Exhibit 99.2
Selected Financial Data
ABX Air, Inc. and Cargo Holdings International, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transaction
On December 31, 2007, ABX Holdings, Inc. (“ABX Holdings”), and its subsidiary, CHI Acquisition Corp., acquired all of the outstanding Cargo Holdings International, Inc. (“Cargo”) common shares, options to purchase Cargo common shares and warrants to purchase Cargo common shares pursuant to a stock purchase agreement dated November 1, 2007. The purchase price for all of the Cargo securities consisted of a combination of cash, shares of ABX Holdings, and debt repayment. The securities were purchased with $215 million of cash from ABX Holdings, $18 million of cash from Cargo and four million common shares of ABX Holdings valued at approximately $25 million, which were issued to certain significant shareholders of Cargo. ABX Holdings also repaid $101 million of Cargo’s existing indebtedness under its senior credit facility SunTrust Bank while acquiring $20 million of cash from Cargo. Accordingly, the overall transaction value was approximately $340 million. The transaction was funded primarily with cash obtained through a new senior secured credit facility with SunTrust Bank and Regions Bank.
The unaudited pro forma condensed combined financial information reflecting the combination of ABX Holdings and Cargo is provided for informational purposes only. The pro forma information is not necessarily indicative of what the Company’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.
The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting with ABX Holdings treated as the acquirer. Accordingly, the historical consolidated financial information has been adjusted to give effect to the impact of the consideration issued in connection with the merger.
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Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2007
(in thousands)
ABX Holdings (a) | Cargo (b) | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
CURRENT ASSETS: | ||||||||||||||||||
Cash and cash equivalents | $ | 33,640 | $ | 29,018 | (22,600 | ) | (c | ),(d),(j) | $ | 40,058 | ||||||||
Marketable securities - available-for-sale | 16,853 | — | — | 16,853 | ||||||||||||||
Accounts receivable, net of allowance of $602 | 18,969 | 12,802 | — | 31,771 | ||||||||||||||
Inventory | 13,554 | — | — | 13,554 | ||||||||||||||
Prepaid supplies and other | 5,799 | 2,944 | — | 8,743 | ||||||||||||||
Deferred income taxes | 14,691 | 883 | — | 15,574 | ||||||||||||||
Aircraft and engines held for sale | 2,965 | — | — | 2,965 | ||||||||||||||
TOTAL CURRENT ASSETS | 106,471 | 45,647 | (22,600 | ) | 129,518 | |||||||||||||
Other assets | 16,456 | 5,712 | 5,170 | (e | ) | 27,338 | ||||||||||||
Deferred income taxes | 74,926 | — | (30,687 | ) | (k | ),(l) | 44,239 | |||||||||||
Property and equipment, net | 518,377 | 147,700 | 148 | (f | ) | 666,225 | ||||||||||||
Goodwill | — | — | 176,641 | (g | ) | 176,641 | ||||||||||||
Other intangible assets | — | — | 31,700 | (h | ) | 31,700 | ||||||||||||
TOTAL ASSETS | $ | 716,230 | $ | 199,059 | $ | 160,372 | $ | 1,075,661 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||||
Accounts payable | $ | 52,179 | $ | 24,043 | $ | 5,100 | (i | ) | $ | 81,322 | ||||||||
Salaries, wages and benefits | 43,949 | — | — | 43,949 | ||||||||||||||
Accrued expenses | 9,675 | — | — | 9,675 | ||||||||||||||
Current portion of long-term obligations | 14,854 | 13,252 | — | 28,106 | ||||||||||||||
Unearned revenue | 4,825 | — | — | 4,825 | ||||||||||||||
TOTAL CURRENT LIABILITIES | 125,482 | 37,295 | 5,100 | 167,877 | ||||||||||||||
Long-term obligations | 228,894 | 62,644 | 220,000 | (j | ) | 511,538 | ||||||||||||
Post-retirement liabilities | 219,684 | — | — | 219,684 | ||||||||||||||
Deferred tax liability | — | 21,949 | (21,949 | ) | (k | ) | — | |||||||||||
Other liabilities | 4,409 | 15,439 | (5,727 | ) | (l | ) | 14,121 | |||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Common stock | 587 | 19 | 21 | (m | ) | 627 | ||||||||||||
Additional paid-in capital | 433,108 | 41,550 | (16,910 | ) | (m | ),(n) | 457,748 | |||||||||||
Accumulated deficit | (197,914 | ) | 20,163 | (20,163 | ) | (n | ) | (197,914 | ) | |||||||||
Accumulated other comprehensive loss | (98,020 | ) | — | — | (98,020 | ) | ||||||||||||
TOTAL STOCKHOLDERS’ EQUITY | 137,761 | 61,732 | (37,052 | ) | 162,441 | |||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 716,230 | $ | 199,059 | $ | 160,372 | $ | 1,075,661 | ||||||||||
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Year Ended December 31, 2006
(in thousands, except per share data)
ABX Holdings (a) | Cargo (b) | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
REVENUES | $ | 1,260,361 | $ | 296,125 | — | $ | 1,556,486 | ||||||||||||
OPERATING EXPENSES: | |||||||||||||||||||
Salaries, wages and benefits | 635,015 | 55,093 | — | 690,108 | |||||||||||||||
Fuel | 262,948 | 112,058 | — | 375,006 | |||||||||||||||
Maintenance, materials and repairs | 97,108 | 21,718 | — | 118,826 | |||||||||||||||
Purchased line-haul and yard management | 88,223 | — | — | 88,223 | |||||||||||||||
Depreciation and amortization | 45,660 | 17,172 | 5,784 | (c | ),(d) | 68,616 | |||||||||||||
Landing and ramp | 21,099 | 12,024 | — | 33,123 | |||||||||||||||
Rent | 9,716 | 19,168 | — | 28,884 | |||||||||||||||
Other | 57,807 | 20,583 | — | 78,390 | |||||||||||||||
1,217,576 | 257,816 | 5,784 | 1,481,176 | ||||||||||||||||
OTHER INCOME | — | 1,142 | — | 1,142 | |||||||||||||||
INTEREST EXPENSE | (11,547 | ) | (1,852 | ) | (23,500 | ) | (e | ) | (36,899 | ) | |||||||||
INTEREST INCOME | 4,775 | 1,595 | — | 6,370 | |||||||||||||||
EARNINGS BEFORE INCOME TAXES | 36,013 | 39,194 | (29,284 | ) | 45,923 | ||||||||||||||
INCOME TAX BENEFIT (EXPENSE) | 54,041 | (15,876 | ) | 10,630 | (f | ) | 48,795 | ||||||||||||
NET EARNINGS | $ | 90,054 | $ | 23,318 | $ | (18,654 | ) | $ | 94,718 | ||||||||||
EARNINGS PER SHARE: | |||||||||||||||||||
Basic | $ | 1.55 | $ | 1.52 | |||||||||||||||
Diluted | $ | 1.54 | $ | 1.52 | |||||||||||||||
WEIGHTED AVERAGE SHARES: | |||||||||||||||||||
Basic | 58,270 | 4,000 | (g | ) | 62,270 | ||||||||||||||
Diluted | 58,403 | 4,000 | (g | ) | 62,403 |
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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Selected Financial Data
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Nine Months Ended September 30, 2007
(in thousands, except per share data)
ABX Holdings (a) | Cargo (b) | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
REVENUES | $ | 855,323 | $ | 224,699 | — | $ | 1,080,022 | ||||||||||||
OPERATING EXPENSES: | |||||||||||||||||||
Salaries, wages and benefits | 456,830 | 38,822 | — | 495,652 | |||||||||||||||
Fuel | 186,505 | 96,404 | — | 282,909 | |||||||||||||||
Maintenance, materials and repairs | 69,276 | 12,385 | — | 81,661 | |||||||||||||||
Depreciation and amortization | 38,282 | 27,374 | 4,393 | (c | ),(d) | 70,049 | |||||||||||||
Landing and ramp | 18,558 | 9,291 | — | 27,849 | |||||||||||||||
Rent | 6,880 | 3,054 | — | 9,934 | |||||||||||||||
Purchased line-haul and yard management | 4,649 | — | — | 4,649 | |||||||||||||||
Other | 48,787 | 11,809 | 60,596 | ||||||||||||||||
829,767 | 199,139 | 4,393 | 1,033,299 | ||||||||||||||||
OTHER INCOME | — | 456 | — | 456 | |||||||||||||||
INTEREST EXPENSE | (10,302 | ) | (4,182 | ) | (15,165 | ) | (e | ) | (29,649 | ) | |||||||||
INTEREST INCOME | 3,628 | 1,103 | — | 4,731 | |||||||||||||||
EARNINGS BEFORE INCOME TAXES | 18,882 | 22,937 | (19,558 | ) | 22,261 | ||||||||||||||
INCOME TAX BENEFIT (EXPENSE) | (7,666 | ) | (8,252 | ) | 7,099 | (f | ) | (8,819 | ) | ||||||||||
NET EARNINGS | $ | 11,216 | $ | 14,685 | $ | (12,459 | ) | $ | 13,442 | ||||||||||
EARNINGS PER SHARE: | |||||||||||||||||||
Basic | $ | 0.19 | $ | 0.22 | |||||||||||||||
Diluted | $ | 0.19 | $ | 0.21 | |||||||||||||||
WEIGHTED AVERAGE SHARES: | |||||||||||||||||||
Basic | 58,284 | 4,000 | (g | ) | 62,284 | ||||||||||||||
Diluted | 58,658 | 4,000 | (g | ) | 62,658 |
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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Selected Financial Data
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
Note 1. Basis of Pro Forma Presentation
On December 31, 2007, ABX Holdings completed its acquisition of all the outstanding securities of Cargo Holdings International, Inc. The unaudited pro forma condensed consolidated financial statements have been prepared to give effect to the completed acquisition, which was accounted for as a purchase business combination in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations.
Under the purchase method of accounting, the total estimated purchase price is allocated to Cargo’s net tangible and intangible assets based on their estimated fair values as of December 31, 2007, the 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 and other assets. ABX Holdings 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. Based on the preliminary purchase price allocation, the following table summarizes estimated fair values of the assets acquired and liabilities assumed (in thousands):
Cash | $ | 20,495 | ||
Marketable securities | 38,148 | |||
Account receivable | 14,318 | |||
Other current assets | 13,478 | |||
Other long term assets | 1,524 | |||
Intangibles | 31,700 | |||
Goodwill | 178,654 | |||
Property and equipment | 148,901 | |||
Current liabilities | (38,317 | ) | ||
Capital leases | (18,648 | ) | ||
Deferred taxes | (32,859 | ) | ||
Other long-term liabilities | (11,131 | ) | ||
Net assets acquired | $ | 346,263 | ||
Goodwill includes $5.1 million of costs directly related to the acquisition. Intangible assets consisted of $27.7 million for customer relationships and $4.0 million for airline certificates. The value assigned to Cargo’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 growth rates. The customer relationship intangibles are estimated to amortize over twenty years using an accelerated method based on related projected cash flows while the airline certificates have indefinite lives and therefore are not amortized. Estimated amortization of the customer relationship intangibles for the next five years (in thousands) is $2,637 for 2008, $2,547 for 2009, $2,457 for 2010, $2,357 for 2011, and $2,100 for 2012.
Note 2. Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the estimated purchase price, to adjust amounts related to Cargo’s net 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 intangible. In preparing the pro forma condensed combined financial statements, the acquisition is assumed to have occurred at September 30, 2007 for the purpose of the pro forma balance sheet and at January 1, 2006 for the purpose of the pro forma statement of earnings for the year ended December 31, 2006 and at January 1, 2007 for the purpose of the pro forma statement of earnings for the nine months ended September 30, 2007.
ABX Holdings has not identified any material pre-acquisition contingencies where the related asset, liability or impairment is probable. Prior to the end of the purchase price allocation period, if information becomes available which would indicate it is probable that such events have occurred prior to the acquisition date and the amounts can be reasonably estimated, such items will be included in the purchase price allocation.
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The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet are as follows:
(a) | Represents ABX Holdings’ historical consolidated balance sheet as of September 30, 2007. |
(b) | Represents Cargo’s historical consolidated balance sheet as of September 30, 2007. |
(c) | Adjustment to reflect $215.0 million of cash paid to Cargo shareholders and $9.2 million of payments for debt issuance costs. |
(d) | To reflect Cargo’s payment of $18.2 million to retire all outstanding stock options and warrants pursuant to the Stock Purchase Agreement. |
(e) | To record debt issuance costs of $9.2 million related to the $270 million unsubordinted term loan and to reflect the removal of Cargo’s unamoritzed debt issuance cost of $4.0 million related to indebtness that was repaid. |
(f) | Adjustment of $0.1 million includes 1) a net write-up of $14.1 million to reflect aircraft and aircraft parts acquired at their estimated fair values and 2) the dividend of an aircraft valued at $14.0 million to certain former shareholders of Cargo prior to the acquisition. |
(g) | Adjustment to reflect the estimated value of goodwill based on net assets acquired as if the acquisition had occurred on September 30, 2007. 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 Cargo between September 30, 2007 and December 31, 2007. Includes $5.1 million of ABX Holdings transaction-related costs. |
(h) | Adjustment of $31.7 million to record identifiable intangible assets at estimated fair value. |
(i) | To reflect the accrual of transaction-related fees. |
(j) | Adjustment to reflect proceeds of $270.0 million from the issuance of an unsubordinated term loan due in 2012 and the payoff of Cargo’s indebtness of $50 million as of September 30, 2007. |
(k) | To record the tax effects of various purchase accounting entries recorded as a result of the acquisition. Includes the netting of Cargo’s deferred tax liabilities with ABX Holding’s deferred tax assets as of the balance sheet date. |
(l) | To adjust contingent rebate liabilities to fair value and recognize Cargo’s uncertain tax positions in accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” (As a privately held company, Cargo had not adopted FASB Interpretation No. 48 as of September 30, 2007.) |
(m) | Adjustment to reflect the issuance of 4,000,000 shares of ABX Holdings’ common stock. |
(n) | Adjustment to reflect the elimination of Cargo’s shareholder equity accounts. |
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The pro forma adjustments included in the unaudited pro forma condensed combined statements of earnings are as follows:
a) | Represents ABX Holdings’ historical consolidated statements of earnings for the year ended December 31, 2006 and the nine months ended September 30, 2007. |
b) | Represents Cargo’s historical consolidated statements of income for the year ended December 31, 2006 and the nine months ended September 30, 2007. |
c) | Increase in depreciation expense of $3.2 million and $2.4 million for the year ended December 31, 2006 and the nine months ended September 30, 2007, respectively, reflecting the net impact of fair value adjustments in aircraft and aircraft related parts. |
d) | Adjustment to reflect estimated additional intangible asset amortization expense of $2.6 million and $2.0 million for the year ended December 31, 2006 and the nine months ended September 30, 2007, respectively, resulting from the fair value adjustments to Cargo’s intangible assets. |
e) | Adjustment to reflect additional interest expense and amortization of debt issuance costs for the year ended December 31, 2006 and the nine months ended September 30, 2007, related to the $270.0 million unsubordinated term loan using average prevailing rates of 8.01% and 8.35% for the year ended December 31, 2006 and the nine months ended September 30, 2007, respectively. |
f) | Adjustment to apply the estimated statutory rate of the Company (36.3%) to the pre-tax earnings (loss) of the pro forma adjustments for the year ended December 31, 2006 and the nine months ended September 30, 2007. |
g) | Adjustment to common stock shares outstanding to reflect the issuance of additional equity to partially fund the acquisition. Refer to the pro forma balance sheet adjustment note for additional details. |
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