UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
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x☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2019 |
☐ | December 31, 2019 |
☐ | 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
Air T, Inc.
(Exact name of registrant as specified in its charter)
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Delaware | 52-1206400 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
5930 Balsom Ridge Road, Denver, North Carolina 28037
(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 |
Common Stock | AIRT | NASDAQ Global Market |
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“AIP”)* | AIRTP | NASDAQ Global Market |
Warrant to purchase AIP* | AIRTW | NASDAQ Global Market |
*Issued by Air T Funding
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.
Yes x No☐☒ No ☐
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).
Yes x No☐☒ No ☐
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.
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Large accelerated filer ☐ | ☐ | | Accelerated filer | ☐ |
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Non-accelerated filerx | ☒ | | Smaller reporting companyx | ☒ |
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| 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.
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Common Stock | Common Shares, par value of $.25 per share |
Outstanding Shares at August 2, 2019January 31, 2020 | 3,030,1732,912,599 | |
AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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| Risk Factors | |
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| Exhibit Index | |
| Certifications | |
| Interactive Data Files | |
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Item 1. | Financial Statements |
Item 1. Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSOF INCOME (LOSS)
(UNAUDITED)
| | | Three Months Ended June 30, | |
(In Thousands) | | (In Thousands) | Three Months Ended December 31, | | | Nine Months Ended December 31, | |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Operating Revenues: | | | | Operating Revenues: | | | | | | | |
Overnight air cargo | $ | 18,319,682 |
| | $ | 17,640,658 |
| Overnight air cargo | $ | 18,706 | | | $ | 17,868 | | | $ | 56,771 | | | $ | 52,573 | |
Ground equipment sales | 12,248,891 |
| | 6,384,781 |
| Ground equipment sales | 15,949 | | | 16,278 | | | 40,939 | | | 35,502 | |
Ground support services | 8,516,800 |
| | 9,047,640 |
| |
Printing equipment and maintenance | 64,270 |
| | 298,823 |
| Printing equipment and maintenance | 82 | | | 105 | | | 396 | | | 544 | |
Commercial jet engines and parts | 16,326,905 |
| | 27,320,175 |
| Commercial jet engines and parts | 38,536 | | | 20,990 | | | 72,665 | | | 58,953 | |
Corporate and other | 227,987 |
| | 175,392 |
| Corporate and other | 27 | | | 245 | | | 410 | | | 601 | |
| 55,704,535 |
| | 60,867,469 |
| | 73,300 | | | 55,486 | | | 171,181 | | | 148,173 | |
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Operating Expenses: | | | | Operating Expenses: | |
Overnight air cargo | 16,518,823 |
| | 15,174,396 |
| Overnight air cargo | 16,806 | | | 16,292 | | | 51,031 | | | 46,816 | |
Ground equipment sales | 9,730,856 |
| | 4,937,312 |
| Ground equipment sales | 12,960 | | | 13,760 | | | 33,049 | | | 29,677 | |
Ground support services | 6,963,662 |
| | 7,805,209 |
| |
| Printing equipment and maintenance | 39,047 |
| | 145,528 |
| Printing equipment and maintenance | 51 | | | 95 | | | 211 | | | 289 | |
Commercial jet engines and parts | 8,285,769 |
| | 20,121,118 |
| Commercial jet engines and parts | 29,308 | | | 12,268 | | | 48,644 | | | 38,052 | |
General and administrative | 10,919,320 |
| | 8,584,803 |
| General and administrative | 9,499 | | | 9,048 | | | 28,459 | | | 24,426 | |
Depreciation and amortization | 2,026,600 |
| | 1,485,055 |
| Depreciation and amortization | 975 | | | 2,147 | | | 4,610 | | | 5,204 | |
Impairment | 6,686 |
| | 10,346 |
| Impairment | 4 | | | 7 | | | 18 | | | 28 | |
Loss on sale of property and equipment | 2,073 |
| | — |
| |
(Gain) Loss on sale of property and equipment | | (Gain) Loss on sale of property and equipment | (23) | | | 4 | | | (26) | | | 4 | |
| 54,492,836 |
| | 58,263,767 |
| | 69,580 | | | 53,621 | | | 165,996 | | | 144,496 | |
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Operating Income | 1,211,699 |
| | 2,603,702 |
| |
Operating Income from continuing operations | | Operating Income from continuing operations | 3,720 | | | 1,865 | | | 5,185 | | | 3,677 | |
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Non-operating Income (Expense): | | | | Non-operating Income (Expense): | |
Gain on sale of marketable securities | 36,460 |
| | — |
| |
Foreign currency gain (loss), net | 35,755 |
| | (2,182 | ) | |
| Other-than-temporary impairment loss on investments | (814,558 | ) | | — |
| Other-than-temporary impairment loss on investments | (1,095) | | | (2,000) | | | (2,305) | | | (2,000) | |
Other investment income (loss), net | 162,957 |
| | (315,507 | ) | |
| Interest expense | (1,023,622 | ) | | (707,199 | ) | Interest expense | (1,227) | | | (1,186) | | | (4,298) | | | (2,608) | |
Unrealized gain on interest rate swap | — |
| | 97,337 |
| |
| Gain on settlement of bankruptcy | 4,509,302 |
| | — |
| Gain on settlement of bankruptcy | — | | | — | | | 4,527 | | | — | |
Bargain purchase acquisition gain | 34,244 |
| | 1,983,777 |
| Bargain purchase acquisition gain | — | | | — | | | 49 | | | 1,984 | |
Income (loss) from equity method investments | (320,578 | ) | | 9,183 |
| Income (loss) from equity method investments | (282) | | | 201 | | | (636) | | | 371 | |
Other | | Other | 81 | | | (623) | | | (124) | | | (489) | |
| 2,619,960 |
| | 1,065,409 |
| | (2,523) | | | (3,608) | | | (2,787) | | | (2,742) | |
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Income Before Income Taxes | 3,831,659 |
| | 3,669,111 |
| |
Income (Loss) from continuing operations before income taxes | | Income (Loss) from continuing operations before income taxes | 1,197 | | | (1,743) | | | 2,398 | | | 935 | |
Income Taxes (Benefit) | | Income Taxes (Benefit) | 616 | | | 198 | | | (52) | | | 241 | |
Net income (Loss) from continuing operations | | Net income (Loss) from continuing operations | 581 | | | (1,941) | | | 2,450 | | | 694 | |
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Income Tax Expense (Benefit) | (324,000 | ) | | 387,000 |
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Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | (376) | | | (70) | | | (1,156) | |
Gain/ (Loss) on sale of discontinued operations, net of tax | | Gain/ (Loss) on sale of discontinued operations, net of tax | (222) | | | — | | | 8,137 | | | — | |
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Net Income | 4,155,659 |
| | 3,282,111 |
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Net income (loss) | | Net income (loss) | 359 | | | (2,317) | | | 10,517 | | | (462) | |
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Net (Income) Attributable to Non-controlling | | | | |
Interests | $ | (2,373,307 | ) | | $ | (453,417 | ) | |
Net Income Attributable to Non-Controlling Interests | | Net Income Attributable to Non-Controlling Interests | (789) | | | (398) | | | (3,449) | | | (745) | |
Net Income (Loss) Attributable to Air T, Inc. Stockholders | | Net Income (Loss) Attributable to Air T, Inc. Stockholders | $ | (430) | | | $ | (2,715) | | | $ | 7,068 | | | $ | (1,207) | |
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Loss from continuing operations per share (Note 6) | | Loss from continuing operations per share (Note 6) | |
Basic | | Basic | $ | (0.07) | | | $ | (0.77) | | | $ | (0.36) | | | $ | (0.02) | |
Diluted | | Diluted | $ | (0.07) | | | $ | (0.77) | | | $ | (0.36) | | | $ | (0.02) | |
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Net Income Attributable to Air T, Inc. Stockholders | $ | 1,782,352 |
| | $ | 2,828,694 |
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Income (Loss) from discontinued operations per share (Note 6) | | Income (Loss) from discontinued operations per share (Note 6) | |
Basic | | Basic | $ | (0.07) | | | $ | (0.12) | | | $ | 2.93 | | | $ | (0.38) | |
Diluted | | Diluted | $ | (0.07) | | | $ | (0.12) | | | $ | 2.93 | | | $ | (0.38) | |
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Income Per Share: | | | | |
Income (Loss) per share (Note 6) | | Income (Loss) per share (Note 6) | |
Basic | $ | 0.79 |
| | $ | 0.92 |
| Basic | $ | (0.14) | | | $ | (0.89) | | | $ | 2.57 | | | $ | (0.40) | |
Diluted | $ | 0.79 |
| | $ | 0.92 |
| Diluted | $ | (0.14) | | | $ | (0.89) | | | $ | 2.57 | | | $ | (0.40) | |
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Weighted Average Shares Outstanding: | | | | Weighted Average Shares Outstanding: | |
Basic | 2,252,698 |
| | 3,065,411 |
| Basic | 2,973 | | 3,042 | | 2,752 | | 3,058 |
Diluted | 2,256,868 |
| | 3,074,547 |
| Diluted | 2,973 | | 3,042 | | 2,756 | | 3,058 |
See notes to condensed consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVEINCOME (LOSS)
(UNAUDITED)
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Nine Months Ended December 31, | | |
(In Thousands) | 2019 | | 2018 | | 2019 | | 2018 |
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Net income (loss) | $ | 359 | | | $ | (2,317) | | | $ | 10,517 | | | $ | (462) | |
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Other comprehensive income (loss): | | | | | | | |
| | | | | | | |
Foreign currency translation gain (loss) | (53) | | | 121 | | | (29) | | | 201 | |
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Unrealized gain (loss) on interest rate swaps, net of tax | 94 | | | (163) | | | (170) | | | (134) | |
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Total Other Comprehensive Income (loss) | 41 | | | (42) | | | (199) | | | 67 | |
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Total Comprehensive Income (Loss) | 400 | | | (2,359) | | | 10,318 | | | (395) | |
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Comprehensive Income Attributable to Non-controlling Interests | (789) | | | (405) | | | (3,464) | | | (777) | |
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Comprehensive Income (Loss) Attributable to Air T, Inc. Stockholders | $ | (389) | | | $ | (2,764) | | | $ | 6,854 | | | $ | (1,172) | |
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| Three Months Ended June 30, 2019 |
| 2019 | | 2018 |
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Net income | $ | 4,155,659 |
| | $ | 3,282,111 |
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Other comprehensive income (loss): | | | |
| | | |
Foreign currency translation gain (loss) | (18,130 | ) | | 47,660 |
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Unrealized loss on interest rate swaps, net of tax of $52,316 and $0 respectively | (176,038 | ) | | — |
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Total Other Comprehensive Income (Loss) | (194,168 | ) | | 47,660 |
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Total Comprehensive Income | 3,961,491 |
| | 3,329,771 |
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Comprehensive Income Attributable to Non-controlling Interests | (2,385,532 | ) | | (470,569 | ) |
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Comprehensive Income Attributable to Air T, Inc. Stockholders | $ | 1,575,959 |
| | $ | 2,859,202 |
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See notes to condensed consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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| June 30, 2019 | | March 31, 2019 |
| (Unaudited) | | |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents (Delphax $9,430 and $12,315)* | $ | 16,196,626 |
| | $ | 12,524,321 |
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Marketable securities | 1,752,727 |
| | 1,760,052 |
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Restricted cash | 68,979 |
| | 123,409 |
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Restricted investments | 796,958 |
| | 830,925 |
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Accounts receivable, net of allowance for doubtful accounts of $574,086 and $754,108 (Delphax $291,337 and $294,296)* | 23,723,077 |
| | 19,077,248 |
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Notes and other receivables-current | 7,170,143 |
| | 5,026,549 |
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Income tax receivable | 883,131 |
| | 158,446 |
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Inventories, net | 36,528,777 |
| | 29,967,037 |
|
Prepaid expenses and other (Delphax $9,672 and $58,164)* | 1,795,614 |
| | 1,880,126 |
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Total Current Assets | 88,916,032 |
| | 71,348,113 |
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Assets on lease, net of accumulated depreciation of $6,397,157 and $6,688,630 | 17,982,582 |
| | 25,164,497 |
|
Property and equipment, net of accumulated depreciation of $5,977,699 and $5,665,498 | 4,752,051 |
| | 4,817,912 |
|
Right-of-use assets | 10,071,405 |
| | — |
|
Cash surrender value of life insurance policies, net of policy loans | 101,259 |
| | 122,062 |
|
Other tax receivables-long-term (Delphax $0 and $311,000)* | — |
| | 311,000 |
|
Deferred income taxes | 600,303 |
| | 547,987 |
|
Investments in funds | 318,020 |
| | 463,892 |
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Investments in securities | 557,329 |
| | 621,610 |
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Equity method investments | 4,475,738 |
| | 5,610,874 |
|
Other assets | 297,507 |
| | 491,328 |
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Intangible assets, net of accumulated amortization of $2,207,571 and $2,156,192 | 1,161,111 |
| | 1,225,257 |
|
Goodwill | 4,417,605 |
| | 4,417,605 |
|
Total Assets | $ | 133,650,942 |
| | $ | 115,142,137 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current Liabilities: | | | |
Accounts payable (Delphax $96,109 and $2,134,053)* | $ | 13,296,498 |
| | $ | 12,552,724 |
|
Income tax payable | 550,727 |
| | 661,690 |
|
Accrued payroll and related items (Delphax $401,275 and $3,146,395 )* | 2,729,056 |
| | 8,910,245 |
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Customer deposits | 2,794,277 |
| | 1,520,000 |
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Accrued insurance liability | 1,254,396 |
| | 1,119,853 |
|
Other accrued expenses (Delphax $0 and $11,312)* | 3,905,819 |
| | 2,953,176 |
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Deferred income | 5,599,423 |
| | 341,098 |
|
Current portion of long-term debt | 27,774,151 |
| | 24,735,224 |
|
Short-term lease liability | 2,486,842 |
| | — |
|
Total Current Liabilities | 60,391,189 |
| | 52,794,010 |
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Long-term debt | 36,285,910 |
| | 32,917,765 |
|
Long-term lease liability | 8,071,541 |
| | — |
|
Other non-current liabilities | 1,229,495 |
| | 596,598 |
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Total Liabilities | 105,978,135 |
| | 86,308,373 |
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Redeemable non-controlling interest | 6,685,000 |
| | 5,476,000 |
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Commitments and contingencies (Note 17) |
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Equity: | | | |
Air T, Inc. Stockholders' Equity: | | | |
Preferred stock, $1.00 par value, 50,000 shares authorized | — |
| | — |
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Common stock, $.25 par value; 4,000,000 shares authorized, 3,015,087 and 2,022,637 shares issued and outstanding | 753,770 |
| | 505,657 |
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Additional paid-in capital | 1,629,202 |
| | 2,866,695 |
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Retained earnings | 17,970,387 |
| | 21,191,126 |
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Accumulated other comprehensive loss | (411,479 | ) | | (205,086 | ) |
Total Air T, Inc. Stockholders' Equity | 19,941,880 |
| | 24,358,392 |
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Non-controlling Interests | 1,045,927 |
| | (1,000,628 | ) |
Total Equity | 20,987,807 |
| | 23,357,764 |
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Total Liabilities and Equity | $ | 133,650,942 |
| | $ | 115,142,137 |
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* Amounts related to Delphax as of June 30, 2019 and March 31, 2019, respectively. | | | | | | | | | | | |
(In thousands, except share amounts) | December 31, 2019 | | March 31, 2019 |
ASSETS | | | |
Current Assets: | | | |
Cash and cash equivalents | $ | 11,536 | | | $ | 12,417 | |
Marketable securities | 1,845 | | | 1,760 | |
Restricted cash | 10,069 | | | 123 | |
Restricted investments | 1,008 | | | 831 | |
Accounts receivable, net of allowance for doubtful accounts of $394 and $408 | 15,828 | | | 10,881 | |
Income tax receivable | 1,504 | | | 142 | |
Inventories, net | 68,116 | | | 27,455 | |
Other current assets | 7,302 | | | 6,138 | |
Current assets of discontinued operations | — | | | 11,601 | |
Total Current Assets | 117,208 | | | 71,348 | |
| | | | | |
Assets on lease, net of accumulated depreciation of $5,780 and $6,689 | 15,825 | | | 25,164 | |
Property and equipment, net of accumulated depreciation of $4,104 and $3,470 | 4,172 | | | 4,264 | |
Right-of-use assets | 8,458 | | | — | |
Cash surrender value of life insurance policies, net of policy loans | 163 | | | 122 | |
Other tax receivables-long-term | — | | | 311 | |
Deferred income tax assets | 261 | | | 548 | |
Investments in securities | 1,438 | | | 1,086 | |
Equity method investments | 5,481 | | | 5,611 | |
Other assets | 316 | | | 200 | |
Intangible assets, net of accumulated amortization of $2,303 and $2,097 | 826 | | | 998 | |
Goodwill | 4,227 | | | 4,227 | |
Non-current assets of discontinued operations | — | | | 1,264 | |
Total Assets | $ | 158,375 | | | $ | 115,143 | |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current Liabilities: | | | | |
Accounts payable | $ | 11,105 | | | 11,409 | |
Income tax payable | — | | | 888 | |
Accrued expenses and other | 12,624 | | | 14,175 | |
Current portion of long-term debt | 51,504 | | | 24,735 | |
Short-term lease liability | 1,134 | | | — | |
Current liabilities of discontinued operations | — | | | 1,587 | |
Total Current Liabilities | 76,367 | | | 52,794 | |
| | | | | |
Long-term debt | 39,995 | | | 32,918 | |
Deferred income tax liabilities | 1,604 | | | — | |
Long-term lease liability | 7,779 | | | — | |
Other non-current liabilities | 1,039 | | | 597 | |
| | | |
Total Liabilities | 126,784 | | | 86,309 | |
| | | | | |
Redeemable non-controlling interest | 8,190 | | | 5,476 | |
| | | | |
Commitments and contingencies (Note 15) | | | | |
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Equity: | | | | |
Air T, Inc. Stockholders' Equity: | | | | |
Preferred stock, $1.00 par value, 50,000 shares authorized | — | | | — | |
Common stock, $.25 par value; 4,000,000 shares authorized, 3,023,085 and 2,022,637 shares issued, 2,912,599 and 2,022,637 shares outstanding | 756 | | | 506 | |
Treasury stock, 110,146 shares at $19.58 | (2,157) | | | — | |
Additional paid-in capital | 1,029 | | | 2,866 | |
Retained earnings | 23,180 | | | 21,191 | |
Accumulated other comprehensive loss | (420) | | | (205) | |
Total Air T, Inc. Stockholders' Equity | 22,388 | | | 24,358 | |
Non-controlling Interests | 1,013 | | | (1,000) | |
Total Equity | 23,401 | | | 23,358 | |
Total Liabilities and Equity | $ | 158,375 | | | $ | 115,143 | |
| | | |
See notes to condensed consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
(In Thousands) | Nine Months Ended December 31, | | |
| 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | 10,517 | | | $ | (462) | |
Loss from discontinued operations, net of income tax | 70 | | | 1,156 | |
Gain on sale of discontinued operations, net of income tax | (8,137) | | | — | |
Net income from continuing operations | 2,450 | | | 694 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 4,640 | | | 5,224 | |
Bargain purchase acquisition gain | (49) | | | (1,984) | |
Impairment of investment | 2,305 | | | 2,000 | |
Profit from sale of assets on lease | (3,846) | | | — | |
Gain on settlement of bankruptcy | (4,527) | | | — | |
Other | 775 | | | (611) | |
| | | | | |
Change in operating assets and liabilities: | | | | | |
Accounts receivable | (4,708) | | | (1,024) | |
Costs and estimated earnings in excess of billings and uncompleted projects | — | | | 2,012 | |
Notes receivable and other non-trade receivables | (1,151) | | | (4,357) | |
Inventories | (7,866) | | | (191) | |
Accounts payable | 1,753 | | | (463) | |
Accrued expenses | 1,106 | | | 1,013 | |
Other | (1,774) | | | 284 | |
| | | |
Net cash (used in) provided by operating activities - continuing operations | (10,892) | | | 2,597 | |
Net cash provided by (used in) operating activities - discontinued operations | 1,201 | | | (1,395) | |
Net cash (used in) provided by operating activities | (9,691) | | | 1,202 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Purchases of marketable securities | (1,103) | | | (2,014) | |
Sale of marketable securities | 631 | | | 837 | |
Proceeds from sale of assets on lease | 16,956 | | | — | |
Acquisition of businesses, net of cash acquired | (500) | | | (3,376) | |
Investment in unconsolidated entities | (2,811) | | | (2,000) | |
Capital expenditures related to property & equipment | (1,017) | | | (897) | |
Capital expenditures related to assets on lease | (39,885) | | | (19,150) | |
Other | 157 | | | 3,967 | |
Net cash used in investing activities - continuing operations | (27,572) | | | (22,633) | |
Net cash provided by (used in) investing activities - discontinued operations | 20,174 | | | (113) | |
Net cash provided by (used in) investing activities | (7,398) | | | (22,746) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Proceeds from lines of credit | 133,068 | | | 86,520 | |
Payments on lines of credit | (100,884) | | | (83,566) | |
Proceeds from term loan | 27,449 | | | 22,539 | |
Payments on term loan | (36,187) | | | (6,787) | |
Proceeds received from exercise of warrants | 6,041 | | | — | |
Proceeds from life insurance policy loan | — | | | 1,897 | |
Other | (3,323) | | | (681) | |
Net cash provided by financing activities - continuing operations | 26,164 | | | 19,922 | |
Effect of foreign currency exchange rates on cash and cash equivalents | (10) | | | 114 | |
NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 9,065 | | | (1,508) | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 12,540 | | | 5,073 | |
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 21,605 | | | $ | 3,565 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 4,155,659 |
| | $ | 3,282,111 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
(Gain) Loss on sale of marketable securities | (36,460 | ) | | 10,828 |
|
Loss on sale of property and equipment | 2,073 |
| | 1,661 |
|
Change in inventory reserves | (4,087 | ) | | 91,547 |
|
Change in accounts receivable reserves | (180,022 | ) | | (45,628 | ) |
Depreciation and amortization | 2,033,286 |
| | 1,495,401 |
|
Amortization of debt issuance costs | 73,467 |
| | — |
|
Impairment of investment | 814,558 |
| | — |
|
Change in cash surrender value of life insurance | 20,803 |
| | (15,782 | ) |
Gain on settlement of bankruptcy | (4,509,302 | ) | | — |
|
Gain on bargain purchase | (34,244 | ) | | (1,983,777 | ) |
Change in warranty reserve | 335,632 |
| | (980 | ) |
Unrealized loss on marketable securities | 6,105 |
| | 322,477 |
|
Unrealized gain on interest rate swap | — |
| | (97,337 | ) |
Change in operating assets and liabilities: | | | |
Accounts receivable | (4,254,064 | ) | | 29,564 |
|
Notes receivable and other non-trade receivables | (2,046,291 | ) | | (2,221,930 | ) |
Inventories | 2,374,836 |
| | 11,319,597 |
|
Prepaid expense and other assets | 677,015 |
| | 288,286 |
|
Accounts payable | 2,801,237 |
| | 3,942,185 |
|
Accrued expenses | 3,898,519 |
| | (1,982,397 | ) |
Income taxes payable/receivable | (835,646 | ) | | 205,583 |
|
Non-current liabilities | 94,482 |
| | 75,525 |
|
Total adjustments | 1,231,897 |
| | 11,434,823 |
|
Net cash provided by operating activities | 5,387,556 |
| | 14,716,934 |
|
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of marketable securities | (27,211 | ) | | (784,443 | ) |
Proceeds from sale of marketable securities | 309,012 |
| | — |
|
Acquisition of businesses, net of cash acquired | (500,000 | ) | | (3,325,700 | ) |
Cash used for equity method investments | — |
| | (197,532 | ) |
Investment in reinsurance entity | — |
| | (2,000,000 | ) |
Capital expenditures related to property & equipment | (297,967 | ) | | (459,575 | ) |
Capital expenditures related to assets on lease | (3,298,343 | ) | | — |
|
Proceeds from sale of property and equipment | 33,995 |
| | 50,602 |
|
Net cash used in investing activities | (3,780,514 | ) | | (6,716,648 | ) |
|
| | | | | | | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from lines of credit | 24,446,825 |
| | 28,933,742 |
|
Payments on lines of credit | (17,143,130 | ) | | (38,156,091 | ) |
Proceeds from term loan | — |
| | 3,400,000 |
|
Payments on term loan | (7,026,081 | ) | | (1,404,800 | ) |
Debt issuance costs | (46,319 | ) | | (35,702 | ) |
Distribution to non-controlling member | (115,000 | ) | | (47,051 | ) |
Payments for repurchase of stock | (126,317 | ) | | — |
|
Proceeds from exercise of warrants | 2,018,217 |
| | — |
|
Net cash provided by financing activities | 2,008,195 |
| | (7,309,902 | ) |
| | | |
Effect of foreign currency exchange rates on cash and cash equivalents | 2,638 |
| | 2,072 |
|
| | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | 3,617,875 |
| | 692,456 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 12,647,730 |
| | 5,072,897 |
|
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 16,265,605 |
| | $ | 5,765,353 |
|
| | | |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | |
Non-cash capital expenditures related to property & equipment | $ | 71,703 |
| | $ | — |
|
Equipment leased to customers transferred to inventory
| 8,818,109 |
| | 234,151 |
|
Issuance of Debt - Trust Preferred Securities | 4,000,000 |
| | — |
|
Issuance of warrant liability | 840,000 |
| | — |
|
Exercise of warrants | (84,092 | ) | | — |
|
| | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | |
Cash paid during the year for: | | | |
Interest | 678,610 |
| | 629,264 |
|
Income taxes | 29,634 |
| | 181,417 |
|
See notes to condensed consolidated financial statements.
AIR T, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | |
| Air T, Inc. Stockholders' Equity | | | | | | | | | | | | |
(In Thousands) | Common Stock | | | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Equity |
| Shares | | Amount | | | | | | | | | | |
Balance, March 31, 2018 | 2,044 | | | $ | 511 | | | $ | 4,172 | | | $ | 20,696 | | | $ | (261) | | | $ | (875) | | | $ | 24,243 | |
| | | | | | | | | | | | | | | | | | | | |
Net income* | — | | | — | | | — | | | 2,829 | | | — | | | (46) | | | 2,783 | |
| | | | | | | | | | | | | | | | | | | | |
Reclassification of unrealized loss on marketable securities, net of tax | — | | | — | | | — | | | (106) | | | 106 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation gain | — | | | — | | | — | | | — | | | 31 | | | 17 | | | 48 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance, June 30, 2018 | 2,044 | | | $ | 511 | | | | $ | 4,172 | | | | $ | 23,419 | | | | $ | (124) | | | | $ | (904) | | | | $ | 27,074 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss* | — | | | — | | | — | | | (1,321) | | | — | | | (42) | | | (1,363) | |
| | | | | | | | | | | | | | | | | | | | |
Exercise of stock options | 2 | | | — | | | 18 | | | — | | | — | | | — | | | 18 | |
| | | | | | | | | | | | | | | | | | | | |
Repurchase of common stock | (1) | | | — | | | (2) | | | (21) | | | — | | | — | | | (23) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Foreign currency translation gain | — | | | — | | | — | | | — | | | 24 | | | 8 | | | 32 | |
| | | | | | | | | | | | | | | | | | | | |
Unrealized gain on interest rate swaps, net of tax | — | | | — | | | — | | | — | | | 29 | | | — | | | 29 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance, September 30, 2018 | 2,045 | | | $ | 511 | | | | $ | 4,188 | | | | $ | 22,077 | | | | $ | (71) | | | | $ | (938) | | | | $ | 25,767 | |
| | | | | | | | | | | | | | | | | | | | |
Net loss* | — | | | — | | | — | | | (2,715) | | | — | | | (27) | | | (2,742) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Repurchase of common stock | (20) | | | (5) | | | 1 | | | (667) | | | — | | | — | | | (671) | |
| | | | | | | | | | | | | | | | | | | | |
Equity-based compensation | — | | | — | | | 6 | | | — | | | — | | | — | | | 6 | |
| | | | | | | | | | | | | | | | | | | | |
Foreign currency translation gain | — | | | — | | | — | | | — | | | 114 | | | 7 | | | 121 | |
| | | | | | | | | | | | | | | | | | | | |
Unrealized loss on interest rate swaps, net of tax | — | | | — | | | — | | | — | | | (163) | | | — | | | (163) | |
| | | | | | | | | | | | | |
Balance, December 31, 2018 | 2,025 | | | $ | 506 | | | | $ | 4,195 | | | | $ | 18,695 | | | | $ | (120) | | | | $ | (958) | | | | $ | 22,318 | |
*Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity |
| Air T, Inc. Stockholders' Equity | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Non-controlling Interests | | Total Equity |
| Shares | | Amount | | | | | |
Balance, March 31, 2018 | 2,043,607 |
| | $ | 510,901 |
| | $ | 4,171,869 |
| | $ | 20,695,981 |
| | $ | (260,900 | ) | | $ | (874,767 | ) | | $ | 24,243,084 |
|
| | | | | | | | | | | | | |
Net income* | — |
| | — |
| | — |
| | 2,828,694 |
| | — |
| | (46,259 | ) | | 2,782,435 |
|
| | | | | | | | | | | | | |
Reclassification of unrealized loss on marketable securities, net of tax | — |
| | — |
| | — |
| | (106,341 | ) | | 106,341 |
| | — |
| | — |
|
| | | | | | | | | | | | | |
Foreign currency translation gain | — |
| | — |
| | — |
| | — |
| | 30,508 |
| | 17,152 |
| | 47,660 |
|
| | | | | | | | | | | | | |
Balance, June 30, 2018 | 2,043,607 |
| | $ | 510,901 |
| | $ | 4,171,869 |
| | $ | 23,418,334 |
| | $ | (124,051 | ) | | $ | (903,874 | ) | | $ | 27,073,179 |
|
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity | | | | | | | | | | | | | | |
| Air T, Inc. Stockholders' Equity | | | | | | | | | | | | | | |
(In Thousands) | Common Stock | | | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Equity |
| Shares | | Amount | | Share | Amount | | | | | | | | | |
Balance, March 31, 2019 | 2,022 | | | $ | 506 | | | $ | — | | $ | — | | $ | 2,866 | | | $ | 21,191 | | | $ | (205) | | | $ | (1,000) | | | $ | 23,358 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income* | — | | | — | | | — | | — | | — | | | 1,782 | | | — | | | 2,034 | | | 3,816 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Repurchase of Common Stock | (17) | | | (4) | | | — | | — | | — | | | (122) | | | — | | | — | | | (126) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Stock Split | 1,010 | | | 252 | | | | | | | (252) | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Debt - Trust Preferred Securities | — | | | — | | | — | | — | | — | | | (4,000) | | | — | | | — | | | (4,000) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Warrants | — | | | — | | | — | | — | | — | | | (840) | | | — | | | — | | | (840) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adoption of ASC 842 - Leasing | — | | | — | | | — | | — | | — | | | (41) | | | — | | | — | | | (41) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized loss on interest rate swaps, net of tax | — | | | — | | | — | | — | | — | | | — | | | (176) | | | — | | | (176) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation gain (loss) | — | | | — | | | — | | — | | — | | | — | | | (30) | | | 12 | | | (18) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjustment to fair value of redeemable non-controlling interest | — | | | — | | | — | | — | | (985) | | | — | | | — | | | — | | | (985) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2019 | 3,015 | | | $ | 754 | | | | $ | — | | $ | — | | $ | 1,629 | | | | $ | 17,970 | | | | $ | (411) | | | | $ | 1,046 | | | | $ | 20,988 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net income* | — | | | — | | | — | | — | | — | | | 5,715 | | | — | | | (17) | | | 5,698 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Repurchase of common stock | 8 | | | 2 | | | — | | — | | — | | | (75) | | | — | | | — | | | (73) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Foreign currency translation gain | — | | | — | | | — | | — | | — | | | — | | | 38 | | | 3 | | | 41 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjustment to fair value of redeemable non-controlling interest | — | | | — | | | — | | — | | 781 | | | — | | | — | | | — | | | 781 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized loss on interest rate swaps, net of tax | — | | | — | | | — | | — | | — | | | — | | | (88) | | | — | | | (88) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, September 30, 2019 | 3,023 | | | $ | 756 | | | | $ | — | | $ | — | | $ | 2,410 | | | | $ | 23,610 | | | | $ | (461) | | | | $ | 1,032 | | | | $ | 27,347 | |
| | | | | | | | | | | | | | | |
Net loss* | — | | | — | | | — | | — | | — | | | (430) | | | — | | | (19) | | | (449) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Repurchase of common stock | — | | | — | | | 110 | | (2,157) | | — | | | — | | | — | | | — | | | (2,157) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Foreign currency translation loss | — | | | — | | | — | | — | | — | | | — | | | (53) | | | — | | | (53) | |
| | | | | | | | | | | | | | | |
Adjustment to fair value of redeemable non-controlling interest | — | | | — | | | — | | — | | (1,381) | | | — | | | — | | | — | | | (1,381) | |
| | | | | | | | | | | | | | | |
Unrealized gain on interest rate swaps, net of tax | — | | | — | | | — | | — | | — | | | — | | | 94 | | | — | | | 94 | |
| | | | | | | | | | | | | | | |
Balance, December 31, 2019 | 3,023 | | | $ | 756 | | | | $ | 110 | | $ | (2,157) | | $ | 1,029 | | | | $ | 23,180 | | | | $ | (420) | | | | $ | 1,013 | | | | $ | 23,401 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity |
| Air T, Inc. Stockholders' Equity | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interests | | Total Equity |
| Shares | | Amount | | | | | |
Balance, March 31, 2019 | 2,022,637 |
| | $ | 505,657 |
| | $ | 2,866,695 |
| | $ | 21,191,126 |
| | $ | (205,086 | ) | | $ | (1,000,628 | ) | | $ | 23,357,764 |
|
| | | | | | | | | | | | | |
Net income* | — |
| | — |
| | — |
| | 1,782,352 |
| | — |
| | 2,034,330 |
| | 3,816,682 |
|
| | | | | | | | | | | | | |
Repurchase of Common Stock | (17,424 | ) | | (4,356 | ) | | — |
| | (121,961 | ) | | — |
| | — |
| | (126,317 | ) |
| | | | | | | | | | | | | |
Stock Split | 1,009,874 |
| | 252,469 |
| | (252,469 | ) | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | | | |
Issuance of Debt - Trust Preferred Securities | — |
| | — |
| | — |
| | (4,000,000 | ) | | — |
| | — |
| | (4,000,000 | ) |
| | | | | | | | | | | | | |
Issuance of Warrants | | | | | | | (840,000 | ) | | | | | | (840,000 | ) |
| | | | | | | | | | | | | |
Adoption of ASC 842 - Leasing | — |
| | — |
| | — |
| | (41,130 | ) | | — |
| | — |
| | (41,130 | ) |
| | | | | | | | | | | | | |
Unrealized loss on interest rate swaps, net of tax | — |
| | — |
| | — |
| | — |
| | (176,038 | ) | | — |
| | (176,038 | ) |
| | | | | | | | | | | | | |
Foreign currency translation gain (loss) | — |
| | — |
| | — |
| | — |
| | (30,355 | ) | | 12,225 |
| | (18,130 | ) |
| | | | | | | | | | | | | |
Adjustment to fair value of redeemable non-controlling interest | — |
| | — |
| | (985,024 | ) | | — |
| | — |
| | — |
| | (985,024 | ) |
| | | | | | | | | | | | | |
Balance, June 30, 2019 | 3,015,087 |
| | $ | 753,770 |
| | $ | 1,629,202 |
| | $ | 17,970,387 |
| | $ | (411,479 | ) | | $ | 1,045,927 |
| | $ | 20,987,807 |
|
*Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.
See notes to condensed consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
1. | Financial Statement Presentation |
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.
It is suggested that theseThese condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2019. The results of operations for the period ended June 30,December 31, 2019 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior period amounts to conform to the current presentation.
Discontinued Operations
On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended December 31, 2019 and 2018. Refer to Footnote 4 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations. RecentlyAdoptedAccounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended by multiple standards updates. The new standard provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. Topic 842 permits two transition methods: (1) a modified retrospective transition method requiring retrospective adjustment of each comparative presented with an adjusting entry at the beginning of the earliest comparative period presented and (2) a modified retrospective approach with no restatement of prior periods and an adjusting entry as of the effective date. Under both transition methods, entities may elect certain transition practical expedients that would be required to be applied to all leases.
The Company adopted the standard in the fiscal year beginning April 1, 2019 using the modified retrospective transition method that does not require retrospective adjustment of the comparative periods. The Company reviewed existing leases to determine the impact of the adoption of the standard on its consolidated financial statements. Implementation had an immaterial cumulative effect on retained earnings. Adoption resulted in the recognition of right-of-use assets of approximately $10.7 million, and lease liabilities of approximately $11.2 million.
Upon adoption, the Company elected practical expedients related to a) short term lease exemption b) not separate lease and non-lease components c) not reassess whether expired or existing contracts contain leases, d) not reassess lease classification for existing or expired leases and e) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. This standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. For public business entities that are U.S. Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company expects the adoption of the standard will not have a material impact on its consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test. Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. The standard is effective for any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment
tests performed on testing dates after January 1, 2017. The Company expects the adoption of the standard will not have a material impact on its consolidated financial statements and disclosures.
In August 2018, the FASB amended the Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement Topic of the Accounting Standards Codification. The amendment is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendment includes different transition requirements based on the disclosure topic. Changes to disclosure requirements for unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other required disclosure changes should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and delay adoption of the additional disclosures until their effective date. The Company expects the adoption of the standard will not have a material impact on its consolidated financial statements and disclosures.
In August 2018, the FASB amended the Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract Topic of the Accounting Standards Codification. The amendment is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments in the update is permitted, including adoption in any interim period, for all entities. The amendments in the update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects the adoption of the standard will not have a material impact on its consolidated financial statements and disclosures.
In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable
Interest Entitiesof the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to
determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company expectsis currently evaluating the adoptionimpact of the standard will not have a material impactthis amendment on its consolidated financial statements and disclosures.
| |
2. | RevenueRecognition
In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxesof the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.
2. RevenueRecognition |
Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less, as a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
|
| | | | |
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 enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
|
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:type (in thousands):
| | | | | | | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
Product Sales | | | | Product Sales | | | | | | | | | | | | | |
Air cargo | $ | 5,414,377 |
| | $ | 5,519,611 |
| |
Air Cargo | | Air Cargo | $ | 6,014 | | | | $ | 5,694 | | | $ | 18,108 | | | | $ | 16,217 | |
Ground equipment sales | 12,002,366 |
| | 6,169,103 |
| Ground equipment sales | 15,640 | | | | 15,902 | | | 40,132 | | | | 34,519 | |
Ground support services | 2,266,859 |
| | 2,422,581 |
| |
Commercial jet engines and parts | 11,170,632 |
| | 25,029,114 |
| Commercial jet engines and parts | 35,463 | | | | 15,957 | | | 59,851 | | | | 48,366 | |
Printing equipment and maintenance | 48,440 |
| | 286,642 |
| Printing equipment and maintenance | 3 | | | | 88 | | | 72 | | | | 497 | |
Corporate and other | — |
| | — |
| Corporate and other | — | | | | — | | | — | | | | — | |
Support Services | | | | Support Services | | | | | | | | | | | | | |
Air cargo | 12,894,182 |
| | 12,096,874 |
| |
Air Cargo | | Air Cargo | 12,644 | | | | 12,164 | | | 38,572 | | | | 36,245 | |
Ground equipment sales | 104,545 |
| | 100,592 |
| Ground equipment sales | 161 | | | | 260 | | | 370 | | | | 509 | |
Ground support services | 6,213,354 |
| | 6,605,265 |
| |
Commercial jet engines and parts | 1,410,027 |
| | 965,826 |
| Commercial jet engines and parts | 797 | | | | 1,309 | | | 3,804 | | | | 3,602 | |
Printing equipment and maintenance | 10,745 |
| | 7,658 |
| Printing equipment and maintenance | 79 | | | | 13 | | | 314 | | | | 33 | |
Corporate and other | 40,552 |
| | — |
| Corporate and other | 37 | | | | 45 | | | 69 | | | | 61 | |
Leasing Revenue | | | | Leasing Revenue | | | | | | | | | | | | | |
Air cargo | — |
| | — |
| |
Air Cargo | | Air Cargo | — | | | | — | | | — | | | | — | |
Ground equipment sales | 20,357 |
| | 31,002 |
| Ground equipment sales | 58 | | | | 16 | | | 111 | | | | 62 | |
Ground support services | — |
| | — |
| |
Commercial jet engines and parts | 3,714,048 |
| | 1,201,510 |
| Commercial jet engines and parts | 2,245 | | | | 3,663 | | | 8,901 | | | | 6,691 | |
Printing equipment and maintenance | — |
| | — |
| Printing equipment and maintenance | — | | | | — | | | — | | | | — | |
Corporate and other | 45,418 |
| | 40,067 |
| Corporate and other | 36 | | | | 49 | | | 117 | | | | 121 | |
Other | | | | Other | | | | | | | | | | | | | |
Air cargo | 11,123 |
| | 24,174 |
| |
Air Cargo | | Air Cargo | 48 | | | | 10 | | | 91 | | | | 111 | |
Ground equipment sales | 121,623 |
| | 84,084 |
| Ground equipment sales | 90 | | | | 100 | | | 326 | | | | 412 | |
Ground support services | 36,588 |
| | 19,795 |
| |
Commercial jet engines and parts | 32,197 |
| | 123,724 |
| Commercial jet engines and parts | 31 | | | | 61 | | | 109 | | | | 294 | |
Printing equipment and maintenance | 5,085 |
| | 4,523 |
| Printing equipment and maintenance | — | | | | 4 | | | 10 | | | | 14 | |
Corporate and other | 142,017 |
| | 135,324 |
| Corporate and other | (46) | | | | 151 | | | 224 | | | | 419 | |
| | | | | | | | | | | | | | | | | |
Total | $ | 55,704,535 |
| | $ | 60,867,469 |
| Total | $ | 73,300 | | | $ | 55,486 | | | $ | 171,181 | | | $ | 148,173 | |
The following table summarizes total revenues by segment:segment (in thousands):
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Nine Months Ended December 31, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Air cargo | $ | 18,706 | | | $ | 17,868 | | | $ | 56,771 | | | $ | 52,573 | |
Ground equipment sales | 15,949 | | | | 16,278 | | | 40,939 | | | 35,502 | |
Commercial jet engines and parts | 38,536 | | | | 20,990 | | | 72,665 | | | 58,953 | |
Printing equipment and maintenance | 82 | | | | 105 | | | 396 | | | 544 | |
Corporate and other | 27 | | | | 245 | | | 410 | | | 601 | |
| | | | | | | | | | | |
Total | $ | 73,300 | | | $ | 55,486 | | | $ | 171,181 | | | $ | 148,173 | |
|
| | | | | | | |
| Three Months Ended June 30, 2019 | | Three Months Ended June 30, 2018 |
Air cargo | $ | 18,319,682 |
| | $ | 17,640,658 |
|
Ground equipment sales | 12,248,891 |
| | 6,384,781 |
|
Ground support services | 8,516,800 |
| | 9,047,640 |
|
Commercial jet engines and parts | 16,326,905 |
| | 27,320,175 |
|
Printing equipment and maintenance | 64,270 |
| | 298,823 |
|
Corporate and other | 227,987 |
| | 175,392 |
|
| | | |
Total | $ | 55,704,535 |
| | $ | 60,867,469 |
|
See Note 1513 for the Company's disaggregated revenues by geographic region and Note 1614 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2019 and December 31, 2019 and the amount of outstanding April 1, 2019 contract liabilities that were recognized as revenue during the quarter June 30, 2019:nine months ended December 31, 2019 (in thousands):
| | | | | | | | | | | |
| Outstanding contract liabilities | | Outstanding contract liabilities as of April 1, 2019 Recognized as Revenue |
As of December 31, 2019 | $ | 2,741 | | | | | |
As of April 1, 2019 | 1,867 | | | | | |
For the nine months ended December 31, 2019 | | | | | 1,744 | |
|
| | | | | | | | |
| | Outstanding contract liabilities | | Outstanding contract liabilities as of April 1, 2019 Recognized as Revenue |
As of June 30, 2019
| | $ | 8,393,700 |
| | |
As of April 1, 2019 | | $ | 1,866,843 |
| | |
For the quarter ended June 30, 2019 | | | | $ | 447,341 |
|
Contract assets primarily relate to deposits paid to customers.vendors. The following table presents the amount of contract assets as of April 1, 2019 and June 30, 2019:December 31, 2019 (in thousands):
|
| | | |
| Contract assets |
As of June 30, 2019 | $ | 4,621,096 |
|
As of April 1, 2019 | $ | 1,743,460 |
|
| | | | | |
3. | BusinessCombinations Contract assets |
As of December 31, 2019 | $3,155 |
As of April 1, 2019 | 1,743 |
3. BusinessCombinations
Acquisition of Worthington Aviation Parts, Inc.
On May 4, 2018, Air T, Inc. completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation Parts, Inc. (“Worthington”), pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.
Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services. The Company agreed to acquire the assets and liabilities in exchange for payment to Worthington of $50,000 as earnest money upon execution of the Agreement and a cash payment of $3,300,000 upon closing. Total consideration is summarized in the table below:below (in thousands):
| | | | | |
Earnest money | $ | 50 | |
Cash consideration | 3,300 |
Cash acquired | (24) | |
Total consideration | $ | 3,326 | |
|
| | | |
Earnest money | $ | 50,000 |
|
Cash consideration | 3,300,000 |
|
Cash acquired | (24,301 | ) |
Total consideration | $ | 3,325,699 |
|
The Transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 4, 2018, with the excess of fair value of net assets acquired recorded as a bargain purchase gain. The most significant asset acquired was Worthington’s inventory. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of May 4, 2018:2018 (in thousands):
| | | | | |
| May 4, 2018 |
| |
ASSETS | |
Accounts receivable | $ | 1,929 | |
Inventories | 4,564 | |
Other current assets | 150 | |
Property and equipment | 392 | |
Other assets | 189 | |
Intangible assets - tradename | 138 | |
Total assets | 7,362 | |
| |
LIABILITIES | |
Accounts payable | 1,289 | |
Accrued expenses | 175 | |
Deferred tax liability | 589 | |
Total liabilities | 2,053 | |
| |
| |
Net assets acquired | 5,309 | |
| |
Consideration paid | 3,350 | |
Less: Cash acquired | (24) | |
Bargain purchase gain | $ | 1,983 | |
|
| | | |
| May 4, 2018 |
|
| |
ASSETS | |
Accounts receivable | $ | 1,929,120 |
|
Inventories | 4,564,437 |
|
Other current assets | 149,792 |
|
Property and equipment | 391,892 |
|
Other assets | 189,607 |
|
Intangible assets - tradename | 138,000 |
|
Total assets | 7,362,848 |
|
| |
LIABILITIES | |
Accounts payable | 1,289,150 |
|
Accrued expenses | 175,222 |
|
Deferred tax liability | 589,000 |
|
Total liabilities | 2,053,372 |
|
| |
| |
Net assets acquired | $ | 5,309,476 |
|
| |
Consideration paid | $ | 3,350,000 |
|
Less: Cash acquired | (24,301 | ) |
Bargain purchase gain | $ | 1,983,777 |
|
The transaction resulted in a bargain purchase gain because Worthington was a non-marketed transaction and in financial distress at the time of the acquisition. The seller engaged in a formal bidding process and determined Air T was the best option for Worthington. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $589,000. The resulting net bargain purchase gain after taxes was approximately $1,983,000. Total transaction costs incurred in connection with this acquisition were approximately $83,000.
Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows:
|
| | | | | | | |
| June 30, 2019 | | March 31, 2019 |
Cash and cash equivalents | $ | 16,196,626 |
| | $ | 12,524,321 |
|
Restricted cash | 68,979 |
| | 123,409 |
|
Total cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 16,265,605 |
| | $ | 12,647,730 |
|
4. Discontinued Operations
| |
5. | Cash Surrender Value of Life Insurance |
The Company is the beneficiary of corporate-owned life insurance policies on certain former employees with a net cash surrender value of approximately $101,259 and $122,062 at June 30, 2019 and March 31, 2019, respectively.
6. Income Taxes
During the three months ended JuneOn September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement includes a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics are achieved by March 31, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.5 million with tax impact of $2.4 million for a net of tax gain of $8.1 million during the nine months ended December 31, 2019. The gain is subject to change pending final settlement statement, final transaction costs and net working capital adjustments.
Summarized results of operations of GAS for the three and nine months ended December 31, 2019 and 2018 through the date of disposition are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Nine Months Ended December 31, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Net sales | $ | — | | | | $ | 8,137 | | | | $ | 16,637 | | | | $ | 25,658 | |
Operating Expense | — | | | | (8,537) | | | | (17,319) | | | | (26,887) | |
| | | | | | | |
Loss from discontinued operations before income taxes | — | | | | (400) | | | | (682) | | | | (1,229) | |
Income tax benefit | — | | | | (24) | | | | (612) | | | | (73) | |
Loss from discontinued operations, net of tax | $ | — | | | | $ | (376) | | | | $ | (70) | | | | $ | (1,156) | |
The following table presents summary balance sheet information of GAS that is presented as discontinued operations as of March 31, 2019 (in thousands):
| | | | | |
Assets: | March 31, 2019 |
Cash and cash equivalents | $ | 107 | |
Accounts receivable, net | 8,197 | |
Income tax receivable | 16 | |
Inventories, net | 2,512 | |
Other current assets | 769 | |
Current assets of discontinued operations | 11,601 | |
Property and equipment, net | 554 | |
Intangible assets, net | 228 | |
Goodwill | 190 | |
Other non-current assets | 292 | |
Non-current assets of discontinued operations | 1,264 | |
Liabilities: | | |
Accounts payable | 1,144 | |
Income tax payable | (226) | |
Accrued expenses | 669 | |
Current liabilities of discontinued operations | $ | 1,587 | |
| |
5. Income Taxes
During the three-month period ended December 31, 2019, the Company recorded $324,000$616,000 in income tax benefitexpense from continuing operations at an effective rate ("ETR") of (8.46)%51.5%. The Company records income taxes using an estimated annual effectivea discrete, year-to-date tax rateexpense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21%21.0% and the Company's effective tax rate for the three monthsthree-month period ended June 30,December 31, 2019 were the change in valuation allowance related to Delphax, the estimated benefitexpense for the exclusion of incomeloss for the Company's captive insurance company subsidiary under Section 831(b), the liquidation of Delphax UK and Delphax Canada as mentioned in Footnote 13estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC.
During the three monthsmonth period ended June 30,December 31, 2018, the Company recorded $387,000$198,000 in income tax expense which resulted infrom continuing operations at an effective tax rateETR of 10.50%(11.4)%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the three monthsthree-month period ended June 30,December 31, 2018 were the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense.
During the nine-month period ended December 31, 2019, the Company recorded $52,000 in income tax benefit from continuing operations at an ETR of (2.2)%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the nine-month period ended December 31, 2018, the Company recorded $241,000 in income tax expense from continuing operations at an ETR of 25.8%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended December 31, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the Worthington bargain purchase gaingain.
For the three and state income tax expense.nine months ended December 31, 2019, the ETR in discontinued operations is 0.0% and 89.7%, respectively. The ETR is impacted by the effect of the release of the valuation allowance recorded in fiscal year 2019 against the $2 million impaired reinsurance contracts. For the three and nine months ended December 31, 2018, the ETR in discontinued operations is 6.0% and 5.9%, respectively. The ETR is impacted by permanent, non-deductible items for tax.
6. Net Earnings Per Share
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. There were 3,824 anti-dilutive securities as of December 31, 2019. The computation of basic and diluted earnings per common share is as follows:follows (in thousands):
| | | | | | | | Three Months Ended December 31, | | | Nine Months Ended December 31, | |
| Three Months Ended June 30, | | 2019 | | 2018 | | 2019 | | 2018 |
| 2019 | | 2018 | |
Net Income Attributable to Air T, Inc. Stockholders | $ | 1,782,352 |
| | $ | 2,828,694 |
| |
Income Per Share: | | | | |
Net income (loss) from continuing operations | | Net income (loss) from continuing operations | $ | 581 | | | | $ | (1,941) | | | | $ | 2,450 | | | | $ | 694 | |
Net income from continuing operations attributable to non-controlling interests | | Net income from continuing operations attributable to non-controlling interests | (789) | | | | (398) | | | | (3,449) | | | | (745) | |
Net loss from continuing operations attributable to Air T, Inc. stockholders | | Net loss from continuing operations attributable to Air T, Inc. stockholders | (208) | | | | (2,339) | | | | (999) | | | | (51) | |
Loss from continuing operations per share: | | Loss from continuing operations per share: | | | | | | | |
Basic | $ | 0.79 |
| | $ | 0.92 |
| Basic | $ | (0.07) | | | $ | (0.77) | | | $ | (0.36) | | | $ | (0.02) | |
Diluted | $ | 0.79 |
| | $ | 0.92 |
| Diluted | $ | (0.07) | | | $ | (0.77) | | | $ | (0.36) | | | $ | (0.02) | |
| | |
Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | $ | — | | | | $ | (376) | | | | $ | (70) | | | | $ | (1,156) | |
Gain (loss) on sale of discontinued operations, net of tax | | Gain (loss) on sale of discontinued operations, net of tax | (222) | | | | — | | | | 8,137 | | | | — | |
| Gain (loss) from discontinued operations attributable to Air T, Inc. stockholders | | Gain (loss) from discontinued operations attributable to Air T, Inc. stockholders | (222) | | | | (376) | | | | 8,067 | | | | (1,156) | |
| | | | | | | | | |
Income (loss) from discontinued operations per share: | | Income (loss) from discontinued operations per share: | |
Basic | | Basic | $ | (0.07) | | | $ | (0.12) | | | $ | 2.93 | | | $ | (0.38) | |
Diluted | | Diluted | $ | (0.07) | | | $ | (0.12) | | | $ | 2.93 | | | $ | (0.38) | |
| Income (Loss) per share: | | Income (Loss) per share: | |
Basic | | Basic | $ | (0.14) | | | $ | (0.89) | | | $ | 2.57 | | | $ | (0.40) | |
Diluted | | Diluted | $ | (0.14) | | | $ | (0.89) | | | $ | 2.57 | | | $ | (0.40) | |
| | |
Weighted Average Shares Outstanding: | | | | Weighted Average Shares Outstanding: | |
Basic | 2,252,698 |
| | 3,065,411 |
| Basic | 2,973 | | | | 3,042 | | | | 2,752 | | | | 3,058 | |
Diluted | 2,256,868 |
| | 3,074,547 |
| Diluted | 2,973 | | | | 3,042 | | | | 2,756 | | | | 3,058 | |
On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50% stock dividend to shareholders of record as of June 4, 2019. All share and earnings per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly-issued shares was recorded with the offset to additional paid-in capital.
With respect to our June 30,December 31, 2019 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the Condensed Consolidated Balance Sheets, and in all share data in the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations. With respect to our March 31, 2019 Annual Report on Form 10-K, the effect of the stock split on per share amounts and weighted average common shares outstanding for each of the two fiscal years ended March 31, 2019 and March 31, 2018 are as follows:
|
| | | | | | | | |
| | Fiscal year ended |
| | 2019 | | 2018 |
Net Income Attributable to Air T, Inc. Shareholders | | 1,339,995 |
| | 2,277,109 |
|
| | | | |
| | | | |
Weighted-average common shares outstanding | | | | |
Basic | | 3,052,124 |
| | 3,064,209 |
|
| | | | |
Diluted | | 3,059,838 |
| | 3,071,528 |
|
| | | | |
Basic earnings per common share | | $ | 0.44 |
| | $ | 0.74 |
|
| | | | |
Diluted earnings per common share | | $ | 0.44 |
| | $ | 0.74 |
|
7. Equity Method Investments
| |
8. | Investments in Securities |
As of June 30, 2019, the Company had a gross unrealized gain aggregating to $319,000 and gross unrealized losses aggregating to $268,000, which are included in the Consolidated Statement of Income.
All investments in marketable securities are priced using publicly quoted market prices and are considered Level 1 fair value measurements.
| |
9. | Equity Method Investments |
The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. At June 30,December 31, 2019, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 30%29% of the outstanding shares. For the quarter ended June 30,December 31, 2019, the Company recorded approximately $322,000a loss of $284,975 as its share of Insignia’s net loss for the three months ended March 31,September 30, 2019 along with a basis difference adjustment of approximately $24,000.$24,032. In addition, due to the adverse financial results as reported in Insignia's Form 10Q10-Qs for the quarterquarters ended March 31,June 30 and September 30, 2019 in addition to consideration of analyst reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in Insignia .Insignia. As such, the Company recorded an impairment charge of $814,558$1,094,890 during the quarter ended June 30,December 31, 2019, totaling impairment charges of 2,304,779 for the nine months ended December 31, 2019. After the impairment, the Company's net investment basis in Insignia is $4,001,106$2,035,650 as of June 30,December 31, 2019.
Summarized unaudited financial information for Insignia for the threenine months ended March 31,September 30, 2019 and March 31, 2018 is as follows:follows (in thousands):
| | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2018 |
Revenue | $ | 15,636 | | | $ | 25,119 | |
Gross Profit | 3,165 | | | 9,314 | |
Operating income (loss) | (3,091) | | | 1,331 | |
Net income (loss) | (2,562) | | | 993 | |
Net income (loss) attributable to Air T, Inc. stockholders | $ | (749) | | | $ | 203 | |
On November 8, 2019, the Company made an investment of $2.8 million to purchase a 19.9% ownership stake in Cadillac Casting Inc.("CCI"). The Company determined that CCI is a variable interest entity and that the Company is not the primary beneficiary. This is primarily the result of the Company's conclusion that it does not have the power to direct the activities that most significantly impact the economic performance of CCI. Accordingly, the Company does not consolidate CCI and has determined to account for this investment using equity method accounting.
Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost as of December 31, 2019, with a basis difference of $338,373. As Air T has no rights to CCI's results prior to November 8, 2019, under the lag method, Air T will not record any earnings or losses from CCI's third quarter results ended September 30, 2019. Likewise, no basis difference adjustments will be recorded in the period ended December 31, 2019. In subsequent periods, Air T will depreciate the basis difference straight-line into equity method earnings.
8. Inventories
|
| | | | | | | |
| Three Months Ended March 31, 2019 | | Three Months Ended March 31, 2018 |
Revenue | $ | 5,140,000 |
| | $ | 7,419,000 |
|
Gross Profit | 774,000 |
| | 2,746,000 |
|
Operating income (loss) | (1,337,000 | ) | | 232,000 |
|
Net income (loss) | (1,096,000 | ) | | 164,000 |
|
Net income (loss) attributable to Air T, Inc. stockholders | $ | (322,000 | ) | | $ | 5,000 |
|
Inventories consisted of the following:following (in thousands):
| | | | | | | | | | | |
| December 31, 2019 | | March 31, 2019 |
| | | |
Ground equipment manufacturing: | | | |
Raw materials | $ | 5,413 | | | $ | 2,498 | |
Work in process | 2,302 | | | 1,660 | |
Finished goods | 473 | | | 973 | |
Printing equipment and maintenance | | | |
Raw materials | 498 | | | 401 | |
Finished goods | 911 | | | 1,048 | |
Commercial jet engines and parts | 58,605 | | | 21,032 | |
Total inventories | 68,202 | | | $ | 27,612 | |
Reserves | (86) | | | (157) | |
Total inventories, net of reserves | $ | 68,116 | | | $ | 27,455 | |
|
| | | | | | | |
| June 30, 2019 | | March 31, 2019 |
Ground support service parts | $ | 2,580,196 |
| | $ | 2,553,949 |
|
Ground equipment manufacturing: | | | |
Raw materials | 3,017,469 |
| | 2,497,876 |
|
Work in process | 1,351,370 |
| | 1,659,516 |
|
Finished goods | 643,763 |
| | 972,542 |
|
Printing equipment and maintenance | | | |
Raw materials | — |
| | 401,103 |
|
Finished goods | 1,438,161 |
| | 1,047,893 |
|
Commercial jet engines and parts | 27,691,133 |
| | 21,031,558 |
|
Total inventories | $ | 36,722,092 |
| | $ | 30,164,437 |
|
Reserves | (193,315 | ) | | (197,400 | ) |
Total inventories, net of reserves | $ | 36,528,777 |
| | $ | 29,967,037 |
|
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 quarterthree and nine months ended December 31, 2019 are as follows:follows (in thousands):
| | | | | | | | | | | |
| Three Months Ended December 31, 2019 | | Nine Months Ended December 31, 2019 |
Operating lease cost | $ | 569 | | | $ | 1,489 | |
Short-term lease cost | 63 | | | 318 | |
Variable lease cost | 97 | | | 304 | |
Sublease income | — | | | — | |
Total lease cost | $ | 729 | | | $ | 2,111 | |
|
| | | | |
| | Three Months Ended June 30, 2019 |
Operating lease cost | | $ | 819,854 |
|
Short-term lease cost | | 274,156 |
|
Variable lease cost | | 135,613 |
|
Sublease income | | — |
|
Total lease cost | | $ | 1,229,623 |
|
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the quarter ended June 30,December 31, 2019 were as follows:follows (in thousands):
|
| | | | |
| | June 30, 2019 |
Operating leases | | |
Operating lease right-of-use assets | | $ | 10,071,405 |
|
Operating lease liabilities | | 10,558,383 |
|
| | |
Weighted-average remaining lease term | | 12.08 years |
|
Operating leases | | |
| | |
Weighted-average discount rate | | 4.51 | % |
Operating leases | | |
| | | | | | | | |
| | December 31, 2019 |
Operating leases | | |
Operating lease right-of-use assets | | $ | 8,458 | |
Operating lease liabilities | | $ | 8,913 | |
| | |
Weighted-average remaining lease term | | 14 years, 3 months |
Operating leases | | |
| | |
Weighted-average discount rate | | 4.51 | % |
Operating leases | | |
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended June 30,December 31, 2019 are as follows:follows (in thousands):
| | | | | |
| Operating Leases |
2020 (excluding the nine months ended December 31, 2019) | $ | 349 | |
2021 | 1,553 | |
2022 | 1,402 | |
2023 | 1,215 | |
2024 | 922 | |
2025 | 694 | |
Thereafter | 6,388 | |
Total undiscounted lease payments | $ | 12,523 | |
Less: Interest | 3,045 | |
Less: Discount | 565 | |
Total lease liabilities | $ | 8,913 | |
|
| | |
| Operating Leases |
|
2020 (excluding the three months ended June 30, 2019) | (2,267,538 | ) |
2021 | (2,122,870 | ) |
2022 | (1,621,902 | ) |
2023 | (1,268,783 | ) |
2024 | (691,886 | ) |
2025 | (457,798 | ) |
Thereafter | (5,809,603 | ) |
Total undiscounted lease payments | (14,240,380 | ) |
Less: Interest | (3,023,181 | ) |
Less: Discount | (658,816 | ) |
Total lease liabilities | (10,558,383 | ) |
At March 31, 2019, future minimum annual lease payments (foreign currency amounts translated using applicable March 31, 2019 exchange rates) are as follows:follows (in thousands):
| | | | | |
Year ended March 31, | |
2020 | $ | 3,133 | |
2021 | 2,115 | |
2022 | 1,625 | |
2023 | 1,241 | |
2024 | 692 | |
Thereafter | 6,267 | |
Total minimum lease payments | $ | 15,073 | |
|
| | |
Year ended March 31, | |
2020 | 3,133,000 |
|
2021 | 2,115,000 |
|
2022 | 1,625,000 |
|
2023 | 1,241,000 |
|
2024 | 692,000 |
|
Thereafter | 6,267,000 |
|
Total minimum lease payments | 15,073,000 |
|
12. 10. Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below (in thousands) at June 30,December 31, 2019 and March 31, 2019, respectively. AirCo and Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Contrail Aviation Leasing Ireland DAC, CRO No. 662616 (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.
On October 30, 2019, Contrail entered into Supplement #5 to Master Loan Agreement with Old National Bank (“Supplement #5”). In connection therewith, Contrail entered into the Promissory Note Term Note D in the principal amount of $7,553,165 to ONB (“Term Note D”). The Term Note D has a maturity date of October 30, 2021, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth. Term Note D was fully paid off in the current quarter.
On December 19, 2019, Contrail entered into Supplement #6 to that certain Master Loan Agreement with ONB. In connection therewith, Contrail entered into that certain Promissory Note Term Note E in the principal amount of $6,894,790 to ONB (“Term Note E”). The Term Note E has a maturity date of December 1, 2022, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth.
On December 31, 2019, the Company and Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”, "the bank"), entered into Amendment No. 2 to that certain Amended and Restated Credit Agreement (the “Second Amendment”). In connection with the Second Amendment, the Company entered into that certain Supplemental Revolving Credit Note in the principal amount of $10,000,000 to MBT (the “Note”). The Note has a maturity date of June 30, 2020, with a fluctuating annual rate of interest equal to the greater of (a) the sum of (i) the LIBOR Rate, and as the same may adjust monthly, plus (ii) 1.25%; or (b) 3.00%; provided, that, upon the occurrence and during the continuance of any Event of Default as defined therein, the rate of interest thereunder shall be increased by 3.00% above the rate of interest that would otherwise be in effect thereunder. The loan is secured by a pledge of a continuing security interest in the demand deposit cash collateral accounts of Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company, with an aggregate account cash balance of $10,000,000 under the sole control by MBT. Twelve of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT.
| | | June 30, 2019 | | March 31, 2019 | | Maturity Date | Interest Rate | | Unused commitments | |
(In Thousands) | | (In Thousands) | December 31, 2019 | | March 31, 2019 | | Maturity Date | Interest Rate | | Unused commitments |
Revolver - MB&T | $ | 14,830,650 |
| | $ | 12,403,213 |
| | November 30, 2019 | Prime - 1% | | $2,169,351 | Revolver - MB&T | $ | 13,608 | | | $ | 12,403 | | | February 28, 2020 | Prime - 1% | | $ | 3,392 | |
Term Note A - MB&T | 8,500,000 |
| | 8,750,000 |
| | January 1, 2028 | 1-month LIBOR + 2% | | | Term Note A - MB&T | 8,000 | | | 8,750 | | | January 1, 2028 | 1-month LIBOR + 2% | |
Term Note B - MB&T | 4,250,000 |
| | 4,375,000 |
| | January 1, 2028 | 4.5% | | | Term Note B - MB&T | 4,000 | | | 4,375 | | | January 1, 2028 | 4.5% | | |
Term Note D - MB&T | 1,590,400 |
| | 1,607,200 |
| | January 1, 2028 | 1-month LIBOR + 2% | | | Term Note D - MB&T | 1,557 | | | 1,607 | | | January 1, 2028 | 1-month LIBOR + 2% | |
Debt - Trust Preferred Securities | 6,102,310 |
| | — |
| | June 7, 2049 | 8% | | | Debt - Trust Preferred Securities | 10,292 | | | — | | | June 7, 2049 | 8% | | |
Note - MB&T | | Note - MB&T | 10,000 | | | | — | | | June 30, 2020 | 1-month LIBOR + 1.25% or 3% | | — |
Air T Debt | 35,273,360 |
| | 27,135,413 |
| | | Air T Debt | 47,457 | | | 27,135 | | | | |
| | | | | | | | |
Revolver - MB&T | — |
| | 3,820,000 |
| | May 21, 2019 | 7.5% | | 5,000,000 |
| Revolver - MB&T | — | | | 3,820 | | | May 21, 2019 | 7.5% | | | |
Revolver - MB&T | 4,876,259 |
| | — |
| | November 30, 2019 | greater of 6.50% or Prime + 2% | | 5,123,741 |
| Revolver - MB&T | 9,327 | | | — | | | February 28, 2020 | greater of 6.50% or Prime + 2% | | | 673 |
Term Loan - MB&T | — |
| | 450,000 |
| | December 17, 2019 | 7.50% | | | Term Loan - MB&T | — | | | 450 | | | December 17, 2019 | 7.50% | | |
Term Loan - MB&T | — |
| | 400,000 |
| | June 17, 2020 | 7.25% | | | Term Loan - MB&T | — | | | 400 | | | June 17, 2020 | 7.25% | | |
Term Loan - Park State | 2,100,000 |
| | 2,100,000 |
| | June 17, 2020 | 8.50% | | | Term Loan - Park State | — | | | 2,100 | | | June 17, 2020 | 8.50% | | |
AirCo Debt | 6,976,259 |
| | 6,770,000 |
| | | AirCo Debt | 9,327 | | | 6,770 | | |
| | | | | | | | |
Revolver | — |
| | — |
| | May 5, 2019 | 1-month LIBOR + 3% | | — |
| Revolver | 11,652 | | | — | | | September 5, 2021 | 1-month LIBOR + 3% | | | 8,348 |
Term Loan | 8,152,054 |
| | 8,616,336 |
| | January 26, 2021 | 1-month LIBOR + 3.75% | | | |
Term Loan | 14,000,000 |
| | 15,500,000 |
| | September 14, 2021 | 1-month LIBOR + 3.75% | | | |
Term Loan A | | Term Loan A | 6,808 | | | 8,617 | | | January 26, 2021 | 1-month LIBOR + 3.75% | | |
Term Loan B | | Term Loan B | — | | | 15,500 | | | September 14, 2021 | 1-month LIBOR + 3.75% | | |
Term Loan C | | Term Loan C | 9,621 | | | — | | | August 1, 2024 | 1-month LIBOR + 3.75% | | |
Term Loan D | | Term Loan D | — | | | — | | | October 30, 2021 | 1-month LIBOR + 3.75% | | |
Term Loan E | | Term Loan E | 6,895 | | | — | | | December 1, 2022 | 1-month LIBOR + 3.75% | | |
Contrail Debt - Old National | 22,152,054 |
| | 24,116,336 |
| | | Contrail Debt - Old National | 34,976 | | | 24,117 | | |
| | | | | | |
Total Debt | 64,401,673 |
| | 58,021,749 |
| | | Total Debt | 91,760 | | | 58,022 | | |
| | | | | | | | | | |
Less: Unamortized Debt Issuance Costs | (341,612 | ) | | (368,760 | ) | | | Less: Unamortized Debt Issuance Costs | (261) | | | (369) | | |
Total Debt, net | $ | 64,060,061 |
| | $ | 57,652,989 |
| | | Total Debt, net | $ | 91,499 | | | $ | 57,653 | | |
Maturities - At June 30,December 31, 2019, our contractual financing obligations, including payments due by period, are as follows:follows (in thousands):
| | | | | | | | |
Due by | | Amount |
December 31, 2020 | | $ | 51,504 | |
December 31, 2021 | | 12,795 | |
December 31, 2022 | | 6,601 | |
December 31, 2023 | | 3,279 | |
December 31, 2024 | | 1,567 | |
Thereafter | | 16,014 | |
| | 91,760 | |
Less: Unamortized Debt Issuance Costs | | (261) | |
| | $ | 91,499 | |
|
| | | | |
Due by | | Amount |
June 30, 2020 | | $ | 27,774,151 |
|
June 30, 2021 | | 17,319,212 |
|
June 30, 2022 | | 3,567,200 |
|
June 30, 2023 | | 1,567,200 |
|
June 30, 2024 | | 1,567,200 |
|
Thereafter | | 12,606,710 |
|
| | 64,401,673 |
|
Less: Unamortized Debt Issuance Costs | | (341,612 | ) |
| | $ | 64,060,061 |
|
Liquidity and Financial Condition - The Company's condensed consolidated financial statements as of December 31, 2019 have been prepared assuming that the Company will continue its operations as a going concern. The Company believes cash on hand, net cash provided by operations, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to extend the maturity of or refinance the Air T and AirCo revolvers ("revolvers") maturing February 28, 2020. Based on our discussions to date with MBT, as well as our history of refinancing with MBT and the receipt of written confirmation from MBT indicating their intention to refinance the revolvers, at substantially the same terms, with maturity dates extending beyond February 28, 2021, the Company believes the plan to refinance these revolvers is probable of occurring.
Other - On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:
•A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split). See Footnote 76 for discussion. •The Company issued and distributed to existing common shareholders an aggregate of 1,600,0001.6 million trust preferred capital security ("TruPs") shares (aggregate $4,000,000$4.0 million stated value) and an aggregate of 8,400,0008.4 million warrants ("Warrants") (representing warrants to purchase $21,000,000$21.0 million in stated value of TruPs). The Warrants are exercisable for one year from issuance.
The Company entered into an 8% Junior Subordinated Debenture (“Debenture”) to pay to Air T Funding ("the Trust") a principal sum of $4,000,000 on June 7, 2049, and to pay interest on said principal sum quarterly at the rate of 8.0% per annum. The Company's Debenture and the Trust's associated note receivable (the "Note") are eliminated in the Company's consolidated financial statements, and Debt - Trust Preferred Securities is presented as a component of long-term debt on our consolidated balance sheets.
The issuance of the TruPs and Warrants is disclosed on our consolidated statements of equity as well as within the supplemental non-cash disclosure of the Company's consolidated statements of cash flows. As of June 30,December 31, 2019, 840,9242,516,916 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $6,102,310$10,292,000 as of June 30,December 31, 2019.
At June 30,December 31, 2019, the Company had Warrants outstanding and exercisable to purchase 7,559,0765,883,084 shares of its TruPs at an exercise price of $2.40 per share, which represents a discount to the $2.50 face value of each Trust Preferred Security. The Warrants will expire on June 7, 2020 or earlier upon redemption or liquidation.
| | | | | |
| Fair Value Measurement as of December 31, 2019 |
Warrant liability (Level 2) | $ | 588,308 | |
|
| | | |
| Fair Value Measurement as of June 30, 2019 |
Warrant liability (Level 2) | $ | 755,907 |
|
As of June 30,December 31, 2019, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).
On April 3, 2019, AirCo entered into a revolving line of credit agreement with MBT in the amount of $10,000,000 with a maturity date of November 30, 2019. The annual interest rate is stated at the greater of 6.50% or the sum of the Prime Rate plus 2.00%. AirCo used the proceeds from this transaction to pay off the outstanding balances on their term loans.
The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.
As of August 1, 2018, these swap contracts were designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedge transaction affects earnings. As of June 30,December 31, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $456,000$448,000 and $227,000, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended June 30,December 31, 2019, the Company recorded a lossgain of approximately $176,038,$94,000, net of tax, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
| |
13. | Variable Interest Entities |
11. Variable Interest Entities
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
•the power to direct the activities that most significantly impact the economic performance of the VIE; and
•the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.
The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Delphax warrant, each constituted a variable interest. In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015. The Company consolidated Delphax in its consolidated financial statements beginning on that date.
The following table sets forth the carrying values of Delphax’s assets and liabilities as of June 30,December 31, 2019 and March 31, 2019:2019 (in thousands):
| | | June 30, 2019 | | March 31, 2019 | | December 31, 2019 | | March 31, 2019 |
ASSETS | | | | ASSETS | | | |
Current assets: | | | | Current assets: | |
Cash and cash equivalents | $ | 9,430 |
| | $ | 12,315 |
| Cash and cash equivalents | $ | 3 | | | $ | 12 | |
Accounts receivable, net | 49,844 |
| | 46,844 |
| Accounts receivable, net | 50 | | | 47 | |
Other current assets | 9,672 |
| | 58,441 |
| Other current assets | 9 | | | 59 | |
Total current assets | 68,946 |
| | 117,600 |
| Total current assets | 62 | | | 118 | |
Other tax receivables-long-term |
|
| | 311,000 |
| Other tax receivables-long-term | — | | | 311 | |
Total assets | $ | 68,946 |
| | $ | 428,600 |
| Total assets | 62 | | | 429 | |
LIABILITIES | | | | LIABILITIES | | | |
Current liabilities: | | | | Current liabilities: | |
Accounts payable | $ | 96,109 |
| | $ | 2,151,235 |
| Accounts payable | 96 | | | 2,151 | |
Accrued expenses | 401,275 |
| | 3,157,707 |
| Accrued expenses | 392 | | | 3,158 | |
Short-term debt | — |
| | 1,749,779 |
| Short-term debt | — | | | 1,750 | |
Total current liabilities | 497,384 |
| | 7,058,721 |
| Total current liabilities | 488 | | | 7,059 | |
Total liabilities | $ | 497,384 |
| | $ | 7,058,721 |
| Total liabilities | 488 | | | 7,059 | |
Net Liabilities | $ | (428,438 | ) | | $ | (6,630,121 | ) | Net Liabilities | $ | (426) | | | $ | (6,630) | |
Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt. As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities. The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada. In addition, on June 11, 2019, the Company has also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of June 30,December 31, 2019 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $4,509,302.$4.5 million.
Delphax’s revenues and expenses are included in our consolidated financial statements beginning November 24, 2015 through June 30,December 31, 2019. Revenues and expenses prior to the date of initial consolidation were excluded. We have determined that the attribution of Delphax net income or loss should be based on consideration of all of Air T’s investments in Delphax and Delphax Canada. The Delphax warrant ("Delphax warrant") provides that in the event that dividends are paid on the common stock of Delphax, the holder of the WarrantDelphax warrant is entitled to participate in such dividends on a ratable basis as if the WarrantDelphax warrant had been fully exercised and the shares of Series B Preferred Stock acquired upon such exercise had been converted into shares of Delphax common stock. This provision would have entitled Air T, Inc. to approximately 67% of any Delphax dividends paid, with the remaining 33% paid to the non-controlling interests. We concluded that this was a substantive distribution right which should be considered in the attribution of Delphax net income or loss to non-controlling interests. We furthermore concluded that our investment in the debt of Delphax should be considered in attribution. Specifically, Delphax’s net losses are attributed first to our Series B Preferred Stock and WarrantDelphax warrant investments and to the non-controlling interest (67%/33%) until such amounts are reduced to zero. Additional losses are then fully attributed to our debt investments until they too are reduced to zero.0. This sequencing reflects the relative priority of debt to equity. Any further losses are then attributed to Air T and the non-controlling interests based on the initial 67%/33% share. Delphax net income is attributed using a backwards-tracing approach with respect to previous losses.
As a result of the application of the above-described attribution methodology, for the quarters ended June 30,December 31, 2019 and June 30,December 31, 2018 the attribution of Delphax losses to non-controlling interests was 33% and 33%, respectively.
The following table sets forth the revenue and expenses of Delphax prior to intercompany eliminations that are included in the Company’s condensed consolidated statement of income for the three months ended June 30,December 31, 2019 and 2018.2018 (in thousands):
| | | | | | | | | | | |
| Nine Months Ended December 31, | | |
| 2019 | | 2018 |
Operating Revenues | $ | — | | | $ | — | |
| | | |
Operating Expenses: | | | |
Cost of sales | — | | | — | |
General and administrative | 182 | | | 216 | |
| 182 | | | 216 | |
| | | |
Operating Loss | (182) | | | (216) | |
| | | |
Non-operating Income (Expenses), net | 6,237 | | | (133) | |
| | | |
Income (Loss) Before Income Taxes | 6,055 | | | (349) | |
| | | |
Income Taxes | — | | | — | |
| | | |
Net Income (Loss) | $ | 6,055 | | | $ | (349) | |
12. ShareRepurchase
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
Operating Revenues | $ | — |
| | $ | — |
|
| | | |
Operating Expenses: | | | |
Cost of sales | — |
| | — |
|
General and administrative | 72,748 |
| | 52,260 |
|
| 72,748 |
| | 52,260 |
|
| | | |
Operating Loss | (72,748 | ) | | (52,260 | ) |
| | | |
Non-operating Income (Expenses), net | 6,237,385 |
| | (87,917 | ) |
| | | |
Income (Loss) Before Income Taxes | 6,164,637 |
| | (140,177 | ) |
| | | |
Income Taxes | — |
| | — |
|
| | | |
Net Income (Loss) | $ | 6,164,637 |
| | $ | (140,177 | ) |
Unconsolidated Variable Interest Entities and Other Entities
As discussed in Note 3, BCCM Advisors holds equity interests in certain investment funds as of June 30, 2019 and March 31, 2019. The Company determined that the equity interests it holds as the general partner in the following funds are variable interests based on the applicable GAAP guidance: Blue Clay Capital Partners CO I LP, Blue Clay Capital Partners CO III LP, Blue Clay Capital SMid-Cap LO LP and AO Partners II LP. However, the Company further determined that these funds should not be consolidated as BCCM Advisors is not the primary beneficiary of these variable interest entities. The Company determined that its equity interest in the Blue Clay Capital Master Fund Ltd. is not a variable interest and should not be consolidated based on the applicable GAAP guidance. The Company’s total investment within these investment funds at June 30, 2019 is valued at approximately $318,020. The Company’s exposure to loss is limited to its initial investment.
As mentioned in Footnote 12, Financing Arrangements, the Company formed the Trust to issue and distribute TruPs and Warrants to our existing shareholders. The Company determined that it holds variable interest in the Trust and therefore, is the primary beneficiary of the Trust. As such, the Company consolidated the Trust as of June 30, 2019.
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split in June 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
During the three months ended June 30,December 31, 2019, the Company repurchased 17,424110,146 shares at an aggregate cost of $126,317. These$2,157,200. Historically, the Company retired all shares repurchased; however, this quarter, the Company changed its intention in order to hold shares repurchased. As such, these shares are reflected as retiredtreasury shares as of June 30, 2019 in accordance with the intent of the authorized share repurchase program. The Company has reduced common stock and retained earnings to reflect the retirement of those shares.December 31, 2019.
25
| |
15. | Geographical information |
13. Geographical information
Total property and equipment, including assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of June 30,December 31, 2019 and March 31, 2019:2019, in thousands:
| | | | | | | | | | | |
| December 31, 2019 | | March 31, 2019 |
United States | $ | 5,197 | | | $ | 4,393 | |
Foreign | 14,800 | | | 25,035 | |
Total property and equipment, net | $ | 19,997 | | | $ | 29,428 | |
|
| | | | | | | |
| June 30, 2019 | | March 31, 2019 |
United States | $ | 4,865,948 |
| | $ | 4,946,997 |
|
Foreign | 17,868,685 |
| | 25,035,412 |
|
Total property and equipment, net | $ | 22,734,633 |
| | $ | 29,982,409 |
|
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,December 31, 2019. The net book value located within each individual country at June 30,December 31, 2019 and March 31, 2019 is listed below:below, in thousands:
| | | June 30, 2019 | | March 31, 2019 | | December 31, 2019 | | March 31, 2019 |
Australia | $ | 3,594 |
| | $ | 5,186 |
| Australia | $ | 5 | | | | $ | 5 | |
Canada | | Canada | 51 | | | — | |
Estonia | | Estonia | 7,930 | | | — | |
Mexico | 2,262,967 |
| | 2,680,825 |
| Mexico | 1,845 | | | | 2,681 | |
Netherlands | 5,350,275 |
| | 5,541,072 |
| Netherlands | 4,969 | | | | 5,541 | |
China | 10,251,849 |
| | 16,808,329 |
| China | — | | | | 16,808 | |
Total property and equipment, net | $ | 17,868,685 |
| | $ | 25,035,412 |
| Total property and equipment, net | $ | 14,800 | | | | $ | 25,035 | |
Total revenue from continuing operations, in and outside the United States is summarized in the following table for the threenine months ended June 30,December 31, 2019 and June 30, 2018:December 31, 2018, in thousands:
| | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
United States | $ | 127,115 | | | | $ | 134,753 | |
Foreign | 44,066 | | | | 13,420 | |
Total revenue from continuing operations | $ | 171,181 | | | | $ | 148,173 | |
|
| | | | | | | |
| June 30, 2019 | | June 30, 2018 |
United States | $ | 46,127,349 |
| | $ | 54,662,311 |
|
Foreign | 9,577,186 |
| | 6,205,158 |
|
Total revenue | $ | 55,704,535 |
| | $ | 60,867,469 |
|
16. 14. Segment Information
The Company has six5 business segments: overnight air cargo, ground equipment sales, ground support services, commercial jet engine and parts segment, printing equipment and maintenance and corporate and other. Segment data is summarized as follows:follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands) | Three Months Ended December 31, | | | | Nine Months Ended December 31, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Operating Revenues by Segment: | | | | | | | |
Overnight Air Cargo | $ | 18,706 | | | | $ | 17,868 | | | | $ | 56,771 | | | | $ | 52,573 | |
Ground Equipment Sales: | | | | | | | | | | | | | | |
Domestic | 13,505 | | | | 13,022 | | | | 36,466 | | | | 29,384 | |
International | 2,444 | | | | 3,247 | | | | 4,473 | | | | 6,118 | |
Total Ground Equipment Sales | 15,949 | | | | 16,269 | | | | 40,939 | | | | 35,502 | |
| | | | | | | |
Printing Equipment and Maintenance: | | | | | | | |
Domestic | 5 | | | | 80 | | | | 202 | | | | 274 | |
International | 77 | | | | 25 | | | | 197 | | | | 270 | |
Total Printing Equipment and Maintenance | 82 | | | | 105 | | | | 399 | | | | 544 | |
Commercial Jet Engines and Parts: | | | | | | | | | | | | | | |
Domestic | 22,436 | | | | 9,904 | | | | 37,068 | | | | 37,563 | |
International | 18,885 | | | | 11,086 | | | | 38,724 | | | | 21,390 | |
Total Commercial Jet Engines and Parts | 41,321 | | | | 20,990 | | | | 75,792 | | | | 58,953 | |
Corporate and other | 415 | | | | 236 | | | | 1,556 | | | | 601 | |
Intercompany | (3,173) | | | | 18 | | | | (4,276) | | | | — | |
Total | 73,300 | | | | 55,486 | | | | 171,181 | | | | 148,173 | |
| | | | | | | | | | | | | | |
Operating Income (Loss): | | | | | | | | | | | | | | |
Overnight Air Cargo | 610 | | | | 69 | | | | 874 | | | | 1,324 | |
Ground Equipment Sales | 1,644 | | | | 1,173 | | | | 4,213 | | | | 2,264 | |
Printing Equipment and Maintenance | (425) | | | | (352) | | | | (1,262) | | | | (1,007) | |
Commercial Jet Engines and Parts | 3,807 | | | | 2,449 | | | | 6,997 | | | | 6,237 | |
Corporate and other | (1,558) | | | | (1,479) | | | | (5,418) | | | | (5,145) | |
Intercompany | (358) | | | | 5 | | | | (219) | | | | 4 | |
Total | 3,720 | | | | 1,865 | | | | 5,185 | | | | 3,677 | |
| | | | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | | | |
Overnight Air Cargo | 140 | | | | (3) | | | | 196 | | | | 31 | |
Ground Equipment Sales | 834 | | | | 22 | | | | 844 | | | | 318 | |
Printing Equipment and Maintenance | — | | | | — | | | | — | | | | — | |
Commercial Jet Engines and Parts | 16,595 | | | | 84 | | | | 34,251 | | | | 19,555 | |
Corporate and other | 213 | | | | 30 | | | | 285 | | | | 142 | |
Total | 17,782 | | | | 133 | | | | 35,576 | | | | 20,046 | |
| | | | | | | | | | | | | | |
Depreciation, Amortization and Impairment: | | | | | | | | | | | | | | |
Overnight Air Cargo | 18 | | | | 19 | | | | 55 | | | | 63 | |
Ground Equipment Sales | 80 | | | | 57 | | | | 195 | | | | 213 | |
Printing Equipment and Maintenance | 2 | | | | (23) | | | | 32 | | | | 7 | |
Commercial Jet Engines and Parts | 753 | | | | 1,916 | | | | 3,946 | | | | 4,470 | |
Corporate and other | 127 | | | | 149 | | | | 404 | | | | 445 | |
Intercompany | (1) | | | | 36 | | | | (4) | | | | 34 | |
Total | $ | 979 | | | | $ | 2,154 | | | | $ | 4,628 | | | | $ | 5,232 | |
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
Operating Revenues by Segment: | | | |
Overnight Air Cargo | $ | 18,319,682 |
| | $ | 17,640,658 |
|
Ground Equipment Sales: | | | |
Domestic | 10,858,891 |
| | 5,292,017 |
|
International | 1,390,000 |
| | 1,095,097 |
|
Total Ground Equipment Sales | 12,248,891 |
| | 6,387,114 |
|
Ground Support Services | 8,516,800 |
| | 9,047,640 |
|
Printing Equipment and Maintenance | | | |
Domestic | 21,684 |
| | 194,792 |
|
International | 46,186 |
| | 107,921 |
|
Total Printing Equipment and Maintenance | 67,870 |
| | 302,713 |
|
Commercial Jet Engines and Parts: | | | |
Domestic | 8,938,715 |
| | 23,154,535 |
|
International | 8,141,000 |
| | 5,002,140 |
|
Total Commercial Jet Engines and Parts | 17,079,715 |
| | 28,156,675 |
|
Corporate and other | 598,988 |
| | 474,205 |
|
Intercompany | (1,127,411 | ) | | (1,141,536 | ) |
Total | $ | 55,704,535 |
| | $ | 60,867,469 |
|
| | | |
Operating Income (Loss): | | | |
Overnight Air Cargo | $ | 47,918 |
| | $ | 1,056,692 |
|
Ground Equipment Sales | 1,347,378 |
| | 393,500 |
|
Ground Support Services | 213,081 |
| | (87,724 | ) |
Printing Equipment and Maintenance | (456,199 | ) | | (318,278 | ) |
Commercial Jet Engines and Parts | 1,909,029 |
| | 3,282,908 |
|
Corporate and other | (1,869,296 | ) | | (1,729,200 | ) |
Intercompany | 19,788 |
| | 5,804 |
|
Total | $ | 1,211,699 |
| | $ | 2,603,702 |
|
| | | |
Capital Expenditures: | | | |
Overnight Air Cargo | $ | 8,288 |
| | $ | 5,996 |
|
Ground Equipment Sales | 10,402 |
| | 140,090 |
|
Ground Support Services | 47,608 |
| | 52,438 |
|
Printing Equipment and Maintenance | — |
| | — |
|
Commercial Jet Engines and Parts | 3,465,404 |
| | 183,821 |
|
Corporate and other | 60,224 |
| | 77,230 |
|
Total | $ | 3,591,926 |
| | $ | 459,575 |
|
| | | |
Depreciation, Amortization and Impairment: | | | |
Overnight Air Cargo | 18,176 |
| | $ | 22,763 |
|
Ground Equipment Sales | 52,380 |
| | 91,349 |
|
Ground Support Services | 86,252 |
| | 125,055 |
|
Printing Equipment and Maintenance | 2,225 |
| | 14,331 |
|
Commercial Jet Engines and Parts | 1,735,490 |
| | 1,097,933 |
|
Corporate and other | 140,088 |
| | 145,295 |
|
Intercompany | (1,325 | ) | | (1,325 | ) |
Total | $ | 2,033,286 |
| | $ | 1,495,401 |
|
| |
17. | 15. Commitments and Contingencies |
Contrail Aviation Support, LLC (“Contrail Aviation”), a subsidiary of the Company, completed the purchase of all of the assets owned by Contrail Aviation Support, Inc. (the “Seller”) in July 2016. As part of this purchase, Contrail Aviation agreed to pay contingent additional deferred consideration of up to a maximum of $1,500,000 per year and $3,000,000 in the aggregate. The Company established a liability with a present value of $2,900,000 in the initial allocation of purchase price. This is based on the expectation that the earn-out will be paid at the maximum level. The Company has paid $2,500,000 of contingent consideration as of June 30, 2019 and the remaining liability of $497,000, which is entirely current, is included in the “Other accrued expenses” in the consolidated balance sheet as of June 30, 2019.Contingencies
In 2016, Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”). The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which is on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying consolidated balance sheets. In addition, the companyCompany 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 $6,685,000.$8,190,000. The net change in the redemption value for the three months ended June 30,compared to March 31, 2019 is $1,209,000,an increase of $2,714,000, of which $985,024$1,585,000 was related to the net change in fair value during the nine months ended December 31, 2019, which is reflected on our consolidated statements of equity.
18. 16. Subsequent Events
Management performs an evaluation of events that occur after the balance sheet date but before consolidated financial statements are issued for potential recognition or disclosure of such events in its consolidated financial statements.
ManagementOn January 7, 2020, Air T announced that a one-for-ten reverse split of its Alpha Income Preferred (AIP) securities (AIRTP) will be completed effective January 14, 2020. The record date for the reverse split will be January 14, 2020.
As a result of the reverse split, effective January 14, 2020, the stated value of the AIP will be $25.00 per share. Future cash distributions on the AIP will be in the amount of $0.50 per share (remaining at a rate of 8.0% per annum) commencing with the next distribution payment date of February 17, 2020.
Warrants to purchase AIP ("Warrants") (NASDAQ:AIRTW) will remain outstanding, with the number of shares of AIP that can be purchased and the exercise price per share to be adjusted for the reverse split. As a result, effective January 14, 2020, each Warrant will confer upon its holder the right to purchase one-tenth of a share of AIP for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share.
The common stock of Air T, Inc. (AIRT) is not aware of any subsequent events as ofaffected by the date of issuance.
January 2020 reverse split.
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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 sixfive 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;
Ground support services, which provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers across the United States;
•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;
•Printing equipment and maintenance, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers; and commercial aircraft companies and,
•Corporate and other, which acts as the capital allocator and resource for other segments.
On September 30, 2019, we completed the sale of 100% of the equity ownership in the Company's wholly-owned subsidiary, Global Aviation Services, LLC, which previously constituted the ground support services segment. See Note 4, Discontinued Operations, to the consolidated financial statements. 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.
FirstAll discussions and disclosures below are in thousands, unless stated otherwise.
RESULTS OF OPERATIONS
Third Quarter Fiscal 2020 Compared to FirstThird Quarter Fiscal 2019
Consolidated revenue decreasedincreased by $5,162,934 (8%)$17,814 or 32% to $55,704,535$73,300 for the three-month period ended June 30,December 31, 2019 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 December 31, 20182019 compared to the same quarter in the prior fiscal year:year (in thousands):
| | | Three Months Ended June 30, | | Change | | Three Months Ended December 31, | | | Change | |
| 2019 | | 2018 | | | | | | 2019 | | | 2018 | | | |
Overnight Air Cargo | $ | 18,319,682 |
| | $ | 17,640,658 |
| | $ | 679,024 |
| | 4 | % | Overnight Air Cargo | $ | 18,706 | | | $ | 17,868 | | | $ | 838 | | | 5 | % |
Ground Equipment Sales | 12,248,891 |
| | 6,384,781 |
| | 5,864,110 |
| | 92 | % | Ground Equipment Sales | 15,949 | | | 16,278 | | | (329) | | | (2) | % |
Ground Support Services | 8,516,800 |
| | 9,047,640 |
| | (530,840 | ) | | (6 | )% | |
| Commercial Jet Engines and Parts | 16,326,905 |
| | 27,320,175 |
| | (10,993,270 | ) | | (40 | )% | Commercial Jet Engines and Parts | 38,536 | | | 20,990 | | | 17,546 | | | 84 | % |
Printing Equipment and Maintenance | 64,270 |
| | 298,823 |
| | (234,553 | ) | | (78 | )% | Printing Equipment and Maintenance | 82 | | | 105 | | | (23) | | | (22) | % |
Corporate and other | 227,987 |
| | 175,392 |
| | 52,595 |
| | 30 | % | Corporate and other | 27 | | | 245 | | | (218) | | | (89) | % |
| $ | 55,704,535 |
| | $ | 60,867,469 |
| | $ | (5,162,934 | ) | | (8 | )% | | $ | 73,300 | | | $ | 55,486 | | | $ | 17,814 | | | 32 | % |
Revenues from the air cargo segment increased by $679,024 (4%$838 (5%) compared to the firstthird quarter of the prior fiscal year. The increase was principally attributable to higher flight crew administrativemaintenance revenue from outside customers and an increase in pass-through parts costs, offset by lower admin fees and additional maintenance customers other than FedEx.pass-through costs related to flight operations.
The ground equipment sales segment contributed approximately $12,248,891$15,949 and $6,384,781$16,278 to the Company’s revenues for the three-month periods ended June 30,December 31, 2019 and 2018 respectively, representing a $5,864,110 (92%) increase$329 (2)% decrease in the current quarter primarily driven by an increase of military and commercial deicers sales.quarter. At June 30,December 31, 2019, the ground equipment sales segment’s order backlog was $31.8$29.1 million compared to $17.5$18.3 million at June 30,December 31, 2018.
The ground support services segment contributed approximately $8,516,800 and $9,047,640 to the Company’s revenues for the three-month periods ended June 30, 2019 and 2018, respectively, representing a decrease of $(530,840) or (6)% decrease in the current quarter principally due to a reduction in business in the southeast region.
The commercial jet engines and parts segment contributed $16,326,905$38,536 of revenues in the quarter ended June 30,December 31, 2019 compared to $27,320,175$20,990 in the comparable prior year quarter which is a decreasean increase of $(10,993,270)$17,546 or (40)%84%. The decrease isincrease was primarily attributable to the fact that Contrail had record salesdriven by Contrail's sale of four engines during the prior year comparable quarter that did not recur7 assets in the current yearquarter, compared to 2 assets sold in prior comparable quarter.
Revenues from the printing equipment and maintenance segment declined $(234,553) (78)% compared to the comparable prior quarter due to Delphax bankruptcy and dissolution as mentioned in Footnote 13.
Following is a table detailing operating income (loss) by segment during the three months ended June 30,December 31, 2019 compared to the same quarter in the prior fiscal year:year (in thousands):
| | | Three Months Ended June 30, 2019 | | Change | | Three Months Ended December 31, 2019 | | | Change | |
| 2019 | | 2018 | | | | | | 2019 | | 2018 | | |
Overnight Air Cargo | $ | 17,476 |
| | $ | 1,056,692 |
| | $ | (1,039,216 | ) | | -98 | % | Overnight Air Cargo | $ | 638 | | | $ | 73 | | | $ | 565 | | | 774 | % |
Ground Equipment Sales | 1,347,378 |
| | 393,079 |
| | $ | 954,299 |
| | 243 | % | Ground Equipment Sales | 1,644 | | | 1,175 | | | 469 | | | 40 | % |
Ground Support Services | 213,081 |
| | (87,303 | ) | | $ | 300,384 |
| | n/m |
| |
| Commercial Jet Engines and Parts | 1,887,894 |
| | 3,213,180 |
| | $ | (1,325,286 | ) | | -41 | % | Commercial Jet Engines and Parts | 3,440 | | | 2,449 | | | 991 | | | 40 | % |
Printing Equipment and Maintenance | (382,183 | ) | | (241,070 | ) | | $ | (141,113 | ) | | 59 | % | Printing Equipment and Maintenance | (425) | | | (353) | | | (72) | | | (20) | % |
Corporate and other | (1,871,947 | ) | | (1,730,876 | ) | | $ | (141,071 | ) | | 8 | % | Corporate and other | (1,577) | | | (1,479) | | | (98) | | | (7) | % |
| $ | 1,211,699 |
| | $ | 2,603,702 |
| | $ | (1,392,003 | ) | | (53 | )% | | $ | 3,720 | | | $ | 1,865 | | | $ | 1,855 | | | 99 | % |
Consolidated operating income for the quarter ended June 30,December 31, 2019 was $1,211,699, a decrease$3,720, an increase of $(1,392,003)$1,855 from the operating income of $2,603,702 for$1,865 in the comparable quarter of the prior year.
Operating income forfrom the air cargo segment decreasedincreased by $(1,039,216) (-98%$565 (774%) due primarilycompared to additional pilot incentives and bonus expenses as a resultthe third quarter of the nationwide pilot shortage.prior fiscal year. The increase was principally attributable to margins improved by flight operations being fully staffed during peak, therefore paying out less bonuses and incentives than prior year comparable quarter.
The ground equipment sales segment operating income increased by $954,299 (243%$469 (40%) to $1,347,378.$1,644. This increase was primarily attributable to the increasedfact that sales volume of military and commercial deicers.
The operating income forin the ground support services segment increased by $300,384 to $213,081 for the current-yearcurrent quarter contained higher margin orders when compared to an operating loss of $(87,303) in the prior-yearprior quarter due to operational improvements across the organization.sales that included broader product mix with lower margin orders.
Operating results of theThe commercial jet engines and parts segment decreased togenerated an operating income of $1,887,894$3,440 in the current-year quarter compared to an operating income of $3,213,180$2,449 in the prior-year quarter. The change was primarily attributabledue to decreasedincreased sales at Contrail, as explained above,partially offset by higher operating costs in addition to a full quarter ofthe segment.
Consolidated operating expenses at Worthingtonincreased by $15,959 or 30% to $69,580 in the current year quarter (Worthington was acquired in May 2018).
quarter. The operating loss in the printing equipment and maintenance segment declined to $(382,183) in the current-year quarter from $(241,070) in the prior-year quarter primarily attributable to expenses associated with the bankruptcy of Delphax Canada.
Overall, operating expenses decreased by $3,770,931 (6%) to $54,492,836 in the current year quarter compared to the equivalent prior year period. The decreaseincrease in operating expenses was primarily driven by the commercial jet engines and parts segment, which experiencedsegment. The higher operating expenses was a decrease of $(11,835,349) (-59%) principally due to the decreased operating costs as adirect result of decreasedincreased sales at Contrail.in this segment.
Following is a table detailing non-operating income (loss) during the three months ended June 30,December 31, 2019 compared to the same quarter in the prior fiscal year:year (in thousands):
|
| | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2019 | | 2018 | |
Gain on sale of marketable securities | $ | 36,460 |
| | $ | — |
| | $ | 36,460 |
| 100 | % |
Foreign currency gain (loss), net | 35,755 |
| | (2,182 | ) | | 37,937 |
| n/m |
|
Other-than-temporary impairment loss on investments | (814,558 | ) | | — |
| | (814,558 | ) | (100 | )% |
Other investment income (loss), net | 162,957 |
| | (315,507 | ) | | 478,464 |
| n/m |
|
Interest expense and other | (1,023,622 | ) | | (707,199 | ) | | (316,423 | ) | (45 | )% |
Unrealized gain on interest rate swap | — |
| | 97,337 |
| | (97,337 | ) | (100 | )% |
Gain on settlement of bankruptcy | 4,509,302 |
| | — |
| | 4,509,302 |
| 100 | % |
Bargain purchase acquisition gain | 34,244 |
| | 1,983,777 |
| | (1,949,533 | ) | (98 | )% |
Income (loss) from equity method investments | (320,578 | ) | | 9,183 |
| | (329,761 | ) | n/m |
|
| $ | 2,619,960 |
| | $ | 1,065,409 |
| | $ | 1,554,551 |
| 146 | % |
| | | | | | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Change |
| 2019 | | 2018 | | |
Other-than-temporary impairment loss on investments | $ | (1,095) | | | $ | (2,000) | | | $ | 905 | |
Interest expense | (1,227) | | | (1,186) | | | (41) | |
Gain on settlement of bankruptcy | — | | | — | | | — | |
Bargain purchase acquisition gain | — | | | — | | | — | |
Income (Loss) from equity method investments | (282) | | | 201 | | | (483) | |
Other | 81 | | | (623) | | | 704 | |
| $ | (2,523) | | | $ | (3,608) | | | $ | 1,085 | |
| | | | | |
The Company had net non-operating incomeloss of $2,619,960$(2,523) for the quarter ended June 30,December 31, 2019, an increase of $1,554,551 (146%)$1,085 from $1,065,409a non-operating loss of $(3,608) in the prior-year quarter, principally due to a gain on liquidation of entities of $4,509,302, offsetquarter. This was primarily driven by the fact that the Company incurred an impairment loss in the investment of Insignia of $(814,558) and a decrease$1,095 in bargain purchase gaincurrent quarter, compared to an impairment loss of $(1,949,533). The gain on liquidation of entities was attributed to the extinguishment of Delphax Canada and UK. The bargain purchase gain$2,000 in the current year quarter was attributable to AirCo 2 and was minimalinvestment of reinsurance contracts in comparison to the bargain purchase gain recognized in prior year quarter on the acquisition of Worthington.comparable quarter.
Pretax income from continuing operations for the three-month period ended June 30,December 31, 2019 was $3,831,659 an increase$1,197 compared to pretax loss of $162,548 compared to$(1,743) in the prior year comparable period, which was primarily attributable to the increase in non-operating income of $1,554,551, offset by decrease in operating income of $1,392,003$1,855 and decrease in non-operating loss of $1,085 as explained above.
During the three monthsthree-month period ended JuneSeptember 30, 2019, the Company recorded $324,000$616 in income tax benefitexpense at an effective rate of (8.46)%51.46%. The Company records income taxes using an estimated annual effectivea discrete, year-to-date tax rateexpense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the three monthsthree-month period ended June 30,December 31, 2019 were the change in valuation allowance related to Delphax, the estimated benefitexpense for the exclusion of incomeloss for the Company's captive insurance company subsidiary under Section 831(b), the liquidation of Delphax UK and Delphax Canada as mentioned in Footnote 13estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three monthsmonth period ended June 30,December 31, 2018, the Company recorded $387,000$198 in income tax expense which resulted in an effective tax rate of 10.50%(11.36)%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the threethree-month period ended December 31, 2018 were the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense.
First Nine Months of Fiscal 2019 Compared to First Nine Months of Fiscal 2018
Following is a table detailing revenue by segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended December 31, | | | | Change | |
| | 2019 | | 2018 | | 9 mos | |
| | | | | | | |
Overnight Air Cargo | | $ | 56,771 | | | $ | 52,573 | | | $ | 4,198 | | 8 | % |
Ground Equipment Sales | | 40,939 | | | 35,502 | | | 5,437 | | 15 | % |
Printing Equipment and Maintenance | | 396 | | | 544 | | | (148) | | (27) | % |
Commercial Jet Engines and Parts | | 72,665 | | | 58,953 | | | 13,712 | | 23 | % |
Corporate | | 410 | | | 601 | | | (191) | | (32) | % |
| | $ | 171,181 | | | $ | 148,173 | | | $ | 23,008 | | 16 | % |
Revenues from the air cargo segment increased by $4,198 or 8% compared to the nine months ended June 30,December 31, 2018. The increase was principally attributable to an increase in maintenance pass-through costs, freight and sales from customers outside of FedEx.
The ground equipment sales segment contributed approximately $40,939 and $35,502 to the Company’s revenues during the nine months ended December 31, 2019 and 2018 respectively, representing a $5,437 or 15% increase in the current period. The increase was due to increased orders of commercial and military deicers in addition to new customers.
The commercial jet engines and parts segment contributed $72,665 of revenues in the nine months ended December 31, 2019 compared to $58,953 in the comparable prior year nine months. The increase was primarily driven by Contrail's sale of 8 assets in the nine-month period ended December 31, 2019 in addition to higher component sales and lease revenues.
Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2019 compared to the same nine months in the prior fiscal year (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended December 31, | | | | Change | |
| | 2019 | | 2018 | | 9 mos | |
| | | | | | | |
Overnight Air Cargo | | $ | 909 | | | $ | 1,328 | | | $ | (419) | | (32) | % |
Ground Equipment Sales | | 4,213 | | | 2,264 | | | 1,949 | | 86 | % |
Printing Equipment and Maintenance | | (1,107) | | | (1,007) | | | (100) | | (10) | % |
Commercial Jet Engines and Parts | | 6,411 | | | 6,237 | | | 174 | | 3 | % |
Corporate | | (5,241) | | | (5,145) | | | (96) | | (2) | % |
| | $ | 5,185 | | | $ | 3,677 | | | $ | 1,508 | | 41 | % |
Consolidated operating income for the nine months ended December 31, 2019 was $5,185, an increase of $1,508 from operating income of $3,677 for the comparable nine months of the prior year.
Operating income for the air cargo segment decreased by $419 (32)% due primarily to lower maintenance margin from FedEx direct labor maintenance and higher overhead expenses, offset by higher margin on revenues from customers outside of FedEx.
The ground equipment sales segment operating income increased by $1,949 (86%) to $4,213 in the nine-month period ended December 31, 2019. This increase was primarily attributable to increased sales volume as well as higher margin product mix.
Consolidated operating expenses increased by $21,500 or 15% to $165,996 in the nine months ended December 31, 2019. The increase in operating expenses was primarily driven by the increases in the commercial jet engines and parts segment activity as a result of increased sales at Contrail compared to the prior year period.
Following is a table detailing non-operating income (loss) during the nine months ended December 31, 2019 compared to the same nine months in the prior fiscal year (in thousands):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended December 31, | | | | Change |
| 2019 | | 2018 | | 9 months |
Other-than-temporary impairment loss on investments | $ | (2,305) | | | $ | (2,000) | | | $ | (305) | |
Interest expense | (4,298) | | | (2,608) | | | (1,690) | |
Gain on settlement of bankruptcy | 4,527 | | | — | | | 4,527 | |
Bargain purchase acquisition gain | 49 | | | 1,984 | | | (1,935) | |
Income (Loss) from equity method investments | (636) | | | 371 | | | (1,007) | |
Other | (124) | | | (489) | | | 365 | |
| $ | (2,787) | | | $ | (2,742) | | | $ | (45) | |
| | | | | |
The Company had net non-operating loss of $(2,787) for the nine months ended December 31, 2019, an increase of $(45) from net non-operating loss of $(2,742) in the prior-year nine-month period, principally due to an increase in year-to-date impairment loss of $(305), an increase in interest expense of $(1,690) generated by increased debt activities as detailed in Footnote 10, a decrease in bargain purchase acquisition gain of $(1,935) offset by the $4,527 gain on settlement of bankruptcy related to Dephax Canada and UK. Pretax income from continuing operations for the nine-month period ended December 31, 2019 was $2,398 compared to $935 in the prior year comparable period, which was primarily attributable to the increase in operating income of $1,508 as explained above.
During the nine-month period ended December 31, 2019, the Company recorded $52 in income tax benefit at an effective rate of 2.17%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the nine-month period ended December 31, 2018, the Company recorded $241 in income tax expense which resulted in an effective tax rate of 25.78%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended December 31, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the Worthington bargain purchase gain and state income tax expense.gain.
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are fully described in Note 1 to the consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-monthsthree months ended June 30,December 31, 2019.
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 are not susceptible to material seasonal trends.
Liquidity and Capital Resources
As of June 30,December 31, 2019, the Company held approximately $16,265,605$21,605 in cash and cash equivalents and restricted cash. The Company also held $796,958$1,008 in restricted investments held as statutory reserve of SAIC and the remaining $68,979$69 of restricted investments pledged to secure SAIC’s participation in certain reinsurance pools. In addition, the Company also had $10,000 of restricted cash collateralized for the Opportunity Zone Funds. The Company has approximately $5,753,832$3,880 of marketable securities as of June 30,December 31, 2019.
As of June 30,December 31, 2019, the Company’s working capital amounted to $28,524,843,$40,841, an increase of $9,970,740$22,287 compared to June 30, 2018.March 31, 2019.
OnAs of December 31, 2019, the exercise of Warrants to purchase TruPs issued on June 10, 2019 has generated cash proceeds of $6,041, which is disclosed in the financing section on our consolidated statements of cash flows.
On October 30, 2019, Contrail entered into Supplement #5 to Master Loan Agreement with Old National Bank (“Supplement #5”). In connection therewith, Contrail entered into the Promissory Note Term Note C in the principal amount of $7,553 to ONB (“Term Note D”). The Term Note D has a maturity date of October 30, 2021, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth. Term Note D was fully paid off in the current quarter.
On December 19, 2019, Contrail entered into Supplement #6 to that certain Master Loan Agreement with Old National Bank. In connection therewith, Contrail entered into that certain Promissory Note Term Note E in the principal amount of $6,895 to ONB. The Term Note E has a maturity date of December 1, 2022, with a variable interest rate equal to the LIBOR rate plus 3.75% per year. There are additional affirmative covenants regarding quarterly cash flow coverage and tangible net worth.
On December 31, 2019, the Company issued and distributedMinnesota Bank & Trust, a Minnesota state banking corporation, entered into Amendment No. 2 to existing common shareholders an aggregatethat certain Amended and Restated Credit Agreement. In connection with the Second Amendment, the Company entered into that certain Supplemental Revolving Credit Note in the principal amount of 1,600,000 trust preferred capital$10,000 to MBT. The Note has a maturity date of June 30, 2020, with a fluctuating annual rate of interest equal to the greater of (a) the sum of (i) the LIBOR Rate, and as the same may adjust monthly, plus (ii) 1.25%; or (b) 3.00%; provided, that, upon the occurrence and during the continuance of any Event of Default as defined therein, the rate of interest hereunder shall be increased by 3.00% above the rate of interest that would otherwise be in effect thereunder. The loan is secured by a pledge of a continuing security ("TruPs") shares (aggregate $4,000,000 stated value)interest in the demand deposit cash collateral accounts of Air T OZ 1, LLC, Air T OZ 2, LLC, and an aggregateAir T OZ 3, LLC, each a Minnesota limited liability company and a subsidiary of 8,400,000 warrants ("Warrants") (representing warrants to purchase $21,000,000 in stated value of TruPs). If all of the Warrants are exercised, this will provide the Company, with approximately $20 million inan aggregate account cash proceeds,balance of $10,000,000 under the sole control by MBT. Twelve of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT.
The Company's condensed consolidated financial statements as of December 31, 2019 have been prepared assuming that the Company will continue its operations as a going concern. The Company believes cash on hand, net cash provided by operations, together with a totalits current revolving lines of $25 million (stated value) in TruPs outstanding. Management believes thiscredit, as amended or replaced, will be sufficient to create a liquid marketmeet its obligations as they become due in the TruPs, which in turn should provideordinary course of business for at least 12 months following the Trust better capabilitydate these financial statements are issued. However, this evaluation assumes continued positive cash flows and the ability to issue more TruPs in a later cash offering directly to market if needed. The purposeextend the maturity of or refinance the trust preferred transaction is to raise long-term capital (30-year debenture term), to fund growth through M&A and growth capital in the Company's portfolio companies.
The revolving lines of credit at both Air T and Contrail have due dates or expire withinAirCo revolvers ("revolvers") maturing February 28, 2020. Based on our discussions to date with MBT, as well as our history of refinancing with MBT and the next twelve months, as does some term debts within various business units. We are currently seekingreceipt of written confirmation from MBT indicating their intention to refinance or extend the maturities of these obligations prior torevolvers, at substantially the expiration dates; however, there is no assurance that we will be able to execute this refinancing or extension or, if we are ablesame terms, with maturity dates extending beyond February 28, 2021, the Company believes the plan to refinance or extend these obligations, that the termsrevolvers is probable of such refinancing or extension would be as favorable as the terms of our existing credit facility.occurring.
Cash flows from operations, cash and cash equivalents, and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash requirements.
The Company’s Credit Agreement with MBT (the Air T debt in footnote 12Footnote 10 to the financial statements) includes several covenants that are measured once a year as of March 31, 2020, including but not limited to a negative covenant requiring a debt service coverage ratio of 1.25. The Company is working with its operating subsidiaries to assure compliance with the MBT covenants at March 31, 2020. However, there is no assurance that the Company will meet each covenant at March 31, 2020 and in such event the Company will work with MBT to seek a waiver and/or undertake other actions to avoid an event of non-compliance.
Cash Flows
Following is a table of changes in cash flow for the threesix months ended June 30,December 31, 2019 and 2018:2018 (in thousands):
|
| | | | | | | |
| Three Months Ended June 30, |
| 2019 | | 2018 |
| | | |
Net Cash Provided by Operating Activities | 5,387,556 |
| | 14,716,934 |
|
Net Cash Used in Investing Activities | (3,780,514 | ) | | (6,716,648 | ) |
Net Cash Provided by/ (Used in) Financing Activities | 2,008,195 |
| | (7,309,902 | ) |
Effect of foreign currency exchange rates on cash and cash equivalents | 2,638 |
| | 2,072 |
|
| | | |
Net Increase/ (Decrease) in Cash and Cash Equivalents and Restricted Cash | $ | 3,617,875 |
| | $ | 692,456 |
|
| | | | | | | | | | | |
| Nine Months Ended December 31, | | |
| 2019 | | | 2018 |
| | | |
Net Cash (Used in) Provided by Operating Activities | (9,691) | | | 1,202 | |
Net Cash (Used in) Investing Activities | (7,398) | | | (22,746) | |
Net Cash Provided by Financing Activities | 26,164 | | | 19,922 | |
Effect of foreign currency exchange rates on cash and cash equivalents | (10) | | | 114 | |
| | | |
Net Increase in Cash and Cash Equivalents and Restricted Cash | 9,065 | | | (1,508) | |
Net cash provided byused in operating activities was $5,387,556$(9,691) for the three-monthnine-month period ended June 30,December 31, 2019 compared to the net cash provided by operating activities of $14,716,934$1,202 in prior year period. The primary driversdriver for the cash used in the decrease in cash provided by operating activities for the threenine months ended June 30,December 31, 2019 was the increase in inventory levels in the commercial jet engines and parts segment and a decrease in accrued liabilities.cash spent on purchasing inventories at Contrail.
Net cash used investing activities for the nine-month period ended December 31, 2019 was $(7,398) compared to net cash used in investing activities for the three-month period ended June 30, 2019 was $(3,780,514) compared to $(6,716,648)of $(22,746) in prior year period. The primary driver in the decrease of net cash used in investing activities for the three months ended June 30, 2019 was the $3,596,000 incash proceeds from the sale of GAS, offset by significant capital expenditures which included purchase of a $3,291,000 enginespent on assets on lease at Contrail.
Net cash provided by financing activities for the three-monthnine-month period ended June 30,December 31, 2019 was $2,008,195$26,164 compared to net cash used inprovided by financing activities of $(7,309,902)$19,922 in the prior year period. The cash provided by financing activitiesincrease was primarily driven by the
$7,304,000higher net cash proceeds onfrom lines of credit and $2,018,217 netterm loans, in addition to cash proceeds received from exercise of Warrants. These proceeds wereWarrants to purchase TruPs, offset by payments on the Company’s existing term loans of $7,026,000, cash used to repurchase common stockstock.
Off-Balance Sheet Arrangements
As of $126,000,December 31, 2019 and distributionMarch 31, 2019, we had no off-balance sheet arrangements that have or are reasonably likely to non-controlling memberhave a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of Contrail of $115,000 during the three-months ended June 30, 2019.operations, liquidity, capital expenditures or capital resources.
Impact of Inflation
The Company believes that inflation has not had a material effect on its operations, because increased costs to date have generally been passed on to its customers. Under the terms of its overnight air cargo business contracts the major cost components of this business’ operations, consist principally of fuel, and certain other direct operating costs, and certain maintenance costs that are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.
| |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
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 provides for the use of derivative instruments to provide protection against rising interest rates on variable rate debt.
| |
Item 4. | Controls and Procedures |
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,December 31, 2019. 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,December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 1A. Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2019 Form 10-K, which could materially impact our business, financial condition or future results. Risks disclosed in our 2019 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may materially adversely impact our business, financial condition or operating results. There have been no material changes to Part I, Item 1A. Risk Factors in our 2019 Form 10-K.
Item 2 2. Unregistered Sales of Equity Securities and Use of Proceeds
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(c) | 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. |
(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 (retrospectively adjusted to 1,125,000 after the stock split in June 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
Purchases during the quarter ended June 30,December 31, 2019 are described below:
Issuer Purchases of Equity Securities
On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50% stock dividend to shareholders of record as of June 4, 2019. As such, all share information have been retroactively adjusted to reflect the stock split.
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Dates of Shares Purchased | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Public Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
October 1 - October 31, 2019 | | 1,905 | | | $ | 19.28 | | | 34,323 | | | 1,077,929 | |
November 1 - November 30, 2019 | | 108,241 | | | $ | 19.59 | | | 142,564 | | | 969,688 | |
December 1 - December 31, 2019 | | — | | | | | | 142,564 | | | 969,688 | |
| | 110,146 | | | | | | | |
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Dates of Shares Purchased | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Public Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
April 1 - April 30, 2019 | | 1,932 |
| | $ | 28.73 |
| | 24,584 |
| | 725,416 |
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May 1 - May 30, 2019 | | 913 |
| | $ | 27.13 |
| | 25,497 |
| | 724,503 |
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June 1 - June 30, 2019 | | 14,579 |
| | $ | 16.50 |
| | 40,076 |
| | 709,924 |
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Item 6. Exhibits
(a) Exhibits
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No. | Description |
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No.10.1 | Description
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10.2 |
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31.1 | |
10.3 |
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10.4 |
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10.5 |
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10.6 | Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, and Old National Bank, incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K dated November 5, 2019 (Commission File No. 001-35476). Support, LLC, and Old National Bank, incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K dated November 5, 2019 (Commission File No. 001-35476).
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10.7 | |
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10.8 |
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10.9 |
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10.10 |
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10.11 |
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10.12 |
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10.13 |
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10.14 |
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10.15 |
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10.16 |
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10.17 |
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10.18 |
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10.19 |
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10.20 |
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10.21 |
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10.22 |
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10.23 |
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10.24 | |
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10.25 |
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10.26 | |
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10.27 | |
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10.28 |
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10.29 | |
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10.30 | |
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10.31 | |
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10.32 | |
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10.33 | |
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10.34 | |
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10.35 | |
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10.36 | |
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10.37 | |
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10.38 | Form of Aircraft Security Agreement, dated December 19, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, Contrail Aviation Leasing Ireland DAC, CRO No. 662616, and Old National Bank, incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated December 26, 2019 (Commission File No. 001-35476). |
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10.39 | |
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10.40 | |
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10.41 | |
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10.42 | |
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10.43 | |
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10.44 | |
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10.45 | |
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10.46 | |
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10.47 | |
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10.48 | Form of Acknowledgement and Agreement of AirCo, LLC, CSA Air, LLC, Global Ground Support, Inc., Jet Yard, LLC, Mountain Air Cargo, Inc., Stratus Aero Partners, LLC, Air T Global Leasing, LLC, AirCo Services, LLC, Space Age Insurance Company, Worthington Acquisition, LLC, Worthington Aviation, LLC and Worthington MRO, LLC, dated December 31, 2019 in favor of Minnesota Bank & Trust, incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K dated January 7, 2020 (Commission File No. 001-35476). |
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31.1 | |
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31.2 | |
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32.1 | |
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101 | The following financial information from the Quarterly Report on Form 10-Q for the quarter ended June 30,December 31, 2019, 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 transaction exhibits have been omitted for confidential treatment.
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.
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| AIR T, INC. | |
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| AIR T, INC. | |
Date: February 13, 2020 | | |
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Date: August 14, 2019 | | |
| /s/ Nick Swenson | |
| Nick Swenson, Chief Executive Officer and Director | |
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| /s/ Brian Ochocki | |
| Brian Ochocki, Chief Financial Officer | |
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