Bristow Group Inc. (VTOL) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations for the fiscal years ended March 31, 2022 and 2021. This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes and the other financial information included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Item 1.A. Risk Factors” and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.
A discussion of the financial condition and results of operations for the fiscal year ended March 31, 2020 can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K, filed with the SEC on May 27, 2021.
Overview
We are the leading global provider of innovative and sustainable vertical flight solutions, primarily providing aviation services to a broad base of major integrated, national and independent energy companies and government agencies. Our helicopters are primarily used to transport personnel to, from and between offshore energy installations. In the fiscal years ended March 31, 2022 and 2021, approximately 67% and 69%, respectively, of our total operating revenues were derived from oil and gas services while approximately 24% and 22%, respectively, were derived from government services primarily consisting of public sector SAR services in the U.K., and approximately 9% and 9%, respectively, were from fixed wing and other services.
We conduct our business out of one segment, aviation services, and serve customers in Australia, Brazil, Canada, Chile, the Dutch Caribbean, Guyana, India, Mexico, the Netherlands, Nigeria, Norway, Spain, Suriname, Trinidad, the U.K. and U.S.
Recent Developments
ABL Amendment
On May 20, 2022, the Company entered into a Deed of Amendment, Restatement and Confirmation (the “ABL Amendment”) relating to the ABL Facility, to among other things, (i) extend the maturity to 2027, subject to certain early maturity triggers related to maturity of other material debt or a change of control of the Company; (ii) provide for replacement of LIBOR (x) for certain loans denominated in British pound sterling with SONIA, (y) for certain loans denominated in euro with EURIBOR and (z) for certain loans denominated in U.S. dollars with Term SOFR; and (iii) include the ability of the Company to adopt one or more environmental, social and governance-related pricing adjustments based on specified metrics and performance targets at a date after closing of the ABL Amendment, subject to certain conditions. The Amended ABL provides for commitments in an aggregate amount of $85.0 million. The Company has the ability under the Amended ABL to increase the total commitments by up to $35.0 million, which would result in an aggregate amount of $120.0 million subject to the terms and conditions therein.
Announcement of Acquisition of British International Helicopter Services Limited
In April 2022, Bristow announced its plans to acquire British International Helicopter Services Limited ("BIH"), further enhancing its leading global government services business. BIH will add to Bristow's operations in the UK and adopt the Bristow name and brand throughout its operations. BIH currently operates a fleet of two AW189 SAR-configured helicopters, three S61 helicopters, and one AS365 helicopter, performing various passenger and freight transport as well as hoist operations for the British Armed Forces. The transaction remains subject to regulatory approvals and customary closing conditions.
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COVID-19
The COVID-19 pandemic has had a significant influence on economic activity and global supply chains and likely will continue to have a significant impact on the global economy in the near-to-medium-term, which in turn can cause volatility in global markets, generally, and in oil and natural gas prices, more specifically. While demand and oil and natural gas prices have largely recovered, demand is still not back to pre-pandemic levels. There continues to be uncertainty and unpredictability around the extent to which COVID-19 may adversely affect demand for our services. The speed and extent of this recovery will be influenced by whether and at what pace the COVID-19 restrictions that have reduced economic activity and depressed demand globally are eased. Additionally, supply chain and logistics disruptions that began during the COVID-19 pandemic and the resulting inflationary environment have affected us by increasing the costs, and delaying the deliveries of, critical components for aircraft maintenance, equipment, labor and other services required in our business.
The availability of vaccines around the world improved and business activity increased. Nevertheless, some countries face a resurgence of the virus and its variants that could impact logistics and materials movement and pose a risk to our business. We continue to take precautionary measures to reduce the risk of exposure to and spread of the COVID-19 virus in our operations through screening, testing and, when appropriate, quarantining personnel upon arrival to our facilities.
Lines of Service
Beginning in fiscal year 2022, the revenues by line of service tables have been modified to more accurately reflect how management views the Company’s lines of service. These changes include the addition of a government services line of service which includes revenues from U.K. SAR, BSEE, and other government contracts. In addition, our other activities and services (“other” services) will now reflect revenues derived from leasing aircraft to non-governmental third party operators, oil and gas contracts that do not materially fit into one of the three major oil and gas operating regions and other services as they arise. As such, operating revenues from Asia Pacific oil and gas services are now shown under other services following the exit of that line of service in the Asia Pacific region. Prior period amounts will not match the previously reported amounts by individual lines of service. Management believes this change provides more relevant information needed to understand and analyze the Company’s current lines of service.
Oil and Gas. The offshore oil and gas market is highly cyclical with demand highly correlated to the price of oil and gas, which tends to fluctuate depending on many factors, including global economic activity, levels of inventory and overall demand. In addition to the price of oil and gas, the availability of acreage and local tax incentives or disincentives and requirements for maintaining interests in leases affect activity levels in the oil and gas industry. Price levels for oil and gas by themselves can cause additional fluctuations by inducing changes in consumer behavior. The three main regions where we offer oil and gas transportation services are Europe, the Americas and Africa.
Government Services. Since 2015, we have been providing SAR services in the U.K. on behalf of the MCA. Additionally, we provide aviation services to various government agencies globally.
Fixed Wing Services. Our fixed wing services are currently operating in Australia and Nigeria, providing regular passenger transport (scheduled airline service with individual ticket sales) and charter services.
Other Activities and Services. In order to diversify sources of our earnings and cash flow, we deploy a number of helicopters in support of other industries and activities, one of which includes entering into lease arrangements for our helicopters with operators primarily located in international markets such as Chile, India, Mexico and Spain. The helicopters are contracted to non-governmental local helicopter operators, which often prefer to lease helicopters rather than purchase them. Leasing affords us the opportunity to access new markets without significant infrastructure investment and generally without ongoing operating risk, as well as countries where we are not eligible to own and control our own operating certificate. Revenues derived from oil and gas services outside of our three major operating regions and other aviation services not included in the three lines of service noted above are also reflected here.
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Market Outlook
Government services, especially the public SAR market, is continuing to evolve, and we believe further outsourcing of public SAR services and other government contract work will become available to the private sector in the future, although the timing of these opportunities is uncertain. The duration of these contracts generally lasts for ten or more years with options for renewal. Privatization of aviation services historically operated by the public sector depend heavily on governmental agencies receiving funding through budget appropriations, and the desire to outsource such services. As government agencies in various countries begin to see the advantages of outsourcing public SAR services, other opportunities such as firefighting, surveying, training, maintenance and emergency response services could become available. In the past year, we have secured two new SAR contracts and entered into an agreement to purchase BIH to enhance our SAR services. Therefore, we believe that we are well positioned to continue to serve the market as more opportunities arise.
The offshore oil and gas market is highly cyclical with demand linked to the price of oil and gas. The prices of oil and gas are critical factors in our customers’ investment and spending decisions. The price of crude oil had been range-bound for a number of years and then the COVID-19 pandemic further devastated the global oil and gas industry, which negatively impacted the cash flows of our customers and has led them to reduce capital and operational expenditures from prior levels, including reductions related to offshore exploration, development and production activities. More recently, oil and gas prices have shown signs of recovery and many expect a multi-year growth cycle is underway.
Components of Revenues and Expenses
We derive our revenues primarily from operating equipment, and our profits depend on our cost of capital, the acquisition costs of assets, our operating costs and our reputation. A majority of our revenues are generated through two types of contracts: helicopter services and fixed wing services. Revenues are recognized when control of the identified distinct goods or services has been transferred to the customer, the transaction price is determined and allocated to the satisfied performance obligations and we have determined that collection has occurred or is probable of occurring. Cost reimbursements from customers are recorded as reimbursable revenues with the related reimbursed cost recorded as reimbursable expense on our consolidated statements of operations.
Operating revenues recorded under our oil and gas line of service are primarily generated from offshore oil and gas exploration, development and production activities with fixed-term contracts generally ranging between one to five years, subject to provisions permitting early termination by customers. Customers are invoiced on a monthly basis with payment terms of 30 to 60 days. Revenues are typically earned through a combination of fixed monthly fees plus an incremental charge based on flight hours flown. Ad hoc revenues are typically earned through either a combination of a daily fixed fee plus a charge based on hours flown or an hourly rate with a minimum number of hours to be charged daily.
Our customers for SAR services include both the oil and gas industry, where our revenues are primarily dependent on our customers’ operating expenditures, and governmental agencies, where our revenues are dependent on a country’s desire to privatize SAR and enter into long-term contracts. Operating revenues for these emergency response services are earned through a fixed monthly fee plus an incremental charge for flight hours flown, and charter revenues are typically earned through an hourly rate with a minimum number of hours to be charged daily.
We derive revenues from our fixed wing line of service by providing transportation services through passenger transport and charter services, with ticket sales recorded under deferred revenues on our consolidated balance sheet. Revenues are recognized over time at the earlier of the period in which the service is provided or the period in which the right to travel expires; this is determined by the terms and conditions of the ticket. For scheduled charter services, our contracts typically include variable rates based on the number of passengers, flights or flight hours. These agreements may also include a monthly standing charge; however, this is much less common as compared to helicopter contracts. Both chartered and scheduled airline services revenues are recognized net of passenger taxes and discounts.
Our policy of expensing all repair costs as incurred may result in operating expenses varying substantially when compared with a prior year or prior quarter if a disproportionate number of repairs, refurbishments or overhauls are undertaken. This variation can be exacerbated by the timing of entering or exiting third-party power-by-the-hour (“PBH”) programs and the timing of vendor credits.
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For helicopters that we lease to third parties under arrangements whereby the customer assumes operational responsibility, we often provide technical parts support, but generally we incur no other material operating costs. In most instances, our leases require customers to procure adequate insurance, but we purchase contingent hull and liability coverage to mitigate the risk of a customer’s coverage failing to respond. In some instances, we provide training and other services to support our lease customers.
The aggregate cost of our operations depends primarily on the size and asset mix of the fleet. Our operating expenses are grouped into the following categories:
•personnel (includes wages, benefits, payroll taxes and savings plans);
•repairs and maintenance (primarily routine activities and hourly charges for PBH maintenance contracts that cover helicopter refurbishments and engine and major component overhauls that are performed in accordance with planned maintenance programs);
•insurance (including the cost of hull and liability insurance premiums and loss deductibles);
•fuel;
•leased-in equipment (includes the cost of leasing helicopters and equipment); and
•other (primarily base expenses, property, sales and use taxes, communication costs, freight expenses, and other).
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Results of Operations
The following table presents our operating results for the fiscal years ended March 31, 2022 and 2021, (in thousands, except percentages):
| Fiscal Year Ending March 31, | Favorable (Unfavorable) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||||
| Revenues: | ||||||||||||||
| Operating revenues | $ | 1,139,063 | $ | 1,139,024 | $ | 39 | — | % | ||||||
| Reimbursable revenues | 46,141 | 39,038 | 7,103 | 18.2 | % | |||||||||
| Total revenues | 1,185,204 | 1,178,062 | 7,142 | 0.6 | % | |||||||||
| Costs and expenses: | ||||||||||||||
| Operating expenses | ||||||||||||||
| Personnel | 304,045 | 313,561 | 9,516 | 3.0 | % | |||||||||
| Repairs and maintenance | 248,509 | 233,468 | (15,041) | (6.4) | % | |||||||||
| Insurance | 24,492 | 21,422 | (3,070) | (14.3) | % | |||||||||
| Fuel | 74,165 | 45,206 | (28,959) | (64.1) | % | |||||||||
| Leased-in equipment | 102,725 | 116,642 | 13,917 | 11.9 | % | |||||||||
| Other | 118,921 | 120,874 | 1,953 | 1.6 | % | |||||||||
| Total operating expenses | 872,857 | 851,173 | (21,684) | (2.5) | % | |||||||||
| Reimbursable expenses | 45,557 | 38,789 | (6,768) | (17.4) | % | |||||||||
| General and administrative expenses | 159,062 | 153,270 | (5,792) | (3.8) | % | |||||||||
| Merger and integration costs | 3,240 | 42,842 | 39,602 | 92.4 | % | |||||||||
| Restructuring costs | 3,098 | 25,773 | 22,675 | 88.0 | % | |||||||||
| Depreciation and amortization expense | 74,981 | 70,078 | (4,903) | (7.0) | % | |||||||||
| Total costs and expenses | 1,158,795 | 1,181,925 | 23,130 | 2.0 | % | |||||||||
| Loss on impairment | (24,835) | (91,260) | 66,425 | 72.8 | % | |||||||||
| Gain (loss) on disposal of assets | 1,347 | (8,199) | 9,546 | nm | ||||||||||
| Earnings (losses) from unconsolidated affiliates, net | (1,738) | 426 | (2,164) | nm | ||||||||||
| Operating income (loss) | 1,183 | (102,896) | 104,079 | nm | ||||||||||
| Interest income | 161 | 1,293 | (1,132) | nm | ||||||||||
| Interest expense | (41,521) | (51,259) | 9,738 | 19.0 | % | |||||||||
| Loss on extinguishment of debt | (124) | (29,359) | 29,235 | nm | ||||||||||
| Reorganization items, net | (621) | 1,577 | (2,198) | nm | ||||||||||
| Loss on sale of subsidiaries | (2,002) | — | (2,002) | nm | ||||||||||
| Change in fair value of preferred stock derivative liability | — | 15,416 | (15,416) | nm | ||||||||||
| Gain on bargain purchase | — | 81,093 | (81,093) | nm | ||||||||||
| Other, net | 38,505 | 27,495 | 11,010 | 40.0 | % | |||||||||
| Total other income (expense), net | (5,602) | 46,256 | (51,858) | nm | ||||||||||
| Loss before income taxes | (4,419) | (56,640) | 52,221 | nm | ||||||||||
| Income tax benefit (expense) | (11,294) | 355 | (11,649) | nm | ||||||||||
| Net loss | (15,713) | (56,285) | 40,572 | 72.1 | % | |||||||||
| Net loss (income) attributable to noncontrolling interests | (78) | 191 | (269) | nm | ||||||||||
| Net loss attributable to Bristow Group Inc. | $ | (15,791) | $ | (56,094) | $ | 40,303 | 71.8 | % |
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Revenues by Service Line. The table below sets forth the operating revenues earned by service line for the applicable periods (in thousands):
| Fiscal Year Ending March 31, | Favorable (Unfavorable) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||||
| Oil and gas: | ||||||||||||||
| Europe | $ | 370,833 | $ | 390,305 | $ | (19,472) | (5.0) | % | ||||||
| Americas | 337,482 | 304,434 | 33,048 | 10.9 | % | |||||||||
| Africa | 59,405 | 93,285 | (33,880) | (36.3) | % | |||||||||
| Total oil and gas services | 767,720 | 788,024 | (20,304) | (2.6) | % | |||||||||
| Government services (1) | 272,859 | 252,131 | 20,728 | 8.2 | % | |||||||||
| Fixed wing services | 85,372 | 73,751 | 11,621 | 15.8 | % | |||||||||
| Other services (2) | 13,112 | 25,118 | (12,006) | (47.8) | % | |||||||||
| $ | 1,139,063 | $ | 1,139,024 | $ | 39 | — | % |
(1)Includes revenues of approximately $26.8 million related to government services that were previously included in the oil and gas and other service lines for the fiscal year ended March 31, 2021.
(2)Includes Asia Pacific and certain Europe revenues of approximately $12.7 million that were previously included in the oil and gas service line for the fiscal year ended March 31, 2021.
Current Fiscal Year compared to Prior Fiscal Year
Operating Revenues. Operating revenues were consistent in the fiscal year ended March 31, 2022 (the “Current Year”) compared to the fiscal year ended March 31, 2021 (the “Prior Year”).
Operating revenues from oil and gas services were $20.3 million lower in the Current Year.
Operating revenues from oil and gas services in the Africa region were $33.9 million lower in the Current Year primarily due to fewer helicopters on contract.
Operating revenues from oil and gas services in the Europe region were $19.5 million lower in the Current Year. Revenues in the U.K were $22.7 million lower primarily due to lower utilization of $29.4 million, partially offset by the strengthening of the British pound sterling relative to the U.S. dollar of $6.7 million. Revenues in Norway were $3.2 million higher primarily due to the strengthening of the Norwegian krone relative to the U.S. dollar of $5.9 million, partially offset by lower utilization of $2.7 million.
Operating revenues from oil and gas services in the Americas region were $33.0 million higher in the Current Year primarily due to higher utilization and the benefit of the Merger with Era Group Inc. (“the Merger”) in June 2020. These increases were partially offset by lower revenues in Canada.
Operating revenues from government services were $20.7 million higher in the Current Year primarily due to the strengthening of the British pound sterling relative to the U.S. dollar, the benefit of the Merger and higher utilization.
Operating revenues from fixed wing services were $11.6 million higher in the Current Year primarily due to higher utilization.
Operating revenues from other services were $12.0 million lower in the Current Year primarily due to the end of oil and gas services in Australia and lower part sales, partially offset by the benefit of the Merger.
Operating Expenses. Operating expenses were $21.7 million higher in the Current Year. Fuel expense was $29.0 million higher primarily due to increased global fuel prices and flight hours. Repairs and maintenance costs were $15.0 million higher primarily due to the impact of the Merger and the timing of repairs. Insurance costs were $3.1 million higher primarily due to insurance deductibles related to Hurricane Ida and increased rates. These increases were partially offset by lower leased-in equipment expenses of $13.9 million due to aircraft lease returns since the Prior Year and lower personnel costs of $9.5 million primarily due to headcount reductions. Other operating costs were $2.0 million lower primarily due to a decrease in costs
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associated with the end of a contract, partially offset by higher accommodation expense related to Hurricane Ida and training costs.
General and Administrative. General and administrative expenses were $5.8 million higher in the Current Year primarily due to higher professional services fees and insurance costs and the absence of certain government grants related to fixed wing services.
Merger and Integration Costs. Merger and integration costs, primarily consisting of professional services fees and severance costs related to the Merger, were $3.2 million in the Current Year compared to $42.8 million in the Prior Year.
Restructuring Costs. Restructuring costs, primarily related to severance costs not related to the Merger, were $3.1 million in the Current Year compared to $25.8 million in the Prior Year.
Depreciation and Amortization. Depreciation and amortization expenses were $4.9 million higher primarily due to the addition of existing assets to the depreciation and amortization calculation in the Current Year.
Loss on Impairment. During the Current Year, the Company recognized losses on impairment of $24.8 million consisting of $16.0 million related to Petroleum Air Services (“PAS”), $5.9 million related to certain helicopters held for sale and $2.9 million related to H225 helicopter parts inventory. During the Prior Year, the Company recognized a loss on impairment of $91.3 million consisting of $51.9 million related to its investment in Cougar, $18.7 million related to its investment in Líder Táxi Aéreo S.A. (“Lider”), $12.9 million related to the write down of inventory and $7.8 million related to helicopters that were held for sale.
Gain (Loss) on Disposal of Assets. During the Current Year, the Company sold 10 aircraft and other equipment resulting in a net gain of $1.3 million. During the Prior Year, the Company sold 54 aircraft, five of which were via sales-type leases, and other equipment resulting in cash proceeds of $67.9 million and losses of $8.2 million.
Earnings (Losses) from Unconsolidated Affiliates, net. During the Current Year, the Company recognized losses of $1.7 million from its equity method investments compared to earnings of $0.4 million in the Prior Year.
Interest Expense. Interest expense was $9.7 million lower in the Current Year primarily due to lower debt balances.
Loss on Extinguishment of Debt. During the Prior Year, in connection with refinancing, the Company repaid existing term loans and redeemed its 7.750% senior unsecured notes due December 15, 2022 (the “7.750% Senior Notes”) and recognized a loss on extinguishment of debt of $28.5 million related to the write off of associated discount balances and early repayment fees.
Reorganization Items, net. During the Current Year, the Company recognized losses of $0.6 million related to reorganization items. During the Prior Year, the Company recognized a gain of $1.6 million related to the release of the rabbi trust which held investments for the Company’s non-qualified deferred compensation plan for the Company’s former executives.
Loss on Sale of Subsidiaries. During the Current Year, the Company recognized a loss of $2.0 million on the sale of its subsidiary in Colombia.
Change in Fair Value of Preferred Stock Derivative. During the Prior Year, the Company recognized a $15.4 million gain on the change in fair value of preferred stock derivative liability.
Gain on Bargain Purchase. During the Prior Year, the Company recognized a bargain purchase gain of $81.1 million related to the Merger.
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Other Income, net. Other income, net was $38.5 million in the Current Year compared to $27.5 million in the Prior Year. Other income in the Current Year primarily consisted of government grants to fixed wing services of $12.4 million, a bankruptcy-related legal settlement of $9.0 million, net foreign exchange gains of $7.0 million, insurance gains of $5.2 million, a favorable interest adjustment to the Company’s pension liability of $2.5 million and a gain on sale of inventory of $1.9 million. Other income, net in the Prior Year was primarily due to government grants to fixed wing services of $11.5 million, net foreign exchange gains of $7.5 million, a favorable interest adjustment to the Company’s pension liability of $3.8 million and insurance proceeds of $2.6 million.
| Fiscal Year Ending March 31, | Favorable (Unfavorable) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | ||||||||
| Foreign currency gains (losses) | 7,036 | 7,475 | (439) | ||||||
| Pension-related costs | 2,537 | 3,837 | (1,300) | ||||||
| Other | 28,932 | 16,183 | 12,749 | ||||||
| Other income (expense), net | $ | 38,505 | $ | 27,495 | $ | 11,010 |
Income Tax Benefit (Expense). Income tax expense was $11.3 million in the Current Year compared to a benefit of $0.4 million in the Prior Year. The change in income tax expense in the Current Year was driven by the tax impact of net operating losses and valuation allowances on the Company’s net losses, the tax impact of deductible business interest expense, tax impacts of the bankruptcy-related legal settlement and impairment losses, and tax impacts of post-bankruptcy adjustments.
Liquidity and Capital Resources
General
Our ongoing liquidity requirements arise primarily from working capital needs, meeting our capital commitments (including the purchase of helicopters and other equipment) and the repayment of debt obligations. In addition, we may use our liquidity to fund acquisitions, repay debt, repurchase shares or debt securities or make other investments. Our primary sources of liquidity are cash balances and cash flows from operations and, from time to time, we may obtain additional liquidity through the issuance of equity or debt or other financing options or through asset sales.
Summary of Cash Flows
| Fiscal Year Ending March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Cash flows provided by or (used in): | ||||||
| Operating activities | $ | 123,854 | $ | 96,845 | ||
| Investing activities | (17,370) | 173,274 | ||||
| Financing activities | (63,483) | (245,617) | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (8,066) | 7,456 | ||||
| Net increase in cash, cash equivalents and restricted cash | $ | 34,935 | $ | 31,958 |
Operating Activities
Cash flows provided by operating activities were $27.0 million higher in the Current Year. Operating income before depreciation and amortization, impairment charges, gains or losses on asset dispositions, net and earnings or losses from unconsolidated affiliates, net, was $27.0 million higher in the Current Year compared to the Prior Year.
During the Current Year, changes in working capital provided cash flows of $5.7 million primarily due to a decrease in receivables and other assets. During the Prior Year, changes in working capital provided cash flows of $16.9 million primarily due to a decrease in receivables and other assets.
Cash paid for interest expense and income taxes was $32.0 million and $12.0 million, respectively, in the Current Year compared to $32.3 million and $15.1 million, respectively, in the Prior Year.
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Investing Activities
During the Current Year, net cash used in investing activities was $17.4 million primarily consisting of:
•Capital expenditures of $31.1 million,
•Cash transferred in the sale of subsidiary of $0.9 million, partially offset by
•Proceeds of $14.5 million from the sale or disposal of aircraft and certain other equipment.
During the Prior Year, net cash provided by investing activities was $173.3 million primarily consisting of:
•Increase in cash from the Merger of $120.2 million,
•Proceeds of $67.9 million from the sale or disposal of aircraft and certain other equipment, partially offset by
•Capital expenditures of $14.8 million.
Financing Activities
During the Current Year, net cash used in financing activities was $63.5 million primarily consisting of:
•Share repurchases of $41.2 million,
•Net repayments of debt and redemption premiums of $19.2 million, and
•Payment on debt issuance of $3.1 million.
During the Prior Year, net cash used in financing activities was $245.6 million primarily consisting of:
•Proceeds were $400.0 million from the issuance of 6.875% Senior Notes,
•Net repayments of debt and redemption premiums of $623.9 million,
•Share repurchases of $15.3 million, and
•Debt issuance costs of $6.4 million related to the 6.875% Senior Notes.
Material Cash Requirements
We believe that our cash flows from operating activities will be adequate to meet our working capital requirements. To support our capital expenditure program and/or other liquidity requirements, we may use any combination of operating cash flow, cash balances, borrowings under our ABL Facility, proceeds from sales of assets, issue debt or equity, or other financing options.
The availability of long-term liquidity is dependent upon our ability to generate operating profits sufficient to meet our requirements for working capital, debt service, capital expenditures and a reasonable return on investment. While demand and oil and natural gas prices have largely recovered, demand is still not back to pre-pandemic levels. There continues to be uncertainty and unpredictability around the extent to which oil prices may adversely affect demand for our services, which in turn could affect our business and liquidity. As of March 31, 2022, we had $263.8 million of unrestricted cash and $54.9 million of remaining availability under our ABL Facility for total liquidity of $318.7 million.
As of March 31, 2022, approximately 54% of our total cash balance was held outside the U.S. and is generally used to meet the liquidity needs of our non-U.S. operations. Most of our cash held outside the U.S. could be repatriated to the U.S., and any such repatriation could be subject to additional taxes. If cash held by non-U.S. operations is required for funding operations in the U.S., we may make a provision for additional taxes in connection with repatriating this cash, which is not expected to have a significant impact on our results of operations.
The significant factors that affect our overall liquidity include cash from or used to fund operations, capital expenditure commitments, debt service, pension funding, adequacy of bank lines of credit and the Company’s ability to attract capital on satisfactory terms.
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Property and Equipment Acquisitions
The Company made capital expenditures as follows (in thousands, except number of aircraft):
| Fiscal Year Ended March 31, 2022 | Fiscal Year Ended March 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Number of aircraft delivered: | ||||||
| Heavy aircraft(1) | 1 | — | ||||
| Total aircraft | 1 | — | ||||
| Capital expenditures: | ||||||
| Aircraft and equipment | $ | 28,832 | $ | 14,173 | ||
| Land and buildings | 2,236 | 671 | ||||
| Total capital expenditures | $ | 31,068 | $ | 14,844 |
___________________
(1)Previously leased S92 heavy helicopter acquired during the fiscal year ended March 31, 2022, pursuant to a contractual obligation in the lease.
Property and Equipment Dispositions
The following table presents details on the aircraft sold or disposed of (in thousands, except for number of aircraft):
| Fiscal Year Ended March 31, 2022 | Fiscal Year Ended March 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Number of aircraft sold or disposed of | 10 | 54 | ||||
| Proceeds from sale or disposal of assets | $ | 14,549 | $ | 67,882 |
Debt Obligations
Total principal debt balance as of March 31, 2022 was $547.1 million primarily comprised of the 6.875% Senior Notes due in March 2028 and two tranches of the Lombard Debt due December 29, 2023 and January 30, 2024, respectively.
We believe our cash flows from operations and other sources of liquidity will be sufficient to meet our working capital needs and fulfill our debt obligations.
Contractual Obligations and Commercial Commitments
We have various contractual obligations that are recorded as liabilities on our consolidated balance sheet. Other items, such as certain purchase commitments and other executory contracts are not recognized as liabilities on our consolidated balance sheet.
As of March 31, 2022, we had unfunded capital commitments of $84.7 million, consisting primarily of agreements to purchase helicopters, including three AW189 heavy helicopters and five AW169 light twin helicopters. The AW189 helicopters are scheduled for delivery in fiscal years 2023 through 2025. Delivery dates for the AW169 helicopters have yet to be determined. In addition, we had outstanding options to purchase up to ten additional AW189 helicopters. If these options are exercised, the helicopters would be scheduled for delivery in fiscal years 2024 through 2026.
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As of March 31, 2022, $67.4 million of our capital commitments (inclusive of deposits paid on options not yet exercised) may be terminated without further liability other than aggregate liquidated damages of approximately $1.9 million. If we do not exercise our rights to cancel these capital commitments, we expect to finance the remaining acquisition costs for these helicopters through a combination of cash on hand, cash provided by operating activities, asset sales and financing options.
Lease Obligations
We have non-cancelable operating leases in connection with the lease of certain equipment, including leases for aircraft, and land and facilities used in our operations. The related lease agreements, which range from non-cancelable and month-to-month terms, generally provide for fixed monthly rentals and can also include renewal options. As of March 31, 2022, aggregate future payments under all non-cancelable operating leases that have initial or remaining terms in excess of one year, including leases for 44 aircraft, were as follows (in thousands):
| Aircraft | Other | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal year ending March 31, | ||||||||||
| 2023 | $ | 65,593 | $ | 12,840 | $ | 78,433 | ||||
| 2024 | 51,781 | 10,358 | 62,139 | |||||||
| 2025 | 33,014 | 8,307 | 41,321 | |||||||
| 2026 | 6,814 | 7,104 | 13,918 | |||||||
| 2027 | 1,161 | 5,472 | 6,633 | |||||||
| Thereafter | — | 15,298 | 15,298 | |||||||
| $ | 158,363 | $ | 59,379 | $ | 217,742 |
Cash paid for amounts included in the measurement of lease liabilities during the fiscal years ended March 31, 2022 and 2021, was $100.3 million and $112.6 million, respectively.
Pension Obligations
As of March 31, 2022, we had a net $18.2 million pension liability related to the BHL and Bristow International Aviation (Guernsey) Limited (“BIAGL”) pension plans as recorded on our consolidated balance sheet. The net liability represents the excess of the present value of the defined benefit pension plan liabilities over the fair value of plan assets that existed at that date. The minimum funding rules of the U.K. require the employer to agree to a funding plan with the plans’ trustee for securing that the pension plan has sufficient and appropriate assets to meet its technical provisions liabilities. In addition, where there is a shortfall in assets against this measure, we are required to make scheduled contributions in amounts sufficient to bring the plan up to fully-funded status as quickly as can be reasonably afforded. The timing of the funding is dependent on actuarial valuations and resulting negotiations with the plan trustees. The funding for defined benefit pension plans for the fiscal year ending March 31, 2023, is expected to be $16.9 million. The employer contributions for the pension plan for March 31, 2022 and 2021 were $18.0 million and $16.2 million, respectively.
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Selected Financial Information on Guarantors of Securities
On February 25, 2021, Bristow Group Inc. (“the Parent”) issued its 6.875% Senior Notes due 2028 (the “Senior Notes”). The Senior Notes, issued under an indenture, are fully and unconditionally guaranteed as to payment by a number of subsidiaries of the Parent (collectively, the “Guarantors”). The Parent is a holding company with no significant assets other than the stock of its subsidiaries. In order to meet its financial needs and obligations, the Parent relies exclusively on income from dividends and other cash flow from such subsidiaries. The subsidiary guarantees provide that, in the event of a default on the Senior Notes, the holders of the Senior Notes may institute legal proceedings directly against the Guarantors to enforce the guarantees without first proceeding against the Parent.
None of the non-Guarantor subsidiaries of the Parent are under any direct obligation to pay or otherwise fund amounts due on the Senior Notes or the guarantees, whether in the form of dividends, distributions, loans or other payments. If such subsidiaries are unable to transfer funds to the Parent or Guarantors and sufficient cash or liquidity is not otherwise available, the Parent or Guarantors may not be able to make principal and interest payments on their outstanding debt, including the Senior Notes or the guarantees. The following selected financial information of the Guarantors presents a sufficient financial position of the Parent to continue to fulfill its obligations under the requirements of the Senior Notes. This selected financial information should be read in conjunction with the accompanying consolidated financial statements and notes (in thousands):
| March 31, 2022 | March 31, 2021 | |||||
|---|---|---|---|---|---|---|
| Current assets | $ | 825,344 | $ | 798,189 | ||
| Non-current assets | $ | 2,048,480 | $ | 1,686,646 | ||
| Current liabilities | $ | 536,662 | $ | 224,078 | ||
| Non-current liabilities | $ | 784,466 | $ | 1,112,490 | ||
| Fiscal Year Ended March 31, 2022 | ||||||
| Total revenues | $ | 432,935 | ||||
| Operating income | $ | 44,454 | ||||
| Net income | $ | 35,772 | ||||
| Net income attributable to Bristow Group Inc. | $ | 35,706 |
Contingencies
In the normal course of business, the Company is involved in various litigation matters including, among other things, claims by third parties for alleged property damages and personal injuries. In addition, from time to time, the Company is involved in tax and other disputes with various government agencies. Management has used estimates in determining the Company’s potential exposure to these matters and has recorded reserves in its condensed consolidated financial statements related thereto as appropriate. It is possible that a change in its estimates related to these exposures could occur, but the Company does not expect such changes in estimated costs or uninsured losses, if any, would have a material effect on its business, consolidated financial position or results of operations.
Critical Accounting Estimates
Critical accounting estimates are defined as those that are affected by significant judgments and uncertainties which could potentially result in materially different accounting under different assumptions and conditions. The Company has prepared the financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates under different assumptions or conditions. The following critical accounting estimates could potentially result in a material impact to our financial condition or operating results. The Company believes that of its significant accounting policies, as discussed in Note 1 to the Consolidated Financial Statements included in this Annual Report on Form 10-K, the following involve a higher degree of judgment and complexity.
Taxes. Our annual tax provision is based on expected taxable income, statutory rates and tax planning opportunities available to us in the various jurisdictions in which we operate. The determination and evaluation of our tax provision and tax
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positions involves the interpretation of the tax laws in the various jurisdictions in which we operate and requires significant judgment and the use of estimates and assumptions regarding significant future events such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, agreements, tax treaties and foreign currency exchange restrictions or our level of operations or profitability in each jurisdiction would impact our tax liability in any given year.
We may recognize foreign tax credits available to us to offset the U.S. income taxes due on income earned from foreign sources. These credits are limited by the total income tax on the U.S. income tax return as well as by the ratio of foreign source income in each statutory category to total income. These estimates are subject to change based on changes in the market conditions in each statutory category and the timing of certain deductions available to us in each statutory category.
We maintain reserves for estimated income tax exposures in jurisdictions of operation. The expenses reported for these taxes, including our annual tax provision, include the effect of reserve provisions and changes to reserves that we consider appropriate, as well as related interest. We believe that an appropriate liability has been established for estimated exposures. However, actual results may differ materially from these estimates.
As of March 31, 2022, we have established deferred tax assets for certain attributes we expect to be realizable. Our ability to realize the benefit of our deferred tax assets requires us to achieve certain future earnings levels. If we are unable to benefit from our deferred tax assets, valuation allowances will be established following the “more-likely-than-not” criteria. We periodically evaluate our ability to utilize our deferred tax assets and, in accordance with accounting guidance related to accounting for income taxes, will record any resulting adjustments that may be required to deferred income tax expense in the period for which an existing estimate changes.
We consider the earnings of certain foreign subsidiaries to be indefinitely invested outside the U.S. on the basis of estimates that future cash generation will be sufficient to meet future U.S. cash needs and specific plans for foreign reinvestment of those earnings. As such, as of March 31, 2022, we have not provided for deferred taxes on the unremitted earnings of certain foreign subsidiaries that are indefinitely invested abroad. Should our expectations were to change regarding the expected future tax consequences, we may be required to record additional U.S. federal deferred income taxes that could have a material adverse effect on our consolidated financial position, result of operations and cash flows.
Should our expectations change regarding the expected future tax consequences, we may be required to record additional U.S. federal deferred income taxes that could have a material adverse effect on our consolidated financial position, result of operations and cash flows.
Property and Equipment. Our property and equipment, net of accumulated depreciation, represents 52% of our total assets as of March 31, 2022. We determine the carrying value of these assets based on our property and equipment accounting policies, as discussed in Note 1 to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which incorporate our estimates, assumptions, and judgments relative to capitalized costs, useful lives and salvage values.
We review our property and equipment for impairment when events or changes in circumstances indicate that the carrying value of assets or asset groups may be impaired or when reclassifications are made from property and equipment to assets held for sale.
Asset impairment evaluations for held for use asset groups are based on estimated undiscounted cash flows for the asset group being evaluated. If the sum of the expected future cash flows is less than the carrying amount of the asset group, we would be required to recognize an impairment loss. When determining fair value, we utilize various assumptions, including projections of future cash flows. An impairment loss is recorded in the period in which it is determined that the aggregate carrying amount of assets within an asset group is not recoverable. This requires us to make judgments regarding long-term forecasts of future revenues and cost related to the assets subject to review. In turn, these forecasts are uncertain in that they require assumptions about demand for our services, future market conditions and technological developments. A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause fair value to be less than the carrying amounts. In such event, we would be required to record a corresponding charge, which would reduce our earnings. Given the nature of these evaluations and their application to specific asset groups and specific times, it is not possible to reasonably quantify the impact of changes in these assumptions.
Pension Benefits. Pension obligations are actuarially determined and are affected by assumptions including discount rates, compensation increases and employee turnover rates. The recognition of these obligations through the statement of
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operations is also affected by assumptions about expected returns on plan assets. We evaluate our assumptions periodically and adjust these assumptions as necessary.
Three critical assumptions are the expected long-term rate of return on plan assets, the assumed discount rate and the mortality rate. We evaluate our assumptions regarding the estimated long-term rate of return on plan assets based on historical experience and future expectations on investment returns, which are calculated by our third-party investment advisor utilizing the asset allocation classes held by the plans’ portfolios. We utilize a British pound sterling denominated AA corporate bond index as a basis for determining the discount rate for our U.K. plans. We base mortality rates utilized on actuarial research on these rates, which are adjusted to allow for expected mortality within our industry segment and, where available, individual plan experience data. Changes in these and other assumptions used in the actuarial computations could impact our projected benefit obligations, pension liabilities, pension expense and other comprehensive income. We base our determination of pension expense on a fair value valuation of assets and an amortization approach for assessed gains and losses that reduces year-to-year volatility. This approach recognizes investment and other actuarial gains or losses over the average remaining lifetime of the plan members. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets.
Investment in Unconsolidated Affiliates. Unconsolidated affiliates are measured at fair value with changes in fair value recognized in net income. We perform regular reviews of each unconsolidated affiliate investee’s financial condition, the business outlook for its products and services and its present and projected results and cash flows. When an investee has experienced consistent declines in financial performance or difficulties raising capital to continue operations, the investment is written down to fair value. A cost method investment is reviewed for impairment, consistent with the guidance in ASC 321, Investments – Equity Securities, by evaluating such investments where the fair value of the equity investment is not readily determinable and the measurement alternative is elected to measure the investment at cost less any impairment.
We own a 25% economic interest in PAS, an unconsolidated affiliate that we account for under the cost method, as we are unable to exert significant influence over its operations. During the fiscal year ended March 31, 2022, upon evaluating our investment in PAS, we identified an indicator for impairment due to a decline in PAS’s performance. As a result, we performed a fair valuation of our investment in PAS using a market approach that relied on significant Level III inputs due to the nature of unobservable inputs that required significant judgment and assumptions. The market approach utilized two methods, each yielding similar valuation outcomes through the use of a multiple relevant to each method, derived from select guideline public companies, and an expected dividend rate or earnings of PAS. This resulted in a $16.0 million loss on impairment recorded during the fiscal year ended March 31, 2022. As of the fiscal year ended March 31, 2022, our investment in PAS was $17.0 million.
Business Combinations - Purchase-Price Allocation. Accounting for business combinations requires the allocation of a company’s purchase price to the various assets and liabilities of the acquired business at their respective fair values. We use all available information to make these fair value determinations. Determining the fair values of assets acquired and liabilities assumed generally involves assumptions regarding the amounts and timing of future revenues and expenditures, as well as discount rates.
During the fiscal year ended 2021, in connection with the purchase price allocation for the Merger, we derived the fair value of the Era fleet of aircraft from the estimated enterprise value of Era, using the discounted cash flow method of the income approach. The estimated enterprise value of Era was made using principal assumptions such as forecasted revenues and discount rate. All non-aircraft acquired assets and assumed liabilities were valued at fair value, which based upon their nature were more readily determinable. After allocating fair values to all the non-aircraft acquired assets and assumed liabilities, the remaining value was attributed to the aircraft. For additional discussion of purchase price allocations, refer to Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements that will, or could possibly, have an effect on our financial condition and results of operations, see Note 1 to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
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