What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-12 · 195 added, 132 removed, 425 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except income (loss) per share number) Three Months Ended

September 30, Six Months Ended

September 30,

2021 2020 2021 2020

Operating Revenues:

12 unchanged sentences

42,534 39,288 79,507 76,525

Operating Loss ( 4 ) ( 266 )

Operating Income (Loss) from continuing operations 704 ( 3,684 ) 699 ( 3,949 )

Non-operating Income (Expense):

1 unchanged sentence

Gain (Loss) from equity method investments 14 ( 498 ) 97 ( 1,056 )

Gain on forgiveness of Paycheck Protection Program (“PPP”) loan 8,331 — 8,331 —

Other 159 359 1,340 1,086

Income (Loss) before income taxes 322 ( 1,256 )

Income Taxes Benefit ( 5 ) ( 300 )

7,337 ( 1,220 ) 7,663 ( 2,212 )

Income (Loss) from continuing operations before income taxes 8,041 ( 4,904 ) 8,362 ( 6,161 )

Income Taxes Expense (Benefit) 38 ( 1,547 ) 33 ( 1,847 )

Net Income (Loss) from continuing operations 8,003 ( 3,357 ) 8,329 ( 4,314 )

Gain on sale of discontinued operations, net of tax — 4 — 4

Net Income (Loss) 8,003 ( 3,353 ) 8,329 ( 4,310 )

2 unchanged sentences

Stockholders $ 7,555 $ ( 2,920 ) $ 7,843 $ ( 3,761 )

Income (Loss) from continuing operations per share (Note 5)

Basic $ 2.62 $ ( 1.01 ) $ 2.72 $ ( 1.31 )

Diluted $ 2.60 $ ( 1.01 ) $ 2.71 $ ( 1.31 )

Income from discontinued operations per share (Note 5)

Basic $ — $ — $ — $ —

Diluted $ — $ — $ — $ —

Income (Loss) per share (Note 5)

8 unchanged sentences

Three Months Ended

September 30, Six Months Ended

September 30,

(In Thousands) 2021 2020 2021 2020

Net Income (Loss) $ 8,003 $ ( 3,353 ) $ 8,329 $ ( 4,310 )

Foreign currency translation loss ( 49 ) ( 67 )

Unrealized gain (loss) on interest rate swaps 11 ( 26 )

Foreign currency translation gain (loss) 103 ( 68 ) 54 ( 135 )

Unrealized gain on interest rate swaps 46 55 57 29

Reclassification of interest rate swaps into earnings ( 2 ) ( 16 ) ( 3 ) ( 16 )

Total Other Comprehensive Loss ( 39 ) ( 93 )

Total Other Comprehensive Income (Loss) 147 ( 29 ) 108 ( 122 )

Total Comprehensive Income (Loss) 8,150 ( 3,382 ) 8,437 ( 4,432 )

5 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) June 30, 2021 March 31, 2021

(In thousands, except share amounts) September 30, 2021 March 31, 2021

Current Assets:

10 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 4,866 and $ 4,510

Right-of-use assets 7,330 7,757

Right-of-use ("ROU") assets 7,738 7,757

Equity method investments 5,657 4,475

34 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) Three Months Ended

(In Thousands) Six Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (Loss) Income 327 ( 956 )

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net Income (Loss) 8,329 ( 4,310 )

Gain on sale of discontinued operations, net of income tax — ( 4 )

Net Income (Loss) from continuing operations 8,329 ( 4,314 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 703 1,758

Gain on forgiveness of PPP loan ( 8,331 ) —

Other ( 1,169 ) 1,741

5 unchanged sentences

Other ( 467 ) ( 2,611 )

Net cash used in operating activities - continued operations ( 22,753 ) ( 5,626 )

Net cash provided by operating activities - discontinued operations — 4

Net cash used in operating activities ( 22,753 ) ( 5,622 )

1 unchanged sentence

Purchases of marketable securities — ( 659 )

Sale of marketable securities — 658

Investment in unconsolidated entities ( 1,085 ) —

8 unchanged sentences

Payments on term loan ( 2,012 ) ( 4,875 )

Proceeds from Payroll Protection Program loan ("PPP loan") — 8,215

Proceeds from PPP loan — 8,215

Proceeds received from issuance of Trust Preferred Securities ("TruPs") 7,810 —

2 unchanged sentences

Effect of foreign currency exchange rates on cash and cash equivalents 51 ( 127 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 4,500 ) 1,085

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 9,653 ) ( 2,702 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 15,927 15,571

14 unchanged sentences

Balance, June 30, 2020 3,023 756 141 ( 2,617 ) 3,065 22,927 ( 630 ) 1,000 24,501

Net loss* — — — — — ( 2,920 ) — ( 8 ) ( 2,928 )

Unrealized gain on interest rate swaps, net of tax — — — — — — 55 — 55

Foreign currency translation loss — — — — — — ( 68 ) — ( 68 )

Adjustment to fair value of redeemable non-controlling interests — — — — ( 890 ) — — — ( 890 )

Balance, September 30, 2020 3,023 $ 756 141 $ ( 2,617 ) $ 2,175 $ 20,007 $ ( 643 ) $ 992 $ 20,670

(In Thousands) Common Stock Treasury Stock Additional

10 unchanged sentences

Balance, June 30, 2021 3,023 756 141 ( 2,617 ) — 16,321 ( 723 ) 1,142 14,879

Net income/(loss)* — — — — — 7,555 — ( 12 ) 7,543

Stock compensation expense — — — — 236 — — — 236

Foreign currency translation gain — — — — — — 103 — 103

Adjustment to fair value of redeemable non-controlling interest — — — — — 183 — — 183

Unrealized gain on interest rate swaps, net of tax — — — — — — 46 — 46

Reclassification of interest rate swaps into earnings — — — — — — ( 2 ) — ( 2 )

Balance, September 30, 2021 3,023 $ 756 141 $ ( 2,617 ) $ 236 $ 24,059 $ ( 576 ) $ 1,130 $ 22,988

* Excludes amount attributable to redeemable non-controlling interest in Contrail.

8 unchanged sentences

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2021.

The results of operations for the period ended June 30, 2021 are not necessarily indicative of the operating results for the full year.

The results of operations for the period ended September 30, 2021 are not necessarily indicative of the operating results for the full year.

Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS").

The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and six months ended September 30, 2021 and 2020.

Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Formation of new entities

9 unchanged sentences

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.

Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during the remainder of fiscal 2022.

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

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

Recently Adopted Accounting Pronouncements

In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

The Company adopted this amendment on April 1, 2021.

As of June 30, 2021, the amendments did not have a material impact on the Company's consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

47 unchanged sentences

The following table summarizes disaggregated revenues by type (in thousands):

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2021 2020 2021 2020

Product Sales

9 unchanged sentences

Leasing Revenue

Air Cargo — — — —

Ground equipment sales 39 23 78 71

10 unchanged sentences

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales.

The following table presents outstanding contract liabilities as of April 1, 2021 and June 30, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the three-month period ended June 30, 2021 (in thousands):

The following table presents outstanding contract liabilities as of April 1, 2021 and September 30, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the six-month period ended September 30, 2021 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2021

Recognized as Revenue

As of June 30, 2021 $ 1,957

As of September 30, 2021 $ 1,978

As of April 1, 2021 $ 1,358

For the quarter ended June 30, 2021 450

For the six months ended September 30, 2021 $ 638

Accrued Expenses

(in thousands) June 30, 2021 March 31, 2021

(in thousands) September 30, 2021 March 31, 2021

Salaries, wages and related items $ 4,217 $ 5,427

3 unchanged sentences

Total $ 8,424 $ 12,787

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 )%.

During the three-month period ended September 30, 2021, the Company recorded $ 38.0 thousand in income tax expense at an effective tax rate ("ETR") of 0.5 %.

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 June 30, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc.

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, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc.

and Delphax Technologies, Inc.

(collectively known as "Delphax") and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

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

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

(collectively known as "Delphax"), the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

During the three-month period ended September 30, 2020, the Company recorded $ 1.5 million in income tax benefit at an ETR of 31.5 %.

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 September 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.

During the six-month period ended September 30, 2021, the Company recorded $ 33.0 thousand in income tax expense at an effective rate of 0.4 %.

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, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

During the six-month period ended September 30, 2020, the Company recorded $ 1.8 million in income tax benefit which resulted in an effective tax rate of 30.0 %.

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, 2020 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), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Net Earnings (Loss) Per Share

3 unchanged sentences

The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):

Three Months Ended June 30,

Net income (loss) $ 327 $ ( 956 )

Net (income) loss attributable to non-controlling interests ( 38 ) 115

Net income (loss) attributable to Air T, Inc.

Three Months Ended September 30, Six Months Ended September 30,

2021 2020 2021 2020

Net income (loss) from continuing operations $ 8,003 $ ( 3,357 ) $ 8,329 $ ( 4,314 )

Net (income) loss from continuing operations attributable to non-controlling interests ( 448 ) 433 ( 486 ) 549

Net income (loss) from continuing operations attributable to Air T, Inc.

Stockholders 7,555 ( 2,924 ) 7,843 ( 3,765 )

Income (Loss) from continuing operations per share:

Basic $ 2.62 $ ( 1.01 ) $ 2.72 $ ( 1.31 )

Diluted $ 2.60 $ ( 1.01 ) $ 2.71 $ ( 1.31 )

Antidilutive shares excluded from computation of income (loss) per share from continuing operations — 5 — 5

Gain on sale of discontinued operations, net of tax — 4 — 4

Income from discontinued operation attributable to Air T, Inc.

stockholders — 4 — 4

Income from discontinued operations per share:

Basic — — — —

Diluted — — — —

Income (Loss) per share:

9 unchanged sentences

The swaps mature in January 2028.

These swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815.

The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings.

The interest rate swaps are considered Level 2 fair value measurements.

As of June 30, 2021 and March 31, 2021, the fair value of the interest-rate swap contracts was a liability of $ 0.6 million, which is included within other non-current liabilities in the condensed consolidated balance sheets.

During the three months ended June 30, 2021 and June 30, 2020, the Company recorded a gain of approximately $ 11.0 thousand and a loss of approximately $ 26.0 thousand, net of tax, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

As mentioned in Note 10 , on August 31, 2021, Air T and MBT refinanced Term Note A and fixed its interest rate at 3.42 %.

As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge.

The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income associated with Term Note A at the time of de-designation into earnings over the remainder of its term.

In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings.

The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815.

The effective portion of changes in the fair value on this instrument is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings.

This interest rate swap is considered a Level 2 fair value measurement.

As of September 30, 2021 and March 31, 2021, the fair value of this interest-rate swap contract was a liability of $ 0.5 million and $ 0.6 million, respectively, which is included within other non-current liabilities in the condensed consolidated balance sheets.

During the three and six months ended September 30, 2021, the Company recorded a gain of approximately $ 46.0 thousand and $ 57.0 thousand, net of tax, respectively, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of this instrument.

The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies.

1 unchanged sentence

These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements.

During the three months ended June 30, 2021, related to these derivative instruments, the Company did not record any gain or loss.

During the three months ended June 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $ 0.4 million and no gross loss.

During the three and six months ended September 30, 2021, the Company did not record any gain or loss related to these derivative instruments.

During the three months ended September 30, 2020, the Company had a gross gain aggregating to $ 0.4 million and $ 0.1 million gross loss related to these derivative instruments.

During the six months ended September 30, 2020, the Company had a gross gain aggregating to $ 0.7 million and $ 0.1 million gross loss related to these derivative instruments.

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities.

1 unchanged sentence

The fair market value of marketable equity securities is determined based on quoted market prices in active markets.

During the three months ended June 30, 2021, the Company had a gross unrealized gain aggregating to $ 0.4 million and a gross unrealized loss aggregating to $ 49.0 thousand.

During the three months ended June 30, 2020, the Company had a gross unrealized gain aggregating to $ 0.6 million and a gross unrealized loss aggregating to $ 0.4 million.

During the three months ended September 30, 2021, the Company had a gross unrealized gain aggregating $ 0.4 million and a gross unrealized loss aggregating $ 0.1 million.

During the six months ended September 30, 2021, the Company had a gross unrealized gain aggregating $ 0.8 million and a gross unrealized loss aggregating $ 0.2 million.

During the three months ended September 30, 2020, the Company had a gross unrealized gain aggregating $ 0.1 million and a gross unrealized loss aggregating $ 0.3 million.

During the six months ended September 30, 2020, the Company had a gross unrealized gain aggregating $ 0.7 million and a gross unrealized loss aggregating $ 0.7 million.

These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated statement of income (loss).

The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings.

As of June 30, 2021 and 2020, the Company had outstanding borrowings of $ 0 and $ 2.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets.

As of June 30, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 22.0 thousand and $ 3.0 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.

As of September 30, 2021 and 2020, the Company had outstanding borrowings of $ 0 and $ 0.6 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets.

As of September 30, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 0 and $ 0.7 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.

Equity Method Investments

2 unchanged sentences

The Company has elected a three-month lag upon adoption of the equity method.

As of June 30, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28 % of the outstanding shares.

As of September 30, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28 % of the outstanding shares.

During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $ 0 .

As such, the Company did no t record any additional share of Insignia's net loss as of June 30, 2021.

As such, the Company did no t record any additional share of Insignia's net loss as of September 30, 2021.

On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021.

The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements.

The Company's 18.98 % investment in Cadillac Casting, Inc.

1 unchanged sentence

Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $ 0.3 million.

The Company recorded a loss of $ 0.3 million as its share of CCI's net loss for the three months ended June 30, 2021, along with a basis difference adjustment of $ 12.0 thousand.

The Company's net investment basis in CCI is $ 3.5 million as of June 30, 2021.

Summarized unaudited financial information for the Company's equity method investees for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended

March 31, 2021 March 31, 2020

The Company recorded a loss of $ 0.3 million and $ 0.5 million as its share of CCI's net loss for the three and six months ended September 30, 2021, along with a basis difference adjustment of $ 13.0 thousand and $ 25.0 thousand, respectively.

The Company's net investment basis in CCI is $ 3.2 million as of September 30, 2021.

Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2021 and 2020 is as follows (in thousands):

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Revenue $ 27,715 $ 12,138 $ 57,988 $ 34,074

5 unchanged sentences

Inventories consisted of the following (in thousands):

September 30,

2021 March 31,

7 unchanged sentences

Commercial jet engines and parts 62,894 60,516

59,014 60,516

Total inventories $ 84,456 $ 74,073

11 unchanged sentences

The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The components of lease cost for the three months ended June 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended June 30,

The components of lease cost for the three and six months ended September 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended September 30, Six Months Ended September 30,

2021 2020 2021 2020

Operating lease cost $ 420 $ 481 $ 867 $ 1,052

2 unchanged sentences

Total lease cost $ 939 $ 836 $ 1,815 $ 1,544

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2021 and March 31, 2021 were as follows (in thousands):

June 30, 2021 March 31, 2021

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2021 and March 31, 2021 were as follows (in thousands):

September 30, 2021 March 31, 2021

Operating leases

Operating lease right-of-use assets $ 7,330 $ 7,757

Operating lease ROU assets 7,738 7,757

Operating lease liabilities 8,477 8,445

Weighted-average remaining lease term

Operating leases 14 years 13 years, 9 months

Operating leases 13 years, 4 months 13 years, 9 months

Weighted-average discount rate

Operating leases 4.38 % 4.37 %

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2021 are as follows (in thousands):

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2021 are as follows (in thousands):

Operating Leases

2022 (excluding the three months ended June 30, 2021) $ 1,351

2022 (excluding the six months ended September 30, 2021) $ 895

Thereafter 5,301

4 unchanged sentences

Financing Arrangements

The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25 .

AirCo 1, LLC ("AirCo 1") and Contrail Aviation Support, LLC ("Contrail") are subsidiaries of the Company in the Commercial Jet Engines and Parts segment.

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

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

The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth ("TNW") of $ 15 million.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB").

The material changes within the Third Amendment are:

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

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

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

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

We are currently seeking to refinance this obligation prior to August 31, 2021;

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

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

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

On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $ 8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act.

The PPP Loan is evidenced by a promissory note (“Note”).

The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT.

The PPP Loan may be accelerated upon the occurrence of an event of default.

The PPP Loan is unsecured and guaranteed by the United States Small Business Administration ("SBA").

The Company has applied to the SBA for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act.

The PPP Loan bears interest at a fixed annual rate of one percent ( 1 %).

Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount.

As of June 30, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of June 30, 2021:

(In Thousands) June 30,

On August 31, 2021, Air T entered into a Third Amended and Restated Credit Agreement with Minnesota Bank & Trust ("MBT").

The terms of the Amended and Restated Credit Agreement were revised to extend the Air T revolver's termination date to August 31, 2023.

The maximum amount available under the revolving facility remains at $ 17 million and interest will be due on the outstanding balance at the rate of 2.5 % or the prime rate plus 1 %, whichever is greater.

Air T and MBT also revised Term Note A to extend the maturity date to August 30, 2031 and to increase the principal amount to $ 9 million.

The revised note utilizes a fixed 3.42 % interest rate.

Air T and MBT also revised Term Note B to extend the maturity date to August 30, 2031.

The principal balance was set at the then current balance amount of $ 3.2 million.

The interest rate on Term Note B is fixed at 3.42 %.

A prepayment penalty provision was added to Term Note A and Term Note B that provides for a 3 % premium payment if prepayment occurs in year 1, 1 % in years 2-3 and 0 % thereafter.

20 % of the loan amount can be prepaid without penalty each year and no penalty payment is due for prepayments made to cure a covenant violation.

Term Note E was restated to set the principal amount of the note at the then current balance due amount ($ 3.7 million), which amount reflects principal payments through August 31, 2021.

The parties also agreed to add the Company’s indirect subsidiary, Jet Yard, LLC ("Jet Yard") as a co-Borrower.

Jet Yard entered into a promissory note with MBT in the principal amount of $ 2 million.

The Jet Yard Note matures on August 30, 2031 and has a fixed interest rate of 4.14 %.

Jet Yard intends to use the proceeds of the note for leasehold improvements at Jet Yard’s facility in Marana, AZ.

On September 2, 2021, Contrail Aviation Support, LLC (“Contrail”), a 79 %-owned subsidiary of Air T, Inc.

entered into a Fourth Amendment to Supplement #2 to Master Loan Agreement (the “Amendment”) and Third Amended and Restated Promissory Note Revolving Note with Old National Bank ("ONB").

The principal revisions to Contrail’s existing credit facility with ONB as contained in the Amendment and the Restated Promissory Note Revolving Note are summarized below:

The termination date of the facility was extended to September 5, 2023;

The Revolving Note principal amount was revised from $ 40 million to $ 25 million;

The net worth covenant was amended and the definition of “net worth” was revised.

The net worth covenant now requires that the borrower maintain a net worth of at least:

(i) $ 8 million at all times prior to March 31, 2023;

(ii) $ 10 million at all times during the period beginning March 31, 2023 and ending on March 30, 2024;

and (iii) $ 12 million at all times on or after March 31, 2024.

On April 13, 2020, the Company entered into a loan with MBT with a principal amount of $ 8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act.

As of September 30, 2021, the Company's PPP Loan was fully forgiven by the SBA.

As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of September 30, 2021:

(In Thousands) September 30,

2021 March 31,

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Revolver - MBT $ 4,732 $ — August 31, 2023 Greater of 2.5 % or Prime - 1 %

Term Note A - MBT $ 6,500 $ 6,750 January 1, 2028 1-month LIBOR + 2 %

Term Note B - MBT $ 3,250 $ 3,375 January 1, 2028 4.50 %

Term Note A - MBT 8,923 6,750 August 31, 2031 3.42 %

Term Note B - MBT 3,148 3,375 August 31, 2031 3.42 %

Term Note D - MBT 1,439 1,472 January 1, 2028 1-month LIBOR + 2 %

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Total 43,797 38,807

Revolver - MBT $ — $ — August 31, 2021 2 Greater of 6.50 % or Prime + 2 %

Term Loan - PSB 6,200 6,200 December 11, 2025 3-month LIBOR + 3.00 %

Total 6,200 6,200

Jet Yard Debt

Term Loan - MBT 1,992 — August 31, 2031 4.14 %

Total 1,992 —

Contrail Debt

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Canadian Emergency Business Account Loan 31 32 December 31, 2025 5.00 %

Total $ 33 $ 32

Total Debt 95,736 88,637

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Total Debt, net $ 94,682 $ 87,496

1 Pursuant to The Paycheck Protection Flexibility Act of 2020, P.L.

116-142, the SBA extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to MBT or (2) if Air T does not apply for loan forgiveness, 10 months after the end of Air T’s loan forgiveness covered period, calculated as 24-week period beginning on April 13, 2020.

SBA does not require a formal modification to the original promissory note agreement.

2 The AirCo 1 Revolver was paid off and closed as of December 31, 2020.

At June 30, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):

1 The PPP loan was fully forgiven by the SBA in September 2021.

At September 30, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by Amount

June 30, 2022 $ 9,537

June 30, 2023 4,333

June 30, 2024 9,037

June 30, 2025 13,093

June 30, 2026 36,459

September 30, 2022 $ 1,319

September 30, 2023 5,974

September 30, 2024 8,752

September 30, 2025 12,253

September 30, 2026 36,263

Thereafter 31,175

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• A dividend of one additional share for every two shares already held (a 50 % stock dividend, or the equivalent of a 3-for-2 stock split).

• The Company issued and distributed to existing common stockholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $ 4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $ 21.0 million in stated value of TruPs).

• The Company issued and distributed to existing common stockholders an aggregate of 1.6 million TruPs shares (aggregate $ 4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $ 21.0 million in stated value of TruPs).

On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs.

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Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $ 2.40 , representing a 4 % discount to the new stated value of $ 2.50 for one-tenth of a share.

As of June 30, 2021, 4.1 million Warrants have been exercised.

At June 30, 2021, the Company had 4.3 million Warrants outstanding and exercisable to purchase shares of its TruPs at an exercise price of $ 2.40 per one-tenth of a share.

On January 11, 2021, the Company announced the extension of the expiration date of the Warrants, previously scheduled to expire on January 15, 2021, to August 30, 2021 or earlier upon redemption or liquidation.

On June 23, 2021, the Company announced that it will not extend the expiration date of its Warrants beyond August 30, 2021.

Fair Value Measurement

as of June 30, 2021

Warrant liability (Level 2) 180,000

As of June 30, 2021, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets.

Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market.

The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).

As of September 30, 2021, 5.3 million Warrants have been exercised.

The remaining 3.1 million Warrants were not exercised and expired on August 30, 2021.

On May 14, 2021, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $ 8.0 million from time to time.

The Company has no obligation to sell any TruPs, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement.

As of June 30, 2021, the Company has sold 184.0 thousand shares of TruPs under the ATM agreement for net proceeds of $ 4.4 million.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 18.6 million as of June 30, 2021.

As of September 30, 2021, the Company has sold 0.2 million shares of TruPs under the ATM agreement for net proceeds of $ 5.0 million.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 22.1 million as of September 30, 2021.

Geographical information

Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of June 30, 2021 and March 31, 2021 (in thousands):

June 30, 2021 March 31, 2021

September 30, 2021 March 31, 2021

United States $ 8,994 $ 8,632

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Total tangible long-lived assets, net $ 10,594 $ 10,650

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at June 30, 2021.

The net book value located within each individual country at June 30, 2021 and March 31, 2021 is listed below (in thousands):

June 30, 2021 March 31, 2021

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, 2021.

The net book value located within each individual country at September 30, 2021 and March 31, 2021 is listed below (in thousands):

September 30, 2021 March 31, 2021

Macau $ 1,489 $ 1,896

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Total tangible long-lived assets, net $ 1,600 $ 2,018

Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2021 and June 30, 2020 (in thousands):

June 30, 2021 June 30, 2020

Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2021 and September 30, 2020 (in thousands):

September 30, 2021 September 30, 2020

United States $ 69,225 $ 67,163

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overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other.

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

We have presented prior periods based on the current presentation.

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(In Thousands) Three Months Ended

September 30, Six Months Ended

September 30,

2021 2020 2021 2020

Operating Revenues by Segment:

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Commitments and Contingencies

Contrail Aviation entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail Aviation in 1996 providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”).

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

The Company has presented this redeemable non-controlling interest in Contrail Aviation ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

Redeemable Non-controlling Interest

Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”).

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

The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

The fair value of the redeemable non-controlling interest is $ 7.0 million as of June 30, 2021.

The fair value of the redeemable non-controlling interest is $ 7.3 million as of September 30, 2021.

The change in the redemption value compared to March 31, 2021 is an increase of $ 0.7 million.

The increase was driven by $ 0.3 million of contributions made from the non-controlling interest and $ 0.2 million of the net change in fair value, partially offset by $ 0.1 million of net loss attributable to the non-controlling interest during the three months ended June 30, 2021.

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

The increase was driven by $ 0.3 million of contributions made from the non-controlling interest and $ 0.1 million of the net change in fair value, in addition to $ 0.3 million of net income attributable to the non-controlling interest during the six months ended September 30, 2021.

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

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

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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.

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

CAM will serve two separate and distinct functions:

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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.

The increase in the fair value of the Contrail RNCI is primarily attributable to the value associated with the Contrail Aviation's investment in CJVII.

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

2020 Omnibus Stock and Incentive Plan

On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders.

The total number of shares authorized under the Plan is 420,000 .

Among other instruments, the Plan permits the Company to grant stock option awards.

Through September 30, 2021, options to purchase up to 326,000 shares have been granted under the Plan.

Vesting of options is based on the grantee meeting specified service conditions.

Furthermore, the number vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements.

As of September 30, 2021, total compensation cost recognized under the Plan was $ 0.2 million.

Subsequent Events

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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 1. Financial Statements