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, 2022. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year.
Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges
COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a number of disruptions, and we experienced and continue to experience to a lesser degree a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during fiscal 2023. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations. The Company believes the estimates and assumptions underlying the Company’s condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2022; however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s businesses in particular, makes any estimates and assumptions as of September 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.
The war in Eastern Europe and related sanctions imposed on Russia and related actors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of commodities. We expect that these factors will continue to negatively impact our businesses at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities. We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact.
Recently Adopted Accounting Pronouncements
In July 2021, the FASB updated the Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:
1.The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.
2.The lessor would have otherwise recognized a day-one loss.
When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities. The Company adopted this amendment on April 1, 2022. As of the date of the adoption, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements
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. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.
2. Acquisitions
Wolfe Lake HQ, LLC
On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to a real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company (an unaffiliated third-party) dated October 11, 2021. The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where Air T's Minnesota executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building.
The total amount recorded for the real estate was $13.4 million, which included the purchase price of $13.2 million and total direct capitalized acquisition costs of $0.2 million. The consideration paid for the real estate consisted of approximately $3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031. See Note 12.
In accordance with ASC 805, the purchase price consideration was allocated as follows (in thousands):
| | | | | |
| Land | $ | 2,794 | |
| Building | 8,439 | |
| Site Improvements | 798 | |
| Tenant Improvements | 269 | |
| In-place lease and other intangibles | 1,108 | |
| $ | 13,408 | |
GdW Beheer B.V.
On February 10, 2022, the Company acquired GdW, a Dutch holding company in the business of providing global aviation data and information. The acquisition was completed through a wholly-owned subsidiary of the Company, Air T Acquisition 22.1, LLC ("Air T Acquisition 22.1"), a Minnesota limited liability company, through its Dutch subsidiary, Shanwick, and was funded with cash, investment by executive management of the underlying business, and the loans described in Note 12. As part of the transaction, the executive management of the underlying business purchased 30% of Shanwick. Air T Acquisition 22.1 and its consolidated subsidiaries are included within the Corporate and other segment.
Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in an increase to goodwill of $0.3 million. The increase is attributable to a measurement period adjustment of $0.3 million related to certain intangible assets acquired and related deferred tax liabilities assumed due to clarification of information utilized to determine fair value during the measurement period. As of June 30, 2022, the measurement period was completed and all adjustments are reflected in the tables below.
Total consideration is summarized in the table below (in thousands):
| | | | | |
| February 10, 2022 |
| Consideration paid | $ | 15,256 | |
| Less: Cash acquired | (2,452) | |
| Less: Net assets acquired | (6,520) | |
| Goodwill | $ | 6,284 | |
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 fair values as of February 10, 2022, with the excess of total consideration over fair value of net assets acquired recorded as goodwill. The following table outlines the consideration transferred and purchase price allocation at the respective fair values as of February 10, 2022 (in thousands):
| | | | | |
| February 10, 2022 |
| ASSETS | |
| Accounts Receivable | $ | 715 | |
| Other current assets | 67 |
| Property, plant and equipment, net | 40 |
| Intangible - Proprietary Database | 2,576 |
| Intangible - Customer Relationships | 7,267 |
| Total assets | 10,665 |
| |
| LIABILITIES | |
| Accounts payable | 15 |
| Accrued expenses and deferred revenue | 1,670 |
| Deferred income tax liabilities, net | 2,460 |
| Total liabilities | 4,145 | |
| |
| Net assets acquired | $ | 6,520 | |
The following table sets forth the revenue and expenses of GdW, prior to intercompany eliminations, that are included in the Company’s condensed consolidated statement of income for the fiscal year ended March 31, 2022 (in thousands):
| | | | | |
| Income Statement
Post-Acquisition |
| Revenue | $ | 887 | |
| Cost of Sales | 145 | |
| Operating Expenses | 701 | |
| Operating Income | 41 | |
| Non-operating income | 19 | |
| Net income | $ | 60 | |
Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.
3. Revenue Recognition
Substantially all of the Company’s non-lease 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 Revenue | Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms |
| Product Sales | The Company generates revenue from sales of various distinct products such as parts, aircraft 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 Services | The Company provides a variety of support services such as aircraft 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 performing labor hours and installing parts to enhance an asset that the customer controls. 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.
The following table summarizes disaggregated revenues by type (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Six Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Product Sales | | | | | | | |
| Air Cargo | $ | 7,533 | | | $ | 5,615 | | | $ | 13,887 | | | $ | 12,188 | |
| Ground equipment sales | 17,639 | | | 8,928 | | | 23,216 | | | 16,926 | |
| Commercial jet engines and parts | 15,720 | | | 13,157 | | | 36,030 | | | 20,449 | |
| Corporate and other | 19 | | | 37 | | | 135 | | | 114 | |
| Support Services | | | | | | | |
| Air Cargo | 14,520 | | | 13,222 | | | 28,580 | | | 25,494 | |
| Ground equipment sales | 159 | | | 69 | | | 300 | | | 134 | |
| Commercial jet engines and parts | 2,555 | | | 1,554 | | | 4,529 | | | 3,656 | |
| Corporate and other | 974 | | | 54 | | | 1,998 | | | 117 | |
| Leasing Revenue | | | | | | | |
| Air Cargo | — | | | — | | | — | | | — | |
| Ground equipment sales | 29 | | | 39 | | | 73 | | | 78 | |
| Commercial jet engines and parts | 669 | | | 177 | | | 1,210 | | | 343 | |
| Corporate and other | 483 | | | 37 | | | 870 | | | 76 | |
| Other | | | | | | | |
| Air Cargo | 16 | | | 10 | | | 166 | | | 15 | |
| Ground equipment sales | 192 | | | 153 | | | 245 | | | 233 | |
| Commercial jet engines and parts | 42 | | | 28 | | | 72 | | | 62 | |
| Corporate and other | 138 | | | 158 | | | 239 | | | 321 | |
| | | | | | | |
| Total | $ | 60,688 | | | $ | 43,238 | | | $ | 111,550 | | | $ | 80,206 | |
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. 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, 2022 and September 30, 2022 and the amount of contract liabilities as of April 1, 2022 that were recognized as revenue during the six-month period ended September 30, 2022 (in thousands):
| | | | | | | | | | | |
| Outstanding contract liabilities | | Outstanding contract liabilities as of April 1, 2022
Recognized as Revenue |
| As of September 30, 2022 | $ | 4,676 | | | |
| As of April 1, 2022 | $ | 4,727 | | | |
| For the six months ended September 30, 2022 | | | $ | 3,636 | |
4. Accrued Expenses and Other
| | | | | | | | | | | |
| (in thousands) | September 30, 2022 | | March 31, 2022 |
| | | |
| Salaries, wages and related items | $ | 4,505 | | | $ | 4,232 | |
| Profit sharing and bonus | 879 | | | 1,365 | |
| Other Deposits | 2,644 | | | 2,948 | |
| Other | 5,598 | | | 4,846 | |
| Total | $ | 13,626 | | | $ | 13,391 | |
5. Income Taxes
During the three-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.6 million at an effective tax rate 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 three-month period ended September 30, 2022 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax"), other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the three-month period ended September 30, 2021, the Company recorded $38.0 thousand in income tax expense at an ETR of 0.5%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the exclusion of taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.
During the six-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.4 million at an effective tax rate of 15.1%. 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% and the Company's effective tax rate for the six-month period ended September 30, 2022 were the change in valuation allowance related to Delphax, other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.
During the six-month period ended September 30, 2021, the Company recorded $33.0 thousand in income tax expense at an effective rate of 0.4%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.
6. Net Earnings (Loss) Per Share
Basic earnings (loss) 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 (loss) 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.
During the three months ended September 30, 2022, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $5.75 per share, which was disclosed within our condensed consolidated statement of equity. 7,500 unexpired options remain outstanding under this plan.
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, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net (loss) income | $ | (1,336) | | | $ | 8,003 | | | $ | (2,137) | | | $ | 8,329 | |
| Net loss (income) attributable to non-controlling interests | 104 | | | (448) | | | (528) | | | (486) | |
| Net (loss) income attributable to Air T, Inc. Stockholders | $ | (1,232) | | | $ | 7,555 | | | $ | (2,665) | | | $ | 7,843 | |
| (Loss) Income per share: | | | | | | | |
| Basic | $ | (0.43) | | | $ | 2.62 | | | $ | (0.93) | | | $ | 2.72 | |
| Diluted | $ | (0.43) | | | $ | 2.60 | | | $ | (0.93) | | | $ | 2.71 | |
| Antidilutive shares excluded from computation of (loss) income per share | 4 | | | — | | | 4 | | | — | |
| | | | | | | |
| Weighted Average Shares Outstanding: | | | | | | | |
| Basic | 2,865 | | | 2,882 | | | 2,866 | | | 2,882 | |
| Diluted | 2,865 | | | 2,901 | | | 2,866 | | | 2,893 | |
7. Intangible Assets and Goodwill
Intangible assets as of September 30, 2022 and March 31, 2022 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| Purchased software | $ | 447 | | | $ | (406) | | | $ | 41 | |
| Internally developed software | 3,418 | | (281) | | 3,137 | |
| In-place lease and other intangibles | 1,094 | | (151) | | 943 | |
| Customer relationships | 6,651 | | (555) | | 6,096 | |
| Patents | 1,112 | | (1,103) | | 9 | |
| Other | 1,408 | | (1,016) | | 392 | |
| 14,130 | | (3,512) | | 10,618 | |
| In-process software | 104 | | — | | 104 | |
| Intangible assets, total | $ | 14,234 | | | $ | (3,512) | | | $ | 10,722 | |
| | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
| Purchased software | $ | 447 | | | $ | (386) | | | $ | 61 | |
| Internally developed software | 4,112 | | (139) | | 3,973 |
| In-place lease and other intangibles | 1,108 | | (63) | | 1,045 |
| Customer relationships | 7,694 | | (339) | | 7,355 |
| Patents | 1,112 | | (1,101) | | 11 |
| Other | 1,391 | | (919) | | 472 |
| 15,864 | | (2,947) | | 12,917 |
| In-process software | 343 | | — | | 343 |
| Intangible assets, total | $ | 16,207 | | | $ | (2,947) | | | $ | 13,260 | |
During the quarter ended September 30, 2022, the Company impaired $0.3 million of previously capitalized costs related to a software project that was deemed no longer probable to be completed and placed in service.
Based on the intangible assets recorded at September 30, 2022 and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:
| | | | | |
| (In thousands) | |
| Year ending March 31, | Amortization |
| 2023 (excluding the six months ended September 30, 2022) | $ | 567 | |
| 2024 | 1,027 |
| 2025 | 955 |
| 2026 | 887 |
| 2027 | 846 |
| 2028 | 799 |
| Thereafter | 5,537 | |
| $ | 10,618 | |
The carrying amount of goodwill as of September 30, 2022 and March 31, 2022 was $10.1 million. There was no impairment on goodwill during the quarter ended September 30, 2022.
8. Investments in Securities and Derivative Instruments
As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.
On August 31, 2021, Air T and Minnesota Bank & Trust ("MBT") refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815.
On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. As of February 24, 2022, this swap contract has been designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. During the period between January 7, 2022 and February 24, 2022, the Company recorded a loss of approximately $0.1 million in the consolidated statement of income (loss) due to the changes in the fair value of the instrument prior to the designation and qualification of this instrument as an effective hedge. After it was deemed an effective hedge, the Company recorded changes in the fair value of the instrument in the consolidated statement of comprehensive income (loss).
For the swaps related to Air T Term Note D and Contrail - Term Note G, the effective portion of changes in the fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transactions affect earnings. The interest rate swaps are considered Level 2 fair value measurements. As of September 30, 2022 and March 31, 2022, the fair value of these interest-rate swap contracts was an asset of $3.0 million and $0.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets. During the three and six months ended September 30, 2022, the Company recorded a gain of approximately $1.0 million and $1.4 million, net of tax, respectively. During the three and six months ended September 30, 2021, the Company recorded a gain of approximately $46.0 thousand and $57.0 thousand, net of tax, respectively. These gains are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these instruments.
The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three and six months ended September 30, 2022, related to these derivative instruments, the Company had a gross gain aggregating to $46.0 thousand and no gross loss. During the three and six months ended September 30, 2021, the Company did not record any gain or loss related to derivative instruments.
The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of September 30, 2022 and March 31, 2022 (in thousands):
| | | | | | | | |
| (In thousands) | September 30, 2022 | March 31, 2022 |
| Assets: | | |
| Exchange-traded options & futures | | |
| Other current assets | $ | 401 | | $ | — | |
| Total assets | 401 | | — | |
| Liabilities: | | |
| Exchange-traded options & futures | | |
| Accrued Expenses and other | 119 | | — | |
| Total liabilities | $ | 119 | | $ | — | |
The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements. During the three months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $43.0 thousand and a gross unrealized loss aggregating to $0.2 million. During the six months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $86.0 thousand and a gross unrealized loss aggregating to $0.3 million. During the three months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.4 million and a gross unrealized loss aggregating to $0.1 million. During the six months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.2 million. These unrealized gains and losses are included in other income (loss) on the condensed consolidated statement of income (loss).
The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2022 and 2021, the Company had no outstanding borrowings under its margin account.
9. Equity Method Investments
The Company’s investment in Insignia Systems, Inc. - NASDAQ: ISIG (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of September 30, 2022, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27% of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0. As such, the Company did not record as of September 30, 2022 any additional share of Insignia's net loss for the three months ended June 30, 2022. On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021. The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements.
The Company's 20.91% investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $0.3 million. The Company recorded income of $0.4 million and $0.7 million as its share of CCI's net income for the three and six months ended September 30, 2022, along with a basis difference adjustment of $12.0 thousand and $25.0 thousand, respectively. The Company's net investment basis in CCI is $3.4 million as of September 30, 2022. The Company also executed a $2.0 million promissory note payable to CCI on September 30, 2022. See Note 12. Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, 2022 | | June 30, 2021 | | June 30, 2022 | | June 30, 2021 |
| Revenue | $ | 38,388 | | | $ | 27,715 | | | $ | 73,989 | | | $ | 57,988 | |
| Gross Profit | 4,791 | | | 1,097 | | | 9,166 | | | 1,904 | |
| Operating income (loss) | 1,809 | | | (2,110) | | | 3,790 | | | (5,205) | |
| Net income (loss) | 1,055 | | | (2,268) | | | 2,805 | | | (4,413) | |
| Net income (loss) attributable to Air T, Inc. stockholders | $ | 435 | | | $ | (273) | | | $ | 743 | | | $ | (568) | |
10. Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| September 30,
2022 | | March 31,
2022 |
| Overnight air cargo | $ | 27 | | | $ | 28 | |
| Ground equipment manufacturing: | | | |
| Raw materials | 8,181 | | | 4,688 | |
| Work in process | 3,631 | | | 2,437 | |
| Finished goods | 6,885 | | | 9,264 | |
| Corporate and other: | | | |
| Raw materials | 675 | | | 705 | |
| Finished goods | 727 | | | 728 | |
| Commercial jet engines and parts | 71,467 | | | 60,439 | |
| Total inventories | 91,593 | | | 78,289 | |
| Reserves | (3,989) | | | (3,122) | |
| Total inventories, net of reserves | $ | 87,604 | | | $ | 75,167 | |
| | | |
11. 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, 2022 and 2021 are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Six Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease cost | $ | 498 | | | $ | 420 | | | $ | 989 | | | $ | 867 | |
| Short-term lease cost | 139 | | | 376 | | | 275 | | | 658 | |
| Variable lease cost | 189 | | | 143 | | | 374 | | | 290 | |
| Total lease cost | $ | 826 | | | $ | 939 | | | $ | 1,638 | | | $ | 1,815 | |
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2022 and March 31, 2022 were as follows (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | March 31, 2022 |
| Operating leases | | | |
| Operating lease ROU assets | $ | 6,755 | | | $ | 7,354 | |
| Operating lease liabilities | $ | 7,547 | | | $ | 8,177 | |
| | | |
| Weighted-average remaining lease term | | | |
| Operating leases | | | 13 years, 8 months |
| | | |
| Weighted-average discount rate | | | |
| Operating leases | | | 4.36 | % |
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2022 are as follows (in thousands):
| | | | | |
| Operating Leases |
| 2023 (excluding the six months ended September 30, 2022) | $ | 886 | |
| 2024 | 1,434 | |
| 2025 | 1,135 | |
| 2026 | 870 | |
| 2027 | 704 | |
| 2028 | 273 | |
| Thereafter | 5,028 | |
| Total undiscounted lease payments | 10,330 | |
| Less: Interest | (2,333) | |
| Less: Discount | (450) | |
| Total lease liabilities | $ | 7,547 | |
12. Financing Arrangements
Borrowings of the Company and its subsidiaries are summarized below at September 30, 2022 and March 31, 2022, respectively.
On June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement (“Amendment”) and a related Overline Note (“Overline Note”) in the original principal amount of $5.0 million. The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to $22.0 million. As of September 30, 2022, the unused commitment on the Overline Note was $4.1 million and there was no unused commitment on the MBT Revolver. The total amount of borrowings under the facility as revised is now the Company’s calculated borrowing base or $22.0 million. The borrowing base calculation methodology remains unchanged.
The interest rate on borrowings under the facility that are less than $17.0 million remains at the greater of 2.50% or Prime minus 1.00%. The interest rate applicable to borrowings under the facility that exceed $17.0 million is the greater of 2.50% or Prime plus 0.50%. The commitment fee on unused borrowings below $17.0 million remains at 0.11%. The commitment fee on unused borrowings above $17.0 million is 0.20%. The Amendment also includes an additional covenant to the credit agreement, namely the requirement that the Company provide inventory appraisals for AirCo, AirCo Services and Worthington to MBT twice a year.
The Overline loan and commitment mature on the earlier of March 31, 2023 or the date on which the Company receives all funds from the Company’s Employee Retention Credit ("ERC") application (estimated at approximately $9.1 million) filed on or about January 24, 2022 plus the full receipt of the Company’s carryback tax refund for the year (estimated at approximately $2.6 million) filed on or about August 19, 2021. Both were applied for under different components of the CARES Act. As of September 30, 2022, the Company has received $1.4 million of the ERC and none of the carryback tax refunds. It is not possible to estimate when, or if, the remainder of these funds may be received.
Each of the Company subsidiaries that has guaranteed the MBT revolving facility executed a guaranty acknowledgment in which they agreed to guaranty the Overline Loan and acknowledged, among other things, that the Overline Loan would not impair the lenders rights under the previously executed guaranty or security agreement.
On September 30, 2022, the Company executed a promissory note payable to CCI ("Promissory Note - CCI") for $2.0 million that bears interest at 10% per annum and matures on December 30, 2022. The note may be prepaid at any time without penalty. The note is subordinate and junior to any and all indebtedness of the Company to MBT.
The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of September 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands) | September 30,
2022 | | March 31,
2022 | | Maturity Date | | Interest Rate | | Unused commitments at September 30, 2022 |
| Air T Debt | | | | | | | | | |
| Revolver - MBT | $ | 17,000 | | | $ | 10,969 | | | 8/31/2023 | | Greater of 2.50% or Prime - 1.00% | | $ | — | |
| Overline Note - MBT | 879 | | | — | | | 3/31/20231 | | Greater of 2.50% or Prime + 0.50% | | $ | 4,121 | |
| Term Note A - MBT | 8,157 | | | 8,542 | | | 8/31/2031 | | 3.42% | | |
| Term Note B - MBT | 2,878 | | | 3,014 | | | 8/31/2031 | | 3.42% | | |
| Term Note D - MBT | 1,371 | | | 1,405 | | | 1/1/2028 | | 1-month LIBOR + 2.00% | | |
| Promissory Note - CCI | 2,000 | | | — | | | 12/30/2022 | | 10.00% | | |
| Term Note E - MBT | 1,997 | | | 2,316 | | | 6/25/2025 | | Greater of LIBOR + 1.50% or 2.50% | | |
| Debt - Trust Preferred Securities | 25,590 | | | 25,567 | | | 6/7/2049 | | 8.00% | | |
| Total | 59,872 | | | 51,813 | | | | | | | |
| | | | | | | | | |
| AirCo 1 Debt | | | | | | | | | |
| Term Loan - Park State Bank | 6,393 | | | 6,393 | | | 12/11/2025 | | 3-month LIBOR + 3.00% | | |
| Total | 6,393 | | | 6,393 | | | | | | | |
| | | | | | | | | |
| Jet Yard Debt | | | | | | | | | |
| Term Loan - MBT | 1,894 | | | 1,943 | | | 8/31/2031 | | 4.14% | | |
| Total | 1,894 | | | 1,943 | | | | | | | |
| | | | | | | | | |
| Contrail Debt | | | | | | | | | |
| Revolver - Old National Bank ("ONB") | 10,143 | | | 3,843 | | | 9/5/2023 | | 1-month LIBOR + 3.45% | | $ | 14,857 | |
| Term Loan G - ONB | 44,918 | | | 44,918 | | | 11/24/2025 | | 1-month LIBOR + 3.00% | | |
| Term Loan H - ONB | 12,101 | | | 8,698 | | | 8/18/2023 | | Wall Street Journal (WSJ) Prime Rate + 0.75% | | |
| Total | 67,162 | | | 57,459 | | | | | | | |
| | | | | | | | | |
| Delphax Solutions Debt | | | | | | | | | |
| Canadian Emergency Business Account Loan | 29 | | | 32 | | | 12/31/2025 | | 5.00% | | |
| Total | 29 | | | 32 | | | | | | | |
| | | | | | | | | |
| Wolfe Lake Debt | | | | | | | | | |
| Term Loan - Bridgewater | 9,714 | | | 9,837 | | | 12/2/2031 | | 3.65% | | |
| Total | 9,714 | | | 9,837 | | | | | | | |
| | | | | | | | | |
| Air T Acquisition 22.1 | | | | | | | | | |
| Term Loan - Bridgewater | 5,000 | | | 5,000 | | | 2/8/2027 | | 4.00% | | |
| Term Loan A - ING | 2,632 | | | 3,341 | | | 2/1/2027 | | 3.50% | | |
| Term Loan B - ING | 975 | | | 1,114 | | | 5/1/2027 | | 4.00% | | |
| Total | 8,607 | | | 9,455 | | | | | | | |
| | | | | | | | | |
| Total Debt | 153,671 | | | 136,932 | | | | | | | |
| | | | | | | | | |
| Less: Unamortized Debt Issuance Costs | (988) | | | (1,124) | | | | | | | |
| Total Debt, net | $ | 152,683 | | | $ | 135,808 | | | | | | | |
1 Earlier of 8/31/23 or the date on which Air T has received the payment from the federal income tax refunds in the amount of approximately $2.6 million and Employee Retention Tax Credits in an amount not less than $9.1 million. As of September 30, 2022, the Company has received $1.4 million of the ERC and none of the federal income tax refunds.
At September 30, 2022, our contractual financing obligations, including payments due by period, are as follows (in thousands):
| | | | | |
| Due by | Amount |
| September 30, 2023 | $ | 44,704 | |
| September 30, 2024 | 10,130 | |
| September 30, 2025 | 12,183 | |
| September 30, 2026 | 39,085 | |
| September 30, 2027 | 5,982 | |
| Thereafter | 41,587 | |
| 153,671 | |
| Less: Unamortized Debt Issuance Costs | (988) | |
| $ | 152,683 | |
During the second quarter ended September 30, 2022 the Company did not sell any TruPs. The amount outstanding on the Company's Debt - Trust Preferred Securities is $25.6 million as of September 30, 2022.
13. Shares Repurchased
On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split on June 10, 2019) 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, 2022, the Company repurchased 19,420 shares at an aggregate cost of $0.4 million. All of these repurchased shares were recorded as treasury shares as of September 30, 2022.
14. Geographical Information
Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of September 30, 2022 and March 31, 2022 (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | March 31, 2022 |
| United States | $ | 21,319 | | | $ | 34,067 | |
| Foreign | 14,593 | | | 1,654 | |
| Total tangible long-lived assets, net | $ | 35,912 | | | $ | 35,721 | |
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, 2022. The net book value located within each individual country at September 30, 2022 and March 31, 2022 is listed below (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | March 31, 2022 |
| Lithuania | 13,292 | | | — | |
| Macau | 1,232 | | | 1,351 | |
| Other | 69 | | | 303 | |
| Total tangible long-lived assets, net | $ | 14,593 | | | $ | 1,654 | |
Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2022 and September 30, 2021 (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | September 30, 2021 |
| United States | $ | 91,323 | | | $ | 69,225 | |
| Foreign | 20,227 | | | 10,981 | |
| Total revenue | $ | 111,550 | | | $ | 80,206 | |
15. Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Segment data is summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| (In Thousands) | Three Months Ended
September 30, | | Six Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Operating Revenues by Segment: | | | | | | | |
| Overnight Air Cargo | | | | | | | |
| Domestic | $ | 22,069 | | | $ | 18,607 | | | $ | 42,633 | | | $ | 37,375 | |
| International | — | | | 240 | | | — | | | 322 | |
| Total Overnight Air Cargo | 22,069 | | | 18,847 | | | 42,633 | | | 37,697 | |
| Ground Equipment Sales: | | | | | | | |
| Domestic | 14,913 | | | 8,178 | | | 18,821 | | | 14,156 | |
| International | 3,106 | | | 1,011 | | | 5,013 | | | 3,215 | |
| Total Ground Equipment Sales | 18,019 | | | 9,189 | | | 23,834 | | | 17,371 | |
| Commercial Jet Engines and Parts: | | | | | | | |
| Domestic | 11,611 | | | 10,461 | | | 28,343 | | | 17,230 | |
| International | 7,375 | | | 4,455 | | | 13,498 | | | 7,280 | |
| Total Commercial Jet Engines and Parts | 18,986 | | | 14,916 | | | 41,841 | | | 24,510 | |
| Corporate and Other: | | | | | | | |
| Domestic | 778 | | | 210 | | | 1,526 | | | 464 | |
| International | 836 | | | 76 | | | 1,716 | | | 164 | |
| Total Corporate and Other | 1,614 | | | 286 | | | 3,242 | | | 628 | |
| Total | 60,688 | | | 43,238 | | | 111,550 | | | 80,206 | |
| | | | | | | |
| Operating Income (Loss): | | | | | | | |
| Overnight Air Cargo | 845 | | | 857 | | | 1,922 | | | 1,589 | |
| Ground Equipment Sales | 1,887 | | | 43 | | | 2,029 | | | 1,465 | |
| Commercial Jet Engines and Parts | (204) | | | 1,902 | | | 2,870 | | | 1,664 | |
| Corporate and Other | (2,349) | | | (2,098) | | | (5,809) | | | (4,019) | |
| Total | 179 | | | 704 | | | 1,012 | | | 699 | |
| | | | | | | |
| Capital Expenditures: | | | | | | | |
| Overnight Air Cargo | 92 | | | 44 | | | 191 | | | 68 | |
| Ground Equipment Sales | 6 | | | 4 | | | 16 | | | 17 | |
| Commercial Jet Engines and Parts | 278 | | | 646 | | | 352 | | | 738 | |
| Corporate and Other | 43 | | | 12 | | | 232 | | | 19 | |
| Total | 419 | | | 706 | | | 791 | | | 842 | |
| | | | | | | |
| Depreciation and Amortization: | | | | | | | |
| Overnight Air Cargo | 23 | | | 14 | | | 42 | | | 27 | |
| Ground Equipment Sales | 46 | | | 32 | | | 95 | | | 64 | |
| Commercial Jet Engines and Parts | 563 | | | 214 | | | 996 | | | 479 | |
| Corporate and Other | 394 | | | 62 | | | 755 | | | 133 | |
| Total | $ | 1,026 | | | $ | 322 | | | $ | 1,888 | | | $ | 703 | |
The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the six months ended September 30, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended September 30, 2022 | | |
| Overnight Air Cargo | | Ground Equipment Sales | | Commercial Jet Engines and Parts | | Corporate and Other | | Total |
| Operating income (loss) | $ | 1,922 | | | $ | 2,029 | | | $ | 2,870 | | | $ | (5,809) | | | $ | 1,012 | |
| Depreciation and amortization (excluding leased engines depreciation) | 42 | | | 95 | | | 360 | | | 755 | | | 1,252 | |
| Asset impairment, restructuring or impairment charges | 337 | | | — | | | 1,020 | | | 179 | | | 1,536 | |
| Gain on sale of property and equipment | (1) | | | — | | | (2) | | | 1 | | | (2) | |
| Security expenses | — | | | — | | | — | | | 34 | | 34 | |
| Adjusted EBITDA | $ | 2,300 | | | $ | 2,124 | | | $ | 4,248 | | | $ | (4,840) | | | $ | 3,832 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended September 30, 2021 | | |
| Overnight Air Cargo | | Ground Equipment Sales | | Commercial Jet Engines and Parts | | Corporate and Other | | Total |
| Operating income (loss) | $ | 1,589 | | | $ | 1,465 | | | $ | 1,664 | | | $ | (4,019) | | | $ | 699 | |
| Depreciation and amortization (excluding leased engines depreciation) | 27 | | | 64 | | | 360 | | | 133 | | | 584 | |
| | | | | | | | | |
| Loss on sale of property and equipment | 1 | | | 2 | | | — | | | — | | | 3 | |
| Security expenses | — | | | — | | | — | | | 65 | | | 65 | |
| Adjusted EBITDA | $ | 1,617 | | | $ | 1,531 | | | $ | 2,024 | | | $ | (3,821) | | | $ | 1,351 | |
16. Commitments and Contingencies
Redeemable Non-controlling Interests
Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”). The Contrail Put/Call Option permits the Seller or the Company to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which occurred on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Contrail RNCI is a Level 3 fair value measurement that is valued at $6.5 million as of September 30, 2022. The change in the redemption value compared to March 31, 2022 is a decrease of $0.7 million, which was driven by the decrease in fair value of $0.7 million and distributions to non-controlling interest of $0.2 million, partially offset by net income attributable to non-controlling interest of $0.2 million.
As of the date of this filing, neither the Seller nor the Company has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
On May 5, 2021, the Company formed an aircraft asset management business called Contrail Asset Management, LLC ("CAM"), and an aircraft capital joint venture called Contrail JV II LLC ("CJVII"). The venture focuses on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII targets investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. The Company and Mill Road Capital (“MRC”) agreed to become common members in CAM. CAM serves two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC. As of September 30, 2022, CAM's remaining capital commitments are approximately $0.8 million from the Company and $17.3 million from MRC. In connection with the formation of CAM, MRC has a fixed price put option of $1.0 million to sell its common equity in CAM to the Company at each of the first 3 anniversary dates. At the later of (a) five years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, the Company has a call option and MRC has a put option on the MRC common interests in CAM. If either party exercises the option, the exercise price will be fair market value if the Company pays in cash at closing or 112.5% of fair market value if the Company opts to pay in three equal annual installments after exercise. The Company recorded MRC's $1.0 million put option within "Other non-current liabilities" on our consolidated balance sheets.
In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30% non-controlling interest owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick. The shareholder agreement includes the Shanwick Put/Call Option with regard to the 30% non-controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option to purchase the 30% interest at the call option price that equals to the average EBIT over the 3 Financial Years prior to the exercise of the Call Option multiplied by 8. In addition, the Shanwick Put/Call Option also grants the non-controlling interest owners an option to require the Company to purchase from them their respective ownership interests at the Put Option price, that is equal to the average EBIT over the 3 Financial Years prior to the exercise of the Put Option multiplied by 7.5. The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T ("Shanwick RNCI").
The Company has presented this redeemable non-controlling interest in Shanwick between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the estimated redemption value at the end of each reporting period. As the Shanwick RNCI will be redeemed at established multiples of EBIT, it is considered redeemable at other than fair value. Changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests. The Shanwick RNCI's estimated redemption value is $3.8 million as of September 30, 2022, which was comprised of the following (in thousands):
| | | | | | | | |
| | Shanwick RNCI |
| Beginning Balance as of April 1, 2022 | | $ | 3,583 | |
| Contribution from non-controlling members | | — | |
| Distribution to non-controlling members | | (158) | |
| Net income attributable to non-controlling interests | | 112 | |
| Redemption value adjustments | | 232 | |
| Ending Balance as of September 30, 2022 | | $ | 3,769 | |
2020 Omnibus Stock and Incentive Plan
On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000. Among other instruments, the Plan permits the Company to grant stock option awards. As of September 30, 2022, options to purchase up to 293,400 shares are outstanding under the Plan. Vesting of options is based on the grantee meeting specified service conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements. For the three and six months ended September 30, 2022, total compensation cost recognized under the Plan was $79.0 thousand and $0.2 million, respectively.
17. Subsequent Events
On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the “Amendment”) with ONB. The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended.
The principal revisions made in the Amendment are: (i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all times prior to March 31, 2024 and $15.0 million at all times on or following March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G. The effectiveness of the Amendment is conditioned on Contrail executing a Collateral Assignment of two Aircraft Engine Lease Agreements. The form of Collateral Assignment is attached as an exhibit to the Amendment.
The foregoing summary of the terms of the Amendment is qualified in its entirety by reference to the form of Second Amendment to Master Loan Agreement with Exhibit filed as Exhibit 10.2 herewith, which is incorporated herein by reference.
