Air T Inc 10-Q for FY2022 Q1
Air T Inc (AIRT)
10-Q
2021-08-12
For: 2021-06-30
View Original
Added on
April 09, 2026
About this 10-Q
Air T Inc filed this 10-Q on August 12, 2021, covering the quarter ended June 30, 2021 (FY2022 Q1).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $36.97M
- unchanged from $36.97M a year earlier
- Net income
- $289K
- compared with a net loss of $841K a year earlier
- Diluted EPS
- $0.10
- compared with -$0.29 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended | |||||
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____ | |||||
Commission File Number 001-35476
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices, including zip code)
(828 ) 464 – 8741
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
| Common Stock | Common Shares, par value of $.25 per share | ||||
| Outstanding Shares at July 31, 2021 | |||||
AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
| Page | ||||||||
PART I | ||||||||
Condensed Consolidated Statements of Income (Loss) (Unaudited) For The Three Months Ended June 30, 2021 and 2020 | ||||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) For The Three Months Ended June 30, 2021 and 2020 | ||||||||
Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2021 and March 31, 2021 | ||||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) For The Three Months Ended June 30, 2021 and 2020 | ||||||||
Condensed Consolidated Statements of Equity (Unaudited) For Three Months Ended June 30, 2021 and 2020 | ||||||||
| Item 5. | ||||||||
| Exhibit Index | ||||||||
| Certifications | ||||||||
| Interactive Data Files | ||||||||
3
Item 1. Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
| (in thousands, except income (loss) per share number) | Three Months Ended June 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| Operating Revenues: | |||||||||||
| Overnight air cargo | $ | $ | |||||||||
| Ground equipment sales | |||||||||||
| Commercial jet engines and parts | |||||||||||
| Corporate and other | |||||||||||
| Operating Expenses: | |||||||||||
| Overnight air cargo | |||||||||||
| Ground equipment sales | |||||||||||
| Commercial jet engines and parts | |||||||||||
| General and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Loss (Gain) on sale of property and equipment | ( | ||||||||||
| Operating Loss | ( | ( | |||||||||
| Non-operating Income (Expense): | |||||||||||
| Interest expense | ( | ( | |||||||||
| Gain (Loss) from equity method investments | ( | ||||||||||
| Other | |||||||||||
| ( | |||||||||||
| Income (Loss) before income taxes | ( | ||||||||||
| Income Taxes Benefit | ( | ( | |||||||||
| Net Income (Loss) | ( | ||||||||||
| Net (Income) Loss Attributable to Non-controlling Interests | $ | ( | $ | ||||||||
| Net Income (Loss) Attributable to Air T, Inc. Stockholders | $ | $ | ( | ||||||||
| Income (Loss) per share (Note 5) | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Weighted Average Shares Outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
See notes to condensed consolidated financial statements.
4
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
| Three Months Ended June 30, | ||||||||||||||
| (In Thousands) | 2021 | 2020 | ||||||||||||
| Net Income (Loss) | $ | $ | ( | |||||||||||
| Foreign currency translation loss | ( | ( | ||||||||||||
| Unrealized gain (loss) on interest rate swaps | ( | |||||||||||||
| Reclassification of interest rate swaps into earnings | ( | |||||||||||||
| Total Other Comprehensive Loss | ( | ( | ||||||||||||
| Total Comprehensive Income (Loss) | ( | |||||||||||||
| Comprehensive (Income) Loss Attributable to Non-controlling Interests | ( | |||||||||||||
| Comprehensive Income (Loss) Attributable to Air T, Inc. Stockholders | $ | $ | ( | |||||||||||
See notes to condensed consolidated financial statements.
5
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| (In thousands, except share amounts) | June 30, 2021 | March 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Restricted cash | |||||||||||
| Restricted investments | |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Income tax receivable | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total Current Assets | |||||||||||
Assets on lease or held for lease, net of accumulated depreciation of $ | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Right-of-use assets | |||||||||||
| Equity method investments | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total Assets | $ | ||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | ||||||||||
| Income tax payable | |||||||||||
| Accrued expenses and other (Note 3) | |||||||||||
| Current portion of long-term debt | |||||||||||
| Short-term lease liability | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-term debt | |||||||||||
| Deferred income tax liabilities, net | |||||||||||
| Long-term lease liability | |||||||||||
| Other non-current liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Redeemable non-controlling interest | |||||||||||
| Commitments and contingencies (Note 13) | |||||||||||
| Equity: | |||||||||||
| Air T, Inc. Stockholders' Equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Air T, Inc. Stockholders' Equity | |||||||||||
| Non-controlling Interests | |||||||||||
| Total Equity | |||||||||||
| Total Liabilities and Equity | $ | $ | |||||||||
See notes to condensed consolidated financial statements.
6
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| (In Thousands) | Three Months Ended June 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net (Loss) Income | ( | ||||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Other | ( | ||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of marketable securities | ( | ||||||||||
| Sale of marketable securities | |||||||||||
| Investment in unconsolidated entities | ( | ||||||||||
| Capital expenditures related to property & equipment | ( | ( | |||||||||
| Capital expenditures related to assets on lease or held for lease | ( | ||||||||||
| Other | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from lines of credit | |||||||||||
| Payments on lines of credit | ( | ( | |||||||||
| Proceeds from term loan | |||||||||||
| Payments on term loan | ( | ( | |||||||||
| Proceeds from Payroll Protection Program loan ("PPP loan") | |||||||||||
| Proceeds received from issuance of Trust Preferred Securities ("TruPs") | |||||||||||
| Other | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | ( | ( | |||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ( | ||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | |||||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | |||||||||||
See notes to condensed consolidated financial statements.
7
AIR T, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
| (In Thousands) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss* | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on interest rate swaps, net of tax | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to fair value of redeemable non-controlling interests | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| (In Thousands) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | ( | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Net income* | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Adjustment to fair value of redeemable non-controlling interest | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on interest rate swaps, net of tax | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification of interest rate swaps into earnings | — | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||||||||||
*Excludes amount attributable to redeemable non-controlling interest in Contrail.
See notes to condensed consolidated financial statements.
8
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2021. The results of operations for the period ended June 30, 2021 are not necessarily indicative of the operating results for the full year.
Formation of new entities
On May 5, 2021, the Company formed a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”). The Company and Mill Road Capital (“MRC”) have agreed to become common members in CAM. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”). For the Asset Management Function, CAM will receive origination fees, management fees, consignment fees (where applicable) and a carried interest. For its Investment Function, CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. Any investment returns will be shared pro-rata between the Company and MRC.
COVID-19 Pandemic
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
Recently Adopted Accounting Pronouncements
In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company adopted this amendment on April 1, 2021. As of June 30, 2021, the amendments did not have a material impact on the Company's consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
In July 2021, the FASB updated the Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:
1.The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
2.The lessor would have otherwise recognized a day-one loss.
When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
9
2. Revenue Recognition
Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
| 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, 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. | ||||
| 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 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):
| Three Months Ended June 30, | ||||||||||||||
| 2021 | 2020 | |||||||||||||
| Product Sales | ||||||||||||||
| Air Cargo | $ | $ | ||||||||||||
| Ground equipment sales | ||||||||||||||
| Commercial jet engines and parts | ||||||||||||||
| Corporate and other | ||||||||||||||
| Support Services | ||||||||||||||
| Air Cargo | ||||||||||||||
| Ground equipment sales | ||||||||||||||
| Commercial jet engines and parts | ||||||||||||||
| Corporate and other | ||||||||||||||
| Leasing Revenue | ||||||||||||||
| Ground equipment sales | ||||||||||||||
| Commercial jet engines and parts | ||||||||||||||
| Corporate and other | ||||||||||||||
| Other | ||||||||||||||
| Air Cargo | ||||||||||||||
| Ground equipment sales | ||||||||||||||
| Commercial jet engines and parts | ||||||||||||||
| Corporate and other | ||||||||||||||
| Total | $ | $ | ||||||||||||
See Note 11 for the Company's disaggregated revenues by geographic region and Note 12 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2021 and June 30, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the three-month period ended June 30, 2021 (in thousands):
| Outstanding contract liabilities | Outstanding contract liabilities as of April 1, 2021 Recognized as Revenue | ||||||||||
| As of June 30, 2021 | $ | ||||||||||
| As of April 1, 2021 | |||||||||||
| For the quarter ended June 30, 2021 | |||||||||||
10
3. Accrued Expenses
| (in thousands) | June 30, 2021 | March 31, 2021 | |||||||||
| Salaries, wages and related items | $ | $ | |||||||||
| Profit sharing and bonus | |||||||||||
| Other Deposits | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
11
4. Income Taxes
During the three-month period ended June 30, 2021, the Company recorded $5.0 thousand in income tax benefit at an effective tax rate ("ETR") of (1.6 )%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax") and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the three-month period ended June 30, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of 23.9 %. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
12
5. Net Earnings (Loss) Per Share
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):
| Three Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Net (income) loss attributable to non-controlling interests | ( | ||||||||||
| Net income (loss) attributable to Air T, Inc. Stockholders | ( | ||||||||||
| Income (Loss) per share: | |||||||||||
| Basic | $ | $ | ( | ||||||||
| Diluted | $ | $ | ( | ||||||||
| Antidilutive shares excluded from computation of income (loss) per share | |||||||||||
| Weighted Average Shares Outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
13
6. Investments in Securities and Derivative Instruments
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56 % and 5.09 %, respectively, on Term Notes A and D. The swaps mature in January 2028. These swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings. The interest rate swaps are considered Level 2 fair value measurements. As of June 30, 2021 and March 31, 2021, the fair value of the interest-rate swap contracts was a liability of $0.6 11.0 thousand and a loss of approximately $26.0 thousand, net of tax, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three months ended June 30, 2021, related to these derivative instruments, the Company did not record any gain or loss. During the three months ended June 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $0.4 million and no gross loss.
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets. During the three months ended June 30, 2021, the Company had a gross unrealized gain aggregating to $0.4 million and a gross unrealized loss aggregating to $49.0 thousand. During the three months ended June 30, 2020, the Company had a gross unrealized gain aggregating to $0.6 million and a gross unrealized loss aggregating to $0.4 million. These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated statement of income (loss).
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7. Equity Method Investments
The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of June 30, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28 % of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0 . As such, the Company did no t record any additional share of Insignia's net loss as of June 30, 2021.
The Company's 18.98 % investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $0.3 million. The Company recorded a loss of $0.3 million as its share of CCI's net loss for the three months ended June 30, 2021, along with a basis difference adjustment of $12.0 thousand. The Company's net investment basis in CCI is $3.5 million as of June 30, 2021.
Summarized unaudited financial information for the Company's equity method investees for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
| Three Months Ended | |||||||||||
| March 31, 2021 | March 31, 2020 | ||||||||||
| Revenue | $ | $ | |||||||||
| Gross Profit | |||||||||||
| Operating loss | ( | ( | |||||||||
| Net loss | ( | ( | |||||||||
| Net loss attributable to Air T, Inc. stockholders | $ | ( | $ | ( | |||||||
8. Inventories
Inventories consisted of the following (in thousands):
| June 30, 2021 | March 31, 2021 | ||||||||||
| Ground equipment manufacturing: | |||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Corporate and Other: | |||||||||||
| Raw materials | |||||||||||
| Finished goods | |||||||||||
| Commercial jet engines and parts: | |||||||||||
| Total inventories | $ | $ | |||||||||
| Reserves | ( | ( | |||||||||
| Total inventories, net of reserves | $ | $ | |||||||||
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9. Leases
The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.
The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the three months ended June 30, 2021 and 2020 are as follows (in thousands):
| Three Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Operating lease cost | $ | $ | |||||||||
| Short-term lease cost | |||||||||||
| Variable lease cost | |||||||||||
| Total lease cost | $ | $ | |||||||||
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2021 and March 31, 2021 were as follows (in thousands):
| June 30, 2021 | March 31, 2021 | ||||||||||
| Operating leases | |||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| Operating lease liabilities | |||||||||||
| Weighted-average remaining lease term | |||||||||||
| Operating leases | |||||||||||
| Weighted-average discount rate | |||||||||||
| Operating leases | % | % | |||||||||
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2021 are as follows (in thousands):
| Operating Leases | |||||
| 2022 (excluding the three months ended June 30, 2021) | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total undiscounted lease payments | $ | ||||
| Less: Interest | ( | ||||
| Less: Discount | ( | ||||
| Total lease liabilities | $ | ||||
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10. Financing Arrangements
The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25 .
AirCo 1, LLC ("AirCo 1") and Contrail Aviation Support, LLC ("Contrail") are subsidiaries of the Company in the Commercial Jet Engines and Parts segment. The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth ("TNW") of $15 million.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to $0 for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.
As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.
The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months. We are currently seeking to refinance this obligation prior to August 31, 2021; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.
Contrail and ONB are also in discussions to reduce the minimum TNW covenant to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement. However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.
On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act. The PPP Loan is evidenced by a promissory note (“Note”). The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT. The PPP Loan may be accelerated upon the occurrence of an event of default.
The PPP Loan is unsecured and guaranteed by the United States Small Business Administration ("SBA"). The Company has applied to the SBA for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act. The PPP Loan bears interest at a fixed annual rate of one percent (1 %). Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount. As of June 30, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.
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| (In Thousands) | June 30, 2021 | March 31, 2021 | Maturity Date | Interest Rate | Unused commitments | ||||||||||||||||||||||||
| Air T Debt | |||||||||||||||||||||||||||||
| Revolver - MBT | $ | $ | August 31, 2021 | Greater of | $ | ||||||||||||||||||||||||
| Term Note A - MBT | $ | $ | January 1, 2028 | 1-month LIBOR + | |||||||||||||||||||||||||
| Term Note B - MBT | $ | $ | January 1, 2028 | ||||||||||||||||||||||||||
| Term Note D - MBT | $ | $ | January 1, 2028 | 1-month LIBOR + | |||||||||||||||||||||||||
| Term Note E - MBT | $ | $ | June 25, 2025 | Greater of LIBOR + | |||||||||||||||||||||||||
| Debt - Trust Preferred Securities | $ | $ | June 7, 2049 | ||||||||||||||||||||||||||
| PPP Loan | $ | $ | December 24, 20221 | ||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||
| AirCo 1 Debt | |||||||||||||||||||||||||||||
| Revolver - MBT | $ | $ | August 31, 20212 | Greater of | |||||||||||||||||||||||||
| Term Loan - PSB | $ | $ | December 11, 2025 | 3-month LIBOR + | |||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||
| Contrail Debt | |||||||||||||||||||||||||||||
| Revolver - ONB | $ | $ | September 5, 2021 | 1-month LIBOR + | $ | ||||||||||||||||||||||||
| Term Loan G - ONB | $ | $ | November 24, 2025 | 1-month LIBOR + | |||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||
| Delphax Solutions Debt | |||||||||||||||||||||||||||||
| Canadian Emergency Business Account Loan | $ | $ | December 31, 2025 | ||||||||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||||||||
| Total Debt | $ | $ | |||||||||||||||||||||||||||
| Less: Unamortized Debt Issuance Costs | $ | ( | $ | ( | |||||||||||||||||||||||||
| Total Debt, net | $ | $ | |||||||||||||||||||||||||||
1 Pursuant to The Paycheck Protection Flexibility Act of 2020, P.L. 116-142, the SBA extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to MBT or (2) if Air T does not apply for loan forgiveness, 10 months after the end of Air T’s loan forgiveness covered period, calculated as 24-week period beginning on April 13, 2020. SBA does not require a formal modification to the original promissory note agreement.
2 The AirCo 1 Revolver was paid off and closed as of December 31, 2020.
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At June 30, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):
| Due by | Amount | ||||
| June 30, 2022 | $ | ||||
| June 30, 2023 | |||||
| June 30, 2024 | |||||
| June 30, 2025 | |||||
| June 30, 2026 | |||||
| Thereafter | |||||
| Less: Unamortized Debt Issuance Costs | ( | ||||
| $ | |||||
On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:
•A dividend of one additional share for every two shares already held (a 50 % stock dividend, or the equivalent of a 3-for-2 stock split).
•The Company issued and distributed to existing common stockholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs).
On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40 , representing a 4 % discount to the new stated value of $2.50 for one-tenth of a share. As of June 30, 2021, 4.1 million Warrants have been exercised. At June 30, 2021, the Company had 4.3 million Warrants outstanding and exercisable to purchase shares of its TruPs at an exercise price of $2.40 per one-tenth of a share. On January 11, 2021, the Company announced the extension of the expiration date of the Warrants, previously scheduled to expire on January 15, 2021, to August 30, 2021 or earlier upon redemption or liquidation. On June 23, 2021, the Company announced that it will not extend the expiration date of its Warrants beyond August 30, 2021.
Fair Value Measurement as of June 30, 2021 | |||||
| Warrant liability (Level 2) | |||||
As of June 30, 2021, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).
On May 14, 2021, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $8 million from time to time. The Company has no obligation to sell any TruPs, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement. As of June 30, 2021, the Company has sold 184.0 thousand shares of TruPs under the ATM agreement for net proceeds of $4.4 million.
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11. Geographical information
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of June 30, 2021 and March 31, 2021 (in thousands):
| June 30, 2021 | March 31, 2021 | ||||||||||
| United States | $ | $ | |||||||||
| Foreign | |||||||||||
| Total tangible long-lived assets, net | $ | $ | |||||||||
The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at June 30, 2021. The net book value located within each individual country at June 30, 2021 and March 31, 2021 is listed below (in thousands):
| June 30, 2021 | March 31, 2021 | ||||||||||
| Macau | |||||||||||
| Other | |||||||||||
| Total tangible long-lived assets, net | |||||||||||
Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2021 and June 30, 2020 (in thousands):
| June 30, 2021 | June 30, 2020 | ||||||||||
| United States | $ | $ | |||||||||
| Foreign | |||||||||||
| Total revenue | |||||||||||
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12. Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020. We have presented prior periods based on the current presentation. Segment data is summarized as follows (in thousands):
| (In Thousands) | Three Months Ended June 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| Operating Revenues by Segment: | |||||||||||
| Overnight Air Cargo | |||||||||||
| Domestic | $ | $ | |||||||||
| International | |||||||||||
| Total Overnight Air Cargo | |||||||||||
| Ground Equipment Sales: | |||||||||||
| Domestic | |||||||||||
| International | |||||||||||
| Total Ground Equipment Sales | |||||||||||
| Commercial Jet Engines and Parts: | |||||||||||
| Domestic | |||||||||||
| International | |||||||||||
| Total Commercial Jet Engines and Parts | |||||||||||
| Corporate and other: | |||||||||||
| Domestic | |||||||||||
| International | |||||||||||
| Total Corporate and other | |||||||||||
| Total | $ | $ | |||||||||
| Operating Income (Loss): | |||||||||||
| Overnight Air Cargo | |||||||||||
| Ground Equipment Sales | |||||||||||
| Commercial Jet Engines and Parts | ( | ( | |||||||||
| Corporate and other | ( | ( | |||||||||
| Total | $ | ( | $ | ( | |||||||
| Capital Expenditures: | |||||||||||
| Overnight Air Cargo | |||||||||||
| Ground Equipment Sales | |||||||||||
| Commercial Jet Engines and Parts | |||||||||||
| Corporate and other | |||||||||||
| Total | $ | $ | |||||||||
| Depreciation and Amortization: | |||||||||||
| Overnight Air Cargo | |||||||||||
| Ground Equipment Sales | |||||||||||
| Commercial Jet Engines and Parts | |||||||||||
| Corporate and other | |||||||||||
| Total | $ | $ | |||||||||
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13. Commitments and Contingencies
Contrail Aviation entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail Aviation in 1996 providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”). The Contrail Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which was on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The fair value of the redeemable non-controlling interest is $7.0 million as of June 30, 2021. The change in the redemption value compared to March 31, 2021 is an increase of $0.4 million. The increase was driven by $0.3 million of contributions made from the non-controlling interest and $0.2 million of the net change in fair value, partially offset by $0.1 million of net loss attributable to the non-controlling interest during the three months ended June 30, 2021.
As of the date of this filing, neither the Seller nor Air T has indicated the intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
14. Subsequent Events
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Air T, Inc. (the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth in its free cash flow per share over time.
We currently operate in four industry segments:
•Overnight air cargo, which operates in the air express delivery services industry;
•Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;
•Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and,
•Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other also comprises of insignificant businesses that do not pertain to other reportable segments.
Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.
Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020. We have presented prior periods based on the current presentation.
Results of Operations
Outlook
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021
Consolidated revenue for the three-month period ended June 30, 2021 was relatively flat compared to the same quarter in the prior fiscal year.
Following is a table detailing revenue by segment, net of intercompany during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):
| Three Months Ended June 30, | Change | ||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Overnight Air Cargo | $ | 18,851 | $ | 16,171 | $ | 2,680 | 17 | % | |||||||||||||||
| Ground Equipment Sales | 8,182 | 15,828 | (7,646) | (48) | % | ||||||||||||||||||
| Commercial Jet Engines and Parts | 9,594 | 4,693 | 4,901 | 104 | % | ||||||||||||||||||
| Corporate and Other | 341 | 278 | 63 | 23 | % | ||||||||||||||||||
| $ | 36,968 | $ | 36,970 | $ | (2) | — | % | ||||||||||||||||
Revenues from the air cargo segment for the three-month period ended June 30, 2021 increased by $2.7 million (17%) compared to the first quarter of the prior fiscal year. The increase was principally attributable to higher pass-through revenue from FedEx as a result
23
of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx.
The ground equipment sales segment contributed approximately $8.2 million and $15.8 million to the Company’s revenues for the three-month periods ended June 30, 2021 and 2020 respectively, representing a $7.6 million (48%) decrease in the current quarter. The decrease was primarily driven by a lower volume of commercial truck sales and ultimate deicers this quarter compared to prior year comparable quarter. At June 30, 2021, the ground equipment sales segment’s order backlog was $7.1 million compared to $48.7 million at June 30, 2020. GGS had a contract to supply deicing trucks to the United States Air Force ("USAF"), which expired on July 13, 2020. GGS has submitted its bid for contract renewal. As of June 30, 2021, the USAF has not yet responded to the bid.
The commercial jet engines and parts segment contributed $9.6 million of revenues in the quarter ended June 30, 2021 compared to $4.7 million in the comparable prior year quarter which is an increase of $4.9 million (104%). The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year quarter as COVID-19 related restrictions continued to loosen.
Following is a table detailing operating income (loss) by segment during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):
| Three Months Ended June 30, | Change | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Overnight Air Cargo | $ | 732 | $ | 555 | $ | 177 | |||||||||||
| Ground Equipment Sales | 1,423 | 2,216 | (793) | ||||||||||||||
| Commercial Jet Engines and Parts | (238) | (902) | 664 | ||||||||||||||
| Corporate and Other | (1,921) | (2,135) | 214 | ||||||||||||||
| $ | (4) | $ | (266) | $ | 262 | ||||||||||||
Consolidated operating loss for the quarter ended June 30, 2021 was $4.0 thousand, compared to an operating loss of $0.3 million in the comparable quarter of the prior year.
The ground equipment sales segment operating income for the quarter ended June 30, 2021 decreased by $0.8 million from the prior year comparable quarter to $1.4 million. This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above.
The commercial jet engines and parts segment generated an operating loss of $0.2 million in the current-year quarter compared to an operating loss of $0.9 million in the prior-year quarter. The change was primarily attributable to the increased component sales at the companies within this segment as explained in the segment revenue discussion above.
Following is a table detailing non-operating income (loss) during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):
| Three Months Ended June 30, | Change | ||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Interest expense | (939) | (1,161) | 222 | ||||||||||||||
| Gain (Loss) from equity method investments | 83 | (558) | 641 | ||||||||||||||
| Other | 1,182 | 729 | 453 | ||||||||||||||
| $ | 326 | $ | (990) | $ | 1,316 | ||||||||||||
The Company had a net non-operating income of $0.3 million for the quarter ended June 30, 2021, compared to a net non-operating loss of $1.0 million in the prior-year quarter. In the first quarter 2020, the Company recorded $0.6 million of net loss pick-up from the investments of Insignia and CCI whereas in the current quarter, we only recorded $0.3 million of net loss pick-up from these investments. Further, in the current quarter, the Company recorded $0.2 million of gain from fair value adjustment related to our Warrants, and $0.5 million of gain from the liquidation of Delphax France, a subsidiary of Delphax Technologies, Inc., in June 2021.
During the three-month period ended June 30, 2021, the Company recorded $5.0 thousand in income tax benefit at an effective tax rate ("ETR") of (1.6)%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2021 were the change in valuation allowance related to Delphax and other capital losses, the estimated
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benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the three-month period ended June 30, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of 23.9%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are fully described in Note 1 to the condensed consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2021. The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended June 30, 2021.
Seasonality
The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments have typically not experienced material seasonal trends.
Liquidity and Capital Resources
As of June 30, 2021, the Company held approximately $11.4 million in cash and cash equivalents and restricted cash, $4.1 million of which related to restricted cash collateralized for 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. The Company also held $1.0 million in restricted investments held as statutory reserve of SAIC. The Company has approximately $2.4 million of marketable securities and an aggregate of $54.5 million in available funds under its lines of credit as of June 30, 2021.
As of June 30, 2021, the Company’s working capital amounted to $79.2 million, an increase of $1.6 million compared to March 31, 2021.
The Company’s Credit Agreement with MBT includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25. The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum TNW of $15 million.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with ONB. The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to $0 for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.
As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.
The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months. We are currently seeking to refinance this obligation prior to August 31, 2021; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.
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Contrail and ONB are also in discussions to reduce the minimum TNW covenant to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement. However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.
In April 2020, the Company obtained loans under the PPP loan, backed by the SBA, as authorized by the CARES Act, of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. As of June 30, 2021, the Company has applied to the SBA for forgiveness of the PPP Loan; however, forgiveness is not fully assured.
As mentioned in Note 13 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. 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 was on July 18, 2021. As of the date of this filing, neither the Seller nor Air T has indicated the intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
As mentioned in Note 13 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed a new aircraft asset management business called CAM and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. As of June 30, 2021, CAM's unfunded capital commitments are approximately $6.9 million from the Company and $43.9 million from MRC. CJVII will initially be capitalized with up to $408 million of equity from the Company and three institutional investor partners, consisting of $108 million in initial commitments and $300 million in upsize capacity, contingent on underwriting and transaction appeal. As of the date of this filing, no capital has been deployed to CJVII and the timing of capital deployment is not yet known at this time.
The Company believes it is probable that the cash on hand (including that obtained from the PPP and other current financings), net cash provided by operations from its remaining operating segments, 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.
Cash Flows
Following is a table of changes in cash flow for the three months ended June 30, 2021 and 2020 (in thousands):
| Three Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net Cash Used in Operating Activities | (8,821) | (3,335) | |||||||||
| Net Cash Used in Investing Activities | (1,449) | (548) | |||||||||
| Net Cash Provided by Financing Activities | 5,819 | 5,040 | |||||||||
| Effect of foreign currency exchange rates on cash and cash equivalents | (49) | (72) | |||||||||
| Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | (4,500) | 1,085 | |||||||||
Net cash used in operating activities was $8.8 million for the three-month period ended June 30, 2021 compared to net cash used in operating activities of $3.3 million in the prior year three-month period. The change in net cash used in operating activities was primarily driven by a net change in accounts receivable of ($7.3 million), partially offset by $1.3 million of change in net income (loss). In the current quarter, the Company had a net increase in accounts receivable of $4.7 million compared to a net decrease of $2.6 million in the prior quarter. In addition, the Company had a net income of $0.3 million in the current quarter and a net loss of $1 million in the prior quarter. Both the increase in accounts receivable and net income in the current quarter are attributable to increased sales in the commercial jet engines and parts segment and the air cargo segment as a result of increased activity in the aviation industry due to loosen COVID-19 related restrictions.
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Net cash used in investing activities for the three-month period ended June 30, 2021 was $1.4 million compared to net cash used in investing activities of $0.5 million in the prior-year period. Cash was used in the current-year period primarily to invest in CAM, the Company's new aircraft asset management business.
Net cash provided by financing activities for the three-month period ended June 30, 2021 was $5.8 million compared to net cash provided by financing activities of $5.0 million in the prior-year period. The increase was primarily driven by higher net cash proceeds from the Company's lines of credit and issuance of TruPs, partially offset by lower net cash proceeds from the Company's term loans.
Non-GAAP Financial Measures
The Company uses adjusted earnings before taxes, interest, and depreciation and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures.
Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. Depreciation expense for leased engines totaled $0.1 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.
Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.
The tables below provide a reconciliation of operating loss to Adjusted EBITDA and Adjusted EBITDA by segment for the three months ended June 30, 2021 and 2020 (in thousands):
| Three months ended | ||||||||||||||
| 6/30/2021 | 6/30/2020 | |||||||||||||
| Operating loss | $ | (4) | $ | (266) | ||||||||||
| Depreciation and amortization (excluding leased engines depreciation) | 279 | 353 | ||||||||||||
| Loss on disposition of assets | 3 | — | ||||||||||||
| Amortization of security issuance expenses | 5 | — | ||||||||||||
| Adjusted EBITDA | $ | 283 | $ | 87 | ||||||||||
| Three months ended | ||||||||||||||
| 6/30/2021 | 6/30/2020 | |||||||||||||
| Overnight Air Cargo | $ | 747 | $ | 570 | ||||||||||
| Ground Equipment Sales | 1,456 | 2,284 | ||||||||||||
| Commercial Jet Engines and Parts | (74) | (775) | ||||||||||||
| Corporate and Other | (1,846) | (1,992) | ||||||||||||
| Adjusted EBITDA | $ | 283 | $ | 87 | ||||||||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to various risks, including interest rate risk. As interest rates are projected to increase and can be volatile, the Company has designated a risk management policy which permits the use of derivative instruments to provide protection against rising interest rates on variable rate debt.
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Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of June 30, 2021. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.
There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)None.
(a)None.
(b)On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 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. No shares were repurchased during the quarter ended June 30, 2021.
Item 5. Other information
(a) Other Information
N/A.
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Item 6. Exhibits
(a) Exhibits
| No. | Description | ||||
| 10.1 | |||||
| 10.2 | |||||
| 10.3 | |||||
| 10.4 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 99.1 | |||||
| 101 | The following financial information from the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements. | ||||
* Portions of the limited liability company exhibit have been omitted for confidential treatment.
** Subject to stockholder approval
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AIR T, INC. | ||||||||
| Date: August 12, 2021 | ||||||||
| /s/ Nick Swenson | ||||||||
| Nick Swenson, Chief Executive Officer and Director | ||||||||
| /s/ Brian Ochocki | ||||||||
| Brian Ochocki, Chief Financial Officer | ||||||||
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