NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2021. The results of operations for the period ended June 30, 2021 are not necessarily indicative of the operating results for the full year.
Formation of new entities
On May 5, 2021, the Company formed a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”). The Company and Mill Road Capital (“MRC”) have agreed to become common members in CAM. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”). For the Asset Management Function, CAM will receive origination fees, management fees, consignment fees (where applicable) and a carried interest. For its Investment Function, CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. Any investment returns will be shared pro-rata between the Company and MRC.
COVID-19 Pandemic
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
Recently Adopted Accounting Pronouncements
In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company adopted this amendment on April 1, 2021. As of June 30, 2021, the amendments did not have a material impact on the Company's consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
In July 2021, the FASB updated the Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:
1.The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
2.The lessor would have otherwise recognized a day-one loss.
When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
2. Revenue Recognition
Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
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Type of Revenue
|
Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
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Product Sales
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The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, printing equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation.
The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue.
The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
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Support Services
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The Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
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In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.
The following table summarizes disaggregated revenues by type (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended June 30,
|
|
|
2021
|
|
2020
|
|
Product Sales
|
|
|
|
|
Air Cargo
|
$
|
6,573
|
|
|
$
|
4,315
|
|
|
Ground equipment sales
|
7,998
|
|
|
15,738
|
|
|
Commercial jet engines and parts
|
7,292
|
|
|
2,695
|
|
|
Corporate and other
|
76
|
|
|
33
|
|
|
Support Services
|
|
|
|
|
Air Cargo
|
12,273
|
|
|
11,850
|
|
|
Ground equipment sales
|
65
|
|
|
18
|
|
|
Commercial jet engines and parts
|
2,102
|
|
|
1,625
|
|
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Corporate and other
|
64
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|
|
18
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|
|
Leasing Revenue
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|
|
|
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Ground equipment sales
|
39
|
|
|
48
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|
|
Commercial jet engines and parts
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166
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|
|
373
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|
|
Corporate and other
|
38
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|
|
34
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|
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Other
|
|
|
|
|
Air Cargo
|
5
|
|
|
6
|
|
|
Ground equipment sales
|
80
|
|
|
24
|
|
|
Commercial jet engines and parts
|
35
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|
|
—
|
|
|
Corporate and other
|
162
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|
|
193
|
|
|
|
|
|
|
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Total
|
$
|
36,968
|
|
|
$
|
36,970
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|
|
See Note 11 for the Company's disaggregated revenues by geographic region and Note 12 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2021 and June 30, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the three-month period ended June 30, 2021 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Outstanding contract liabilities
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|
Outstanding contract liabilities as of April 1, 2021
Recognized as Revenue
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As of June 30, 2021
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$
|
1,957
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|
|
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As of April 1, 2021
|
1,358
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|
|
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For the quarter ended June 30, 2021
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|
|
450
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3. Accrued Expenses
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|
|
|
|
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|
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(in thousands)
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June 30, 2021
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March 31, 2021
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|
|
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Salaries, wages and related items
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$
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4,659
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|
|
$
|
5,427
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Profit sharing and bonus
|
487
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|
|
2,706
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Other Deposits
|
1,632
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|
|
1,251
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Other
|
3,001
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|
|
3,403
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Total
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$
|
9,779
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|
|
$
|
12,787
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4. Income Taxes
During the three-month period ended June 30, 2021, the Company recorded $5.0 thousand in income tax benefit at an effective tax rate ("ETR") of (1.6)%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax") and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the three-month period ended June 30, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of 23.9%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
5. Net Earnings (Loss) Per Share
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):
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|
|
|
|
|
|
|
|
Three Months Ended June 30,
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|
2021
|
|
2020
|
Net income (loss)
|
$
|
327
|
|
|
$
|
(956)
|
|
Net (income) loss attributable to non-controlling interests
|
(38)
|
|
|
115
|
|
Net income (loss) attributable to Air T, Inc. Stockholders
|
289
|
|
|
(841)
|
|
Income (Loss) per share:
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|
|
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Basic
|
$
|
0.10
|
|
|
$
|
(0.29)
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|
Diluted
|
$
|
0.10
|
|
|
$
|
(0.29)
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|
Antidilutive shares excluded from computation of income (loss) per share
|
—
|
|
|
5
|
|
|
|
|
|
Weighted Average Shares Outstanding:
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|
|
|
Basic
|
2,882
|
|
|
2,882
|
|
Diluted
|
2,890
|
|
|
2,882
|
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6. Investments in Securities and Derivative Instruments
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028. These swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings. The interest rate swaps are considered Level 2 fair value measurements. As of June 30, 2021 and March 31, 2021, the fair value of the interest-rate swap contracts was a liability of $0.6 million, which is included within other non-current liabilities in the condensed consolidated balance sheets. During the three months ended June 30, 2021 and June 30, 2020, the Company recorded a gain of approximately $11.0 thousand and a loss of approximately $26.0 thousand, net of tax, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three months ended June 30, 2021, related to these derivative instruments, the Company did not record any gain or loss. During the three months ended June 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $0.4 million and no gross loss.
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets. During the three months ended June 30, 2021, the Company had a gross unrealized gain aggregating to $0.4 million and a gross unrealized loss aggregating to $49.0 thousand. During the three months ended June 30, 2020, the Company had a gross unrealized gain aggregating to $0.6 million and a gross unrealized loss aggregating to $0.4 million. These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated statement of income (loss).
The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of June 30, 2021 and 2020, the Company had outstanding borrowings of $0 and $2.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets. As of June 30, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $22.0 thousand and $3.0 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.
7. Equity Method Investments
The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of June 30, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28% of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0. As such, the Company did not record any additional share of Insignia's net loss as of June 30, 2021.
The Company's 18.98% investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $0.3 million. The Company recorded a loss of $0.3 million as its share of CCI's net loss for the three months ended June 30, 2021, along with a basis difference adjustment of $12.0 thousand. The Company's net investment basis in CCI is $3.5 million as of June 30, 2021.
Summarized unaudited financial information for the Company's equity method investees for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
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|
|
|
|
|
|
|
|
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Three Months Ended
|
|
March 31, 2021
|
|
March 31, 2020
|
Revenue
|
$
|
30,273
|
|
|
$
|
21,936
|
|
Gross Profit
|
807
|
|
|
805
|
|
Operating loss
|
(3,095)
|
|
|
(2,378)
|
|
Net loss
|
(2,145)
|
|
|
(2,286)
|
|
Net loss attributable to Air T, Inc. stockholders
|
$
|
(295)
|
|
|
$
|
(570)
|
|
8. Inventories
Inventories consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
March 31,
2021
|
Ground equipment manufacturing:
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|
|
|
Raw materials
|
$
|
4,497
|
|
|
$
|
4,695
|
|
Work in process
|
5,360
|
|
|
5,820
|
|
Finished goods
|
7,327
|
|
|
1,691
|
|
Corporate and Other:
|
|
|
|
Raw materials
|
519
|
|
|
462
|
|
Finished goods
|
889
|
|
|
889
|
|
Commercial jet engines and parts:
|
59,014
|
|
|
60,516
|
|
Total inventories
|
$
|
77,606
|
|
|
$
|
74,073
|
|
Reserves
|
(1,836)
|
|
|
(2,102)
|
|
Total inventories, net of reserves
|
$
|
75,770
|
|
|
$
|
71,971
|
|
9. Leases
The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.
The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the three months ended June 30, 2021 and 2020 are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2021
|
|
2020
|
Operating lease cost
|
$
|
447
|
|
|
$
|
571
|
|
Short-term lease cost
|
282
|
|
|
62
|
|
Variable lease cost
|
147
|
|
|
75
|
|
Total lease cost
|
$
|
876
|
|
|
$
|
708
|
|
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2021 and March 31, 2021 were as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
March 31, 2021
|
Operating leases
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
7,330
|
|
$
|
7,757
|
|
Operating lease liabilities
|
|
8,072
|
|
8,445
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
|
Operating leases
|
|
14 years
|
13 years, 9 months
|
|
|
|
|
Weighted-average discount rate
|
|
|
|
Operating leases
|
|
4.4
|
%
|
4.4
|
%
|
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
Operating Leases
|
2022 (excluding the three months ended June 30, 2021)
|
$
|
1,351
|
|
2023
|
1,677
|
|
2024
|
1,314
|
|
2025
|
1,011
|
|
2026
|
712
|
|
2027
|
593
|
|
Thereafter
|
5,300
|
|
Total undiscounted lease payments
|
$
|
11,958
|
|
Less: Interest
|
(3,362)
|
|
Less: Discount
|
(524)
|
|
Total lease liabilities
|
$
|
8,072
|
|
10. Financing Arrangements
The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25.
AirCo 1, LLC ("AirCo 1") and Contrail Aviation Support, LLC ("Contrail") are subsidiaries of the Company in the Commercial Jet Engines and Parts segment. The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth ("TNW") of $15 million.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to $0 for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.
As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.
The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months. We are currently seeking to refinance this obligation prior to August 31, 2021; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.
Contrail and ONB are also in discussions to reduce the minimum TNW covenant to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement. However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.
On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act. The PPP Loan is evidenced by a promissory note (“Note”). The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT. The PPP Loan may be accelerated upon the occurrence of an event of default.
The PPP Loan is unsecured and guaranteed by the United States Small Business Administration ("SBA"). The Company has applied to the SBA for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act. The PPP Loan bears interest at a fixed annual rate of one percent (1%). Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount. As of June 30, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.
The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
June 30,
2021
|
|
March 31,
2021
|
|
Maturity Date
|
|
Interest Rate
|
|
Unused commitments
|
Air T Debt
|
|
|
|
|
|
|
|
|
|
Revolver - MBT
|
$
|
2,521
|
|
|
$
|
—
|
|
|
August 31, 2021
|
|
Greater of 2.5% or Prime - 1%
|
|
$
|
14,479
|
|
Term Note A - MBT
|
$
|
6,500
|
|
|
$
|
6,750
|
|
|
January 1, 2028
|
|
1-month LIBOR + 2%
|
|
|
Term Note B - MBT
|
$
|
3,250
|
|
|
$
|
3,375
|
|
|
January 1, 2028
|
|
4.50%
|
|
|
Term Note D - MBT
|
$
|
1,455
|
|
|
$
|
1,472
|
|
|
January 1, 2028
|
|
1-month LIBOR + 2%
|
|
|
Term Note E - MBT
|
$
|
4,056
|
|
|
$
|
4,706
|
|
|
June 25, 2025
|
|
Greater of LIBOR + 1.5% or 2.5%
|
|
|
Debt - Trust Preferred Securities
|
$
|
18,580
|
|
|
$
|
14,289
|
|
|
June 7, 2049
|
|
8.00%
|
|
|
PPP Loan
|
$
|
8,215
|
|
|
$
|
8,215
|
|
|
December 24, 20221
|
|
1.00%
|
|
|
Total
|
$
|
44,577
|
|
|
$
|
38,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirCo 1 Debt
|
|
|
|
|
|
|
|
|
|
Revolver - MBT
|
$
|
—
|
|
|
$
|
—
|
|
|
August 31, 20212
|
|
Greater of 6.50% or Prime + 2%
|
|
|
Term Loan - PSB
|
$
|
6,200
|
|
|
$
|
6,200
|
|
|
December 11, 2025
|
|
3-month LIBOR + 3.00%
|
|
|
Total
|
$
|
6,200
|
|
|
$
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contrail Debt
|
|
|
|
|
|
|
|
|
|
Revolver - ONB
|
$
|
—
|
|
|
$
|
—
|
|
|
September 5, 2021
|
|
1-month LIBOR + 3.45%
|
|
$
|
40,000
|
|
Term Loan G - ONB
|
$
|
43,598
|
|
|
$
|
43,598
|
|
|
November 24, 2025
|
|
1-month LIBOR + 3.00%
|
|
|
Total
|
$
|
43,598
|
|
|
$
|
43,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delphax Solutions Debt
|
|
|
|
|
|
|
|
|
|
Canadian Emergency Business Account Loan
|
$
|
33
|
|
|
$
|
32
|
|
|
December 31, 2025
|
|
5.00%
|
|
|
Total
|
$
|
33
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
$
|
94,408
|
|
|
$
|
88,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized Debt Issuance Costs
|
$
|
(1,067)
|
|
|
$
|
(1,141)
|
|
|
|
|
|
|
|
Total Debt, net
|
$
|
93,341
|
|
|
$
|
87,496
|
|
|
|
|
|
|
|
1 Pursuant to The Paycheck Protection Flexibility Act of 2020, P.L. 116-142, the SBA extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to MBT or (2) if Air T does not apply for loan forgiveness, 10 months after the end of Air T’s loan forgiveness covered period, calculated as 24-week period beginning on April 13, 2020. SBA does not require a formal modification to the original promissory note agreement.
2 The AirCo 1 Revolver was paid off and closed as of December 31, 2020.
At June 30, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):
|
|
|
|
|
|
Due by
|
Amount
|
June 30, 2022
|
$
|
9,537
|
|
June 30, 2023
|
4,333
|
|
June 30, 2024
|
9,037
|
|
June 30, 2025
|
13,093
|
|
June 30, 2026
|
36,459
|
|
Thereafter
|
21,949
|
|
|
94,408
|
|
Less: Unamortized Debt Issuance Costs
|
(1,067)
|
|
|
$
|
93,341
|
|
On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:
•A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split).
•The Company issued and distributed to existing common stockholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs).
On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share. As of June 30, 2021, 4.1 million Warrants have been exercised. At June 30, 2021, the Company had 4.3 million Warrants outstanding and exercisable to purchase shares of its TruPs at an exercise price of $2.40 per one-tenth of a share. On January 11, 2021, the Company announced the extension of the expiration date of the Warrants, previously scheduled to expire on January 15, 2021, to August 30, 2021 or earlier upon redemption or liquidation. On June 23, 2021, the Company announced that it will not extend the expiration date of its Warrants beyond August 30, 2021.
|
|
|
|
|
|
|
Fair Value Measurement
as of June 30, 2021
|
Warrant liability (Level 2)
|
180,000
|
|
As of June 30, 2021, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).
On May 14, 2021, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $8 million from time to time. The Company has no obligation to sell any TruPs, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement. As of June 30, 2021, the Company has sold 184.0 thousand shares of TruPs under the ATM agreement for net proceeds of $4.4 million.
The amount outstanding on the Company's Debt - Trust Preferred Securities is $18.6 million as of June 30, 2021.
11. Geographical information
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of June 30, 2021 and March 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
March 31, 2021
|
United States
|
$
|
8,550
|
|
|
$
|
8,632
|
|
Foreign
|
1,912
|
|
|
2,018
|
|
Total tangible long-lived assets, net
|
$
|
10,462
|
|
|
$
|
10,650
|
|
The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at June 30, 2021. The net book value located within each individual country at June 30, 2021 and March 31, 2021 is listed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
March 31, 2021
|
Macau
|
1,795
|
|
|
1,896
|
|
Other
|
117
|
|
|
122
|
|
Total tangible long-lived assets, net
|
1,912
|
|
|
2,018
|
|
Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2021 and June 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
June 30, 2020
|
United States
|
$
|
31,769
|
|
|
$
|
34,649
|
|
Foreign
|
5,199
|
|
|
2,321
|
|
Total revenue
|
36,968
|
|
|
36,970
|
|
12. Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020. We have presented prior periods based on the current presentation. Segment data is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Three Months Ended
June 30,
|
|
2021
|
|
2020
|
Operating Revenues by Segment:
|
|
|
|
Overnight Air Cargo
|
|
|
|
Domestic
|
$
|
18,768
|
|
|
$
|
16,171
|
|
International
|
83
|
|
|
—
|
|
Total Overnight Air Cargo
|
18,851
|
|
|
16,171
|
|
Ground Equipment Sales:
|
|
|
|
Domestic
|
5,978
|
|
|
15,811
|
|
International
|
2,204
|
|
|
17
|
|
Total Ground Equipment Sales
|
8,182
|
|
|
15,828
|
|
Commercial Jet Engines and Parts:
|
|
|
|
Domestic
|
6,769
|
|
|
2,470
|
|
International
|
2,825
|
|
|
2,223
|
|
Total Commercial Jet Engines and Parts
|
9,594
|
|
|
4,693
|
|
Corporate and other:
|
|
|
|
Domestic
|
254
|
|
|
197
|
|
International
|
87
|
|
|
81
|
|
Total Corporate and other
|
341
|
|
|
278
|
|
Total
|
$
|
36,968
|
|
|
$
|
36,970
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
Overnight Air Cargo
|
732
|
|
|
555
|
|
Ground Equipment Sales
|
1,423
|
|
|
2,216
|
|
Commercial Jet Engines and Parts
|
(238)
|
|
|
(902)
|
|
Corporate and other
|
(1,921)
|
|
|
(2,135)
|
|
Total
|
$
|
(4)
|
|
|
$
|
(266)
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
Overnight Air Cargo
|
23
|
|
|
51
|
|
Ground Equipment Sales
|
13
|
|
|
111
|
|
Commercial Jet Engines and Parts
|
92
|
|
|
457
|
|
Corporate and other
|
8
|
|
|
27
|
|
Total
|
$
|
136
|
|
|
$
|
646
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
Overnight Air Cargo
|
13
|
|
|
16
|
|
Ground Equipment Sales
|
32
|
|
|
68
|
|
Commercial Jet Engines and Parts
|
265
|
|
|
382
|
|
Corporate and other
|
70
|
|
|
143
|
|
Total
|
$
|
380
|
|
|
$
|
609
|
|
13. Commitments and Contingencies
Contrail Aviation entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail Aviation in 1996 providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”). The Contrail Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which was on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The fair value of the redeemable non-controlling interest is $7.0 million as of June 30, 2021. The change in the redemption value compared to March 31, 2021 is an increase of $0.4 million. The increase was driven by $0.3 million of contributions made from the non-controlling interest and $0.2 million of the net change in fair value, partially offset by $0.1 million of net loss attributable to the non-controlling interest during the three months ended June 30, 2021.
As of the date of this filing, neither the Seller nor Air T has indicated the intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
On May 5, 2021, the Company formed a new aircraft asset management business called CAM, and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. As of June 30, 2021, CAM's unfunded capital commitments are approximately $6.9 million from the Company and $43.9 million from MRC. The increase in the fair value of the Contrail RNCI is primarily attributable to the value associated with the Contrail Aviation's investment in CJVII.
14. Subsequent Events
Management performs an evaluation of events that occur after the balance sheet date but before condensed consolidated financial statements are issued for potential recognition or disclosure of such events in its condensed consolidated financial statements.