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, 2019. The results of operations for the period ended December 31, 2019 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior period amounts to conform to the current presentation.
Discontinued Operations
On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended December 31, 2019 and 2018. Refer to Footnote 4 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended by multiple standards updates. The new standard provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
The Company adopted the standard in the fiscal year beginning April 1, 2019 using the modified retrospective transition method that does not require retrospective adjustment of the comparative periods. The Company reviewed existing leases to determine the impact of the adoption of the standard on its consolidated financial statements. Implementation had an immaterial cumulative effect on retained earnings. Adoption resulted in the recognition of right-of-use assets of approximately $10.7 million, and lease liabilities of approximately $11.2 million.
Upon adoption, the Company elected practical expedients related to a) short term lease exemption b) not separate lease and non-lease components c) not reassess whether expired or existing contracts contain leases, d) not reassess lease classification for existing or expired leases and e) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.
Recently Issued Accounting Pronouncements
In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes of the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
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. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. 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 is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
2. Revenue Recognition
Substantially all of the Company’s 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
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Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
|
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Product Sales
|
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
|
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 enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. 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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|
|
|
|
|
|
|
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|
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Three Months Ended December 31,
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Nine Months Ended December 31,
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|
|
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2019
|
|
2018
|
|
2019
|
|
2018
|
|
Product Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Air Cargo
|
$
|
6,014
|
|
|
|
$
|
5,694
|
|
|
$
|
18,108
|
|
|
|
$
|
16,217
|
|
|
Ground equipment sales
|
15,640
|
|
|
|
15,902
|
|
|
40,132
|
|
|
|
34,519
|
|
|
Commercial jet engines and parts
|
35,463
|
|
|
|
15,957
|
|
|
59,851
|
|
|
|
48,366
|
|
|
Printing equipment and maintenance
|
3
|
|
|
|
88
|
|
|
72
|
|
|
|
497
|
|
|
Corporate and other
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Support Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Air Cargo
|
12,644
|
|
|
|
12,164
|
|
|
38,572
|
|
|
|
36,245
|
|
|
Ground equipment sales
|
161
|
|
|
|
260
|
|
|
370
|
|
|
|
509
|
|
|
Commercial jet engines and parts
|
797
|
|
|
|
1,309
|
|
|
3,804
|
|
|
|
3,602
|
|
|
Printing equipment and maintenance
|
79
|
|
|
|
13
|
|
|
314
|
|
|
|
33
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|
|
Corporate and other
|
37
|
|
|
|
45
|
|
|
69
|
|
|
|
61
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|
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Leasing Revenue
|
|
|
|
|
|
|
|
|
|
|
|
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Air Cargo
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
Ground equipment sales
|
58
|
|
|
|
16
|
|
|
111
|
|
|
|
62
|
|
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Commercial jet engines and parts
|
2,245
|
|
|
|
3,663
|
|
|
8,901
|
|
|
|
6,691
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|
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Printing equipment and maintenance
|
—
|
|
|
|
—
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|
|
—
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|
|
|
—
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Corporate and other
|
36
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|
|
|
49
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|
|
117
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|
|
|
121
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Other
|
|
|
|
|
|
|
|
|
|
|
|
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Air Cargo
|
48
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|
|
|
10
|
|
|
91
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|
|
|
111
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Ground equipment sales
|
90
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|
|
|
100
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|
|
326
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|
|
|
412
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|
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Commercial jet engines and parts
|
31
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|
|
|
61
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|
|
109
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|
|
|
294
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|
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Printing equipment and maintenance
|
—
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|
4
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|
|
10
|
|
|
|
14
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Corporate and other
|
(46)
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|
151
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|
|
224
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|
|
|
419
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|
|
|
|
|
|
|
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|
|
|
|
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Total
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$
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73,300
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|
|
$
|
55,486
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|
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$
|
171,181
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|
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$
|
148,173
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The following table summarizes total revenues by segment (in thousands):
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Three Months Ended December 31,
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Nine Months Ended December 31,
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2019
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2018
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2019
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2018
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Air cargo
|
$
|
18,706
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|
$
|
17,868
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|
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$
|
56,771
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|
|
$
|
52,573
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Ground equipment sales
|
15,949
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|
|
|
16,278
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|
|
40,939
|
|
|
35,502
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|
|
Commercial jet engines and parts
|
38,536
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|
|
|
20,990
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|
|
72,665
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|
|
58,953
|
|
|
Printing equipment and maintenance
|
82
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|
|
|
105
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|
|
396
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|
|
544
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Corporate and other
|
27
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|
|
|
245
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|
|
410
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|
|
601
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
73,300
|
|
|
$
|
55,486
|
|
|
$
|
171,181
|
|
|
$
|
148,173
|
|
See Note 13 for the Company's disaggregated revenues by geographic region and Note 14 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, 2019 and December 31, 2019 and the amount of contract liabilities that were recognized as revenue during the nine months ended December 31, 2019 (in thousands):
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|
|
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|
|
Outstanding contract liabilities
|
|
Outstanding contract liabilities as of April 1, 2019
Recognized as Revenue
|
|
As of December 31, 2019
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$
|
2,741
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|
|
|
|
|
|
As of April 1, 2019
|
1,867
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|
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|
|
|
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For the nine months ended December 31, 2019
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|
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|
|
1,744
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Contract assets primarily relate to deposits paid to vendors. The following table presents the amount of contract assets as of April 1, 2019 and December 31, 2019 (in thousands):
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Contract assets
|
|
As of December 31, 2019
|
$3,155
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|
As of April 1, 2019
|
1,743
|
3. Business Combinations
Acquisition of Worthington Aviation Parts, Inc.
On May 4, 2018, Air T, Inc. completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation Parts, Inc. (“Worthington”), pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.
Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services. The Company agreed to acquire the assets and liabilities in exchange for payment to Worthington of $50,000 as earnest money upon execution of the Agreement and a cash payment of $3,300,000 upon closing. Total consideration is summarized in the table below (in thousands):
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|
|
|
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Earnest money
|
$
|
50
|
|
|
Cash consideration
|
3,300
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Cash acquired
|
(24)
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Total consideration
|
$
|
3,326
|
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The Transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 4, 2018, with the excess of fair value of net assets acquired recorded as a bargain purchase gain. The most significant asset acquired was Worthington’s inventory. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of May 4, 2018 (in thousands):
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|
|
|
|
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|
May 4, 2018
|
|
|
|
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ASSETS
|
|
|
Accounts receivable
|
$
|
1,929
|
|
|
Inventories
|
4,564
|
|
|
Other current assets
|
150
|
|
|
Property and equipment
|
392
|
|
|
Other assets
|
189
|
|
|
Intangible assets - tradename
|
138
|
|
|
Total assets
|
7,362
|
|
|
|
|
|
LIABILITIES
|
|
|
Accounts payable
|
1,289
|
|
|
Accrued expenses
|
175
|
|
|
Deferred tax liability
|
589
|
|
|
Total liabilities
|
2,053
|
|
|
|
|
|
|
|
|
Net assets acquired
|
5,309
|
|
|
|
|
|
Consideration paid
|
3,350
|
|
|
Less: Cash acquired
|
(24)
|
|
|
Bargain purchase gain
|
$
|
1,983
|
|
The transaction resulted in a bargain purchase gain because Worthington was a non-marketed transaction and in financial distress at the time of the acquisition. The seller engaged in a formal bidding process and determined Air T was the best option for Worthington. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $589,000. The resulting net bargain purchase gain after taxes was approximately $1,983,000. Total transaction costs incurred in connection with this acquisition were approximately $83,000.
Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.
4. Discontinued Operations
On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement includes a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics are achieved by March 31, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.5 million with tax impact of $2.4 million for a net of tax gain of $8.1 million during the nine months ended December 31, 2019. The gain is subject to change pending final settlement statement, final transaction costs and net working capital adjustments.
Summarized results of operations of GAS for the three and nine months ended December 31, 2019 and 2018 through the date of disposition are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net sales
|
$
|
—
|
|
|
|
$
|
8,137
|
|
|
|
$
|
16,637
|
|
|
|
$
|
25,658
|
|
|
Operating Expense
|
—
|
|
|
|
(8,537)
|
|
|
|
(17,319)
|
|
|
|
(26,887)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
—
|
|
|
|
(400)
|
|
|
|
(682)
|
|
|
|
(1,229)
|
|
|
Income tax benefit
|
—
|
|
|
|
(24)
|
|
|
|
(612)
|
|
|
|
(73)
|
|
|
Loss from discontinued operations, net of tax
|
$
|
—
|
|
|
|
$
|
(376)
|
|
|
|
$
|
(70)
|
|
|
|
$
|
(1,156)
|
|
The following table presents summary balance sheet information of GAS that is presented as discontinued operations as of March 31, 2019 (in thousands):
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|
|
|
|
|
|
|
Assets:
|
March 31, 2019
|
|
Cash and cash equivalents
|
$
|
107
|
|
|
Accounts receivable, net
|
8,197
|
|
|
Income tax receivable
|
16
|
|
|
Inventories, net
|
2,512
|
|
|
Other current assets
|
769
|
|
|
Current assets of discontinued operations
|
11,601
|
|
|
Property and equipment, net
|
554
|
|
|
Intangible assets, net
|
228
|
|
|
Goodwill
|
190
|
|
|
Other non-current assets
|
292
|
|
|
Non-current assets of discontinued operations
|
1,264
|
|
|
Liabilities:
|
|
|
|
Accounts payable
|
1,144
|
|
|
Income tax payable
|
(226)
|
|
|
Accrued expenses
|
669
|
|
|
Current liabilities of discontinued operations
|
$
|
1,587
|
|
|
|
|
5. Income Taxes
During the three-month period ended December 31, 2019, the Company recorded $616,000 in income tax expense from continuing operations at an effective rate ("ETR") of 51.5%. The Company records income taxes using a discrete, year-to-date tax expense calculation 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 December 31, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three month period ended December 31, 2018, the Company recorded $198,000 in income tax expense from continuing operations at an ETR of (11.4)%. 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 December 31, 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 nine-month period ended December 31, 2019, the Company recorded $52,000 in income tax benefit from continuing operations at an ETR of (2.2)%. The Company records income taxes using a discrete, year-to-date tax expense calculation 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 nine-month period ended December 31, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the nine-month period ended December 31, 2018, the Company recorded $241,000 in income tax expense from continuing operations at an ETR of 25.8%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended December 31, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the bargain purchase gain.
For the three and nine months ended December 31, 2019, the ETR in discontinued operations is 0.0% and 89.7%, respectively. The ETR is impacted by the effect of the release of the valuation allowance recorded in fiscal year 2019 against the $2 million impaired reinsurance contracts. For the three and nine months ended December 31, 2018, the ETR in discontinued operations is 6.0% and 5.9%, respectively. The ETR is impacted by permanent, non-deductible items for tax.
6. Net Earnings 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 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. There were 3,824 anti-dilutive securities as of December 31, 2019. The computation of basic and diluted earnings per common share is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income (loss) from continuing operations
|
$
|
581
|
|
|
|
$
|
(1,941)
|
|
|
|
$
|
2,450
|
|
|
|
$
|
694
|
|
|
Net income from continuing operations attributable to non-controlling interests
|
(789)
|
|
|
|
(398)
|
|
|
|
(3,449)
|
|
|
|
(745)
|
|
|
Net loss from continuing operations attributable to Air T, Inc. stockholders
|
(208)
|
|
|
|
(2,339)
|
|
|
|
(999)
|
|
|
|
(51)
|
|
|
Loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.07)
|
|
|
$
|
(0.77)
|
|
|
$
|
(0.36)
|
|
|
$
|
(0.02)
|
|
|
Diluted
|
$
|
(0.07)
|
|
|
$
|
(0.77)
|
|
|
$
|
(0.36)
|
|
|
$
|
(0.02)
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
$
|
—
|
|
|
|
$
|
(376)
|
|
|
|
$
|
(70)
|
|
|
|
$
|
(1,156)
|
|
|
Gain (loss) on sale of discontinued operations, net of tax
|
(222)
|
|
|
|
—
|
|
|
|
8,137
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) from discontinued operations attributable to Air T, Inc. stockholders
|
(222)
|
|
|
|
(376)
|
|
|
|
8,067
|
|
|
|
(1,156)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.07)
|
|
|
$
|
(0.12)
|
|
|
$
|
2.93
|
|
|
$
|
(0.38)
|
|
|
Diluted
|
$
|
(0.07)
|
|
|
$
|
(0.12)
|
|
|
$
|
2.93
|
|
|
$
|
(0.38)
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.14)
|
|
|
$
|
(0.89)
|
|
|
$
|
2.57
|
|
|
$
|
(0.40)
|
|
|
Diluted
|
$
|
(0.14)
|
|
|
$
|
(0.89)
|
|
|
$
|
2.57
|
|
|
$
|
(0.40)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
2,973
|
|
|
|
3,042
|
|
|
|
2,752
|
|
|
|
3,058
|
|
|
Diluted
|
2,973
|
|
|
|
3,042
|
|
|
|
2,756
|
|
|
|
3,058
|
|
On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50% stock dividend to shareholders of record as of June 4, 2019. All share and earnings per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly-issued shares was recorded with the offset to additional paid-in capital.
With respect to our December 31, 2019 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the Condensed Consolidated Balance Sheets, and in all share data in the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. At December 31, 2019, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 29% of the outstanding shares. For the quarter ended December 31, 2019, the Company recorded a loss of $284,975 as its share of Insignia’s net loss for the three months ended September 30, 2019 along with a basis difference adjustment of $24,032. In addition, due to the adverse financial results as reported in Insignia's Form 10-Qs for the quarters ended June 30 and September 30, 2019 in addition to consideration of analyst reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in Insignia. As such, the Company recorded an impairment charge of $1,094,890 during the quarter ended December 31, 2019, totaling impairment charges of 2,304,779 for the nine months ended December 31, 2019. After the impairment, the Company's net investment basis in Insignia is $2,035,650 as of December 31, 2019.
Summarized unaudited financial information for Insignia for the nine months ended September 30, 2019 and 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2019
|
|
Nine Months Ended
September 30, 2018
|
|
Revenue
|
$
|
15,636
|
|
|
$
|
25,119
|
|
|
Gross Profit
|
3,165
|
|
|
9,314
|
|
|
Operating income (loss)
|
(3,091)
|
|
|
1,331
|
|
|
Net income (loss)
|
(2,562)
|
|
|
993
|
|
|
Net income (loss) attributable to Air T, Inc. stockholders
|
$
|
(749)
|
|
|
$
|
203
|
|
On November 8, 2019, the Company made an investment of $2.8 million to purchase a 19.9% ownership stake in Cadillac Casting Inc.("CCI"). The Company determined that CCI is a variable interest entity and that the Company is not the primary beneficiary. This is primarily the result of the Company's conclusion that it does not have the power to direct the activities that most significantly impact the economic performance of CCI. Accordingly, the Company does not consolidate CCI and has determined to account for this investment using equity method accounting.
Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost as of December 31, 2019, with a basis difference of $338,373. As Air T has no rights to CCI's results prior to November 8, 2019, under the lag method, Air T will not record any earnings or losses from CCI's third quarter results ended September 30, 2019. Likewise, no basis difference adjustments will be recorded in the period ended December 31, 2019. In subsequent periods, Air T will depreciate the basis difference straight-line into equity method earnings.
8. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
March 31,
2019
|
|
|
|
|
|
|
Ground equipment manufacturing:
|
|
|
|
|
Raw materials
|
$
|
5,413
|
|
|
$
|
2,498
|
|
|
Work in process
|
2,302
|
|
|
1,660
|
|
|
Finished goods
|
473
|
|
|
973
|
|
|
Printing equipment and maintenance
|
|
|
|
|
Raw materials
|
498
|
|
|
401
|
|
|
Finished goods
|
911
|
|
|
1,048
|
|
|
Commercial jet engines and parts
|
58,605
|
|
|
21,032
|
|
|
Total inventories
|
68,202
|
|
|
$
|
27,612
|
|
|
Reserves
|
(86)
|
|
|
(157)
|
|
|
Total inventories, net of reserves
|
$
|
68,116
|
|
|
$
|
27,455
|
|
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 and nine months ended December 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31, 2019
|
|
Nine
Months Ended
December 31, 2019
|
|
Operating lease cost
|
$
|
569
|
|
|
$
|
1,489
|
|
|
Short-term lease cost
|
63
|
|
|
318
|
|
|
Variable lease cost
|
97
|
|
|
304
|
|
|
Sublease income
|
—
|
|
|
—
|
|
|
Total lease cost
|
$
|
729
|
|
|
$
|
2,111
|
|
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the quarter ended December 31, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Operating leases
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
8,458
|
|
|
Operating lease liabilities
|
|
$
|
8,913
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
14 years, 3 months
|
|
Operating leases
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
4.51
|
%
|
|
Operating leases
|
|
|
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended December 31, 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2020 (excluding the nine months ended December 31, 2019)
|
$
|
349
|
|
|
2021
|
1,553
|
|
|
2022
|
1,402
|
|
|
2023
|
1,215
|
|
|
2024
|
922
|
|
|
2025
|
694
|
|
|
Thereafter
|
6,388
|
|
|
Total undiscounted lease payments
|
$
|
12,523
|
|
|
Less: Interest
|
3,045
|
|
|
Less: Discount
|
565
|
|
|
Total lease liabilities
|
$
|
8,913
|
|
At March 31, 2019, future minimum annual lease payments (foreign currency amounts translated using applicable March 31, 2019 exchange rates) are as follows (in thousands):
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
2020
|
$
|
3,133
|
|
|
2021
|
2,115
|
|
|
2022
|
1,625
|
|
|
2023
|
1,241
|
|
|
2024
|
692
|
|
|
Thereafter
|
6,267
|
|
|
Total minimum lease payments
|
$
|
15,073
|
|
10. Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below (in thousands) at December 31, 2019 and March 31, 2019, respectively. AirCo and Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Contrail Aviation Leasing Ireland DAC, CRO No. 662616 (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.
On October 30, 2019, Contrail entered into Supplement #5 to Master Loan Agreement with Old National Bank (“Supplement #5”). In connection therewith, Contrail entered into the Promissory Note Term Note D in the principal amount of $7,553,165 to ONB (“Term Note D”). The Term Note D has a maturity date of October 30, 2021, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth. Term Note D was fully paid off in the current quarter.
On December 19, 2019, Contrail entered into Supplement #6 to that certain Master Loan Agreement with ONB. In connection therewith, Contrail entered into that certain Promissory Note Term Note E in the principal amount of $6,894,790 to ONB (“Term Note E”). The Term Note E has a maturity date of December 1, 2022, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth.
On December 31, 2019, the Company and Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”, "the bank"), entered into Amendment No. 2 to that certain Amended and Restated Credit Agreement (the “Second Amendment”). In connection with the Second Amendment, the Company entered into that certain Supplemental Revolving Credit Note in the principal amount of $10,000,000 to MBT (the “Note”). The Note has a maturity date of June 30, 2020, with a fluctuating annual rate of interest equal to the greater of (a) the sum of (i) the LIBOR Rate, and as the same may adjust monthly, plus (ii) 1.25%; or (b) 3.00%; provided, that, upon the occurrence and during the continuance of any Event of Default as defined therein, the rate of interest thereunder shall be increased by 3.00% above the rate of interest that would otherwise be in effect thereunder. The loan is secured by a pledge of a continuing security interest in the demand deposit cash collateral accounts of Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company, with an aggregate account cash balance of $10,000,000 under the sole control by MBT. Twelve of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
December 31,
2019
|
|
March 31,
2019
|
|
Maturity Date
|
Interest Rate
|
|
Unused commitments
|
|
Revolver - MB&T
|
$
|
13,608
|
|
|
$
|
12,403
|
|
|
February 28, 2020
|
Prime - 1%
|
|
$
|
3,392
|
|
|
Term Note A - MB&T
|
8,000
|
|
|
8,750
|
|
|
January 1, 2028
|
1-month LIBOR + 2%
|
|
|
|
Term Note B - MB&T
|
4,000
|
|
|
4,375
|
|
|
January 1, 2028
|
4.5%
|
|
|
|
|
Term Note D - MB&T
|
1,557
|
|
|
1,607
|
|
|
January 1, 2028
|
1-month LIBOR + 2%
|
|
|
|
Debt - Trust Preferred Securities
|
10,292
|
|
|
—
|
|
|
June 7, 2049
|
8%
|
|
|
|
|
Note - MB&T
|
10,000
|
|
|
|
—
|
|
|
June 30, 2020
|
1-month LIBOR + 1.25% or 3%
|
|
—
|
|
Air T Debt
|
47,457
|
|
|
27,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolver - MB&T
|
—
|
|
|
3,820
|
|
|
May 21, 2019
|
7.5%
|
|
|
|
|
Revolver - MB&T
|
9,327
|
|
|
—
|
|
|
February 28, 2020
|
greater of 6.50% or Prime + 2%
|
|
|
673
|
|
Term Loan - MB&T
|
—
|
|
|
450
|
|
|
December 17, 2019
|
7.50%
|
|
|
|
|
Term Loan - MB&T
|
—
|
|
|
400
|
|
|
June 17, 2020
|
7.25%
|
|
|
|
|
Term Loan - Park State
|
—
|
|
|
2,100
|
|
|
June 17, 2020
|
8.50%
|
|
|
|
|
AirCo Debt
|
9,327
|
|
|
6,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolver
|
11,652
|
|
|
—
|
|
|
September 5, 2021
|
1-month LIBOR + 3%
|
|
|
8,348
|
|
Term Loan A
|
6,808
|
|
|
8,617
|
|
|
January 26, 2021
|
1-month LIBOR + 3.75%
|
|
|
|
|
Term Loan B
|
—
|
|
|
15,500
|
|
|
September 14, 2021
|
1-month LIBOR + 3.75%
|
|
|
|
|
Term Loan C
|
9,621
|
|
|
—
|
|
|
August 1, 2024
|
1-month LIBOR + 3.75%
|
|
|
|
|
Term Loan D
|
—
|
|
|
—
|
|
|
October 30, 2021
|
1-month LIBOR + 3.75%
|
|
|
|
|
Term Loan E
|
6,895
|
|
|
—
|
|
|
December 1, 2022
|
1-month LIBOR + 3.75%
|
|
|
|
|
Contrail Debt - Old National
|
34,976
|
|
|
24,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
91,760
|
|
|
58,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized Debt Issuance Costs
|
(261)
|
|
|
(369)
|
|
|
|
|
|
|
|
Total Debt, net
|
$
|
91,499
|
|
|
$
|
57,653
|
|
|
|
|
|
|
Maturities - At December 31, 2019, our contractual financing obligations, including payments due by period, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Due by
|
|
Amount
|
|
December 31, 2020
|
|
$
|
51,504
|
|
|
December 31, 2021
|
|
12,795
|
|
|
December 31, 2022
|
|
6,601
|
|
|
December 31, 2023
|
|
3,279
|
|
|
December 31, 2024
|
|
1,567
|
|
|
Thereafter
|
|
16,014
|
|
|
|
|
91,760
|
|
|
Less: Unamortized Debt Issuance Costs
|
|
(261)
|
|
|
|
|
$
|
91,499
|
|
Liquidity and Financial Condition - The Company's condensed consolidated financial statements as of December 31, 2019 have been prepared assuming that the Company will continue its operations as a going concern. The Company believes cash on hand, net cash provided by operations, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to extend the maturity of or refinance the Air T and AirCo revolvers ("revolvers") maturing February 28, 2020. Based on our discussions to date with MBT, as well as our history of refinancing with MBT and the receipt of written confirmation from MBT indicating their intention to refinance the revolvers, at substantially the same terms, with maturity dates extending beyond February 28, 2021, the Company believes the plan to refinance these revolvers is probable of occurring.
Other - 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). See Footnote 6 for discussion.
•The Company issued and distributed to existing common shareholders 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). The Warrants are exercisable for one year from issuance.
As of December 31, 2019, 2,516,916 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $10,292,000 as of December 31, 2019.
At December 31, 2019, the Company had Warrants outstanding and exercisable to purchase 5,883,084 shares of its TruPs at an exercise price of $2.40 per share, which represents a discount to the $2.50 face value of each Trust Preferred Security. The Warrants will expire on June 7, 2020 or earlier upon redemption or liquidation.
|
|
|
|
|
|
|
|
|
Fair Value Measurement
as of December 31, 2019
|
|
Warrant liability (Level 2)
|
$
|
588,308
|
|
As of December 31, 2019, the Warrants are recorded within "Other non-current liabilities" on our 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).
The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.
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.
As of August 1, 2018, these swap contracts were designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedge transaction affects earnings. As of December 31, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $448,000 and $227,000, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended December 31, 2019, the Company recorded a gain of approximately $94,000, net of tax, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
11. Variable Interest Entities
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
•the power to direct the activities that most significantly impact the economic performance of the VIE; and
•the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.
The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Delphax warrant, each constituted a variable interest. In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015. The Company consolidated Delphax in its consolidated financial statements beginning on that date.
The following table sets forth the carrying values of Delphax’s assets and liabilities as of December 31, 2019 and March 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
March 31, 2019
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
3
|
|
|
$
|
12
|
|
|
Accounts receivable, net
|
50
|
|
|
47
|
|
|
Other current assets
|
9
|
|
|
59
|
|
|
Total current assets
|
62
|
|
|
118
|
|
|
Other tax receivables-long-term
|
—
|
|
|
311
|
|
|
Total assets
|
62
|
|
|
429
|
|
|
LIABILITIES
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
96
|
|
|
2,151
|
|
|
Accrued expenses
|
392
|
|
|
3,158
|
|
|
Short-term debt
|
—
|
|
|
1,750
|
|
|
Total current liabilities
|
488
|
|
|
7,059
|
|
|
Total liabilities
|
488
|
|
|
7,059
|
|
|
Net Liabilities
|
$
|
(426)
|
|
|
$
|
(6,630)
|
|
Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt. As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities. The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada. In addition, on June 11, 2019, the Company has also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of December 31, 2019 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $4.5 million.
Delphax’s revenues and expenses are included in our consolidated financial statements beginning November 24, 2015 through December 31, 2019. Revenues and expenses prior to the date of initial consolidation were excluded. We have determined that the attribution of Delphax net income or loss should be based on consideration of all of Air T’s investments in Delphax and Delphax Canada. The Delphax warrant ("Delphax warrant") provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Delphax warrant is entitled to participate in such dividends on a ratable basis as if the Delphax 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 Delphax 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.
As a result of the application of the above-described attribution methodology, for the quarters ended December 31, 2019 and December 31, 2018 the attribution of Delphax losses to non-controlling interests was 33% and 33%, respectively.
The following table sets forth the revenue and expenses of Delphax prior to intercompany eliminations that are included in the Company’s condensed consolidated statement of income for the three months ended December 31, 2019 and 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
Operating Revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Cost of sales
|
—
|
|
|
—
|
|
|
General and administrative
|
182
|
|
|
216
|
|
|
|
182
|
|
|
216
|
|
|
|
|
|
|
|
Operating Loss
|
(182)
|
|
|
(216)
|
|
|
|
|
|
|
|
Non-operating Income (Expenses), net
|
6,237
|
|
|
(133)
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
6,055
|
|
|
(349)
|
|
|
|
|
|
|
|
Income Taxes
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Net Income (Loss)
|
$
|
6,055
|
|
|
$
|
(349)
|
|
12. Share Repurchase
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split in June 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
During the three months ended December 31, 2019, the Company repurchased 110,146 shares at an aggregate cost of $2,157,200. Historically, the Company retired all shares repurchased; however, this quarter, the Company changed its intention in order to hold shares repurchased. As such, these shares are reflected as treasury shares as of December 31, 2019.
13. Geographical information
Total property and equipment, including assets on lease, 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 December 31, 2019 and March 31, 2019, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
March 31, 2019
|
|
United States
|
$
|
5,197
|
|
|
$
|
4,393
|
|
|
Foreign
|
14,800
|
|
|
25,035
|
|
|
Total property and equipment, net
|
$
|
19,997
|
|
|
$
|
29,428
|
|
The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at December 31, 2019. The net book value located within each individual country at December 31, 2019 and March 31, 2019 is listed below, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
March 31, 2019
|
|
Australia
|
$
|
5
|
|
|
|
$
|
5
|
|
|
Canada
|
51
|
|
|
—
|
|
|
Estonia
|
7,930
|
|
|
—
|
|
|
Mexico
|
1,845
|
|
|
|
2,681
|
|
|
Netherlands
|
4,969
|
|
|
|
5,541
|
|
|
China
|
—
|
|
|
|
16,808
|
|
|
Total property and equipment, net
|
$
|
14,800
|
|
|
|
$
|
25,035
|
|
Total revenue from continuing operations, in and outside the United States is summarized in the following table for the nine months ended December 31, 2019 and December 31, 2018, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31, 2018
|
|
United States
|
$
|
127,115
|
|
|
|
$
|
134,753
|
|
|
Foreign
|
44,066
|
|
|
|
13,420
|
|
|
Total revenue from continuing operations
|
$
|
171,181
|
|
|
|
$
|
148,173
|
|
14. Segment Information
The Company has five business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment, printing equipment and maintenance and corporate and other. Segment data is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Three Months Ended
December 31,
|
|
|
|
Nine Months Ended
December 31,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Operating Revenues by Segment:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
$
|
18,706
|
|
|
|
$
|
17,868
|
|
|
|
$
|
56,771
|
|
|
|
$
|
52,573
|
|
|
Ground Equipment Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
13,505
|
|
|
|
13,022
|
|
|
|
36,466
|
|
|
|
29,384
|
|
|
International
|
2,444
|
|
|
|
3,247
|
|
|
|
4,473
|
|
|
|
6,118
|
|
|
Total Ground Equipment Sales
|
15,949
|
|
|
|
16,269
|
|
|
|
40,939
|
|
|
|
35,502
|
|
|
|
|
|
|
|
|
|
|
|
Printing Equipment and Maintenance:
|
|
|
|
|
|
|
|
|
Domestic
|
5
|
|
|
|
80
|
|
|
|
202
|
|
|
|
274
|
|
|
International
|
77
|
|
|
|
25
|
|
|
|
197
|
|
|
|
270
|
|
|
Total Printing Equipment and Maintenance
|
82
|
|
|
|
105
|
|
|
|
399
|
|
|
|
544
|
|
|
Commercial Jet Engines and Parts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
22,436
|
|
|
|
9,904
|
|
|
|
37,068
|
|
|
|
37,563
|
|
|
International
|
18,885
|
|
|
|
11,086
|
|
|
|
38,724
|
|
|
|
21,390
|
|
|
Total Commercial Jet Engines and Parts
|
41,321
|
|
|
|
20,990
|
|
|
|
75,792
|
|
|
|
58,953
|
|
|
Corporate and other
|
415
|
|
|
|
236
|
|
|
|
1,556
|
|
|
|
601
|
|
|
Intercompany
|
(3,173)
|
|
|
|
18
|
|
|
|
(4,276)
|
|
|
|
—
|
|
|
Total
|
73,300
|
|
|
|
55,486
|
|
|
|
171,181
|
|
|
|
148,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
610
|
|
|
|
69
|
|
|
|
874
|
|
|
|
1,324
|
|
|
Ground Equipment Sales
|
1,644
|
|
|
|
1,173
|
|
|
|
4,213
|
|
|
|
2,264
|
|
|
Printing Equipment and Maintenance
|
(425)
|
|
|
|
(352)
|
|
|
|
(1,262)
|
|
|
|
(1,007)
|
|
|
Commercial Jet Engines and Parts
|
3,807
|
|
|
|
2,449
|
|
|
|
6,997
|
|
|
|
6,237
|
|
|
Corporate and other
|
(1,558)
|
|
|
|
(1,479)
|
|
|
|
(5,418)
|
|
|
|
(5,145)
|
|
|
Intercompany
|
(358)
|
|
|
|
5
|
|
|
|
(219)
|
|
|
|
4
|
|
|
Total
|
3,720
|
|
|
|
1,865
|
|
|
|
5,185
|
|
|
|
3,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
140
|
|
|
|
(3)
|
|
|
|
196
|
|
|
|
31
|
|
|
Ground Equipment Sales
|
834
|
|
|
|
22
|
|
|
|
844
|
|
|
|
318
|
|
|
Printing Equipment and Maintenance
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Commercial Jet Engines and Parts
|
16,595
|
|
|
|
84
|
|
|
|
34,251
|
|
|
|
19,555
|
|
|
Corporate and other
|
213
|
|
|
|
30
|
|
|
|
285
|
|
|
|
142
|
|
|
Total
|
17,782
|
|
|
|
133
|
|
|
|
35,576
|
|
|
|
20,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, Amortization and Impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
18
|
|
|
|
19
|
|
|
|
55
|
|
|
|
63
|
|
|
Ground Equipment Sales
|
80
|
|
|
|
57
|
|
|
|
195
|
|
|
|
213
|
|
|
Printing Equipment and Maintenance
|
2
|
|
|
|
(23)
|
|
|
|
32
|
|
|
|
7
|
|
|
Commercial Jet Engines and Parts
|
753
|
|
|
|
1,916
|
|
|
|
3,946
|
|
|
|
4,470
|
|
|
Corporate and other
|
127
|
|
|
|
149
|
|
|
|
404
|
|
|
|
445
|
|
|
Intercompany
|
(1)
|
|
|
|
36
|
|
|
|
(4)
|
|
|
|
34
|
|
|
Total
|
$
|
979
|
|
|
|
$
|
2,154
|
|
|
|
$
|
4,628
|
|
|
|
$
|
5,232
|
|
15. Commitments and Contingencies
In 2016, Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”). The 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 is on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying 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 $8,190,000. The net change in the redemption value compared to March 31, 2019 is an increase of $2,714,000, of which $1,585,000 was related to the net change in fair value during the nine months ended December 31, 2019, which is reflected on our consolidated statements of equity.
16. Subsequent Events
Management performs an evaluation of events that occur after the balance sheet date but before consolidated financial statements are issued for potential recognition or disclosure of such events in its consolidated financial statements.
On January 7, 2020, Air T announced that a one-for-ten reverse split of its Alpha Income Preferred (AIP) securities (AIRTP) will be completed effective January 14, 2020. The record date for the reverse split will be January 14, 2020.
As a result of the reverse split, effective January 14, 2020, the stated value of the AIP will be $25.00 per share. Future cash distributions on the AIP will be in the amount of $0.50 per share (remaining at a rate of 8.0% per annum) commencing with the next distribution payment date of February 17, 2020.
Warrants to purchase AIP ("Warrants") (NASDAQ:AIRTW) will remain outstanding, with the number of shares of AIP that can be purchased and the exercise price per share to be adjusted for the reverse split. As a result, effective January 14, 2020, each Warrant will confer upon its holder the right to purchase one-tenth of a share of AIP for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share.
The common stock of Air T, Inc. (AIRT) is not affected by the January 2020 reverse split.