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, 2016 is referred to as “fiscal year 2016”. Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission, the information contained in the following notes to condensed consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2015 Annual Report (the “fiscal year 2015 Financial Statements”). Operating results for the interim period presented are not necessarily indicative of the results that may be expected for the entire fiscal year.

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the consolidated balance sheet of the Company as of June 30, 2015 and the consolidated statements of operations, comprehensive income and cash flows for the three months ended June 30, 2015 and 2014.

Foreign Currency

During the three months ended June 30, 2015 and 2014, our primary foreign currency exposure was to the British pound sterling, the euro, the Australian dollar, the Norwegian kroner and the Nigerian naira. The value of these currencies has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended June 30,
	2015	2014
One British pound sterling into U.S. dollars
High	1.59	1.71
Average	1.53	1.68
Low	1.46	1.66
At period-end	1.57	1.71
One euro into U.S. dollars
High	1.14	1.39
Average	1.11	1.37
Low	1.06	1.35
At period-end	1.11	1.37
One Australian dollar into U.S. dollars
High	0.81	0.94
Average	0.78	0.93
Low	0.76	0.92
At period-end	0.77	0.94
One Norwegian kroner into U.S. dollars
High	0.1370	0.1753
Average	0.1291	0.1717
Low	0.1234	0.1638
At period-end	0.1267	0.1649
One Nigerian naira into U.S. dollars
High	0.0051	0.0063
Average	0.0051	0.0062
Low	0.0050	0.0061
At period-end	0.0050	0.0062

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Source: Bank of England and Oanda.com

Other income (expense), net, in our condensed consolidated statements of operations includes foreign currency transaction gains of $3.9 million and foreign currency transaction losses of $0.4 million for the three months ended June 30, 2015 and 2014, respectively. The gains for the three months ended June 30, 2015 were primarily driven by the changes in the British pound sterling to U.S. dollar exchange rate.

Our earnings from unconsolidated affiliates, net of losses, are also affected by the impact of changes in foreign currency exchange rates on the reported results of our unconsolidated affiliates. During the three months ended June 30, 2015 and 2014, earnings from unconsolidated affiliates, net of losses, increased $1.7 million and $0.4 million, respectively, as a result of the impact of changes in foreign currency exchange rates on the earnings of our unconsolidated affiliates, primarily the impact of changes in the Brazilian real to U.S. dollar exchange rate on earnings for our affiliate in Brazil. The value of the Brazilian real has fluctuated relative to the U.S. dollar as indicated in the following table:



	Three Months Ended June 30,
	2015	2014
One Brazilian real into U.S. dollars
High	0.3435	0.4572
Average	0.3258	0.4493
Low	0.3108	0.4391
At period-end	0.3184	0.4538

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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 June 30, 2015
Revenue	$	(40,068	)
Operating expense	33,957
Earnings from unconsolidated affiliates, net of losses	1,386
Non-operating expense	4,255
Income before provision for income taxes	(470		)
Provision for income taxes	108
Net income	(362		)
Cumulative translation adjustment	14,714
Total stockholders’ investment	$	14,352

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 has occurred or 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 the 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 operations.

Bristow Academy, our helicopter training 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") and Capiteq Limited, operating under the name Airnorth, primarily earn revenue through charter and scheduled airline services and provision of airport services (Eastern Airways only). 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 in accordance with the above policy. Airport services revenue is recognized when earned.

Interest Expense, Net

During the three months ended June 30, 2015 and 2014, interest expense, net consisted of the following (in thousands):



	Three Months Ended June 30,
	2015			2014
Interest income	$	221		$	236
Interest expense	(7,890		)	(7,363		)
Interest expense, net	$	(7,669	)	$	(7,127	)

Interest expense for the three months ended June 30, 2014 includes the write-off of $0.2 million of deferred financing fees related to the repurchase of $11.3 million 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.

Other Income (Expense), Net

In addition to foreign currency transaction gains (losses) discussed above, other income (expense), net includes expenses of $0.9 million related to premiums paid as a result of the repurchase of a portion of the 6 ¼% Senior Notes during the three months ended June 30, 2014.

Accretion of Redeemable Noncontrolling Interests

Accretion of redeemable noncontrolling interests of $6.3 million for the three months ended June 30, 2015 relates to put arrangements whereby the noncontrolling interest holders may require us to redeem the remaining shares of Airnorth and Eastern Airways at a formula-based amount that is not considered fair value. Redeemable noncontrolling interest is adjusted each period for comprehensive income, dividends attributable to the noncontrolling interest and changes in ownership interest, if any. Additionally, at each period we are required to compare the redemption amount to the carrying value and, if the redemption amount is in excess of the carrying value, we adjust the carrying value to the redemption amount with a corresponding charge directly to retained earnings. While this charge does not impact net income (loss), it does result in a reduction of income (loss) available to common shareholders in the calculation of diluted earnings (loss) per share (see Note 8). As of June 30, 2015, we calculated the redemption amounts for Airnorth and Eastern Airways were above the carrying values and recorded adjustments of $1.2 million and $5.1 million, respectively, as an increase in redeemable noncontrolling interest and a decrease in retained earnings.

Accounts Receivable

As of June 30 and March 31, 2015, the allowance for doubtful accounts for non-affiliates was $5.1 million and $0.9 million, respectively. There were no allowances for doubtful accounts related to accounts receivable due from affiliates as of June 30 and March 31, 2015. The increase in the allowance for doubtful accounts for non-affiliates related to amounts due from two clients in Nigeria where we no longer believe it is probable of collection.

Inventories

As of June 30 and March 31, 2015, inventories were net of allowances of $48.1 million and $45.4 million, respectively. During the three months ended June 30, 2015, we increased our inventory allowance by $5.4 million as a result of our review of excess inventory on aircraft model types we plan to exit by the end of the fiscal year.

Prepaid Expenses and Other Current Assets

As of June 30 and March 31, 2015, prepaid expenses and other current assets included the short-term portion of contract acquisition and pre-operating costs totaling $13.1 million and $8.9 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 contract. For the three months ended June 30, 2015, we have expensed $1.0 million due to the start-up of some of these contracts.

Other Assets

As of June 30 and March 31, 2015, other assets included the long-term portion of contract acquisition and pre-operating costs totaling $48.2 million and $42.4 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 months ended June 30, 2015 and 2014, we made capital expenditures as follows:



	Three Months Ended June 30,
	2015		2014
Number of aircraft delivered:
Medium	1		3
Large	1		6
Total aircraft	2		9
Capital expenditures (in thousands):
Aircraft and related equipment ⁽¹⁾	$	40,462	$	172,098
Other	27,315		28,349
Total capital expenditures	$	67,777	$	200,447

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⁽¹⁾	During the three months ended June 30, 2015 and 2014, we spent $28.3 million and $161.0 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 months ended June 30, 2015 and 2014:



	Three Months Ended June 30,
	2015		2014
	(In thousands, except for number of aircraft)

Number of aircraft sold or disposed of	9		4
Proceeds from sale or disposal of assets	$	9,301	$	6,643
Gain from sale or disposal of assets	$	2,167	$	3,189

Number of aircraft impaired	9		4
Impairment charges on aircraft held for sale	$	9,862	$	2,579

During the three months ended June 30, 2015, we recorded accelerated depreciation of $10.5 million on fourteen medium, four large and one fixed wing aircraft operating in our Americas, Africa and Asia Pacific regions as management made the decision to exit these model types earlier than originally anticipated. We expect to record an additional $9.8 million in depreciation expense over the remainder of fiscal year 2016 relating to this change in fleet exit timing.

Goodwill

Subsequent to June 30, 2015, our stock price declined to a level where our total market capitalization was less than our net asset value per share, which will require us to analyze goodwill for impairment during the three months ending September 30, 2015 and could result in an impairment charge as of September 30, 2015 or in subsequent periods.

Deferred Sale Leaseback Advance

As of March 31, 2015, we had a total deferred sale leaseback advance asset of $55.9 million, which was included in deferred sale leaseback advance on our condensed consolidated balance sheet. 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 had 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 totaling $147.4 million, with a corresponding increase to construction in progress. During fiscal year 2015, we took delivery and entered into leases for five of the aircraft and removed a total of $183.7 million and $182.6 million, respectively, from construction in progress and deferred sale leaseback advance on our condensed consolidated balance sheet. During the three months ended June 30, 2015, we took delivery and entered into leases for the remaining two aircraft and removed a total of $75.8 million and $74.3 million, respectively, from construction in progress and deferred sale leaseback advance on our consolidated balance sheet. As of June 30, 2015, the construction in progress and deferred sale leaseback advance liability related to these deferred sale leaseback transactions were removed from our condensed consolidated balance sheet.

Recent Accounting Pronouncement

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

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued accounting guidance on revenue recognition 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 was effective for annual reporting periods beginning after December 15, 2016. However, in July 2015, the FASB approved the deferral of the effective date of the revenue recognition standard permitting public entities to apply the new revenue standard to annual reporting periods beginning after December 15, 2017. Early application is permitted but not before the original effective date of December 15, 2016. 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.

In February 2015, the FASB issued accounting guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The guidance amends the criteria for determining which entities are considered VIEs and amends the criteria for determining if a service provider possesses a variable interest in a VIE. This pronouncement is effective for annual and interim periods in fiscal years beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. A reporting entity may apply the amendments using a modified retrospective approach or a full retrospective application. We have not yet determined the effect, if any, of the standard on our consolidated financial statements.

In April 2015, the FASB issued accounting guidance relating to the presentation of debt issuance costs. The intent is to simplify the presentation of debt issuance costs by requiring entities to record debt issuance costs on the balance sheet as a direct deduction from the carrying amount of the related debt liability, similar to debt discounts or premiums. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 and early adoption is permitted. We do not believe adoption of this new guidance will have a significant impact on our consolidated financial statements.