VARIABLE INTEREST ENTITIES AND OTHER INVESTMENTS IN SIGNIFICANT AFFILIATES

VIEs

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary. The primary beneficiary has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. If we determine that we have operating power and the obligation to absorb losses or receive benefits, we consolidate the VIE as the primary beneficiary, and if not, we do not consolidate.

As of March 31, 2016, we had interests in four VIEs of which we are the primary beneficiary, which are described below, and had no interests in VIEs of which we are not the primary beneficiary.

Bristow Aviation Holdings Limited — We own 49% of Bristow Aviation Holdings Limited’s (“Bristow Aviation”) common stock and a significant amount of its subordinated debt. Bristow Aviation is incorporated in England and holds all of the outstanding shares in Bristow Helicopters. Bristow Aviation’s subsidiaries provide industrial aviation services to clients primarily in the U.K, Norway, Australia, Nigeria and Trinidad and fixed wing services primarily in the U.K and Australia. Bristow Aviation is organized with three different classes of ordinary shares having disproportionate voting rights. The Company, Caledonia Investments plc (“Caledonia”) and a European Union investor (the “E.U. Investor”) own 49%, 46% and 5%, respectively, of Bristow Aviation’s total outstanding ordinary shares, although Caledonia has voting control over the E.U. Investor’s shares.

In addition to our ownership of 49% of Bristow Aviation’s outstanding ordinary shares, in May 2004, we acquired eight million shares of deferred stock, essentially a subordinated class of stock with no voting rights, from Bristow Aviation for £1 per share ($14.4 million in total). We also have £91.0 million ($130.8 million) principal amount of subordinated unsecured loan stock (debt) of Bristow Aviation bearing interest at an annual rate of 13.5% and payable semi-annually. Payment of interest on such debt has been deferred since its incurrence in 1996. Deferred interest accrues at an annual rate of 13.5% and aggregated $1.7 billion as of March 31, 2016.

The Company, Caledonia, the E.U. Investor and Bristow Aviation have entered into a shareholder agreement respecting, among other things, the composition of the board of directors of Bristow Aviation. On matters coming before Bristow Aviation’s board, Caledonia’s representatives have a total of three votes and the two other directors have one vote each. In addition, Caledonia has the right to nominate two persons to our board of directors and to replace any such directors so nominated.

Caledonia, the Company and the E.U. Investor also have entered into a put/call agreement under which, upon giving specified prior notice, we have the right to buy all the Bristow Aviation shares held by Caledonia and the E.U. Investor, who, in turn, each have the right to require us to purchase such shares. Under current English law, we would be required, in order for Bristow Aviation to retain its operating license, to find a qualified E.U. investor to own any Bristow Aviation shares we have the right to acquire under the put/call agreement. The only restriction under the put/call agreement limiting our ability to exercise the put/call option is a requirement to consult with the Civil Aviation Authority (the “CAA”) in the U.K. regarding the suitability of the new holder of the Bristow Aviation shares. The put/call agreement does not contain any provisions should the CAA not approve the new E.U. investor. However, we would work diligently to find an E.U. investor suitable to the CAA. The amount by which we could purchase the shares of the other investors holding 51% of the equity of Bristow Aviation is fixed under the terms of the call option, and we have reflected this amount on our consolidated balance sheets as noncontrolling interest.

Furthermore, the call option provides a mechanism whereby the economic risk for the other investors is limited should the financial condition of Bristow Aviation deteriorate. The call option price is the nominal value of the ordinary shares held by the noncontrolling shareholders (£1.0 million as of March 31, 2016) plus an annual guaranteed rate of return less any prepayments of such call option price and any dividends paid on the shares concerned. We can elect to pre-pay the guaranteed return element of the call option price wholly or in part without exercising the call option. No dividends have been paid by Bristow Aviation. We have accrued the annual return due to the other shareholders at a rate of sterling LIBOR plus 3% (prior to May 2004, the rate was fixed at 12%) by recognizing noncontrolling interest expense on our consolidated statements of operations, with a corresponding increase in noncontrolling interest on our consolidated balance sheets. Prepayments of the guaranteed return element of the call option are reflected as a reduction in noncontrolling interest on our consolidated balance sheets. The other investors have an option to put their shares in Bristow Aviation to us. The put option price is calculated in the same way as the call option price except that the guaranteed rate for the period to April 2004 was 10% per annum. If the put option is exercised, any pre-payments of the call option price are set off against the put option price.

Changes in the balance for the noncontrolling interest associated with Bristow Aviation are as follows (in thousands):



	Fiscal Year Ended March 31,
	2016			2015			2014
Balance – beginning of fiscal year	$	1,457		$	1,645		$	1,492
Payments to noncontrolling interest shareholders	(55		)	(59		)	(57		)
Noncontrolling interest expense	55			58			57
Currency translation	(47		)	(187		)	153
Balance – end of fiscal year	$	1,410		$	1,457		$	1,645

Bristow Aviation and its subsidiaries are exposed to similar operational risks and are therefore monitored and evaluated on a similar basis by management. Accordingly, the financial information reflected on our consolidated balance sheets and statements of operations for Bristow Aviation and subsidiaries is presented in the aggregate, including intercompany amounts with other consolidated entities, as follows (in thousands):



	March 31,
	2016		2015
Assets
Cash and cash equivalents	$	62,773	$	91,190
Accounts receivable	565,223		521,989
Inventories	102,738		100,065
Prepaid expenses and other current assets	53,776		42,659
Total current assets	784,510		755,903
Investment in unconsolidated affiliates	4,676		64
Property and equipment, net	251,494		243,357
Goodwill	29,990		61,242
Other assets	82,988		78,637
Total assets	$	1,153,658	$	1,139,203
Liabilities
Accounts payable	$	521,563	$	379,357
Accrued liabilities	141,977		154,306
Accrued interest	1,698,360		1,489,369
Deferred taxes	—		1,128
Current maturities of long-term debt	10,322		9,643
Total current liabilities	2,372,222		2,033,803
Long-term debt, less current maturities	155,767		168,245
Accrued pension liabilities	70,107		99,576
Other liabilities and deferred credits	7,928		11,948
Deferred taxes	20,330		14,457
Temporary equity	15,473		26,223
Total liabilities	$	2,641,827	$	2,354,252



	Fiscal Year Ended March 31,
	2016			2015			2014
Revenue	$	1,441,834		$	1,512,312		$	1,324,483
Operating income (loss)	(57,780		)	40,524			49,061
Net loss ⁽¹⁾	(279,309		)	(179,757		)	(38,274		)

_______________


⁽¹⁾	Fiscal year 2014 includes a gain of $67.9 million, after tax, on the sale of the FB Entities as discussed under “Other Significant Affiliates — Unconsolidated — FB Entities” below.

Bristow Helicopters Nigeria Ltd. — Bristow Helicopters Nigeria Ltd. (“BHNL”) is a joint venture in Nigeria in which Bristow Helicopters owned a 48% interest, a Nigerian company owned 100% by Nigerian employees owned a 50% interest and an employee trust fund owned the remaining 2% interest as of March 31, 2016. BHNL provides industrial aviation services to clients in Nigeria.

In order to be able to bid competitively for our services in the Nigerian market, we were required to identify local citizens to participate in the ownership of entities domiciled in the region. However, these owners do not have extensive knowledge of the aviation industry and have historically deferred to our expertise in the overall management and day-to-day operation of BHNL (including the establishment of operating and capital budgets and strategic decisions regarding the potential expansion of BHNL’s operations). We have also historically provided subordinated financial support to BHNL and will need to continue to do so unless and until BHNL acquires sufficient equity to permit itself to finance its activities without that additional support from us. As we have the power to direct the most significant activities affecting the economic performance and ongoing success of BHNL and hold a variable interest in the entity in the form of our equity investment and working capital infusions, we consolidate BHNL as the primary beneficiary. The employee-owned Nigerian entity referenced above purchased its 19% interest in BHNL in December 2013 with proceeds from a loan received from BGI Aviation Technical Services Nigeria Limited (“BATS”). In July 2014, the employee-owned Nigerian entity purchased an additional 29% interest with proceeds from a loan received from Bristow Helicopters (International) Limited (“BHIL”). In April 2015, Bristow Helicopters purchased an additional 8% interest in BHNL and the employee-owned Nigerian entity purchased an additional 2% interest with proceeds from a loan received from BHIL. Both BATS and BHIL are wholly-owned subsidiaries of Bristow Aviation. The employee-owned Nigerian entity is also a VIE that we consolidate as the primary beneficiary and we eliminate the loans discussed above in consolidation.

BHNL is an indirect subsidiary of Bristow Aviation; therefore, financial information for this entity is included within the amounts for Bristow Aviation and its subsidiaries presented above.

Pan African Airlines Nigeria Ltd. — Pan African Airlines Nigeria Ltd. (“PAAN”) is a joint venture in Nigeria with local partners in which we own an interest of 50.17%. PAAN provides industrial aviation services to clients in Nigeria.

The activities that most significantly impact PAAN’s economic performance relate to the day-to-day operation of PAAN, setting of operating and capital budgets and strategic decisions regarding the potential expansion of PAAN’s operations. Throughout the history of PAAN, our representation on the board and our secondment to PAAN of its managing director has enabled us to direct the key operational decisions of PAAN (without objection from the other board members). We have also historically provided subordinated financial support to PAAN. As we have the power to direct the most significant activities affecting the economic performance and ongoing success of PAAN and hold a variable interest in the form of our equity investment and working capital infusions, we consolidate PAAN as the primary beneficiary. However, as long as we own a majority interest in PAAN, the separate presentation of financial information in a tabular format for PAAN is not required.

Other Significant Affiliates — Consolidated

In addition to the VIEs discussed above, we consolidate the less than 100% owned entities described below.

Eastern Airways — See discussion in Note 2.

Aviashelf Aviation Co. — Bristow Aviation has a 48.5% interest in Aviashelf Aviation Co. (“Aviashelf”), a Russian helicopter company. Additionally, we own 51% of two U.K. joint venture companies, Bristow Helicopters Leasing Ltd. and Sakhalin Bristow Air Services Ltd. These two U.K. companies lease aircraft to Aviashelf which holds the client contracts for our Russian operations. Aviashelf is consolidated based on the ability of certain consolidated subsidiaries of Bristow Aviation to control the vote on a majority of the shares of Aviashelf, rights to manage the day to day operations of the company which were granted under a shareholders’ agreement, and our ability to acquire an additional 8.5% interest in Aviashelf under a put/call option agreement.

Other Significant Affiliates — Unconsolidated

We have investments in other significant unconsolidated affiliates as described below.

Cougar — We own a 25% voting interest and a 40% economic interest in Cougar Helicopters Inc. (“Cougar”), the largest offshore energy and SAR helicopter service provider in Canada. Cougar’s operations are primarily focused on serving the offshore oil and gas industry off Canada’s Atlantic coast and in the Arctic. Cougar operates nine helicopters, including eight helicopters leased from us on a long-term basis. We also lease maintenance and SAR facilities located in St. John’s, Newfoundland and Labrador and Halifax, Nova Scotia to Cougar on a long-term basis. The terms of the purchase agreement for Cougar include a potential earn-out of $40 million payable over three years based on Cougar achieving certain agreed performance targets. The first year and second year earn-out payments of $6.0 million and $8.0 million were paid in March 2014 and April 2015, respectively, as Cougar achieved agreed performance targets. The third year earn-out was achieved as Cougar achieved agreed performance targets of which $10 million was paid in April 2016 with an additional $16 million due April 2017. The fair value of the earn-out was $26.0 million and $32.5 million as of March 31, 2016 and 2015, respectively, and is included in contingent consideration and other liabilities and deferred credits on our consolidated balance sheets. The investment in Cougar is accounted for under the equity method. As of March 31, 2016 and 2015, the investment in Cougar was $59.7 million and $61.0 million, respectively, and is included on our consolidated balance sheets in investment in unconsolidated affiliates. Due to timing differences in our financial reporting requirements, we record our share of Cougar’s financial results in earnings from unconsolidated affiliates on a three-month delay.

FB Entities — As of March 31, 2013, we owned a 50% interest in the FB Entities, U.K. corporations that principally provide pilot training, maintenance and support services to the British military under a contract that runs through March 2016 with two possible one year extensions. On July 14, 2013, we sold our 50% interest in the FB Entities for £74.0 million, or approximately $112.2 million. We recorded a pre-tax gain on sale of unconsolidated affiliate of $103.9 million during fiscal year 2014 on our consolidated statements of operations. The FB Entities were accounted for under the equity method prior to July 14, 2013.

HCA — As of March 31, 2014, we owned a 50% interest in HCA, a U.K. company that provides inspection and certification services for offshore helidecks. On November 21, 2014, we sold our 50% interest in HCA for £2.7 million, or approximately $4.2 million. We recorded a pre-tax gain on sale of unconsolidated affiliate of $3.9 million during fiscal year 2015 on our consolidated statements of operations. HCA was accounted for under the equity method prior to November 21, 2014.

Líder — We own a 20% voting interest and a 41.9% economic interest in Líder Táxi Aéreo S.A. (“Líder”), the largest provider of helicopter and executive aviation services in Brazil. Líder’s fleet has 50 helicopters and 25 fixed wing aircraft (including owned and managed aircraft). Líder also leases five aircraft from us to provide industrial aviation services to its clients. Effective May 28, 2014, our ownership interest in Líder in Brazil was reduced from 42.5% to 41.9% as a result of Líder’s issuance of additional shares to improve tax and cost-saving efficiencies. This transaction resulted in no material impact to our consolidated financial statements. The investment in Líder is accounted for under the equity method. As of March 31, 2016 and 2015, the investment in Líder was $124.2 million and $149.0 million, respectively, and is included in our consolidated balance sheets in investment in unconsolidated affiliates.

Líder, along with its direct and indirect subsidiaries, were parties to tax litigation involving an assessment for taxes calculated in 2005, 2006 and 2007 related to profits of its foreign subsidiaries. Additionally, Líder received tax assessments for the period from 2008 through 2010 and expected to receive tax assessments for 2011 and 2012 related to the same tax issue. On October 9, 2013, a new law went into effect in Brazil, establishing amnesty conditions targeting companies similar to Líder that have tax liabilities under the tax laws in question. Under the amnesty, companies could settle any tax liabilities related to the profits of foreign subsidiaries incurred through December 31, 2012 by making payment in full for amounts levied or entering into an installment payment plan by November 29, 2013. Acceptance of this amnesty offer would result in the complete forgiveness of any late payment penalties, other fines, interest and legal charges in the case of full payment and a partial reduction in late payment penalties, other fines, interest and legal charges relating to outstanding taxes levied that may be paid in an installment plan. As a condition to accepting the amnesty offer, companies would withdraw from all administrative and judicial cases filed challenging the levying of the above-mentioned taxes.

In November 2013, under this amnesty law, Líder made a payment of 62.7 million Brazilian reais ($27.0 million) for the period from 2005 through 2012. The total amount due for payment in full according to the amnesty law was 93.3 million Brazilian reais ($40.2 million), but was reduced by existing tax assets for prior tax losses of 30.6 million Brazilian reais ($13.2 million). As a result of this additional tax expense, our earnings from unconsolidated affiliates were reduced by $17.1 million during fiscal year 2014. In addition to the November 2013 tax assessment, Líder also recorded tax accruals in December 2013 for expected payments for 2013 for these same taxes on offshore earnings which further reduced our equity earnings in Líder by $2.2 million during fiscal year 2014.

We were indemnified by the other Líder shareholders for the portion of this tax assessed for the period prior to our investment in Líder in May 2009. The indemnity payment to us of $2.5 million was paid during the three months ended March 31, 2014 and resulted in an increase in earnings from unconsolidated affiliates during the three months ended March 31, 2014. The total impact on our earnings from unconsolidated affiliates during fiscal year 2014 related to these taxes for Líder was $13.6 million, net of the indemnity payment.

During the year ended March 31, 2016, we determined that we have failed to record certain adjustments to the other comprehensive income (loss) related to our Líder investment consisting of the effects of foreign currency translation in prior reporting periods. To correct this error, we reduced our investment in unconsolidated affiliates by $19.2 million, increased our deferred tax asset within other assets by $6.7 million and increased our accumulated other comprehensive loss by $12.5 million as of March 31, 2016. The error, which had no impact on our consolidated statements of operations or cash flows, is not material to our consolidated financial statements as of and for the year ended Mach 31, 2016 or our previously reported consolidated financial statements for any period.

PAS — We have a 25% interest in Petroleum Air Services (“PAS”), an Egyptian corporation that provides helicopter and fixed wing transportation to the offshore energy industry in Egypt. Additionally, spare fixed wing capacity is chartered to tourism operators. PAS owns 45 aircraft. PAS is accounted for under the cost method as we are unable to exert significant influence over its operations.

Other — Historically, in addition to the expansion of our business through purchases of new and used aircraft, we have also established new joint ventures with local partners or purchased significant ownership interests in companies with ongoing helicopter operations, particularly in countries where we have no operations or our operations are limited in scope, and we continue to evaluate similar opportunities which could enhance our operations. Where we believe that it is probable that an equity method investment will result, the costs associated with such investment evaluations are deferred and included in investment in unconsolidated affiliates on the consolidated balance sheets. For each investment evaluated, an impairment of deferred costs is recognized in the period in which we determine that it is no longer probable an equity method investment will result. As of March 31, 2016 and 2015, we had no amounts in investment in unconsolidated affiliates in the process of being evaluated.

Our percentage ownership and investment balances for the unconsolidated affiliates are as follows:



	March 31,
	2016		2015		2016		2015

					(In thousands)
Cost Method:
PAS	25	%	25	%	$	6,286	$	6,286
Equity Method:
Cougar ⁽¹⁾	40	%	40	%	59,742		61,015
Líder ^{(1) (2)}	41.9	%	41.9	%	124,248		149,010
Other					4,676		65
Total					$	194,952	$	216,376

_______________


⁽¹⁾	We had a 25% voting interest in Cougar and under 20% voting interest in Líder as of March 31, 2016 and 2015.


⁽²⁾	For discussion on immaterial error correction for our Líder investment, see discussion above.

Earnings from unconsolidated affiliates were as follows (in thousands):



	Fiscal Year Ended March 31,
	2016			2015			2014
Dividends from entities accounted for under the cost method:
PAS	$	2,068		$	2,068		$	4,043
Earnings, net of losses, from entities accounted for under the equity method:
Cougar	(2,001		)	(710		)	1,053
FB Entities ⁽¹⁾	—			—			3,217
Líder	(116		)	(4,236		)	2,898
Other ⁽²⁾	310			1,107			1,498
	(1,807		)	(3,839		)	8,666
Total	$	261		$	(1,771	)	$	12,709

_______________


⁽¹⁾	We sold our 50% interest in the FB entities in July 2013.


⁽²⁾	We sold our 50% interest in HCA in November 2014.

We received $0.8 million, $5.6 million and $10.3 million of dividends from our investments accounted for under the equity method during fiscal years 2016, 2015 and 2014, respectively.

A summary of combined financial information of our unconsolidated affiliates accounted for under the equity method is set forth below (in thousands):



	March 31,
	2016		2015

	(Unaudited)
Current assets	$	269,619	$	200,979
Non-current assets	295,416		384,438
Total assets	$	565,035	$	585,417
Current liabilities	$	146,938	$	189,251
Non-current liabilities	266,545		255,318
Equity	151,552		140,848
Total liabilities and equity	$	565,035	$	585,417



	Fiscal Year Ended March 31,
	2016		2015		2014

	(Unaudited)
Revenue	$	368,586	$	499,692	$	632,832
Gross profit	$	60,873	$	99,127	$	132,760
Net income	$	21,871	$	559	$	21,728