Acquisition of Business (Notes)

12 Months Ended

Dec. 31, 2019

Business Combination Disclosure [Text Block]

ACQUISITION OF OMNI

On November 9, 2018, the Company acquired Omni including OAI and its aircraft fleet. The Company acquired Omni for cash consideration of $867.7 million. The Company 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 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 benefits of adding Omni include the following:


•	Additional passenger transportation capabilities


•	FAA operating authority for the Boeing 777 aircraft


•	Increased revenues, cash flows and customer diversification


•	Passenger aircraft life cycle leading to potential freighter conversion

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. Based on the valuations, the following table summarizes estimated fair values of the assets acquired and liabilities assumed (in thousands) for the consideration paid:



Cash	$	4,693
Accounts receivable	63,041
Other current assets	8,366
Other assets	7,836
Intangibles	140,000
Goodwill	353,466
Property and equipment	328,869
Current liabilities	(32,646		)
Customer deposits	(5,950		)
Net assets acquired	$	867,675

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 eighteen years. The estimated life of the airframes and engines include the Company'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. The goodwill is deductible for U.S. income tax purposes over 15 years.

The following table provides unaudited pro forma financial results (in thousands) for the Company after giving effect to the acquisition of Omni and adjustments described below. This information is based on adjustments to the historical consolidated financial statements of Omni using the purchase method of accounting for business combinations as if the acquisition had taken place on January 1, 2017. The unaudited pro forma adjustments do not include any of the cost savings and other synergies which may result from the acquisition. These unaudited pro forma financial results are based on assumptions considered appropriate by management and include all material adjustments as considered necessary. These unaudited 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 year presented had the acquisition taken place on such date or at the beginning of the year indicated, or to project the Company’s financial position or results of operations which may be reported in the future (in thousands).



	Year Ended December 31,
	2018	2017
Pro forma revenues	1,320,234	1,425,823
Pro forma net earnings from continuing operations	88,454	13,660

Revenues for 2018 reflect the adoption of Topic 606 on January 1, 2018, as described in Note O. Under this new revenue standard, such reimbursed amounts are reported net of the corresponding expenses beginning in 2018. Pro

forma revenues for 2017 included $289.4 million of reimbursed expenses. 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 years ended December 31, 2017 and the ten and one half months ended November 9, 2018 respectively.

•

Adjustment to reflect estimated additional depreciation and amortization expense of $10.6 million and $10.0 million for the year ended December 31, 2017 and the ten and one half months ended November 9, 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 the Company's polices 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 year ended December 31, 2017 and the ten and one half months ended November 9, 2018, related to the combined $855 million from an unsubordinated term loan and revolving facility draws using the prevailing rates of 4.57%.

•

Adjustment to apply the statutory tax rate of the Company to the pre-tax earnings of Omni and the pro forma adjustments for the year ended December 31, 2017 and the ten and one half months ended November 9, 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. The adjustments reflect tax rates of 35% for 2017 and 22.58% for the first ten and one half months ended November 9, 2018.

•

Adjustment to remove acquisition related expenses of $5.3 million for professional fees and classified as "Transaction fees " within the consolidated statement of operations for 2018.