NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2021. The results of operations for the period ended December 31, 2021 are not necessarily indicative of the operating results for the full year.
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 nine months ended December 31, 2020. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Formation of new entities
On May 5, 2021, the Company formed a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”). The Company and Mill Road Capital (“MRC”) have agreed to become common members in CAM. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”). For the Asset Management Function, CAM will receive origination fees, management fees, consignment fees (where applicable) and a carried interest. For its Investment Function, CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC. Any investment returns will be shared pro-rata between the Company and MRC.
COVID-19 Pandemic
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during the remainder of fiscal 2022 and beyond. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
In July 2021, the FASB updated the Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:
1.The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
2.The lessor would have otherwise recognized a day-one loss.
When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
2. Acquisitions
On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company dated October 11, 2021. The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where the Air T's executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building.
The total amount recorded for the real estate was $13.4 million, which included the purchase price of $13.2 million and total direct capitalized acquisition costs of $0.2 million. The consideration paid for the real estate consisted of approximately $3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031. See Note 11.
In accordance with ASC 805, the purchase price consideration was allocated as follows (in thousands):
|
|
|
|
|
|
|
|
Land
|
$
|
2,794
|
|
|
Building
|
8,439
|
|
|
Site Improvements
|
798
|
|
|
Tenant Improvements
|
269
|
|
|
Above market leases
|
3
|
|
|
Below market leases
|
(139)
|
|
|
Intangible origination costs
|
512
|
|
|
Absorption period costs
|
732
|
|
|
|
$
|
13,408
|
|
3. Revenue Recognition
Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
|
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Type of Revenue
|
Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
|
|
Product Sales
|
The Company generates revenue from sales of various distinct products such as parts, aircraft 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 and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
|
In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.
The following table summarizes disaggregated revenues by type (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Product Sales
|
|
|
|
|
|
|
|
|
Air Cargo
|
$
|
5,493
|
|
|
$
|
4,970
|
|
|
$
|
17,680
|
|
|
$
|
15,013
|
|
|
Ground equipment sales
|
14,674
|
|
|
20,365
|
|
|
31,600
|
|
|
47,935
|
|
|
Commercial jet engines and parts
|
9,379
|
|
|
16,471
|
|
|
29,827
|
|
|
23,450
|
|
|
Corporate and other
|
85
|
|
|
73
|
|
|
199
|
|
|
106
|
|
|
Support Services
|
|
|
|
|
|
|
|
|
Air Cargo
|
12,734
|
|
|
11,342
|
|
|
38,228
|
|
|
34,751
|
|
|
Ground equipment sales
|
173
|
|
|
109
|
|
|
306
|
|
|
193
|
|
|
Commercial jet engines and parts
|
1,686
|
|
|
1,191
|
|
|
5,342
|
|
|
3,771
|
|
|
Corporate and other
|
72
|
|
|
47
|
|
|
189
|
|
|
72
|
|
|
Leasing Revenue
|
|
|
|
|
|
|
|
|
Air Cargo
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Ground equipment sales
|
141
|
|
|
39
|
|
|
219
|
|
|
110
|
|
|
Commercial jet engines and parts
|
298
|
|
|
373
|
|
|
642
|
|
|
1,537
|
|
|
Corporate and other
|
145
|
|
|
36
|
|
|
221
|
|
|
178
|
|
|
Other
|
|
|
|
|
|
|
|
|
Air Cargo
|
21
|
|
|
10
|
|
|
38
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|
|
25
|
|
|
Ground equipment sales
|
244
|
|
|
256
|
|
|
478
|
|
|
418
|
|
|
Commercial jet engines and parts
|
29
|
|
|
43
|
|
|
91
|
|
|
128
|
|
|
Corporate and other
|
259
|
|
|
494
|
|
|
580
|
|
|
707
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|
|
|
|
|
|
|
|
|
|
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Total
|
$
|
45,433
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|
|
$
|
55,819
|
|
|
$
|
125,640
|
|
|
$
|
128,394
|
|
See Note 12 for the Company's disaggregated revenues by geographic region and Note 13 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2021 and December 31, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the nine-month period ended December 31, 2021 (in thousands):
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|
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|
|
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|
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Outstanding contract liabilities
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|
Outstanding contract liabilities as of April 1, 2021
Recognized as Revenue
|
|
As of December 31, 2021
|
$
|
1,585
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|
|
|
|
As of April 1, 2021
|
$
|
1,358
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|
|
|
|
For the nine months ended December 31, 2021
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|
|
$
|
1,180
|
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4. Accrued Expenses and Other
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(in thousands)
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December 31, 2021
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|
March 31, 2021
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|
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|
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Salaries, wages and related items
|
$
|
4,356
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|
|
$
|
5,427
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Profit sharing and bonus
|
387
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|
|
2,706
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|
|
Other Deposits
|
1,352
|
|
|
1,251
|
|
|
Other
|
2,864
|
|
|
3,403
|
|
|
Total
|
$
|
8,959
|
|
|
$
|
12,787
|
|
5. Income Taxes
During the three-month period ended December 31, 2021, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax"), the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of the Company's 79%-owned subsidiary ("Contrail").
During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of (22.0)%. 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, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the nine-month period ended December 31, 2021, the Company recorded $0.2 million in income tax benefit at an effective rate of (3.6)%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.
During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit which resulted in an effective tax rate of 45.9%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
6. Net Earnings (Loss) Per Share
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):
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|
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Three Months Ended December 31,
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Nine Months Ended December 31,
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2021
|
|
2020
|
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2021
|
|
2020
|
|
Net (loss) income from continuing operations
|
$
|
(1,189)
|
|
|
$
|
1,763
|
|
|
$
|
7,141
|
|
|
$
|
(2,550)
|
|
|
Net (income) loss from continuing operations attributable to non-controlling interests
|
(73)
|
|
|
335
|
|
|
(559)
|
|
|
884
|
|
|
Net (loss) income from continuing operations attributable to Air T, Inc. Stockholders
|
(1,262)
|
|
|
2,098
|
|
|
6,582
|
|
|
(1,666)
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|
|
(Loss) Income from continuing operations per share:
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|
|
|
|
|
|
|
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Basic
|
$
|
(0.44)
|
|
|
$
|
0.73
|
|
|
$
|
2.28
|
|
|
$
|
(0.58)
|
|
|
Diluted
|
$
|
(0.44)
|
|
|
$
|
0.73
|
|
|
$
|
2.28
|
|
|
$
|
(0.58)
|
|
|
Antidilutive shares excluded from computation of loss per share from continuing operations
|
11
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Income from discontinued operation attributable to Air T, Inc. stockholders
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Diluted
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.44)
|
|
|
$
|
0.73
|
|
|
$
|
2.28
|
|
|
$
|
(0.58)
|
|
|
Diluted
|
$
|
(0.44)
|
|
|
$
|
0.73
|
|
|
$
|
2.28
|
|
|
$
|
(0.58)
|
|
|
Antidilutive shares excluded from computation of loss per share
|
11
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
2,882
|
|
|
2,882
|
|
|
2,882
|
|
|
2,882
|
|
|
Diluted
|
2,882
|
|
|
2,887
|
|
|
2,893
|
|
|
2,882
|
|
7. Investments in Securities and Derivative Instruments
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.
As mentioned in Note 11, on August 31, 2021, Air T and MBT refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings.
The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815. The effective portion of changes in the fair value on this instrument is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings. This interest rate swap is considered a Level 2 fair value measurement. As of December 31, 2021 and March 31, 2021, the fair value of this interest-rate swap contract was a liability of $0.4 million and $0.6 million, respectively, which is included within other non-current liabilities in the condensed consolidated balance sheets. During the three and nine months ended December 31, 2021, the Company recorded a loss of approximately $20.0 thousand and a gain of $37.0 thousand, net of tax, respectively, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of this instrument.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three and nine months ended December 31, 2021, the Company did not record any gain or loss related to these derivative instruments. During the three months ended December 31, 2020, the Company had a gross gain aggregating to $0.1 million and gross loss aggregating to $1.6 thousand related to these derivative instruments. During the nine months ended December 31, 2020, the Company had a gross gain aggregating to $0.8 million and a gross loss aggregating to $23.7 thousand related to these derivative instruments.
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements. During the three months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $1.7 million and a gross unrealized loss aggregating to $1.9 million. During the nine months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $2.5 million and a gross unrealized loss aggregating to $2.1 million. During the three months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.3 million. During the nine months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $1.6 million and a gross unrealized loss aggregating to $1.1 million. These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated statement of income (loss).
The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of December 31, 2021 and 2020, the Company had outstanding borrowings of $0 and $0.7 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets. As of December 31, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $0 and $1.3 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.
8. Equity Method Investments
The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of December 31, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28% of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0. As such, the Company did not record any additional share of Insignia's net loss as of December 31, 2021. On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021. The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements.
The Company's 18.98% investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $0.3 million. The Company recorded a loss of $0.1 million and $0.6 million as its share of CCI's net loss for the three and nine months ended December 31, 2021, along with a basis difference adjustment of $13.0 thousand and $38.0 thousand, respectively. Additionally, due to the adverse financial results as reported in CCI's financial statements for the quarters ended June 30, 2021 and September 30, 2021, in addition to consideration of industry reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in CCI. As such, the Company recorded an impairment charge of $0.3 million during the quarter ended December 31, 2021. After the impairment, the Company's net investment basis in CCI is $2.8 million as of December 31, 2021.
Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Revenue
|
$
|
29,408
|
|
|
$
|
27,327
|
|
|
$
|
87,396
|
|
|
$
|
61,402
|
|
|
Gross Profit
|
1,256
|
|
|
3,231
|
|
|
3,160
|
|
|
5,196
|
|
|
Operating loss
|
(1,339)
|
|
|
891
|
|
|
(6,544)
|
|
|
(3,496)
|
|
|
Net loss
|
(1,434)
|
|
|
2,242
|
|
|
(5,847)
|
|
|
(2,075)
|
|
|
Net loss attributable to Air T, Inc. stockholders
|
$
|
(110)
|
|
|
$
|
355
|
|
|
$
|
(678)
|
|
|
$
|
(705)
|
|
9. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Overnight air cargo
|
$
|
30
|
|
|
$
|
—
|
|
|
Ground equipment manufacturing:
|
|
|
|
|
Raw materials
|
4,509
|
|
|
4,695
|
|
|
Work in process
|
2,120
|
|
|
5,820
|
|
|
Finished goods
|
8,714
|
|
|
1,691
|
|
|
Corporate and other:
|
|
|
|
|
Raw materials
|
650
|
|
|
462
|
|
|
Finished goods
|
728
|
|
|
889
|
|
|
Commercial jet engines and parts
|
61,583
|
|
|
60,516
|
|
|
Total inventories
|
$
|
78,334
|
|
|
$
|
74,073
|
|
|
Reserves
|
(1,888)
|
|
|
(2,102)
|
|
|
Total inventories, net of reserves
|
$
|
76,446
|
|
|
$
|
71,971
|
|
|
|
|
|
|
10. 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, 2021 and 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating lease cost
|
$
|
499
|
|
|
$
|
547
|
|
|
$
|
1,366
|
|
|
$
|
1,599
|
|
|
Short-term lease cost
|
325
|
|
|
50
|
|
|
983
|
|
|
251
|
|
|
Variable lease cost
|
174
|
|
|
241
|
|
|
464
|
|
|
532
|
|
|
Total lease cost
|
$
|
998
|
|
|
$
|
838
|
|
|
$
|
2,813
|
|
|
$
|
2,382
|
|
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of December 31, 2021 and March 31, 2021 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
March 31, 2021
|
|
Operating leases
|
|
|
|
|
Operating lease ROU assets
|
7,099
|
|
|
7,757
|
|
|
Operating lease liabilities
|
7,892
|
|
|
8,445
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
|
|
Operating leases
|
13 years, 10 months
|
|
13 years, 9 months
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
4.33
|
%
|
|
4.37
|
%
|
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2022 (excluding the nine months ended December 31, 2021)
|
$
|
440
|
|
|
2023
|
1,733
|
|
|
2024
|
1,372
|
|
|
2025
|
1,116
|
|
|
2026
|
870
|
|
|
2027
|
704
|
|
|
Thereafter
|
5,300
|
|
|
Total undiscounted lease payments
|
$
|
11,535
|
|
|
Less: Interest
|
(3,144)
|
|
|
Less: Discount
|
(499)
|
|
|
Total lease liabilities
|
$
|
7,892
|
|
11. Financing Arrangements
As mentioned in Note 2, on December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company dated October 11, 2021. The purchase price was $13.2 million, which was paid for with approximately $3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031 ("Wolfe Lake Debt"). The promissory note provides for monthly payments of principal and interest commencing January 1, 2022 and continuing to the maturity date in the amount of $50.9 thousand.
On April 13, 2020, the Company entered into a loan with Minnesota Bank & Trust ("MBT") with a principal amount of $8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act. As of December 31, 2021, the Company's PPP Loan was fully forgiven by the SBA. As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470.
The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
December 31,
2021
|
|
March 31,
2021
|
|
Maturity Date
|
|
Interest Rate
|
|
Unused commitments
|
|
Air T Debt
|
|
|
|
|
|
|
|
|
|
|
Revolver - MBT
|
$
|
3,680
|
|
|
$
|
—
|
|
|
August 31, 2023
|
|
Greater of 2.5% or Prime - 1%
|
|
$
|
13,320
|
|
|
Term Note A - MBT
|
8,734
|
|
|
6,750
|
|
|
August 31, 2031
|
|
3.42%
|
|
|
|
Term Note B - MBT
|
3,081
|
|
|
3,375
|
|
|
August 31, 2031
|
|
3.42%
|
|
|
|
Term Note D - MBT
|
1,422
|
|
|
1,472
|
|
|
January 1, 2028
|
|
1-month LIBOR + 2%
|
|
|
|
Term Note E - MBT
|
2,856
|
|
|
4,706
|
|
|
June 25, 2025
|
|
Greater of LIBOR + 1.5% or 2.5%
|
|
|
|
Debt - Trust Preferred Securities
|
24,960
|
|
|
14,289
|
|
|
June 7, 2049
|
|
8.00%
|
|
|
|
PPP Loan
|
—
|
|
|
8,215
|
|
|
December 24, 20221
|
|
1.00%
|
|
|
|
Total
|
44,733
|
|
|
38,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirCo 1 Debt
|
|
|
|
|
|
|
|
|
|
|
Term Loan - PSB
|
6,393
|
|
|
6,200
|
|
|
December 11, 2025
|
|
3-month LIBOR + 3.00%
|
|
|
|
Total
|
6,393
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jet Yard Debt
|
|
|
|
|
|
|
|
|
|
|
Term Loan - MBT
|
1,968
|
|
|
—
|
|
|
August 31, 2031
|
|
4.14%
|
|
|
|
Total
|
1,968
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contrail Debt
|
|
|
|
|
|
|
|
|
|
|
Revolver - Old National Bank ("ONB")
|
1,503
|
|
|
—
|
|
|
September 5, 2023
|
|
1-month LIBOR + 3.45%
|
|
23,497
|
|
|
Term Loan G - ONB
|
44,918
|
|
|
43,598
|
|
|
November 24, 2025
|
|
1-month LIBOR + 3.00%
|
|
|
|
Total
|
46,421
|
|
|
43,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delphax Solutions Debt
|
|
|
|
|
|
|
|
|
|
|
Canadian Emergency Business Account Loan
|
32
|
|
|
32
|
|
|
December 31, 2025
|
|
5.00%
|
|
|
|
Total
|
32
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wolfe Lake Debt
|
|
|
|
|
|
|
|
|
|
|
Term Loan - Bridgewater
|
9,900
|
|
|
—
|
|
|
December 2, 2031
|
|
3.65%
|
|
|
|
Total
|
9,900
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
109,447
|
|
|
88,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized Debt Issuance Costs
|
(1,049)
|
|
|
(1,141)
|
|
|
|
|
|
|
|
|
Total Debt, net
|
$
|
108,398
|
|
|
$
|
87,496
|
|
|
|
|
|
|
|
At December 31, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):
|
|
|
|
|
|
|
|
Due by
|
Amount
|
|
December 31, 2022
|
$
|
2,963
|
|
|
December 31, 2023
|
12,688
|
|
|
December 31, 2024
|
9,058
|
|
|
December 31, 2025
|
40,817
|
|
|
December 31, 2026
|
1,672
|
|
|
Thereafter
|
42,249
|
|
|
|
109,447
|
|
|
Less: Unamortized Debt Issuance Costs
|
(1,049)
|
|
|
|
$
|
108,398
|
|
On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:
•A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split).
•The Company issued and distributed to existing common stockholders an aggregate of 1.6 million TruPs shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs).
On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share. As of December 31, 2021, 5.3 million Warrants have been exercised. The remaining 3.1 million Warrants were not exercised and expired on August 30, 2021.
During the first three quarters of fiscal 2022, the Company received $7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively.
The amount outstanding on the Company's Debt - Trust Preferred Securities is $25.0 million as of December 31, 2021.
1 The PPP loan was fully forgiven by the SBA in September 2021.
12. Geographical Information
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of December 31, 2021 and March 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
March 31, 2021
|
|
United States
|
$
|
25,683
|
|
|
$
|
8,632
|
|
|
Foreign
|
1,541
|
|
|
2,018
|
|
|
Total tangible long-lived assets, net
|
$
|
27,224
|
|
|
$
|
10,650
|
|
The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at December 31, 2021. The net book value located within each individual country at December 31, 2021 and March 31, 2021 is listed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
March 31, 2021
|
|
Macau
|
$
|
1,430
|
|
|
$
|
1,896
|
|
|
Other
|
111
|
|
|
122
|
|
|
Total tangible long-lived assets, net
|
$
|
1,541
|
|
|
$
|
2,018
|
|
Total revenue, in and outside the United States, is summarized in the following table for the nine months ended December 31, 2021 and December 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
December 31, 2020
|
|
United States
|
$
|
109,261
|
|
|
$
|
113,563
|
|
|
Foreign
|
16,379
|
|
|
14,831
|
|
|
Total revenue
|
$
|
125,640
|
|
|
$
|
128,394
|
|
13. Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. We have presented prior periods based on the current presentation. Segment data is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Three Months Ended
December 31,
|
|
Nine Months Ended
December 31,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating Revenues by Segment:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
18,248
|
|
|
$
|
16,322
|
|
|
$
|
55,694
|
|
|
$
|
49,789
|
|
|
International
|
—
|
|
|
—
|
|
|
252
|
|
—
|
|
|
Total Overnight Air Cargo
|
18,248
|
|
|
16,322
|
|
|
55,946
|
|
|
49,789
|
|
|
Ground Equipment Sales:
|
|
|
|
|
|
|
|
|
Domestic
|
12,835
|
|
|
13,680
|
|
|
26,991
|
|
|
40,486
|
|
|
International
|
2,397
|
|
|
7,089
|
|
|
5,612
|
|
|
8,170
|
|
|
Total Ground Equipment Sales
|
15,232
|
|
|
20,769
|
|
|
32,603
|
|
|
48,656
|
|
|
Commercial Jet Engines and Parts:
|
|
|
|
|
|
|
|
|
Domestic
|
8,426
|
|
|
15,851
|
|
|
25,656
|
|
|
22,476
|
|
|
International
|
2,966
|
|
|
2,227
|
|
|
10,246
|
|
|
6,410
|
|
|
Total Commercial Jet Engines and Parts
|
11,392
|
|
|
18,078
|
|
|
35,902
|
|
|
28,886
|
|
|
Corporate and Other:
|
|
|
|
|
|
|
|
|
Domestic
|
456
|
|
|
548
|
|
|
920
|
|
|
811
|
|
|
International
|
105
|
|
|
102
|
|
|
269
|
|
|
252
|
|
|
Total Corporate and Other
|
561
|
|
|
650
|
|
|
1,189
|
|
|
1,063
|
|
|
Total
|
$
|
45,433
|
|
|
$
|
55,819
|
|
|
$
|
125,640
|
|
|
$
|
128,394
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
475
|
|
|
490
|
|
|
2,063
|
|
|
1,617
|
|
|
Ground Equipment Sales
|
1,463
|
|
|
4,229
|
|
|
2,929
|
|
|
7,369
|
|
|
Commercial Jet Engines and Parts
|
336
|
|
|
(1,598)
|
|
|
2,000
|
|
|
(4,776)
|
|
|
Corporate and Other
|
(2,249)
|
|
|
(2,053)
|
|
|
(6,268)
|
|
|
(7,091)
|
|
|
Total
|
$
|
25
|
|
|
$
|
1,068
|
|
|
$
|
724
|
|
|
$
|
(2,881)
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
15
|
|
|
85
|
|
|
82
|
|
|
228
|
|
|
Ground Equipment Sales
|
97
|
|
|
4
|
|
|
114
|
|
|
115
|
|
|
Commercial Jet Engines and Parts
|
239
|
|
|
1,656
|
|
|
977
|
|
|
3,166
|
|
|
Corporate and Other
|
12
|
|
|
2
|
|
|
32
|
|
|
30
|
|
|
Total
|
$
|
363
|
|
|
$
|
1,747
|
|
|
$
|
1,205
|
|
|
$
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
14
|
|
|
17
|
|
|
41
|
|
|
52
|
|
|
Ground Equipment Sales
|
81
|
|
|
38
|
|
|
145
|
|
|
152
|
|
|
Commercial Jet Engines and Parts
|
234
|
|
|
754
|
|
|
714
|
|
|
2,114
|
|
|
Corporate and Other
|
113
|
|
|
77
|
|
|
246
|
|
|
326
|
|
|
Total
|
$
|
442
|
|
|
$
|
886
|
|
|
$
|
1,146
|
|
|
$
|
2,644
|
|
14. Commitments and Contingencies
Redeemable Non-controlling Interest
Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”). The Contrail Put/Call Option permits the Seller to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which was on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Contrail RNCI is a Level 3 fair value measurement that is valued at $7.9 million as of December 31, 2021. The change in the redemption value compared to March 31, 2021 is an increase of $1.3 million. The increase was driven by $0.3 million of contributions made from the non-controlling interest and $0.6 million of the net change in fair value, in addition to $0.4 million of net income attributable to the non-controlling interest during the nine months ended December 31, 2021.
As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
On May 5, 2021, the Company formed a new aircraft asset management business called CAM, and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC. As of December 31, 2021, CAM's remaining capital commitments are approximately $4.2 million from the Company and $28.9 million from MRC.
2020 Omnibus Stock and Incentive Plan
On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000. Among other instruments, the Plan permits the Company to grant stock option awards. Through December 31, 2021, options to purchase up to 326,000 shares have been granted under the Plan. Vesting of options is based on the grantee meeting specified service conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements. As of December 31, 2021, total compensation cost recognized under the Plan was $0.3 million.
15. Subsequent Events
Contrail's Interest Rate Swap
On January 7, 2022, Contrail completed an interest rate swap transaction with ONB with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve. The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. Notwithstanding the terms of the interest rate swap transaction, Contrail is ultimately obligated for all amounts due and payable under the financing.
Employee Retention Credit
On January 24, 2022, the Company filed an application with the Internal Revenue Service for an Employee Retention Credit in an amount approximating $9.1 million. The Employee Retention Credit, originally included in the CARES Act in 2020 and subsequently modified by Congress, is a refundable tax credit against certain employment taxes equal to 50-70% of the qualified wages an eligible employer pays to its employees. The Company’s application was made with respect to wages paid between the period January 1, 2001 and September 30, 2021. There is no assurance that the Company will qualify for this credit or when, or in what amount, the application will be approved.
GdW Beheer B.V. acquisition
On February 8, 2022, Air T Acquisition 22.1, LLC, a wholly-owned subsidiary of the Company, entered into a new secured loan with Bridgewater Bank, a Minnesota banking corporation. The loan is in the principal amount of $5.0 million and bears a fixed interest rate of 4.00%. The loan provides for monthly payments of accrued interest and annual principal payments of $0.5 million each for years 2023 through 2027, and matures on February 8, 2027 at which time the entire unpaid balance will be due and payable in full. In addition, the loan agreement contains affirmative and negative covenants. The loan is secured by a first lien on all of the assets of Air T Acquisition 22.1, LLC, a pledge of $5.0 million 8.0% Cumulative Capital Security Certificates (also referred to as the TruPs) which were contributed to the Air T Acquisition 22.1, LLC by the Company upon its formation, and a personal guaranty of the Company’s Chairman, President and Chief Executive Officer, Nicholas Swenson. The proceeds from the loan, as well as additional cash of $2.7 million were used to acquire a 70% interest in GdW Beheer B.V., a Dutch holding company involved in the global aviation data and information business, on February 10, 2022.