What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-02-12 · 89 added, 145 removed, 71 unchanged (77% of the section changed)

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Further, Corporate and other also comprises of insignificant businesses that do not pertain to other reportable 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.

Each business segment has separate management teams and infrastructures that offer different products and services.

We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.

Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020.

We have presented prior periods based on the current presentation.

Results of Operations

The outbreak of COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations.

Each of our businesses remain open.

However, as a result of measures taken to limit the impact of COVID-19, self-quarantines or actual viral health issues, we initially experienced a substantial number of disruptions, and have experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods.

Furthermore, while operating expenses at our businesses have decreased, we expect that many of our businesses will generate substantially reduced operating cash flows.

We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially lasts even longer.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

Third Quarter Fiscal 2021 Compared to Third Quarter Fiscal 2020

Consolidated revenue decreased by $17.5 million or 24% to $55.8 million for the three-month period ended December 31, 2020 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, 2020 compared to the same quarter in the prior fiscal year (in thousands):

COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations.

Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods.

Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022.

We expect that the impact of COVID-19 will continue to some extent.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021

Consolidated revenue for the three-month period ended June 30, 2021 was relatively flat compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

December 31, Change

Overnight Air Cargo $ 16,322 $ 18,706 $ (2,384) (13) %

Ground Equipment Sales 20,769 15,949 4,820 30 %

Commercial Jet Engines and Parts 18,078 38,536 (20,458) (53) %

Corporate and Other 650 109 541 496 %

$ 55,819 $ 73,300 $ (17,481) (24) %

Revenues from the air cargo segment for the three-month period ended December 31, 2020 decreased by $2.4 million (13%) compared to the third quarter of the prior fiscal year.

The decrease was principally attributable to lower maintenance revenue as a result of fewer operating aircraft due to COVID-19.

The ground equipment sales segment contributed approximately $20.8 million and $15.9 million to the Company’s revenues for the three-month periods ended December 31, 2020 and 2019 respectively, representing a $4.8 million (30%) increase in the current quarter.

The increase was primarily driven by a higher volume of truck sales to the U.S.

At December 31, 2020, the ground equipment sales segment’s order backlog was $17.3 million compared to $29.1 million at December 31, 2019.

The commercial jet engines and parts segment contributed $18.1 million of revenues in the quarter ended December 31, 2020 compared to $38.5 million in the comparable prior year quarter which is a decrease of $20.5 million (53%).

The decrease is primarily attributable to the fact that all the companies within this segment had lower engine and component sales and lease income due to the impact of COVID-19.

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2020 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended December 31, 2020 Change

June 30, Change

Overnight Air Cargo $ 18,851 $ 16,171 $ 2,680 17 %

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$ 36,968 $ 36,970 $ (2) — %

Consolidated operating income for the quarter ended December 31, 2020 was $1.1 million, a decrease of $2.7 million from operating income of $3.7 million in the comparable quarter of the prior year.

The ground equipment sales segment operating income for the quarter ended December 31, 2020 increased by $2.6 million from the prior year comparable quarter to $4.2 million.

This increase was primarily attributable to the increased sales noted in the segment revenue discussion above as well as better operating margin.

The commercial jet engines and parts segment generated an operating loss of $1.6 million in the current-year quarter compared to an operating income of $3.4 million in the prior-year quarter.

The change was primarily attributable to the decreased aircraft engines and component sales as well as lease income due to COVID-19 at the companies within this segment as explained in the segment revenue discussion above.

Following is a table detailing non-operating income (loss) during the three months ended December 31, 2020 compared to the same quarter in the prior fiscal year (in thousands):

Revenues from the air cargo segment for the three-month period ended June 30, 2021 increased by $2.7 million (17%) compared to the first quarter of the prior fiscal year.

The increase was principally attributable to higher pass-through revenue from FedEx as a result

of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx.

The ground equipment sales segment contributed approximately $8.2 million and $15.8 million to the Company’s revenues for the three-month periods ended June 30, 2021 and 2020 respectively, representing a $7.6 million (48%) decrease in the current quarter.

The decrease was primarily driven by a lower volume of commercial truck sales and ultimate deicers this quarter compared to prior year comparable quarter.

At June 30, 2021, the ground equipment sales segment’s order backlog was $7.1 million compared to $48.7 million at June 30, 2020.

GGS had a contract to supply deicing trucks to the United States Air Force ("USAF"), which expired on July 13, 2020.

GGS has submitted its bid for contract renewal.

As of June 30, 2021, the USAF has not yet responded to the bid.

The commercial jet engines and parts segment contributed $9.6 million of revenues in the quarter ended June 30, 2021 compared to $4.7 million in the comparable prior year quarter which is an increase of $4.9 million (104%).

The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year quarter as COVID-19 related restrictions continued to loosen.

Following is a table detailing operating income (loss) by segment during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

December 31, Change

Other-than-temporary impairment loss on investments $ — $ (1,095) $ 1,095

Interest expense (1,172) (1,227) 55

Gain (Loss) from equity method investments 510 (282) 792

Other 1,039 81 958

$ 377 $ (2,523) $ 2,900

The Company had a net non-operating income of $0.4 million for the quarter ended December 31, 2020, compared to a non-operating loss of $2.5 million in the prior-year quarter.

The non-operating loss from Q3 2020 was principally driven by an impairment loss in the investment of Insignia of $1.1 million that did not recur in Q3 2021.

In addition, the current year-quarter also included approximately $0.7 million of investment income compared to only $17.0 thousand in the prior year-quarter.

During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of (22.0)%.

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended December 31, 2019, the Company recorded $0.6 million in income tax benefit at an ETR of 51.5%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2019 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC 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.

First nine Months of Fiscal 2021 Compared to First nine Months of Fiscal 2020

Following is a table detailing revenue by segment (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 49,789 $ 56,771 $ (6,982) (12) %

Ground Equipment Sales 48,656 40,939 7,717 19 %

Commercial Jet Engines and Parts 28,886 72,665 (43,779) (60) %

Corporate and Other 1,063 806 257 32 %

$ 128,394 $ 171,181 $ (42,787) (25) %

Revenues from the air cargo segment for the nine months ended December 31, 2020 decreased by $7.0 million (12%) compared to the nine months ended December 31, 2019.

The decrease was principally attributable to lower maintenance revenue as a result of fewer operating aircraft due to COVID-19.

The ground equipment sales segment contributed approximately $48.7 million and $40.9 million to the Company’s revenues for the nine-month periods ended December 31, 2020 and 2019 respectively, representing a $7.7 million (19%) increase in the current nine-month period.

The increase was driven by strong sales of catering trucks during Q1 2021 and the higher volume of truck sales to the U.S.

Air Force in Q3 2021.

The commercial jet engines and parts segment contributed $28.9 million of revenues in the nine months ended December 31, 2020 compared to $72.7 million in the comparable prior year nine months.

The decrease is primarily attributable to the fact that all the companies within this segment had lower aircraft engines and component sales and lease income due to the impact of COVID-19 during the first three fiscal quarters in the current fiscal year.

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2020 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

June 30, Change

Overnight Air Cargo $ 732 $ 555 $ 177

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$ (4) $ (266) $ 262

Consolidated operating loss for the nine months ended December 31, 2020 was $2.9 million compared to an operating income of $5.2 million for the comparable nine months of the prior year.

Operating income for the air cargo segment for the nine months ended December 31, 2020 increased by $0.7 million versus the prior year comparable period due primarily to more efficient labor utilization and broad-based operational improvements led by a new management team.

The ground equipment sales segment operating income increased by $3.2 million to $7.4 million in the nine-month period ended December 31, 2020 versus the prior year comparable period.

This increase was primarily attributable to the improved operating leverage achieved during the year as a result of favorable pricing and larger production runs.

The commercial jet engines and parts segment generated an operating loss of $4.8 million in the current-year nine month period compared to an operating income of $6.4 million in the prior-year nine-month period.

Following is a table detailing non-operating income (loss) during the nine months ended December 31, 2020 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Other-than-temporary impairment loss on investments $ — $ (2,305) $ 2,305

Consolidated operating loss for the quarter ended June 30, 2021 was $4.0 thousand, compared to an operating loss of $0.3 million in the comparable quarter of the prior year.

The ground equipment sales segment operating income for the quarter ended June 30, 2021 decreased by $0.8 million from the prior year comparable quarter to $1.4 million.

This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated an operating loss of $0.2 million in the current-year quarter compared to an operating loss of $0.9 million in the prior-year quarter.

The change was primarily attributable to the increased component sales at the companies within this segment as explained in the segment revenue discussion above.

Following is a table detailing non-operating income (loss) during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

Interest expense (939) (1,161) 222

Gain on settlement of bankruptcy — 4,527 (4,527)

Gain (Loss) from equity method investments 83 (558) 641

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$ 326 $ (990) $ 1,316

The Company had a net non-operating loss of $1.8 million for the nine months ended December 31, 2020 compared to a net non-operating loss of $2.8 million in the prior-year nine-month period.

The difference was principally due to the prior-year's gain on settlement of bankruptcy proceedings related to Dephax Canada and UK of $4.5 million that did not recur in the current-year.

The difference was offset by the prior-year's impairment loss on the investment of Insignia of $2.3 million as well as an increase of $2.2 million in other income, driven by $1.8 million of investment income and realized gain on sale of securities in the current-year.

During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit at an ETR of 45.9%.

The Company had a net non-operating income of $0.3 million for the quarter ended June 30, 2021, compared to a net non-operating loss of $1.0 million in the prior-year quarter.

In the first quarter 2020, the Company recorded $0.6 million of net loss pick-up from the investments of Insignia and CCI whereas in the current quarter, we only recorded $0.3 million of net loss pick-up from these investments.

Further, in the current quarter, the Company recorded $0.2 million of gain from fair value adjustment related to our Warrants, and $0.5 million of gain from the liquidation of Delphax France, a subsidiary of Delphax Technologies, Inc., in June 2021.

During the three-month period ended June 30, 2021, the Company recorded $5.0 thousand in income tax benefit at an effective tax rate ("ETR") of (1.6)%.

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the nine-month period ended December 31, 2019, the Company recorded $0.1 million in income tax benefit which resulted in an effective tax rate of (2.2)%.

The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2019 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC 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.

benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended June 30, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of 23.9%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Critical Accounting Policies and Estimates

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Accordingly, actual results could differ materially from estimates.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 2020.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended June 30, 2021.

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.

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Liquidity and Capital Resources

As of December 31, 2020, the Company held approximately $48.8 million in cash and cash equivalents and restricted cash, $5.3 million of which related to restricted cash collateralized for the three Opportunity Zone fund investments.

As of June 30, 2021, the Company held approximately $11.4 million in cash and cash equivalents and restricted cash, $4.1 million of which related to restricted cash collateralized for Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company.

The Company also held $1.0 million in restricted investments held as statutory reserve of SAIC.

The Company has approximately $5.4 million of marketable securities and an aggregate of $24.7 million in available funds under its lines of credit as of December 31, 2020.

As of December 31, 2020, the Company’s working capital amounted to $84.0 million, an increase of $53.3 million compared to March 31, 2020.

The Company has approximately $2.4 million of marketable securities and an aggregate of $54.5 million in available funds under its lines of credit as of June 30, 2021.

As of June 30, 2021, the Company’s working capital amounted to $79.2 million, an increase of $1.6 million compared to March 31, 2021.

The Company’s Credit Agreement with MBT includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25.

The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation.

The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates.

The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum 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 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;

(a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to $0 for at least thirty consecutive days to September 5, 2021;

and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

On November 24, 2020, Contrail and ONB entered into Supplement #8 to Master Loan Agreement and related documentation for a loan in the aggregate amount of $43.6 million for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S.

Federal Reserve.

The Contrail Main Street Loan was approved by the Fed and completed by December 8, 2020.

The loan proceeds are to be used as working capital to support the operations of Contrail in the ordinary course of business, which includes the acquisition from time to time of aircraft and engines.

The proceeds will also be used to pay down the Contrail Revolver.

The indebtedness incurred is subject to the terms and provisions of the Master Loan Agreement.

The principal terms of the Contrail Main Street Loan are:

(a) interest on the loan accrues at a floating rate of LIBOR plus 3.00% and interest is payable commencing November 24, 2021;

(b) 15% principal payments plus 15% of the amount of capitalized interest are due on November 24, 2023 and 2024, with the remainder due on the loan maturity date – November 24, 2025;

and, (d) a 2% origination fee was paid on funding of the loan.

The loan contains affirmative covenants as to cash flow coverage and tangible net worth.

The terms of the loan provide for customary events of default, including, among others, those relating to a failure to make payment, breaches of representations and covenants, and the occurrence of certain events.

The loan is secured by a security interest in the assets of Contrail.

On December 11, 2020, AirCo 1 and PSB entered into a loan in the aggregate amount of $6.2 million for which PSB served as lender pursuant to the Main Street Priority Loan Facility as established by the Fed.

The AirCo 1 Main Street Loan was approved by the Fed and completed by December 22, 2020.

The loan proceeds were used to pay off the AirCo 1 revolving line of credit with MBT.

The principal terms of the AirCo 1 Main Street Loan are:

(a) interest on the loan accrues at a floating rate of LIBOR plus 3.00% and interest is payable commencing December 11, 2021;

(b) 15% principal payments (including any capitalized interest accrued thereon) are due on December 11, 2023, and 2024, with the remainder due on the loan maturity date – December 11, 2025;

and, (d) a 2% origination fee was paid on funding of the loan.

The loan contains an affirmative covenant relating to collateral valuation.

The loan is secured by a security interest in the assets of AirCo 1 and a pledge of AirCo’s membership interest in AirCo 1.

As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.

The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months.

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however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

In April 2020, the Company obtained loans under the PPP, as authorized by 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.

Contrail and ONB are also in discussions to reduce the minimum TNW covenant to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement.

However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.

In April 2020, the Company obtained loans under the PPP loan, backed by the SBA, as authorized by the CARES Act, of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs.

As of June 30, 2021, the Company has applied to the SBA for forgiveness of the PPP Loan;

however, forgiveness is not fully assured.

As mentioned in Note 1 3 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller.

The Seller is the founder of Contrail and its current Chief Executive Officer.

The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which was on July 18, 2021.

As of the date of this filing, neither the Seller nor Air T has indicated the intent to exercise the put and call options.

If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date.

The Company currently expects that it would fund any required payment from cash provided by operations.

As mentioned in Note 13 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed a new aircraft asset management business called CAM and a new aircraft capital joint venture called CJVII.

The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly.

CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise.

CAM will serve two separate and distinct functions:

1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners.

CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC.

As of June 30, 2021, CAM's unfunded capital commitments are approximately $6.9 million from the Company and $43.9 million from MRC.

CJVII will initially be capitalized with up to $408 million of equity from the Company and three institutional investor partners, consisting of $108 million in initial commitments and $300 million in upsize capacity, contingent on underwriting and transaction appeal.

As of the date of this filing, no capital has been deployed to CJVII and the timing of capital deployment is not yet known at this time.

The Company believes it is probable that the cash on hand (including that obtained from the PPP and other current financings), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Following is a table of changes in cash flow for the nine months ended December 31, 2020 and 2019 (in thousands):

Nine Months Ended December 31,

Following is a table of changes in cash flow for the three months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

Net Cash Used in Operating Activities (8,821) (3,335)

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Effect of foreign currency exchange rates on cash and cash equivalents (49) (72)

Net Increase in Cash and Cash Equivalents and Restricted Cash 33,254 9,065

Net cash used in operating activities was $6.7 million for the nine-month period ended December 31, 2020 compared to the net cash used in operating activities of $9.7 million in the prior year nine-month period.

During the nine months ended December 31, 2019, the Company purchased $7.0 million more engines and received them into inventory compared to the current-year period.

The cash usage was offset by $5.1 million due to a decrease in net income in the current year because of reduced operations as a result of COVID-19.

Net cash used in investing activities for the nine-month period ended December 31, 2020 was $0.3 million compared to net cash used in investing activities of $7.4 million in the the prior-year period.

Cash was used in the prior-year period primarily to purchase engines on lease and to invest in unconsolidated entities.

The cash usage was partially offset by proceeds from sale of engines on lease and the sale of GAS.

Net cash provided by financing activities for the nine-month period ended December 31, 2020 was $40.4 million compared to net cash provided by financing activities of $26.2 million in the prior-year period.

The increase was primarily driven by higher net cash proceeds from term loans.

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 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.

Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash (4,500) 1,085

Net cash used in operating activities was $8.8 million for the three-month period ended June 30, 2021 compared to net cash used in operating activities of $3.3 million in the prior year three-month period.

The change in net cash used in operating activities was primarily driven by a net change in accounts receivable of ($7.3 million), partially offset by $1.3 million of change in net income (loss).

In the current quarter, the Company had a net increase in accounts receivable of $4.7 million compared to a net decrease of $2.6 million in the prior quarter.

In addition, the Company had a net income of $0.3 million in the current quarter and a net loss of $1 million in the prior quarter.

Both the increase in accounts receivable and net income in the current quarter are attributable to increased sales in the commercial jet engines and parts segment and the air cargo segment as a result of increased activity in the aviation industry due to loosen COVID-19 related restrictions.

Net cash used in investing activities for the three-month period ended June 30, 2021 was $1.4 million compared to net cash used in investing activities of $0.5 million in the prior-year period.

Cash was used in the current-year period primarily to invest in CAM, the Company's new aircraft asset management business.

Net cash provided by financing activities for the three-month period ended June 30, 2021 was $5.8 million compared to net cash provided by financing activities of $5.0 million in the prior-year period.

The increase was primarily driven by higher net cash proceeds from the Company's lines of credit and issuance of TruPs, partially offset by lower net cash proceeds from the Company's term loans.

Non-GAAP Financial Measures

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When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases.

Depreciation expense for leased engines totaled $0.6 million for the three months ended

December 31, 2020 and 2019.

Depreciation expense for leased engines totaled $1.7 million and $3.6 million for the nine months ended December 31, 2020 and 2019, respectively.

Depreciation expense for leased engines totaled $0.1 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.

Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability.

Adjusted EBITDA is not intended to replace or be an alternative to operating income from continuing operations, the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating income from continuing operations to Adjusted EBITDA and Adjusted EBITDA by segment for the three and nine months ended December 31, 2020 and 2019 (in thousands):

Three months ended Nine months ended

Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating loss to Adjusted EBITDA and Adjusted EBITDA by segment for the three months ended June 30, 2021 and 2020 (in thousands):

Three months ended

6/30/2021 6/30/2020

Operating income from continuing operations $ 1,068 $ 3,720 $ (2,881) $ 5,185

Operating loss $ (4) $ (266)

Depreciation and amortization (excluding leased engines depreciation) 279 353

Asset impairment, restructuring or impairment charges — 4 664 18

(Gains)/Losses on disposition of assets 5 (23) 1 (26)

Security issuance expenses — 50 — 319

Loss on disposition of assets 3 —

Amortization of security issuance expenses 5 —

Adjusted EBITDA $ 283 $ 87

Included in the asset impairment, restructuring or impairment charges for the nine months ended December 31, 2020 was a write-down of $0.5 million on the commercial jet engines and parts segment's inventories 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.

Three months ended Nine months ended

Three months ended

6/30/2021 6/30/2020

4 unchanged sentences

Adjusted EBITDA $ 283 $ 87

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis