BASIS OF PRESENTATION, CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The condensed consolidated financial statements include the accounts of Bristow Group Inc. and its consolidated entities (“Bristow Group,” the “Company,” “we,” “us,” or “our”) after elimination of all significant intercompany accounts and transactions. Our fiscal year ends March 31, and we refer to fiscal years based on the end of such period. Therefore, the fiscal year ending March 31, 2015 is referred to as “fiscal year 2015.” Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), the information contained in the following notes to condensed consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2014 Annual Report (the “fiscal year 2014 Financial Statements”). Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the consolidated financial position of the Company as of December 31, 2014, the consolidated results of operations for the three and nine months ended December 31, 2014 and 2013, and the consolidated cash flows for the nine months ended December 31, 2014 and 2013.

Foreign Currency

During the three and nine months ended December 31, 2014 and 2013, our primary foreign currency exposure was to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira. The value of these currencies has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2014	2013	2014	2013
One British pound sterling into U.S. dollars
High	1.62	1.65	1.72	1.65
Average	1.58	1.62	1.64	1.57
Low	1.55	1.59	1.55	1.48
At period-end	1.56	1.65	1.56	1.65
One euro into U.S. dollars
High	1.28	1.38	1.39	1.38
Average	1.25	1.36	1.31	1.33
Low	1.21	1.34	1.21	1.28
At period-end	1.21	1.38	1.21	1.38
One Australian dollar into U.S. dollars
High	0.89	0.97	0.95	1.07
Average	0.85	0.93	0.90	0.95
Low	0.81	0.89	0.81	0.89
At period-end	0.82	0.89	0.82	0.89
One Norwegian kroner into U.S. dollars
High	0.1554	0.1698	0.1698	0.1753
Average	0.1458	0.1652	0.1577	0.1680
Low	0.1336	0.1614	0.1336	0.1601
At period-end	0.1345	0.1634	0.1345	0.1634
One Nigerian naira into U.S. dollars
High	0.0062	0.0064	0.0063	0.0065
Average	0.0059	0.0063	0.0061	0.0063
Low	0.0054	0.0062	0.0054	0.0061
At period-end	0.0055	0.0063	0.0055	0.0063

______

Source: Bank of England and Oanda.com

Other income (expense), net, in our condensed consolidated statements of income includes foreign currency transaction losses of $4.6 million and $0.5 million for the three months ended December 31, 2014 and 2013, respectively, and $6.7 million and $1.5 million for the nine months ended December 31, 2014 and 2013, respectively. The losses for the three and nine months ended December 31, 2014 were primarily driven by the changes in exchange rates discussed above as the recent strengthening of the U.S. dollar has increased the local cost of our services that are denominated in U.S. dollars.

Our earnings from unconsolidated affiliates, net of losses, are also affected by the impact of changes in foreign currency exchange rates on the reported results of our unconsolidated affiliates. During the three months ended December 31, 2014 and 2013, earnings from unconsolidated affiliates, net of losses, were decreased by $7.7 million and $2.4 million, respectively, and during the nine months ended December 31, 2014 and 2013, earnings from unconsolidated affiliates, net of losses, were decreased by $16.1 million and $4.8 million, respectively, as a result of the impact of changes in foreign currency exchange rates on the earnings of our unconsolidated affiliates, primarily the impact of changes in the Brazilian real to U.S. dollar exchange rate on earnings for our affiliate in Brazil. The value of the Brazilian real has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended December 31,		Nine Months Ended December 31,
	2014	2013	2014	2013
One Brazilian real into U.S. dollars
High	0.4204	0.4631	0.4572	0.5123
Average	0.3944	0.4406	0.4284	0.4547
Low	0.3673	0.4197	0.3673	0.4093
At period-end	0.3731	0.4258	0.3731	0.4258

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Source: Oanda.com

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



	Three Months Ended December 31, 2014			Nine Months Ended December 31, 2014
Revenue	$	(15,518	)	$	4,337
Operating expense	12,496			387
Earnings from unconsolidated affiliates, net of losses	(5,316		)	(11,214		)
Non-operating expense	(4,032		)	(5,153		)
Loss before benefit for income taxes	(12,370		)	(11,643		)
Benefit for income taxes	2,598			2,445
Net loss	(9,772		)	(9,198		)
Cumulative translation adjustment	(17,794		)	(28,276		)
Total stockholders’ investment	$	(27,566	)	$	(37,474	)

Revenue Recognition

In general, we recognize revenue when it is both realized or realizable and earned. We consider revenue to be realized or realizable and earned when the following conditions exist: there is persuasive evidence of an arrangement, generally a client contract exists; the services or products have been performed or delivered to the client; the sales price is fixed or determinable; and collection is probable. More specifically, revenue from helicopter services is recognized based on contractual rates as the related services are performed. The charges under these contracts are generally based on a two-tier rate structure consisting of a daily or monthly fixed fee plus additional fees for each hour flown. These contracts are for varying periods and generally permit the client to cancel the contract before the end of the term. We also provide services to clients on an “ad hoc” basis, which usually entails a shorter contract notice period and duration. The charges for ad hoc services are based on an hourly rate or a daily or monthly fixed fee plus additional fees for each hour flown. In order to offset potential increases in operating costs, our long-term contracts may provide for periodic increases in the contractual rates charged for our services. We recognize the impact of these rate increases when the criteria outlined above have been met. This generally includes written recognition from our clients that they are in agreement with the amount of the rate escalation. Cost reimbursements from clients are recorded as reimbursable revenue with the related reimbursed costs recorded as reimbursable expense on our condensed consolidated statements of income.

Bristow Academy, our helicopter training business unit, primarily earns revenue from military training, flight training provided to individual students and ground school courses. We recognize revenue from these sources using the same revenue recognition principles described above as services are provided. We consider revenue to be realized or realizable and earned when the following conditions exist: there is persuasive evidence of an arrangement, generally a contract exists; the services have been performed or delivered to the client or student; the sales price is fixed and determinable; and collection has occurred or is probable.

Eastern Airways International Limited (“Eastern Airways”) primarily earns revenue through charter and scheduled airline services and provision of airport services. Both chartered and scheduled revenue is recognized net of passenger taxes and discounts. Revenue is recognized at the earlier of the period in which the service is provided or the period in which the right to travel expires, which is determined by the terms and conditions of the ticket. Ticket sales are recorded within deferred revenue until recognized as revenue in accordance with the above policy. Airport services revenue is recognized when earned.

Interest Expense, Net

During the three and nine months ended December 31, 2014 and 2013, interest expense, net consisted of the following (in thousands):



	Three Months Ended December 31,						Nine Months Ended December 31,
	2014			2013			2014			2013
Interest income	$	118		$	407		$	740		$	1,288
Interest expense	(7,094		)	(7,253		)	(22,415		)	(36,701		)
Interest expense, net	$	(6,976	)	$	(6,846	)	$	(21,675	)	$	(35,413	)

Interest expense for the three and nine months ended December 31, 2014, respectively, includes the write-off of deferred financing fees of $0.2 million and $0.7 million related to the repurchase of $17.2 million and $48.5 million principal amount of our 6 ¼% Senior Notes due 2022 (the “6 ¼% Senior Notes”). For further details on the repurchase of the 6 ¼% Senior Notes, see Note 3. Interest expense for the nine months ended December 31, 2013 includes the write-off of $12.7 million of deferred financing fees related to a potential financing that was cancelled in a prior period.

Gain on Sale of Unconsolidated Affiliates

On November 21, 2014, we sold our 50% interest in the Helideck Certification Agency (“HCA”) for £2.7 million, or approximately $4.2 million. We recorded a pre-tax gain on the sale of an unconsolidated affiliate of $3.9 million during the three and nine months ended December 31, 2014 on our condensed consolidated statements of income.

On July 14, 2013, we sold our 50% interest in each of FBS Limited, FB Heliservices Limited and FB Leasing Limited, collectively referred to as the FB Entities, for £74 million, or approximately $112.2 million. We recorded a pre-tax gain on the sale of an unconsolidated affiliate of $103.9 million during the nine months ended December 31, 2013 on our condensed consolidated statements of income.

Other Income (Expense), Net

In addition to foreign currency transaction gains (losses) discussed above, other income (expense), net includes expense of $0.7 million and $2.6 million related to premiums paid for the repurchase of a portion of the 6 ¼% Senior Notes during the three and nine months ended December 31, 2014, respectively. Other income (expense), net for the three and nine months ended December 31, 2013 also includes $1.1 million of income for the sale of intellectual property.

Accounts Receivable

As of December 31 and March 31, 2014, the allowance for doubtful accounts for non-affiliates was $0.6 million and $5.0 million, respectively. The allowance as of March 31, 2014 primarily related to amounts due from ATP Oil and Gas Corporation, a client in the U.S. Gulf of Mexico, as a result of its filing for bankruptcy. During the nine months ended December 31, 2014, the allowance recorded for ATP was reversed as we settled outstanding matters related to ongoing bankruptcy proceedings, which resulted in a $4.4 million reduction in bad debt expense, included within direct cost on our condensed consolidated statements of income. The remaining amount of $0.5 million related to ATP was written off as no further settlement is expected. As of December 31 and March 31, 2014, there were no allowances for doubtful accounts related to accounts receivable due from affiliates.

Inventories

As of December 31 and March 31, 2014, inventories were net of allowances of $49.7 million and $46.0 million, respectively. During the three and nine months ended December 31, 2014, we increased our inventory allowance by $3.8 million and $7.2 million, respectively, primarily related to excess inventory identified for older large aircraft models that we have removed or plan to remove from our operational fleet over the next fiscal year. During the nine months ended December 31, 2013, we increased our inventory allowance by $2.4 million as a result of our review of excess inventory on aircraft model types we ceased ownership of or classified all or a significant portion of as held for sale. A majority of this allowance recorded related to small aircraft types operating primarily in our North America business unit as a result of a move toward operating a fleet of mostly large and medium aircraft in this market.

Prepaid Expenses and Other Current Assets

As of December 31 and March 31, 2014, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $2.9 million and $5.5 million, respectively, related to the search and rescue (“SAR”) contracts in the U.K. and a client contract in Norway, which are recoverable under the contracts and will be expensed over the terms of the contracts. For the three and nine months ended December 31, 2014, we have expensed $0.5 million and $1.9 million, respectively, due to the start-up of some of these contracts.

Other Assets

As of December 31 and March 31, 2014, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $36.3 million and $15.2 million, respectively, related to the SAR contracts in the U.K. and a client contract in Norway, which are recoverable under the contract and will be expensed over the terms of the contracts.

Property and Equipment and Assets Held for Sale

During the three and nine months ended December 31, 2014 and 2013, we made capital expenditures as follows:



	Three Months Ended December 31,				Nine Months Ended December 31,
	2014		2013		2014		2013
Number of aircraft delivered:
Medium	2		3		5		8
Large	4		4		12		9
Total aircraft	6		7		17		17
Capital expenditures (in thousands):
Aircraft and related equipment ⁽¹⁾	$	165,269	$	171,874	$	402,753	$	484,754
Other	31,897		14,615		96,532		41,294
Total capital expenditures	$	197,166	$	186,489	$	499,285	$	526,048

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⁽¹⁾	During the three months ended December 31, 2014 and 2013, we spent $159.2 million and $160.4 million, respectively, and during the nine months ended December 31, 2014 and 2013, we spent $383.4 million and $460.9 million, respectively, on construction in progress, which primarily represents progress payments on aircraft to be delivered in future periods.

The following table presents details on the aircraft sold or disposed of and impairments on assets held for sale during the three and nine months ended December 31, 2014 and 2013:



	Three Months Ended December 31,						Nine Months Ended December 31,
	2014			2013			2014			2013
	(In thousands, except for number of aircraft)

Number of aircraft sold or disposed of ⁽¹⁾	3			17			26			32
Proceeds from sale or disposal of assets ⁽¹⁾	$	6,717		$	89,264		$	404,361		$	244,867
Gain (loss) from sale or disposal of assets	$	(717	)	$	5,216		$	3,157		$	2,611

Number of aircraft impaired	12			3			18			6
Impairment charges on aircraft held for sale	$	(25,614	)	$	(1,234	)	$	(28,751	)	$	(3,414	)

_____________

⁽¹⁾

During the nine months ended December 31, 2014, 14 of these aircraft were leased back, and we received $380.7 million in proceeds for the aircraft. During the three and nine months ended December 31, 2013, 6 and 13 of these aircraft were leased back, respectively, and we received $72.3 million and $217.9 million, respectively, in proceeds for these aircraft. We did not enter into any sale leaseback transactions during the three months ended December 31, 2014.

During the three and nine months ended December 31, 2014, as a result of negotiations associated with the sale or disposal of certain older large aircraft, we recorded impairment charges totaling $24.5 million in gain (loss) from sale or disposal of assets relating to ten large aircraft included in assets held for sale as of December 31, 2014. Additionally, management has decided to remove the remaining seven of the same type of older large aircraft from our fleet sooner than planned, which will result in the adjustment to the salvage values and additional depreciation expense of approximately $17 million, which we expect to record over the quarters ending March 31 and June 30, 2015.

Effective April 1, 2014, we changed the useful lives of certain non-aircraft assets. These changes impact our depreciation on the assets and were driven by our annual review of useful lives. During the nine months ended December 31, 2014, we recorded a reduction of approximately $2.7 million in depreciation expense as a result of this change in useful lives.

During the three months ended December 31, 2014, we determined that since fiscal year 2010 we had been improperly capitalizing profit on intercompany technical services billings related to aircraft modifications. To correct this error, we reduced property and equipment, net of accumulated depreciation, by $4.4 million and increased deferred gains on aircraft sold and leased back included within other long-term liabilities by $0.9 million as of December 31, 2014. The offsetting impact on our condensed consolidated statements of income for the three months ended December 31, 2014 was a reduction in revenue of $3.5 million, an increase in direct cost of $2.0 million and a reduction in depreciation and amortization of $0.2 million. The impact on our condensed consolidated statements of income for the nine months ended December 31, 2014 was an increase in direct cost of $4.1 million. The error is not material to our condensed consolidated financial statements for the nine months ended December 31, 2014 or our previously reported condensed consolidated financial statements for any period.

Deferred Sale Leaseback Advance

As of December 31 and March 31, 2014, respectively, we had a total deferred sale leaseback advance of $55.7 million and $166.3 million, of which the current portion is included in deferred sale leaseback advance ($55.7 million and $136.9 million) and the long-term portion is included in other liabilities and deferred credits (zero and $29.4 million) on our condensed consolidated balance sheets. During fiscal year 2014, we received payment of approximately $106.1 million for progress payments we had made on seven aircraft under construction, and we assigned any future payments due on these construction agreements to the purchaser. As we have the obligation and intent to lease the aircraft back from the purchaser upon completion, we recorded a liability equal to the cash received and additional payments made by the purchaser thus far totaling $129.8 million, with a corresponding increase to construction in progress. During the nine months ended December 31, 2014, we took delivery and entered into leases for five of these aircraft and removed a total of $183.7 million and $182.6 million, respectively, from construction in progress and deferred sale leaseback advance, current from our condensed consolidated balance sheet. We will continue to increase both construction in progress and deferred sale leaseback advance, current or long-term, until we lease the remaining two aircraft, at which time the construction in progress and the liabilities will also be removed from our condensed consolidated balance sheet for those aircraft.

Recent Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition for revenue from contracts with customers. This guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and will replace most existing revenue recognition guidance when it becomes effective. This new standard is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted and the standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this standard will have on our financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.