Index to Unaudited Pro Forma Condensed Combined Financial Information
|
| |
| | Page |
| Description of Transaction | |
| Pro Forma Condensed Combined Balance Sheet | |
| Pro Forma Condensed Combined Statements of Earnings | |
| For the Nine Months Ended September 30, 2018 | |
| For the Year Ended December 31, 2017 | |
| Notes to Pro Forma Condensed Combined Financial Information | |
Selected Financial Data
Air Transport Services Group, Inc. and Omni Air International LLC
Unaudited Pro Forma Condensed Combined Financial Statements
| |
| 1. | Description of Transaction |
As previously announced on October 2, 2018, Air Transport Services Group, Inc. ("ATSG") entered into an agreement to acquire Omni Air International LLC, a passenger airline, along with related entities Advanced Flight Services, LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC (referred to collectively herein as "Omni"). ATSG agreed to purchase Omni for cash payments totaling $845 million plus adjustments for Omni's cash balances and working capital at the time of the transaction closing. ATSG completed the acquisition of Omni on November 9, 2018 for cash consideration of $867 million. ATSG funded the all-cash acquisition by amending its senior credit agreement to issue a new term loan for $675.0 million, drawing $180.0 million from its revolving credit facility and using its available cash.
The following unaudited pro forma condensed combined financial statements are based on ATSG’s historical consolidated financial statements and Omni’s historical consolidated financial statements as adjusted to give effect to the acquisition of Omni by ATSG. The unaudited pro forma condensed combined balance sheet as of September 30, 2018, gives effect to the acquisition as if it occurred on September 30, 2018. The unaudited pro forma condensed combined statements of earnings for the nine months ended September 30, 2018 and the year ended December 31, 2018, give effect to the acquisition as if it occurred on January 1, 2017.
The unaudited pro forma condensed combined financial information included in this report reflecting the combination of ATSG and Omni is provided for informational purposes only. The pro forma information is not necessarily indicative of what ATSG's results of operations would have been had the merger been completed at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2018
(in thousands)
|
| | | | | | | | | | | | | | | | | | |
| | | ATSG (a) | | Omni (b) | | Pro Forma Adjustments | | | | Pro Forma Combined |
| ASSETS | | | | | | | | | | |
| CURRENT ASSETS: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 43,462 |
| | $ | 37,603 |
| | $ | (54,669 | ) | | (c, d, g) | | $ | 26,396 |
|
| Restricted Cash | | — |
| | 2,580 |
| | — |
| | | | 2,580 |
|
| Accounts receivable, net of allowance of $1,014 in 2018 | | 93,662 |
| | 45,804 |
| | — |
| | | | 139,466 |
|
| Inventory | | 24,412 |
| | 9,502 |
| | (2,382 | ) | | (e) | | 31,532 |
|
| Prepaid supplies and other | | 15,698 |
| | 1,827 |
| | — |
| | | | 17,525 |
|
| TOTAL CURRENT ASSETS | | 177,234 |
| | 97,316 |
| | (57,051 | ) | | | | 217,499 |
|
| Property and equipment, net | | 1,226,500 |
| | 171,053 |
| | 161,175 |
| | (e) | | 1,558,728 |
|
| Lease incentive | | 68,006 |
| | — |
| | — |
| | | | 68,006 |
|
| Goodwill and acquired intangibles | | 43,710 |
| | — |
| | 499,698 |
| | (d, f, i) | | 543,408 |
|
| Other assets | | 37,618 |
| | 1,386 |
| | 5,774 |
| | (h) | | 44,778 |
|
| TOTAL ASSETS | | $ | 1,553,068 |
| | $ | 269,755 |
| | $ | 609,596 |
| | | | $ | 2,432,419 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| CURRENT LIABILITIES: | | | | | | | | | | |
| Accounts payable | | $ | 101,205 |
| | $ | 22,583 |
| | $ | — |
| | | | $ | 123,788 |
|
| Accrued salaries, wages and benefits | | 31,416 |
| | 11,148 |
| | — |
| | | | 42,564 |
|
| Accrued expenses | | 11,387 |
| | 672 |
| | — |
| | | | 12,059 |
|
| Current portion of debt obligations | | 14,860 |
| | 13,162 |
| | (505 | ) | | (c, d) | | 27,517 |
|
| Customer deposits and unearned revenue | | 15,204 |
| | 4,817 |
| | — |
| | | | 20,021 |
|
| TOTAL CURRENT LIABILITIES | | 174,072 |
| | 52,382 |
| | (505 | ) | | | | 225,949 |
|
| Long term debt | | 527,226 |
| | 74,021 |
| | 758,783 |
| | (c, d) | | 1,360,030 |
|
| Stock warrant obligations | | 186,093 |
| | — |
| | — |
| | | | 186,093 |
|
| Post-retirement obligations | | 29,355 |
| | — |
| | — |
| | | | 29,355 |
|
| Other liabilities | | 46,334 |
| | — |
| | — |
| | | | 46,334 |
|
| Deferred income taxes | | 119,289 |
| | — |
| | (1,204 | ) | | (g) | | 118,085 |
|
| TOTAL LIABILITIES | | 1,082,369 |
| | 126,403 |
| | 757,074 |
| | | | 1,965,846 |
|
| | | | | | | | | | | |
| STOCKHOLDERS’ EQUITY: | | | | | | | | | | |
| Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock | | — |
| | — |
| | — |
| | | | — |
|
| Common stock, par value $0.01 per share; 110,000,000 shares authorized; 59,080,387 shares issued and outstanding in 2018 | | 591 |
| | — |
| | — |
| | | | 591 |
|
| Additional paid-in capital | | 470,676 |
| | — |
| | — |
| | | | 470,676 |
|
| Retained earnings (accumulated deficit) | | 60,381 |
| | — |
| | (4,126 | ) | | (g) | | 56,255 |
|
| Accumulated other comprehensive loss | | (60,949 | ) | | — |
| | — |
| | | | (60,949 | ) |
| Members' equity | | — |
| | 143,352 |
| | (143,352 | ) | | (h, i) | | — |
|
| TOTAL STOCKHOLDERS’ EQUITY | | 470,699 |
| | 143,352 |
| | (147,478 | ) | | | | 466,573 |
|
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 1,553,068 |
| | $ | 269,755 |
| | $ | 609,596 |
| | | | $ | 2,432,419 |
|
| | | | | | | | | | | |
Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Nine Months Ended September 30, 2018
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | |
| | | ATSG (a) | | Omni (b) | | Pro Forma Adjustments | | | | Pro Forma Combined |
| REVENUES | | $ | 611,566 |
| | $ | 354,366 |
| | $ | (3,863 | ) | | (c) | | $ | 962,069 |
|
| OPERATING EXPENSES | | | | | | | | | | |
| Salaries, wages and benefits | | 216,173 |
| | 70,232 |
| | (2,294 | ) | | (c, d) | | 284,111 |
|
| Depreciation and amortization | | 124,825 |
| | 44,550 |
| | 7,933 |
| | (e) | | 177,308 |
|
| Maintenance, materials and repairs | | 107,152 |
| | 11,957 |
| | (372 | ) | | (c) | | 118,737 |
|
| Fuel | | 17,682 |
| | 73,802 |
| | — |
| | | | 91,484 |
|
| Contracted ground and aviation services | | 7,464 |
| | 36,960 |
| | — |
| | | | 44,424 |
|
| Travel | | 20,823 |
| | 32,188 |
| | — |
| | | | 53,011 |
|
| Landing and ramp | | 3,670 |
| | 5,080 |
| | — |
| | | | 8,750 |
|
| Rent | | 10,264 |
| | 5,327 |
| | — |
| | | | 15,591 |
|
| Insurance | | 4,473 |
| | 1,419 |
| | — |
| | | | 5,892 |
|
| Other operating expenses | | 20,672 |
| | 17,297 |
| | — |
| | | | 37,969 |
|
| | | 533,198 |
| | 298,812 |
| | 5,267 |
| | | | 837,277 |
|
| OPERATING INCOME | | 78,368 |
| | 55,554 |
| | (9,130 | ) | | | | 124,792 |
|
| OTHER INCOME (EXPENSE) | | | | | | | | | | |
| Interest income | | 144 |
| | 406 |
| | — |
| | | | 550 |
|
| Non-service component of retiree benefit costs | | 6,135 |
| | — |
| | — |
| | | | 6,135 |
|
| Net gain (loss) on financial instruments | | 28,707 |
| | — |
| | — |
| | | | 28,707 |
|
| Loss from non-consolidated affiliate | | (7,600 | ) | | — |
| | — |
| | | | (7,600 | ) |
| Other income | | — |
| | 2,455 |
| | — |
| | | | 2,455 |
|
| Interest expense | | (16,336 | ) | | (1,823 | ) | | (30,420 | ) | | (f) | | (48,579 | ) |
| | | 11,050 |
| | 1,038 |
| | (30,420 | ) | | | | (18,332 | ) |
| | | | | | | | | | | |
| EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | 89,418 |
| | 56,592 |
| | (39,550 | ) | | | | 106,460 |
|
| INCOME TAX EXPENSE | | (16,339 | ) | | — |
| | (3,848 | ) | | (g) | | (20,187 | ) |
| EARNINGS FROM CONTINUING OPERATIONS | | 73,079 |
| | 56,592 |
| | (43,398 | ) | | | | 86,273 |
|
| EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES | | 536 |
| | — |
| | — |
| | | | 536 |
|
| NET EARNINGS | | $ | 73,615 |
| | $ | 56,592 |
| | $ | (43,398 | ) | | | | $ | 86,809 |
|
| | | | | | | | | | | |
| BASIC EARNINGS PER SHARE | | | | | | | | | | |
| Continuing operations | | $ | 1.24 |
| | | | | | | | $ | 1.47 |
|
| Discontinued operations | | 0.01 |
| | | | | | | | 0.01 |
|
| TOTAL BASIC EARNINGS PER SHARE | | $ | 1.25 |
| | | | | | | | $ | 1.48 |
|
| | | | | | | | | | | |
| DILUTED EARNINGS PER SHARE | | | | | | | | | | |
| Continuing operations | | $ | 0.71 |
| | | | | | | | $ | 0.90 |
|
| Discontinued operations | | 0.01 |
| | | | | | | | 0.01 |
|
| TOTAL DILUTED EARNINGS PER SHARE | | $ | 0.72 |
| | | | | | | | $ | 0.91 |
|
| | | | | | | | | | | |
| WEIGHTED AVERAGE SHARES | | | | | | | | | | |
| Basic | | 58,773 |
| | | | | | | | 58,773 |
|
| Diluted | | 68,629 |
| | | | | | | | 68,629 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Year Ended December 31, 2017
(in thousands, except share data)
|
| | | | | | | | | | | | | | | | | | |
| | | ATSG (a) | | Omni (b) | | Pro Forma Adjustments | | | | Pro Forma Combined |
| REVENUES | | $ | 1,068,200 |
| | $ | 357,886 |
| | $ | (263 | ) | | (c) | | $ | 1,425,823 |
|
| OPERATING EXPENSES | | | | | | | | | | |
| Salaries, wages and benefits | | 276,106 |
| | 69,140 |
| | 416 |
| | (c, d) | | 345,662 |
|
| Depreciation and amortization | | 154,556 |
| | 52,814 |
| | 10,578 |
| | (e) | | 217,948 |
|
| Maintenance, materials and repairs | | 141,575 |
| | 16,379 |
| | (25 | ) | | (c) | | 157,929 |
|
| Fuel | | 149,579 |
| | 72,131 |
| | — |
| | | | 221,710 |
|
| Contracted ground and aviation services | | 147,092 |
| | 38,359 |
| | — |
| | | | 185,451 |
|
| Travel | | 27,390 |
| | 32,435 |
| | — |
| | | | 59,825 |
|
| Landing and ramp | | 22,271 |
| | 5,742 |
| | — |
| | | | 28,013 |
|
| Rent | | 13,629 |
| | 7,531 |
| | — |
| | | | 21,160 |
|
| Insurance | | 4,820 |
| | 1,513 |
| | — |
| | | | 6,333 |
|
| Other operating expenses | | 31,782 |
| | 22,534 |
| | — |
| | | | 54,316 |
|
| | | 968,800 |
| | 318,578 |
| | 10,969 |
| | | | 1,298,347 |
|
| OPERATING INCOME | | 99,400 |
| | 39,308 |
| | (11,232 | ) | | | | 127,476 |
|
| OTHER INCOME (EXPENSE) | | | | | | | | | | |
| Interest income | | 116 |
| | 89 |
| | — |
| | | | 205 |
|
| Non-service component of retiree benefit costs | | (6,105 | ) | | — |
| | — |
| | | | (6,105 | ) |
| Net gain (loss) on financial instruments | | (79,789 | ) | | — |
| | — |
| | | | (79,789 | ) |
| Loss from non-consolidated affiliate | | (3,135 | ) | | — |
| | — |
| | | | (3,135 | ) |
| Other income | | — |
| | 2,041 |
| | | | | | 2,041 |
|
| Interest expense | | (17,023 | ) | | (2,077 | ) | | (40,560 | ) | | (f) | | (59,660 | ) |
| | | (105,936 | ) | | 53 |
| | (40,560 | ) | | | | (146,443 | ) |
| | | | | | | | | | | |
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | | (6,536 | ) | | 39,361 |
| | (51,792 | ) | | | | (18,967 | ) |
| INCOME TAX (EXPENSE) | | 28,276 |
| | — |
| | 4,351 |
| | (g) | | 32,627 |
|
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | | 21,740 |
| | 39,361 |
| | (47,441 | ) | | | | 13,660 |
|
| EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES | | (3,245 | ) | | — |
| | — |
| | | | (3,245 | ) |
| NET EARNINGS (LOSS) | | $ | 18,495 |
| | $ | 39,361 |
| | $ | (47,441 | ) | | | | $ | 10,415 |
|
| | | | | | | | | | | |
| BASIC EARNINGS (LOSS) PER SHARE | | | | | | | | | | |
| Continuing operations | | $ | 0.37 |
| | | | | | | | $ | 0.23 |
|
| Discontinued operations | | (0.06 | ) | | | | | | | | (0.05 | ) |
| TOTAL BASIC EARNINGS PER SHARE | | $ | 0.31 |
| | | | | | | | $ | 0.18 |
|
| | | | | | | | | | | |
| DILUTED EARNINGS (LOSS) PER SHARE | | | | | | | | | | |
| Continuing operations | | $ | 0.36 |
| | | | | | | | $ | 0.23 |
|
| Discontinued operations | | (0.05 | ) | | | | | | | | (0.06 | ) |
| TOTAL DILUTED EARNINGS PER SHARE | | $ | 0.31 |
| | | | | | | | $ | 0.17 |
|
| | | | | | | | | | | |
| WEIGHTED AVERAGE SHARES | | | | | | | | | | |
| Basic | | 58,907 |
| | | | | | | | 58,907 |
|
| Diluted | | 59,686 |
| | | | | | | | 59,686 |
|
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information is based on ATSG's and Omni's historical consolidated financial statements and adjustments to give effect to the acquisition of Omni. The unaudited pro forma condensed combined balance sheet as of September 30, 2018 gives effect to the acquisition as if it occurred on September 30, 2018. The unaudited pro forma condensed combined statement of earnings for the nine months ended September 30, 2018 and the year ended December 31, 2018, give effect to the acquisition as if it occurred on January 1, 2017.
Certain Omni balances have been reclassified in the accompanying financial statements to conform to ATSG's presentation. These reclassifications had no impact on Omni's historically reported total assets, total liabilities, revenues, operating income or net income.
Under generally accepted accounting standards, the total estimated purchase price of a business acquisition is allocated to the acquired tangible and intangible assets and liabilities based on their fair values as of date of the acquisition. The allocation of the purchase price to specific assets and liabilities is based, in part, upon internal estimates of assets and liabilities and independent appraisals for aircraft. ATSG is in the process of refining its internal estimates and finalizing independent valuations for certain assets and liabilities; therefore, the allocation of the purchase price is preliminary and the final allocation may differ materially.
Note 2. Provisional Purchase Price Allocation
The acquisition of Omni by ATSG is reported in accordance with Accounting Standards Codification 805, Business Combinations, in which the total purchase price is allocated to Omni’s tangible and intangible assets based on their estimated fair values as of the date of the acquisition. Based on the preliminary valuations and subject to Omni's results of operations and changes in net assets through the acquisition date on November 9, 2018, the following table summarizes estimated fair values of the assets acquired and liabilities assumed (in thousands) for the consideration paid:
|
| | | | |
| | | |
| | Cash | $ | 40,183 |
|
| | Accounts receivable | 45,804 |
|
| | Other current assets | 8,947 |
|
| | Other assets | 7,160 |
|
| | Intangibles | 140,000 |
|
| | Goodwill | 359,698 |
|
| | Property and equipment | 332,228 |
|
| | Current liabilities | (34,403 | ) |
| | Customer deposits | (4,817 | ) |
| | | |
| | Pro forma net assets acquired, September 30, 2018 | $ | 894,800 |
|
Due to the results of Omni's operations and the changes in its net assets after September 30, 2018, the estimated value of net assets acquired at November 9, 2018, the acquisition closing date, was $867 million.
Property and equipment acquired includes the engines and airframes of eight Boeing 767 and three Boeing 777 passenger aircraft owned by Omni and leasehold improvements for two Boeing 767 aircraft under operating leases. The fair values assigned to the acquired aircraft were derived from market comparisons with the assistance of an independent appraiser. Depreciation expense of property and equipment is provided on a straight-line basis over the lesser of the asset’s remaining useful life or lease term. The estimated remaining life of these airframes range between seven and sixteen years. The estimated life of the airframes and engines include ATSG's intent to convert a portion of Omni's passenger aircraft to freighter aircraft after the aircraft are no longer used for passengers. The value of major airframe maintenance and engine overhauls are depreciated over the useful life of the overhaul. Intangible assets consisted of $134.0 million for customer relationships and $6.0 million for airline certificates. The value assigned to
Omni's customer relationships was determined by discounting the estimated cash flows associated with the existing customers as of the acquisition date, taking into consideration expected attrition of the existing customer base. The estimated cash flows were based on revenues for those existing customers, net of operating expenses and net contributory asset charges associated with servicing those customers. The estimated revenues were based on revenue growth rates and customer renewal rates. Operating expenses were estimated based on the supporting infrastructure expected to sustain the assumed revenue levels. The customer relationship intangibles are estimated to amortize over seven to twenty years on a straight-line basis and airline certificates have indefinite lives and therefore are not amortized.
Note 3. Pro Forma Adjustments
The unaudited pro forma condensed combined financial information was prepared pursuant to the rules and regulations of the Securities and Exchange Commission including Article 11 of the Regulation S-X. The information was prepared to reflect adjustments that are 1) directly attributable to the acquisition, 2) factually supportable and 3) expected to have a continuing impact on the combined results. Pro forma adjustments are necessary to reflect the purchase price, to adjust Omni's tangible and intangible assets to a preliminary estimate of the fair values of those assets and to reflect the amortization expense related to the estimated amortizable intangibles. Pro forma adjustments include the effects of borrowing funds to finance the acquisition and related interest expense.
Balance sheet adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet are as follows:
| |
| (a) | ATSG's historical condensed consolidated balance sheet as of September 30, 2018. |
| |
| (b) | Omni's historical condensed consolidated balance sheet as of September 30, 2018, reclassified to conform to ATSG's presentation. |
| |
| (c) | Reflects proceeds of $675.0 million from ATSG's issuance of an unsubordinated term loan due in 2023 and $180.0 million from the draw of ATSG's revolving credit facility, less loan origination costs of $9.5 million. The current portion of debt obligations reflects term loan principle payments of $4.2 million per quarter beginning in March 2019. |
| |
| (d) | Reflects $807.6 million of cash consideration to acquire Omni from its owners and $87.2 million for the retirement of its debt as of September 30, 2018. The pro forma cash consideration is more than the final cash acquisition price because Omni was holding more working capital, including cash, as of September 30, 2018 compared to the acquisition date. |
| |
| (e) | Reflects the estimated adjustment to record Omni's property and equipment at its provisional fair value of $332.2 million, an increase of $161.2 million, due primarily to strong market demand for Boeing 767 aircraft. Reflects the estimated adjustment of $2.4 million to reduce Omni's inventory of parts related to previous aircraft to fair value. |
| |
| (f) | Reflects the estimated value of goodwill based on net assets acquired as if the acquisition had occurred on September 30, 2018. The difference between the amount recorded on a pro forma basis and the actual preliminary balance as of the acquisition date is the result of changes in the net assets of Omni between September 30, 2018 and November 9, 2018. |
| |
| (g) | Reflects payment of $5.3 million for transaction-related professional fees and the related tax effects. |
| |
| (h) | Reflects the capitalization of $5.5 million of previously expensed lease maintenance deposits for aircraft under lease. |
| |
| (i) | Reflect the elimination of Omni’s members' equity accounts. |
Statement of earnings adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined statement of earnings are as follows:
| |
| (a) | ATSG's historical condensed consolidated statement of earnings for the year ended December 31, 2017 and the nine months ended September 30, 2018. |
| |
| (b) | Omni's historical consolidated statement of operations for the year ended December 31, 2017 and condensed consolidated statement of earnings for the nine months ended September 30, 2018, receptively, reclassified to conform to ATSG's presentation. |
| |
| (c) | Adjustments to eliminate transactions between ATSG and Omni during the year ended December 31, 2017 and the nine months ended September 30, 2018. |
| |
| (d) | Adjustments to reflect additional compensation expense of $0.6 million and $0.5 million for the year ended December 31, 2017 and the nine months ended September 30, 2018, respectively, resulting from ATSG stock awards issued to executives of Omni in conjunction with ATSG's executive compensation plans. |
| |
| (e) | Adjustment to reflect estimated additional depreciation and amortization expense of $10.6 million and $7.9 million for the year ended December 31, 2017 and the nine months ended September 30, 2018, respectively, resulting primarily from the fair value adjustments to Omni’s intangible assets. Pro forma combined depreciation expense for the periods presented reflect the increased fair values of the aircraft acquired and longer useful lives of the aircraft, indicative of ATSG's polices and intent to modify certain aircraft to freighters as an aircraft is removed from passenger service. |
| |
| (f) | Adjustment to reflect additional interest expense and amortization of debt issuance costs for the year ended December 31, 2017 and the nine months ended September 30, 2018, related to the combined $855 million from an unsubordinated term loan and revolving facility draws using the prevailing rates of 4.57%. |
| |
| (g) | Adjustment to apply the statutory tax rate of ATSG to the pre-tax earnings of Omni and the pro forma adjustments for the year ended December 31, 2017 and the nine months ended September 30, 2018. Omni had historically elected to be treated as pass-through entities for income tax purposes. Accordingly, no provision for income taxes had been made in Omni's consolidated statements of earnings. ATSG's tax rate was 35% for 2017 and 22.58% for the first nine months of 2018. |
