Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Air T, Inc. (the “Company,” “Air T,” “we” or “us”) owns a portfolio of powerful businesses, each of which is independent yet interrelated. Our operating assets are designed to expand, strengthen and diversify our cash earnings power. Our goal is to build on Air T’s core businesses and grow after-tax cash flow per share.
We currently operate wholly owned subsidiaries in six industry segments:
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Overnight air cargo, which operates in the air express delivery services industry;
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Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers; and
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Ground support services, which provides local ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers.
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Printing equipment and maintenance segment, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers;
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Commercial jet engine and air frame asset management and logistics, which manages aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and commercial aircraft companies.
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Corporate, which acts as the capital allocator and resource for other segments.
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Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income.
(Dollars in thousands)
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Three Months Ended June 30,
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2018
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2017
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Overnight Air Cargo Segment:
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FedEx
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$
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17,641
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29
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%
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$
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16,742
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35
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%
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Ground Equipment Sales Segment:
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Military
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2,464
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4
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%
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345
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1
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%
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Commercial - Domestic
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2,826
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5
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%
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4,932
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10
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%
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Commercial - International
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1,095
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2
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%
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673
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1
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%
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6,385
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10
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%
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5,950
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12
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%
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Ground Support Services Segment
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9,048
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15
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%
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9,113
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19
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%
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Printing Equipment and Maintenance
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Domestic
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191
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0
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%
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1,444
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3
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%
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International
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108
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0
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%
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1,687
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4
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%
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299
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0
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%
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3,131
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7
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%
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Commercial Jet Engines and Parts
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Domestic
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22,318
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37
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%
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8,190
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17
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%
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International
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5,002
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8
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%
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4,535
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10
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%
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27,320
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45
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%
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12,725
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27
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%
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Corporate
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174
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0
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%
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36
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0
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%
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$
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60,867
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100
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%
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$
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47,697
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100
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%
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First Quarter 2019 Compared to First Quarter 2018
Consolidated revenue increased by $13,170,000 (28%) to $60,867,000 for the three-month period ended June 30, 2018 compared to the equivalent prior period. The increase in revenues can be principally attributed to the contribution of revenue from the commercial jet engines and parts segment of $27,320,000, which contributed $12,725,000 in the prior year period. Following is a table detailing revenue by segment:
(Dollars in thousands)
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Three Months Ended June 30,
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Change
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2018
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2017
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3 mos
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Overnight Air Cargo Segment
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$
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17,641
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$
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16,742
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$
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899
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5
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%
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Ground Equipment Sales Segment
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6,385
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5,950
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435
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7
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%
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Ground Support Services Segment
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9,048
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9,113
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(65
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-1
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%
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Printing Equipment and Maintenance
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299
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3,131
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(2,832
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-90
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%
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Commercial Jet Engines and Parts
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27,320
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12,725
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14,595
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115
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%
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Corporate
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174
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36
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138
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387
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%
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$
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60,867
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$
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47,697
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$
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13,170
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28
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%
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Revenues from the air cargo segment increased by $898,000 (5%) compared to the first quarter of the prior fiscal year due to additional billable hours including contract labor hours and timing of administrative fees. Pass-through costs under the dry-lease agreements with FedEx totaled $5,520,000 and $4,871,000 for the quarters ended June 30, 2018 and 2017, respectively.
Ground equipment sales segment contributed approximately $6,385,000 and $5,950,000 to the Company’s revenues for the three-month periods ended June 30, 2018 and 2017 respectively, representing a $435,000 (7%) increase primarily driven by the sale of deicers to military and commercial customers. At June 30, 2018, GGS’s order backlog was $17.5 million as compared to $13.3 million at March 31, 2018 and $16.4 million at June 30, 2017.
Ground support services segment contributed approximately $9,048,000 and $9,113,000 to the Company’s revenues for the three-month periods ended June 30, 2018 and 2017, respectively, representing a $65,000 (1%) decrease principally due to the loss of two locations offset by opening of a new location and additional customer business.
Revenues from printing equipment and maintenance declined by $2,833,000 (90%) compared to the first quarter of the prior fiscal year due to prior year bankruptcy and that the company has not had any sales from the new printer in the current quarter.
The commercial jet engines and parts segment contributed $27,320,000 of revenues in the quarter ended June 30, 2018. The segment was formed through the acquisitions of the businesses of Contrail Aviation, Jet Yard, AirCo, and Worthington in July 2016, October 2016, May 2017 and May 2018 respectively. As such, the increase in revenues is due to having full quarter ownership of AirCo in Q1 2019, and the acquisition of Worthington in the current quarter as well as Contrail having record levels compared to prior quarterly results, principally due to the sales of four whole engines totaling $17.35 million. There were no such similar sales in the prior comparable quarter.
Operating expenses increased by $12,779,000 (28%) to $58,264,000 in the current year quarter compared to the equivalent prior period. The increase in operating expenses is primarily driven by the commercial jet engines and parts segment of $24,107,000 principally due to cost of sales related to the four whole engines sold described above. Ground equipment sales segment operating expenses increased $208,000 (4%). Ground support services segment operating costs increased by $379,000 (4%).
Consolidated operating income for the quarter ended June 30, 2018 increased by $391,000 (18%) to $2,604,000, compared to operating income of $2,213,000 for the same quarter of the prior year principally due to increase in consolidated sales. Operating income for the air cargo segment increased by $240,000 (29%) due to additional billable hours including contractor labor hours and timing of administrative fees. Ground equipment segment net operating income increased by $227,000 (137%) from a net operating income of $166,000 in the prior year’s comparable quarter. Ground Support Services’ operating income declined by $444,000 (124%) to an operating loss of $87,000 for the current-year period compared to operating income of $357,000 in the prior-year quarter primarily due to the impact of decreased revenues. Operating income for Delphax declined by $1,165,000 (126%) significant negative operating results of Delphax as described in Note 12 above. Operating income of the commercial jet engines and parts segment improved by $2,402,000 (296%) primarily attributable to Contrail Aviation having record level results due to the sales of four whole engines.
Following is a table detailing operating income by segment:
(Dollars in thousands)
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Three Months Ended June 30,
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Change
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2018
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2017
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3 mos
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Overnight Air Cargo Segment
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$
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1,056,692
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$
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816,666
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$
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240,026
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29
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%
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Ground Equipment Sales Segment
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393,079
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165,794
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227,285
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137
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%
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Ground Support Services Segment
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(87,303
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)
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356,824
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(444,127
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)
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-124
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%
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Printing Equipment and Maintenance
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(241,070
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)
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924,036
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(1,165,106
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)
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-126
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%
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Commercial Jet Engines and Parts
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3,213,180
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810,940
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2,402,240
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296
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%
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Corporate
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(1,730,876
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)
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(861,692
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)
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(869,184
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)
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101
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%
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$
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2,603,702
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$
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2,212,568
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$
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391,134
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18
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%
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The Company had net non-operating income of $1,065,000 for the quarter ended June 30, 2018, an improvement of $1,674,000 (275%) from net non-operating loss of $609,000 in the prior period, principally due to a bargain purchase acquisition gain of $1,983,000 net of tax, in connection to the acquisition of Worthington as described in Note 3.
Pretax income was $2,065,000 higher for the three-month period ended June 30, 2018 compared to the prior year comparable period, primarily due to bargain purchase acquisition gain as described above.
During the three-month period ended June 30, 2018, the Company recorded $387,000 in income tax expense at an effective rate of 10.5%. 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% and the Company’s effective tax rate for the three-month period ended June 30, 2018 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense. During the three-month period ended June 30, 2017, the Company recorded $374,000 in income tax expense which resulted in an effective tax rate of 23.3%. The primary factors contributing to the difference between the federal statutory rate and the Company’s effective tax rate for the three-month period ended June 30, 2017 were the change in valuation allowance against Delphax’s pretax activity in the period, the benefit for the federal domestic production activities deduction, the increase in the valuation allowance related to the Insignia unrealized impairment loss, state income tax expense, and the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary afforded under Section 831(b).
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are more fully described in Note 1 to the consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2018. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The Company believes that the following are its most significant accounting policies:
Allowance for Doubtful Accounts
. An allowance for doubtful accounts receivable is established based on management’s estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of outstanding receivables. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions.
Inventories
. The Company’s inventories are valued at the lower of cost or net realizable value. Provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories. Historical parts usage, current period sales, estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates. Estimates are subject to volatility and can be affected by reduced equipment utilization, existing supplies of used inventory available for sale, the retirement of aircraft or ground equipment, changes in the financial strength of the aviation industry, and market developments impacting both legacy and next-generation products and services of our printing equipment and maintenance segment.
Investments under the Equity Method
– The Company utilizes the equity method to account for investments when the Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when an investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. The Company applies the equity method to investments in common stock and to other investments when such other investments possess substantially identical subordinated interests to common stock.
In applying the equity method, the Company records the investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses. The Company records dividends or other equity distributions as reductions in the carrying value of the investment. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if other investments in the investee are at-risk, even if the Company has not committed to provide financial support to the investee. Such additional equity method losses, if any, are based upon the change in the Company’s claim on the investee’s book value.
For investments that have a different fiscal year-end, if the difference is not more than three months, the Company uses the investment’s most recent financial statements to record the change in the investment.
Business Combinations
. The Company accounts for business combinations in accordance with FASB Codification Section 805 (“ASC 805”) Business Combinations. Consistent with ASC 805, the Company accounts for each business combination by applying the acquisition method. Under the acquisition method, the Company records the identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date. Goodwill is recognized for the excess of the purchase consideration over the fair value of identifiable net assets acquired. Included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred. For business combinations where non-controlling interests remain after the acquisition, assets (including goodwill) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date fair value attributable to non-controlling interests is recorded as a separate line item within the equity section or, as applicable to redeemable non-controlling interests, between the liabilities and equity sections of the Company’s consolidated balance sheet.
The acquisition method permits the Company a period of time after the acquisition date during which the Company may adjust the provisional amounts recognized in a business combination. This period of time is referred to as the “measurement period”. The measurement period provides an acquirer with a reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports in its consolidated financial statements provisional amounts for the items for which the accounting is incomplete. Under accounting standards in effect as of the Company’s acquisition of interests in Delphax, the Company had two alternatives available to account for subsequent adjustments to the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. Under the first method, which is no longer an available option since the Company’s first fiscal 2017 quarter, the Company would retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained. Under the second method, which is the only allowed method beginning with the Company’s first fiscal 2017 quarter, the Company is required to recognize adjustments to the provisional amounts, with a corresponding adjustment to goodwill, in the reporting period in which the adjustments to the provisional amounts are determined. Thus, the Company would adjust its consolidated financial statements as needed, including recognizing in its current-period earnings the full effect of changes in depreciation, amortization, or other income effects, by line item, if any, as a result of the change to the provisional amounts calculated as if the accounting had been completed at the acquisition date. The Company adopted the second of the two above-described methods with respect to its acquisition of interests in Delphax.
Income statement activity of an acquired business is reflected within the Company’s consolidated statements of income (loss) commencing with the date of acquisition. Amounts for pre-acquisition periods are excluded.
Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs may include such items as finder’s fees, advisory, legal, accounting, valuation, and other professional or consulting fees, and general administrative costs. The Company accounts for such acquisition-related costs as expenses in the period in which the costs are incurred and the services are received.
Changes in estimate of the fair value of earn-out obligations subsequent to the acquisition date are not accounted for as part of the acquisition but are rather recognized in directly in earnings.
Attribution of Net Income or Loss of Partially-Owned Consolidated Entities. In the case of Delphax, we have determined that the attribution of net income or loss should be based on consideration of all of Air T’s investments in Delphax and it subsidiary, Delphax Canada Technologies Limited (“Delphax Canada”). Our investment in the Warrant provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Warrant is entitled to participate in such dividends on a ratable basis as if the Warrant had been fully exercised and the shares of Series B Preferred Stock acquired upon such exercise had been converted into shares of Delphax common stock. This provision would have entitled Air T, Inc. to approximately 67% of any Delphax dividends paid, with the remaining 33% paid to the non-controlling interests. We concluded that this was a substantive distribution right which should be considered in the attribution of Delphax net income or loss to non-controlling interests. We furthermore concluded that our investment in the debt of Delphax should be considered in attribution. Specifically, Delphax’s net losses are attributed first to our Series B Preferred Stock and Warrant investments and to the non-controlling interest (67%/33%) until such amounts are reduced to zero. Additional losses are then fully attributed to our debt investments until they too are reduced to zero. This sequencing reflects the relative priority of debt to equity. Any further losses are then attributed to Air T and the non-controlling interests based on the initial 67%/33% share. Delphax net income is attributed using a backwards-tracing approach with respect to previous losses. The effect of interest expense arising under the Senior Subordinated Note and, since January 6, 2017, under the Delphax Senior Credit Agreement, and other intercompany transactions, are reflected in the attribution of Delphax net income or losses attributed to non-controlling interests because Delphax is a variable interest entity.
The above-described attribution methodology applies only to our investments in Delphax. We establish the appropriate attribution methodology on an entity-specific basis. In the case of Contrail Aviation, we concluded that an attribution methodology based solely on equity ownership percentages was appropriate.
Marketable Securities
. On a quarterly basis, the Company reviews marketable securities for declines in market value that may be considered other than temporary. Market value declines are considered to be other than temporary based on the length of time and the magnitude of the amount of each security that is in an unrealized loss position. The Company also consider the nature of the underlying investments and other market conditions or when other evidence indicates impairment. If the Company determines that an investment has other than a temporary decline in fair value, the Company recognizes the investment loss in non-operating income, net in the accompanying consolidated statements of comprehensive income (loss).
Goodwill
. The Company tests goodwill for impairment at least once annually. An impairment test will also be carried out anytime events or changes in circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit. The applicable accounting standards provide for two methods to assess goodwill for possible impairment, one qualitative and the other a two-step quantitative method. The Company is permitted to first assess qualitative factors to determine whether it is more likely than not (this is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. In qualitatively evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances such as macroeconomic conditions, industry and market developments, cost factors, and the overall financial performance of the reporting unit. If, after assessing these events and circumstances, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the quantitative goodwill impairment test are unnecessary. In the first step of the quantitative method, recoverability of goodwill is evaluated by estimating the fair value of the reporting unit’s goodwill using multiple techniques, including a discounted cash flow model income approach and a market approach. The estimated fair value is then compared to the carrying value of the reporting unit. If the fair value of a reporting unit is less than its carrying value, a second step is performed to determine the amount of impairment loss, if any. The second step requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations. Any residual fair value is allocated to goodwill. Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.
Long-lived Assets
. Long-lived assets are tested for impairment whenever events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Factors which may cause an impairment include extended operating cash flow losses from the assets and management's decisions regarding the future use of assets. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash is largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with an asset group is less than the carrying value. In the event it is determined that the carrying values of long-lived assets are in excess of the estimated undiscounted cash flows from those assets, the Company then will write-down the value of the assets by such excess. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable.
Accounting for Redeemable Non-Controlling Interest
. As more fully described in Note 15 to the consolidated financial statements, the Company is party to a put/call option agreement concerning the non-controlling ownership interest held in the Company’s consolidated subsidiary, Contrail Aviation. The put/call option permits Contrail Aviation, at any time after the fifth anniversary of the Company’s acquisition of Contrail Aviation, to purchase the non-controlling interest from the holder of such interest. The agreement also permits the holder of the non-controlling interest to sell such interest to Contrail Aviation. Per the agreement, the price is to be agreed upon by the parties or, failing such agreement, to be determined pursuant to third-party appraisals in a process specified in the agreement. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. Based on this guidance, the Company has classified the Contrail Aviation non-controlling interest between the liabilities and equity sections of the accompanying consolidated balance sheets. If an equity instrument subject to the guidance is currently redeemable, the instrument is adjusted to its maximum redemption amount at the balance sheet date. If the equity instrument subject to the guidance is not currently redeemable but it is probable that the equity instrument will become redeemable (for example, when the redemption depends solely on the passage of time), the guidance permits either of the following measurement methods: (a) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument using an appropriate methodology, or (b) 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 amount presented in temporary equity should be no less than the initial amount reported in temporary equity for the instrument. Because the Contrail Aviation equity instrument will become redeemable solely based on the passage of time, the Company determined that it is probable that the Contrail Aviation equity instrument will become redeemable. Company has elected to apply the first of the two measurement options described above. An adjustment to the carrying amount of a non-controlling interest from the application of the above guidance does not impact net income or comprehensive income in the consolidated financial statements. Rather, such adjustments are treated as equity transactions.
Revenue Recognition
. The Company accounts for revenue in accordance with ASC 606, which was adopted on April 1, 2018, using the modified retrospective method. As substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less 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.
For Product Sales, 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 or prompt payment discounts). Performance obligations are short-term in nature and customers are typically billed upon transfer of control.
For Support Services, the Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. 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.
Warranty Reserves
. The Company warranties its ground equipment products for up to a three-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known. Delphax warranties its equipment for a period of 90 days commencing with installation, except in the European Union, where it is generally one year from product shipment date. Similarly, Delphax warranties spare parts and supplies for a period of 90 days from shipment date. These warranty reserves are reviewed quarterly and adjustments are made based on actual claims experience in order to properly estimate the amounts necessary to settle future and existing claims.
Income Taxes
. Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
A valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates. All deferred income taxes are classified as noncurrent in the consolidated balance sheets. The Company recognizes the benefit of a tax position taken on a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. An uncertain income tax position is not recognized if it has a less than a 50% likelihood of being sustained.
The Tax Cuts and Jobs Act (TCJA) became law for tax years beginning after Friday December 31, 2017. The TCJA includes the reduction in the corporate tax rate from a top rate of 35% to a flat rate of 21%, changes in business deductions, and many international provisions.
Seasonality
GGS’s business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. The Company had worked to reduce GGS’s seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings. Other segments are not susceptible to seasonal trends.
Liquidity and Capital Resources
As of June 30, 2018, the Company held approximately $5,765,000 in cash and cash equivalents and restricted cash. The Company also held $250,000 in restricted investments held as statutory reserve of SAIC and the remaining $869,000 of restricted investments pledged to secure SAIC’s participation in certain reinsurance pools, and $166,000 was invested in accounts not insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has approximately $1.1 million of marketable securities as of June 30, 2018. In addition, the Company also owns approximately 3.5 million shares of common stock of Insignia with a market value of $5.7 million as of June 30, 2018.
As of June 30, 2018, the Company’s working capital amounted to $25,186,000, an decrease of $5,308,000 compared to March 31, 2018.
Cash flows from operations, cash and cash equivalents, and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash requirements.
Cash Flows
Following is a table of changes in cash flow for the periods ended June 30, 2018 and 2017:
|
|
Three Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
$
|
14,717,000
|
|
|
$
|
(2,145,000
|
)
|
Net Cash (Used in) Investing Activities
|
|
|
(6,717,000
|
)
|
|
|
(3,419,000
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
|
|
(7,310,000
|
)
|
|
|
4,683,000
|
|
Effect of foreign currency exchange rates on cash and cash equivalents
|
|
|
2,000
|
|
|
|
6,000
|
|
Net Increase/ (Decrease) in Cash and Cash Equivalents
|
|
$
|
692,000
|
|
|
$
|
(875,000
|
)
|
Cash provided by operating activities was $14,717,000 for the three-month period ended June 30, 2018 compared to the net cash used in operating activities of $2,145,000 in prior year period. The primary driver in Cash provided by operating activities in the current period was the sale of inventory of approximately $11,320,000 as described in the MD&A section for the Commercial Aircrafts and Jet Engines Segment.
Cash used in investing activities for the three-month period ended June 30, 2018 was $6,717,000 compared to $3,419,000 in prior year period. The primary driver in Cash used in investing activities for the quarter ended June 30, 2018 was the $2,000,000 investment to Oxbridge RE NS as described in Note 7 and the $3,326,000 net cash used in acquiring Worthington.
Cash used in financing activities for the three-month period ended June 30, 2018 was $7,310,000 compared to cash provided by financing activities of $4,683,000 in the prior year period. The cash used in financing activities in the current period was due to $38,156,000 of payments made on the Company’s lines of credit offset by proceeds received of $32,334,000 ($28,934,000 from lines of credit and $3,400,000 from term loan).
Impact of Inflation
The Company believes that inflation has not had a material effect on its operations, because increased costs to date have generally been passed on to its customers. Under the terms of its overnight air cargo business contracts the major cost components of its operations, consisting principally of fuel, and certain other direct operating costs, and certain maintenance costs are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.