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AIR T INC - Quarter Report: 2019 September (Form 10-Q)





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2019
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____
Commission File Number 001-35476
Air T, Inc.
(Exact name of registrant as specified in its charter)
Delaware52-1206400
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
5930 Balsom Ridge Road, Denver, North Carolina 28037
(Address of principal executive offices, including zip code)
(828) 464 – 8741
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockAIRTNASDAQ Global Market
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“AIP”)AIRTPNASDAQ Global Market
Warrant to purchase AIPAIRTWNASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x                    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x                    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.






Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer x
Smaller reporting company x
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐                    No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common StockCommon Shares, par value of $.25 per share
Outstanding Shares at November 6, 20193,023,805  







AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
Item 5.
Exhibit Index
Certifications
Interactive Data Files


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Item 1. Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(In Thousands)Three Months Ended September 30,Six Months Ended September 30,
2019201820192018
Operating Revenues:
Overnight air cargo$19,745  $17,064  $38,064  $34,705  
Ground equipment sales12,741  12,838  24,991  19,224  
Printing equipment and maintenance249  139  313  439  
Commercial jet engines and parts17,801  10,643  34,128  37,963  
Corporate and other157  183  385  356  
50,693  40,867  97,881  92,687  
Operating Expenses:
Overnight air cargo17,707  15,350  34,226  30,524  
Ground equipment sales10,358  10,980  20,089  15,917  
Printing equipment and maintenance121  49  160  194  
Commercial jet engines and parts11,050  5,663  19,336  25,784  
General and administrative9,288  7,997  18,960  15,378  
Depreciation and amortization1,695  1,697  3,635  3,057  
Impairment 10  14  21  
Loss on sale of property and equipment —  (4) —  
50,227  41,746  96,416  90,875  
Operating Income (Loss)466  (879) 1,465  1,812  
Non-operating Income (Expense):
Other-than-temporary impairment loss on investments(395) —  (1,210) —  
Interest expense(2,047) (714) (3,071) (1,421) 
Gain on settlement of bankruptcy18  —  4,527  —  
Bargain purchase acquisition gain14  —  49  1,984  
Income (loss) from equity method investments(34) 160  (355) 170  
Other(440) 354  (205) 133  
(2,884) (200) (265) 866  
Income (Loss) from continuing operations before income taxes(2,418) (1,079) 1,200  2,678  
Income Taxes (Benefit)(296) (300) (668) 117  
Net income (Loss) from continuing operations(2,122) (779) 1,868  2,561  
Loss from discontinued operations, net of tax(235) (648) (70) (705) 
Gain on sale of discontinued operations, net of tax8,359  —  8,359  —  
Net income (loss)6,002  (1,427) 10,157  1,856  
Net (Income) Loss Attributable to Non-controlling Interests(287) 106  (2,660) (348) 
Net Income (Loss) Attributable to Air T, Inc. Stockholders$5,715  $(1,321) $7,497  $1,508  
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Income (Loss) from continuing operations per share (Note 6)
Basic$(0.80) $(0.22) $(0.30) $0.72  
Diluted$(0.80) $(0.22) $(0.30) $0.72  
Income (Loss) from discontinued operations per share (Note 6)
Basic$2.69  $(0.21) $3.14  $(0.23) 
Diluted$2.68  $(0.21) $3.13  $(0.23) 
Weighted Average Shares Outstanding:
Basic3,025  3,066  2,641  3,066  
Diluted3,029  3,066  2,645  3,074  
See notes to condensed consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended
September 30,
Six Months Ended
September 30,
(In Thousands)2019201820192018
Net income (loss)$6,002  $(1,427) $10,157  $1,856  
Other comprehensive income (loss):
Foreign currency translation gain41  32  23  79  
Unrealized gain (loss) on interest rate swaps, net of tax(88) 29  (264) 29  
Total Other Comprehensive Income (loss)(47) 61  (241) 108  
Total Comprehensive Income (Loss)5,955  (1,366) 9,916  1,964  
Comprehensive (Income) Loss Attributable to Non-controlling Interests(290) 98  (2,675) (373) 
Comprehensive Income (Loss) Attributable to Air T, Inc. Stockholders$5,665  $(1,268) $7,241  $1,591  
See notes to condensed consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)September 30, 2019March 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents$27,434  $12,417  
Marketable securities1,423  1,760  
Restricted cash102  123  
Restricted investments1,018  831  
Accounts receivable, net of allowance for doubtful accounts of $382 and $40818,464  10,881  
Income tax receivable1,030  142  
Inventories, net40,370  27,455  
Other current assets9,232  6,138  
Current assets of discontinued operations—  11,601  
99,073  71,348  
Assets on lease, net of accumulated depreciation of $6,007 and $6,68921,019  25,164  
Property and equipment, net of accumulated depreciation of $3,935 and $3,4704,310  4,264  
Right-of-use assets7,154  —  
Cash surrender value of life insurance policies, net of policy loans80  122  
Other tax receivables-long-term—  311  
Deferred income taxes781  548  
Investments in securities785  1,086  
Equity method investments4,046  5,611  
Other assets284  200  
Intangible assets, net of accumulated amortization of $2,229 and $2,097898  998  
Goodwill4,227  4,227  
Non-current assets of discontinued operations—  1,264  
Total Assets142,657  115,143  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable12,540  11,409  
Income tax payable940  888  
Advanced customer deposits9,996  1,520  
Accrued expenses and other1,380  12,314  
Deferred income295  341  
Current portion of long-term debt29,836  24,735  
Short-term lease liability1,131  —  
Current liabilities of discontinued operations—  1,587  
56,118  52,794  
Long-term debt45,544  32,918  
Long-term lease liability6,446  —  
Other non-current liabilities1,202  597  
Total Liabilities109,310  86,309  
Redeemable non-controlling interest6,000  5,476  
Commitments and contingencies (Note 16)
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Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 50,000 shares authorized—  —  
Common stock, $.25 par value; 4,000,000 shares authorized, 3,022,745 and 2,022,637 shares issued and outstanding 756  506  
Additional paid-in capital2,410  2,866  
Retained earnings23,610  21,191  
Accumulated other comprehensive loss(461) (205) 
Total Air T, Inc. Stockholders' Equity26,315  24,358  
Non-controlling Interests1,032  (1,000) 
Total Equity27,347  23,358  
Total Liabilities and Equity$142,657  $115,143  
See notes to condensed consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)Six Months Ended
September 30,
20192018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$10,157  $1,856  
Loss from discontinued operations, net of income tax70  705  
Gain on sale of discontinued operations, net of income tax(8,359) —  
Net income (loss) from continuing operations1,868  2,561  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and  amortization3,648  3,077  
Bargain purchase acquisition gain(49) (1,984) 
Impairment of investment1,210  —  
Gain on settlement of bankruptcy(4,527) —  
Other(1,785) (464) 
Change in operating assets and liabilities:
Accounts receivable(7,331) (1,853) 
Costs and estimated earnings in excess of billings and uncompleted projects—  2,012  
Notes receivable and other non-trade receivables(2,984) (3,126) 
Inventories5,891  10,123  
Accounts payable3,188  3,124  
Accrued expenses739  2,233  
Other(359) (300) 
Total adjustments(856) 12,213  
Net cash provided by (used in) operating activities - continuing operations(491) 15,403  
Net cash provided by (used in) operating activities - discontinued operations1,094  (532) 
Net cash provided by operating activities603  14,871  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities(187) (2,014) 
Acquisition of businesses, net of cash acquired(500) (3,376) 
Investment in reinsurance entity—  (2,000) 
Capital expenditures related to property & equipment(575) (763) 
Capital expenditures related to assets on lease(17,614) (19,149) 
Other346  (213) 
Net cash used in investing activities - continuing operations(18,530) (27,515) 
Net cash provided by (used in) investing activities - discontinued operations20,463  (61) 
Net cash provided by (used in) investing activities1,933  (27,576) 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit48,267  51,151  
Payments on lines of credit(35,324) (58,355) 
Proceeds from term loan13,001  21,714  
Payments on term loan(17,900) (3,190) 
Proceeds received from exercise of warrants 5,407  —  
Proceeds from life insurance policy loan—  1,897  
Other(1,124) 41  
Net cash provided by financing activities - continuing operations12,327  13,258  
Effect of foreign currency exchange rates on cash and cash equivalents26   
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NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH14,889  558  
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD12,647  5,073  
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD$27,536  $5,631  
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment leased to customers transferred to inventory18,710  234  
Issuance of Debt - Trust Preferred Securities4,000  —  
Issuance of warrant liability840  —  
See notes to condensed consolidated financial statements.
10





AIR T, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)

Equity
Air T, Inc. Stockholders' Equity
(In Thousands)Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Non-controlling
Interests
Total
Equity
SharesAmount
Balance, March 31, 20182,044  $511  $4,172  $20,696  $(261) $(875) $24,243  
Net income (loss)*—  —  —  2,829  —  (46) 2,782  
Reclassification of unrealized loss on marketable securities, net of tax—  —  —  (106) 106  —  —  
Foreign currency translation gain—  —  —  —  31  17  48  
Balance, June 30, 20182,044  $511  $4,172  $23,418  $(124) $(904) $27,073  
Net loss*—  —  —  (1,321) —  (42) (1,363) 
Exercise of stock options —  18  —  —  —  18  
Repurchase of common stock(1) —  (2) (21) —  —  (23) 
Foreign currency translation gain—  —  —  —  24   32  
Unrealized gain on interest rate swaps, net of tax—  —  —  —  29  —  29  
Balance, September 30, 20182,045  $511  $4,188  $22,076  $(71) $(938) $25,766  

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







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Equity
Air T, Inc. Stockholders' Equity
(In Thousands)Common StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Non-controlling
Interests
Total
Equity
SharesAmount
Balance, March 31, 20192,022  $506  $2,866  $21,191  $(205) $(1,000) $23,358  
Net income*—  —  —  1,782  —  2,034  3,816  
Repurchase of Common Stock(17) (4) —  (122) —  —  (126) 
Stock Split1,010  252  (252) —  —  —  —  
Issuance of Debt - Trust Preferred Securities—  —  —  (4,000) —  —  (4,000) 
Issuance of Warrants—  —  —  (840) —  —  (840) 
Adoption of ASC 842 - Leasing—  —  —  (41) —  —  (41) 
Unrealized loss on interest rate swaps, net of tax—  —  —  —  (176) —  (176) 
Foreign currency translation gain (loss)—  —  —  —  (30) 12  (18) 
Adjustment to fair value of redeemable non-controlling interest—  —  (985) —  —  —  (985) 
Balance, June 30, 20193,015  $754  $1,629  $17,970  $(411) $1,046  $20,988  
Net income (loss)*—  —  —  5,715  —  (17) 5,698  
Repurchase of common stock  —  (75) —  —  (73) 
Foreign currency translation gain—  —  —  —  38   41  
Adjustment to fair value of redeemable non-controlling interest—  —  781  —  —  —  781  
Unrealized gain (loss) on interest rate swaps, net of tax—  —  —  —  (88) —  (88) 
Balance, September 30, 20193,023  $756  $2,410  $23,610  $(461) $1,032  $27,347  

*Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.
See notes to condensed consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Financial Statement Presentation
The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2019. The results of operations for the period ended September 30, 2019 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior period amounts to conform to the current presentation.
Discontinued Operations
On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and six months ended September 30, 2019 and 2018. Refer to Footnote 4 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Recently Adopted Accounting Pronouncements
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended by multiple standards updates. The new standard provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.
 
The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. Topic 842 permits two transition methods: (1) a modified retrospective transition method requiring retrospective adjustment of each comparative presented with an adjusting entry at the beginning of the earliest comparative period presented and (2) a modified retrospective approach with no restatement of prior periods and an adjusting entry as of the effective date. Under both transition methods, entities may elect certain transition practical expedients that would be required to be applied to all leases.
 
The Company adopted the standard in the fiscal year beginning April 1, 2019 using the modified retrospective transition method that does not require retrospective adjustment of the comparative periods. The Company reviewed existing leases to determine the impact of the adoption of the standard on its consolidated financial statements. Implementation had an immaterial cumulative effect on retained earnings. Adoption resulted in the recognition of right-of-use assets of approximately $10.7 million, and lease liabilities of approximately $11.2 million.
 
Upon adoption, the Company elected practical expedients related to a) short term lease exemption b) not separate lease and non-lease components c) not reassess whether expired or existing contracts contain leases, d) not reassess lease classification for existing or expired leases and e) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.

Recently Issued Accounting Pronouncements

In 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.
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The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

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:
Type of RevenueNature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product SalesThe Company generates revenue from sales of various distinct products such as parts, aircraft equipment, printing equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation.
The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue.
The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support ServicesThe Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis.
For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.
Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.
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The following table summarizes disaggregated revenues by type (in thousands):

Three Months Ended September 30,Six Months Ended September 30,
2019201820192018
Product Sales
Air Cargo$6,680  $5,003  $12,094  $10,523  
Ground equipment sales12,489  12,447  24,492  18,617  
Commercial jet engines and parts13,218  7,380  24,388  32,409  
Printing equipment and maintenance20  122  68  409  
Corporate and other—  —  —  —  
Support Services
Air Cargo13,033  11,985  25,927  24,082  
Ground equipment sales105  148  210  249  
Commercial jet engines and parts1,597  1,327  3,007  2,293  
Printing equipment and maintenance225  12  236  20  
Corporate and other(8) 16  33  16  
Leasing Revenue
Air Cargo—  —  —  —  
Ground equipment sales33  15  53  46  
Commercial jet engines and parts2,941  1,826  6,655  3,027  
Printing equipment and maintenance—  —  —  —  
Corporate and other36  32  81  72  
Other
Air Cargo32  76  43  100  
Ground equipment sales114  228  236  312  
Commercial jet engines and parts45  110  78  234  
Printing equipment and maintenance   10  
Corporate and other129  135  271  268  
Total$50,693  $40,867  $97,881  $92,687  

The following table summarizes total revenues by segment (in thousands):

Three Months Ended September 30,Six Months Ended September 30,
2019201820192018
Air cargo$19,745  $17,064  $38,064  $34,705  
Ground equipment sales12,741  12,838  24,991  19,224  
Commercial jet engines and parts17,801  10,643  34,128  37,963  
Printing equipment and maintenance249  139  313  439  
Corporate and other157  183  385  356  
Total$50,693  $40,867  $97,881  $92,687  

See Note 14 for the Company's disaggregated revenues by geographic region and Note 15 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.
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Contract Balances and Costs

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2019 and September 30, 2019 and the amount of contract liabilities that were recognized as revenue during the six-month period ended September 30, 2019 (in thousands):

Outstanding contract liabilitiesOutstanding contract liabilities as of April 1, 2019
Recognized as Revenue
As of September 30, 2019$10,291  
As of April 1, 20191,867  
For the six months ended September 30, 20191,781  

Contract assets primarily relate to deposits paid to vendors. The following table presents the amount of contract assets as of April 1, 2019 and September 30, 2019 (in thousands):

Contract assets
As of September 30, 2019$5,174
As of April 1, 20191,743


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3. Business Combinations
Acquisition of Worthington Aviation Parts, Inc.
On May 4, 2018, Air T, Inc. completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation Parts, Inc. (“Worthington”), pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.
Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services. The Company agreed to acquire the assets and liabilities in exchange for payment to Worthington of $50,000 as earnest money upon execution of the Agreement and a cash payment of $3,300,000 upon closing. Total consideration is summarized in the table below (in thousands):
Earnest money$50  
Cash consideration3,300
Cash acquired(24) 
Total consideration$3,326  

The Transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 4, 2018, with the excess of fair value of net assets acquired recorded as a bargain purchase gain. The most significant asset acquired was Worthington’s inventory. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of May 4, 2018 (in thousands):
May 4, 2018
ASSETS
Accounts receivable$1,929  
Inventories4,564  
Other current assets150  
Property and equipment392  
Other assets189  
Intangible assets - tradename138  
Total assets7,362  
LIABILITIES
Accounts payable1,289  
Accrued expenses175  
Deferred tax liability589  
Total liabilities2,053  
Net assets acquired5,309  
Consideration paid3,350  
Less: Cash acquired(24) 
Bargain purchase gain$1,983  

The transaction resulted in a bargain purchase gain because Worthington was a non-marketed transaction and in financial distress at the time of the acquisition. The seller engaged in a formal bidding process and determined Air T was the best option for Worthington. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $589,000.  The resulting net bargain purchase gain after taxes was approximately $1,983,000. Total transaction costs incurred in connection with this acquisition were approximately $83,000.

Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.



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4. 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 includes a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics are achieved by March 31, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.8 million with tax impact of $2.4 million for a net of tax gain of $8.4 million in the second quarter of 2019. The gain is subject to change pending final settlement statement, final transaction costs and net working capital adjustments.

Summarized results of operations of GAS for the three and six months ended September 30, 2019 and 2018 through the date of disposition are as follows (in thousands):


Three Months Ended September 30,Six Months Ended September 30,
2019201820192018
Net sales$8,120  $8,474  $16,637  $17,522  
Operating Expense(9,015) (9,215) (17,319) (18,350) 
Loss from discontinued operations before income taxes(895) (741) (682) (828) 
Income tax benefit(660) (93) (612) (123) 
Loss from discontinued operations, net of tax$(235) $(648) $(70) $(705) 


The following table presents summary balance sheet information of GAS that is presented as discontinued operations as of March 31, 2019 (in thousands):

Assets:March 31, 2019
Cash and cash equivalents$107  
Accounts receivable, net8,197  
Income tax receivable17  
Inventories, net2,512  
Other current assets769  
Current assets of discontinued operations11,601  
Property and equipment, net554  
Intangible assets, net228  
Goodwill190  
Other non-current assets292  
Non-current assets of discontinued operations1,264  
Liabilities:
Accounts payable1,144  
Income tax payable(226) 
Accrued expenses669  
Current liabilities of discontinued operations$1,587  




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5. Income Taxes

During the three-month period ended September 30, 2019, the Company recorded $296,000 in income tax benefit from continuing operations at an effective rate ("ETR") of 12.2%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three month period ended September 30, 2018, the Company recorded $300,000 in income tax benefit from continuing operations at an ETR of 27.8%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the three-month period ended September 30, 2018 were the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense.

During the six-month period ended September 30, 2019, the Company recorded $668,000 in income tax benefit from continuing operations at an ETR of (55.6)%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2018, the Company recorded $117,000 in income tax expense from continuing operations at an ETR of 4.4%. 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, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the bargain purchase gain.

For the three and six months ended September 30, 2019, the ETR in discontinued operations is 73.7% and 89.7%, respectively. The ETR is impacted by the effect of the release of the valuation allowance recorded in fiscal year 2019 against the $2 million impaired reinsurance contracts. For the three and six months ended September 30, 2018, the ETR in discontinued operations is 12.6% and 14.8%, respectively. The ETR is impacted by permanent, non-deductible items for tax.
























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6. Net Earnings Per Share
Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. There were 3,151 anti-dilutive securities as of September 30, 2019. The computation of basic and diluted earnings per common share is as follows (in thousands):

Three Months Ended September 30,Six Months Ended September 30,
2019201820192018
Net income (loss) from continuing operations$(2,122) $(779) $1,868  $2,561  
Net (income) loss from continuing operations attributable to non-controlling interests(287) 106  (2,660) (348) 
Net income (loss) from continuing operations attributable to Air T, Inc. stockholders(2,409) (673) (792) 2,213  
Income (loss) from continuing operations per share:
Basic$(0.80) $(0.22) $(0.30) $0.72  
Diluted$(0.80) $(0.22) $(0.30) $0.72  
Loss from discontinued operations, net of tax$(235) $(648) $(70) $(705) 
Gain on sale of discontinued operations, net of tax8,359  —  8,359  —  
Gain (loss) from discontinued operations attributable to Air T, Inc. stockholders8,124  (648) 8,289  (705) 
Income (loss) from discontinued operations per share:
Basic$2.69  $(0.21) $3.14  $(0.23) 
Diluted$2.68  $(0.21) $3.13  $(0.23) 
Weighted Average Shares Outstanding:
Basic3,025  3,066  2,641  3,066  
Diluted3,029  3,066  2,645  3,074  

On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50% stock dividend to shareholders of record as of June 4, 2019. All share and earnings per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly-issued shares was recorded with the offset to additional paid-in capital.

With respect to our September 30, 2019 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the Condensed Consolidated Balance Sheets, and in all share data in the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.


7. Investments in Securities
As of September 30, 2019, the Company had a gross unrealized gain aggregating to $2,273 and gross unrealized losses aggregating to $420,208, which are included in the Consolidated Statement of Income.
All investments in marketable securities are priced using publicly quoted market prices and are considered Level 1 fair value measurements.


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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. At September 30, 2019, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 29% of the outstanding shares. For the quarter ended September 30, 2019, the Company recorded approximately $142,196 as its share of Insignia’s net loss for the three months ended June 30, 2019 along with a basis difference adjustment of approximately $24,032. In addition, due to the adverse financial results as reported in Insignia's Form 10-Q for the quarter ended June 30, 2019 in addition to consideration of analyst reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in Insignia . As such, the Company recorded an impairment charge of $395,031 during the quarter ended September 30, 2019. After the impairment, the Company's net investment basis in Insignia is $3,439,547 as of September 30, 2019.
Summarized unaudited financial information for Insignia for the three months ended June 30, 2019 and 2018 is as follows (in thousands):
Three
Months Ended
June 30, 2019
Three
Months Ended
June 30, 2018
Revenue$5,842  $8,245  
Gross Profit1,465  3,005  
Operating income (loss)(683) 253  
Net income (loss)(488) 184  
Net income attributable to Air T, Inc. stockholders$(166) $31  

9. Inventories
Inventories consisted of the following (in thousands):
September 30,
2019
March 31,
2019
Ground equipment manufacturing:
Raw materials$4,191  $2,498  
Work in process910  1,660  
Finished goods1,922  973  
Printing equipment and maintenance
Raw materials476  401  
Finished goods912  1,048  
Commercial jet engines and parts32,133  21,032  
Total inventories40,544  $27,612  
Reserves(174) (157) 
Total inventories, net of reserves$40,370  $27,455  


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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, 2019 are as follows (in thousands):
Three Months Ended
September 30, 2019
Six
Months Ended
September 30, 2019
Operating lease cost$514  $920  
Short-term lease cost50  255  
Variable lease cost71  207  
Sublease income—  —  
Total lease cost$635  $1,382  
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Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the quarter ended September 30, 2019 were as follows (in thousands):
September 30, 2019
Operating leases
Operating lease right-of-use assets$7,154  
Operating lease liabilities$7,577  
Weighted-average remaining lease term15.50 years
Operating leases
Weighted-average discount rate4.51 %
Operating leases
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended September 30, 2019 are as follows (in thousands):
Operating Leases
2020 (excluding the six months ended September 30, 2019)$786  
20211,311  
20221,131  
2023938  
2024637  
2025402  
Thereafter5,757  
Total undiscounted lease payments$10,962  
Less: Interest2,890  
Less: Discount495  
Total lease liabilities$7,577  

At March 31, 2019, future minimum annual lease payments (foreign currency amounts translated using applicable March 31, 2019 exchange rates) are as follows (in thousands):

Year ended March 31,
2020$3,133  
20212,115  
20221,625  
20231,241  
2024692  
Thereafter6,267  
Total minimum lease payments$15,073  


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11. Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below (in thousands) at September 30, 2019 and March 31, 2019, respectively. AirCo and Contrail Aviation (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.
(In Thousands)September 30,
2019
March 31,
2019
Maturity DateInterest RateUnused commitments as of September 30, 2019
  Revolver - MB&T$18,424  $12,403  November 30, 2019Prime - 1%$1,576  
  Term Note A - MB&T8,250  8,750  January 1, 20281-month LIBOR + 2%
  Term Note B - MB&T4,125  4,375  January 1, 20284.5%  
  Term Note D - MB&T1,574  1,607  January 1, 20281-month LIBOR + 2%
Debt - Trust Preferred Securities9,632  —  June 7, 20498%  
Air T Debt42,005  27,135  
Revolver - MB&T—  3,820  May 21, 20197.5%  
Revolver - MB&T6,921  —  November 30, 2019greater of 6.50% or Prime + 2%  3,078
Term Loan - MB&T—  450  December 17, 20197.50%  
Term Loan - MB&T—  400  June 17, 20207.25%  
Term Loan - Park State—  2,100  June 17, 20208.50%  
AirCo Debt6,921  6,770  
Revolver—  —  September 5, 20211-month LIBOR + 3%  20,000
Term Loan A7,466  8,617  January 26, 20211-month LIBOR + 3.75%  
Term Loan B6,500  15,500  September 14, 20211-month LIBOR + 3.75%  
Term Loan C12,805  —  August 1, 20241-month LIBOR + 3.75%
Contrail Debt - Old National26,771  24,117  
Total Debt75,697  58,022  
Less: Unamortized Debt Issuance Costs(317) (369) 
Total Debt, net$75,380  $57,653  

At September 30, 2019, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due byAmount
September 30, 2020$29,836  
September 30, 202117,535  
September 30, 20224,172  
September 30, 20234,271  
September 30, 20244,138  
Thereafter15,745  
75,697  
Less: Unamortized Debt Issuance Costs(317) 
$75,380  


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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). The Warrants are exercisable for one year from issuance.

The issuance of the TruPs and Warrants on June 10, 2019 is disclosed on our consolidated statements of equity as well as within the supplemental non-cash disclosure of the Company's consolidated statements of cash flows. As of September 30, 2019, 2,252,797 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $9,632,243 as of September 30, 2019.

At September 30, 2019, the Company had Warrants outstanding and exercisable to purchase 6,147,203 shares of its TruPs at an exercise price of $2.40 per share, which represents a discount to the $2.50 face value of each Trust Preferred Security. The Warrants will expire on June 7, 2020 or earlier upon redemption or liquidation.

Fair Value Measurement
as of September 30, 2019
Warrant liability (Level 2)$614,720  

As of September 30, 2019, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).
On August 16, 2019, Contrail entered into a term loan agreement with to borrow $13 million at the interest rate of LIBOR plus 3.75% per annum. The maturity date of the term loan is August 1, 2024.
On September 24, 2019, Air T amended the MBT revolver ("Air T Revolver") to temporarily increase the borrowing commitment from $17 million to $20 million. All other terms of the credit agreement remain unchanged. As noted in Footnote 17 - Subsequent Events, on November 8, 2019, Air T extended the maturity date of the Air T Revolver to February 28, 2020. The principal amount reverted back to $17 million. Concurrently, the Company also extended the maturity date of the AirCo MBT revolver ("AirCo Revolver") to February 28, 2020. Principal amount and terms of the AirCo Revolver remained unchanged.
The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.
As of August 1, 2018, these swap contracts were designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedge transaction affects earnings. As of September 30, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $570,069 and $227,000, respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended September 30, 2019, the Company recorded a loss of approximately $88,000, net of tax, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

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12. Variable Interest Entities
A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:
the power to direct the activities that most significantly impact the economic performance of the VIE; and
the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.
The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Delphax warrant, each constituted a variable interest. In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015. The Company consolidated Delphax in its consolidated financial statements beginning on that date.

The following table sets forth the carrying values of Delphax’s assets and liabilities as of September 30, 2019 and March 31, 2019 (in thousands):
September 30, 2019March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$13  $12  
Accounts receivable, net50  47  
Other current assets 59  
Total current assets72  118  
Other tax receivables-long-term—  311  
Total assets72  429  
LIABILITIES
Current liabilities:
Accounts payable96  2,151  
Accrued expenses392  3,158  
Short-term debt—  1,750  
Total current liabilities488  7,059  
Total liabilities488  7,059  
Net Liabilities$(416) $(6,630) 
Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt. As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities. The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada. In addition, on June 11, 2019, the Company has also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of September 30, 2019 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $4,509,302.
Delphax’s revenues and expenses are included in our consolidated financial statements beginning November 24, 2015 through September 30, 2019. Revenues and expenses prior to the date of initial consolidation were excluded. We have determined that the attribution of Delphax net income or loss should be based on consideration of all of Air T’s investments in Delphax and Delphax Canada. The Delphax warrant ("Delphax warrant") provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Delphax warrant is entitled to participate in such dividends on a ratable basis as if the Delphax warrant had been fully exercised and the shares of Series B Preferred Stock acquired upon such exercise had been converted into shares of Delphax common
26





stock. This provision would have entitled Air T, Inc. to approximately 67% of any Delphax dividends paid, with the remaining 33% paid to the non-controlling interests. We concluded that this was a substantive distribution right which should be considered in the attribution of Delphax net income or loss to non-controlling interests. We furthermore concluded that our investment in the debt of Delphax should be considered in attribution. Specifically, Delphax’s net losses are attributed first to our Series B Preferred Stock and Delphax warrant investments and to the non-controlling interest (67%/33%) until such amounts are reduced to zero. Additional losses are then fully attributed to our debt investments until they too are reduced to zero. This sequencing reflects the relative priority of debt to equity. Any further losses are then attributed to Air T and the non-controlling interests based on the initial 67%/33% share. Delphax net income is attributed using a backwards-tracing approach with respect to previous losses.
As a result of the application of the above-described attribution methodology, for the quarters ended September 30, 2019 and September 30, 2018 the attribution of Delphax losses to non-controlling interests was 33% and 33%, respectively.
The following table sets forth the revenue and expenses of Delphax prior to intercompany eliminations that are included in the Company’s condensed consolidated statement of income for the three months ended September 30, 2019 and 2018 (in thousands):

Six Months Ended September 30,
20192018
Operating Revenues$—  $—  
Operating Expenses:
Cost of sales—  —  
General and administrative125  222  
125  222  
Operating Loss(125) (222) 
Non-operating Income (Expenses), net6,237  (46) 
Income (Loss) Before Income Taxes6,112  (268) 
Income Taxes—  —  
Net Income (Loss)$6,112  $(268) 


13. Share Repurchase
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
During the three months ended September 30, 2019, the Company repurchased 5,883 shares at an aggregate cost of $101,039. These shares are reflected as retired as of September 30, 2019 in accordance with the intent of the authorized share repurchase program. The Company has reduced common stock and retained earnings to reflect the retirement of those shares.

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14. Geographical information
Total property and equipment, including assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of September 30, 2019 and March 31, 2019, in thousands:
September 30, 2019March 31, 2019
United States$18,321  $4,393  
Foreign7,008  25,035  
Total property and equipment, net$25,329  $29,428  

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, 2019. The net book value located within each individual country at September 30, 2019 and March 31, 2019 is listed below, in thousands:
September 30, 2019March 31, 2019
Australia$ $ 
Mexico1,845  2,681  
Netherlands5,160  5,541  
China—  16,808  
Total property and equipment, net$7,008  $25,035  
Total revenue from continuing operations, in and outside the United States is summarized in the following table for the six months ended September 30, 2019 and September 30, 2018, in thousands:
September 30, 2019September 30, 2018
United States$75,891  $79,267  
Foreign21,990  13,420  
Total revenue from continuing operations$97,881  $92,687  

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15. Segment Information
The Company has five business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment, printing equipment and maintenance and corporate and other. Segment data is summarized as follows (in thousands):

(In Thousands)Three Months Ended
September 30,
Six Months Ended
September 30,
2019201820192018
Operating Revenues by Segment:
Overnight Air Cargo$19,745  $17,064  $38,065  $34,705  
Ground Equipment Sales:
Domestic12,102  11,070  22,960  16,362  
International639  1,776  2,030  2,871  
Total Ground Equipment Sales12,741  12,846  24,990  19,233  
Printing Equipment and Maintenance:
Domestic175   197  194  
International74  137  120  245  
Total Printing Equipment and Maintenance249  140  317  439  
Commercial Jet Engines and Parts:
Domestic6,203  5,341  14,631  27,659  
International11,699  5,302  19,840  10,304  
Total Commercial Jet Engines and Parts17,902  10,643  34,471  37,963  
Corporate and other542  189  1,141  365  
Intercompany(486) (15) (1,103) (18) 
Total50,693  40,867  97,881  92,687  
Operating Income (Loss):
Overnight Air Cargo216  197  264  1,253  
Ground Equipment Sales1,221  697  2,568  1,091  
Printing Equipment and Maintenance(381) (413) (837) (654) 
Commercial Jet Engines and Parts1,193  575  3,191  3,788  
Corporate and other(1,902) (1,935) (3,860) (3,666) 
Intercompany119  —  139  —  
Total466  (879) 1,465  1,812  
Capital Expenditures:
Overnight Air Cargo26  29  56  34  
Ground Equipment Sales286  156  10  296  
Printing Equipment and Maintenance—  —  —  —  
Commercial Jet Engines and Parts16,005  19,287  17,656  19,471  
Corporate and other51  34  72  111  
Total16,368  19,506  17,794  19,912  
Depreciation, Amortization and Impairment:
Overnight Air Cargo19  21  37  44  
Ground Equipment Sales63  65  116  157  
Printing Equipment and Maintenance27  15  30  30  
Commercial Jet Engines and Parts1,456  1,456  3,192  2,554  
Corporate and other137  151  277  296  
Intercompany—  (1) (3) (3) 
Total$1,702  $1,707  $3,649  $3,078  

16. Commitments and Contingencies
Contrail Aviation Support, LLC (“Contrail Aviation”), a subsidiary of the Company, completed the purchase of all of the assets owned by Contrail Aviation Support, Inc. (the “Seller”) in July 2016. As part of this purchase, Contrail Aviation agreed to pay contingent additional deferred consideration of up to a maximum of $1,500,000 per year and $3,000,000 in the aggregate. The Company has paid
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in full the contingent consideration as of September 30, 2019 and there is no remaining liability as of September 30, 2019.
Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”). The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which is on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying consolidated balance sheets. In addition, the 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 $6,000,000. The net change in the redemption value compared to March 31, 2019 is an increase of $524,000, of which $203,858 was related to the net change in fair value during the six months ended September 30, 2019, which is reflected on our consolidated statements of equity.

17.  Subsequent Events
Management performs an evaluation of events that occur after the balance sheet date but before consolidated financial statements are issued for potential recognition or disclosure of such events in its consolidated financial statements.
On November 8, 2019, we extended the maturity date of the Air T Revolver to February 28, 2020. The borrowing capacity returned to $17 million from a temporary increase to $20 million on September 24, as mentioned in Footnote 12, Financing Arrangements. Concurrently, the Company also extended the maturity date of the AirCo Revolver to February 28, 2020. Principal amount remained at $10 million. All other terms for both agreements remained unchanged.

On November 8, 2019, the Company purchased a 19.90% interest in Cadillac Castings, Inc, a Michigan corporation (“Cadillac”). The purchase price for the interest acquired approximated $3,000,000. Cadillac is a full-service ductile iron foundry located in Cadillac, Michigan. Cadillac operates a 275,000 square-foot facility located on 43 acres and is a major supplier of engineered ductile iron, including high silicon molybdenum cast components.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Air T, Inc. (the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth in its free cash flow per share over time.
We currently operate in five industry segments:
Overnight air cargo, which operates in the air express delivery services industry;
Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;
Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines;
Printing equipment and maintenance, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers; and commercial aircraft companies and,
Corporate and other, which acts as the capital allocator and resource for other segments.
On September 30, 2019, we completed the sale of 100% of the equity ownership in the Company's wholly-owned subsidiary, Global Aviation Services, LLC.
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. 
All discussions and disclosures below are in thousands, unless stated otherwise.
Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019
Consolidated revenue increased by $9,826 or 24% to $50,693 for the three-month period ended September 30, 2019 compared to the same quarter in the prior fiscal year.
Following is a table detailing revenue by segment, net of intercompany during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):
Three Months Ended
September 30,
Change
2019  2018  
Overnight Air Cargo$19,745  $17,064  $2,681  16 %
Ground Equipment Sales12,741  12,838  (97) (1)%
Commercial Jet Engines and Parts17,801  10,643  7,158  67 %
Printing Equipment and Maintenance249  139  110  79 %
Corporate and other157  183  (26) (14)%
$50,693  $40,867  $9,826  24 %

Revenues from the air cargo segment increased by $2,681 (16%) compared to the second quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees and pass-through revenues to FedEx and higher sales to maintenance customers outside of FedEx.
The ground equipment sales segment contributed approximately $12,741 and $12,838 to the Company’s revenues for the three-month periods ended September 30, 2019 and 2018 respectively, representing a $97 (1)% decrease in the current quarter. At September 30, 2019, the ground equipment sales segment’s order backlog was $36.2 million compared to $30.6 million at September 30, 2018.
The commercial jet engines and parts segment contributed $17,801 of revenues in the quarter ended September 30, 2019 compared to $10,643 in the comparable prior year quarter which is an increase of $7,158 or 67%. The increase was primarily driven by Contrail's higher aircraft and component sales as well as higher lease revenue in the current quarter.
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Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):
Three Months Ended September 30, 2019Change
20192018
Overnight Air Cargo$254  $198  $56  28 %
Ground Equipment Sales1,221  696  525  75 %
Commercial Jet Engines and Parts1,083  575  508  88 %
Printing Equipment and Maintenance(300) (413) 113  (27)%
Corporate and other(1,791) (1,935) 144  (7)%
$467  $(879) $1,346  n/m  
Consolidated operating income for the quarter ended September 30, 2019 was $467, an increase of $1,346 from the operating loss of $879 in the comparable quarter of the prior year.
The ground equipment sales segment operating income increased by $525 (75%) to $1,221. This increase was primarily attributable to the fact that sales in the current quarter contained higher margin orders when compared to prior quarter sales that included broader product mix with lower margin orders.
The commercial jet engines and parts segment generated an operating income of $1,083 in the current-year quarter compared to an operating income of $575 in the prior-year quarter. The change was due to Contrail's higher margin aircraft and component sales, offset by higher medical claims costs at other companies in the same segment.
Consolidated operating expenses increased by $8,482 or 20% to $50,227 in the current year quarter. The increase in operating expenses was primarily driven by the commercial jet engines and parts segment and the ground equipment sales segment. The higher operating expenses was a direct result of increased sales in these two segments.
Following is a table detailing non-operating income (loss) during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended
September 30,
Change
20192018
Other-than-temporary impairment loss on investments$(395) $—  $(395) 
Interest expense(2,047) (714) (1,333) 
Gain on settlement of bankruptcy18  —  18  
Bargain purchase acquisition gain14  —  14  
Income (Loss) from equity method investments(34) 160  (194) 
Other(440) 354  (794) 
$(2,884) $(200) $(2,684) 
The Company had net non-operating loss of $(2,884) for the quarter ended September 30, 2019, an increase of $(2,684) from $(200) in the prior-year quarter, principally due to an impairment loss in the investment of Insignia of $(395) and an increase in interest expense of $(1,333) generated by increased debt activities as detailed in Footnote 11.
Pretax loss from continuing operations for the three-month period ended September 30, 2019 was $(2,418) compared to $(1,079) in the prior year comparable period, which was primarily attributable to the increase in non-operating loss of $(2,684), offset by increase in operating income of $1,346 as explained above.

During the three-month period ended September 30, 2019, the Company recorded $296 in income tax benefit at an effective rate of 12.24%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three month period ended September 30, 2018, the Company recorded $300 in income tax benefit
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which resulted in an effective tax rate of 27.80%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the three-month period ended September 30, 2018 were the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense.

First Six Months of Fiscal 2019 Compared to First Six Months of Fiscal 2018
Following is a table detailing revenue by segment (in thousands):
Six Months Ended
September 30,
Change
201920186 mos
Overnight Air Cargo$38,064  $34,705  $3,359  10 %
Ground Equipment Sales24,991  19,224  5,767  30 %
Printing Equipment and Maintenance313  439  (126) (29)%
Commercial Jet Engines and Parts34,128  37,963  (3,835) (10)%
Corporate385  356  29  %
$97,881  $92,687  $5,194  %

Revenues from the air cargo segment increased by $3,359 or 10% compared to the six months ended September 30, 2018. The increase was principally attributable to higher administrative fees and pass-through revenues to FedEx and higher sales to maintenance customers outside of FedEx.
The ground equipment sales segment contributed approximately $24,991 and $19,224 to the Company’s revenues for the six-month periods ended September 30, 2019 and 2018 respectively, representing a $5,767 or 30% increase in the current six-month period. The increase was due to increased orders of commercial and military deicers in addition to new customers.
The commercial jet engines and parts segment contributed $34,128 of revenues in the six months ended September 30, 2019 compared to $37,963 in the comparable prior year six months. The decrease was primarily driven by the fact that Contrail sold four whole engines in May 2018 totaling $17.4 million, which did not recur in 2019. This decrease was slightly offset by higher component and lease revenues in the three months ended September 30, 2019 compared to the three months ended September 30, 2018.
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Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2019 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended
September 30,
Change
201920186 mos
Overnight Air Cargo$271  $1,255  $(984) (78)%
Ground Equipment Sales2,568  1,089  1,479  136 %
Printing Equipment and Maintenance(682) (654) (28) (4)%
Commercial Jet Engines and Parts2,971  3,788  (817) (22)%
Corporate(3,663) (3,666)  — %
$1,465  $1,812  $(347) (19)%

Consolidated operating income for the six months ended September 30, 2019 was $1,465, a decrease of $347 from operating income of $1,812 for the comparable six months of prior year.
Operating income for the air cargo segment decreased by $984 (78)% due primarily to higher pilot salaries and increased pilot headcount.
The ground equipment sales segment operating income increased by $1,479 (136%) to $2,568 in the six-month period ended September 30, 2019. This increase was primarily attributable to increased sales volume as well as higher margin product mix.
The commercial jet engines and parts segment generated an operating income of $2,971 in the current-year six months compared to an operating income of $3,788 in the prior-year six months. The decrease corresponded to the decrease in sales in this segment in addition to higher medical claim costs when compared to prior year six months.
Consolidated operating expenses increased by $5,541 or 6% to $96,416 in the six months ended September 30, 2019. The increase in operating expenses was primarily driven by the increases in the overnight air cargo segment due to higher pilot salaries and the ground equipment sales segment (higher operating expenses as a result of increased sales), offset by the decrease in the commercial jet engines and parts segment as a result of decreased sales at Contrail and higher medical claims costs at other companies in the same segment.
Following is a table detailing non-operating income (loss) during the six months ended September 30, 2019 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended
September 30,
Change
201920186 months
Other-than-temporary impairment loss on investments$(1,210) $—  $(1,210) 
Interest expense(3,071) (1,421) (1,650) 
Gain on settlement of bankruptcy4,527  —  4,527  
Bargain purchase acquisition gain49  1,984  (1,935) 
Income (Loss) from equity method investments(355) 170  (525) 
Other(205) 133  (338) 
$(265) $866  $(1,131) 
The Company had net non-operating loss of $(265) for the six months ended September 30, 2019, a decrease of $(1,131) from net non-operating income of $866 in the prior-year six-month period, principally due to an impairment loss in the investment of Insignia of $(1,210), an increase in interest expense of $(1,650) generated by increased debt activities as detailed in Footnote 11, a decrease in bargain purchase acquisition gain of $(1,935) offset by the $4,527 gain on settlement of bankruptcy related to Dephax Canada and UK.
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Pretax income from continuing operations for the six-month period ended September 30, 2019 was $1,200 compared to $2,678 in the prior year comparable period, which was primarily attributable to the decrease in non-operating loss of $(1,131) in addition to decrease in operating income of $(347) as explained above.

During the six-month period ended September 30, 2019, the Company recorded $668 in income tax expense at an effective rate of 55.65%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2018, the Company recorded $117 in income tax benefit which resulted in an effective tax rate of 4.37%. 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, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the bargain purchase gain.

Critical Accounting Policies and Estimates
The Company’s significant accounting policies are fully described in Note 1 to the consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended September 30, 2019.
Seasonality
The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments are not susceptible to material seasonal trends.


Liquidity and Capital Resources
As of September 30, 2019, the Company held approximately $27,536 in cash and cash equivalents and restricted cash. The Company also held $1,018 in restricted investments held as statutory reserve of SAIC and the remaining $102 of restricted investments pledged to secure SAIC’s participation in certain reinsurance pools. The Company has approximately $4,862 of marketable securities as of September 30, 2019.
As of September 30, 2019, the Company’s working capital amounted to $42,955, an increase of $24,401 compared to September 30, 2018. 

As of September 30, 2019, the exercise of Warrants to purchase TruPs issued on June 10, 2019 has generated cash proceeds of $5,407, which is disclosed in the financing section on our consolidated statements of cash flows.
On August 16, 2019, Contrail entered into a term loan agreement with Old National Bank to borrow $13 million at the interest rate of LIBOR plus 3.75% per annum. The maturity date of the term loan is August 1, 2024.
On September 24, 2019, Air T amended the MBT revolver to temporarily increase the borrowing commitment from $17 million to $20 million. All other terms of the credit agreement remain unchanged.
The revolving lines of credit at both Air T and AirCo have due dates or expire within the next twelve months, as does some term debts within various business units. On November 8, 2019, we entered into agreements with MBT ("extension agreements") to extend the maturity date of the Air T Revolver and AirCo Revolver to February 28, 2020. As part of the extension agreement, the Air T revolver's borrowing capacity was also returned to $17 million. We are currently seeking to refinance these obligations prior to February 28,
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2020; 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.

As of September 30, 2019, the Company had sufficient capital resources to cover contractual financing obligations due by September 30, 2020. Cash flows from operations, cash and cash equivalents, and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash requirements. 
The Company’s Credit Agreement with MBT (the Air T debt in Footnote 11 to the financial statements) includes several covenants that are measured once a year as of March 31, including but not limited to a negative covenant requiring a debt service coverage ratio of 1.25. The Company is working with its operating subsidiaries to assure compliance with the MBT covenants at March 31, 2020. However, there is no assurance that the Company will meet each covenant at March 31, 2020 and in such event the Company will work with MBT to seek a waiver and/or undertake other actions to avoid an event of non-compliance.

Cash Flows
Following is a table of changes in cash flow for the six months ended September 30, 2019 and 2018 (in thousands):
Six Months Ended September 30,
2019  2018
Net Cash Provided by Operating Activities603  14,871  
Net Cash Provided by (Used in) Investing Activities1,933  (27,576) 
Net Cash Provided by Financing Activities12,327  13,258  
Effect of foreign currency exchange rates on cash and cash equivalents26   
Net Increase in Cash and Cash Equivalents and Restricted Cash14,889  558  
Net cash provided by operating activities was $603 for the six-month period ended September 30, 2019 compared to the net cash provided by operating activities of $14,871 in prior year period. The primary drivers in the decrease in cash provided by operating activities for the six months ended September 30, 2019 was the increase in accounts receivable at GGS due to significant increase in commercial deicer sales as well as increased inventory levels at Contrail due to two engines coming off lease into inventory and at GGS due to significant backlog and production requirements in the current quarter.
Net cash provided by investing activities for the six-month period ended September 30, 2019 was $1,933 compared to net cash used in investing activities of $(27,576) in prior year period. The primary driver in generating cash from investing activities was the lower cash used in business combinations, purchases of marketable securities as well as lower capital expenditures, and cash provided by the sale of GAS.
Net cash provided by financing activities for the six-month period ended September 30, 2019 was $12,327 compared to net cash provided by financing activities of $13,258 in the prior year period. The slight decrease was primarily driven by lower net cash proceeds from lines of credit and term loans, in addition to cash proceeds from exercise of Warrants to purchase TruPs.

Impact of Inflation
The Company believes that inflation has not had a material effect on its operations, because increased costs to date have generally been passed on to its customers. Under the terms of its overnight air cargo business contracts the major cost components of this business’ operations, consist principally of fuel, and certain other direct operating costs, and certain maintenance costs that are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.


Item 3. Quantitative and Qualitative Disclosures About Market Risk.
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.

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Item 4. Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2019. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.
There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
(a)None.
(a)None.
(b)On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.
Purchases during the quarter ended September 30, 2019 are described below:
Issuer Purchases of Equity Securities
Dates of
Shares Purchased
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of Shares
Purchased as Part of
Public Announced
Plans or Programs
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plans or Programs
July 1 - July 31, 20192,097  $17.81  24,438  699,027  
August 1 - August 31, 20192,674  $17.87  21,764  677,263  
September 1 - September 30, 20191,112  $14.32  20,652  656,611  
5,883  


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Item 5. Other information

(a) Other Information

On November 8, 2019, AirCo 1, LLC, a wholly-owned subsidiary of AirCo, LLC, a wholly-owned subsidiary of Stratus Aero Partners, LLC, a wholly-owned subsidiary of Air T, Inc., and MBT, entered into that certain Change in Terms Agreement (the “AirCo 1 Amendment”). The AirCo 1 Amendment amends the AirCo Revolving Credit Note in the original principal amount of $10,000,000 by extending the maturity date to February 28, 2020, and providing for a three-month interest only payment schedule with final payment of all principal and unpaid accrued interest due on the new maturity date.

On November 8, 2019, the Company and MBT entered into that certain Change in Terms Agreement (the “Company Amendment”). The Company Amendment amends the Company Revolving Credit Note to return the principal amount to $17,000,000, extend the maturity date to February 28, 2020 with final payment of all principal and unpaid accrued interest due on the maturity date.

The above discussion is qualified in its entirety by reference to the AirCo 1 Amendment and the Company Amendment filed as Exhibits 10.29 and 10.30 to this Report, which are incorporated herein by reference.

On November 8, 2019, the Company purchased a 19.90% interest in Cadillac Castings, Inc, a Michigan corporation (“Cadillac”). The purchase price for the interest acquired approximated $3,000,000. In connection with the transaction, investment entities controlled by Nick Swenson increased ownership interest in Cadillac from approximately 33% to approximately 61%. Gary Kohler, a director of the Company is an investor in the investment entity controlled by Mr. Swenson that purchased the additional shares.

Cadillac is a full-service ductile iron foundry located in Cadillac, Michigan (“Cadillac”). Cadillac operates a 275,000 square-foot facility located on 43 acres and is a major supplier of engineered ductile iron, including high silicon molybdenum cast components. Molds are made with a high-speed green sand horizontal Combustion Engineering (CE) SpoMatic process. Cadillac also uses a custom automated Resin Bonded Sand (RBS) process, for difficult and “rangy” products. Cadillac provides support from the design and prototype phases all the way through production of its products. Cadillac operates in the automotive, commercial vehicle, off highway, industrial and railroad industries. Cadillac’s annual revenues exceeded $100MM in each of the last two calendar years.

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Item 6. Exhibits
(a) Exhibits
No.Description
10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

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10.23

10.24
10.25

10.26
10.27

10.28

10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
31.1
31.2
32.1
99.1
101
The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.
* Portions of the transaction exhibits have been omitted for confidential treatment.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AIR T, INC.
Date: November 12, 2019
/s/ Nick Swenson
Nick Swenson, Chief Executive Officer and Director
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer

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