
| | (1,884 | ) | | 1,280 |
| | (6,085 | ) |
Comprehensive loss attributable to noncontrolling interest in subsidiary | — |
| | — |
| | 142 |
| | — |
| | 142 |
|
Comprehensive income (loss) attributable to Era Group Inc. | $ | (5,943 | ) | | $ | 462 |
| | $ | (1,742 | ) | | $ | 1,280 |
| | $ | (5,943 | ) |
Supplemental Condensed Consolidating Statements of Cash Flows for the Three Months Ended March 31, 2020
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Net cash provided by (used in) operating activities | $ | (2,752 | ) | | $ | 708 |
| | $ | (88 | ) | | $ | — |
| | $ | (2,132 | ) |
Cash flows from investing activities: | | | | | | | | | |
Purchases of property and equipment | — |
| | (347 | ) | | (53 | ) | | — |
| | (400 | ) |
Principal payments on third party notes receivable | — |
| | 55 |
| | — |
| | — |
| | 55 |
|
Net cash used in investing activities | — |
| | (292 | ) | | (53 | ) | | — |
| | (345 | ) |
Cash flows from financing activities: | | | | | | | | | |
Payments on long-term debt | — |
| | (416 | ) | | — |
| | — |
| | (416 | ) |
Purchase of treasury shares | (561 | ) | | — |
| | — |
| | — |
| | (561 | ) |
Net cash used in financing activities | (561 | ) | | (416 | ) | | — |
| | — |
| | (977 | ) |
Effects of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (394 | ) | | — |
| | (394 | ) |
Net decrease in cash, cash equivalents and restricted cash | (3,313 | ) | | — |
| | (535 | ) | | — |
| | (3,848 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 114,971 |
| | — |
| | 2,395 |
| | — |
| | 117,366 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 111,658 |
| | $ | — |
| | $ | 1,860 |
| | $ | — |
| | $ | 113,518 |
|
Supplemental Condensed Consolidating Statements of Cash Flows for the Three Months Ended March 31, 2019
|
| | | | | | | | | | | | | | | | | | | |
| Parent | | Guarantors | | Non-guarantors | | Eliminations | | Consolidated |
| (in thousands) |
Net cash provided by (used in) operating activities | $ | 5,477 |
| | $ | (1,386 | ) | | $ | (1,456 | ) | | $ | — |
| | $ | 2,635 |
|
Cash flows from investing activities: | | | | | | | | | |
Purchases of property and equipment | — |
| | (1,221 | ) | | (91 | ) | | — |
| | (1,312 | ) |
Purchase of investments | (5,000 | ) | | — |
| | — |
| | — |
| | (5,000 | ) |
Principal payments on notes due from equity investees | — |
| | 2,334 |
| | — |
| | — |
| | 2,334 |
|
Principal payments on third party notes receivable | — |
| | 104 |
| | — |
| | — |
| | 104 |
|
Net cash provided by (used in) investing activities | (5,000 | ) | | 1,217 |
| | (91 | ) | | — |
| | (3,874 | ) |
Cash flows from financing activities: | | | | | | | | | |
Payments on long-term debt | — |
| | (416 | ) | | (126 | ) | | — |
| | (542 | ) |
Proceeds from share award plans | — |
| | — |
| | — |
| | 590 |
| | 590 |
|
Purchase of treasury shares | — |
| | — |
| | — |
| | (5 | ) | | (5 | ) |
Borrowings and repayments of intercompany debt | — |
| | 585 |
| | — |
| | (585 | ) | | — |
|
Net cash provided by (used in) financing activities | — |
| | 169 |
| | (126 | ) | | — |
| | 43 |
|
Effects of exchange rate changes on cash and cash equivalents | — |
| | — |
| | 55 |
| | — |
| | 55 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash | 477 |
| | — |
| | (1,618 | ) | | — |
| | (1,141 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 48,396 |
| | — |
| | 2,357 |
| | — |
| | 50,753 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 48,873 |
| | $ | — |
| | $ | 739 |
| | $ | — |
| | $ | 49,612 |
|
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Management'sItem 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto as of well as Old Bristow’s Financial Statements for the fiscal year ended March 31, 2020 (the “fiscal year 2020 Financial Statements”) and forthe related MD&A filed as exhibits to the Company’s Current Reports on Form 8-K filed on June 17, 2020 and July 1, 2020, (the “MD&A 8-K”), respectively. In the discussion that follows, the terms “Current Quarter” and “Prior Year Quarter” refer to the three months ended March 31,September 30, 2020 and 2019, included elsewhere herein,respectively. Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period. Therefore, the fiscal year ending March 31, 2021 is referred to as “fiscal year 2021.”
Unless the context otherwise indicates, in this MD&A: (i) the “Company”, “Combined Company,” “Bristow”, “we”, “us” and “our” refer to the entity currently known as Bristow Group Inc. and formerly known as Era Group Inc., together with our Annual Report on Form 10-K forits subsidiaries; (ii) “Old Bristow” refers to the year ended December 31, 2019.entity formerly known as Bristow Group Inc. and now known as Bristow Holdings U.S. Inc., together with its subsidiaries; and (iii) “Era” refers to Era Group Inc. (currently known as Bristow Group Inc., the parent of the Combined Company and its subsidiaries prior to consummation of the Merger.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includescontains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. Suchamended (the “Exchange Act”). Forward-looking statements are statements about our future business, strategy, operations, capabilities and results: financial projections: plans and objectives of our management: expected actions by us and by third parties, including our customers, competitors, vendors and regulators: and other matters. Some of the forward-looking statements concerning management’s expectations, strategic objectives, business prospects, anticipated performance and financial condition andcan be identified by the use of words such as “believes”, “belief”, “forecasts”, “expects”, “plans”, “anticipates”, “intends”, “projects”, “estimates”, “may”, “might”, “will”, “would”, “could”, “should” or other similar matterswords; however, all statements in this Quarterly Report, other than statements of historical fact or historical financial results, are forward-looking statements.
Our forward-looking statements reflect our views and assumptions on the date we are filing this Quarterly Report regarding future events and operating performance. We believe that they are reasonable, but they involve significant known and unknown risks, uncertainties and other important factors, many of which may be beyond our control, that couldmay cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements discussedexpressed or implied by suchthe forward-looking statements. Such risks, uncertainties and other importantAccordingly, you should not put undue reliance on any forward-looking statements.
You should consider the following key factors include, among others:when evaluating these forward-looking statements:
risks related to the Company’s recently announced combination (the “Merger”) with Bristow Group Inc. (“Bristow”), including:
| |
◦ | the ability of Bristow and the Company to obtain necessary shareholder approvals, |
| |
◦ | the ability to satisfy all necessary conditions on the anticipated closing timeline or at all, |
| |
◦ | the outcome of any legal proceedings, regulatory proceedings or enforcement matters that may be instituted relating to the Merger,
|
| |
◦ | conditions imposed in order to obtain required regulatory approvals for the Merger, |
| |
◦ | the costs incurred to consummate the Merger, |
| |
◦ | the possibility that the expected synergies from the Merger will not be realized, |
| |
◦ | difficulties related to the integration of the two companies, |
| |
◦ | disruption from the anticipated Merger making it more difficult to maintain relationships with customers, employees, regulators or suppliers, and |
| |
◦ | the diversion of management time and attention to the anticipated combination; |
the Company’s dependence on, and the cyclical and volatile nature of, offshore oil and gas exploration, development and production activity, and the impact of the coronavirus pandemic (“COVID-19”) and general economic conditions and fluctuations in worldwide prices of, and demand for, oil and natural gas on such activity levels, including instances of below-zero prices in oil futures and concerns of an excess of oil supply for a sustained period and limitations of storage capacity for such excess oil supply;
the impact of the COVID-19 pandemic and supply decisions by Saudi Arabiarelated economic repercussions have resulted, and Russia have resultedmay continue to result, in a decrease in the price of and demand for oil, which has caused, and may continue to cause, a decrease in the demand for the Company'sour services;
expected cost synergies and other financial or other benefits of the Company’sMerger might not be realized within the expected time frames, might be less than projected or may not be realized at all;
the ability to successfully integrate the operations, accounting and administrative functions of Era and Old Bristow;
managing a significantly larger company than before the completion of the Merger;
diversion of management time on issues related to integration of the Company;
the increase in indebtedness as a result of the Merger;
operating costs, customer loss and business disruption following the Merger, including, without limitation, difficulties in maintaining relationships with employees and customers, may be greater than expected;
our reliance on a limited number of customers and the reduction of itsour customer base as a result of bankruptcies or consolidation;
risksthe possibility that we may be unable to maintain compliance with covenants in our financing agreements;
fluctuations in worldwide prices of and demand for oil and natural gas;
fluctuations in levels of oil and natural gas exploration, development and production activities;
fluctuations in the Company’s customers reduce or cancel contracted services or tender processes or obtain comparable services through other forms of transportation;demand for our services;
the Company’s dependence on United States (“U.S.”) government agency contractspossibility that are subjectwe may impair our long-lived assets, including goodwill, inventory, property and equipment and investments in unconsolidated affiliates;
our ability to budget appropriations;implement operational improvement efficiencies with the objective of rightsizing our global footprint and further reducing our cost structure;
cost savings initiatives implemented by the Company’s customers;
risks inherent in operating helicopters;
the Company’s ability to maintain an acceptable safety recordpossibility of significant changes in foreign exchange rates and levelcontrols, including as a result of reliability;voters in the U.K. having approved the exit of the U.K. (“Brexit”) from the European Union (“E.U.”);
the impact of continued uncertainty surrounding Brexit negotiations;
potential effects of increased U.S. and foreign government regulation and legislation, including potential government implemented moratoriums on drilling activities;competition;
the impactinability to remediate the material weaknesses identified in internal controls over financial reporting relating to our monitoring control processes;
the possibility that we may be unable to re-deploy our aircraft to regions with greater demand;
the possibility of a groundingchanges in tax and other laws and regulations;
the possibility that we may be unable to dispose of all or a portionolder aircraft through sales into the aftermarket;
general economic conditions, including the capital and credit markets;
the possibility that segments of the Company’sour fleet may be grounded for extended periods of time or indefinitely on indefinitely;
the Company’sexistence of operating risks inherent in our business, including its operations and ability to service customers, resultsthe possibility of operations or financial condition and/or the market value of the affected helicopters;declining safety performance;
the Company’s ability to successfully expand into other geographic and aviation service markets;
risks associated withpossibility of political instability, governmental action, war or acts of terrorism and changes in the economic condition in any foreign country where the Company does business, which may result in expropriation, nationalization, confiscation or deprivation of the Company’s assets or result in claims of a force majeure situation;countries where we operate;
the impactpossibility that reductions in spending on aviation services by governmental agencies could lead to modifications of declinesour search and rescue (“SAR”) contract terms with the UK government, our contracts with the Bureau of Safety and Environmental Enforcement ("BSEE") or delays in the global economyreceiving payments under such contracts; and financial markets;
the impact of fluctuations in foreign currency exchange rates on the Company’s asset values and cost to purchase helicopters, spare parts and related services;
risks related to investing in new lines of aviation service without realizing the expected benefits;
risks of engaging in competitive processes or expending significant resources for strategic opportunities, with no guaranty of recoupment;
the Company’sour reliance on a limited number of helicopter manufacturers and suppliers;suppliers.
the Company’s ongoing needThe above description of risks and uncertainties is by no means all-inclusive, but is designed to replace aging helicopters;
the Company’s reliance on the secondary helicopter markethighlight what we believe are important factors to dispose of used helicopters and parts;
information technology related risks;
the impact of allocationconsider. For a more detailed description of risk betweenfactors, please see the Companyrisks and its customers;
the liability, legal fees and costsuncertainties described in connection with providing emergency response services;
adverse weather conditions and seasonality;
risks associated with the Company’s debt structure;
the Company’s counterparty credit risk exposure;
the impact of operational and financial difficulties of the Company’s joint venturesproxy and partners and the risks associated with identifying and securing joint venture partners when needed;
conflictconsent solicitation statement/prospectus (File No. 333-237557), filed with the other ownersSEC on May 5, 2020 (the “Joint Proxy Statement/Prospectus”) under the heading “Risk Factors” and Part II Item 1A “Risk Factors” of the Company’s non-wholly owned subsidiaries and other equity investees;this Quarterly Report on Form 10-Q.
adverse results of legal proceedings;
risks associated with significant increases in fuel costs;
the Company’s ability to obtain insurance coverage and the adequacy and availability of such coverage;
the possibility of labor problems;
the attraction and retention of qualified personnel;
restrictions on the amount of foreign ownership of the Company’s common stock; and
various other matters and factors, many of which are beyond the Company’s control.
It is not possible to predict or identify all such factors. Consequently, the foregoing should not be considered a complete discussion of all potential risks or uncertainties. The words “estimate,” “project,” “intend,” “believe,” “plan” and similar expressions are intended to identify forward-looking statements. Forward-looking statements speak only as of the date of the document in which they are made. The Company disclaims any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. TheAll forward-looking statements in this Quarterly Report on Form 10-Q should be evaluated together withare qualified by these cautionary statements and are only made as of the many uncertainties that affectdate of this Quarterly Report. We do not undertake any obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Executive Overview
Bristow Group Inc. is the Company’s businesses, particularly those discussedleading global provider of vertical flight solutions. We primarily provide aviation services to a broad base of major integrated, national and independent offshore energy companies. We also provide commercial search and rescue (“SAR”) services in greater detail in Part I, Item 1A, “Risk Factors” of Era Group’s Annual Report on Form 10-K for the year ended December 31, 2019,multiple countries and public sector SAR services in the Preliminary Joint Proxy and Consent Statement/Prospectus filed with the Securities and Exchange CommissionUnited Kingdom (“SEC”U.K.”) on April 5, 2020 and amended on April 20, 2020 and on Era Group’s subsequent Quarterly Reports on Form 10-Q and periodic reporting on Form 8-K (if any).
Overview
We are onebehalf of the largestMaritime & Coastguard Agency (“MCA”). Additionally, we offer other ad hoc helicopter operators in the world and the longest serving helicopter transport operator in the U.S., which isfixed wing transportation services. Our customers charter our primary area of operations. Our helicopters are primarily used to transport personnel to, frombetween onshore bases and between offshore oil and gas production platforms, drilling rigs and other installations. In additionTo a lesser extent, our customers also charter our helicopters to serving thetransport time-sensitive equipment to these offshore locations.
Our core business of providing aviation services to leading global oil and gas industry, we provide emergency responsecompanies and public and private sector SAR services, as well as fixed wing transportation and utilityad hoc services, among other activities. We also provide helicoptersprovides us with geographic and related services to third-party helicopter operators.customer diversity which helps mitigate risks associated with a single market or customer. We currently have customers in the U.S.,Australia, Brazil, Canada, Chile, Colombia, Guyana, India, Mexico, Nigeria, Norway, Spain, Suriname, Trinidad, the U.K. and Suriname.
We charter the majority of our helicopters through master service agreements, subscription agreements, long-term contracts, day-to-day charter arrangements and dry-leases. Master service agreements and subscription agreements typically require a fixed monthly fee plus incremental payments based on hours flown. These agreements have fixed terms ranging from one month to five years and generally may be canceled without penalty upon 30-120 days’ notice. Generally, these contracts do not commit our customers to acquire specific amounts of services or minimum flight hours and permit our customers to decrease the number of helicopters under contract with a corresponding decrease in the fixed monthly payments without penalty. Day-to-day charter arrangements call for either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged. Dry-leases require a fixed monthly fee for the customer’s right to use the helicopter and, where applicable, additional charges as compensation for any maintenance, parts, and/or personnel support that we may provide to the customer. Dry-leases have fixed terms from several months to five years and, in limited circumstances, may be canceled without penalty upon written notice. Emergency response services consist of services provided on a subscription basis directly with the end users as well as charter services on an ad hoc basis.U.S.
Certain of our operations are subject to seasonal factors. OperationsFor example, operations in the U.S. Gulf of Mexico are often at their highest levels from April to September, as daylight hours increase, and are at their lowest levels from December to February, as daylight hours decrease.
Recent Developments
The Merger Involving Bristow Group Inc. and Era Group Inc.
On April 3,January 23, 2020, in connection with the Agreement and Plan of Merger among the Company, Ruby ReduxEra, Merger Sub ("and Old Bristow entered into the Merger Sub"), a DelawareAgreement. On June 11, 2020, the Merger contemplated by the Merger Agreement was consummated and Merger Sub merged with and into Old Bristow, with Old Bristow continuing as the surviving corporation and as a direct wholly owned subsidiary of Era. Following the Company,Merger, Era changed its name to Bristow Group Inc., and Old Bristow (the “Merger Agreement”), pursuantchanged its name to which,Bristow Holdings U.S. Inc.
The Merger was accounted for as an acquisition by Old Bristow of Era even though Era was the legal acquirer and remains the ultimate parent of the Company. As a result, upon the terms and subjectclosing of the Merger, Old Bristow’s historical financial statements replaced Era’s historical financial statements for all periods prior to the conditions set forth therein, Merger Sub will merge with and into Bristow (the “Merger”), with Bristow continuing as the surviving corporation, the Company filed a registration statement on Form S-4 with the SEC that included a joint proxy statementcompletion of Era and Bristow that also constitutes a prospectus of Era (the “Joint Proxy Statement/Prospectus”). On April 13, 2020, we announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). The termination was effective as of 11:59 p.m. EDT on April 10, 2020, thereby ending the HSR Act waiting period for the Merger, and fulfilling onethe financial condition, results of the conditions precedentoperations, comprehensive income and cash flows of Era have been included in the merger agreement. On April 23, 2020, the Company filed an updated Joint Proxy Statement/Prospectus on Form S-4/A and entered into an amendment to the the merger agreement with Bristow ("Amendment No. 1"). Among other things, Amendment No.1 amended the Merger Agreement to contemplate the possibilitythose financial statements since June 12, 2020. Therefore, any information in this MD&A that is presented as of (i) a potential change in the listing of outstanding shares of Era’s common stock from the New York Stock Exchange to the Nasdaq Stock Market and (ii) a reverse stock split of the Company's common stockdates or for periods prior to the consummationcompletion of the Merger. IfMerger relates only to Old Bristow, and whennot the Company. Effective upon the Company's stockholders approve such a reverse stock split,closing of the Board of DirectorsMerger, the Company changed its fiscal year-end from December 31 to March 31, to correspond with Old Bristow’s fiscal year-end.
For pro forma condensed consolidated financial statements of the Company giving effect to the Merger, refer to the unaudited pro forma condensed combined financial information filed as Exhibit 99.2 to our Current Report on Form 8-K filed on June 17, 2020.
Impairment of Líder
In June 2020, upon evaluation of our investment in Líder Táxi Aéreo S.A. (“Líder”), an unconsolidated affiliate in Brazil, we recognized a non-cash impairment charge of $18.7 million. The Company initiated a partial dissolution process to exit its equity investment in Líder in July 2020. As a result of this process, the Company is no longer a shareholder of Líder. The amount payable to the Company for its equity interests will determine whether to effect such a reverse stock split.be governed by the partial dissolution process set forth under the Brazilian Constitution.
Impact of COVID-19
The COVID-19 pandemic has resulted in a global crisis, with the majority ofmany countries limitingplacing restrictions on national and international travel and instituting other measures, such asincluding, among other things, reducing or eliminating public gatherings by placing limits on such events, shuttering non-essential stores and services, encouraging voluntary quarantines and imposing involuntary quarantines, among other such measures in an effort to try to reduce and slow the spread of COVID-19. The long-term impact of COVID-19 on the global economy is not yet known, but it ishas had a significant influence on economic activity and likely will continue to have a significant influence in economic activityimpact on the global economy in the near-term. In particular,near-to-medium-term especially in light of recent resurgences of the impactvirus, which in turn can cause volatility in oil and natural gas prices. Financial markets have also experienced significant volatility.
The outbreak of COVID-19 caused a significant decrease in oil and natural gas prices in the first half of 2020 resulting from demand weakness and oversupply, which has adversely affected demand for our services. Ongoing economic repercussions of the COVID-19 pandemic along withmay further depress the impact of the collapse of OPEC+ negotiations resulting from the failure of Russiaoil and Saudi Arabia to agree on terms to maintain oil production limits, has caused a drastic decreasegas market in the price of oil.future, which may lead to additional decreases in capital spending by oil and natural gas companies.
To date, the Company's overall business, results of operationsTogether with our customers, we have implemented several measures at our bases, based upon guidance from local public health authorities, to help protect employees and financial condition havecustomers, including, but not been materially affected by the COVID-19 outbreak. However, the Company is taking precautions as an organizationlimited to, protect its employees, customers and communities during this time. The Company has undertaken a number of proactive measures to reduce the spreadrestrict access to sites, medical screenings/questionnaires prior to all flights, enhanced sanitization of the virusaircraft and maintain the safetyequipment, modification of aircraft and healthspecial protocols on travel and passenger transport, and we are also monitoring developments that may require or cause us to modify actions as appropriate. Many of the Company’s workforce, including, among other things, permitting employees that are able to work from home to do so, and implementing comprehensive screening at operational bases throughout the organization. Under guidance issued by the U.S. Cybersecurity and Infrastructure Security Agency, the Company’sour employees are deemed “essential,” thereby permitting certain parts of“essential” in the organization toregions in which they operate and therefore may continue operatingperforming their jobs notwithstanding guidance or orders of general applicability issued by state and local governments requiring businesses to close, and persons to shelter in place, and avoid unnecessary travel. The effects of the Company’s work-from-home policies may negatively impact productivity and disrupt the Company’s business, the magnitude of which will depend, in part, on the length and severity of the restrictionsborders to close and other limitations onsimilar actions. In addition, we have developed and are offering customers COVID-19 medevac transport in certain regions.
Fleet Information
As of September 30, 2020 (Successor), the aircraft in our ability to conduct our business in the ordinary course.fleet were as follows:
|
| | | | | | | | | | | | | | |
| Number of Aircraft | | |
| Consolidated Affiliates | | | | |
| Operating Aircraft | | | | | | |
Type | Owned Aircraft | | Leased Aircraft | | Aircraft Held For Sale | | Consolidated Aircraft | | Maximum Passenger Capacity |
Heavy Helicopters: | | | | | | | | | |
S-92A | 35 |
| | 30 |
| | — |
| | 65 |
| | 19 |
|
S-92A U.K. SAR | 3 |
| | 9 |
| | — |
| | 12 |
| | 19 |
|
H225 | — |
| | — |
| | 2 |
| | 2 |
| | 19 |
|
AW189 | 6 |
| | 1 |
| | — |
| | 7 |
| | 16 |
|
AW189 U.K. SAR | 11 |
| | — |
| | — |
| | 11 |
| | 16 |
|
| 55 |
|
| 40 |
|
| 2 |
|
| 97 |
| | |
Medium Helicopters: | | | | | | | | | |
AW139 | 53 |
| | 8 |
| | — |
| | 61 |
| | 12 |
|
S-76 C+/C++ | 28 |
| | — |
| | 3 |
| | 31 |
| | 12 |
|
S-76D | 8 |
| | — |
| | 2 |
| | 10 |
| | 12 |
|
B212 | 3 |
| | — |
| | — |
| | 3 |
| | 12 |
|
B412 | — |
| | — |
| | 2 |
| | 2 |
| | 13 |
|
| 92 |
|
| 8 |
|
| 7 |
|
| 107 |
| | |
Light—Twin Engine Helicopters: | | | | | | | | | |
AW109 | 6 |
| | — |
| | — |
| | 6 |
| | 7 |
|
EC135 | 10 |
| | — |
| | — |
| | 10 |
| | 6 |
|
BO 105 | 2 |
| | — |
| | — |
| | 2 |
| | 4 |
|
| 18 |
| | — |
| | — |
| | 18 |
| | |
Light—Single Engine Helicopters: | | | | | | | | | |
AS350 | 17 |
| | — |
| | — |
| | 17 |
| | 4 |
|
AW119 | 13 |
| | — |
| | — |
| | 13 |
| | 7 |
|
B407 | 7 |
| | — |
| | — |
| | 7 |
| | 6 |
|
| 37 |
| | — |
| | — |
| | 37 |
| | |
| | | | | | | | | |
Total Helicopters | 202 |
| | 48 |
| | 9 |
| | 259 |
| | |
Fixed wing | 7 |
| | 5 |
| | 3 |
| | 15 |
| | |
UAV | — |
| | 2 |
| | — |
| | 2 |
| | |
Total Fleet | 209 |
| | 55 |
| | 12 |
| | 276 |
| | |
The COVID-19 pandemic is, however, a dynamicchart below presents the number of aircraft in our fleet and continuously evolving phenomenontheir distribution among the regions as of September 30, 2020 (Successor), the number of helicopters we had on order as of September 30, 2020 (Successor), and the ultimate severitypercentage of operating revenue each of our regions provided during the outbreak is uncertain at this time. If the pandemic worsens, additional restrictions are implemented or current restrictions are imposed for a longer period of time to contain the outbreak, the Company may experience a material adverse effect on our businesses, results of operations and financial condition.Current Quarter. For additional information See Part II Item 1A “Risk Factors.”regarding our commitments and options to acquire aircraft, see Note 9 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Percentage of Current Quarter Operating Revenue | | Helicopters | | UAV | | Fixed Wing (1) | | |
| Heavy | | Medium | | Light Twin | | Light Single | Total (2) (3) |
Europe Caspian | 57 | % | | 66 |
| | 15 |
| | — |
| | 4 |
| | 2 |
| | — |
| | 87 |
|
Africa | 10 | % | | 7 |
| | 22 |
| | — |
| | — |
| | — |
| | 3 |
| | 32 |
|
Americas | 27 | % | | 24 |
| | 68 |
| | 18 |
| | 33 |
| | — |
| | — |
| | 143 |
|
Asia Pacific | 6 | % | | — |
| | 2 |
| | — |
| | — |
| | — |
| | 12 |
| | 14 |
|
Total | 100 | % | | 97 |
| | 107 |
| | 18 |
| | 37 |
| | 2 |
| | 15 |
| | 276 |
|
Aircraft not currently in fleet: | | | | | | | | | | | | | | | |
On order | | | 3 |
| | — |
| | 5 |
| | — |
| | — |
| | — |
| | 8 |
|
_____________
| |
(1) | Airnorth operates a total of 12 fixed wing aircraft, which are included in the Asia Pacific region. |
| |
(2) | The average age of our helicopter fleet was approximately twelve years as of September 30, 2020 (Successor). |
| |
(3) | Includes 55 leased aircraft as follows: |
|
| | | | | | | | | | | | | | | | | | | | |
| Successor |
| Leased Aircraft in Consolidated Fleet |
| Helicopters | | UAV | | Fixed Wing | | |
| Heavy | | Medium | | Light Twin | | Light Single | | | Total |
Europe Caspian | 31 |
| | 1 |
| | — |
| | — |
| | 2 |
| | — |
| | 34 |
|
Africa | 3 |
| | 1 |
| | — |
| | — |
| | — |
| | 2 |
| | 6 |
|
Americas | 6 |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 10 |
|
Asia Pacific | — |
| | 2 |
| | — |
| | — |
| | — |
| | 3 |
| | 5 |
|
Total | 40 |
| | 8 |
| | — |
| | — |
| | 2 |
| | 5 |
| | 55 |
|
Results of Operations
The following table presents our operating results and other statement of operations information for the applicable periods (in thousands, except percentages):
|
| | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (in thousands) | | % | | (in thousands) | | % |
Revenues: | | | | | | | |
United States | $ | 39,182 |
| | 69 |
| | $ | 34,665 |
| | 68 |
|
International | 17,874 |
| | 31 |
| | 16,628 |
| | 32 |
|
Total revenues | 57,056 |
| | 100 |
| | 51,293 |
| | 100 |
|
Costs and Expenses: | | | | | | | |
Operating: | | | | | | | |
Personnel | 14,909 |
| | 26 |
| | 13,029 |
| | 26 |
|
Repairs and maintenance | 11,142 |
| | 20 |
| | 12,710 |
| | 25 |
|
Insurance and loss reserves | 1,653 |
| | 3 |
| | 1,204 |
| | 2 |
|
Fuel | 3,079 |
| | 5 |
| | 3,402 |
| | 7 |
|
Leased-in equipment | 59 |
| | — |
| | 50 |
| | — |
|
Other | 7,664 |
| | 14 |
| | 6,301 |
| | 12 |
|
Total operating expenses | 38,506 |
| | 68 |
| | 36,696 |
| | 72 |
|
Administrative and general | 12,745 |
| | 22 |
| | 8,875 |
| | 17 |
|
Depreciation and amortization | 9,507 |
| | 17 |
| | 9,450 |
| | 19 |
|
Total costs and expenses | 60,758 |
| | 107 |
| | 55,021 |
| | 108 |
|
Loss on asset dispositions, net | (34 | ) | | — |
| | (124 | ) | | — |
|
Operating loss | (3,736 | ) | | (7 | ) | | (3,852 | ) | | (8 | ) |
Other income (expense): | | | | | | | |
Interest income | 749 |
| | 1 |
| | 752 |
| | 1 |
|
Interest expense | (3,439 | ) | | (6 | ) | | (3,461 | ) | | (7 | ) |
Foreign currency losses, net | (1,704 | ) | | (3 | ) | | (126 | ) | | — |
|
Other, net | 10 |
| | — |
| | (11 | ) | | — |
|
Total other income (expense) | (4,384 | ) | | (8 | ) | | (2,846 | ) | | (6 | ) |
Loss before income taxes and equity earnings | (8,120 | ) | | (14 | ) | | (6,698 | ) | | (13 | ) |
Income tax benefit | (831 | ) | | (1 | ) | | (1,588 | ) | | (3 | ) |
Loss before equity earnings | (7,289 | ) | | (13 | ) | | (5,110 | ) | | (10 | ) |
Equity loss, net of tax | — |
| | — |
| | (975 | ) | | (2 | ) |
Net loss | (7,289 | ) | | (13 | ) | | (6,085 | ) | | (12 | ) |
Net loss attributable to noncontrolling interest in subsidiary | 60 |
| | — |
| | 142 |
| | — |
|
Net loss attributable to Era Group Inc. | $ | (7,229 | ) | | (13 | ) | | $ | (5,943 | ) | | (12 | ) |
|
| | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Favorable (Unfavorable) |
| | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2019 | |
Revenue: | | | | | | | | | |
Operating revenue | | $ | 295,722 |
| | | $ | 304,684 |
| | $ | (8,962 | ) | | (2.9 | )% |
Reimbursable revenue | | 8,918 |
| | | 13,536 |
| | (4,618 | ) | | (34.1 | )% |
Total revenues | | 304,640 |
| | | 318,220 |
| | (13,580 | ) | | (4.3 | )% |
| | | | | | | | | |
Costs and expense: | | | | | | | | | |
Operating expense | | 231,953 |
| | | 236,655 |
| | 4,702 |
| | 2.0 | % |
Reimbursable expense | | 8,919 |
| | | 12,840 |
| | 3,921 |
| | 30.5 | % |
General and administrative | | 39,268 |
| | | 37,820 |
| | (1,448 | ) | | (3.8 | )% |
Merger-related costs | | 4,497 |
| | | — |
| | (4,497 | ) | | nm |
|
Depreciation and amortization | | 18,537 |
| | | 31,303 |
| | 12,766 |
| | 40.8 | % |
Total costs and expenses | | 303,174 |
| | | 318,618 |
| | 15,444 |
| | 4.8 | % |
| | | | | | | | | |
Loss on impairment | | (17,596 | ) | | | (62,101 | ) | | 44,505 |
| | 71.7 | % |
Loss on disposal of assets | | (8,473 | ) | | | (230 | ) | | (8,243 | ) | | nm |
|
Earnings from unconsolidated affiliates, net | | 1,948 |
| | | 633 |
| | 1,315 |
| | nm |
|
Operating loss | | (22,655 | ) | | | (62,096 | ) | | 39,441 |
| | 63.5 | % |
| | | | | | | | | |
Interest income | | 434 |
| | | 270 |
| | 164 |
| | 60.7 | % |
Interest expense | | (13,445 | ) | | | (22,715 | ) | | 9,270 |
| | 40.8 | % |
Reorganization items, net | | — |
| | | (93,943 | ) | | 93,943 |
| | nm |
|
Gain on sale of subsidiaries | | — |
| | | 420 |
| | (420 | ) | | nm |
|
Bargain purchase gain | | 5,660 |
| | | — |
| | 5,660 |
| | nm |
|
Other income (expense), net | | 10,592 |
| | | (6,637 | ) | | 17,229 |
| | nm |
|
Total other income (expense) | | 3,241 |
| | | (122,605 | ) | | 125,846 |
| | nm |
|
Loss before benefit (provision) for income taxes | | (19,414 | ) | | | (184,701 | ) | | 165,287 |
| | 89.5 | % |
Benefit (provision) for income taxes | | (8,578 | ) | | | 21,782 |
| | (30,360 | ) | | nm |
|
Net Loss | | (27,992 | ) | | | (162,919 | ) | | 134,927 |
| | 82.8 | % |
Net (income) loss attributable to noncontrolling interests | | 131 |
| | | (55 | ) | | 186 |
| | nm |
|
Net Loss attributable to Bristow Group Inc. | | $ | (27,861 | ) | | | $ | (162,974 | ) | | $ | 135,113 |
| | 82.9 | % |
|
| | | | | | | | | | | | | | | |
| Successor | | | Predecessor | | Favorable (Unfavorable) |
| Six Months Ended September 30, 2020 | | | Six Months Ended September 30, 2019 | |
Revenue: | | | | | | | | |
Operating revenue | $ | 557,230 |
| | | $ | 621,260 |
| | $ | (64,030 | ) | | (10.3 | )% |
Reimbursable revenue | 17,603 |
| | | 30,136 |
| | (12,533 | ) | | (41.6 | )% |
Total revenues | 574,833 |
| | | 651,396 |
| | (76,563 | ) | | (11.8 | )% |
| | | | | | | | |
Costs and expense: | | | | | | | | |
Operating expense | 422,389 |
| | | 494,414 |
| | 72,025 |
| | 14.6 | % |
Reimbursable expense | 17,567 |
| | | 28,974 |
| | 11,407 |
| | 39.4 | % |
Prepetition restructuring charges | — |
| | | 13,476 |
| | 13,476 |
| | nm |
|
General and administrative | 74,791 |
| | | 72,590 |
| | (2,201 | ) | | (3.0 | )% |
Merger-related costs | 21,917 |
| | | — |
| | (21,917 | ) | | nm |
|
Depreciation and amortization | 34,893 |
| | | 62,642 |
| | 27,749 |
| | 44.3 | % |
Total costs and expenses | 571,557 |
| | | 672,096 |
| | 100,539 |
| | 15.0 | % |
| | | | | | | | |
Loss on impairment | (36,829 | ) | | | (62,101 | ) | | 25,272 |
| | 40.7 | % |
Loss on disposal of assets | (2,951 | ) | | | (4,017 | ) | | 1,066 |
| | 26.5 | % |
Earnings (losses) from unconsolidated affiliates, net | (30 | ) | | | 2,980 |
| | (3,010 | ) | | nm |
|
Operating loss | (36,534 | ) | | | (83,838 | ) | | 47,304 |
| | 56.4 | % |
| | | | | | | | |
Interest income | 696 |
| | | 657 |
| | 39 |
| | 5.9 | % |
Interest expense | (25,949 | ) | | | (49,423 | ) | | 23,474 |
| | 47.5 | % |
Reorganization items, net | — |
| | | (170,299 | ) | | 170,299 |
| | nm |
|
Loss on sale of subsidiaries | — |
| | | (55,883 | ) | | 55,883 |
| | nm |
|
Change in fair value of preferred stock derivative liability | 15,416 |
| | | — |
| | 15,416 |
| | nm |
|
Bargain purchase gain | 81,093 |
| | | — |
| | 81,093 |
| | nm |
|
Other income (expense), net | 13,978 |
| | | (10,510 | ) | | 24,488 |
| | nm |
|
Total other income (expense) | 85,234 |
| | | (122,605 | ) | | 207,839 |
| | nm |
|
Income (loss) before benefit (provision) for income taxes | 48,700 |
| | | (369,296 | ) | | 417,996 |
| | nm |
|
Benefit (provision) for income taxes | (5,288 | ) | | | 37,289 |
| | (42,577 | ) | | nm |
|
Net income (loss) | 43,412 |
| | | (332,007 | ) | | 375,419 |
| | nm |
|
Net (income) loss attributable to noncontrolling interests | 204 |
| | | (213 | ) | | 417 |
| | nm |
|
Net income (loss) attributable to Bristow Group Inc. | $ | 43,616 |
| | | $ | (332,220 | ) | | $ | 375,836 |
| | nm |
|
Revenues by Service Line. The table below sets forth the operating revenues earned by service line for the three months ended March 31, 2020 and 2019.applicable periods (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
| (in thousands) | | % | | (in thousands) | | % |
Revenues: | | | | | | | |
Oil and gas: (1) | | | | | | | |
U.S. | $ | 37,054 |
| | 65 | | $ | 32,466 |
| | 63 |
International | 13,281 |
| | 23 | | 13,616 |
| | 27 |
Total oil and gas | 50,335 |
| | 88 | | 46,082 |
| | 90 |
Dry-leasing | 3,076 |
| | 6 | | 3,463 |
| | 7 |
Emergency response services | 3,645 |
| | 6 | | 1,748 |
| | 3 |
| $ | 57,056 |
| | 100 | | $ | 51,293 |
| | 100 |
|
| | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | | | |
| | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2019 | | Favorable (Unfavorable) |
Oil and gas: | | | | | | | | | |
Europe Caspian | | $ | 98,495 |
| | | $ | 114,537 |
| | $ | (16,042 | ) | | (14.0 | )% |
Americas | | 93,102 |
| | | 60,330 |
| | 32,772 |
| | 54.3 | % |
Africa | | 21,237 |
| | | 40,855 |
| | (19,618 | ) | | (48.0 | )% |
Asia Pacific | | 2,920 |
| | | 6,564 |
| | (3,644 | ) | | (55.5 | )% |
Total oil and gas | | 215,754 |
| | | 222,286 |
| | (6,532 | ) | | (2.9 | )% |
UK SAR Services | | 56,978 |
| | | 54,499 |
| | 2,479 |
| | 4.5 | % |
Fixed Wing Services | | 20,310 |
| | | 27,891 |
| | (7,581 | ) | | (27.2 | )% |
Other | | 2,680 |
| | | 8 |
| | 2,672 |
| | nm |
|
| | $ | 295,722 |
| | | $ | 304,684 |
| | $ | (8,962 | ) | | (2.9 | )% |
____________________ | |
(1) | Primarily oil and gas activities, but also includes revenues from utility services. |
|
| | | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | | | |
| | Six Months Ended September 30, 2020 | | | Six Months Ended September 30, 2019 | | Favorable (Unfavorable) |
Oil and gas: | | | | | | | | | |
Europe Caspian | | $ | 204,306 |
| | | $ | 228,277 |
| | $ | (23,971 | ) | | (10.5 | )% |
Americas | | 151,262 |
| | | 116,366 |
| | 34,896 |
| | 30.0 | % |
Africa | | 51,253 |
| | | 83,690 |
| | (32,437 | ) | | (38.8 | )% |
Asia Pacific | | 5,623 |
| | | 20,716 |
| | (15,093 | ) | | (72.9 | )% |
Total oil and gas | | 412,444 |
| | | 449,049 |
| | (36,605 | ) | | (8.2 | )% |
UK SAR Services | | 109,600 |
| | | 110,578 |
| | (978 | ) | | (0.9 | )% |
Fixed Wing Services | | 31,781 |
| | | 61,358 |
| | (29,577 | ) | | (48.2 | )% |
Other | | 3,405 |
| | | 275 |
| | 3,130 |
| | nm |
|
| | $ | 557,230 |
| | | $ | 621,260 |
| | $ | (64,030 | ) | | (10.3 | )% |
Current Quarter compared to Prior Year Quarter
Operating Revenues. Operating revenues were $5.8$9.0 million higherlower in the three months ended March 31, 2020 (the “Current Quarter”)Current Quarter compared to the three months ended March 31, 2019 (the “PriorPrior Year Quarter”).Quarter.
Operating revenues from U.S. oil and gas operations were $4.6$6.5 million lower in the Current Quarter.
Operating revenues from oil and gas operations in Africa were $19.6 million lower primarily due to lower utilization.
Operating revenues from oil and gas operations in the Europe Caspian region were $16.0 million lower in the Current Quarter. Revenues in the U.K. decreased by $9.3 million primarily due to lower utilization, partially offset by the strengthening of the British pound sterling relative to the U.S. dollar. Revenues in Norway decreased $5.3 million primarily due to lower utilization. Revenues in Turkmenistan were $1.3 million lower due to the end of customer contracts.
Operating revenues from oil and gas operations in the Asia Pacific region were $3.6 million lower primarily due to lower utilization.
Operating revenues from oil and gas operations in the Americas were $32.8 million higher in the Current Quarter. Operating revenues from medium, light twin, and heavy helicopters were $2.7 million, $1.5 million, and $0.9 million higher, respectively,Quarter primarily due to higher utilization.the impact of the Merger. These increases were partially offset by lower revenues from single engine helicoptersutilization of $0.2 million primarily due to lower utilization. Miscellaneous revenues were $0.3 million lower.small and medium helicopters.
Operating revenues from international oil and gas operationsU.K. SAR services were $0.3$2.5 million higher in the Current Quarter primarily due to an increase in flight hours.
Operating revenues from fixed wing services were $7.6 million lower in the Current Quarter. Revenues from fixed wing services in Australia, Africa and the U.K. were $2.6 million, $3.0 million and $2.0 million lower, respectively, primarily due to lower utilization.
Operating revenues from other services were $2.7 million higher due to the benefit of the Merger.
Operating Expenses. Operating expenses were $4.7 million lower in Brazilthe Current Quarter. Lease costs were $1.6 $5.9 million lower in the Current Quarter primarily due to aircraft lease rejections related to Chapter 11 during the prior year. Fuel expense was $5.7
million lower primarily due to the weakening of the Brazilian real relative to the U.S. dollara decrease in flight hours and a lower average rates. These decreasesfuel price. Maintenance costs were $1.4 million lower primarily due to lower power-by-the-hour (“PBH”) expense related to fewer flight hours, partially offset by a $1.2 millionan increase in revenues from SurinamePBH amortization costs related to the recognition of a PBH asset as a result of fresh-start accounting. Other direct costs decreased $4.9 million primarily due to the commencementdecrease in activity, including lower training costs. This was partially offset by an increase in personnel costs of a new contract subsequent$11.5 million primarily due to severance costs and an increase in headcount related to the Prior Year Quarter.Merger. Insurance costs were $1.7 million higher in the Current Quarter primarily due to deductibles related to hurricane damages.
Revenues from dry-leasing activitiesGeneral and Administrative. General and administrative expenses were $0.4$1.4 million higher in the Current Quarter primarily due to the impact of the Merger.
Merger-related costs. Merger-related costs of $4.5 millionprimarilyconsist of professional services fees and severance costs related to the Merger.
Depreciation and Amortization. Depreciation and amortization expenses were $12.8 million lower in the Current Quarter primarily due to the endrevaluation of contracts subsequentassets in connection with the adoption of fresh-start accounting. Old Bristow recorded all property and equipment at fair value upon emergence from Chapter 11 and made certain changes to the Prior Year Quarter.
Operating revenues from emergency response services were $1.9 million higher in the Current Quarter primarily due to the commencementuseful lives and salvage value of a new contract subsequent to the Prior Year Quarter.
Operating Expenses. Operating expenses were $1.8 million higher in the Current Quarter. Personnel costs were $1.9 million higher primarily due to increased headcount and activity in the Current Quarter. Other operating expenses were $1.4 million higher primarily due to increased property tax expense and other expenses related to activity in Suriname. Insurance expenseits assets. This was $0.4 million higher due to increased premiums. These increases were partially offset by lower repairs and maintenance costs of $1.6 million primarily due to the timing of repairs of $2.3 million, partially offset by an increase in power-by-the-hour (“PBH”) expense of $0.7 million. Fuel expense was $0.3 million lower primarily due to lower average fuel prices.the impact of the inclusion of Era’s assets.
Administrative and General.Loss on Impairment. Administrative and general expenses were $3.9 million higher inDuring the Current Quarter, primarily due to increased professional services fees and other coststhe Company recognized a loss on impairment of $12.4 million related to the pending merger with Bristow.write down of inventory and a loss on impairment of $5.2 million related to helicopters that were transferred to held for sale assets. During the Prior Year Quarter, Old Bristow recognized a loss on the impairment of H225 helicopters of $42.0 million, goodwill impairment of $17.5 million related to Airnorth and a $2.6 million impairment of the investment in Sky Futures Partners Limited.
Gain (Loss) on Disposal of Assets. During the Current Quarter, the Company sold ten H225 heavy, nine S-76C++ medium and twelve B407 single engine helicopters for cash proceeds of $40.5 million, resulting in losses of $8.5 million. During the Prior Year Quarter, the Company sold one B412 medium helicopter and other equipment resulting in losses of $0.2 million.
Earnings from Unconsolidated Affiliates, net of Losses. During the Current Quarter, the Company recognized gains of $1.9 million from its equity investments compared to gains of $0.6 million in the Prior Year Quarter.
Operating Loss.Income (Loss). Operating loss as a percentage of revenues was 7%(7.7)% in the Current Quarter compared to 8%(20.4)% in the Prior Year Quarter.
Foreign Currency Losses, net. Foreign currency losses were $1.6 million higher Operating loss in the Current Quarter was primarily due to the weakeningloss on disposal of assets and loss on impairment. Operating loss in the Brazilian real relativePrior Year Quarter was primarily due to the U.S. dollar.loss on impairment.
Income Tax Benefit.Interest Expense. Income tax benefitInterest expense was $0.8$9.3 million lower in the Current Year Quarter primarily due to lower tax adjusted pre-tax losses.debt balances and the absence of the amortization of deferred financing fees as these fees were written-off as a result of Chapter 11. These decreases were partially offset by increased debt discount amortization related to the fair valuing of debt as a result of fresh-start accounting and the impact of the Merger.
Equity Earnings (loss), net of tax. Reorganization Items, net.The Company had no equity earnings to recognize in the Current Quarter. Equity losses of $1.0 million Reorganization items incurred in the Prior Year Quarter related to Chapter 11 and consisted of professional services fees of $35.5 million, H175 settlement charges of $31.8 million, Backstop Commitment Agreement estimated fees of $19.3 million, lease termination costs of $4.2 million, debt related expenses of $4.1 million, corporate lease termination cost of $1.1 million and a benefit of $1.9 million resulting from an adjustment to the allowed claim associated with the return of four H225 helicopters.
Bargain Purchase Gain. During the Current Quarter, the Company recognized a bargain purchase gain of $5.7 million related to the Merger. The Current Quarter gain was an adjustment to the previously calculated excess of the fair value of Era’s identified assets acquired and liabilities assumed.
Other Income (Expense), net. Other income, net was $10.6 million in the Current Quarter compared to other expense, net of $6.6 million in the Prior Year Quarter. Other income in the Current Quarter was primarily due to net foreign exchange gains of $6.9 million as shown in the table below, a favorable interest adjustment to the Company’s Dart Holdingpension liability of $0.9 million and other income related to Airnorth (government grants) of $2.7 million. Other expense, net in the Prior Year Quarter was primarily due to net foreign exchange losses of $5.8 million as shown in the table below and an unfavorable interest adjustment to the Company’s pension liability of $0.9 million.
|
| | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Favorable (Unfavorable) |
| | Current Quarter | | | Prior Year Quarter |
| | | | | | | |
Foreign currency gains (losses) by region: | | | | | | | |
Europe Caspian | | $ | 9,898 |
| | | $ | (6,857 | ) | | $ | 16,755 |
|
Africa | | (2,030 | ) | | | 855 |
| | (2,885 | ) |
Americas | | 85 |
| | | 353 |
| | (268 | ) |
Asia Pacific | | 1,427 |
| | | (1,006 | ) | | 2,433 |
|
Corporate and other | | (2,445 | ) | | | 839 |
| | (3,284 | ) |
Foreign currency gains (losses) | | 6,935 |
| | | (5,816 | ) | | 12,751 |
|
Pension interest | | 939 |
| | | (893 | ) | | 1,832 |
|
Other | | 2,718 |
| | | 72 |
| | 2,646 |
|
Other income (expense), net | | $ | 10,592 |
| | | $ | (6,637 | ) | | $ | 17,229 |
|
Income Tax Benefit (Expense). The Company’s effective tax rate was (44.2)% and 11.8% during the Current Quarter and Prior Year Quarter, respectively. The change in the Company’s effective tax rate primarily related to changes in the blend of earnings, nondeductible professional fees, and the tax impact of valuation allowances on the Company’s net operating losses and deductible business interest expense.
Current Six Months compared to Prior Year Six Months
Operating Revenues. Operating revenues were $64.0 million lower in the six months ended September 30, 2020 (the "Current Period") compared to the six months ended September 30, 2019 (the "Prior Year Period").
Operating revenues from oil and gas operations were $36.6 million lower in the Current Period.
Operating revenues from oil and gas operations in Africa were $32.4 million lower primarily due to lower utilization.
Operating revenues from oil and gas operations in the Europe Caspian region were $24.0 million lower in the Current Period. Revenues in the U.K. decreased $6.5 million primarily due to lower utilization. Revenues in Norway decreased $15.1 million primarily due to lower utilization. Revenues in Turkmenistan decreased $2.1 million due to the end of customer contracts.
Operating revenues from oil and gas operations in the Asia Pacific region were $15.1 million lower in the Current Period. The Prior Year Period included revenues of $5.6 million related to a business that was subsequently sold. Revenues in Australia decreased $9.5 million primarily due to lower utilization.
Operating revenues from oil and gas operations in the Americas were $34.9 million higher in the Current Period primarily due to the addition of Era’s operations upon conclusion of the Merger. These increases were partially offset by lower utilization of small and medium helicopters in the U.S. Gulf of Mexico and Trinidad.
Operating revenues from U.K. SAR services were $1.0 million lower in the Current Period.
Operating revenues from fixed wing services decreased by $29.6 million in the Current Period. Fixed wing services in the Prior Year Period included revenues from Eastern Airways, which was sold during the Prior Year Period, of $10.2 million. Revenues from fixed wing services in Australia and Africa were $13.5 million and $5.9 million lower, respectively, primarily due to lower utilization.
Operating revenues from other services were $3.1 million higher due to the benefit of the Merger.
Operating Expenses. Operating expenses were $72.0 million lower in the Current Period. Lease costs were $26.4 million lower in the Current Period primarily due to aircraft lease rejections in the Chapter 11 Cases prior to the Current Period and the absence of $10.8 million in net lease return costs incurred in the Prior Year Period. Fuel expense was $17.3 million lower primarily due to a decrease in flight hours and a lower average fuel price. Maintenance costs were $9.7 million lower primarily due to lower PBH expense related to fewer flight hours, partially offset by an increase in PBH amortization costs related to the recognition of a PBH asset as a result of fresh-start accounting. Other direct costs decreased $19.1 million primarily due to the decrease in activity,
including lower training, travel and freight costs. These decreases were partially offset by an increase in personnel costs of $0.6 million primarily due to a net increase in headcount and severance costs following the Merger.
Pre-Petition Restructuring Charges. In the Prior Year Period, the Company Ltd. (“Dart”) joint ventureincurred $13.5 million in professional fees prior to the petition date related to the Chapter 11 Cases.
General and Administrative. General and administrative expenses were $2.2 million higher in the Current Period primarily due to the impact of the Merger.
Merger-related costs. Merger-related costs of $21.9 millionprimarilyconsist of professional services fees and severance costs related to the Merger.
Depreciation and Amortization. Depreciation and amortization expense decreased by $27.7 million in the Current Period primarily due to the revaluation of assets in connection with the adoption of fresh-start accounting. Old Bristow recorded all property and equipment at fair value upon emergence from Chapter 11 and made certain changes to the useful lives and salvage value of assets.
Loss on Impairment. During the Current Period, the Company recognized a loss on the impairment of its investment in Líder of $18.7 million, a loss on impairment of $12.4 million related to the write down of inventory, which was agreed to be sold with helicopters, a loss on impairment of $5.2 million related to helicopters that has been subsequently sold.were transferred to held for sale assets and a separate inventory impairment of $0.5 million.
Loss on Disposal of Assets. During the Current Period, the Company sold eleven H225 heavy, nine S-76C++ medium and twelve B407 single engine helicopters and other equipment for cash proceeds of $52.1 million, resulting in losses of $3.0 million. During the Prior Year Period, the Company sold two B412 medium helicopters, a fixed wing aircraft and other equipment resulting in losses of $4.0 million. Fleet CountEarnings from Unconsolidated Affiliates, net of Losses. During the Current Period, the Company recognized losses of less than $0.1 million from equity investments compared to gains of $3.0 million in the Prior Year Period.
Operating Loss. Operating loss as a percentage of revenues was (6.6)% in the Current Period compared to (13.5)% in the Prior Year Period. Operating loss in the Current Period was primarily due to losses on impairment and losses on disposal of assets. Operating loss in the Prior Year Period was primarily due to pre-petition restructuring costs, the recognition of lease return costs and the loss on impairment.
Interest Expense. Interest expense was $23.5 million lower in the Current Year Period primarily due to lower debt balances and the absence of the amortization of deferred financing fees as these fees were written-off as a result of Chapter 11. These decreases were partially offset by increased debt discount amortization related to the fair valuing of debt as a result of fresh-start and purchase price accounting.
Reorganization Items, net. Reorganization items incurred in the Prior Year Period related to the Chapter 11 Cases and consisted of professional fees of $51.0 million, H175 settlement agreement of $31.8 million, lease termination costs of $30.2 million, the write-off of debt discount of $30.2 million, backstop agreement cost of $19.3 million, the write-off of deferred financing costs of $4.6 million, fees incurred related to the DIP Credit Agreement of $4.1 million and corporate lease termination costs of $1.1 million, slightly offset by the benefit on the Milestone Omnibus Agreement allowed claim adjustment of $1.9 million.
Loss on sale of Subsidiaries. During the Prior Year Period, Old Bristow sold two subsidiaries, Eastern Airways and Aviashelf, resulting in losses of $46.9 million and $9.0 million, respectively.
Change in Fair Value of Preferred Stock Derivative. During the Current Period, Old Bristow recognized a benefit of $15.4 million related to a decrease in the fair value of preferred stock derivative.
Gain on Bargain Purchase. During the Current Period, the Company recognized a bargain purchase gain of $81.1 million related to the Merger. The following shows detailsnet tangible and intangible assets acquired, and liabilities assumed in connection with the Merger, were recorded at their acquisition date fair values. The excess of our helicopter fleetthe fair value of Era’s identified assets acquired and liabilities assumed was recognized as of March 31, 2020. We own and control all 102 of our helicopters.a gain.
|
| | | | | | | | | | | | | | | |
| | Helicopters | | Max. Pass.(1) | | Cruise Speed (mph) | | Approx. Range (miles) | | Average Age (years) |
Heavy: | | | | | | | | | | |
S92 | | 4 |
| | 19 |
| | 175 |
| | 620 |
| | 4 |
|
H225 | | 1 |
| | 19 |
| | 162 |
| | 582 |
| | 12 |
|
AW189 | | 4 |
| | 16 |
| | 173 |
| | 490 |
| | 4 |
|
| | 9 |
| | | | | | | | |
| | | | | | | | | | |
Medium: | | | | | | | | | | |
AW139 | | 36 |
| | 12 |
| | 173 |
| | 426 |
| | 10 |
|
S76 C+/C++ | | 5 |
| | 12 |
| | 161 |
| | 348 |
| | 13 |
|
B212 | | 3 |
| | 11 |
| | 115 |
| | 299 |
| | 38 |
|
| | 44 |
| | | | | | | | |
| | | | | | | | | | |
Light—twin engine: | | | | | | | | | | |
A109 | | 6 |
| | 7 |
| | 161 |
| | 405 |
| | 13 |
|
EC135 | | 10 |
| | 7 |
| | 138 |
| | 288 |
| | 10 |
|
BO105 | | 3 |
| | 4 |
| | 138 |
| | 276 |
| | 31 |
|
| | 19 |
| | | | | | | | |
| | | | | | | | | | |
Light—single engine: | | | | | | | | | | |
A119 | | 13 |
| | 7 |
| | 161 |
| | 270 |
| | 13 |
|
AS350 | | 17 |
| | 5 |
| | 138 |
| | 361 |
| | 22 |
|
| | 30 |
| | | | | | | | |
Total Fleet | | 102 |
| | | | | | | | 14 |
|
____________________Other Income (Expense), net. Other income, net was $14.0 million in the Current Period compared to other expense, net of $10.5 million in the Prior Year Period. Other income in the Current Period was primarily due to net foreign exchange gains of $8.3 million as shown in the table below, a favorable interest adjustment to the Company’s pension liability of $1.8 million and other income related to Airnorth (government grants) of $3.9 million. Other expense, net in the Prior Year Period was primarily due to net foreign exchange losses of $8.7 million as shown in the table below and an unfavorable interest adjustment to the Company’s pension liability of $1.8 million.
| |
(1) | In typical configuration for our operations. |
|
| | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Favorable (Unfavorable) |
| | Current Period | | | Prior Year Period |
| | | | | | | |
Foreign currency gains (losses) by region: | | | | | | | |
Europe Caspian | | $ | 10,257 |
| | | $ | (10,681 | ) | | $ | 20,938 |
|
Africa | | (2,870 | ) | | | 622 |
| | (3,492 | ) |
Americas | | (1,016 | ) | | | 679 |
| | (1,695 | ) |
Asia Pacific | | 5,221 |
| | | (1,276 | ) | | 6,497 |
|
Corporate and other | | (3,283 | ) | | | 1,910 |
| | (5,193 | ) |
Foreign currency gains (losses) | | 8,309 |
| | | (8,746 | ) | | 17,055 |
|
Pension interest | | 1,799 |
| | | (1,845 | ) | | 3,644 |
|
Other | | 3,870 |
| | | 81 |
| | 3,789 |
|
Other income (expense), net | | $ | 13,978 |
| | | $ | (10,510 | ) | | $ | 24,488 |
|
Income Tax Benefit (Expense). The Company’s effective tax rate was 10.9% and 10.1% during the Current Period and Prior Year Period, respectively.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from working capital needs, meeting our capital commitments (including the purchase of helicopters and other equipment) and the repayment of debt obligations. In addition, we may use our liquidity to fund acquisitions, repay debt, repurchase shares or debt securities or make other investments. Our primary sources of liquidity are cash balances and cash flows from operations and, from time to time, we may obtain additional liquidity through the issuance of equity or debt or other financing options or through asset sales.
Summary of Cash Flows
| | | Three Months Ended March 31, | Successor | | | Predecessor |
| 2020 | | 2019 | Six Months Ended September 30, 2020 | | | Six Months Ended September 30, 2019 |
| (in thousands) | (in thousands) |
Cash flows provided by or (used in): | | | | | | | |
Operating activities | $ | (2,132 | ) | | $ | 2,635 |
| $ | 34,991 |
| | | $ | (57,165 | ) |
Investing activities | (345 | ) | | (3,874 | ) | 168,441 |
| | | (43,405 | ) |
Financing activities | (977 | ) | | 43 |
| (96,604 | ) | | | 110,904 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (394 | ) | | 55 |
| (1,756 | ) | | | 4,406 |
|
Net decrease in cash, cash equivalents and restricted cash | $ | (3,848 | ) | | $ | (1,141 | ) | |
Net increase in cash, cash equivalents and restricted cash | | $ | 105,072 |
| | | $ | 14,740 |
|
Operating Activities
Cash flows provided by (used in) operating activities decreased by $4.8were $35.0 million during the Current Period compared to cash flows used in operating activities of $57.2 million during the Prior Year Period. Operating income before depreciation, impairment charges and losses on asset dispositions, net was $6.8 million lower in the Current QuarterPeriod compared to the Prior Year Quarter.Period primarily due to lower utilization of aircraft and Merger-related costs. The components of cash flows provided by (used in) operating activities during the Current Quarter and Prior Year Quarter were as follows (in thousands):Period was, however, impacted by significant reorganization costs related to Chapter 11, with a net cash impact of $51.0 million.
|
| | | | | | | |
| Three Months Ended March 31, |
| 2020 | | 2019 |
Operating income before depreciation and gains (losses) on asset dispositions, net | $ | 5,805 |
| | $ | 5,722 |
|
Changes in operating assets and liabilities before interest and income taxes | (6,587 | ) | | (4,160 | ) |
Interest paid, net of capitalized interest | (332 | ) | | (353 | ) |
Interest received | 637 |
| | 595 |
|
Income taxes paid | (2,300 | ) | | (14 | ) |
Other | 645 |
| | 845 |
|
Total cash flows provided by (used in) operating activities | $ | (2,132 | ) | | $ | 2,635 |
|
OperatingCash paid for interest expense and income before depreciationtaxes was $14.5 million and gains on asset dispositions, net was $0.1$7.7 million, higherrespectively, in the Current QuarterPeriod compared to $37.2 million and $8.6 million, respectively, in the Prior Year Quarter primarily due to to higher utilization of helicopters in oil and gas operations in the Current Quarter.Period.
During the Current Quarter, changes in operating assets and liabilities before interest and income taxes used cash flows of $6.6 million primarily due to an increase in receivables and a decrease in payables. During the Prior Year Quarter, changes in operating assets and liabilities before interest and income taxes used cash flows of $4.2 million primarily due to a decrease in payables.
Income taxes paid in the Current Quarter were $2.3 million higher.
Investing Activities
During the Current Quarter,Period, net cash provided by investing activities was $168.4 million primarily as follows:
•Increase in cash from the Merger of $120.2 million,
•Proceeds of $52.1 million from the sale or disposal of thirty-two aircraft and certain other equipment, and
•Non-refundable deposits on assets held for sale of $3.4 million, partially offset by
•Capital expenditures of $7.4 million.
During the Prior Year Period, net cash used in investing activities was $0.3$43.4 million primarily as follows:
Capital expenditures were $0.4of $26.0 million, which consisted primarily of helicopter spare parts.and
Net principal payments receivedof $22.5 million for the disposal of Eastern Airways, BHLL and Aviashelf, partially offset by
•Proceeds of $5.0 million from third parties were $0.1 million.
During the Prior Year Quarter, net cash used in investing activities was $3.9 million primarily as follows:
Net principal payments received from equity investeessale or disposal of three aircraft and third parties were $2.4 million.
Capital expenditures were $1.3 million, which consisted primarily of helicopter spare parts, and leasehold improvements.
Purchase of investments was $5.0 million.certain other equipment.
Financing Activities
During the Current Quarter,Period, net cash used in financing activities was $1.0$96.6 million primarily as follows:
Purchases•Net repayments of treasury shares were $0.6debt and redemption premiums of $85.4 million, and
•Share repurchases of $11.2 million.
Principal payments on long-term debt were $0.4 million.
During the Prior Year Quarter,Period, net cash provided by financing activities was less than $0.1$110.9 million primarily as follows:
Proceeds from share award plans•Borrowings under the Term Loan Agreement were $0.6 million.
Principal payments on long-term debt were $0.5 million.
Unfunded Capital Commitments
As of March 31, 2020, we had unfunded capital commitments of $79.6$225.6 million, consisting primarily of agreements to purchase helicopters, including three AW189 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered in 2021. Delivery dates for the AW169 helicopters have yet to be determined. These commitments are payable beginning in 2020 through 2021, and all of the commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability to us other than aggregate liquidated damages of $2.1 million. In addition, we had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery in 2021 and 2022.partially offset by
If we do not exercise our rights to cancel these capital commitments, we expect to finance the remaining acquisition•Debt issuance costs for these helicopters through a combination of cash on hand, cash provided by operating activities, asset sales$14.1 million, and financing options.
•Net repayments of debt of $99.2 million.
Short and Long-Term Liquidity Requirements
We anticipate that we will generate positive cash flows from operating activities and that these cash flows will be adequate to meet our working capital requirements. To support our capital expenditure program and/or other liquidity requirements, we may use any combination of operating cash flow, cash balances or proceeds from sales of assets, issue debt or equity, or other financing options.
Our availability of long-term liquidity is dependent upon our ability to generate operating profits sufficient to meet our requirements for working capital, debt service, capital expenditures and a reasonable return on investment. While the COVID-19 pandemic, in general, and the related decrease in oil and natural gas prices, more specifically, have not had a material impact on our liquidity, a sustained environment of depressed oil and natural gas prices could affect capital spending for offshore oil and gas exploration, drilling and production, which in turn could affect our business and liquidity. As of March 31,September 30, 2020, we had $113.5$301.4 million inof unrestricted cash on hand and $124.3$57.2 million of remaining availability under our amended and restated senior securedasset-backed revolving credit facility (the “Facility”“ABL Facility”). for total liquidity of $358.6 million. Borrowings under the amended ABL Facility are subject to pro forma compliance with a senior secured leverage ratio, as definedcertain conditions and requirements.
As of September 30, 2020, approximately 47% of our total cash balance was held outside the U.S. and is generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the U.S. could be repatriated to the U.S., and any such repatriation could be subject to additional taxes. If cash held by non-U.S. operations is required for funding operations in the Facility,U.S., we may make a provision for additional taxes in connection with repatriating this cash, which was 0.3x at quarter end comparedis not expected to have a significant impact on our results of operations.
The significant factors that affect our overall liquidity include cash from or used to fund operations, capital expenditure commitments, debt service, pension funding, adequacy of bank lines of credit and the covenant requirement of not more than 3.25x, and an interest coverage ratio, which was 3.2x for the last twelve months ended March 31, 2020 comparedCompany’s ability to the covenant requirement of not less than 1.75x.attract capital on satisfactory terms.
We have not participated in any government grants or relief programs and believe we have enough liquidity to weather the current COVID-19 crisis, while continuing to fulfill our debt obligations. Management will continue to closely monitor our liquidity, the credit markets and oil and gas prices.
Debt Obligations
Total debt (excluding unamortized discounts) as of September 30, 2020 (Successor) was $644.4 million. The following table summarizes the contractual maturity dates for our significant debt as of September 30, 2020 (Successor):
|
| | |
Debt | | Maturity Date |
Promissory notes | | December 2020 |
7.750% Senior Notes | | December 15, 2022 |
Macquarie Debt | | March 6, 2023 |
Lombard Debt | | December 29, 2023 and January 30, 2024 |
PK Air Debt | | January 13 and 27, 2025 |
Currently, we do not believe the conditions caused by COVID-19 will affect our ability to meet the maintenance and other covenants in our debt instruments.
See further discussion of outstanding debt as of September 30, 2020 (Successor) in Note 6 of the condensed consolidated financial statements.
Lease Obligations
We have non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities used in our 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. As of September 30, 2020 (Successor), aggregate future payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year, including leases for 45 aircraft, were as follows (in thousands):
|
| | | | | | | | | | | |
| Aircraft | | Other | | Total |
Fiscal year ending March 31, | | | | | |
2021 | $ | 44,047 |
| | $ | 14,781 |
| | $ | 58,828 |
|
2022 | 77,287 |
| | 25,835 |
| | 103,122 |
|
2023 | 58,616 |
| | 10,154 |
| | 68,770 |
|
2024 | 46,005 |
| | 8,235 |
| | 54,240 |
|
2025 | 28,370 |
| | 6,127 |
| | 34,497 |
|
Thereafter | 2,170 |
| | 25,734 |
| | 27,904 |
|
| $ | 256,495 |
| | $ | 90,866 |
| | $ | 347,361 |
|
Pension Obligations
As of September 30, 2020 (Successor), we had recorded on our balance sheet a net $8.9 million pension liability related to the Bristow Helicopters Limited and Bristow International Aviation (Guernsey) Limited (“BIAGL”) pension plans. The liability represents the excess of the present value of the defined benefit pension plan liabilities over the fair value of plan assets that existed at that date. The minimum funding rules of the U.K. require the employer to agree to a funding plan with the plans’ trustee for securing that the pension plan has sufficient and appropriate assets to meet its technical provisions liabilities. In addition, where there is a shortfall in assets against this measure, we are required to make scheduled contributions in amounts sufficient to bring the plan up to 100% funded as quickly as can be reasonably afforded. The employer contributions for the main U.K. pension plan for the Combined Fiscal Year 2020, the Predecessor Fiscal Year 2019 and the Predecessor Fiscal Year 2018 were £12.7 million ($16.2 million), £12.7 million ($16.6 million), and £12.8 million ($17.0 million), respectively. See further discussion of pension plans in Note 10 to the condensed consolidated financial statements.
Contractual Obligations and Commercial Commitments
We have various contractual obligations that are recorded as liabilities on our consolidated balance sheet. Other items, such as certain purchase commitments and other executory contracts are not recognized as liabilities on our consolidated balance sheet such as certain minimum lease payments for the use of property and equipment under operating lease agreements we are contractually committed to make.
As of September 30, 2020, we had unfunded capital commitments of $85.1 million, consisting primarily of agreements to purchase helicopters, including three AW189 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled to be delivered in fiscal year 2022. Delivery dates for the AW169 helicopters have yet to be determined. These commitments are payable beginning in fiscal year 2021 through fiscal year 2022, and all of the commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability to us other than aggregate liquidated damages of $2.2 million. If we do not exercise our rights to cancel these capital commitments, we expect to finance the remaining acquisition costs for these helicopters through a combination of cash on hand, cash provided by operating activities, asset sales and financing options.
In addition, we had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery in fiscal year 2022 and fiscal year 2023.
We had $9.6 million of other purchase obligations representing non-cancelable PBH maintenance commitments.
Off Balance Sheet Arrangements
On occasion, we and our partners will guarantee certain obligations on behalf of our subsidiaries and affiliates. As of March 31,September 30, 2020, we had no such guarantees in place. As of March 31, 2020, we had standby lettersLetters of credit totaling $0.7 million.issued under the ABL Facility in the aggregate face amount of $9.2 million were outstanding on September 30, 2020 (Successor).
ContingenciesSelected Financial Information on Guarantors of Securities
Brazilian Tax DisputesOn December 12, 2012, Era Group Inc., renamed Bristow Group Inc. (“the Parent”) upon closing of the Merger, issued its 7.750% Senior Notes due 2022. The Registered Notes are fully and unconditionally guaranteed as to payment by a number of subsidiaries of the Parent (collectively, the “Guarantors”). The Parent is a holding company with no significant assets other than the stock of its subsidiaries. In order to meet its financial needs and obligations, the Parent relies exclusively on income from dividends and other cash flow from such subsidiaries. The subsidiary guarantees provide that, in the event of a default on the Registered Notes, the holders of the Registered Notes may institute legal proceedings directly against the Guarantors to enforce the guarantees without first proceeding against the Parent.
In connection with our ownershipNone of Aeróleo and its operationsthe non-Guarantor subsidiaries of the Parent are under any direct obligation to pay or otherwise fund amounts due on the Registered Notes or the guarantees, whether in Brazil, we have several ongoing legal disputes relatedthe form of dividends, distributions, loans or other payments. If such subsidiaries are unable to transfer funds to the local, municipalParent or Guarantors and federal taxationsufficient cash or liquidity is not otherwise available, the Parent or Guarantors may not be able to make principal and interest payments on their outstanding debt, including the Registered Notes or the guarantees. We believe the following selected financial information of the Guarantors presents a sufficient financial position of Bristow Group Inc. to continue to fulfill its obligations under the requirements of the Registered Notes. This selected financial information should be read in Brazil, including assessments associatedconjunction with the importaccompanying condensed consolidated financial statements and re-export of our helicoptersnotes (amounts shown in Brazil. The legal disputes are related to: (i) municipal tax assessments arising under the authorities in Rio de Janeiro (for the period between 2000 and 2005) and Macaé (for the period between 2001 to 2006) (collectively, the “Municipal Tax Disputes”); (ii) social security contributions that one of our customers was required to remit from 1995 to 1998; (iii) penalties assessed due to our alleged failure to comply with certain deadlines related to the helicopters we import and export in and out of Brazil; and (iv) fines sought by taxing authorities in Brazil related to our use of certain tax credits used to offset certain social tax liabilities (collectively, the “Tax Disputes”)thousands).
The aggregate amount at issue for the Tax Disputes is $10.9 million. The Municipal Tax Disputes are the largest contributor to the total amount being sought from Aeróleo, with approximately $8.3 million at issue.In addition to the foregoing Tax Disputes (and unrelated thereto), Aeróleo is engaged in two additional civil litigation matters relating to: (i) a dispute with its former tax consultant who has alleged that $0.7 million is due and payable as a contingency fee related to execution of certain tax strategies; and (ii) a fatal accident that occurred in 1983 and was previously settled with the plaintiffs’ in the U.S. (the “Civil Disputes”). With respect to the fatal accident, the plaintiffs are seeking to collect additional amounts in Brazil despite the previous settlement agreed upon by the parties in the U.S.
We continue to evaluate and assess various legal strategies for each of the Tax Disputes and the Civil Disputes. As is customary for certain legal matters in Brazil, Aeróleo has already deposited amounts as security into an escrow account to pursue
further legal appeals in several of the Tax Disputes and the Civil Disputes. As of March 31, 2020, we have deposited $3.9 million into escrow accounts controlled by the court with respect to the Tax Disputes and the Civil Disputes, and we have fully reserved such amounts subject to final determination and the judicial release of such escrow deposits. These estimates are based on our assessment of the nature of these matters, their progress toward resolution, the advice of legal counsel and outside experts as well as management’s intentions and experience. Aeróleo plans to defend the cases vigorously. As of March 31, 2020, it is not possible to determine the outcome of the Tax Disputes or the Civil Disputes, but we do not expect that an outcome would have a material adverse effect on our business, financial position or results of operations.
For additional information about our contractual obligations and commercial commitments, refer to “Liquidity and Capital Resources—Contractual Obligations and Commercial Commitments” contained in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes since such date. |
| | | | | | | | |
| | Successor | | |
| | September 30, 2020 | | |
| | | | |
Current assets | | $ | 521,826 |
| | |
Non-current assets | | $ | 1,387,549 |
| | |
Current liabilities | | $ | 260,380 |
| | |
Non-current liabilities | | $ | 632,969 |
| |
|
|
| | | | |
| | Successor |
| | Three Months Ended September 30, 2020 | | Six Months Ended September 30, 2020 |
Total revenues | | $ | 85,862 |
| | $ | 137,982 |
|
Operating income (expense) | | $ | (29,350 | ) | | $ | (52,625 | ) |
Net income (loss) | | $ | (31,852 | ) | | $ | (37,896 | ) |
Net income (loss) attributable to Bristow Group | | $ | (31,863 | ) | | $ | (37,918 | ) |
Critical Accounting Policies and Estimates
The preparation of our financial statements is in conformity with U.S. generally accepted accounting principles (“GAAP”). In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, whereas, in other circumstances, GAAP requires us to make estimates, judgments and assumptions that we believe are reasonable based upon information available. We base our estimates and judgments on historical experience, professional advice and various other sources that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. In addition to the policies discussed inSee Item 7 - Management’s7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” in our Annual Report on Form 10-Kthe MD&A 8-K for the year ended December 31, 2019, the following involves a high degree of judgment and complexity.
Current expected Credit Losses (CECL). Alldiscussion of our trade receivables are assessed as a single pool of assets duecritical accounting policies. There have been no material changes to their short-term natureour critical accounting policies and risk characteristics. Based on a periodic analysis of quantitative and qualitative information on historic customer payment trends, customer credit ratings and foreseeable economic conditions we determine if additional reserve amounts are necessary againstestimates provided in the trade receivables asset pool, by customer, on case by case basis.MD&A 8-K.
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are subject to certain market risks arising from the use of financial instruments in the ordinary course of business. This risk arises primarily as a result of potential changes in the fair market value of financial instruments that would result from adverse fluctuations in foreign currency exchange rates, credit risk, and interest rates. For additional information about our exposure to market risk, refer to Item 7A,“Item 7A. Quantitative and Qualitative Disclosures aboutAbout Market Risk, containedRisk” in our Annual Reportthe MD&A 8-K.
Market Risk
On September 30, 2020, Brent crude oil prices closed at $40.05 per barrel having previously closed at $20.51 per barrel on Form 10-K for the year endedMarch 31, 2020, declining from $61.14 per barrel closing price on December 31, 2019. There has been no material changeA combination of factors led to this initial decline and continued volatility, including an increase in low-priced oil from Saudi Arabia supplied into the market coupled with Russia’s position to abstain from participating in the supply reduction agreement with the Organization of the Petroleum Exporting Countries (“OPEC”) and the reduction in demand for oil due to the global COVID-19 pandemic. We are continuing to closely monitor our exposure to marketthis risk duringand the Current Quarter, exceptpotential impacts on our business.
Foreign Currency Risk
Our primary foreign currency exposure is to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner, the Nigerian naira and the Brazilian real. The value of these currencies has fluctuated relative to the U.S. dollar as described below.
As of March 31, 2020, we had non-U.S. dollar denominated capital purchase commitments of €72.3 million ($79.6 million). An adverse change of 10%indicated in the underlyingfollowing table:
|
| | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | Successor | | | Predecessor |
| | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2019 | | Six Months Ended September 30, 2020 | | | Six Months Ended September 30, 2019 |
One British pound sterling into U.S. dollars | | | | | | | | | | |
High | | 1.34 |
| | | 1.27 |
| | 1.34 |
| | | 1.32 |
|
Average | | 1.29 |
| | | 1.23 |
| | 1.27 |
| | | 1.26 |
|
Low | | 1.25 |
| | | 1.21 |
| | 1.21 |
| | | 1.21 |
|
At period-end | | 1.29 |
| | | 1.23 |
| | 1.29 |
| | | 1.23 |
|
One euro into U.S. dollars | | | | | | | | | | |
High | | 1.20 |
| | | 1.13 |
| | 1.20 |
| | | 1.14 |
|
Average | | 1.17 |
| | | 1.11 |
| | 1.14 |
| | | 1.12 |
|
Low | | 1.12 |
| | | 1.09 |
| | 1.08 |
| | | 1.09 |
|
At period-end | | 1.17 |
| | | 1.09 |
| | 1.17 |
| | | 1.09 |
|
One Australian dollar into U.S. dollars | | | | | | | | | | |
High | | 0.74 |
| | | 0.70 |
| | 0.74 |
| | | 0.72 |
|
Average | | 0.71 |
| | | 0.69 |
| | 0.69 |
| | | 0.69 |
|
Low | | 0.69 |
| | | 0.67 |
| | 0.60 |
| | | 0.67 |
|
At period-end | | 0.72 |
| | | 0.67 |
| | 0.72 |
| | | 0.67 |
|
One Norwegian kroner into U.S. dollars | | | | | | | | | | |
High | | 0.1152 |
| | | 0.1172 |
| | 0.1152 |
| | | 0.1179 |
|
Average | | 0.1095 |
| | | 0.1129 |
| | 0.1048 |
| | | 0.1143 |
|
Low | | 0.1043 |
| | | 0.1097 |
| | 0.0928 |
| | | 0.1097 |
|
At period-end | | 0.1069 |
| | | 0.1101 |
| | 0.1069 |
| | | 0.1101 |
|
One Nigerian naira into U.S. dollars | | | | | | | | | | |
High | | 0.0026 |
| | | 0.0028 |
| | 0.0026 |
| | | 0.0028 |
|
Average | | 0.0026 |
| | | 0.0028 |
| | 0.0026 |
| | | 0.0028 |
|
Low | | 0.0026 |
| | | 0.0028 |
| | 0.0026 |
| | | 0.0028 |
|
At period-end | | 0.0026 |
| | | 0.0028 |
| | 0.0026 |
| | | 0.0028 |
|
One Brazilian real into U.S. dollars | | | | | | | | | | |
High | | 0.1961 |
| | | 0.2675 |
| | 0.2043 |
| | | 0.2675 |
|
Average | | 0.1862 |
| | | 0.2524 |
| | 0.1862 |
| | | 0.2538 |
|
Low | | 0.1769 |
| | | 0.2393 |
| | 0.1688 |
| | | 0.2393 |
|
At period-end | | 0.1774 |
| | | 0.2401 |
| | 0.1774 |
| | | 0.2401 |
|
______________________
Source: FactSet
Other income (expense), net, in the Company’s condensed consolidated statements of operations includes foreign currency transaction gains and losses as shown in the following table. Earnings from unconsolidated affiliates, net of losses, are also affected by the impact of changes in foreign currency exchange rate would increaserates on the reported results of the Company’s unconsolidated affiliates as shown in the following table (in thousands):
|
| | | | | | | | | | | | | | | |
| | Successor | | | Predecessor | | | Successor | | | Predecessor |
| | Three Months Ended September 30, 2020 | | | Three Months Ended September 30, 2019 | | | Six Months Ended September 30, 2020 | | | Six Months Ended September 30, 2019 |
| | | | | | | | | | | |
Foreign currency transaction gains (losses) | | 6,935 |
| | | (5,816 | ) | | | 8,309 |
| | | (8,746 | ) |
Foreign currency transaction gains (losses) from earnings from unconsolidated affiliates, net of losses | | — |
| | | (1,596 | ) | | | — |
| | | (1,710 | ) |
Transaction gains and losses represent the revaluation of monetary assets and liabilities from the currency that will ultimately be settled into the functional currency of the legal entity holding the asset or liability. The most significant items revalued are denominated in U.S. dollars on entities with British pound sterling and Nigerian naira functional currencies and denominated in British pound sterling on entities with U.S. dollar functional currencies, with transaction gains or losses primarily resulting from the strengthening or weakening of the U.S. dollar equivalent of the non-hedged purchase commitments by $8.0 million. As of March 31, 2020, our Brazilian subsidiary maintained a non-U.S. dollar denominated working capital balance of R$36.9 million ($7.1 million). An adverse change of 10% in the underlying foreign currency exchange rate would reduce our working capital balance by $0.6 million.versus those other currencies.
| |
ITEM 4. | CONTROLS AND PROCEDURES |
Item 4. Controls and Procedures.
WithAt the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision of and with the participation of our management, including Christopher S. Bradshaw, our Chief Executive Officer (“CEO”), and Jennifer Whalen, our Chief Financial Officer management evaluated(“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as. Due solely to the existence of March 31, 2020. Based on their evaluation,the material weaknesses described below, our principal executive officerCEO and principal financial officerCFO have concluded that the Company’sour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not effective in providingto provide reasonable assurance that materialthe information required to be disclosed in the reports that we file orand submit under the Exchange Act is recorded, processed, summarized and reported within the time periodsperiod specified in the Securities and Exchange Commission’s rules and forms including ensuringand that such material information relating to us (including our consolidated subsidiaries) required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officerthe CEO and Chief Financial Officer, as appropriate,CFO, to allow timely decisions regarding required disclosure.
Material WeaknessesWeakness in Internal Control Over Financial Reporting
None.
Changes in Internal Controls Over Financial Reporting
DuringIn connection with its evaluation of internal control over financial reporting for the three monthsfiscal years ended March 31, 2020,2018 and 2019, management of Old Bristow identified the following material weaknesses which have not been remediated as of September 30, 2020.
Control Environment. We did not maintain an effective control environment as we had an insufficient complement of resources with an appropriate level of knowledge, expertise and skills commensurate with our financial reporting requirements in certain areas. The material weakness contributed to additional control deficiencies, as we did not maintain effective internal controls over monitoring of debt covenant compliance as described below and certain areas of asset impairment testing including the review of certain key assumptions and asset grouping determinations, none of which resulted in a misstatement of the condensed consolidated financial statements. In addition, we determined the insufficient complement of resources, resulted in an additional material weakness within our Risk Assessment process as described further below. This deficiency was originally identified in the fiscal year ended March 31, 2019.
Risk Assessment. We concluded, as a result of the control environment deficiency above, there exists a material weakness within our risk assessment process, specifically, the process to identify the potential for management override of controls at locations not operating on our centralized enterprise resource planning (“ERP”) system and the process to identify and assess changes that could significantly impact our system of internal control, specifically, changes within our capital structure which resulted in more onerous non-financial debt covenants. This material weakness contributed to additional control deficiencies, as the Company did not maintain effective internal controls over (i) debt covenant compliance monitoring as described above, (ii) verification of the review of journal entries are performed by individuals separate from the preparer as described further below in certain locations, and (iii) the reassessment of accounting for certain elements of our accounting for investments in unconsolidated affiliates. This deficiency was originally identified in the fiscal year ended March 31, 2019.
Debt Covenant Compliance. We identified a material weakness in our internal controls over financial reporting for monitoring of compliance with non-financial covenants within certain secured financing and lease agreements. This deficiency was originally identified in the fiscal year ended March 31, 2018.
Journal Entries. The Company failed to design and maintain effective controls over the review, approval, and documentation of manual journal entries at our subsidiary, Airnorth, which is not operating on our centralized ERP system. There were ineffective internal controls over the review of journal entries at this subsidiary by individuals separate from the preparer. Management concluded this represented a material weakness in our internal control over financial reporting. This deficiency was originally identified in the fiscal year ended March 31, 2019.
REMEDIATION PLAN FOR MATERIAL WEAKNESSES
Management and the board of directors take internal control over financial reporting and the integrity of financial statements seriously. Management and the board of directors are committed to maintaining a strong internal control environment and will make every effort to ensure that the material weakness described above will be promptly remediated, however, no material weakness can be considered remediated until the applicable remedial control is implemented and operates for a sufficient period of time to allow management to conclude, through testing, that this remediation plan is implemented and the control is operating effectively. Our remediation plans for each of the material weaknesses are described below.
Control Environment. In response to the material weakness described above, we are actively implementing certain organizational enhancements, including: (i) augmenting our treasury and legal teams with additional internal or external professionals with the appropriate levels of knowledge, expertise, and skills in the area of non-financial debt covenant compliance monitoring, (ii) augmenting our financial planning and analysis team with additional internal or external professionals with the appropriate level of knowledge, expertise and skills to enhance the level of precision at which our internal controls over financial reporting related to asset impairment assessments are performed and (iii) augmenting our technical accounting team with additional internal or external professionals with the appropriate levels of knowledge, expertise and skills to assist in the evaluation of asset impairment assessments. In order to consider this material weakness remediated, we believe additional time is needed to evaluate and implement the necessary organizational enhancements and demonstrate sustainability as it relates to the revised controls.
Risk Assessment. In response to the material weakness described above, we have enhanced our risk assessment process to better identify, evaluate and monitor changes that could significantly impact our system of internal control. These enhancements include the establishment of a charter for, and the formation of, a formal Enterprise Risk Management Committee responsible for defining and continually evaluating our enterprise risk assessment objectives, overseeing the Company’s enterprise risk assessment process and ensuring the Company responds appropriately to identified risks through the selection and development of control activities responsive to the identified risks. The enhancements culminated in the presentation of our revised risk assessment output to the board of directors during the period. We believe the enhancements we have made during the period will be sufficient to remediate this material weakness; however, to consider this material weakness remediated, we believe additional time is needed to demonstrate sustainability as it relates to the revised controls.
Debt Compliance. In response to the material weakness described above, we will continue the ongoing implementation of our remediation plan, that includes the formal establishment of a debt and lease compliance program with the specific objective of creating a sustainable and executable compliance process that can be repeated on a recurring basis to ensure timely monitoring of compliance with covenants and provisions. We are actively implementing this compliance program by executing the following:
Development of a more complete reporting process to ensure information gathered or created by our separate control processes throughout the business are reported to the appropriate level of management with the responsibility for reporting on debt and lease agreement compliance. We have implemented a third-party debt compliance software to assist with monitoring compliance with covenants and requirements of our financing and helicopter lease agreements throughout the organization. The software provides a reminder and required reporting task on a sufficiently recurring basis for subject matter experts within the business to report potential compliance issues for evaluation resolution by our management.
Implementation of new or redesigned processes, where necessary, for compliance with collateral maintenance requirements under our debt and lease agreements, specifically, tracking the movement of collateral throughout our operations. We have implemented a manual engine tracking process supported by our maintenance, treasury and legal teams.
Establishment of procedures for reassessment of our debt and lease compliance program in response to changes in operations or agreements, to ensure timely actions are taken when risks change.
Evaluation of the current process and expected changes to ensure a sufficient complement of resources with an appropriate level of knowledge, expertise and skills commensurate with our non-financial debt covenant compliance monitoring requirements. We expect the changes when fully implemented, to necessitate the need to augment certain of our teams with additional internal or external professionals with the appropriate levels of knowledge, expertise, and skills in the area of non-financial debt covenant compliance monitoring.
We anticipate the actions currently underway and those remaining to be taken will address the material weakness. In order to consider this material weakness remediated, we believe additional time is needed to finalize and implement the enhanced procedures and demonstrate sustainability as it relates to the revised controls.
Journal Entries. In response to the material weakness described above, we have developed enhanced procedures which have been implemented at Airnorth to ensure that manual journal entries recorded in our financial records are properly reviewed and approved preventing the potential for management override of controls. This material weakness will not be considered remediated until the enhanced control procedures operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Other than the changes resulting from the remediation of the material weaknesses described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 (Successor), that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—II — OTHER INFORMATION
ITEMItem 1.LEGAL PROCEEDINGSLegal Proceedings
None.We have certain actions or claims pending that have been discussed and previously reported in the Financial Statement 8-K, Era’s Annual Report on Form 10-K for the year ended December 31, 2019, Era’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2020 and the Joint Proxy Statement/Prospectus. Developments in these previously reported matters, if any, are described in Note 8 in the “Notes to Condensed Consolidated Financial Statements” included elsewhere in this Quarterly Report.
ITEMItem 1A.RISK FACTORSRisk Factors
For a detailed discussion of our risk factors, seeExcept as set forth below, there have been no material changes during the three months ended September 30, 2020 in the “Risk Factors” in Item 1A of our Joint Proxy Statement/Prospectus and Era’s Annual Report on Form 10-K for the year ended December 31, 2019. Additional risk factors are described below.2019, which is incorporated by reference into the Joint Proxy Statement/Prospectus.
The coronavirus (COVID-19) pandemic and supply decisions by Saudi Arabiarelated economic repercussions have resulted, and Russia have resultedmay continue to result, in a decrease in the price of and demand for oil, which has caused, and may continue to cause, a decrease in the demand for the Company’sour services.
BeginningThe COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty and turmoil in February 2020,businesses globally, particularly in the oil prices experienced record declines and are currently at record low levelsgas industry. These events have directly affected our business and have exacerbated the potential negative impact from many of the risks described in our Joint Proxy Statement/Prospectus, including those relating to our customers’ capital spending and trends in oil and natural gas prices. For example, demand for our services is declining as our customers continue to revise their capital budgets downwards and swiftly adjust their operations in response to dramatic supplylower commodity prices.
In an effort to contain and demand uncertainty caused by (i)mitigate the spread of COVID-19, which has significantly reduced globalmany countries, including the United States, have imposed unprecedented restrictions on travel, and nationalthere have been business closures and a substantial reduction in economic activity resulting in acountries that have had significant declineoutbreaks of COVID-19. As of September 30, 2020, efforts to contain COVID-19 have not succeeded in many regions, and the global pandemic remains ongoing. In addition, while certain precautionary restrictions were relaxed during the summer months, recent increases in infection rights have caused some of these restrictions to be re-implemented. To the extent infection rates remain high, other restrictions may be put in place.
In the midst of the ongoing COVID-19 pandemic, in the pricefirst quarter of and demand for oil and (ii) supply decisions principally by Russia and Saudi Arabia resulting in failure2020, OPEC+ was initially unable to agree on terms to maintain production limits and the ensuing influx of additional oil to an already oversupplied market. On January 23, 2020, the date the Merger Agreement was executed, Brent crude oil prices closed at a price of $62.04 per barrel. As of April 20, 2020, the NYMEX WTI oil futures price for May 2020 was -$37.63 per barrel. While OPEC+ reachedreach an agreement to limitcontinue to impose limits on the production oil prices did notof crude oil. Oil demand has significantly recoverdeteriorated as a result of the agreement. Asvirus outbreak and corresponding preventative measures taken around the world to mitigate the spread of May 2020, Brent crudethe virus. The convergence of these events created the unprecedented dual impact of a global oil prices closed atdemand decline coupled with the risk of a price of $27.20 per barrel. To the extentsubstantial increase in supply. While OPEC+ agreed in April to cut production, there is no assurance that the outbreak of COVID-19 continues to negatively impact demandagreement will continue or be observed by its parties, and OPEC members and other oil exporting nations fail to implement additional production cuts or other actions that are sufficient to support and stabilizenotwithstanding the agreement, downward pressure on commodity prices we expect there to be excess supplyas a result of oilthe economic slowdown caused by the pandemic has continued and natural gascould continue for a sustained period. This excess supply could, in turn, result in transportation and storage capacity constraints in the United States, or even the elimination of available storage.foreseeable future. As a result, we cannot anticipate whether or when oil prices will return to normalized levels, and oil prices could remain at current levels or decline further for an extended period of time.
The Company provides many services,In addition to the effect on demand for which is highly correlated to the price of oil and natural gas, as such prices drive capital spending decisions by both major and independent oil and gas exploration, development and production companies. While the Company has not seen a significant decline in demand for itsour services to date, as a result of the decrease in the price of oil, the Company may see customers’ demand for its services decrease, and if the price of oil remains low or decreases below its current averages, demand for the Company’s services (including after the Merger) could further decrease and the decrease could be significant.
In addition,discussed above, the pandemic may affect the health of the Company’sour workforce, and international, national and local government interventions enacted to reduce the spread of COVID-19 may render the Company’sour employees unable to work or travel. Although many of our employees are deemed “essential” in the Company’s workforce is largely considered to be “essential” underregions in which they operate and therefore may continue performing their jobs notwithstanding guidance or orders of general applicability issued by the U.S. Cybersecuritygovernments requiring businesses to close, persons to shelter in place, borders to close and Infrastructure Security Agency, if the COVID-19 pandemic were to impactother similar actions, there can be no assurance that our personnel (or those of our key customers) will not be impacted by COVID-19. As a location where the Company (or anyresult, we may see our workforce productivity reduced or incur increased medical costs / insurance premiums as a result of its key suppliers) have a high concentration of business and resources, their local workforces could be affected by the outbreak,these health risks, which could also significantly disrupt theirour operations and decrease theirour ability to provide helicopter services and equipment to theirour customers. For instance, if an outbreak occurs among the Company’sour pilots, technicians or other employees who must be present at operating bases, it is highly unlikely that the Company, before or after the Merger,we will be able to find replacements while the affected employees are out.
The duration and severity of the business disruption and related financial impact from the COVID-19 pandemic cannot be reasonably estimated at this time. If the impact of the COVID-19 pandemic continues for an extended period of time or worsens, it could materially adversely affect the demand for the Company’sour helicopter services and equipment or itsour ability to provides services, either of which could have a material adverse effect on our business, financial condition and liquidity.
We may fail to realize the Company’santicipated benefits and cost savings of the Merger.
The success of the Merger, which was consummated in June 2020, including anticipated benefits and cost savings, will depend, in part, on ability to successfully combine and integrate the businesses of the merged companies in a manner that does not materially disrupt existing customer relationships or result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers and employees. The success of our integration may depend, in part, on the ability to integrate the two businesses, business models and cultures, which may be more difficult than expected because of the COVID-19 pandemic and its effect on our operations, including the fact that many of our key employees are working remotely. Other difficulties that may arise include: integrating the companies’ operations and corporate functions; integrating and unifying the product offerings and services available to customers; combining operating practices, employee development, internal controls and other policies, procedures and processes; possible differences in business backgrounds, corporate cultures and management philosophies; consolidating the companies’ administrative and information technology systems; integrating accounting, finance, payroll, reporting and regulatory compliance systems; and managing a significantly larger company than before the Merger. If we experience difficulties in the integration process, including those listed above, we may fail to realize the anticipated benefits of the Merger in a timely manner or at all. Our business or results of operations or the value of our common stock may be materially and adversely affected as a result.
We have incurred material one-time costs to achieve Merger-related synergies and may fail to realize such estimated synergies. While we believe these synergies are achievable, our ability to achieve such estimated synergies in the amounts and time frame expected is subject to various assumptions based on expectations that are subject to a number of risks, which may or may not be realized, the incurrence of other costs in our operations that may offset all or a portion of such synergies and other factors outside our control. As a consequence, we may not be able to realize all of these synergies within the time frame expected or at all. We may incur additional and/or unexpected costs to realize these synergies. In addition, if we fail to achieve the anticipated cost benefits in a timely manner, we may be unable realize all the anticipated synergies. Failure to achieve the expected synergies could significantly reduce the expected benefits associated with the Merger and adversely affect our business, financial condition and results of operations.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.
ITEMWe are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. In connection with its evaluation of internal control over financial reporting for the fiscal years ended March 31, 2018 and 2019, Old Bristow’s management identified the following material weaknesses, which have not been remediated as of September 30, 2020.
In the fiscal year ended March 31, 2018, a material weakness was identified in the monitoring of compliance with non-financial covenants within certain secured financing and lease agreements.
In the fiscal year ended March 31, 2019, a material weakness was identified regarding the maintenance of an effective control environment as Old Bristow had an insufficient complement of resources with an appropriate level of knowledge, expertise and skills commensurate with financial reporting requirements in certain areas. As a result, this insufficient complement of resources contributed to the following material weakness:
| |
◦ | A material weakness within the risk assessment process, specifically, the process to identify the potential for management override of controls at locations not operating on the ERP system and the process to identify and assess changes that could significantly impact the system of internal control, specifically, changes within the capital structure which resulted in more onerous non-financial debt covenants. |
| |
◦ | This material weakness contributed to additional control deficiencies, effective internal controls were not maintained over (i) debt covenant compliance monitoring as described above, (ii) verification of the review of journal entries are performed by individuals separate from the preparer as described further below in certain locations, and (iii) the reassessment of accounting for certain elements of the accounting for investments in unconsolidated affiliates. |
In the fiscal year ended March 31, 2019, a material weakness was identified regarding the failure to design and maintain effective controls over the review, approval, and documentation of manual journal entries at Airnorth, which is not operating on the centralized ERP system.
For a discussion of the material weakness and our remediation efforts, see Item 4, Controls and Procedures, in this Quarterly Report on Form 10-Q. We cannot assure you that our efforts to remediate this internal control weakness will be successful or that other material weaknesses will not occur.
We have a substantial amount of indebtedness, which could adversely affect our operations and financial condition.
We have significant indebtedness and debt service obligations. As of September 30, 2020 (Successor), we had total debt of $644.4 million. The agreements governing such indebtedness impose certain limits on our flexibility to operate our business. In particular, the instruments governing our debt contain various covenants that limit our ability to, among other things:
make investments;
incur or guarantee additional indebtedness;
incur liens or pledge the assets of certain of our subsidiaries;
pay dividends or make investments;
maintain a maximum senior secured leverage ratio;
enter into transactions with affiliates; and
enter into certain sales of all or substantially all of our assets, mergers and consolidations.
Our ability to meet our debt service obligations and refinance our indebtedness, including any future debt that we may incur, will depend upon our ability to generate cash in the future from operations, financings or asset sales, which are subject to general economic conditions, industry cycles, seasonality and other factors, some of which may be beyond our control. If we cannot repay or refinance our debt as it becomes due, we may be forced to sell assets or take other disadvantageous actions, including reducing financing in the future for working capital, capital expenditures and general corporate purposes or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. Any failure to repay or refinance may also permit the lenders who hold such debt to accelerate amounts due, which would potentially trigger default or acceleration of our other debt. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired.
Our future debt levels and the terms of any future indebtedness we may incur may contain restrictive covenants and limit our liquidity and our ability to obtain additional financing and pursue acquisitions and joint ventures or purchase new helicopters. Tight credit conditions could limit our ability to secure additional financing, if required, due to difficulties accessing the credit and capital markets.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities
The following table presents information regarding our repurchases of shares of our Common Stock on a monthly basis during the three months ended March 31,September 30, 2020:
|
| | | | | | | | | | | | | |
| Total Number of Shares Repurchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs |
January 1, 2020 - January 31, 2020 | — |
| | $ | — |
| | — |
| | $ | 15,298,578 |
|
February 1, 2020 - February 29, 2020 | — |
| | $ | — |
| | — |
| | $ | 15,298,578 |
|
March 1, 2020 - March 31, 2020(1) | 83,456 |
| | $ | 6.78 |
| | — |
| | $ | 15,298,578 |
|
|
| | | | | | | | | | | | | |
| Total Number of Shares Repurchased(1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Value of Shares that May Yet be Purchased Under the Plans or Programs(2) |
July 1, 2020 - July 31, 2020 | — |
| | $ | — |
| | — |
| | $ | — |
|
August 1, 2020 - August 31, 2020 | 312 |
| | $ | 16.52 |
| | — |
| | $ | — |
|
September 1, 2020 - September 30, 2020 | 345,445 |
| | $ | 21.93 |
| | 345,327 |
| | $ | 67,426,595 |
|
_______________________________________________
(1) SharesIncludes 430 shares purchased in connection with the surrender of shares by employees to satisfy certain tax withholding obligations. These repurchases are not a part of our publicly announced plan and do not affect our Board-approved share repurchase program.
(2) On January 23,September 16, 2020, the 2014 Board authorized repurchase program was suspended in connection with the entry into the merger agreement with Bristow. The board has authorized a special stock repurchase program that would allowplan providing for the purchaserepurchase of up to $10$75.0 million of itsthe Company's common stockstock. Repurchases under the program may be made in the open market, including pursuant to a Rule 10b5-1 plan, by block repurchases, in private transactions (including with related parties) or otherwise, from time to time, and subject todepending on market conditions on the open market or in privately negotiated transactions. In April 2020, Era Group repurchased 230,889 shares of common stock in open market transactions for gross consideration of $1.0 million, which is an average cost per share of $4.14. As of May 1, 2020, $9.0 million remained of the $10.0 millionconditions. The share repurchase program.program has no expiration date and may be suspended or discontinued at any time without notice.
ITEMItem 3.DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities
None.
ITEMItem 4.MINE SAFETY DISCLOSURESMine Safety Disclosures
Not applicable.
ITEMItem 5.OTHER INFORMATIONOther Information
None.
Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report:
|
| | |
2.1 *Exhibit
Number | | Description of Exhibit |
10.1*† | |
|
2.2 * 10.2*† | | Amendment No.1, dated asForm of April 22, 2020,Restricted Stock Unit Grant Agreement Pursuant to the Agreement and Plan of Merger, dated as of January 23, 2020, by and among Era Group Inc., Ruby Redux Merger Sub, Inc. and Bristow Group Inc. (incorporated herein by reference to Exhibit 2.2 of Era’s Amendment No.1 to Registration Statement on Form S-4 filed with the SEC on April 22, 2020, as amended (File No. 333-237557))2012 Share Incentive Plan
|
31.110.3*† | | |
10.4*† | | |
10.5*† | | |
31.1** | | |
31.2** | | |
32.1** | | |
31.2 | | |
32.1 | | |
32.232.2** | | |
101.INS | | XBRL Instance DocumentDocument. |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB | | XBRL Taxonomy Extension LabelLabels Linkbase Document. |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
† | | Compensatory Plan or Arrangement. |
* | | Filed herewith. |
** | | Furnished herewith. |
* Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | Era Group Inc. (Registrant) | BRISTOW GROUP INC. |
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DATE: | May 5, 2020 | By: | | /s/ Jennifer D. Whalen |
| | Jennifer D. Whalen Senior Vice President and Chief Financial Officer |
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| By: | /s/ Chris Gillette |
| | | | Jennifer D. Whalen, Chris GilletteSenior Vice President and Chief FinancialAccounting Officer
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DATE: November 4, 2020