Goodwill and Other Intangibles

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles

GOODWILL, INTANGIBLES AND EQUITY INVESTMENTS

The Changes in the carrying amount of goodwill, by operating segment, are as follows:

	CAM		ACMI Services		All Other		Total
Carrying value as of December 31, 2018	$	153,290	$	234,571	$	2,884	$	390,745
Acquisition of TriFactor	—		—		5,229		5,229
Carrying value as of June 30, 2019	$	153,290	$	234,571	$	8,113	$	395,974

Changes in the carrying amount of acquired intangible assets are as follows (in thousands):

	Airline		Amortizing
	Certificates		Intangibles			Total
Carrying value as of December 31, 2018	$	9,000	$	135,614		$	144,614
Amortization	—		(5,717		)	(5,717		)
Right of use asset	—		(1,500		)	(1,500		)
Carrying value as of June 30, 2019	$	9,000	$	128,397		$	137,397

The airline certificates have an indefinite life and therefore are not amortized. The Company amortizes finite-lived intangibles assets, including customer relationship and STC intangibles, over 4 to 20 years.

The acquisition of Omni by the Company 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 acquired and liabilities assumed based on their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair value of net assets acquired was recorded as goodwill. The purchase price exceeded the fair value of the net assets acquired due to the strategic opportunities and expected benefits associated with adding Omni's capabilities to the Company's existing offerings in the market. The allocation of the purchase price to specific assets and liabilities is based, in part, upon preliminary valuations from internal estimates and independent appraisals.

The following table provides pro forma condensed combined financial information (in thousands) for the Company after giving effect to the Omni acquisition. This information is based on adjustments to the historical consolidated financial statements of Omni using the purchase method of accounting for business combinations. The pro forma adjustments do not include any of the cost savings and other synergies anticipated to result from the acquisition. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results that would have actually been reported as of the date or for the quarter presented had the acquisition taken place on such date or at the beginning of the quarter indicated, or to project the Company’s financial position or results of operations which may be reported in the future.

The pro forma results exclude non-recurring charges recorded by Omni that were directly related to the acquisition by the Company. Combined results for Air Transport Services Group and Omni for the three and six month periods ended June 30, 2018 were adjusted for the following in order to create the unaudited pro forma results in the table:

	Three Months Ended		Six Months Ended
	June 30, 2018		June 30, 2018
Pro forma revenues	$	327,801	$	633,657
Pro forma net earnings from continuing operations	32,715		54,129

The following adjustments were made to the historical financial records to create the unaudited pro forma information in the table above:

• Adjustments to eliminate transactions between the Company and Omni during the three and six month periods ended June 30, 2018.

• Adjustment to reflect estimated additional depreciation and amortization expense of $2.6 million and $5.3 million for the three and six month periods ended June 30, 2018, 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 the Company's policies and intent to modify certain aircraft to freighters as an aircraft is removed from passenger service.

• Adjustment to reflect additional interest expense and amortization of debt issuance costs for the three and six month periods ended June 30, 2018, related to the combined $855 million from an unsubordinated term loan and revolving facility draws using the prevailing rates of 4.57%.

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). In April 2019, West issued additional shares to a new investor in conjunction with a capital investment and purchase agreement which reduced the Company's ownership to approximately 10% and reduced the Company's influence over West. West, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 767 and 737 aircraft. West leases three Boeing 767 aircraft and one Boeing 737 from the Company.

On August 3, 2017 the Company entered into a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The Company anticipates approval of a supplemental type certificate from the FAA in 2020. The Company expects to make contributions equal to its 49% ownership percentage of the program's total costs over the next two years. During the six month periods ending June 30, 2019 and 2018, the Company contributed $6.4 million and $5.2 million to the joint venture, respectively.

The carrying value of West and the joint venture totaled $12.6 million and $12.5 million at June 30, 2019 and December 31, 2018, respectively. and are reflected in “Other Assets” in the Company’s consolidated balance sheets. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment. The fair value is generally determined using an income approach based on discounted cash flows or using negotiated transaction values.

Stock warrants issued to a lessee (see Note C) as an incentive are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligation and amortized against revenues over the duration of related aircraft leases. The Company's lease incentive granted to the lessee was as follows (in thousands):

	Lease
	Incentive
Carrying value as of December 31, 2018	$	63,780
Warrants granted	100,076
Amortization	(8,251		)
Carrying value as of June 30, 2019	$	155,605

The lease incentive began to amortize in April 2016, with the commencement of certain aircraft leases over the duration of the related leases.