Bristow Group Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

VARIABLE INTEREST ENTITIES AND EQUITY INVESTMENTS AND ADVANCES

VARIABLE INTEREST ENTITIES AND EQUITY INVESTMENTS AND ADVANCES

12 Months Ended

Dec. 31, 2015

Equity Method Investments and Joint Ventures [Abstract]

VARIABLE INTEREST ENTITIES AND EQUITY INVESTMENTS AND ADVANCES

Equity investments and advances as of December 31, 2015 and 2014 were as follows (in thousands):



	Ownership	2015		2014
Dart	50%	$	23,892	$	25,942
Era Training Center	50%	4,996		5,722
Heli-Union Era Australia	47%	10		89
		$	28,898	$	31,753

The Company owns a 50% interest in Aeróleo, which is a VIE. The Company impaired its investment in Aeróleo in 2012, and the carrying amount as of December 31, 2015 and 2014 was $0. Pursuant to a new shareholders’ agreement entered into on October 1, 2015 (see Note 4), the Company is the primary beneficiary, and Aeróleo is now a consolidated entity. The Company also owned a 50% interest in Era do Brazil, a VIE, prior to October 1, 2015. As the primary beneficiary, the Company has been consolidating this entity since September 30, 2012. On October 1, 2015, the Company acquired the remaining 50% interest, and Era do Brazil is now a wholly-owned subsidiary.

Combined Condensed Financial Statements

Summarized financial information for the Company’s equity investments and advances in Dart as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands):



	2015		2014
Current assets	$	22,507	$	22,447
Non-current assets	30,776		34,309
Current liabilities	4,225		4,386
Non-current liabilities	8,850		8,907



	2015			2014		2013
Operating revenues	$	33,190		$	40,174	$	39,185
Costs and expenses:
Operating and administrative	32,869			31,755		31,538
Depreciation and amortization	4,224			4,129		5,213
Total costs and expenses	37,093			35,884		36,751
Operating income	$	(3,903	)	$	4,290	$	2,434
Net income	$	(3,150	)	$	2,172	$	789

Summarized financial information for the Company’s equity investments and advances in all other investees as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 was as follows (in thousands):



	2015		2014
Current assets	$	703	$	1,151
Non-current assets	5,159		5,899
Current liabilities	597		465
Non-current liabilities	3,984		4,298



	2015			2014			2013
Operating revenues	$	622		$	2,737		$	4,682
Costs and expenses:
Operating and administrative	685			750			1,035
Depreciation and amortization	740			2,370			3,450
Total costs and expenses	1,425			3,120			4,485
Operating income	$	(803	)	$	(383	)	$	197
Net income (loss)	$	(1,064	)	$	(749	)	$	(476	)

As of December 31, 2015 and 2014, cumulative undistributed net earnings of equity investees included in the Company’s consolidated retained earnings were $0.1 million and $2.2 million, respectively.

VIEs

Aeróleo. On July 1, 2011, the Company acquired a 50% economic interest and a 20% voting interest in Aeróleo, a Brazilian entity that provides helicopter transport services to the Brazilian offshore oil and gas industry, for $4.8 million in cash. The Company and its partner also each loaned Aeróleo $6.0 million at an interest rate of 6.0% per annum. On October 1, 2015, the Company’s partner completed a transfer of its 50% economic and 80% voting interest in Aeróleo to a third party. In connection with the transfer, the Company entered into a shareholders agreement with its new partner that requires supermajority shareholder and/or board approval with respect to specified, significant actions, and a put/call option arrangement which gives the Company the right to purchase at any time, and the new partner the right to put to the Company after two years, the new partner’s interest in Aeróleo.

In response to an accident involving an AW139 helicopter on contract with Petroleo Brasileiro S.A. (“Petrobras Brazil”) at one of Aeróleo's competitors, Petrobras Brazil canceled its award to Aeróleo to contract four AW139 helicopters that were mobilized by the Company after the notification of the award in August 2011. As a result, the four AW139 helicopters were idle from August 2011 until late November 2012 resulting in liquidity issues that required the Company and its partner to make additional capital contributions to Aeróleo to enable it to continue operations. Following the suspension of the use of the H225 helicopters in late October 2012, Petrobras Brazil attempted to unilaterally suspend all of its H225 helicopter contracts with Aeróleo for the duration of the global suspension of the H225 helicopter, alleging that the helicopter could not meet the terms of the contract. Aeróleo did not receive monthly payments for the H225 helicopters under contract with Petrobras Brazil from April through late September and October 2013 and commenced generating hourly flight revenues thereafter upon the resumption of Aeróleo’s H225 helicopters flight operations for Petrobras Brazil.

Aeróleo’s liquidity issues resulting from the contract suspensions make it unable to adequately finance its activities without additional financial support, making Aeróleo a VIE. Prior to October 1, 2015, the Company determined it was not the primary beneficiary as its 20% voting interest did not allow it to direct the activities that most significantly affect Aeróleo’s economic performance. As a result of the new shareholders agreement following the partner’s transfer of interests, the Company determined that it now has control over the activities that most significantly affect Aeróleo’s economic performance and is the VIE’s primary beneficiary. Accordingly, Aeróleo’s results are consolidated in the Company’s financial statements beginning on October 1, 2015.

For the years ended December 31, 2015, 2014 and 2013, the Company recognized $21.4 million, $16.7 million and $16.2 million, respectively, of operating revenues from Aeróleo, of which $42.1 million and $31.0 million was outstanding as of September 30, 2015 and December 31, 2014, respectively (See Note 1).

Era do Brazil. On July 1, 2011, the Company and its partner each contributed $4.8 million in cash to Era do Brazil, a 50-50 joint venture. Era do Brazil immediately acquired a helicopter, subject to a lease to Aeróleo, from the Company for $11.5 million ($9.5 million in cash and a $2.0 million note payable). In 2012, the Company loaned $10.8 million to Era do Brazil secured by the helicopter purchased from the Company in 2011 and Era do Brazil’s ownership interests. Upon receipt of the proceeds from the loan, Era do Brazil repaid the outstanding principal amount of $1.6 million remaining on the original helicopter acquisition note due to the Company and loaned $9.2 million to Aeróleo in the form of two notes, each of an equal amount. Era do Brazil then distributed the two notes due from Aeróleo to its members. As a result of these transactions, Era do Brazil is a highly leveraged entity with all its outstanding debt due to the Company, making it a VIE. As the primary beneficiary, the Company has consolidated Era do Brazil in its financial statements effective September 30, 2012. In connection with the Aeróleo transaction on October 1, 2015, the Company acquired, for nominal consideration, the remaining 50% ownership interest in Era do Brazil making it a wholly-owned subsidiary.

Joint Ventures

Dart. Era DHS LLC, a wholly owned subsidiary of the Company, acquired 49% of the capital stock of Dart Helicopter Services LLC (“Dart Helicopters”), a sales, marketing and parts manufacturing organization based in North America that engineers and manufactures after-market parts and equipment for sale to helicopter manufacturers and operators. During 2009, the Company provided a $0.3 million loan to Dart Helicopters with a maturity of June 2012 at an annual interest rate of 5.0%, which is payable quarterly with principal due at maturity. On February 28, 2011, the Company made an additional investment of $5.0 million in Dart Helicopters, and on July 31, 2011, contributed its ownership in Dart Helicopters to Dart Holding Company Ltd. (“Dart”) in exchange for a 50% economic and voting interest in Dart and a note receivable of $5.1 million. The note receivable had a balance of $3.6 million at December 31, 2015 and bears interest at a rate of 4.0% per annum, requires quarterly principal and interest payments and matures on July 31, 2023. During the years ended December 31, 2015, 2014 and 2013, the Company purchased $2.1 million, $3.6 million and $2.9 million, respectively, of products from Dart Helicopters and Dart.

Era Training Center. Era Training Center LLC (“Era Training Center”) operates flight training devices and provides training services to the Company and third-party customers. During the years ended December 31, 2015, 2014 and 2013, the Company provided helicopter, management and other services to the joint venture totaling $0.4 million, $0.4 million and $0.4 million, respectively, and incurred $0.5 million, $0.7 million and $0.7 million, respectively, for simulator fees. Era Training Center has a $4.4 million note with the Company secured by two flight simulators which bears interest at 6.0% per annum and requires quarterly payments of $0.1 million until January 2026.

Lake Palma. Lake Palma operated seven helicopters in Spain. Effective July 24, 2014, the Company sold its 51% interest in Lake Palma to its joint venture partner, Fumigacion Aerea Andaluza S.A. (“FAASA”), for a purchase price of $9.3 million and recognized a gain of $1.5 million in equity earnings, net of taxes. In connection with the transaction, the Company assigned debt obligations of $2.9 million due to Lake Palma to FAASA, and the balance of the purchase price was funded in cash.