AIR T INC

The ground support equipment segment business has historically been seasonal, with the revenues and operating income typically being higher in the second and third fiscal quarters as commercial deicers are typically delivered prior to the winter season.

The regional airline segment experiences seasonal variation in passenger demand. Rex's network is oriented toward business, government, and regional connectivity travel rather than leisure travel. Demand for this travel typically softens during the Australian summer when corporate and government activity slows over the December-to-March period. Adverse weather associated with the northern Australian wet season during these months can further disrupt regional flight operations.

Consequently, Rex's weakest demand typically occurs in the latter part of our third fiscal quarter and throughout our fourth fiscal quarter, which ends March 31.

Other segments are typically not susceptible to material seasonal trends.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The Company believes that the following matters are its most critical accounting policies:

Inventories – Inventories are carried at the lower of cost or net realizable value. Within the Company’s commercial aircraft, engines and parts segment, there are various estimates and judgments made in relief of inventory as parts are sold from established groups of parts from one engine or airframe purchase. The estimates and judgments made in relief of inventory are based on assumptions that are consistent with a market participant’s future expectations for the commercial aircraft, jet engines and parts industry and the economy in general and our expected intent for the inventory. These assumptions and estimates are complex and subjective in nature. Changes in economic and operating conditions could impact the assumptions and result in future losses to our inventory.

The Company periodically evaluates the carrying value of inventory. In these evaluations, the Company is required to make estimates regarding the net realizable value, which includes the consideration of sales patterns, expected future demand, and costs to refurbish aircraft parts. Any slow moving, obsolete or damaged inventory and inventory with costs exceeding net realizable value are evaluated for write-downs. These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made.

Business Combinations - The Company accounts for acquisitions of businesses using the acquisition method of accounting under ASC 805. Under this method, the total purchase consideration is allocated to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values at the acquisition date. Any excess of the purchase consideration over the estimated fair value of the net identifiable assets acquired is recorded as goodwill whereas any excess of the estimated fair value of the net identifiable assets acquired over the purchase consideration is recorded as a bargain purchase gain. Acquisition-related transaction costs are expensed as incurred.

Determining the fair value of assets acquired and liabilities assumed requires management to make significant estimates and assumptions, particularly with respect to acquired intangible assets, such as customer relationships, developed technology, and trade names, and the CFA debt. These fair values are generally estimated using income-based valuation approaches—such as the multi-period excess earnings method or the relief-from-royalty method—which rely on assumptions including projected revenues and cash flows, revenue growth rates, customer attrition rates, royalty rates, the economic useful life of the asset, and the discount rate applied to future cash flows. Management may engage independent third-party valuation specialists to assist in these determinations.

Contingent consideration arising from a business combination is recognized at its acquisition-date fair value and remeasured to fair value at each subsequent reporting date until settled, with changes recognized in earnings.

The Company finalizes its purchase price allocation within the measurement period, which may extend up to one year from the acquisition date, as additional information about facts and circumstances existing at the acquisition date is obtained. Because these estimates and assumptions are inherently uncertain, the use of different assumptions could result in materially different fair values, which would affect the amounts recorded as goodwill, identifiable intangible assets, and bargain purchase gains, as well as future amortization and potential impairment charges.