NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2020. The results of operations for the period ended September 30, 2020 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 six months ended September 30, 2020 and 2019. Refer to Footnote 3 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Liquidity
Contrail Aviation Support, LLC ("Contrail") is a subsidiary of the Company in the Commercial Jet Engines and Parts segment. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth of $15 million.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.
In addition, the Third Amendment adds an event of default to the Master Loan Agreement if Contrail does not consummate an approximate $43.6 million loan transaction under the Main Street Priority Loan Facility Program established by the U.S. Federal Reserve ("Fed") by December 31, 2020. As of the issuance date of this report, the loan transaction has been finalized with ONB, however, the financing is in escrow pending final approval from the Fed. As the Fed's approval has not yet been granted as of the issuance date of this report, no assurance can be given at this time that this financing will be completed and funded.
The obligations of Contrail under the Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders. If Contrail were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given the maximum guarantee of Contrail’s obligations of $1.6 million, plus costs of collection.
AirCo 1, LLC ("AirCo 1") is a wholly-owned subsidiary of AirCo, LLC, which is a wholly-owned subsidiary of Stratus Aero Partners LLC, which is a wholly-owned subsidiary of the Company in the Commercial Jet Engines and Parts segment. The revolving lines of credit at both Air T and AirCo 1 with Minnesota Bank & Trust ("MBT") have a due date or expire within the next twelve months. We are currently seeking to refinance these obligations prior to August 31, 2021; however, there is no assurance that we will be able to
execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.
With respect to alternative financing, AirCo 1 also intends to access debt financing under the Main Street Priority Loan Facility Program, established by the Federal Reserve in response to economic uncertainty caused by the COVID-19 pandemic. Main Street loans are intended to provide additional credit to companies that were in sound condition prior to the onset of the COVID-19 pandemic. While AirCo 1 believes that they qualify under the criteria set forth under the Main Street Priority Loan Facility Program, there is no assurance that AirCo 1 will obtain funding under the Main Street Priority Loan Facility Program or if such credit is obtained that it would be sufficient.
The obligation of AirCo 1 under the AirCo 1 Credit Agreement with MBT is not guaranteed by the Company. The Company is not liable for any other assets or liabilities of AirCo 1 and there are no cross-default provisions with respect to AirCo 1’s debt in any of the Company’s debt agreements with MBT. If AirCo 1 were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given that AirCo 1's obligation is not guaranteed by the Company.
In April 2020, the Company obtained loans under the PPP, as authorized by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. The Company will apply to MBT for forgiveness of the PPP Loan, however, forgiveness is not fully assured. The Company believes it is probable that the cash on hand (including that obtained from the PPP), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.
COVID-19 Pandemic
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. Even though the Company undertook measures to attempt to limit the effect of the pandemic and its impact on the Company, the Company continued to experience a decrease in revenues during the second fiscal quarter and the month of October. The extent to which the COVID-19 pandemic continues to impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
Financial Instruments Designated for Trading
Except for short sales of equity securities, the Company accounts for all other financial instruments (including derivative instruments) designated for trading in accordance with ASC 815. All changes in the fair value of the financial instruments designed for trading are recognized in earnings as they occur. Further, all gains and losses on derivative instruments designated for trading are presented net on the condensed consolidated Statements of Income (Loss). The fair value of derivative instruments designated for trading in a gain position are recorded in Other Current Assets and the fair value of derivative instruments designed for trading in a loss position are recorded in Accrued Expenses and Other on the condensed consolidated Balance Sheets.
The Company accounts for short sales of equity securities in accordance with ASC 942 and ASC 860. The obligations incurred in short sales are reported in Accrued Expenses and Other on the condensed consolidated Balance Sheets. They are subsequently measured at fair value through the income statement at each reporting date with gains and losses on securities. Interest on the short positions are accrued periodically and reported as interest expense. The market value of the Company’s equity securities and cash held by the broker are used as collateral against any outstanding margin account borrowings for purposes of short selling equities. This collateral is recorded in Other Current Assets on the condensed consolidated Balance Sheets.
The Company reports all cash receipts and payments resulting from the purchases and sales of securities, loans, and other assets that are acquired specifically for resale as operating cash flows.
Recently Adopted 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. The Company adopted this standard on April 1, 2020. As of September 30, 2020, the standard did not have a material impact on the Company's condensed 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 Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.
In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.
In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes of the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company early adopted this amendment as of April 1, 2020. The amendment resulted in an immaterial impact to its condensed consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. 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 condensed consolidated financial statements and disclosures.
In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Further, in accordance with the amendments in this Update, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
2. Revenue Recognition
Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less, as a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
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Type of Revenue
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Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
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Product Sales
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The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, printing equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation.
The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue.
The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
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Support Services
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The Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
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In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.
The following table summarizes disaggregated revenues by type (in thousands):
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Three Months Ended September 30,
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Six Months Ended September 30,
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2020
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2019
|
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2020
|
|
2019
|
|
Product Sales
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|
|
|
|
|
|
|
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Air Cargo
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$
|
5,728
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|
|
$
|
6,680
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|
|
$
|
10,043
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|
|
$
|
12,094
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|
|
Ground equipment sales
|
11,833
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|
|
12,489
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|
|
27,571
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|
|
24,492
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|
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Commercial jet engines and parts
|
4,283
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|
|
13,218
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|
|
6,979
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|
|
24,388
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|
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Corporate and other
|
—
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|
20
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|
|
33
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|
|
68
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|
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Support Services
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|
|
|
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Air Cargo
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11,558
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|
|
13,033
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|
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23,408
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|
|
25,927
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Ground equipment sales
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67
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|
|
105
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|
|
84
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|
|
210
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Commercial jet engines and parts
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956
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|
|
1,597
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|
|
2,580
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|
|
3,007
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Corporate and other
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6
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|
|
217
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|
|
24
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|
|
269
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|
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Leasing Revenue
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|
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|
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Air Cargo
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—
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|
|
—
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|
|
—
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|
|
—
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Ground equipment sales
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23
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|
|
33
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|
|
71
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|
|
53
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Commercial jet engines and parts
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791
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2,941
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|
|
1,164
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|
|
6,655
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Corporate and other
|
107
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|
|
36
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|
|
142
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|
|
81
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Other
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Air Cargo
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9
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|
|
32
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|
|
15
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|
|
43
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Ground equipment sales
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137
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|
|
114
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|
|
162
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|
|
236
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Commercial jet engines and parts
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84
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|
|
45
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|
|
85
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|
|
78
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Corporate and other
|
22
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|
|
133
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|
|
215
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|
|
280
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Total
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$
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35,604
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|
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$
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50,693
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|
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$
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72,576
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|
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$
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97,881
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See Note 12 for the Company's disaggregated revenues by geographic region and Note 13 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs
Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2020 and September 30, 2020 and the amount of contract liabilities that were recognized as revenue during the six-month period ended September 30, 2020 (in thousands):
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Outstanding contract liabilities
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Outstanding contract liabilities as of April 1, 2020
Recognized as Revenue
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As of September 30, 2020
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$
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1,480
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As of April 1, 2020
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1,853
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For the six months ended September 30, 2020
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619
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3. Discontinued Operations
On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement included a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics were achieved by March 31, 2020. Those metrics were not achieved per the final settlement statement received during the three-months ended September 30, 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 $10.8 million with tax impact of $2.4 million for a net of tax gain of $8.4 million in the second quarter of 2019.
Summarized results of operations of GAS for the three and six months ended September 30, 2020 and 2019 through the date of disposition are as follows (in thousands):
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|
|
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Three Months Ended September 30,
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Six Months Ended September 30,
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2020
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2019
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2020
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2019
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Net sales
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$
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—
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$
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8,120
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$
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—
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$
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16,637
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Operating Income (Expense)
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4
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(9,015)
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4
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(17,319)
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Gain/(Loss) from discontinued operations before income taxes
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4
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(895)
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4
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(682)
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Income tax expense (benefit)
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—
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(660)
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—
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(612)
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Gain/(Loss) from discontinued operations, net of tax
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$
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4
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$
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(235)
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$
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4
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$
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(70)
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4. Accrued Expenses
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(in thousands)
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September 30, 2020
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March 31, 2020
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Salaries, wages and related items
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$
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4,804
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$
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3,616
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Profit sharing and bonus
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2,447
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|
3,349
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Other
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5,043
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6,059
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Total
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$
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12,294
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|
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$
|
13,024
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5. Income Taxes
During the three-month period ended September 30, 2020, the Company recorded $1.5 million in income tax benefit at an effective tax rate ("ETR") of 31.5%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three-month period ended September 30, 2019, the Company recorded $0.3 million in income tax benefit at an ETR of 12.2%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income 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 six-month period ended September 30, 2020, the Company recorded $1.8 million in income tax benefit at an ETR of 30.0%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2019, the Company recorded $0.7 million in income tax benefit which resulted in an effective tax rate of (55.6)%. 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 September 30, 2019 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income 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.
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. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
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|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net (loss) income from continuing operations
|
$
|
(3,357)
|
|
|
$
|
(2,122)
|
|
|
$
|
(4,314)
|
|
|
$
|
1,868
|
|
|
Net loss (income) from continuing operations attributable to non-controlling interests
|
433
|
|
|
(287)
|
|
|
549
|
|
|
(2,660)
|
|
|
Net loss from continuing operations attributable to Air T, Inc. Stockholders
|
(2,924)
|
|
|
(2,409)
|
|
|
(3,765)
|
|
|
(792)
|
|
|
Loss from continuing operations per share:
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|
|
|
|
|
|
|
|
Basic
|
$
|
(1.01)
|
|
|
$
|
(0.80)
|
|
|
$
|
(1.31)
|
|
|
$
|
(0.30)
|
|
|
Diluted
|
$
|
(1.01)
|
|
|
$
|
(0.80)
|
|
|
$
|
(1.31)
|
|
|
$
|
(0.30)
|
|
|
Antidilutive shares excluded from computation of loss per share from continuing operations
|
5
|
|
|
4
|
|
|
5
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
(235)
|
|
|
—
|
|
|
(70)
|
|
|
Gain on sale of discontinued operations, net of tax
|
4
|
|
|
8,359
|
|
|
4
|
|
|
8,359
|
|
|
Income from discontinued operations attributable to Air T, Inc. stockholders
|
4
|
|
|
8,124
|
|
|
4
|
|
|
8,289
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
2.69
|
|
|
$
|
—
|
|
|
$
|
3.14
|
|
|
Diluted
|
$
|
—
|
|
|
$
|
2.68
|
|
|
$
|
—
|
|
|
$
|
3.13
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(1.01)
|
|
|
$
|
1.89
|
|
|
$
|
(1.31)
|
|
|
$
|
2.84
|
|
|
Diluted
|
$
|
(1.01)
|
|
|
$
|
1.88
|
|
|
$
|
(1.31)
|
|
|
$
|
2.83
|
|
|
Antidilutive shares excluded from computation of loss per share
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
2,882
|
|
|
3,025
|
|
|
2,882
|
|
|
2,641
|
|
|
Diluted
|
2,882
|
|
|
3,029
|
|
|
2,882
|
|
|
2,645
|
|
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 stockholders 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 September 30, 2020 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the condensed consolidated Balance Sheets, and in all share data in the condensed consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
7. Investments in Securities and Derivative Instruments
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028. As of August 1, 2018, these swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedged transaction affects earnings. The interest rate swaps are considered Level 2 fair value measurements. As of September 30, 2020 and March 31, 2020, the fair value of the interest-rate swap contracts was a liability of $0.9 million, which is included within other non-current liabilities in the condensed consolidated balance sheets. During the three and six months ended September 30, 2020, the Company recorded a gain of approximately $55.0 thousand and $29.0 thousand, net of tax, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three months ended September 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $0.4 million and a gross loss aggregating to $0.1 million. During the six months ended September 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $0.7 million and a gross loss aggregating to $0.1 million.
The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of September 30, 2020 and March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
March 31, 2020
|
|
Assets:
|
|
|
|
Exchange-traded options & futures
|
|
|
|
Other current assets
|
$
|
100
|
|
$
|
6
|
|
|
Total assets
|
100
|
|
6
|
|
|
Liabilities:
|
|
|
|
Exchange-traded options & futures
|
|
|
|
Accrued Expenses and other
|
71
|
|
36
|
|
|
Total liabilities
|
$
|
71
|
|
$
|
36
|
|
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets. During the three months ended September 30, 2020, the Company had a gross unrealized gain aggregating to $0.1 million and a gross unrealized loss aggregating to $0.3 million. During the six months ended September 30, 2020, the Company had a gross unrealized gain aggregating to $0.7 million and a gross unrealized loss aggregating to $0.7 million. These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated Statement of Income.
The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2020 and 2019, the Company had outstanding borrowings of $0.6 million and $18.1 thousand under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets. As of September 30, 2020 and 2019, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $0.7 million and $0.2 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets. The interest rate on margin account borrowings was 5.5% as of September 30, 2020.
8. Equity Method Investments
The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of September 30, 2020, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 29% of the outstanding shares. The Company recorded approximately $0.5 million and $0.8 million as its share of Insignia’s net loss for the three and six months ended June 30, 2020 along with a basis difference adjustment of approximately $24.0 thousand and $48.0 thousand, respectively. The Company's net investment basis in Insignia is $0.5 million as of September 30, 2020.
On November 8, 2019, the Company made an investment of $2.8 million to purchase a 19.90% ownership stake in Cadillac Casting, Inc. ("CCI"), subsequently reduced to a 18.98% ownership stake as of September 30, 2020. The Company accounts for this investment under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $0.3 million. The Company recorded a loss of $30.4 thousand and $0.3 million as its share of CCI's net loss for the three and six months ended June 30, 2020, along with a basis difference adjustment of $12.5 thousand and $24.9 thousand, respectively. The Company's net investment basis in CCI is $2.9 million as of September 30, 2020.
Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2020
|
|
June 30, 2019
|
|
June 30, 2020
|
|
June 30, 2019
|
|
Revenue
|
$
|
12,138
|
|
|
$
|
29,885
|
|
|
$
|
34,074
|
|
|
$
|
60,222
|
|
|
Gross Profit
|
1,161
|
|
|
2,558
|
|
|
1,966
|
|
|
3,617
|
|
|
Operating loss
|
(1,814)
|
|
|
(1,045)
|
|
|
(4,192)
|
|
|
(3,371)
|
|
|
Net loss
|
(1,925)
|
|
|
(1,122)
|
|
|
(4,211)
|
|
|
(3,971)
|
|
|
Net loss attributable to Air T, Inc. stockholders
|
$
|
(542)
|
|
|
$
|
(166)
|
|
|
$
|
(1,112)
|
|
|
$
|
(488)
|
|
9. Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
March 31,
2020
|
|
Ground equipment manufacturing:
|
|
|
|
|
Raw materials
|
$
|
5,628
|
|
|
$
|
4,192
|
|
|
Work in process
|
3,933
|
|
|
2,731
|
|
|
Finished goods
|
3,007
|
|
|
1,725
|
|
|
Corporate and Other:
|
|
|
|
|
Raw materials
|
565
|
|
|
464
|
|
|
Finished goods
|
891
|
|
|
910
|
|
|
Commercial jet engines and parts
|
57,811
|
|
|
51,084
|
|
|
Total inventories
|
$
|
71,835
|
|
|
$
|
61,106
|
|
|
Reserves
|
(870)
|
|
|
(483)
|
|
|
Total inventories, net of reserves
|
$
|
70,965
|
|
|
$
|
60,623
|
|
A write-down of $0.5 million was recorded on the inventories of the commercial jet engines and parts segment during the three months ended September 30, 2020 due to a management decision to monetize two engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds. As of September 30, 2020, included within total inventories was $9.5 million in remaining carrying values of these two engines which matches the estimated proceeds on sale.
10. Leases
The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.
The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the three and six months ended September 30, 2020 and 2019 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease cost
|
$
|
481
|
|
|
$
|
514
|
|
|
$
|
1,052
|
|
|
$
|
920
|
|
|
Short-term lease cost
|
139
|
|
|
50
|
|
|
201
|
|
|
255
|
|
|
Variable lease cost
|
216
|
|
|
71
|
|
|
291
|
|
|
207
|
|
|
Sublease income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total lease cost
|
$
|
836
|
|
|
$
|
635
|
|
|
$
|
1,544
|
|
|
$
|
1,382
|
|
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the quarter ended September 30, 2020 and March 31, 2020 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
March 31, 2020
|
|
Operating leases
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
8,097
|
|
$
|
8,116
|
|
|
Operating lease liabilities
|
|
8,722
|
|
8,647
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
13 years, 9 months
|
14 years, 4 months
|
|
Operating leases
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
4.4
|
%
|
4.5
|
%
|
|
Operating leases
|
|
|
|
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended September 30, 2020 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
2021 (excluding the six months ended September 30, 2020)
|
$
|
879
|
|
|
2022
|
1,619
|
|
|
2023
|
1,440
|
|
|
2024
|
1,071
|
|
|
2025
|
746
|
|
|
2026
|
537
|
|
|
Thereafter
|
5,850
|
|
|
Total undiscounted lease payments
|
$
|
12,142
|
|
|
Less: Interest
|
(2,877)
|
|
|
Less: Discount
|
(543)
|
|
|
Total lease liabilities
|
$
|
8,722
|
|
11. Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below (in thousands) at September 30, 2020 and March 31, 2020, respectively.
On April 10, 2020, the Company entered into a loan with MBT in a principal amount of $8.2 million pursuant to the PPP Loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan is evidenced by a promissory note (“Note”). The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT. The PPP Loan may be accelerated upon the occurrence of an event of default.
The PPP Loan is unsecured and guaranteed by the United States Small Business Administration. The Company will apply to MBT for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 10, 2020, calculated in accordance with the terms of the CARES Act. The PPP Loan bears interest at a fixed annual rate of one percent (1%). Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount. As of September 30, 2020, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with ONB. The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.
In addition, the Third Amendment adds an event of default to the Master Loan Agreement if Contrail does not consummate the $43.6 million loan transaction under the Main Street Priority Loan Facility Program established by the Fed by December 31, 2020. As of the issuance date of this report, the loan transaction has been finalized with ONB, however, the financing is in escrow pending final approval from the Fed. As the Fed's approval has not yet been granted as of the issuance date of this report, no assurance can be given at this time that this financing will be completed and funded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
September 30,
2020
|
|
March 31,
2020
|
|
Maturity Date
|
|
Interest Rate
|
|
Unused commitments
|
|
Air T Debt
|
|
|
|
|
|
|
|
|
|
|
Revolver - MB&T
|
$
|
942
|
|
|
$
|
—
|
|
|
August 31, 2021
|
|
Greater of 2.5% or Prime - 1%
|
|
$
|
16,058
|
|
|
Supplemental Revolver- MBT
|
—
|
|
|
9,550
|
|
|
June 30, 2020
|
|
Greater of 1-month LIBOR + 1.25% and 3%
|
|
|
|
Term Note A - MB&T
|
7,250
|
|
|
7,750
|
|
|
January 1, 2028
|
|
1-month LIBOR + 2%
|
|
|
|
Term Note B - MB&T
|
3,625
|
|
|
3,875
|
|
|
January 1, 2028
|
|
4.50%
|
|
|
|
Term Note D - MB&T
|
1,506
|
|
|
1,540
|
|
|
January 1, 2028
|
|
1-month LIBOR + 2%
|
|
|
|
Term Note E - MBT
|
8,451
|
|
|
—
|
|
|
June 25, 2025
|
|
Greater of LIBOR + 1.5% or 2.5%
|
|
|
|
Debt - Trust Preferred Securities
|
12,877
|
|
|
12,877
|
|
|
June 7, 2049
|
|
8.00%
|
|
|
|
PPP Loan
|
8,215
|
|
|
—
|
|
|
April 10, 2022
|
|
1.00%
|
|
|
|
Total
|
42,866
|
|
|
35,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AirCo 1 Debt
|
|
|
|
|
|
|
|
|
|
|
Revolver - MB&T
|
7,500
|
|
|
8,335
|
|
|
August 31, 2021
|
|
Greater of 6.50% or Prime + 2%
|
|
—
|
|
|
Total
|
7,500
|
|
|
8,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contrail Debt
|
|
|
|
|
|
|
|
|
|
|
Revolver - ONB
|
21,764
|
|
|
21,284
|
|
|
September 5, 2021
|
|
1-month LIBOR + 3.45%
|
|
18,236
|
|
|
Term Loan A - ONB
|
5,602
|
|
|
6,285
|
|
|
January 26, 2021
|
|
1-month LIBOR + 3.75%
|
|
|
|
Term Loan E - ONB
|
5,171
|
|
|
6,320
|
|
|
December 1, 2022
|
|
1-month LIBOR + 3.75%
|
|
|
|
Term Loan F - ONB
|
7,933
|
|
|
8,358
|
|
|
May 1, 2025
|
|
1-month LIBOR + 3.75%
|
|
|
|
Total
|
40,470
|
|
|
42,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delphax Solutions Debt
|
|
|
|
|
|
|
|
|
|
|
Canadian Emergency Business Account Loan
|
30
|
|
|
—
|
|
|
December 31, 2025
|
|
5.00%
|
|
|
|
Total
|
30
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
90,866
|
|
|
86,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized Debt Issuance Costs
|
(253)
|
|
|
(354)
|
|
|
|
|
|
|
|
|
Total Debt, net
|
$
|
90,613
|
|
|
$
|
85,820
|
|
|
|
|
|
|
|
At September 30, 2020, our contractual financing obligations, including payments due by period, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Due by
|
|
Amount
|
|
September 30, 2021
|
|
$
|
46,363
|
|
|
September 30, 2022
|
|
8,791
|
|
|
September 30, 2023
|
|
3,842
|
|
|
September 30, 2024
|
|
3,267
|
|
|
September 30, 2025
|
|
11,152
|
|
|
Thereafter
|
|
17,451
|
|
|
|
|
90,866
|
|
|
Less: Unamortized Debt Issuance Costs
|
|
(253)
|
|
|
|
|
$
|
90,613
|
|
On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:
•A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split). See Footnote 6 for discussion.
•The Company issued and distributed to existing common shareholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs).
On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share. As of September 30, 2020, 3.6 million Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $12.9 million as of September 30, 2020.
At September 30, 2020, the Company had Warrants outstanding and exercisable to purchase 4.8 million shares of its TruPs at an exercise price of $2.40 per per one-tenth of a share. On September 2, 2020, the Company announced the extension of the expiration date of the Warrants. The Warrants, previously scheduled to expire on September 8, 2020, are extended and now will expire on January 15, 2021 or earlier upon redemption or liquidation.
|
|
|
|
|
|
|
|
|
Fair Value Measurement
as of September 30, 2020
|
|
Warrant liability (Level 2)
|
$
|
485
|
|
As of September 30, 2020, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).
12. Geographical information
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of September 30, 2020 and March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
March 31, 2020
|
|
United States
|
$
|
11,215
|
|
|
$
|
19,086
|
|
|
Foreign
|
12,944
|
|
|
14,131
|
|
|
Total tangible long-lived assets, net
|
$
|
24,159
|
|
|
$
|
33,217
|
|
The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at September 30, 2020. The net book value located within each individual country at September 30, 2020 and March 31, 2020 is listed below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
March 31, 2020
|
|
Spain
|
$
|
10,363
|
|
|
$
|
—
|
|
|
Netherlands
|
2,574
|
|
|
4,778
|
|
|
Estonia
|
—
|
|
|
7,408
|
|
|
Mexico
|
—
|
|
|
1,845
|
|
|
Other
|
7
|
|
|
100
|
|
|
Total tangible long-lived assets, net
|
$
|
12,944
|
|
|
$
|
14,131
|
|
Total revenue from continuing operations, in and outside the United States is summarized in the following table for the six months ended September 30, 2020 and September 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
United States
|
$
|
67,163
|
|
|
$
|
75,891
|
|
|
Foreign
|
5,413
|
|
|
21,990
|
|
|
Total revenue
|
$
|
72,576
|
|
|
$
|
97,881
|
|
13. Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Segment data is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
Three Months Ended
September 30,
|
|
Six Months Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating Revenues by Segment:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
$
|
17,295
|
|
|
$
|
19,745
|
|
|
$
|
33,466
|
|
|
$
|
38,064
|
|
|
Ground Equipment Sales:
|
|
|
|
|
|
|
|
|
Domestic
|
10,996
|
|
|
12,102
|
|
|
26,807
|
|
|
22,961
|
|
|
International
|
1,064
|
|
|
639
|
|
|
1,081
|
|
|
2,030
|
|
|
Total Ground Equipment Sales
|
12,060
|
|
|
12,741
|
|
|
27,888
|
|
|
24,991
|
|
|
Commercial Jet Engines and Parts:
|
|
|
|
|
|
|
|
|
Domestic
|
4,155
|
|
|
6,102
|
|
|
6,625
|
|
|
14,288
|
|
|
International
|
1,959
|
|
|
11,699
|
|
|
4,183
|
|
|
19,840
|
|
|
Total Commercial Jet Engines and Parts
|
6,114
|
|
|
17,801
|
|
|
10,808
|
|
|
34,128
|
|
|
Corporate and other:
|
|
|
|
|
|
|
|
|
Domestic
|
67
|
|
|
332
|
|
|
264
|
|
|
556
|
|
|
International
|
68
|
|
|
74
|
|
|
150
|
|
|
142
|
|
|
Total Corporate and other
|
135
|
|
|
406
|
|
|
414
|
|
|
698
|
|
|
Total
|
$
|
35,604
|
|
|
$
|
50,693
|
|
|
$
|
72,576
|
|
|
$
|
97,881
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
573
|
|
|
254
|
|
|
1,127
|
|
|
271
|
|
|
Ground Equipment Sales
|
924
|
|
|
1,221
|
|
|
3,140
|
|
|
2,568
|
|
|
Commercial Jet Engines and Parts
|
(2,275)
|
|
|
1,083
|
|
|
(3,177)
|
|
|
2,971
|
|
|
Corporate and other
|
(2,906)
|
|
|
(2,092)
|
|
|
(5,039)
|
|
|
(4,345)
|
|
|
Total
|
$
|
(3,684)
|
|
|
$
|
466
|
|
|
$
|
(3,949)
|
|
|
$
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
93
|
|
|
26
|
|
|
144
|
|
|
56
|
|
|
Ground Equipment Sales
|
—
|
|
|
286
|
|
|
111
|
|
|
10
|
|
|
Commercial Jet Engines and Parts
|
1,054
|
|
|
16,005
|
|
|
1,510
|
|
|
17,656
|
|
|
Corporate and other
|
—
|
|
|
51
|
|
|
28
|
|
|
72
|
|
|
Total
|
$
|
1,147
|
|
|
$
|
16,368
|
|
|
$
|
1,793
|
|
|
$
|
17,794
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
Overnight Air Cargo
|
19
|
|
|
19
|
|
|
35
|
|
|
37
|
|
|
Ground Equipment Sales
|
46
|
|
|
57
|
|
|
114
|
|
|
102
|
|
|
Commercial Jet Engines and Parts
|
978
|
|
|
1,457
|
|
|
1,360
|
|
|
3,192
|
|
|
Corporate and other
|
106
|
|
|
162
|
|
|
249
|
|
|
304
|
|
|
Total
|
$
|
1,149
|
|
|
$
|
1,695
|
|
|
$
|
1,758
|
|
|
$
|
3,635
|
|
14. 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 condensed 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 condensed consolidated financial statements beginning on that date. Delphax is included within our Corporate and other segment.
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 also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of March 31, 2020 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $4.5 million.
Delphax had total assets and liabilities with carrying values of $9.6 thousand and 0.5 million, as of September 30, 2020 and $11.0 thousand and $0.5 million, as of March 31, 2020.
Delphax’s components of net income (loss) are included in our condensed consolidated statements of income and comprehensive income herein. For the six months ended September 30, 2020 and September 30, 2019, Delphax did not recognize any revenue. For the six months ended September 30, 2020, Delphax recorded net loss of $32.0 thousand, broken out between an operating loss of $38.0 thousand and non-operating income of $6.0 thousand. For the six months ended September 30, 2019, Delphax recorded net income of $6.1 million, broken out between an operating loss of $125.0 thousand and non-operating income of $6.2 million, the majority of which was the result of the gain on dissolution of entities of $4.5 million.
15. Commitments and Contingencies
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 condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The fair value of the redeemable non-controlling interest is $5.0 million as of September 30, 2020. The net change in the redemption value compared to March 31, 2020 is a decrease of $1.1 million, of which $0.5 million was related to the net change in fair value during the six months ended September 30, 2020, which is reflected on our condensed consolidated statements of equity.
16. Subsequent Events
Management performs an evaluation of events that occur after the balance sheet date but before condensed consolidated financial statements are issued for potential recognition or disclosure of such events in its condensed consolidated financial statements.