FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 Commission File Number 0-11720 AIR T, INC. (Exact name of registrant as specified in its charter) Delaware 52-1206400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 488, Denver, North Carolina 28037 (Address of principal executive offices) (704) 377-2109 (Registrant's telephone number, including area code) 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,748,253 Common Shares, par value of $.25 per share were outstanding as of November 6, 2000. This filing contains 28 pages. The exhibit index is on page 15. </page> AIRT, INC. AND SUBSIDIARIES INDEX Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Earnings (Loss) for the three and six-month periods ended September 30, 2000 and 1999 (Unaudited) 3 Consolidated Balance Sheets at September 30, 2000 (Unaudited) and March 31, 2000 4 Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2000 and 1999 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 13-14 Exhibit Index 15 Exhibits 16-28 2</page> AIRT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED) Three Months Ended Six months Ended September 30, September 30, 2000 1999 2000 1999 Operating Revenues: Cargo $ 4,724,920 $ 4,613,910 $ 8,979,330 $ 8,970,977 Maintenance 2,261,568 3,458,748 4,841,247 6,934,573 Ground equipment 6,512,966 3,923,913 12,236,553 4,654,533 Aircraft services and other 1,610,085 1,909,816 3,464,781 4,136,357 15,109,539 13,906,387 29,521,911 24,696,440 Operating Expenses: Flight operations 3,324,515 3,508,802 6,326,487 6,561,119 Maintenance and brokerage 3,652,942 5,013,094 7,535,498 10,174,343 Ground equipment 5,588,576 3,740,064 10,492,003 4,379,046 General and administrative 1,858,002 2,036,934 3,856,934 3,625,709 Depreciation and amortization 227,048 225,045 446,671 464,402 14,651,083 14,523,939 28,657,593 25,204,619 Operating Income (Loss) 458,456 (617,552) 864,318 (508,179) Non-operating Expense (Income): Interest 199,128 173,073 359,109 302,331 Deferred retirement expense 6,249 6,505 12,498 12,754 Investment income (27,988) (45,786) (70,609) (91,040) (Gain) Loss on asset sale (540) - 1,609 - 176,849 133,792 302,607 224,045 Earnings (Loss) Before Income Taxes 281,607 (751,344) 561,711 (732,224) Income Tax Provision (Benefit) 114,811 (286,600) 229,459 (278,000) Net Earnings (Loss) $ 166,796 $ (464,744) $ 332,252 $ (454,224) Net Earnings (Loss) Per Share: Basic $ 0.06 $ (0.17) $ 0.12 $ (0.16) Diluted $ 0.06 $ (0.17) $ 0.12 $ (0.16) Average Shares Outstanding: Basic 2,748,753 2,764,653 2,748,670 2,764,653 Diluted 2,787,780 2,764,653 2,787,697 2,764,653 <FN> See notes to consolidated financial statements. 3</page> AIRT, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 MARCH 31, 2000 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 159,151 $ 144,513 Marketable securities 1,325,242 1,295,678 Accounts receivable, net 7,267,338 7,960,978 Costs and estimated earnings in excess of billings on uncompleted contracts 270,264 210,178 Inventories 13,769,908 9,741,675 Deferred tax asset, net 437,097 321,097 Prepaid expenses and other 152,816 228,757 Total Current Assets 23,381,816 19,902,876 Property and Equipment 6,817,120 6,461,984 Less accumulated depreciation (4,277,156) (3,867,778) 2,539,964 2,594,206 Deferred Tax Asset 419,554 438,554 Intangible Pension Asset 490,778 430,778 Other Assets 509,796 570,033 Total Assets $27,341,908 $ 23,936,447 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 6,379,561 $ 3,988,191 Accounts payable 7,920,287 7,517,640 Accrued expenses 1,608,377 1,090,838 Income taxes payable 357,551 470,247 Current portion of long-term obligations 64,833 64,833 Total Current Liabilities 16,330,609 13,131,749 Capital Lease Obligation (less current Portion) 43,445 36,440 Deferred Retirement Obligation (less current Portion) 1,645,373 1,512,377 Stockholders' Equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,750,353 and 2,740,353 shares issued 687,588 684,416 Additional paid in capital 6,953,069 6,976,795 Accumulated other comprehensive loss (568,144) (597,904) Retained earnings 2,249,968 2,192,574 9,322,481 9,255,881 Total Liabilities and Stockholders' Equity $27,341,908 $ 23,936,447 <FN> See notes to consolidated financial statements. 4</page> AIRT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended September 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 332,252 $ (454,224) Adjustments to reconcile net earnings (loss) to net cash used in operations: Depreciation and amortization 446,671 464,402 Change in deferred tax asset (97,000) - Change in retirement obligation 132,996 17,106 Gain on sale of asset 1,609 - Change assets and liabilities: Accounts receivable 693,640 373,746 Cost and estimated earnings in excess of billings on uncompleted contracts (60,086) - Inventories (4,028,233) (1,861,624) Prepaid expenses and other 76,178 (209,344) Accounts payable 402,647 721,178 Accrued expenses 517,539 (242,416) Income taxes payable (112,696) - Total adjustments (2,026,735) (736,952) Net cash used in operating activities (1,694,483) (1,191,176) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (386,837) (285,517) Purchase of marketable securities - (100,000) Sale of marketable securities - 327,294 Net cash used in investing activities (386,837) (58,223) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from line of credit , net 2,391,370 1,331,254 Payment of cash dividend (274,858) (220,278) Repurchase of common stock (51,054) - Proceeds from exercise of stock options 30,500 - Net cash provided by financing activities 2,095,958 1,110,976 NET INCREASE (DECREASE) IN CASH & CASH EQUIVA 14,638 (138,423) CASH & CASH EQUIVALENTS AT BEGINNING OF PERIO 144,513 263,362 CASH & CASH EQUIVALENTS AT END OF PERIOD $ 159,151 $ 124,939 SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES: Other comprehensive gain (loss) $ 29,759 $ (183,389) Equipment capital lease 19,894 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 321,573 $ 247,616 Income/Franchise taxes 439,991 53,402 <FN> See notes to consolidated financial statements. 5</page> AIRT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Consolidated Balance Sheet as of September 30, 2000, the Consolidated Statements of Earnings (Loss) for the three and six-month periods ended September 30, 2000 and 1999 and the Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2000 and 1999 have been prepared by AirT, Inc. (the Company) without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of September 30, 2000, and for prior periods presented, have been made. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2000. The results of operations for the period ended September 30 are not necessarily indicative of the operating results for the full year. B. Income Taxes The tax effect of temporary differences, primarily asset reserves and accrued liabilities, gave rise to the Company's deferred tax assets in the accompanying September 30, 2000 and March 31, 2000 consolidated balance sheets. The income tax provisions for the six-months ended September 30, 2000 and 1999 differ from the federal statutory rate primarily as a result of state income taxes and permanent timing differences. C. Net Earnings (Loss) Per Share Basic earnings (loss) per share has been calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under employee stock options were considered common share equivalents and were included in the weighted average common shares unless their effect on basic earnings (loss) per share was considered anti- dilutive. 6</page> The computation of basic and diluted earnings (loss) per common share is as follows: Three Months Ended Six months Ended September 30, September 30, 2000 1999 2000 1999 Net earnings (loss) $ 166,796 $(464,744) $ 332,252 $(454,224) Weighted average common shares: Shares outstanding - basic 2,748,753 2,764,653 2,748,670 2,764,653 Dilutive stock options 39,027 - 39,027 - Shares outstanding - diluted 2,787,780 2,764,653 2,787,697 2,764,653 Net earnings (loss) per common share: Basic $ 0.06 $ (0.17) $ 0.12 $ (0.16) Diluted $ 0.06 $ (0.17) $ 0.12 $ (0.16) 7</pgae> Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview Statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" or made by management of the Company which contain more than historical information may be considered forward- looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements because of important risks and uncertainties, including but not limited to the effects of economic, competitive and market conditions in the aviation industry. The Company's most significant component of revenue is generated through its air cargo subsidiaries, Mountain Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA), which are short-haul express air freight carriers flying nightly contracts for a major express delivery company out of 80 cities, principally located in 30 states in the eastern half of the United States and in Puerto Rico, Canada and the Virgin Islands. Separate agreements cover the three types of aircraft operated by MAC and CSA-Cessna Caravan, Fokker F-27 and Short Brothers SD3-30. Cessna Caravan and Fokker F-27 aircraft (a total of 93 aircraft at September 30, 2000) are owned by and dry-leased from a major air express company (Customer), and Short Brothers SD3-30 aircraft (two aircraft at September 30, 2000) are owned by the Company and periodically operated under wet- lease arrangements with the Customer. Pursuant to such agreements, the Customer determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by the Company. Under the terms of the dry-lease service agreements, which currently cover approximately 98% of the revenue aircraft operated, the Company passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost. Agreements are renewable annually and may be terminated by the Customer at any time upon 15 to 30 days' notice. The Company believes that the short term and other provisions of its agreements with the Customer are standard within the air freight contract delivery service industry. The Company is not contractually precluded from providing such services to other firms, and has done so in the past. Loss of its contracts with the Customer would have a material adverse effect on the Company. 8</page> In May 1997, to expand its revenue base, the Company's Mountain Aircraft Services, LLC (MAS) subsidiary expanded its offering of aircraft component repair services. MAS's revenue contributed $3,412,000 and $4,072,000 to the Company's revenues for the six-month periods ended September 30, 2000 and 1999, respectively. In August 1997, the Company acquired certain assets and order backlog and assumed certain liabilities of Simon Deicer Company, a division of Terex Aviation Ground Equipment, Inc. located in Olathe, Kansas. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, services and supports aircraft deicers on a worldwide basis. Global, operated as a subsidiary of MAS, contributed approximately $12,237,000 and $4,654,000 of revenue for the six-month periods ended September 30, 2000 and 1999, respectively. Seasonality Global's business has historically been highly seasonal. In general, the bulk of Global's revenues and earnings have occurred during the second and third fiscal quarters, and comparatively little has occurred during the first and fourth fiscal quarters due to the nature of its product line. The Company is currently attempting to reduce Global's seasonal fluctuation in revenues and earnings by broadening its product line to increase revenues and earnings in the first and fourth fiscal quarters. The Company expended exceptional effort in fiscal 1999 and 2000 to design and produce prototype equipment to expand its product line to include additional deicer models and two models of scissor-lift equipment for catering and cabin service of aircraft. These costs were expensed as incurred. In June 1999, the Company was awarded a four-year contract to supply deicing equipment to the United States Air Force for a total amount of approximately $25 million. Although the first shipments under this contract did not commence until the quarter ended March 31, 2000, the Company anticipates that revenue from this contract will contribute to management's plan to reduce Global's seasonal fluctuation in revenues. The remainder of the Company's business is not materially seasonal. Results of Operations Consolidated revenue increased $4,825,000 (19.5%) to $29,522,000 and increased $1,203,000 (8.7%) to $15,110,000, respectively, for the six and three-month periods ended September 30, 2000 compared to their equivalent 1999 periods. The six and three-month current period net increase in revenue primarily resulted from increased Air Force contract revenue at Global. Decreases in maintenance and component repair services were primarily due to the timing of scheduled major overhauls at MAC in fiscal 2000 compared to the current period and the expiration of an overhaul contract at MAS in place during fiscal 2000. 9</page> Results of Operations (Cont'd) Operating expenses increased $3,453,000 (13.7%) to $28,658,000 for the six-month period ended September 30, 2000 and $127,000 (.9%) to $14,651,000 for the three-month period ended September 30, 2000 compared to their equivalent 1999 periods. The change in operating expenses for the six- month period consisted of the following: cost of flight operations decreased $235,000 (3.6%), primarily as a result of decreases in costs associated with pilot travel, partially offset by increased fuel cost; maintenance and brokerage expense decreased $2,639,000 (25.9%), primarily as a result of decreases associated with cost of parts, labor and outside maintenance related to the overhaul and repair operations of MAC and MAS; ground equipment increased $6,113,000 (139.6%), as a result of cost of parts and labor associated with increased Global sales; depreciation and amortization decreased $18,000 (3.8%) primarily as a result of decreased depreciation related to the completion of certain assets' depreciable lives; general and administrative expense increased $231,000 (6.4%) primarily as a result of increased wages and benefits, particularly related to the expansion of Global, partially offset by decreased professional fees and telephone expense. The change in operating expenses for the three-month period consisted of the following: cost of flight operations decreased a net of $184,000, primarily as a result of decreased personnel and travel cost partly offset by increased fuel cost; maintenance and brokerage expense decreased $1,360,000 (27.1%), primarily as a result of decreases associated with cost of parts, labor and outside maintenance related to the overhaul and repair operations of MAC and MAS; ground equipment increased $1,849,000 (49.2%), as a result of cost of parts and labor associated with Global increased sales; depreciation and amortization increased $2,000 (.9%) as a result of increased depreciation related to the expansion of MAS and Global; general and administrative expense decreased $179,000 (8.8%) primarily as a result of prior period legal fees associated with finalizing Global's Air Force contract and reductions in current period telephone cost. Non-operating expense increased $79,000 and $43,000, respectively, for the six and three-month periods ended September 30, 2000 and September 30, 1998. The increases were principally due to increased credit line interest. 10</page> Results of Operations (Cont'd) Pretax earnings increased $1,294,000 and $1,033,000, respectively, for the six and three-month periods ended September 30, 2000, compared to their respective September 30, 1999 periods. The six-month increase was principally due to a $1,305,000 increase in profitability at Global and increased earnings at MAC, partially offset by a decrease in AIRT, CSA and MAS earnings. For the three-month period ended September 30, 2000 compared to 1999 Global's earnings increased $785,000, Global's increase was supported by increased earnings at MAC and partially offset by decreased profitability at MAS. The substantial increase in Global's current period profit was primarily due to increased revenue. The provision for income taxes increased $507,000 and $401,000 for the six and three-month periods ended September 30, 2000, respectively compared to their respective 1999 periods due to increased taxable income versus a loss for the comparable periods. Liquidity and Capital Resources As of September 30, 2000 the Company's working capital amounted to $7,051,000, an increase of $280,000 compared to March 31, 2000. The Company's unsecured line of credit, which matures on August 31, 2001, provides credit up to $7,500,000. Amounts advanced under the line of credit bear interest at the 30-day "LIBOR" rate plus 137 basis points. Under the terms of the line of credit the Company must maintain certain financial ratios and may not encumber certain real or personal property. At September 30, 2000, the Company was in compliance with these covenants. At September 30, 2000 the Company was in a net borrowing position against its credit line of $6,380,000. Management believes that funds anticipated from operations and the continuation of existing credit facilities will provide adequate cash flow to meet the Company's future financial needs. The respective six-month periods ended September 30, 2000 and 1999 resulted in the following changes in cash flow: operating activities used $1,694,000 and $1,191,000, investing activities used $387,000 and $58,000 and financing activities provided $2,096,000 and $1,111,000. Net cash increased $15,000 and decreased $138,000 for the respective six-month periods ended September 30, 2000 and 1999. 11</page> Liquidity and Capital Resources (Cont'd) Cash used in operating activities was $503,000 more for the six-months ended September 30, 2000 compared to the similar 1999 period, principally due to increased inventories partially offset by decreased accounts receivable. Cash used in investing activities for the six-months ended September 30, 2000 was approximately $329,000 more than the comparable period in 1999, principally due to the sale of marketable securities in the prior period. Cash provided by financing activities for the six-months ended September 30, 2000 was approximately $985,000 more than the comparable 1999 period, principally due to an increase in borrowings under the line of credit in 2000. There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1998, adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the board. The Company paid a $0.10 per share cash dividend in June 2000. Deferred Retirement Obligation The Company's former Chairman and Chief Executive Officer passed away on April 18, 1997. In addition to amounts previously expensed, under the terms of his supplemental retirement agreement, death benefits with a present value of approximately $420,000 were expensed in the first quarter 1998. The death benefits are payable in the amount of $75,000 per year for 10 years. Impact of Inflation The Company believes the impact of inflation and changing prices on its revenues and net earnings will not have a material effect on its manufacturing operations because increased costs due to inflation could be passed on to its customers, or on its air cargo business since the major cost components of its operations, consisting principally of fuel, crew and certain maintenance costs are reimbursed, without markup, under current contract terms. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company does not hold or issue derivative financial instruments for trading or other purposes. The Company is exposed to changes in interest rates on its line of credit, which bears interest based on the 30- day LIBOR rate plus 137 basis points. If the LIBOR interest rate had been increased by one percentage point, based on the quarter-end balance of the line of credit, annual interest expense would have increased by approximately $64,000. 12</page> PART II -- OTHER INFORMATION Item 1. Legal Proceedings The Company's subsidiary, Global Ground Support, LLC, is a party to a lawsuit against FMC Corporation pending in United States District Court for the Western District of North Carolina. Global commenced the lawsuit against FMC on May 8, 2000 as a declaratory judgment proceeding to confirm that aspects of Global's de-icing equipment did not infringe a patent held by FMC and to have FMC's patent declared unenforceable. On August 21, 2000, FMC filed an answer and counterclaim against both Global and the Company alleging that aspects of Global's de-icing equipment infringe a patent held by FMC seeking injunctive relief and unquantified damages. Discovery has not yet commenced. The Company and Global are vigorously defending the counterclaim. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits No. Description 3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 3.2 By-laws of the Company, incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996 4.1 Specimen Common Stock Certificate, incorporated by reference to exhibit 4.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994 10.1 Loan agreement among Bank of America, the Company and its subsidiaries, dated August 31, 2000. 21.1 List of subsidiaries of the Company, incorporated by reference to Exhibit 21.1 of the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997 27.1 Financial Data Schedule (For SEC use only) _______________________ b. Reports on Form 8-K No Current Reports on Form 8-K were filed in the first six months of the fiscal year ending March 31, 2001. 13</page> SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AIRT, INC. (Registrant) Date: November 9, 2000 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: November 9, 2000 /s/ John Gioffre John J. Gioffre, Chief Financial Officer 14</page> AIRT, INC. EXHIBIT INDEX EXHIBIT PAGE 10.1 Loan Agreement among Bank of America, the Company and its subsidiaries, dated August 31, 2000. 16-28 15</page>