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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2020
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 filerAccelerated filer
Non-accelerated filer
Smaller reporting company
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 October 30, 20202,881,853







AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I
Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and March 31, 2020
Item 5.
Exhibit Index
Certifications
Interactive Data Files

3





Item 1.    Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except (loss) income per share number)Three Months Ended
September 30,
Six Months Ended
September 30,
2020201920202019
Operating Revenues:
Overnight air cargo$17,295 $19,745 $33,466 $38,064 
Ground equipment sales12,060 12,74127,888 24,991 
Commercial jet engines and parts6,114 17,80110,808 34,128 
Corporate and other135406414 698 
35,604 50,69372,576 97,881 
Operating Expenses:
Overnight air cargo15,234 17,707 29,401 34,226 
Ground equipment sales9,758 10,358 21,956 20,089 
Commercial jet engines and parts4,062 11,050 6,776 19,336 
General and administrative8,424 9,409 15,974 19,120 
Depreciation and amortization1,149 1,695 1,758 3,635 
Write-down on inventory535  535  
Asset impairment129 7 129 14 
(Gain)/Loss on sale of property and equipment(3)1 (4)(4)
39,288 50,227 76,525 96,416 
Operating (Loss) Income from continuing operations(3,684)466 (3,949)1,465 
Non-operating Income (Expense):
Other-than-temporary impairment loss on investments (395) (1,210)
Interest expense(1,081)(2,047)(2,242)(3,071)
Gain on settlement of bankruptcy 18  4,527 
Loss from equity method investments(498)(34)(1,056)(355)
Other359 (426)1,086 (156)
(1,220)(2,884)(2,212)(265)
(Loss) Income from continuing operations before income taxes(4,904)(2,418)(6,161)1,200 
Income Taxes Benefit(1,547)(296)(1,847)(668)
Net (Loss) Income from continuing operations(3,357)(2,122)(4,314)1,868 
Loss from discontinued operations, net of tax (235) (70)
Gain on sale of discontinued operations, net of tax4 8,359 4 8,359 
Net (Loss) Income(3,353)6,002 (4,310)10,157 
Net Loss (Income) Attributable to Non-controlling Interests$433 $(287)$549 $(2,660)
Net (Loss) Income Attributable to Air T, Inc. Stockholders$(2,920)$5,715 $(3,761)$7,497 
Loss from continuing operations per share (Note 6)
Basic$(1.01)$(0.80)$(1.31)$(0.30)
Diluted$(1.01)$(0.80)$(1.31)$(0.30)
Income from discontinued operations per share (Note 6)
Basic$ $2.69 $ $3.14 
Diluted$ $2.68 $ $3.13 
(Loss) Income per share (Note 6)
Basic$(1.01)$1.89 $(1.31)$2.84 
Diluted$(1.01)$1.88 $(1.31)$2.83 
Weighted Average Shares Outstanding:
Basic2,882 3,025 2,882 2,641 
Diluted2,882 3,029 2,882 2,645 
See notes to condensed consolidated financial statements.
4





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)2020201920202019
Net (Loss) Income$(3,353)$6,002 $(4,310)$10,157 
Foreign currency translation (loss) gain(68)41 (135)23 
Unrealized gain (loss) on interest rate swaps, net of tax 55 (88)29 (264)
Reclassification of interest rate swaps into earnings(16) (16) 
Total Other Comprehensive Loss(29)(47)(122)(241)
Total Comprehensive (Loss) Income(3,382)5,955 (4,432)9,916 
Comprehensive Loss (Income) Attributable to Non-controlling Interests433 (290)549 (2,675)
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders$(2,949)$5,665 $(3,883)$7,241 
See notes to condensed consolidated financial statements.
5





AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)September 30, 2020March 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents $4,253 $5,952 
Marketable securities2,158 1,677 
Restricted cash8,616 9,619 
Restricted investments991 1,085 
Accounts receivable, net of allowance for doubtful accounts of $1,250 and $680
10,302 13,077 
Income tax receivable3,237 1,174 
Inventories, net70,965 60,623 
Other current assets4,778 5,279 
Total Current Assets105,300 98,486 
Assets on lease or held for lease, net of accumulated depreciation of $3,319 and $6,526
18,064 27,945 
Property and equipment, net of accumulated depreciation of $4,631 and $4,319
6,095 5,272 
Right-of-use assets8,097 8,116 
Equity method investments3,945 5,208 
Goodwill4,227 4,227 
Other assets2,673 2,173 
Total Assets$148,401 $151,427 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable$9,134 10,864 
Accrued expenses and other (Note 4)12,294 13,024 
Current portion of long-term debt46,363 42,684 
Short-term lease liability1,325 1,174 
Total Current Liabilities69,116 67,746 
Long-term debt44,250 43,136 
Deferred income tax liabilities, net588 579 
Long-term lease liability7,397 7,473 
Other non-current liabilities 1,380 1,402 
Total Liabilities122,731 120,336 
Redeemable non-controlling interest5,000 6,080 
Commitments and contingencies (Note 15)
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 shares issued, 2,881,853 shares outstanding
756 756 
Treasury stock, 140,892 shares at $18.58
(2,617)(2,617)
Additional paid-in capital2,175 2,636 
Retained earnings20,007 23,768 
Accumulated other comprehensive loss(643)(537)
Total Air T, Inc. Stockholders' Equity19,678 24,006 
Non-controlling Interests992 1,005 
Total Equity20,670 25,011 
Total Liabilities and Equity$148,401 $151,427 

See notes to condensed consolidated financial statements.
6





AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)Six Months Ended
September 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income$(4,310)$10,157 
Loss from discontinued operations, net of income tax 70 
Gain on sale of discontinued operations, net of income tax(4)(8,359)
Net (loss) income from continuing operations(4,314)1,868 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and  amortization1,758 3,648 
Impairment of investment 1,210 
Gain on settlement of bankruptcy (4,527)
Other1,741 (1,785)
Change in operating assets and liabilities:
Accounts receivable2,202 (7,331)
Inventories(1,942)5,891 
Accounts payable(1,730)3,188 
Accrued expenses(730)739 
Other(2,611)(3,392)
Net cash used in operating activities - continuing operations(5,626)(491)
Net cash provided by operating activities - discontinued operations4 1,094 
Net cash (used in) provided by operating activities(5,622)603 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities(659)(187)
Acquisition of businesses, net of cash acquired (500)
Capital expenditures related to property & equipment(1,708)(575)
Capital expenditures related to assets on lease or held for lease(85)(17,614)
Other1,837 346 
Net cash used in investing activities - continuing operations(615)(18,530)
Net cash provided by investing activities - discontinued operations 20,463 
Net cash (used in) provided by investing activities(615)1,933 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit14,130 48,267 
Payments on lines of credit(22,257)(35,324)
Proceeds from term loan9,479 13,001 
Payments on term loan(4,875)(17,900)
Proceeds from Payroll Protection Program loan ("PPP loan")8,215  
Proceeds received from issuance of Trust Preferred Securities ("TruPS") 5,407 
Other(1,030)(1,124)
Net cash provided by financing activities - continuing operations3,662 12,327 
Effect of foreign currency exchange rates on cash and cash equivalents(127)26 
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH(2,702)14,889 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD15,571 12,647 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD$12,869 $27,536 
See notes to condensed consolidated financial statements.
7





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

(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 - Leasing— — — (41)— — (41)
Unrealized loss on interest rate swaps, net of tax— — — — (176)— (176)
Foreign currency translation (loss) gain— — — — (30)12 (18)
Adjustment to fair value of redeemable non-controlling interests— — (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 Stock8 2  (75) — (73)
Foreign currency translation gain— — — — 38 3 41 
Adjustment to fair value of redeemable non-controlling interest— — 781 — — — 781 
Unrealized loss on interest rate swaps, net of tax— — — — (88)— (88)
Balance, September 30, 20193,023 $756 $2,410 $23,610 $(461)$1,032 $27,347 


(In Thousands)Common StockTreasury StockAdditional
Paid-In
Capital
Retained
Earnings
Accumulated Other Comprehensive Income (Loss)Non-controlling
Interests
Total
Equity
SharesAmountSharesAmount
Balance, Balance, March 31, 20203,023 $756 $141 $(2,617)$2,636 $23,768 $(537)$1,005 $25,011 
Net loss*— — —  — (841)— (5)(846)
Unrealized loss on interest rate swaps, net of tax— — — — — — (26)— (26)
Foreign currency translation (loss)—  — — — — (67)— (67)
Adjustment to fair value of redeemable non-controlling interest— — — — 429 — — — 429 
Balance, June 30, 20203,023 756 141 (2,617)3,065 22,927 (630)1,000 24,501 
Net loss*— — — — — (2,920)— (8)(2,928)
Foreign currency translation (loss)— — — — — — (68)— (68)
Adjustment to fair value of redeemable non-controlling interest— — — — (890)— — — (890)
Unrealized gain on interest rate swaps, net of tax— — — — — — 55 — 55 
Balance, September 30, 20203,023 $756 $141 $(2,617)$2,175 $20,007 $(643)$992 $20,670 

*Excludes amount attributable to redeemable non-controlling interest in Contrail.
See notes to condensed consolidated financial statements.
8





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, 2020. The results of operations for the period ended September 30, 2020 are not necessarily indicative of the operating results for the full year.
Certain reclassifications have been made to the prior period amounts to conform to the current presentation.
Discontinued Operations
On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and six months ended September 30, 2020 and 2019. Refer to Footnote 3 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Liquidity
Contrail Aviation Support, LLC ("Contrail") is a subsidiary of the Company in the Commercial Jet Engines and Parts segment. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth of $15 million.
On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

In addition, the Third Amendment adds an event of default to the Master Loan Agreement if Contrail does not consummate an approximate $43.6 million loan transaction under the Main Street Priority Loan Facility Program established by the U.S. Federal Reserve ("Fed") by December 31, 2020. As of the issuance date of this report, the loan transaction has been finalized with ONB, however, the financing is in escrow pending final approval from the Fed. As the Fed's approval has not yet been granted as of the issuance date of this report, no assurance can be given at this time that this financing will be completed and funded.

The obligations of Contrail under the Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders. If Contrail were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given the maximum guarantee of Contrail’s obligations of $1.6 million, plus costs of collection.

AirCo 1, LLC ("AirCo 1") is a wholly-owned subsidiary of AirCo, LLC, which is a wholly-owned subsidiary of Stratus Aero Partners LLC, which is a wholly-owned subsidiary of the Company in the Commercial Jet Engines and Parts segment. The revolving lines of credit at both Air T and AirCo 1 with Minnesota Bank & Trust ("MBT") have a due date or expire within the next twelve months. We are currently seeking to refinance these obligations prior to August 31, 2021; however, there is no assurance that we will be able to
execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

With respect to alternative financing, AirCo 1 also intends to access debt financing under the Main Street Priority Loan Facility Program, established by the Federal Reserve in response to economic uncertainty caused by the COVID-19 pandemic. Main Street loans are intended to provide additional credit to companies that were in sound condition prior to the onset of the COVID-19 pandemic. While AirCo 1 believes that they qualify under the criteria set forth under the Main Street Priority Loan Facility Program, there is no assurance that AirCo 1 will obtain funding under the Main Street Priority Loan Facility Program or if such credit is obtained that it would be sufficient.

The obligation of AirCo 1 under the AirCo 1 Credit Agreement with MBT is not guaranteed by the Company. The Company is not liable for any other assets or liabilities of AirCo 1 and there are no cross-default provisions with respect to AirCo 1’s debt in any of the Company’s debt agreements with MBT. If AirCo 1 were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given that AirCo 1's obligation is not guaranteed by the Company.

In April 2020, the Company obtained loans under the PPP, as authorized by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. The Company will apply to MBT for forgiveness of the PPP Loan, however, forgiveness is not fully assured. The Company believes it is probable that the cash on hand (including that obtained from the PPP), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.
COVID-19 Pandemic
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. Even though the Company undertook measures to attempt to limit the effect of the pandemic and its impact on the Company, the Company continued to experience a decrease in revenues during the second fiscal quarter and the month of October. The extent to which the COVID-19 pandemic continues to impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
Financial Instruments Designated for Trading
Except for short sales of equity securities, the Company accounts for all other financial instruments (including derivative instruments) designated for trading in accordance with ASC 815. All changes in the fair value of the financial instruments designed for trading are recognized in earnings as they occur. Further, all gains and losses on derivative instruments designated for trading are presented net on the condensed consolidated Statements of Income (Loss). The fair value of derivative instruments designated for trading in a gain position are recorded in Other Current Assets and the fair value of derivative instruments designed for trading in a loss position are recorded in Accrued Expenses and Other on the condensed consolidated Balance Sheets.

The Company accounts for short sales of equity securities in accordance with ASC 942 and ASC 860. The obligations incurred in short sales are reported in Accrued Expenses and Other on the condensed consolidated Balance Sheets. They are subsequently measured at fair value through the income statement at each reporting date with gains and losses on securities. Interest on the short positions are accrued periodically and reported as interest expense. The market value of the Company’s equity securities and cash held by the broker are used as collateral against any outstanding margin account borrowings for purposes of short selling equities. This collateral is recorded in Other Current Assets on the condensed consolidated Balance Sheets.

The Company reports all cash receipts and payments resulting from the purchases and sales of securities, loans, and other assets that are acquired specifically for resale as operating cash flows.
Recently Adopted Accounting Pronouncements
 
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The Company adopted this standard on April 1, 2020. As of September 30, 2020, the standard did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test. Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. The Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes of the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company early adopted this amendment as of April 1, 2020. The amendment resulted in an immaterial impact to its condensed consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Further, in accordance with the amendments in this Update, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
9





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,
2020201920202019
Product Sales
Air Cargo$5,728 $6,680 $10,043 $12,094 
Ground equipment sales11,833 12,489 27,571 24,492 
Commercial jet engines and parts4,283 13,218 6,979 24,388 
Corporate and other 20 33 68 
Support Services
Air Cargo11,558 13,033 23,408 25,927 
Ground equipment sales67 105 84 210 
Commercial jet engines and parts956 1,597 2,580 3,007 
Corporate and other6 217 24 269 
Leasing Revenue
Air Cargo    
Ground equipment sales23 33 71 53 
Commercial jet engines and parts791 2,941 1,164 6,655 
Corporate and other107 36 142 81 
Other
Air Cargo9 32 15 43 
Ground equipment sales137 114 162 236 
Commercial jet engines and parts84 45 85 78 
Corporate and other22 133 215 280 
Total$35,604 $50,693 $72,576 $97,881 

See Note 12 for the Company's disaggregated revenues by geographic region and Note 13 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Contract Balances and Costs

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2020 and September 30, 2020 and the amount of contract liabilities that were recognized as revenue during the six-month period ended September 30, 2020 (in thousands):

Outstanding contract liabilitiesOutstanding contract liabilities as of April 1, 2020
Recognized as Revenue
As of September 30, 2020$1,480 
As of April 1, 20201,853 
For the six months ended September 30, 2020619 


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3.    Discontinued Operations

On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement included a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics were achieved by March 31, 2020. Those metrics were not achieved per the final settlement statement received during the three-months ended September 30, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.8 million with tax impact of $2.4 million for a net of tax gain of $8.4 million in the second quarter of 2019.

Summarized results of operations of GAS for the three and six months ended September 30, 2020 and 2019 through the date of disposition are as follows (in thousands):


Three Months Ended September 30,Six Months Ended September 30,
2020201920202019
Net sales$ $8,120 $ $16,637 
Operating Income (Expense)4 (9,015)4 (17,319)
Gain/(Loss) from discontinued operations before income taxes4 (895)4 (682)
Income tax expense (benefit) (660) (612)
Gain/(Loss) from discontinued operations, net of tax$4 $(235)$4 $(70)

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4.     Accrued Expenses


(in thousands)September 30, 2020March 31, 2020
Salaries, wages and related items$4,804 $3,616 
Profit sharing and bonus2,447 3,349 
Other5,043 6,059 
Total$12,294 $13,024 

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5.    Income Taxes

During the three-month period ended September 30, 2020, the Company recorded $1.5 million in income tax benefit at an effective tax rate ("ETR") of 31.5%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three-month period ended September 30, 2019, the Company recorded $0.3 million in income tax benefit at an ETR of 12.2%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC.

During the six-month period ended September 30, 2020, the Company recorded $1.8 million in income tax benefit at an ETR of 30.0%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2019, the Company recorded $0.7 million in income tax benefit which resulted in an effective tax rate of (55.6)%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended September 30, 2019 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC.



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

Three Months Ended September 30,Six Months Ended September 30,
2020201920202019
Net (loss) income from continuing operations$(3,357)$(2,122)$(4,314)$