Acquisition |
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Jun. 30, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition |
(2) Acquisition
On January 28, 2015, we acquired four businesses that specialize in maintenance, repair and overhaul ("MRO") services and parts supply for corporate and regional jet aircraft engines and jet aircraft engine accessories. The businesses acquired include Air Parts & Supply Co., Kansas Aviation of Independence, L.L.C., Prime Turbines LLC (including both U.S. and Germany-based operations), and CT Aerospace LLC (collectively, the "Aviation Acquisition"). These four businesses are operating as a combined group managed by our recently formed wholly owned subsidiary VSE Aviation, Inc ("VAI"). The Aviation Acquisition provides diversification by adding more service offerings and broadening our client base.
The initial purchase consideration paid at closing for the Aviation Acquisition was approximately $189 million (subject to adjustment). We may also be required under an earn-out obligation to make additional purchase price payments of up to $40 million if the Aviation Acquisition meets certain financial targets during the first two post-closing years. An additional $5 million purchase price consideration will be payable if certain of the acquired businesses surpass certain financial targets during any 12 consecutive month period in 2014 and 2015. Of the payment made at closing, $18 million was deposited into an escrow account to secure the sellers' indemnification obligations (the "Indemnification Amount"). Any remaining Indemnification Amount at the end of the indemnification period not encumbered as a result of any indemnification claims will be distributed to the sellers. VAI's results of operations are included in the accompanying unaudited consolidated financial statements beginning on the acquisition date of January 28, 2015.
VAI had revenues of approximately $54.7 million and operating income of approximately $4.7 million from the acquisition date through June 30, 2015.
We are in the process of finalizing our valuation of the assets acquired and liabilities assumed. The fair values assigned to our earn-out obligation and intangible assets acquired were based on preliminary estimates, assumptions, and other information compiled by management, including independent valuations that utilized established valuation techniques. Based on our preliminary valuation, the total estimated consideration of approximately $189 million, which included an estimated final cash and net working capital and other adjustments of approximately $5 million. Additional cash consideration of approximately $2.4 million due to the sellers based on the final cash and net working capital and other adjustments was recorded as additional goodwill and an accrued liability during June 2015. The $2.4 million was paid to the sellers in July 2015. The total estimated purchase price has been allocated to assets acquired (including identifiable intangible assets and goodwill) and liabilities assumed (including deferred taxes on identifiable intangible assets that are not deductible for income tax purposes), as follows (in thousands):
The estimated value attributed to customer relationships is being amortized on a straight-line basis using weighted average useful lives of approximately 14 years. The estimated value attributed to trade name is being amortized on a straight-line basis over nine years. None of the value attributed to goodwill, customer relationships and trade name is deductible for income tax purposes. The amount of goodwill recorded for the Aviation Acquisition was approximately $92.3 million and reflects the strategic advantage of expanding our supply chain management and MRO capabilities through the addition of new service offerings to new markets.
We incurred approximately $135 thousand and $413 thousand of acquisition-related expenses during the three and six months ended June 30, 2015 which are included in selling, general and administrative expenses.
The following pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the Aviation Acquisition which occurred on January 28, 2015, occurred at the beginning of the periods presented or the results that may occur in the future. The following unaudited pro forma results of operations assume the Aviation Acquisition had occurred on January 1, 2014 (in thousands except per share amounts):
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