Document

0000894081-19-000024.txt : 20190118 0000894081-19-000024.hdr.sgml : 20190118 20190118164248 ACCESSION NUMBER: 0000894081-19-000024 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20181109 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190118 DATE AS OF CHANGE: 20190118 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Air Transport Services Group, Inc. CENTRAL INDEX KEY: 0000894081 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 261631624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-50368 FILM NUMBER: 19533626 BUSINESS ADDRESS: STREET 1: 145 HUNTER DR CITY: WILMINGTON STATE: OH ZIP: 45177 BUSINESS PHONE: 937-382-5591 MAIL ADDRESS: STREET 1: 145 HUNTER DR CITY: WILMINGTON STATE: OH ZIP: 45177 FORMER COMPANY: FORMER CONFORMED NAME: ABX Holdings, Inc. DATE OF NAME CHANGE: 20080102 FORMER COMPANY: FORMER CONFORMED NAME: ABX AIR INC DATE OF NAME CHANGE: 19950728 8-K/A 1 a2018form8kacoveromnipurch.htm 8-K/A Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 8-K/A

(Amendment No. 1)

_____________________

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 9, 2018

_____________________

(Exact name of registrant as specified in its charter)

_____________________




DE	000-50368	26-1631624
(State or other jurisdiction of incorporation)	Commission File Number:	(IRS Employer Identification No.)

145 Hunter Drive, Wilmington, OH 45177

(Address of principal executive offices, including zip code)

(937) 382-5591

(Registrant's telephone number, including area code)

_____________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

This amendment No. 1 (this "Amendment") amends the Current Report on Form 8-K of Air Transport Services Group, Inc., filed with the United States Securities and Exchange Commission on November 9, 2018 (the "Original 8-K), related to its acquisition of Omni Air International LLC; its wholly owned subsidiary, Advanced Flight Services, LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC, (referred to collectively herein as "Omni"). This Form 8-K/A amends the Original 8-K to include the financial statements and pro forma information required by Items 9.01(a) and 9.01(b) of Form 8-K and does not amend or otherwise update any other information in the Original 8-K. Accordingly, this Amendment should be read in conjunction with the Original 8-K.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired.

The audited consolidated balance sheets of Omni as of December 31, 2017 and 2016, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017 are filed as Exhibit 99.2 to this amendment and incorporated herein by this reference.

The unaudited interim financial statements of Omni as of September 30, 2018 and 2017 are filed as Exhibit 99.3 to this amendment and incorporated herein by this reference.

(b) Pro Forma Financial Information.

The unaudited pro forma financial information required by Item 9.01 and pursuant to Article 11 of Regulation S-X are filed as Exhibit 99.4 to this amendment and incorporated herein by this reference.

Not applicable

(d) Exhibits



Exhibit No.		Exhibit Description

23.1		Consent of Independent Certified Public Accountants, filed herewith.
99.1		Press release issued by Air Transport Services Group, Inc., dated November 9, 2018, relating to the acquisition of Omni Air International LLC (1)
99.2		Audited consolidated balance sheets of Omni as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders' and members' equity and cash flows for each of the three years in the period ended December 31, 2017, filed herewith.
99.3		Unaudited interim financial statements of Omni as of September 30, 2018, filed herewith.
99.4		Unaudited Pro forma financial information required by Item 9.01 and pursuant to Article 11 of Regulation S-X, filed herewith.

____________________


(1)	Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 9, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



AIR TRANSPORT SERVICES GROUP, INC.

By:	/S/ W. JOSEPH PAYNE
	W. Joseph Payne
	Chief Legal Officer & Secretary

Date:	January 18, 2019

EX-23.1 2 ex231omni8kaconsent.htm EXHIBIT 23.1 Exhibit

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated January 9, 2019, with respect to the consolidated financial statements of Omni Air International LLC and subsidiaries, included in the Current Report of Air Transport Services Group, Inc. on Form 8-K/A dated January 18, 2019. We consent to the incorporation by reference of said report in the Registration Statements of Air Transport Services Group, Inc. on Form S-3 ASR (File No. 333-218367) and Form S-8 (File No. 333-209664, File No. 333-167253 and File No. 333-125679).

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma

January 18, 2019

EX-99.2 3 ex992omnipriorfinancialsta.htm EXHIBIT 99.2 Exhibit

Exhibit 99.2

Index to Consolidated Financial Statements

Omni Air International, LLC



	Page
Report of Independent Registered Public Accounting Firm	2
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Stockholders' and Members' Equity	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Board of Directors and Members

Omni Air International, LLC

We have audited the accompanying consolidated financial statements of Omni Air International, LLC (a Nevada corporation) and subsidiary and its variable interest entities Omni Aviation Leasing, LLC (OAA), and T7 Aviation Leasing, LLC (T7A) (the “Company”), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in stockholder's and members’ equity, and cash flows for the years ended December 31, 2017, 2016 and 2015, and the related notes to the financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Omni Air International, LLC and subsidiary and its variable interest entities OAA and T7A as of December

31, 2017 and 2016, and the results of their operations and their cash flows for the years ended December 31, 2017, 2016 and 2015 in accordance with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma

January 9, 2019

OMNI AIR INTERNATIONAL, LLC

CONSOLIDATED BALANCE SHEETS



	December 31,		December 31,
	2017		2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ($15,826,039 and $16,045,132 relating to VIE's for 2017 and 2016, respectively)	$	34,730,622	$	30,878,502
Restricted cash	5,269,239		2,395,357
Accounts receivable ($90,114 and $150,118 relating to VIE's for 2017 and 2016, respectively)	22,717,565		26,289,379
Parts inventory ($9,522,582 and $11,207,508 relating to VIE's for 2017 and 2016, respectively)	9,805,143		11,537,604
Prepaid expenses and other	2,667,827		1,166,960
TOTAL CURRENT ASSETS	75,190,396		72,267,802

Property and equipment, gross ($241,217,157 and $209,837,606 relating to VIE's for 2017 and 2016, respectively)	367,922,888		324,458,115
Less accumulated depreciation ($99,768,438 and $70,756,379 relating to VIE's for 2017 and 2016, respectively)	184,761,030		136,878,028
Net property and equipment	183,161,858		187,580,087
Other assets	1,012,979		985,507
TOTAL ASSETS	$	259,365,233	$	260,833,396
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ($2,159,821 and $2,827,895 relating to VIE's for 2017 and 2016, respectively)	$	11,913,887	$	14,078,831
Accrued payroll	5,360,823		5,074,933
Accrued operating expenses	5,910,895		5,966,713
Other accrued liabilities	4,346,733		3,175,744
Notes payable ($10,694,483 and $7,460,000 relating to VIE's for 2017 and 2016, respectively)	10,694,483		7,460,000
Customer deposits and deferred revenue	3,659,748		1,915,124
TOTAL CURRENT LIABILITIES	41,886,569		37,671,345
Long term notes payable ($64,183,075 and $49,925,833 relating to VIE's for 2017 and 2016, respectively)	64,183,075		49,925,833
Line of credit	—		9,500,000
Deferred aircraft rent	—		102,545
Other noncurrent liabilities	—		8,842,419
Commitments and contingencies
Members' equity	153,295,589		154,791,254
TOTAL LIABILITIES AND EQUITY	$	259,365,233	$	260,833,396

The accompanying notes are an integral part of these consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS



	Year Ended December 31
	2017			2016			2015
REVENUES	$	357,885,583		$	336,024,597		$	360,367,481
OPERATING EXPENSES
Flight operations	198,113,777			180,454,997			204,602,564
Maintenance	41,105,272			39,811,240			35,421,758
General and administrative	15,486,029			15,636,570			15,445,929
Commissions	7,087,758			6,341,003			8,010,214
Depreciation and amortization	52,813,881			42,389,216			44,404,810
Impairment of assets	4,003,591			426,294			6,258,330
Gain on sale of assets	(32,959		)	(23,965,917		)	(2,035,314		)
TOTAL OPERATING EXPENSES	318,577,349			261,093,403			312,108,291
OPERATING INCOME	39,308,234			74,931,194			48,259,190
NONOPERATING INCOME (EXPENSE)
Interest expense	(2,076,582		)	(946,202		)	(70,051		)
Interest income	88,698			33,211			86,564
Other income, net	2,040,501			3,536,224			2,419,926
TOTAL NONOPERATING INCOME	52,617			2,623,233			2,436,439

NET INCOME	$	39,360,851		$	77,554,427		$	50,695,629

The accompanying notes are an integral part of these consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' AND MEMBERS' EQUITY




Balance, January 1, 2015	$	190,282,494
Net income	50,695,629
Distributions to stockholders/members	(129,541,296		)
Contributions from stockholders/members	8,000,000
Balance, December 31, 2015	119,436,827
Net income	77,554,427
Distributions to members	(42,200,000		)
Contributions from members	—
Balance, December 31, 2016	154,791,254
Net income	39,360,851
Distributions to members	(43,856,516		)
Contributions from members	3,000,000
Balance, December 31, 2017	$	153,295,589

The accompanying notes are an integral part of these consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS



	Years Ended December 31
	2017			2016			2015
OPERATING ACTIVITIES:
Net Income	$	39,360,851		$	77,554,427		$	50,695,629
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	52,813,881			42,389,216			44,404,810
Impairment of assets	4,003,591			426,294			6,258,330
Gain on sale of assets	(32,959		)	(23,965,917		)	(2,035,314		)
Changes in assets and liabilities:
Restricted cash	(2,873,882		)	3,102,643			(410,126		)
Accounts receivable	3,571,307			(8,795,698		)	(2,654,751		)
Parts inventory	(18,354		)	—			88
Other prepaid expenses and other assets	(1,480,804		)	2,047,873			1,342,838
Accounts payable	(263,287		)	1,953,772			(1,610,311		)
Customer deposits and deferred revenue	1,744,624			(3,664,564		)	1,047,983
Accrued operating expenses	(55,818		)	(633,501		)	3,006,345
Accrued payroll	285,890			554,786			387,538
Deferred aircraft rent	(102,545		)	(102,547		)	(246,544		)
Other accrued liabilities	(7,671,430		)	8,166,415			(577,909		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	89,281,065			99,033,199			99,608,606
INVESTING ACTIVITIES:
Purchases of property, leasehold improvements and equipment	(52,636,252		)	(153,219,701		)	(40,550,044		)
Proceeds from sale of assets	72,098			45,359,556			2,097,719
Payment received on note - related party	—			—			108,585
NET CASH USED IN INVESTING ACTIVITIES	(52,564,154		)	(107,860,145		)	(38,343,740		)
FINANCING ACTIVITIES:
Borrowings under long term debt	32,000,000			67,100,000			7,500,000
Principal payments on long term debt	(14,508,275		)	(16,839,167		)	(375,000		)
Borrowings on line of credit	—			9,500,000			—
Principal payments on line of credit	(9,500,000		)	—			—
Distributions to stockholders/members	(43,856,516		)	(42,200,000		)	(129,541,296		)
Contributions from stockholders/members	3,000,000			—			8,000,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(32,864,791		)	17,560,833			(114,416,296		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	3,852,120			8,733,887			(53,151,430		)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR	30,878,502			22,144,615			75,296,045
CASH AND CASH EQUIVALENTS END OF PERIOD	$	34,730,622		$	30,878,502		$	22,144,615

SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid during the year for interest	$	1,998,857		$	910,640		$	6,715
Accrued capital expenditures	$	2,816,659		$	4,717,807		$	1,888,353

The accompanying notes are an integral part of these consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Omni Air International, LLC ("OAI") is a U.S. Part 121 Supplemental Air Carrier based at Tulsa International Airport, Oklahoma, and specializes in providing passenger charter services to commercial and government customers. OAI targets passenger charter markets that can be efficiently served with long-range aircraft. OAI is approved by the U.S. Department of Defense (DoD) to transport DoD personnel and dependents to domestic and international locations. OAI’s other customers include tour operators that provide vacation packages, foreign air carriers that require additional capacity to meet peak season demands, and other government agencies both foreign and domestic. As of December 31, 2017, OAI operated a fleet of twelve passenger aircraft.

Principles of Consolidation

The consolidated financial statements include the accounts of OAI and its wholly owned subsidiary, Advanced Flight Services, LLC, ("AFS"). The consolidated financial statements also include the results of Omni Aviation Leasing, LLC ("OAA"), and T7 Aviation Leasing, LLC ("T7A"), the variable interest entities (VIE’s). All intercompany balances and transactions have been eliminated in consolidation. OAI, OAA, and T7A are all Nevada corporations. For purposes of these consolidated financial statements, OAI, AFS and the VIE’s are collectively referred to as the “Company”.

Variable Interest Entities

A VIE is an entity used to conduct activities or hold assets that either (1) has an insufficient amount of equity to carry out its principal activities without additional subordinated financial support, (2) has a group of equity owners that are individually unable to make significant decisions about its activities, or (3) has a group of equity owners that do not have the obligation to absorb losses or the right to receive returns generated by its operations.

A VIE is consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns, or both. A variable interest holder that consolidates the VIE is called the primary beneficiary.

OAI has a variable interest in T7A and OAA. T7A and OAA’s operations are comprised of leasing aircraft to OAI. OAI is the primary tenant of these aircrafts owned by OAA and T7A and therefore has an explicit variable interest in these entities. As OAI is the primary beneficiary of the VIE’s the results of the VIE’s have been consolidated into the accompanying consolidated financial statements in accordance with the Accounting Standards Codification (ASC) 810 Consolidation.

As of December 31, 2017 and 2016, the VIE’s have assets of approximately $177,680,000 and $173,176,000, liabilities of $77,145,000 and $71,372,000 (including debt of $74,878,000 and $57,385,000), respectively, intercompany balances of which eliminate in consolidation. The VIE’s had revenues of $59,295,000, $56,806,000 and $54,259,140 in 2017, 2016 and 2015, respectively, that eliminate in consolidation.

Management Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates relate to determining the lives and impairment of tangible and intangible assets, the fair value of acquired assets, and assessing the collectability of accounts receivable. Actual results could differ materially from the estimates used in the preparation of the accompanying consolidated financial statements.

Cash and Cash Equivalents

Cash includes cash on hand and cash in bank accounts, and highly marketable securities or funds that own highly marketable securities with original maturities of three months or less when acquired. The carrying amounts reported on the Consolidated Balance Sheets approximate fair value due to the short-term maturity of these instruments.

Restricted Cash

Restricted cash is comprised of cash in a charter escrow account. The account, required by Department of Transportation (DOT) regulations, is restricted to the extent of customers’ deposits on flights not yet flown and is available for release from escrow upon completion of the flights, which will occur within the next twelve months. Changes in restricted cash are included separately from cash and cash equivalents in the operating activities section of the Consolidated Statements of Cash Flows.

Revenue Recognition

Revenues are recognized as earned when the transportation is complete.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms and arise from providing passenger services and are based on contracted prices. As a general policy, collateral is not required for receivables, but customers’ financial condition and credit worthiness are evaluated regularly. The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The estimate is based on historical collection experience and a review of the current status of trade accounts receivable. At December 31, 2017 and 2016, no allowance was considered necessary.

Parts Inventory

Inventories are stated at the lower of cost or market. The inventory parts are now commercially available for sale to outside third parties and are being marketed as such.

Prepaid Expenses

Prepaid expenses include amounts paid for items expected to be consumed within a one year period. These primarily include prepaid insurance. The amounts are expensed in the period that they are used or in which the benefit is derived.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using either the straight-line method over the asset’s estimated useful life (generally five to eight years), the lesser of the asset’s useful life or remaining lease term for leasehold improvements or by the units of production method for assets whose lives are estimable and directly linked to use. For the years ended December 31, 2017, 2016 and 2015, depreciation expense was $52,813,881, $42,389,216 and $41,756,706, respectively. As of December 31, 2017, the Company owned ten passenger aircraft and leased two passenger aircraft under operating leases.

Property and equipment is summarized as follows as of December 31, 2017 and 2016:



	December 31, 2017			December 31, 2016
Flight equipment	$	350,130,804		$	308,472,560
Ground equipment	7,736,454			6,801,808
Leasehold improvements, facilities and office equipment	10,055,630			9,183,747

	367,922,888			324,458,115
Accumulated depreciation	(184,761,030		)	(136,878,028		)
Property and equipment, net	$	183,161,858		$	187,580,087

expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, impairment is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Fair value is based on current market prices for similar property and equipment. For the years ended December 31, 2017, 2016 and 2015, impairment expense was $4,003,591, $426,294 and $6,258,330, respectively.

Intangible Assets

Intangible assets include a service contract which was acquired in 2014. The Company amortized the intangible asset over its estimated useful life of 1.5 years. Amortization expense for the years ended December 31, 2017, 2016 and 2015 was $0, $0 and $2,648,104, respectively, as presented in depreciation and amortization on the Consolidated Statement of Operations. The service contract’s remaining net intangible value was fully amortized in 2015 in line with its estimated useful life.

Maintenance Activities and Return Conditions

The Company employs the built-in overhaul method for major maintenance on owned aircraft. Under this method, costs of activities that restore the service potential of airframes and engines are considered a component of the asset. The cost of acquired assets is segregated into those costs that are to be depreciated over the expected useful life of the assets and those that represent the estimated cost of the next planned major maintenance activity. Thus, the estimated cost of the first planned major maintenance activity is separated from the cost of the remainder of the assets and amortized to the date of the initial planned major maintenance activity. The cost of that first planned major maintenance activity is then capitalized and amortized to the next occurrence of the planned major maintenance activity. Each aircraft lease includes specified return conditions. Lease return costs are recognized as expense over the remaining life of the lease when probable of incurrence.

OAI leases certain aircraft from unrelated parties. Under these arrangements, OAI is legally and contractually responsible for maintenance and repair of the leased aircraft throughout the lease term. Under certain arrangements, OAI is required to make deposits with the lessor. Such deposits are contractually required to be reimbursed to OAI upon the completion of the required maintenance of the leased aircraft. In all instances, OAI expects that the deposits will be equal to or less than the expected cost of the maintenance activities. Maintenance deposits paid by a lessee under an arrangement accounted for as a lease that are refunded only if the lessee performs specified maintenance activities are accounted for as a deposit asset. Further, lessees must evaluate whether it is probable that an amount on deposit will be returned to reimburse the costs of the maintenance activities incurred by the lessee. When an amount on deposit is less than probable of being returned, it is recognized as additional expense.

Customer Deposits

Customer deposits consist of prepayments for flights not yet completed. OAI is required by DOT regulations to separately account for DOT-registered flights and to maintain the deposits in an escrow restricted cash account. Once the flight is complete, OAI recognizes revenue and releases any related cash from the applicable account.

Income Taxes

The Company has elected to be treated as pass-through entities for income tax purposes. As a result, all of their earnings are taxable to their members. Accordingly, no provision for income taxes has been made in the accompanying consolidated financial statements. The Company evaluates uncertain tax positions for recognition and measurement in the consolidated financial statements. To recognize a tax position, the Company determines whether it is more likely than not that the tax positions will be sustained upon examination, including resolution of any related appeals or litigation, based on the technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of the benefit to be recognized in the consolidated financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The Company had no uncertain tax positions that required recognition in the consolidated financial statements at December 31, 2017 and 2016. Any interest or penalties would be recognized as a component of income tax expense. Open tax years include 2016, 2015 and 2014.

Members’ Equity

The detail of members’ equity, as applicable, for OAI, T7A and OAA for the years ended December 31, 2017, 2016 and 2015 are as follows:



	Omni Air International, LLC
	Common Stock						Additional Paid-in Capital			Retained Earnings			Members' Equity			Total
	Shares			Amount
Balance, January 1, 2015	8,200			$	820		$	1,177,748		$	69,000,209		$	—		$	70,178,777
Net Income	—			—			—			33,240,941			—			33,240,941
Distributions to stockholders	—			—			—			(64,041,296		)	—			(64,041,296		)
Balance, December 31, 2015	8,200			820			1,177,748			38,199,854			—			39,378,422
Conversion to LLC	(8,200		)	(820		)	(1,177,748		)	(38,199,854		)	39,378,422			—
Net Income	—			—			—			—			27,609,031			27,609,031
Distributions to members	—			—			—			—			(14,000,000		)	(14,000,000		)
Balance, December 31, 2016	—			—			—			—			52,987,453			52,987,453
Net income	—			—			—			—			19,349,256			19,349,256
Distributions to members	—			—			—			—			(19,576,516		)	(19,576,516		)
Balance, December 31, 2017	$	—		$	—		$	—		$	—		$	52,760,193		$	52,760,193

													T7 Aviation Leasing, LLC			Omni Aviation Leasing, LLC

Balance, January 1, 2015													$	67,040,300		$	53,063,417
Net income (loss)													(996,879		)	18,451,567
Distributions to members													(24,500,000		)	(41,000,000		)
Contributions from members													—			8,000,000
Balance, December 31, 2015													41,543,421			38,514,984
Net Income													22,728,026			27,217,370
Distributions to members													(17,000,000		)	(11,200,000		)
Contributions from members													—			—
Balance, December 31, 2016													47,271,447			54,532,354
Net Income													7,455,297			12,556,298
Distributions to members													(4,800,000		)	(19,480,000		)
Contributions from members													3,000,000			—
Balance, December 31, 2017													$	52,926,744		$	47,608,652

As limited liability companies, OAI, T7A and OAA have no outstanding shares of stock. Rather, ownership of each company is evidenced by “units of ownership” issued to its members. OAI has a sole member. T7A had 2,000 voting units and 18,000 non-voting units authorized and 1,000 voting units and 9,000 non-voting units outstanding at December 31, 2017 and 2016. OAA had 1,000 voting units and 9,000 non-voting units authorized and outstanding at December 31, 2017 and 2016.

Fair Value

During 2017, 2016 and 2015, the Company recorded certain impairments of long-lived assets as displayed in the Consolidated Statements of Operations. The assessment of fair value for impairment purposes required inputs which are not readily observable or corroborated by other market data (known as Level 3 measurements).

Risks and Uncertainties

The Company has not experienced significant losses in the past from uncollectible accounts because their customers are generally well-established entities with proven payment histories. Further, passenger charter revenues (other than the DoD and one other customer) are generally collected in advance and held in escrow until the designated charters are flown.

The Company maintains cash balances in various accounts at several banks, which frequently exceed federally insured limits. The Company's cash balances are insured by the FDIC up to $250,000 per bank. Management believes the risk of loss is mitigated by the reputation and history of the financial institutions in which cash balances are held.

One customer accounted for approximately 73%, 70% and 74% of the Company’s revenues for the years ended December 31, 2017, 2016 and 2015, and approximately 84% and 82% of accounts receivable at December 31, 2017 and 2016, respectively. If the Company was to experience a substantial reduction in business from this significant customer, it could result in material harm to its business, financial condition and future results of operations if new customers or alternate uses of the aircraft could not be located in a timely manner.

All of OAI’s pilots and flight attendants are covered by collective bargaining agreements.

New Accounting Pronouncements

FASB ASU No. 2015-14. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date," which amends the effective date of ASU No. 2014-09. The updates clarify the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 amends the effective date to financial statements issued with fiscal years beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption not permitted. Topic 606 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is still evaluating the impact of this standard.

FASB ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842),” which amends the FASB Accounting Standards Codification and creates Topic 842, Leases. This Topic requires Balance Sheet recognition of lease assets and lease liabilities for leases classified as operating leases under previous GAAP, excluding short-term leases of 12 months or less. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact of this standard.

In November 2016, the FASB issued ASU No. 2016-18 “Statement of Cash Flows (Topic 230) - Restricted Cash.” The amendments in this ASU require transfers between cash and equivalents and restricted cash and equivalents, as well as direct cash receipts into and cash payments made from restricted cash and equivalents to be explained in the statement of cash flows. Restricted cash and restricted cash equivalents are to be included in the beginning and ending cash and cash equivalent balance totals on the statement of cash flows. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is still evaluating the impact of this standard.

Reclassifications

Certain amounts in the accompanying consolidated financial statements have been reclassified to conform to the 2017 presentation. These reclassifications had no impact on previously reported total assets, total liabilities, net income, members’ equity or total operating, investing or financing cash flows.

2. Related Party Transactions

During the years ended December 31, 2017, 2016 and 2015, the Company had the following significant transactions with related parties:

Certain of OAI’s office, hangar and warehouse facilities are leased from companies affiliated with two members on a month-to-month basis under operating leases. During the years ended December 31, 2017, 2016 and 2015, $473,712, $473,712 and $473,712, respectively, was paid to the members under these arrangements. These expenses are included

on the Consolidated Statements of Operations within flight operations, maintenance or general and administrative expenses, depending upon the lease.

OAI has a revolving line of credit with a bank whereby the bank’s majority stockholder is also affiliated with OAI. The revolving line of credit had a balance of $9,500,000 as of December 31, 2016, and no balance was outstanding as of December 31, 2017.

OAA entered into a loan agreement in 2016 with a bank whereby the bank’s majority stockholder is also affiliated with OAI.

3. Debt and Guarantees

OAI has a revolving line of credit with a bank. In March 2015, the revolving line of credit agreement was amended. The line of credit is for the lesser of $25,000,000 or 80% of qualified trade receivables plus 75% of the approved value of the aircraft ($26,680,000 at December 31, 2017) less $500,000 for foreign exchange line of credit. The interest rate was amended to LIBOR plus 1.35% per annum and the new agreement expires on March 31, 2018 and was subsequently amended as discussed in Note 7. For purposes of the calculation of trade receivables, the lender must approve the inclusion of receivables from significant customers. At December 31, 2017, availability under the line of credit was $23,208,260 (which is net of outstanding letters of credit). Outstanding advances were $0 and $9,500,000 at December 31, 2017 and 2016, respectively. There were $1,791,740 and $1,791,740 letters of credit issued on this revolving line of credit at December 31, 2017 and 2016, respectively. The agreement is collateralized by accounts receivable, spare parts inventory and an aircraft that is owned by OAA. The agreement contains certain financial covenants which include, among other things, required debt coverage ratios, required levels of EBITDA and limitations on a number of items such as stockholder distributions, lease commitments, sales of assets, transactions with affiliates and changes in key members of management. OAI was in compliance with these covenants at December 31, 2017 and 2016.

In June 2015, OAA entered into a loan agreement for principal of $7,500,000 with a bank, the proceeds of which were used to acquire an aircraft. The loan is due in 2020, is collateralized by the aircraft and the lease agreement with OAI. Interest accrues at a variable rate (LIBOR plus 1.35% per annum), which was 2.91% at December 31, 2017. The loan contains certain financial covenants which include, among other things, a requirement for OAA to maintain a specified Debt Service Coverage ratio and a specified Funded Debt to EBITDA (as defined) ratio. At December 31, 2017 and 2016 OAA was in compliance with these covenants.

In May 2016, OAA entered into a loan agreement for principal of $8,100,000 with a bank, the proceeds of which were used to acquire an aircraft. The loan is due in 2021, is collateralized by the aircraft and the lease agreement with OAI. Interest accrues at a variable rate (LIBOR plus 1.25% per annum), which was 2.81% at December 31, 2017. The loan contains certain financial covenants which include, among other things, a requirement for OAA to maintain a specified Debt Service Coverage ratio and a specified Funded Debt to EBITDA (as defined) ratio. At December 31, 2017 and 2016, OAA was in compliance with these covenants.

In February 2016, T7A entered into a loan agreement for principal of $41,000,000 with a bank. In March 2016, T7A entered into a loan with a bank for principal of $28,000,000 of which $18,000,000 was borrowed in March 2016 and $10,000,000 in January 2017. In January 2017, T7A entered into a loan for principal of $22,000,000 with a bank. These loans were for the purpose of acquiring three aircraft and an engine. The loans originated in 2016 are due in 2021 and the loan originated in 2017 is due in 2022, and are collateralized by the aircraft and lease agreements with OAI. Interest accrues at a variable rate of interest (LIBOR plus 1.2% per annum), which was 2.67% at December 31, 2017. The loans contain certain financial covenants which include, among other things, required debt coverage ratios, required levels of EBITDA and limitations on a number of items such as stockholder distributions, lease commitments, sales of assets, transactions with affiliates and changes in key members of management. At December 31, 2017 and 2016, OAI and T7A were in compliance with these covenants.

Each of the aforementioned debt arrangements include default provisions under which a violation under one agreement would result in a violation of the others. There were no violations as of December 31, 2017 and 2016.

As of December 31, 2017, aggregate maturities of debt for each of the next five years are as follows:



Year	Amount
2018	$	10,694,483
2019	10,694,483
2020	14,069,483
2021	27,319,109
2022	12,100,000

4. Commitments and Contingencies Leases

As of December 31, 2017, OAI had operating lease agreements for the lease of one 767-200 aircraft, and one 767-300 aircraft, with unrelated entities. OAI also has operating lease agreements for the lease of hangar and warehouse facilities. Certain lease arrangements include renewal options at terms similar to current rates.

Future lease payments (excluding maintenance related payments) at December 31, 2017 are as follows:



Year	Amount
2018	$	4,729,593
2019	602,888
2020	38,388
2021	38,388
2022	20,593
Thereafter	5,848

Lease expense for the years ended December 31, 2017, 2016 and 2015 was $9,606,204, $12,135,778 and $12,104,183 respectively.

As previously discussed, OAI is contractually obligated to perform maintenance on these leased aircraft.

Certain lease agreements contain cross default provisions whereby violations of other agreements to which the Company are a party lead to a default under the lease agreement. The Company did not default on any cross default provisions as of December 31, 2017 and 2016.

The Company may be involved in various legal actions arising in the ordinary course of business. Based on the information currently available, management believes that there are no claims pending that would have a material adverse effect on the Company’s business, operating results or financial condition.

In June 2017, OAA signed a letter of intent to purchase a 767-300 aircraft for $10,200,000. The Company made a deposit of $1,020,000 during 2017. The sale closed in April 2018.

5. Retirement Savings Plan

OAI maintains a 401(k) retirement savings plan that covers substantially all employees (excluding pilots, for whom a separate plan is maintained) who have attained age 21 and have completed one year of service. Employees are fully vested after six years of service. OAI makes matching contributions of up to 5%, based on a percentage of employee compensation. OAI matching contributions to the plan were $273,942, $251,172 and $239,327 for the years ended December 31, 2017, 2016 and 2015, respectively.

OAI may also, at the discretion of the Board of Directors, elect to make discretionary contributions to the plan. Such contributions, if made, are allocated to the plan participants based on the participants’ share of total compensation paid during the plan year to all participants eligible for the allocations. Discretionary contributions were $650,000, $650,000 and $1,000,000 for the years ended December 31, 2017, 2016 and 2015, respectively.

OAI maintains a separate 401(k) retirement savings plan that covers substantially all pilots who have attained age 21

and have completed one year of service. Employees are fully vested after six years of service. OAI makes matching contributions of up to 5%, based on a percentage of employee compensation. Matching contributions to the plan were $216,951, $217,443 and $208,302 for the years ended December 31, 2017, 2016 and 2015, respectively.

6. Revenue Information

OAI monitors its operating revenues based on the type of customer served and the geographical source of the revenues. Some of its contracts require it to supply only aircraft, crew, maintenance and insurance (ACMI) with the customer being responsible for the other operating costs, including fuel. Under “full service” contracts, OAI is responsible for the ACMI costs in addition to most other costs associated with flight operations, including landing, handling and fuel. In addition, the customer contracts contain a fixed rate for fuel. If the cost incurred is more than the fixed price, OAI can bill the customer for the excess cost. Should the cost incurred be less than the fixed price, the customer is entitled to a refund. OAI did not owe any refunds at December 31, 2017, 2016 or 2015.

Revenues by geographical source for OAI were as follows for the years ended December 31:



Year	Domestic		International		Total
2017	$	43,440,419	$	314,445,164	$	357,885,583
2016	34,886,525		301,138,072		336,024,597
2015	37,279,187		323,088,294		360,367,481

7. Subsequent Events

Management has evaluated subsequent events through January 9, 2019, the date the consolidated financial statements were available to be issued.

On February 9, 2018, OAA signed a purchase and sale agreement to purchase a spare 767 engine for $4,300,000. The engine will be leased to OAI.

On March 22, 2018, OAA signed a letter of intent to purchase a spare 767 engine for $3,600,000. The engine will be leased to OAI.

In March 2018, the revolving line of credit agreement was amended. The amended line of credit is for the lesser of$25,000,000 or 80% of qualified trade receivables plus 50% of the approved value of the aircraft ($37,013,400 at March 28, 2018) less $750,000 for foreign exchange line of credit. The interest rate was amended to LIBOR plus 1.25% per annum and the new agreement expires on March 31, 2021. The agreement is collateralized by accounts receivable, spare parts inventory and an aircraft that is owned by OAA. The agreement contains certain financial covenants which include, among other things, required debt coverage ratios, required levels of EBITDA and limitations on a number of items such as stockholder distributions, lease commitments, sales of assets, transactions with affiliates and changes in key members of management.

On November 9, 2018, Air Transport Services Group, Inc. (ATSG) acquired the Company and the Company became a wholly-owned subsidiary of ATSG.

EX-99.3 4 ex993omniunauditedfinancia.htm EXHIBIT 99.3 Exhibit

Exhibit 99.3

Index to Condensed Consolidated Financial Statements (Unaudited)

Omni Air International, LLC



	Page
Condensed Consolidated Balance Sheets	2
Condensed Consolidated Statements of Operations	3
Condensed Consolidated Statements of Cash Flows	4
Notes to Condensed Consolidated Financial Statements	5

OMNI AIR INTERNATIONAL, LLC AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)



	September 30,		December 31,
	2018		2017
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ($20,375 and $15,826 relating to VIE's for 2018 and 2017, respectively)	$	37,603	$	34,731
Restricted cash	2,580		5,269
Accounts receivable ($1 and $90 relating to VIE's for 2018 and 2017, respectively)	45,804		22,716
Inventory ($9,219 and $9,523 relating to VIE's for 2018 and 2017, respectively)	9,502		9,806
Prepaid expenses and other	1,827		2,668
TOTAL CURRENT ASSETS	97,316		75,190
Property and equipment, net ($150,917 and $141,449 relating to VIE's for 2018 and 2017, respectively)	171,053		183,162
Other assets	1,386		1,013
TOTAL ASSETS	$	269,755	$	259,365
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable ($63 and $2,160 relating to VIE's for 2018 and 2017, respectively)	$	11,952	$	11,914
Accrued salaries, wages and benefits	10,237		5,361
Accrued expenses	9,788		5,911
Notes payable ($13,162 and $10,694 relating to VIE's for 2018 and 2017, respectively)	13,162		10,694
Other accrued liabilities	2,426		4,347
Customer deposits and deferred revenue	4,817		3,659
TOTAL CURRENT LIABILITIES	52,382		41,886
Long term notes payable ($74,021 and $64,183 relating to VIE's for 2018 and 2017, respectively)	74,021		64,183
Commitments and contingencies
Members' equity	143,352		153,296
TOTAL LIABILITIES AND EQUITY	$	269,755	$	259,365

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands)



	Nine months ended September 30,
	2018			2017
REVENUES	$	354,366		$	264,543
OPERATING EXPENSES
Flight operations	202,332			144,678
Maintenance	30,420			30,530
General and administrative	13,263			12,775
Commissions	7,806			5,636
Depreciation and amortization	44,550			38,527
Impairment of assets	601			332
Gain on sale of assets	(160		)	27
TOTAL OPERATING EXPENSES	298,812			232,505
OPERATING INCOME	55,554			32,038
NONOPERATING INCOME (EXPENSE)
Interest expense	(1,823		)	(1,540		)
Interest income	406			43
Other Income	2,455			1,735
TOTAL NONOPERATING INCOME	1,038			238

NET INCOME	$	56,592		$	32,276

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Nine Months Ended September 30,
	2018			2017
OPERATING ACTIVITIES:
Net Income	$	56,592		$	32,276
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,550			38,527
Impairment of assets	601			332
Gain on sale of assets	(160		)	27
Changes in assets and liabilities:
Restricted cash	2,689			(3,061		)
Accounts receivable	(23,074		)	(4,613		)
Other prepaid expenses and other assets	271			(1,742		)
Accounts payable	26			(6,196		)
Customer deposits and deferred revenue	1,157			5,422
Accrued operating expenses	3,877			1,222
Accrued payroll	4,876			1,872
Deferred aircraft rent	—			(77		)
Other accrued liabilities	(1,920		)	(8,446		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	89,485			55,543
INVESTING ACTIVITIES:
Purchases of property, leasehold improvements and equipment	(33,472		)	(38,971		)
Proceeds from sale of assets	590			(223		)
NET CASH USED IN INVESTING ACTIVITIES	(32,882		)	(39,194		)
FINANCING ACTIVITIES:
Borrowings under long term debt	20,326			32,000
Principal payments on long term debt	(8,021		)	(6,835		)
Borrowings on line of credit	—			(6,000		)
Distributions to stockholders/members	(66,536		)	(25,815		)
Contributions from stockholders/members	500			500
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	(53,731		)	(6,150		)

NET INCREASE IN CASH AND CASH EQUIVALENTS	2,872			10,199
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	34,731			30,652
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	37,603		$	40,851

SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid during the year for interest	$	1,661		$	1,469
Accrued capital expenditures	$	246		$	4,718

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

OMNI AIR INTERNATIONAL, LLC AND AFFILIATES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands)

1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

Omni Air International, LLC ("OAI") is a U.S. Part 121 Supplemental Air Carrier based at Tulsa International Airport, Oklahoma, and specializes in providing passenger charter services to commercial and government customers. OAI targets passenger charter markets that can be efficiently served with long-range aircraft. OAI is approved by the U.S. Department of Defense ("DoD") to transport DoD personnel and dependents to domestic and international locations. OAI’s other customers include tour operators that provide vacation packages, foreign air carriers that require additional capacity to meet peak season demands, and other government agencies both foreign and domestic. As of September 30, 2018, OAI operated a fleet of thirteen passenger aircraft.

Principles of Consolidation

The consolidated financial statements include the accounts of OAI and its wholly owned subsidiary, Advanced Flight Services, LLC ("AFS"). The consolidated financial statements also include the results of Omni Aviation Leasing, LLC ("OAA"), and T7 Aviation Leasing, LLC ("T7A"), the variable interest entities ("VIE’s"). All intercompany balances and transactions have been eliminated in consolidation. OAI, OAA, and T7A are all Nevada corporations. For purposes of these consolidated financial statements, OAI, AFS and the VIE’s are collectively referred to as the “Company.”

Variable Interest Entities

OAI has a variable interest in T7A and OAA. T7A and OAA’s operations are comprised of leasing aircraft to OAI. OAI is the primary lessee of these aircraft owned by OAA and T7A and therefore has an explicit variable interest in these entities. As OAI is the primary beneficiary of the VIE’s the results of the VIE’s have been consolidated into the accompanying consolidated financial statements in accordance with the Accounting Standards Codification (ASC) 810 Consolidation.

As of September 30, 2018 and December 31, 2017, the VIE’s have assets of approximately $185,690 and $ 177,680, liabilities of $96,660 and $77,145 (including debt of $74,021 and $74,878), respectively, intercompany balances of which eliminate in consolidation. The VIE’s had revenues of $51,029 and $59,295 for the nine months ended September 30, 2018 and 2017, respectively, that eliminate in consolidation.

Management Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reported periods. The most significant estimates relate to determining the lives and impairment of tangible and intangible assets, the fair value of acquired assets, and assessing the collectability of accounts receivable. Actual results could differ materially from the estimates used in the preparation of the accompanying combined financial statements.

Cash and Cash Equivalents

Cash includes cash on hand and cash in bank accounts, and highly marketable securities or funds that own highly marketable securities with original maturities of three months or less when acquired. The carrying amounts reported on the Combined Balance Sheets approximate fair value due to the short-term maturity of these instruments.

Restricted Cash

Restricted cash is comprised of cash in a charter escrow account. The account, required by Department of Transportation ("DOT") regulations, is restricted to the extent of customers’ deposits on flights not yet flown and is available for release from escrow upon completion of the flights, which will occur within the next twelve months. Changes in restricted cash are included separately from cash and cash equivalents in the operating activities section of the Combined Statements of Cash Flows.

Revenue Recognition

FASB ASU No. 2015-14. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date," which amends the effective date of ASU No. 2014-09. The updates clarify the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Topic 606 may be adopted using either a full retrospective approach, under which all years included in the financial statements will be presented under the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for open contract performance at that time.

The Company adopted the standard effective January 1, 2018, using the modified retrospective method. The adoption efforts have included the identification of revenue within the scope of the standard, the evaluation of customer contracts in conjunction with new guidance and an assessment of the qualitative and quantitative impacts of the new standard on its financial statements. The evaluation included the application of each of the five steps identified in the Topic 606 revenue recognition model. The adoption of Topic 606 did not result in a cumulative catch-up adjustment to retained earnings.

The Company's performance obligation under contacts with its customers generally require the Company to provide integrated flight services including aircraft, crews and maintenance. Revenues are typically based on flight hours flown during a month. Revenues are recognized over time as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. Revenues related to on-time performance targets are recognized over the applicable measurement period for the target, which requires judgment to estimate the total number of flight hours expected for the service period.

Under some agreements, customers are responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Any sales commissions are generally expensed as incurred because the amortization period is less than one year. Customers are invoiced weekly.

Revenue is not recognized until collectibility of customer payment is probable. For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are customer obligations due under normal trade terms and arise from providing passenger services and are based on contracted prices. As a general policy, collateral is not required for receivables, but customers’ financial condition and credit worthiness are evaluated regularly. The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The estimate is based on historical collection experience and a review of the current status of trade accounts receivable. At September 30, 2018 and December 31, 2017 no allowance was considered necessary.

Parts Inventory

Inventories are stated at the lower of cost or market. The inventory parts are commercially available for sale to outside third parties and are being marketed as such.

Prepaid Expenses

Property and Equipment

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate the carrying value of an asset may not be recoverable from the estimated future undiscounted cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, impairment is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Fair value is based on current market prices for similar property and equipment.

Maintenance Activities and Return Conditions

Customer Deposits

Income Taxes

technical merits of the position. A tax position that meets the more likely than not threshold is measured to determine the amount of the benefit to be recognized in the combined financial statements. The amount of tax benefit recognized with respect to any tax position is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Any interest or penalties would be recognized as a component of income tax expense.

Risks and Uncertainties

The Company maintains cash balances in various accounts at several banks, which frequently exceed federally insured limits. The Company cash balances are insured by the FDIC up to $250,000 per bank. Management believes the risk of loss is mitigated by the reputation and history of the financial institutions in which cash balances are held.

One customer accounted for approximately 73% and 71% of the Company’s revenues for the nine month periods ended September 30, 2018 and 2017, respectively, and approximately 84% and 82% of accounts receivable at September 30, 2018 and December 31, 2017 respectively. If the Company were to experience a substantial reduction in business from this significant customer, it could result in material harm to its business, financial condition and future results of operations if new customers or alternate uses of the aircraft could not be located in a timely manner.

All of OAI’s pilots and flight attendants are covered by collective bargaining agreements.

New Accounting Pronouncements

2. Fixed Assets

As of September 30, 2018, the Company owned eleven passenger aircraft and leased two passenger aircraft under operating leases. Property and equipment, to be held and used, is summarized as follows (in thousands):



	September 30, 2018			December 31, 2017
Flight equipment	$	375,711		$	350,130
Ground equipment	8,126			7,737
Office equipment and facility leasehold improvements	10,730			10,056
	394,567			367,923
Accumulated depreciation	(223,514		)	(184,761		)
Property and equipment, net	$	171,053		$	183,162

For the nine month periods ending September 30, 2018 and 2017, depreciation expense was $44,550 and $38,527 respectively. For the nine month periods ending September 30, 2018 and 2017, impairment expense was $601, and $332, respectively.

3. Debt and Guarantees

OAI has a revolving bank line of credit for the lesser of $25,000,000 or 80% of qualified trade receivables plus 50% of the approved value of the aircraft less $750,000 for foreign exchange line of credit. The interest rate is LIBOR plus 1.25% per annum, which was 3.51% at September 30, 2018. The agreement expires on March 31, 2021. At September 30, 2018, availability under the line of credit was $23,064,611 (which is net of outstanding letters credit). There were $1,935,389 and $1,791,740 letters of credit issued on this revolving line of credit at September 30, 2018 and December 31, 2017 respectively. The agreement is collateralized by accounts receivable, spare parts inventory and an aircraft that is owned by OAA. The agreement contains certain financial covenants which include, among other things, required debt coverage ratios, required levels of EBITDA and limitations on a number of items such as stockholder distributions, lease commitments, sales of assets, transactions with affiliates and changes in key members of management. OAI was in compliance with these covenants at September 30, 2018 and December 31, 2017.

In June 2015, OAA entered into a loan agreement for principal of $7,500,000 with a bank, the proceeds of which were used to acquire an aircraft. The loan is due in 2020, is collateralized by the aircraft and the lease agreement with OAI. Interest accrues at a variable rate (LIBOR plus 1.35% per annum), which was 3.61% at September 30, 2018. The loan contains certain financial covenants which include, among other things, a requirement for OAA to maintain a specified Debt Service Coverage ratio and a specified Funded Debt to EBITDA (as defined) ratio. At September 30, 2018 and December 31, 2017 OAA was in compliance with these covenants.

In May 2016, OAA entered into a loan agreement for principal of $8,100,000 with a bank, the proceeds of which were used to acquire an aircraft. The loan is due in 2021, is collateralized by the aircraft and the lease agreement with OAI. Interest accrues at a variable rate (LIBOR plus 1.25% per annum), which was 3.51% at September 30, 2018. The loan contains certain financial covenants which include, among other things, a requirement for OAA to maintain a specified Debt Service Coverage ratio and a specified Funded Debt to EBITDA (as defined) ratio. At September 30, 2018 and December 31, 2017 OAA was in compliance with these covenants.

In February 2016, T7A entered into a loan agreement for principal of $41,000,000 with a bank. In March 2016, T7A entered into a loan with a bank for principal of $28,000,000 of which $18,000,000 was borrowed in March 2016 and $10,000,000 in January 2017. In January 2017, T7A entered into a loan for principal of $22,000,000 with a bank. These loans were for the purpose of acquiring three aircraft and an engine. The loans originated in 2016 are due in 2021 and the loan originated in 2017 is due in 2022, and are collateralized by the aircraft and lease agreements with OAI. Interest accrues at a variable rate of interest (LIBOR plus 1.2% per annum), which was 3.46% at September 30, 2018. The loans contain certain financial covenants which include, among other things, required debt coverage ratios, required levels of EBITDA and limitations on a number of items such as stockholder distributions, lease commitments, sales of assets, transactions with affiliates and changes in key members of management. At September 30, 2018 and December 31, 2017, OAI and T7A were in compliance with these covenants.

4. Related Parties

During the nine month period ended September 30, 2018 and 2017, the Company had transactions with related parties. Certain of OAI’s office, hangar and warehouse facilities are leased from companies affiliated with two members on a month- to-month basis under operating leases. These expenses are included on the Condensed Consolidated Statements of Operations within flight operations, maintenance or general and administrative expenses, depending upon the lease.

OAI has a revolving line of credit with a bank whereby the bank’s majority stockholder is also affiliated with OAI. The revolving line of credit had no balance outstanding as of September 30, 2018, and December 31, 2017, respectively.

OAA entered into a loan agreement in 2016 with a bank whereby the bank’s majority stockholder is also affiliated with OAI.

5. Subsequent Events

On November 9, 2018, Air Transport Services Group, Inc. ("ATSG") acquired the Company and the Company became a wholly-owned subsidiary of ATSG.

EX-99.4 5 ex994omniproforma.htm EXHIBIT 99.4 Exhibit

Exhibit 99.4

Index to Unaudited Pro Forma Condensed Combined Financial Information



	Page
Description of Transaction	2
Pro Forma Condensed Combined Balance Sheet	3
Pro Forma Condensed Combined Statements of Earnings
For the Nine Months Ended September 30, 2018	4
For the Year Ended December 31, 2017	5
Notes to Pro Forma Condensed Combined Financial Information	6

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

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Statements

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.