UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to

Commission File Number 001-31617

Bristow Group Inc.

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

 

(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

     Indicate the number shares outstanding of each of the issuer’s classes of Common Stock, as of July 31, 2008. 29,086,751 shares of Common Stock, $.01 par value

 

 

BRISTOW GROUP INC.
INDEX — FORM 10-Q

		Page
PART I
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 3. Quantitative and Qualitative Disclosures about Market Risk			46
Item 4. Controls and Procedures			46
PART II
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities			46
Item 4. Submission of Matters to a Vote of Security Holders			47
Item 5. Other Information			47
Item 6. Exhibits			47
Signatures			48
Letter from KPMG LLP
Certification of CEO Pursuant to Rule 13a-14(a)
Certification of CFO Pursuant to Rule 13a-14(a)
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

BRISTOW GROUP INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

		Three Months Ended
		June 30,
		2007				2008
		(Unaudited)
		(In thousands, except per
		share amounts)
Gross revenue:
Operating revenue from non-affiliates		$	199,909			$	241,134
Operating revenue from affiliates			11,097				17,270
Reimbursable revenue from non-affiliates			19,042				24,371
Reimbursable revenue from affiliates			1,103				1,348
			231,151				284,123
Operating expense:
Direct cost			153,088				186,973
Reimbursable expense			20,145				26,067
Depreciation and amortization			11,331				14,955
General and administrative			18,385				27,206
Gain on disposal of assets			(584	)			(2,665	)
			202,365				252,536
Operating income			28,786				31,587
Earnings from unconsolidated affiliates, net of losses			3,390				7,723
Interest income			2,124				1,447
Interest expense			(2,928	)			(8,493	)
Other income (expense), net			426				1,692
Income from continuing operations before provision for income taxes and minority interest			31,798				33,956
Provision for income taxes			(9,439	)			(10,604	)
Minority interest			(449	)			(703	)
Income from continuing operations			21,910				22,649
Discontinued operations:
Income from discontinued operations before provision for income taxes			1,157				—
Provision for income taxes on discontinued operations			(395	)			—
Income from discontinued operations			762				—
Net income			22,672				22,649
Preferred stock dividends			(3,162	)			(3,162	)
Net income available to common stockholders		$	19,510			$	19,487
Basic earnings per common share:
Earnings from continuing operations		$	0.80			$	0.78
Earnings from discontinued operations			0.03				—
Net earnings		$	0.83			$	0.78
Diluted earnings per common share:
Earnings from continuing operations		$	0.73			$	0.72
Earnings from discontinued operations			0.02				—
Net earnings		$	0.75			$	0.72

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

		March 31,				June 30,
		2008				2008
						(Unaudited)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	290,050			$	527,432
Accounts receivable from non-affiliates, net of allowance for doubtful accounts of $1.8 million and $1.3 million, respectively			204,599				199,588
Accounts receivable from affiliates, net of allowance for doubtful accounts of $4.0 million and $2.3 million, respectively			11,316				22,023
Inventories			176,239				175,458
Prepaid expenses and other			24,177				32,732
Total current assets			706,381				957,233
Investment in unconsolidated affiliates			52,467				35,358
Property and equipment – at cost:
Land and buildings			60,056				60,784
Aircraft and equipment			1,428,996				1,585,188
			1,489,052				1,645,972
Less – Accumulated depreciation and amortization			(316,514	)			(326,842	)
			1,172,538				1,319,130
Goodwill			15,676				16,590
Other assets			30,293				26,967
		$	1,977,355			$	2,355,278
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable		$	49,650			$	54,508
Accrued wages, benefits and related taxes			35,523				29,445
Income taxes payable			5,862				836
Other accrued taxes			1,589				3,172
Deferred revenues			15,415				15,652
Accrued maintenance and repairs			13,250				13,571
Accrued interest			5,656				8,604
Other accrued liabilities			22,235				14,277
Deferred taxes			9,238				12,303
Short-term borrowings and current maturities of long-term debt			6,541				7,692
Total current liabilities			164,959				160,060
Long-term debt, less current maturities			599,677				726,432
Accrued pension liabilities			134,156				132,810
Other liabilities and deferred credits			14,805				14,775
Deferred taxes			91,747				102,320
Minority interest			4,570				10,254
Commitments and contingencies (Note 7)
Stockholders’ investment:
5.50% mandatory convertible preferred stock, $.01 par value, authorized and outstanding 4,600,000 shares; entitled in liquidation to $230 million; net of offering costs of $7.4 million			222,554				222,554
Common stock, $.01 par value, authorized 90,000,000 shares; outstanding: 23,923,685 as of March 31 and 29,085,066 as of June 30 (exclusive of 1,281,050 treasury shares)			239				291
Additional paid-in capital			186,390				413,228
Retained earnings			606,931				627,673
Accumulated other comprehensive loss			(48,673	)			(55,119	)
			967,441				1,208,627
		$	1,977,355			$	2,355,278

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

		Three Months Ended
		June 30,
		2007				2008
		(Unaudited)
		(In thousands)
Cash flows from operating activities:
Net income		$	22,672			$	22,649
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization			11,373				14,955
Deferred income taxes			5,857				3,382
Gain on asset dispositions			(584	)			(2,665	)
Gain on Heliservicio investment sale			—				(1,438	)
Stock-based compensation expense			1,514				1,884
Equity in earnings from unconsolidated affiliates below (in excess of) dividends received			(180	)			6,161
Minority interest in earnings			449				703
Tax benefit related to stock-based compensation			(410	)			(231	)
Increase (decrease) in cash resulting from changes in:
Accounts receivable			(29,861	)			997
Inventories			(7,999	)			911
Prepaid expenses and other			2,174				(3,623	)
Accounts payable			105				1,188
Accrued liabilities			(2,089	)			(13,069	)
Other liabilities and deferred credits			(5,340	)			(2,160	)
Net cash (used in) provided by operating activities			(2,319	)			29,644
Cash flows from investing activities:
Capital expenditures			(121,780	)			(130,818	)
Proceeds from asset dispositions			451				7,406
Acquisitions, net of cash received			(12,926	)			356
Net cash used in investing activities			(134,255	)			(123,056	)
Cash flows from financing activities:
Proceeds from borrowings			300,000				115,000
Debt issuance costs			(4,249	)			(3,304	)
Repayment of debt and debt redemption premiums			(3,166	)			(1,597	)
Partial prepayment of put/call obligation			(37	)			(41	)
Preferred Stock dividends paid			(3,163	)			(3,162	)
Issuance of common stock			1,095				225,117
Tax benefit related to stock-based compensation			410				231
Net cash provided by financing activities			290,890				332,244
Effect of exchange rate changes on cash and cash equivalents			1,038				(1,450	)
Net increase in cash and cash equivalents			155,354				237,382
Cash and cash equivalents at beginning of period			184,188				290,050
Cash and cash equivalents at end of period		$	339,542			$	527,432
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	7,504			$	7,529
Income taxes		$	6,144			$	12,240
Non-cash investing activities:
Contribution of note receivable and aircraft to RLR		$	—			$	(6,551	)
Aircraft received for investment in Heliservicio		$	—			$	2,410

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

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

     The following consolidated financial statements include the accounts of Bristow Group Inc. and its consolidated entities (“Bristow Group,” the “Company,” “we,” “us,” or “our”) after elimination of all significant intercompany accounts and transactions. 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, 2009 is referred to as fiscal year 2009. Pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“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 consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and related notes thereto contained in our fiscal year 2008 Annual Report (“fiscal year 2008 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 June 30, 2008, the consolidated results of operations for the three months ended June 30, 2007 and 2008, and the consolidated cash flows for the three months ended June 30, 2007 and 2008.

     Effective April 1, 2008, we consolidate Rotorwing Leasing Resources, L.L.C. (“RLR”). See Note 3 for further details.

     We previously provided production management services, contract personnel and medical support services in the U.S. Gulf of Mexico to the domestic oil and gas industry under the Grasso Production Management (“Grasso”) name. As discussed in Note 2 to our fiscal year 2008 Financial Statements, on November 2, 2007, we sold Grasso, and therefore the financial results for our Production Management Services segment for the three months ended June 30, 2007 are classified as discontinued operations.

Foreign Currency Translation

     See “Foreign Currency Translation” in Note 1 to the fiscal year 2008 Financial Statements for a discussion of the related accounting policies. Other income (expense), net, in our condensed consolidated statements of income for the three months ended June 30, 2007 and 2008, respectively, includes $0.4 million in foreign currency transaction gains and $0.4 million in foreign currency transaction losses.

     The following table presents the applicable exchange rates (of one British pound sterling into U.S. dollars) for the indicated periods:

		Three Months Ended
		June 30,
		2007				2008
High		$	2.01			$	2.00
Average			1.99				1.97
Low			1.97				1.94

     As of March 31 and June 30, 2008, the exchange rate was $1.99.

Derivative Financial Instruments

     See “Derivative Financial Instruments” in Note 1 to the fiscal year 2008 Financial Statements for a discussion of the related accounting policies.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

     We entered into forward contracts in fiscal year 2008 to mitigate our exposure to exchange rate fluctuations on our euro-denominated aircraft purchase commitments, which have been designated as cash flow hedges for accounting purposes at rates ranging from 1.4615 U.S. dollars per euro to 1.5439 U.S. dollars per euro. As of June 30, 2008, the fair value of the open forward contracts was an asset of $4.3 million. As of June 30, 2008, an unrecognized gain of $2.8 million, net of tax, on the open foreign currency forward contracts is included as a component of accumulated other comprehensive loss and a derivative asset of $4.3 million is included in prepaid expenses and other in our condensed consolidated balance sheet.

     During the three months ended June 30, 2007, gains were recognized in earnings on other foreign currency hedging contracts of $0.1 million. These contracts related to hedging of changes in the U.S. dollar to British pound sterling exchange rate for U.S. dollars held by entities with a British pound sterling functional currency. These contracts, which expired during the three months ended June 30, 2007, were not designated as hedges for accounting purposes.

Recent Accounting Pronouncements

     See Note 6 for discussion and disclosure made in connection with the adoption of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” on April 1, 2008.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including An Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. If elected, changes in fair value are recognized in earnings. If the use of fair value is elected in the future (the fair value option) any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, e.g., debt issue costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. On April 1, 2008, we adopted SFAS No. 159 and decided not to elect fair value accounting for any of our eligible items; therefore the adoption of SFAS No. 159 had no impact on our consolidated financial position, cash flows or results of operations.

     In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This pronouncement establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in the business combination or a gain from a bargain purchase, and also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R becomes effective for business combinations entered into during fiscal year 2010 and thereafter and does not have any impact on business combinations prior to such date.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51.” This pronouncement requires noncontrolling interests (previously referred to as minority interests) to be reported as a component of stockholders’ investment, which changes the accounting for transactions with noncontrolling interest holders. SFAS No. 160 becomes effective for fiscal year 2010 and interim periods therein. We have not yet completed our evaluation of the impact of SFAS No. 160.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative and Hedging Instruments — an amendment of FASB Statement No. 133.” This pronouncement requires enhanced disclosures about an entity’s derivative and hedging activities, but does not impact the accounting for such activities. SFAS No. 161 becomes effective for fiscal year 2010 and interim periods therein.

     In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion.” This FSP requires entities with cash settled convertibles to bifurcate the securities into a debt component and an equity component and accrete the debt component to par over the expected life of the convertible. This FSP will be effective for fiscal year 2010. Early adoption is not permitted, and the FSP must be applied retrospectively to all instruments. In June 2008, we issued 3.00% Convertible Senior Notes due 2038 (the “3.00%

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Convertible Senior Notes”) which will be subject to this FSP upon adoption in fiscal year 2010. The adoption of this FSP will result in an increase to interest expense thereby reducing net income and earnings per share. See further discussion of the 3.00% Convertible Senior Notes in Note 5.

     In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” This FSP clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. This FSP is effective for fiscal year 2010 and interim periods therein. Since we do not have share-based payment awards that contain rights to nonforfeitable dividends, the adoption of the FSP will have no effect on our computation of basic and diluted earnings per share.

     In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF No. 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal year 2010 and interim periods therein. We are currently assessing the impact of EITF No. 07-5 on our consolidated financial position, cash flows or results of operations.

NOTE 2 — DISPOSITION

     On August 5, 2008, we executed an agreement to sell 53 small aircraft and related assets operating in the U.S. Gulf of Mexico for $65 million. The sale is anticipated to result in a pre-tax gain of roughly $40 million or $0.75 per diluted share, after tax.

     The assets to be sold pursuant to the agreement include the 53 aircraft, related inventory, spare parts, and offshore fuel equipment. In addition, certain customer contracts, which these aircraft support will be assigned to the buyer. These assets and contracts represent our entire business serving production management customers in the U.S. Gulf of Mexico. Revenue of $42.6 million and $11.3 million were generated by these contracts in fiscal year 2008 and the three months ended June 30, 2008, respectively, representing 18% of revenue for the U.S. Gulf of Mexico business unit in such periods.

     The sale, which is expected to close by September 30, 2008, is contingent upon several items being completed, including the buyer obtaining financing, customer consent of affected commercial contracts, regulatory clearance and other customary conditions. Therefore, no assurance can be given that the sale will be completed.

NOTE 3 — INVESTMENTS IN AFFILIATES

     HC and RLR — Effective April 1, 2008, we sold a 25% interest in an unconsolidated affiliate of ours operating in Mexico, Heliservicio Campeche S.A. de C.V. (“Heliservicio”), in return for a small aircraft with a value of $2.4 million, and we now own a 24% interest in Heliservicio. This transaction resulted in a gain of $1.4 million. We also acquired an additional 21% interest in RLR through contribution of a note receivable of $4.1 million owed by RLR to us and the contribution of the $2.4 million small aircraft to RLR, and we now own a 70% interest in this entity. Collectively, these transactions are referred to as the Mexico Reorganization. The contribution of the note receivable and aircraft to RLR and the receipt of the aircraft for a portion of our interest in Heliservicio are included in non-cash investing activities on our condensed consolidated statement of cash flows for the three months ended June 30, 2008.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

     The RLR portion of the Mexico Reorganization was accounted for in consolidation as a step acquisition and resulted in a step up in the basis of aircraft owned by RLR by $1.2 million and additional goodwill of approximately $0.6 million and the consolidation of RLR debt (see Note 5) on our condensed consolidated balance sheet as of June 30, 2008. The following table summarizes the assets and liabilities of RLR consolidated as of April 1, 2008 (in thousands):

Current assets		$	7,404
Property and equipment			35,811
Other assets			584
Total assets acquired			43,799
Current liabilities, including debt			(8,062	)
Long-term debt, less current maturities			(17,231	)
Total liabilities assumed			(25,293	)
Net assets acquired		$	18,506

     The pro forma effect of operations of RLR as of the beginning of each of the periods presented was approximately 1% of our consolidated gross revenue, operating income and net income.

     The following summarizes the effect of the Mexico Reorganization on April 1, 2008 (in thousands, except per share amount):

Recognition of previously reserved billings: (1)
Revenue from affiliates and operating income		$	782
Earnings from unconsolidated affiliates, net of losses (2)			3,647
Gain on Heliservicio investment sale			1,438
Income from continuing operations before provision for income taxes and minority interest			5,867
Tax effect			(2,167	)
Income from continuing operations		$	3,700
Diluted earnings per share		$	0.12

     In addition, as a result of the Mexico Reorganization since April 1, 2008 we consolidate RLR and record our billings to HC when the services are provided. As a result of changes to our ability to exercise significant influence in Heliservicio within the shareholders agreement for the entity, which was executed as part of the Mexico Reorganization, we began accounting for our investment in Heliservicio using the equity method of accounting instead of the previously applied cost method effective April 1, 2008. The retroactive affect on prior periods from the change to the equity method of accounting was not significant and therefore prior period results were not adjusted. Our results for the three months ended June 30, 2008 include $0.2 million in losses from our equity in earnings of Heliservicio, representing 24% of Heliservicio’s net losses for the period.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 4 — PROPERTY AND EQUIPMENT

     During the three months ended June 30, 2008, we received proceeds of $7.4 million from the disposal of five aircraft and certain other equipment, resulting in a net gain of $2.7 million.

     Additionally, during the three months ended June 30, 2008, we made final payments in connection with the delivery of three medium, two large and two training aircraft, and made progress payments on the construction of new aircraft to be delivered in future periods in conjunction with our aircraft commitments (see Note 7). Also, during the three months ended June 30, 2008, we spent $10.4 million to upgrade aircraft within our existing fleet and to customize new aircraft delivered for our operations, $0.8 million for additions to land and buildings and $6.6 million for various infrastructure projects.

     As of June 30, 2008, we had eight aircraft held for sale and classified in prepaid expenses and other in our condensed consolidated balance sheet.

NOTE 5 — DEBT

     Debt as of March 31 and June 30, 2008 consisted of the following (in thousands):

		March 31,				June 30,
		2008				2008
7 1/2% Senior Notes due 2017, including $0.6 million of unamortized premium		$	350,601			$	350,585
6 1/8% Senior Notes due 2013			230,000				230,000
3.00% Convertible Senior Notes due 2038			—				115,000
RLR Note			—				18,187
Term loans			16,683				16,107
Hemisco note			4,380				—
Advance from customer			1,400				1,400
Sakhalin debt			3,154				2,845
Total debt			606,218				734,124
Less short-term borrowings and current maturities of long-term debt			(6,541	)			(7,692	)
Total long-term debt		$	599,677			$	726,432

     3.00% Convertible Senior Notes due 2038 — In June 2008, we completed the sale of $115.0 million of 3.00% Convertible Senior Notes. These notes are unsecured senior obligations and rank equal in right of payment to all of the Company’s existing and future unsecured senior debt and ranks senior to all of our subordinated debt. The 3.00% Convertible Senior Notes are guaranteed by certain of our U.S. subsidiaries (the “Guarantor Subsidiaries”). We will pay interest on the 3.00% Convertible Senior Notes on June 15 and December 15 of each year, beginning on December 15, 2008. The notes are convertible, under certain circumstances, using a net share settlement process, into a combination of cash and our common stock. The initial base conversion price of the notes is approximately $77.34 (subject to adjustment in certain circumstances), based on the initial base conversion rate of 12.9307 shares of common stock per $1,000 principal amount of convertible notes. In general, upon conversion of a note, the holder will receive cash equal to the principal amount of the note and common stock to the extent of the note’s conversion value in excess of such principal amount. If at the time of conversion the applicable price of our common stock exceeds the base conversion price, holders will receive up to an additional 8.4049 shares of our common stock per $1,000 principal amount of notes, as determined pursuant to a specified formula. The notes will mature on June 15, 2038 and may not be redeemed by us prior to June 15, 2015, after which they may be redeemed at 100% of principal amount plus accrued and unpaid interest. Holders of the 3.00% Convertible Senior Notes may require us to repurchase any or all of their 3.00% Convertible Senior Notes for cash on June 15, 2015, 2020, 2025, 2030 and 2035, or in the event of a fundamental change, as defined in the indenture for the 3.00% Convertible Senior Notes (including the delisting of our common stock and certain change of control transactions), at a price equal to 100% of the principal amount plus accrued and unpaid interest. If a holder elects to convert its notes in connection with certain fundamental changes occurring prior to June 15, 2015, we will increase the applicable conversion rate by a specified number of additional shares of common stock.

     RLR Note — As discussed in Note 3, effective April 1, 2008 we consolidate RLR. In July 2003, we sold six aircraft to RLR. RLR financed 90% of the purchase price of these aircraft with a five-year $31.8 million 5.5% fixed interest rate term loan (the “RLR Note”) with a bank. The RLR Note has $18.2 million remaining outstanding as of June 30, 2008, and is secured by the six aircraft. The loan was originally payable in 59 equal monthly payments of principal and interest of $0.3 million beginning August 11, 2003, with the entire unpaid balance of principal and interest being payable on July 11, 2008. We refinanced $17.9 million in July 2008, after making a principal and interest payment of $0.3 million, through a five-year term loan at a fixed interest rate of 5.5%. As part of the refinancing, the security interest in one of the six aircraft was released. As a result of this refinancing, all amounts due under the RLR Note, except the amounts due within the next twelve months, are included in long-term debt in our condensed consolidated balance sheet as of June 30, 2008. We had previously provided a guarantee of the RLR Note that was eliminated upon our consolidation of RLR effective April 1, 2008.

     Hemisco Helicopters International, Inc. note — In order to improve the financial condition of Heliservicio, we and our joint venture partner Compania Controladora de Servicios Aeronauticos, S.A. de C.V. (“CIC”), completed a recapitalization of Heliservicio on August 19, 2005. As a result of this recapitalization, Heliservicio’s two shareholders, the Company and CIC, issued notes payable to Hemisco of $4.4 million and $4.6 million, respectively, and obligations of Heliservicio in the same amounts were cancelled thereby increasing its capital. In connection with the Mexico Reorganization, Hemisco forgave our $4.4 million note resulting in reductions to our investments in Hemisco and Heliservicio.

     Senior Secured Credit Facilities — Our syndicated senior secured credit facilities consist of a $100 million revolving credit facility (with a subfacility of $25 million for letters of credit) and a $25 million letter of credit facility (together, the “Credit Facilities”). In connection with the 3.00% Convertible Senior Notes offering in June 2008, we amended the Credit Facilities to increase the amount of permitted additional indebtedness to $625 million. See Note 5 to the fiscal year 2008 Financial Statements for further information on the terms of the Credit Facilities. As of June 30, 2008, we had $0.4 million in letters of credit outstanding under the letter of credit facility and no borrowings or letters of credit outstanding under the revolving credit facility.

NOTE 6 — FAIR VALUE DISCLOSURES

     SFAS No. 157 — Effective April 1, 2008, we adopted SFAS No. 157, which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The implementation of SFAS No. 157 did not change the method of calculating the fair value of assets or liabilities. The primary impact from adoption was additional disclosures. The portion of the standard that defers the effective date of SFAS No. 157 for one year for certain non-financial assets and non-financial liabilities measured at fair value, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, will be implemented in fiscal year 2010.

     The valuation hierarchy categorizes assets and liabilities at fair value into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:

	•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

     The following table summarizes the financial instruments we had as of June 30, 2008 which are valued at fair value (in thousands):

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Inputs

Balance as of

(Level 1)

(Level 2)

(Level 3)

June 30, 2008

Derivative financial instrument asset

$

—

$

4,333

$

—

$

4,333

     The methods and assumptions used to estimate the fair values of the assets in the table above include the mark-to-market statements from the counterparties, which can be validated using modeling techniques that include market inputs such as publicly available forward market rates, and is designated as Level 2 within the valuation hierarchy.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

     Aircraft Purchase Contracts — As shown in the table below, we expect to make additional capital expenditures over the next five fiscal years to purchase aircraft. As of June 30, 2008, we had 39 aircraft on order and options to acquire an additional 51 aircraft. Although a similar number of our existing aircraft may be sold during the same period, the additional aircraft on order are expected to provide incremental fleet capacity in terms of potential revenue and operating margin.

		Nine
		Months
		Ending
		March 31,				Fiscal Year Ending March 31,
		2009				2010				2011				2012				2013				Total
Commitments as of June 30, 2008:
Number of aircraft:
Small			2				1				—				—				—				3
Medium			3				6				—				—				—				9
Large			9				10				—				—				—				19
Training			8				—				—				—				—				8
			22	(1)			17	(2)			—				—				—				39
Related expenditures (in thousands) (3)		$	205,286			$	184,322			$	—			$	—			$	—			$	389,608
Options as of June 30, 2008:
Number of aircraft:
Small			—				1				—				—				—				1
Medium			—				—				6				11				13				30
Large			—				1				10				5				4				20
			—				2				16				16				17				51
Related expenditures (in thousands) (3)		$	21,246			$	132,625			$	274,738			$	245,093			$	189,070			$	862,772

     The following chart presents an analysis of our aircraft orders and options during the three months ended June 30, 2008:

		Orders				Options
Beginning of quarter			35				50
Aircraft delivered			(7	)			—
Aircraft ordered			11				(8	)
New options			—				9
End of quarter			39				51

     As was the case during the three months ended June 30, 2008, we periodically order aircraft for which we have no options. In addition, in July 2008, we exercised a portion of the options by ordering three additional medium aircraft with a commitment of $24.7 million.

     Collective Bargaining Agreements — We employ approximately 330 pilots in our North America operations who are represented by the Office and Professional Employees International Union (“OPEIU”) under a collective bargaining agreement. We and the pilots represented by the OPEIU ratified an amended collective bargaining agreement on April 4, 2005. The terms under the amended agreement are fixed until October 3, 2008 and include wage increases for the pilot group and improvements to several other benefit plans. We are currently involved in negotiations with these pilots to renew the contract and expect the parties to reach an agreement in August 2008 that will be taken to OPEIU membership for a vote.

     We are currently involved in negotiations with unions representing our pilots and engineers in the U.K. As a result of the negotiations completed to date, we expect new labor rates to be effective for ground staff retroactive to July 1, 2008 and for pilots beginning September 1, 2008.

     In April 2008, an agreement was successfully negotiated with the pilot’s union in Australia. The agreement extends to June 30, 2010, and we do not anticipate any action by pilots prior to the expiration of the agreement. The agreement was lodged with the relevant authorities and became binding in May 2008. As a result of this agreement, labor rates increased 20.4%, portions of which were retroactive to May 2007 and January 2008. Additional increases of 5% will become effective in September 2008 and July 2009.

     Our ability to attract and retain qualified pilots, mechanics and other highly-trained personnel is an important factor in determining our future success. For example, many of our customers require pilots with very high levels of flight experience. The market for these experienced and highly-trained personnel is competitive and will become more competitive if oil and gas industry activity levels increase. In addition, some of our pilots, mechanics and other personnel, as well as those of our competitors, are members of the U.S. or U.K. military reserves and have been, or could be, called to active duty. If significant numbers of such personnel are called to active duty, it would reduce the supply of such workers and likely increase our labor costs.

     Restrictions on Foreign Ownership of Common Stock — Under the Federal Aviation Act, it is unlawful to operate certain aircraft for hire within the U.S. unless such aircraft are registered with the U.S. Federal Aviation Administration (“FAA”) and the FAA has issued an operating certificate to the operator. As a general rule, aircraft may be registered under the Federal Aviation Act only if the aircraft are owned or controlled by one or more citizens of the U.S. and an operating certificate may be granted only to a citizen of the U.S. For purposes of these requirements, a corporation is deemed to be a citizen of the U.S. only if, among other things, at least 75% of its voting interests are owned or controlled by U.S. citizens. If persons other than U.S. citizens should come to own or control more than 25% of our voting interest, we have been advised that our aircraft may be subject to deregistration under the Federal Aviation Act, and we may lose our ability to operate within the U.S. Deregistration of our aircraft for any reason, including foreign ownership in excess of permitted levels, would have a material adverse effect on our ability to conduct operations within our U.S. Gulf of Mexico and Arctic business units. Therefore, our organizational documents currently provide for the automatic suspension of voting rights of shares of our common stock owned or controlled by non-U.S. citizens, and our right to redeem those shares, to the extent necessary to comply with these requirements. As of June 30, 2008, approximately

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

2,278,000 shares of our common stock were held by persons with foreign addresses. These shares represented approximately 7.8% of our total outstanding common shares as of June 30, 2008. Because a substantial portion of our common stock, our 3.00% Convertible Senior Notes and our 5.50% mandatory convertible preferred stock (“Preferred Stock”) is publicly traded, our foreign ownership may fluctuate on each trading day.

     Internal Review — In February 2005, we voluntarily advised the staff of the SEC that the Audit Committee of our board of directors had engaged special outside counsel to undertake a review of certain payments made by two of our affiliated entities in a foreign country. The review of these payments, which initially focused on Foreign Corrupt Practices Act matters, was subsequently expanded by the Audit Committee to cover operations in other countries and other issues (the “Internal Review”). As a result of the findings of the Internal Review (which was completed in late 2005), our quarter ended December 31, 2004 and prior financial statements were restated. We also provided the SEC with documentation resulting from the Internal Review which eventually resulted in a formal SEC investigation. In September 2007, we consented to the issuance of an administrative cease-and-desist order by the SEC, in final settlement of the SEC investigation. The SEC did not impose any fine or other monetary sanction upon the Company. Without admitting or denying the SEC’s findings, we consented to be ordered not to engage in future violations of certain provisions of the federal securities laws involving improper foreign payments, internal controls and books and records. For further information on the restatements, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2005.

     Following the settlement with the SEC regarding improper payments made by foreign affiliates of the Company in Nigeria, outside counsel to the Company was contacted by the U.S. Department of Justice (the “DOJ”) and was asked to provide certain information regarding the Internal Review. We have entered into an agreement with the DOJ that tolls the statute of limitations relating to these matters until the end of December 2008. We intend to continue to be responsive to the DOJ’s requests. At this time, it is not possible to predict what the outcome of the DOJ’s investigation into these matters will be for the Company.

     As a result of the disclosure and remediation of a number of activities identified in the Internal Review, we may encounter difficulties conducting business in certain foreign countries and retaining and attracting additional business with certain customers. We cannot predict the extent of these difficulties; however, our ability to continue conducting business in these countries and with these customers and through agents may be significantly impacted. We could still face legal and administrative proceedings, the institution of administrative, civil injunctive or criminal proceedings involving us and/or current or former employees, officers and/or directors who are within the jurisdictions of such authorities, the imposition of fines and other penalties, remedies and/or sanctions, including precluding us from participating in business operations in their countries. It is also possible that we may become subject to claims by third parties, possibly resulting in litigation. The matters identified in the Internal Review and their effects could have a material adverse effect on our business, financial condition and results of operations.

     In addition, we face legal actions relating to remedial actions which we have taken as a result of the Internal Review, and may face further legal action of this type in the future. In November 2005, two of our consolidated foreign affiliates were named in a lawsuit filed with the High Court of Lagos State, Nigeria by Mr. Benneth Osita Onwubalili and his affiliated company, Kensit Nigeria Limited, which allegedly acted as agents of our affiliates in Nigeria. The claimants allege that an agreement between the parties was terminated without justification and seek damages of $16.3 million. We have responded to this claim and are continuing to investigate this matter.

     As we continue to operate our compliance program, other situations involving foreign operations, similar to those matters disclosed to the SEC in February 2005 and described above, could arise that warrant further investigation and subsequent disclosures. As a result, new issues may be identified that may impact our financial statements and lead us to take other remedial actions or otherwise adversely impact us.

     During fiscal years 2006 and 2007, we incurred approximately $10.5 million and $3.1 million, respectively, in professional fees related to the Internal Review and related matters. We incurred no legal or other professional fees in connection with the Internal Review during the three months ended June 30, 2007 and 2008. We incurred no legal or other professional fees in connection with the DOJ investigation relating to the Internal Review during the three months ended June 30, 2007. During the three months ended June 30, 2008 we incurred approximately $0.1 million in legal and professional fees in connection with the DOJ investigation relating to the Internal Review.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

     Document Subpoena Relating to DOJ Antitrust Investigation — In June 2005, one of our subsidiaries received a document subpoena from the Antitrust Division of the DOJ. The subpoena related to a grand jury investigation of potential antitrust violations among providers of helicopter transportation services in the U.S. Gulf of Mexico. The subpoena focused on activities during the period from January 1, 2000 to June 13, 2005. We believe we have submitted to the DOJ substantially all documents responsive to the subpoena. We have had discussions with the DOJ and provided documents related to our operations in the U.S. as well as internationally. We intend to continue to provide additional information as required by the DOJ in connection with the investigation. There is no assurance that, after review of any information furnished by us or by third parties, the DOJ will not ultimately conclude that violations of U.S. antitrust laws have occurred. The period of time necessary to resolve the DOJ antitrust investigation is uncertain, and this matter could require significant management and financial resources that could otherwise be devoted to the operation of our business.

     The outcome of the DOJ antitrust investigation and any related legal proceedings in other countries could include civil injunctive or criminal proceedings involving us or our current or former officers, directors or employees, the imposition of fines and other penalties, remedies and/or sanctions, including potential disbarments, and referrals to other governmental agencies. In addition, in cases where anti-competitive conduct is found by the government, there is greater likelihood for civil litigation to be brought by third parties seeking recovery. Any such civil litigation could have serious consequences for our Company, including the costs of the litigation and potential orders to pay restitution or other damages or penalties, including potentially treble damages, to any parties that were determined to be injured as a result of any impermissible anti-competitive conduct. Any of these adverse consequences could have a material adverse effect on our business, financial condition and results of operations. The DOJ antitrust investigation, any related proceedings in other countries and any third-party litigation, as well as any negative outcome that may result from the investigation, proceedings or litigation, could also negatively impact our relationships with customers and our ability to generate revenue.

     In connection with this matter, we incurred $2.6 million, $1.9 million and $0.7 million in legal and other professional fees in fiscal years 2006, 2007 and 2008, respectively. We incurred no legal or other professional fees in connection with this matter for the three months ended June 30, 2007 and 2008; however, significant expenditures may continue to be incurred in the future.

     Environmental Contingencies — The U.S. Environmental Protection Agency, also referred to as the EPA, has in the past notified us that we are a potential responsible party, or PRP, at four former waste disposal facilities that are on the National Priorities List of contaminated sites. Under the federal Comprehensive Environmental Response, Compensation, and Liability Act, also known as the Superfund law, persons who are identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites. We were identified by the EPA as a PRP at the Western Sand and Gravel Superfund site in Rhode Island in 1984, at the Sheridan Disposal Services Superfund site in Waller County, Texas, in 1989, at the Gulf Coast Vacuum Services Superfund site near Abbeville, Louisiana, in 1989, and at the Operating Industries, Inc. Superfund site in Monterey Park, California, in 2003. We have not received any correspondence from the EPA with respect to the Western Sand and Gravel Superfund site since February 1991, nor with respect to the Sheridan Disposal Services Superfund site since 1989. Remedial activities at the Gulf Coast Vacuum Services Superfund site were completed in September 1999 and the site was removed from the National Priorities List in July 2001.

     The EPA has offered to submit a settlement offer to us in return for which we would be recognized as a de minimis party in regard to the Operating Industries Superfund site, but we have not yet received this settlement proposal. Although we have not obtained a formal release of liability from the EPA with respect to any of these sites, we believe that our potential liability in connection with these sites is not likely to have a material adverse effect on our business, financial condition or results of operations.

     Supply Agreement with Timken — In conjunction with the sale of certain of the assets of Turbo Engines, Inc. to Timken Alcor Aerospace Technologies, Inc. (“Timken”) in November 2006, we signed a supply agreement with Timken through which we are obligated to purchase parts and components, and obtain repair services, from Timken totaling $10.5 million over a three-year period beginning December 1, 2006 at prices consistent with prior arrangements with Timken. Through June 30, 2008, we purchased $5.7 million under this agreement.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

     Guarantees — We have guaranteed the repayment of up to £10 million ($19.9 million) of the debt of FBS Limited, an unconsolidated affiliate. See discussion of this commitment in Note 3 to our fiscal year 2008 Financial Statements. Additionally, we provided an indemnity agreement to Afianzadora Sofimex, S.A. to support issuance of surety bonds on behalf of HC from time to time. As of June 30, 2008, surety bonds with an aggregate value of 181.9 million Mexican pesos ($17.7 million) were outstanding.

     The following table summarizes our commitments under these guarantees as of June 30, 2008:

Amount of Commitment Expiration Per Period
						Remainder												Fiscal Year
						of Fiscal				Fiscal Years				Fiscal Years				2014 and
Total						Year 2009				2010-2011				2012-2013				Thereafter
(In thousands)
$	37,607					$	1,912			$	6,193			$	19,901			$	9,601

     Other Matters — Although infrequent, aircraft accidents have occurred in the past, and the related losses and liability claims have been covered by insurance subject to a deductible. We are a defendant in certain claims and litigation arising out of operations in the normal course of business. In the opinion of management, uninsured losses, if any, will not be material to our financial position, results of operations or cash flows.

NOTE 8 — TAXES

     Our effective income tax rates from continuing operations were 29.7% and 31.2% for the three months ended June 30, 2007 and 2008, respectively. During the three months ended June 30, 2007, we benefited from tax contingency related items totaling $0.9 million. During the three months ended June 30, 2008, we accrued tax contingency related items totaling $0.2 million. Our effective tax rate was also impacted by the permanent reinvestment outside the U.S. of foreign earnings, upon which no U.S. tax has been provided, and by the amount of our foreign source income and our ability to realize foreign tax credits.

     On April 1, 2008, we completed an internal reorganization that restructured our holdings in Bristow Aviation Holdings Limited (“Bristow Aviation”) in an effort to simplify our legal entity structure and reduce administrative costs associated with our ownership in Bristow Aviation. In late March 2008, we completed part of this overall restructuring that resulted in the release of $3.5 million of previously provided U.S. deferred tax on the assets subject to the restructuring. The additional transactions completed on April 1, 2008 resulted in a charge to other comprehensive income as a result of a reduction of $9.4 million in deferred tax assets associated with our net pension liability; however, these transactions did not result in a material impact on net income.

     As of June 30, 2008, there was $3.2 million of unrecognized tax benefits, all of which would have an impact on our effective tax rate, if recognized. As of June 30, 2008, $0.6 million in interest and penalties were accrued in connection with uncertain tax positions.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 9 — EMPLOYEE BENEFIT PLANS

Pension Plans

     The following table provides a detail of the components of net periodic pension cost:

		Three Months Ended
		June 30,
		2007				2008
		(In thousands)
Service cost for benefits earned during the period		$	71			$	72
Interest cost on pension benefit obligation			6,559				7,715
Expected return on assets			(6,790	)			(6,969	)
Amortization of unrecognized losses			1,024				1,283
Net periodic pension cost		$	864			$	2,101

     The current estimate of our cash contributions to the pension plans for fiscal year 2009 is $14.6 million, $3.6 million of which was paid during the three months ended June 30, 2008.

Incentive Compensation

     We have a number of incentive and stock option plans which are described in Note 8 to our fiscal year 2008 Financial Statements.

     In June 2008, the Compensation Committee of our board of directors changed the design of the long-term incentive awards and authorized the annual grant of stock options, time vested restricted stock and long-term performance cash awards to participating employees. Restricted stock grants vest at the end of three years. Performance cash awards allow the recipient to receive from -0- to 200% of the target amount depending on whether the Company’s total shareholder return meets the minimum return requirements and how the Company’s total shareholder return ranks among the Company’s compensation peer group over the performance period. The value of the performance cash awards is calculated on a quarterly basis by comparing the performance of our stock including dividends paid since the award date against the peer group and has a maximum potential payout of $10.0 million. The total value of the awards is recognized as compensation expense over a three-year vesting period with the recognition amount being adjusted quarterly. No compensation expense was recorded related to the performance cash awards during the three months ended June 30, 2008.

     For the three months ended June 30, 2007 and 2008, total stock-based compensation expense, which includes stock options, restricted stock units and restricted stock, totaled $1.5 million and $1.9 million, respectively. Stock-based compensation expense has been allocated to our various business units.

     During the three months ended June 30, 2008, 201,684 stock options were granted at an average exercise price of $50.25 per share. The key input variables used in valuing these options under the Black Scholes model were: risk-free interest rate of 3.48%; dividend yield of zero; stock price volatility of 33.48%; and expected option lives of 6 years. Also during the three months ended June 30, 2008, we awarded 140,169 shares of restricted stock at an average grant date fair value of $50.25 per share.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 10 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

     In June 2008, we issued 4,715,000 shares of common stock at $46.87 per share through a public offering. Net proceeds from the sale of the common stock were $211.0 million. Additionally, we issued 281,900 shares of common stock through a private placement to Caledonia Investments plc (“Caledonia”), one of our largest shareholders. The shares sold to Caledonia were also at a price of $46.87 per share and generated proceeds of $13.2 million.

     Basic earnings per common share was computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share for the three months ended June 30, 2007 excluded options to purchase 339,331 shares at a weighted average exercise price of $35.74, which were outstanding during the period but were anti-dilutive. Diluted earnings per common share for the three months ended June 30, 2008 excluded options to purchase 508,763 shares at a weighted average exercise price of $45.15 which were outstanding during the period but were anti-dilutive. The following table sets forth the computation of basic and diluted net income per share.

		Three Months Ended
		June 30,
		2007				2008
Earnings (in thousands):
Continuing operations:
Income available to common stockholders — basic		$	18,748			$	19,487
Preferred Stock dividends			3,162				3,162
Interest expense on assumed conversion of 3.00% Convertible Senior Notes, net of tax (1)			—				—
Income available to common stockholders — diluted		$	21,910			$	22,649
Discontinued operations:
Income available to common stockholders — basic and diluted		$	762			$	—
Net earnings:
Income available to common stockholders — basic		$	19,510			$	19,487
Preferred Stock dividends			3,162				3,162
Interest expense on assumed conversion of 3.00% Convertible Senior Notes, net of tax (1)			—				—
Income available to common stockholders — diluted		$	22,672			$	22,649
Shares:
Weighted average number of common shares outstanding — basic			23,602,696				24,848,223
Assumed conversion of Preferred Stock outstanding during the period (2)			6,522,800				6,522,800
Assumed conversion of 3.00% Convertible Senior Notes outstanding during the period (1)			—				—
Net effect of dilutive stock options and restricted stock units based on the treasury stock method			93,529				181,002
Weighted average number of common shares outstanding — diluted			30,219,025				31,552,025
Basic earnings per common share:
Earnings from continuing operations		$	0.80			$	0.78
Earnings from discontinued operations			0.03				—
Net earnings		$	0.83			$	0.78
Diluted earnings per common share:
Earnings from continuing operations		$	0.73			$	0.72
Earnings from discontinued operations			0.02				—
Net earnings		$	0.75			$	0.72

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

NOTE 11 — SEGMENT INFORMATION

     We conduct our business in one segment: Helicopter Services. The Helicopter Services segment operations are conducted through three divisions: Western Hemisphere, Eastern Hemisphere and Global Training, and ten business units within those divisions. Western Hemisphere and Eastern Hemisphere operate through nine of the business units: U.S. Gulf of Mexico, Arctic, Latin America and Western Hemisphere (“WH”) Centralized Operations within the Western Hemisphere, and Europe, West Africa, Southeast Asia, Other International and Eastern Hemisphere (“EH”) Centralized Operations within the Eastern Hemisphere. Our WH and EH Centralized Operations business units are comprised of our technical services business and other non-flight services business (e.g., provision of maintenance and supply chain parts and services to other Western and Eastern Hemisphere business units) and division level expenses. Bristow Academy is the only business unit within our Global Training division.

     Beginning on April 1, 2008, the North America business unit was segregated into three separate business units: U.S. Gulf of Mexico, Arctic and WH Centralized Operations. Amounts presented below as of March 31, 2008 and for the three months ended June 30, 2007 have been restated to conform to current period presentation. Additionally, the South and Central America business unit is now referred to as the Latin America business unit.

     The tables that follow show reportable segment information for the three months ended June 30, 2007 and 2008, reconciled to consolidated totals, and prepared on the same basis as our condensed consolidated financial statements.

		Three Months Ended
		June 30,
		2007				2008
		(In thousands)
Segment gross revenue from external customers:
U.S. Gulf of Mexico		$	55,379			$	61,509
Arctic			4,357				4,243
Latin America			16,036				20,206
WH Centralized Operations			274				1,858
Europe			82,927				95,286
West Africa			33,283				43,300
Southeast Asia			22,492				36,880
Other International			11,276				12,491
EH Centralized Operations			2,108				2,167
Bristow Academy			3,019				6,151
Corporate			—				32
Total segment gross revenue		$	231,151			$	284,123

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

		Three Months Ended
		June 30,
		2007				2008
		(In thousands)
Intrasegment gross revenue:
U.S. Gulf of Mexico		$	49			$	—
Arctic			—				—
Latin America			—				—
WH Centralized Operations			880				402
Europe			430				144
West Africa			—				—
Southeast Asia			—				—
Other International			179				530
EH Centralized Operations			4,697				6,670
Bristow Academy			—				—
Total intrasegment gross revenue		$	6,235			$	7,746
Consolidated gross revenue reconciliation:
U.S. Gulf of Mexico		$	55,428			$	61,509
Arctic			4,357				4,243
Latin America			16,036				20,206
WH Centralized Operations			1,154				2,260
Europe			83,357				95,430
West Africa			33,283				43,300
Southeast Asia			22,492				36,880
Other International			11,455				13,021
EH Centralized Operations			6,805				8,837
Bristow Academy			3,019				6,151
Intrasegment eliminations			(6,235	)			(7,746	)
Corporate			—				32
Total consolidated gross revenue		$	231,151			$	284,123
Consolidated operating income (loss) reconciliation:
U.S. Gulf of Mexico		$	9,099			$	7,989
Arctic			675				519
Latin America			3,334				6,475
WH Centralized Operations			1,292				(676	)
Europe			14,575				17,476
West Africa			2,797				6,516
Southeast Asia			4,127				4,186
Other International			2,265				1,197
EH Centralized Operations			(4,279	)			(7,921	)
Bristow Academy			(91	)			546
Gain on disposal of assets			584				2,665
Corporate			(5,592	)			(7,385	)
Total consolidated operating income		$	28,786			$	31,587

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

		March 31,				June 30,
		2008				2008
		(In thousands)
Identifiable assets:
U.S. Gulf of Mexico		$	255,863			$	257,835
Arctic			17,233				20,791
Latin America			157,916				200,909
WH Centralized Operations			2,520				2,395
Europe			509,413				557,852
West Africa			252,458				251,839
Southeast Asia			165,431				197,418
Other International			99,185				86,488
EH Centralized Operations			51,291				27,668
Bristow Academy			33,966				35,000
Corporate (1)			432,079				717,083
Total identifiable assets		$	1,977,355			$	2,355,278

NOTE 12 — COMPREHENSIVE INCOME

     Comprehensive income is as follows:

		Three Months Ended
		June 30,
		2007				2008
		(In thousands)
Net income		$	22,672			$	22,649
Other comprehensive income (loss):
Currency translation adjustments			8,720				3,503
Income tax effect attributable to pension liability adjustment as a result of internal reorganization (see Note 8)			—				(9,371	)
Unrealized loss on cash flow hedges (net of income tax effect of $0.3 million)			—				(578	)
Comprehensive income		$	31,392			$	16,203

     During the three months ended June 30, 2007 and 2008, the U.S. dollar weakened against the British pound sterling, resulting in translation gains recorded as a component of stockholders’ investment as of June 30, 2007 and 2008.

NOTE 13 — SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     In connection with the sale of the 7 ¹/2% Senior Notes due 2017, the 6 ¹/8% Senior Notes due 2013 and the 3.00% Convertible Senior Notes, the Guarantor Subsidiaries jointly, severally and unconditionally guaranteed the payment obligations under these notes. The following supplemental financial information sets forth, on a consolidating basis, the balance sheet, statement of income and cash flow information for Bristow Group Inc. (“Parent Company Only”), for the Guarantor Subsidiaries and for our other subsidiaries (the “Non-Guarantor Subsidiaries”). We have not presented separate financial statements and other disclosures concerning the Guarantor Subsidiaries because management has determined that such information is not material to investors.

     The supplemental condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include all disclosures included in annual financial statements, although we believe that the disclosures made are adequate to make the information presented not misleading. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses.

     The allocation of the consolidated income tax provision was made using the with and without allocation method.

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Supplemental Condensed Consolidating Statement of Income

Three Months Ended June 30, 2007

		Parent								Non-
		Company				Guarantor				Guarantor
		Only				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(In thousands)
Revenue:
Gross revenue		$	—			$	74,308			$	156,843			$	—			$	231,151
Intercompany revenue			—				5,156				6,115				(11,271	)			—
			—				79,464				162,958				(11,271	)			231,151
Operating expense:
Direct cost			—				48,283				124,950				—				173,233
Intercompany expenses			—				6,214				5,057				(11,271	)			—
Depreciation and amortization			71				5,404				5,856				—				11,331
General and administrative			5,493				3,067				9,825				—				18,385
Gain on disposal of assets			—				(708	)			124				—				(584	)
			5,564				62,260				145,812				(11,271	)			202,365
Operating income (loss)			(5,564	)			17,204				17,146				—				28,786
Earnings (losses) from unconsolidated affiliates, net			15,625				175				3,215				(15,625	)			3,390
Interest income			19,647				9				687				(18,219	)			2,124
Interest expense			(2,812	)			—				(18,335	)			18,219				(2,928	)
Other income (expense), net			(25	)			(43	)			494				—				426
Income from continuing operations before provision for income taxes and minority interest			26,871				17,345				3,207				(15,625	)			31,798
Allocation of consolidated income taxes			(4,152	)			(198	)			(5,089	)			—				(9,439	)
Minority interest			(47	)			—				(402	)			—				(449	)
Income (loss) from continuing operations			22,672				17,147				(2,284	)			(15,625	)			21,910
Discontinued operations:
Income from discontinued operations before provision for income taxes			—				1,157				—				—				1,157
Provision for income taxes on discontinued operations			—				(395	)			—				—				(395	)
Income from discontinued operations			—				762				—				—				762
Net income (loss)		$	22,672			$	17,909			$	(2,284	)		$	(15,625	)		$	22,672

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Supplemental Condensed Consolidating Statement of Income

Three Months Ended June 30, 2008

		Parent								Non-
		Company				Guarantor				Guarantor
		Only				Subsidiaries				Subsidiaries				Eliminations				Consolidated
		(In thousands)
Revenue:
Gross revenue		$	31			$	89,232			$	194,860			$	—			$	284,123
Intercompany revenue			—				5,473				4,432				(9,905	)			—
			31				94,705				199,292				(9,905	)			284,123
Operating expense:
Direct cost			40				59,453				153,547				—				213,040
Intercompany expenses			—				4,485				5,420				(9,905	)			—
Depreciation and amortization			67				5,712				9,176				—				14,955
General and administrative			7,153				4,331				15,722				—				27,206
Gain on disposal of assets			—				(1,963	)			(702	)			—				(2,665	)
			7,260				72,018				183,163				(9,905	)			252,536
Operating income (loss)			(7,229	)			22,687				16,129				—				31,587
Earnings (losses) from unconsolidated affiliates, net			49,123				3,454				4,269				(49,123	)			7,723
Interest income			20,935				65				451				(20,004	)			1,447
Interest expense			(8,743	)			—				(19,754	)			20,004				(8,493	)
Other income (expense), net			4,680				(25	)			(2,963	)			—				1,692
Income from continuing operations before provision for income taxes and minority interest			58,766				26,181				(1,868	)			(49,123	)			33,956
Allocation of consolidated income taxes			(36,074	)			(3,873	)			29,343				—				(10,604	)
Minority interest			(43	)			—				(660	)			—				(703	)
Income (loss) from continuing operations			22,649				22,308				26,815				(49,123	)			22,649
Discontinued operations:
Income from discontinued operations before provision for income taxes			—				—				—				—				—
Provision for income taxes on discontinued operations			—				—				—				—				—
Income from discontinued operations			—				—				—				—				—
Net income (loss)		$	22,649			$	22,308			$	26,815			$	(49,123	)		$	22,649

BRISTOW GROUP INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Supplemental Condensed Consolidating Balance Sheet
As of March 31, 2008

		Parent								Non-
		Company				Guarantor				Guarantor
		Only				Subsidiaries				Subsidiaries				Elimination				Consolidated
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	226,494			$	361			$	63,195			$	—			$	290,050
Accounts receivable			34,679				73,023				155,232				(47,019	)			215,915
Inventories			—				76,706				99,533				—				176,239
Prepaid expenses and other			1,145				2,856				20,176				—				24,177
Total current assets			262,318				152,946				338,136				(47,019	)			706,381
Intercompany investment			602,282				1,047				16,990				(620,319	)			—
Investment in unconsolidated affiliates			4,433				3,639				44,395				—				52,467
Intercompany notes receivable			875,856				—				(15,145	)			(860,711	)			—
Property and equipment – at cost:
Land and buildings			212				44,230				15,614				—				60,056
Aircraft and equipment			2,957				552,429				873,610				—				1,428,996
			3,169				596,659				889,224				—				1,489,052
Less: Accumulated depreciation and amortization			(1,146	)			(139,100	)			(176,268	)			—				(316,514	)
			2,023				457,559				712,956				—				1,172,538
Goodwill			—				4,755				10,921				—				15,676
Other assets			14,183				4,457				11,653				—				30,293
		$	1,761,095			$	624,403			$	1,119,906			$	(1,528,049	)		$	1,977,355
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable		$	686			$	14,486			$	47,986			$	(13,508	)		$	49,650
Accrued liabilities			10,893				15,780				106,368				(33,511	)			99,530
Deferred taxes			(1,909	)			—				11,147				—				9,238
Short-term borrowings and current maturities of long-term debt			—				—				6,541				—				6,541
Total current liabilities			9,670				30,266				172,042				(47,019	)			164,959
Long-term debt, less current maturities			584,981				—				14,696				—				599,677
Intercompany notes payable			—				190,498				670,213				(860,711	)			—
Accrued pension liabilities			—				—				134,156				—				134,156
Other liabilities and deferred credits			3,834				9,379				1,592				—				14,805
Deferred taxes			52,190				3,669				35,888				—				91,747
Minority interest			2,072				—				2,498				—				4,570
Stockholders’ investment:
Preferred stock			222,554				—				—				—				222,554
Common stock			239				4,996				68,986				(73,982	)			239
Additional paid-in-capital			186,390				23,100				242,983				(266,083	)			186,390
Retained earnings			606,931				362,495				(60,086	)			(302,409	)			606,931
Accumulated other comprehensive income (loss)			92,234				—				(163,062	)			22,155				(48,673	)
			1,108,348				390,591				88,821				(620,319	)			967,441
		$	1,761,095			$	624,403			$	1,119,906			$	(1,528,049	)		$	1,977,355