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, 2001
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.
2,705,653 Common Shares, par value of $.25 per share were outstanding
as of October 29, 2001.
This filing contains 19 pages.
The exhibit index is on page 19.
AIR T, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
for the three and six-month periods ended
September 30, 2001 and 2000 (Unaudited) 3
Consolidated Balance Sheets at
September 30, 2001 (Unaudited)
and March 31, 2001 4
Consolidated Statements of Cash
Flows for the six-month periods
ended September 30, 2001 and 2000 (Unaudited) 5
Notes to Consolidated Financial
Statements (Unaudited) 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
Of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17-18
Exhibit Index 19
Exhibit 20-23
2
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Six months Ended
September 30, September 30,
2001 2000 2001 2000
Operating Revenues:
Cargo $ 5,108,544 $ 4,724,920 $ 9,845,334 $ 8,979,330
Maintenance 2,564,808 2,261,568 4,805,569 4,841,247
Ground equipment 10,683,577 6,512,966 19,721,309 12,236,553
Aircraft services and other 6,916,131 1,610,085 8,474,244 3,464,781
25,273,060 15,109,539 42,846,456 29,521,911
Operating Expenses:
Flight operations 3,668,240 3,324,515 7,119,890 6,326,487
Maintenance and services 9,149,113 3,652,942 12,899,661 7,535,498
Ground equipment 8,485,309 5,588,576 15,880,080 10,492,003
General and administrative 2,461,893 1,858,002 4,562,200 3,856,934
Depreciation and amortization 177,483 227,048 352,899 446,671
23,942,038 14,651,083 40,814,730 28,657,593
Operating Income 1,331,022 458,456 2,031,726 864,318
Non-operating Expense (Income):
Interest 111,310 199,128 252,922 359,109
Deferred retirement expense 6,249 6,249 12,498 12,498
Investment income (16,309) (27,988) (34,829) (70,609)
Other - (540) - 1,609
101,250 176,849 230,592 302,607
Earnings Before
Income Taxes 1,229,772 281,607 1,801,134 561,711
Income Taxes 483,648 114,811 712,244 229,459
Net Earnings $ 746,124 $ 166,796 $1,088,890 $ 332,252
Net Earnings Per Share:
Basic $ 0.27 $ 0.06 $ 0.40 $ 0.12
Diluted $ 0.27 $ 0.06 $ 0.39 $ 0.12
Weighted Average Shares Outstanding:
Basic 2,713,853 2,748,753 2,713,103 2,748,670
Diluted 2,760,875 2,787,780 2,766,901 2,787,697
See Notes to Consolidated Financial Statements.
3
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 MARCH 31,2001
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 116,709 $ 97,799
Marketable securities 930,838 875,836
Accounts receivable, net 10,758,090 11,089,528
Costs and estimated earnings in excess
of billings on uncompleted contracts 183,049 194,067
Inventories 10,938,944 10,783,686
Deferred tax asset 444,764 444,764
Prepaid expenses and other 171,119 203,765
Total Current Assets 23,543,513 23,689,445
Property and Equipment, net 2,897,687 3,254,172
Deferred Tax Asset 567,282 567,282
Intangible Pension Asset 361,631 361,631
Other Assets 701,510 660,682
Total Assets $ 28,071,623 $ 28,533,212
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 6,960,929 8,879,628
Accrued expenses 1,473,746 1,573,468
Income taxes payable 428,502 287,846
Current portion of long-term obligations 678,703 699,719
Total Current Liabilities 9,541,879 11,440,661
Capital Lease Obligations (less current portion) 106,916 105,007
Long-term Debt (less current portion) 5,921,488 5,163,829
Deferred Retirement Obligations (less current
Portion) 1,789,440 1,653,400
Stockholders' Equity:
Preferred stock, $1 par value, authorized
50,000 shares, none issued - -
Common stock, par value $.25; authorized 4,000,000
shares; 2,705,653 and 2,740,353 shares issued 676,413 676,288
Additional paid in capital 6,812,230 6,828,640
Retained earnings 3,890,013 3,206,642
Accumulated other comprehensive loss (666,756) (541,255)
10,711,900 10,170,315
Total Liabilities and Stockholders' Equity $ 28,071,623 $ 28,533,212
See notes to consolidated financial statements.
4
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
September 30,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,088,890 $ 332,252
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization 352,899 446,671
Deferred tax provision - (97,000)
Net periodic pension cost 136,040 132,996
Changes in assets and liabilities:
Accounts receivable, net 331,438 693,640
Cost and estimated earnings in excess of
billings on uncompleted contracts 11,018 (60,086)
Inventories 157,547 (4,028,233)
Prepaid expenses and other (8,182) 76,178
Accounts payable (1,918,698) 402,647
Accrued expenses (120,739) 517,539
Income taxes payable 140,655 (112,696)
Total adjustments (918,021) (2,028,344)
Net cash provided by (used in) operating activities 170,869 (1,696,092)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (307,310) (385,228)
Redemption of marketable securities 13,497 -
Net cash used in investing activities (293,813) (385,228)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net 563,659 2,391,370
Payment of cash dividend (405,520) (274,858)
Repurchase of common stock (42,785) (51,054)
Proceeds from exercise of stock options 26,500 30,500
Net cash provided by financing activities 141,854 2,095,958
NET INCREASE IN CASH & CASH EQUIVALENTS 18,910 14,638
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 97,799 144,513
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 116,709 $ 159,151
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Capital lease entered into during period - 19,894
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 262,192 $ 321,573
Income/Franchise taxes 560,582 439,991
See notes to consolidated financial statements.
5
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)
A. Financial Statements
The Consolidated Balance Sheet as of September 30, 2001, the
Consolidated Statements of Earnings for the three and six-month periods
ended September 30, 2001 and 2000 and the Consolidated Statements of Cash
Flows for the six-month periods ended September 30, 2001 and 2000 have been
prepared by Air T, 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, 2001, 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, 2001. 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 asset in the
accompanying September 30, 2001 and March 31, 2001 consolidated balance
sheets.
The income tax provisions for the six-months ended September 30, 2001
and 2000 differ from the federal statutory rate primarily as a result of
state income taxes and permanent timing differences.
C. Net Earnings Per Share
Basic earnings per share has been calculated by dividing net earnings
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.
6
The computation of basic and diluted earnings per common share is as
follows:
Three Months Ended Six months Ended
September 30, September 30,
2001 2000 2001 2000
Net earnings $ 746,124 $ 166,796 $ 1,088,890 $ 332,252
Weighted average common shares:
Shares outstanding - basic 2,713,853 2,748,753 2,713,103 2,748,670
Dilutive stock options 47,022 39,027 53,798 39,027
Shares outstanding - diluted 2,760,875 2,787,780 2,766,901 2,787,697
Net earnings per common share:
Basic $ 0.27 $ 0.06 $ 0.40 $ 0.12
Diluted $ 0.27 $ 0.06 $ 0.39 $ 0.12
D. Inventories
Inventories consist of the following:
September 30, 2001 March 31, 2001
Aircraft parts and supplies $ 4,967,517 $ 5,458,681
Aircraft equipment manufacturing:
Raw materials 2,985,958 2,666,270
Work in process 1,243,172 1,131,565
Finished goods 1,742,297 1,527,170
Total $ 10,938,944 $ 10,783,686
E. Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board approved
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 will require that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and that the use of the
pooling-of-interest method is no longer allowed. SFAS No. 142 requires
that upon adoption, amortization of goodwill will cease and instead the
carrying value of goodwill will be evaluated for impairment on an annual
basis. Identifiable intangible assets will continue to be amortized over
their useful lives and reviewed for impairment in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
7
Assets to be Disposed of". SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company has determined that neither
of these recently issued accounting standards will impact the Company's
financial position and results of operations.
The Financial Accounting Standards Board has approved SFAS No. 143,
"Accounting for Asset Retirement Obligations" and No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets". SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. It requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and Accounting Principles Bulletin No. 30. Along
with establishing a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by
sale, this standard retains the basic provisions of APB30 for the
presentation of discontinued operations in the income statement but
broadens that presentation to include a component of an entity. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. We
are evaluating the impact of these standards and have not yet determined
the effect of adoption on our financial position and results of operations.
F. Derivative Financial Instruments
On April 1, 2001, the Company adopted Statement of Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and
Hedging Activities". As amended, FAS 133 established accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires that entities recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The implementation of FAS 133 at April 1,
2001 had no material effect on the Company's financial position or results
of operations.
The Company is exposed to market risk, such as changes in interest
rates. To manage the volatility relating to interest rate risk, the
Company may enter into interest rate hedging arrangements from time to
time. The Company does not utilize derivative financial instruments for
trading or speculative purposes.
During the first quarter, the Company entered into two interest rate
swaps with a notional amount of $3 million, and $2 million respectively.
These agreements were entered into as cash flow hedges to fix the interest
rates on the $3 million term portion and $2 million of the revolving
portion of the credit facility at respective interest rates of 6.97% and
6.5% respectively. The fair value of these swaps had decreased by $194,000
at September 30, 2001. Because the swaps are considered completely
effective the change in fair value of the swaps is recorded as other
comprehensive income and long-term debt on the balance sheet.
8
G. Financing Arrangements
In May 2001 the Company expanded its bank financing line to a
$10,000,000 credit facility. Under the terms of the agreement, a
$7,000,000 secured long-term revolving credit line which expires on August
31, 2003 replaced the Company's existing $8,500,000 unsecured short-term
revolving credit line which was due to expire in August 2001. The
remaining $3,000,000 of the credit facility was set up as a five-year term
loan which expires on May 31, 2006 and is scheduled to be repaid in
quarterly principal payments of $150,000, plus accrued interest, beginning
August 31, 2001.
The credit facility contains customary events of default and
restrictive covenants that, among other matters, require the Company to
maintain certain financial ratios. As of September 30, 2001, the Company
was in compliance with all of the restrictive covenants. The amount of
credit available to the Company under the agreement at any given time is
determined by an availability calculation, based on the eligible borrowing
base, as defined in the credit agreement, which includes the Company's
outstanding receivables, inventories and equipment, with certain
exclusions. The credit facility is secured by substantially all of the
Company's assets.
Amounts advanced under the credit facility bear interest at the 30-day
"LIBOR" rate plus 137 basis points. The LIBOR rate at September 30, 2001
was 3.58%. At September 30, 2001 and 2000, the amounts outstanding against
the line were $6,327,000 and $6,380,000, respectively. At September 30,
2001, $3,523,000 was available under the entire credit facility.
H. Segment Information
The Company's four subsidiaries operate in three business segments. Each b
usiness segment has separate management teams and infrastructures that
offer different products and services. The subsidiaries have been combined
into the following reportable segments: overnight air cargo, aviation
services and aviation ground equipment.
9
Segment data is summarized as follows:
Six months ended September 30,
2001 2000
Operating Revenues
Overnight Air Cargo $ 14,650,903 $ 13,820,577
Ground Equipment 19,721,309 12,236,553
Aviation Services 8,462,244 3,452,781
Corporate 12,000 12,000
Total $ 42,846,456 $ 29,521,911
Operating Income
Overnight Air Cargo $ 1,186,111 $ 1,308,388
Ground Equipment 2,316,209 477,243
Aviation Services (75,562) 171,644
Corporate (1) (1,395,032) (1,092,957)
Total $ 2,031,726 $ 864,318
Depreciation and Amortization
Overnight Air Cargo $ 136,915 $ 154,883
Ground Equipment 98,660 139,518
Aviation Services 77,337 67,913
Corporate 39,987 84,357
Total $ 352,899 $ 446,671
Capital Expenditures, net
Overnight Air Cargo $ 177,954 $ 126,023
Ground Equipment 61,882 61,751
Aviation Services 18,994 186,146
Corporate 53,980 11,308
Total $ 312,810 $ 385,228
Identifiable Assets
Overnight Air Cargo $ 4,224,776 $ 11,635,258
Ground Equipment 16,092,809 5,902,969
Aviation Services 7,083,583 1,760,016
Corporate 670,455 9,234,969
Total $ 28,071,623 $ 28,533,212
(1) Excludes income from inter-segment transactions, included as non-
operating income.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company's two most significant components of revenue, which
accounted for 46.0% and 34.2% of revenue were generated, respectively,
through its ground support equipment subsidiary, Global Ground Support, LLC
(Global), and its air cargo subsidiaries, Mountain Air Cargo, Inc. (MAC)
and CSA Air, Inc. (CSA).
Global manufactures, services and supports aircraft deicers and other
ground support equipment on a worldwide basis. Global's revenue contributed
approximately $19,721,000 and $12,237,000 to the Company's revenues for the
six-month periods ended September 30, 2001 and 2000, respectively. The
significant increase in revenues in 2001 was primarily related to a four-
year contract to supply deicing equipment to the United States Air Force
and a large scale airport deicer contract, which commenced in February
2001.
MAC and CSA are short-haul express air freight carriers. MAC and
CSA's revenue contributed approximately $14,651,000 and $13,821,000 to the
Company's revenues for the six-month periods ended September 30, 2001 and
2000, respectively. 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.
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,
2001) are owned by and dry-leased from a major air express company
(Customer), and Short Brothers SD3-30 aircraft (two aircraft at September
30, 2001) are owned by the Company and 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.
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.
Mountain Aircraft Services, LLC's (MAS) aircraft component repair
services contributed approximately $8,474,000 and $3,465,000 to the
Company's revenues for the six-month periods ended September 30, 2001 and
2000, respectively, and are included in Aircraft Services and Other in the
accompanying consolidated statement of earnings.
11
The Company's four subsidiaries operate in three business segments.
Each business segment has separate management teams and infrastructures
that offer different products and services. The subsidiaries have been
combined into the following reportable segments: air cargo, aviation
services and aviation ground equipment in the accompanying consolidated
financial statements.
Seasonality
Global's business has historically been highly seasonal. Due to the
nature of its product line, the bulk of Global's revenues and earnings have
typically occurred during the second and third fiscal quarters in
anticipation of the winter season, and comparatively little has occurred
during the first and fourth fiscal quarters. The Company has continued its
efforts, started in fiscal 1999, 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 three models of scissor-lift equipment for catering, cabin service and
maintenance service of aircraft. These costs were expensed as incurred.
As indicated above, in June 1999, Global was awarded a four-year contract
to supply deicing equipment to the United States Air Force for a total
amount of approximately $25 million, and in January 2001 Global received a
$7.1 million pedestal-mounted deicer contract with the Philadelphia
International Airport, expected to be completed in the third quarter of
fiscal 2002. The Company anticipates that revenue from these contracts
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 $13,325,000 (45.1%) to $42,846,000 and
increased $10,164,000 (67.3%) to $25,273,000, respectively, for the six and
three-month periods ended September 30, 2001 compared to their equivalent
2000 periods. The six and three-month current period net increase in
revenue primarily resulted from increased revenue at Global and MAS.
Operating expenses increased $12,157,000 (42.4%) to $40,815,000 for
the six-month period ended September 30, 2001 and $9,291,000 (63.4%) to
$23,942,000 for the three-month period ended September 30, 2001 compared to
their equivalent 2000 periods. The change in operating expenses for the
six-month period consisted of the following: cost of flight operations
increased $793,000 (12.5%), primarily as a result of increases in costs
associated with pilot salaries and airport fees partially offset by
decrease in fuel cost; maintenance and brokerage expense increased $5,364,000
(71.2%), primarily as a result of increases associated with cost of parts
related to the purchase and sale of an aircraft engine at MAS; ground
equipment increased $5,388,000 (51.4%), as a result of cost associated with
increased Global sales; depreciation and amortization decreased $94,000
(21.0%) primarily related to the completion of certain assets' depreciable
lives; and general and administrative expense increased $705,000 (18.3%)
primarily as a result of increased wages and benefits, staff and telephone
expense, particularly related to the expansion of Global and increased
12
Results of Operations (Cont'd)
inventory and accounts receivable reserves.
The change in operating expenses for the three-month period consisted
of the following: cost of flight operations increased $344,000 (10.3%),
primarily as a result of increases in costs associated with pilot salaries
and airport fees partially offset by decrease in fuel cost; maintenance and
brokerage expense increased $5,496,000 (150.5%), primarily as a result of
increases in cost of parts related to an engine sale at MAS; ground
equipment increased $2,897,000 (51.8%), as a result of cost associated with
increased Global sales; depreciation and amortization decreased $50,000
(21.9%) as a result of completion of certain assets' depreciable lives; and
general and administrative expense increased $604,000 (32.5%) primarily as
a result of increased wages and benefits, staff and telephone expense,
particularly related to the expansion of Global and increased inventory and
accounts receivable reserves.
Non-operating expense decreased $72,000 and $76,000, respectively, for
the six and three-month periods ended September 30, 2001 and September 30,
2000. The decreases were principally due to decreased credit line interest
due to reduced borrowing.
Pretax earnings increased $1,239,000 and $948,000, respectively, for
the six and three-month periods ended September 30, 2001, compared to their
respective September 30, 2000 periods. The six-month increase was
principally due to a $1,960,000 increase in profitability at Global,
partially offset by a decrease in MAC and MAS earnings. Global's earnings
increase of $1,175,000 for the three-month period ended September 30, 2001
compared to 2000 was 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 $483,000 and $369,000 for the
six and three-month periods ended September 30, 2001, respectively compared
to their respective 2000 periods due to increased taxable income.
Liquidity and Capital Resources
As of September 30, 2001 the Company's working capital amounted to
$14,002,000, an increase of $1,753,000 compared to March 31, 2001. The net
increase primarily resulted from increased cash from operations, decreased
accounts payable and accrued expenses and increased inventories, partly
offset by decreased accounts receivable.
In May 2001 the Company expanded its bank financing line to a
$10,000,000 credit facility. Under the terms of the agreement, a
$7,000,000 secured long-term revolving credit line which expires on August
31, 2003 replaced the Company's existing $8,500,000 unsecured short-term
revolving credit line which was due to expire in August 2001. The
remaining $3,000,000 of the credit facility was set up as a five-year term
loan which expires on May 31, 2006 and is scheduled to be repaid in
quarterly principal payments of $150,000, plus accrued interest, beginning
August 31, 2001.
13
Liquidity and Capital Resources (Cont'd)
The credit facility contains customary events of default and
restrictive covenants that, among other matters, require the Company to
maintain certain financial ratios. As of September 30, 2001, the Company
was in compliance with all of the restrictive covenants. The amount of
credit available to the Company under the agreement at any given time is
determined by an availability calculation, based on the eligible borrowing
base, as defined in the credit agreement, which includes the Company's
outstanding receivables, inventories and equipment, with certain
exclusions. The credit facility is secured by substantially all of the
Company's assets.
Amounts advanced under the credit facility bear interest at the 30-day
"LIBOR" rate plus 137 basis points. The LIBOR rate at September 30, 2001
was 3.58%. At September 30, 2001 and 2000, the amounts outstanding against
the line were $6,327,000 and $6,380,000, respectively. At September 30,
2001, an additional $3,523,000 was available under the entire credit
facility.
The respective six-month periods ended September 30, 2001 and 2000
resulted in the following changes in cash flow: operating activities
provided $171,000 and used $1,696,000, investing activities used $294,000
and $385,000 and financing activities provided $142,000 and $2,096,000.
Net cash increased $19,000 and $15,000 for the respective six-month periods
ended September 30, 2001 and 2000.
Cash used in operating activities was $1,865,000 less for the six-
months ended September 30, 2001 compared to the similar 2000 period,
principally due to increased earnings, a decrease in accounts receivable
and the significant decrease in funding current period inventory, partially
offset by decreased accounts payable and accrued expenses.
Cash used in investing activities for the six-months ended September
30, 2001 was approximately $91,000 less than the comparable period in 2000,
principally due to decreased capital expenditures.
Cash provided by financing activities for the six-months ended
September 30, 2001 was approximately $1,954,000 less than the comparable
2000 period, principally due to a decrease in borrowings under the line of
credit in 2001, partially offset by an increase in cash dividend.
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 $0.15 per share cash dividend in June 2001.
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.
14
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.
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board approved
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 will require that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and that the use of the
pooling-of-interest method is no longer allowed. SFAS No. 142 requires
that upon adoption, amortization of goodwill will cease and instead the
carrying value of goodwill will be evaluated for impairment on an annual
basis. Identifiable intangible assets will continue to be amortized over
their useful lives and reviewed for impairment in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The Company has determined that neither
of these recently accounting standards will impact the Company's financial
position and results of operations.
The Financial Accounting Standards Board has approved SFAS No. 143,
"Accounting for Asset Retirement Obligations" and No. 144, "Accounting for
the Impairment or Disposal of Long-lived Assets". SFAS No. 143 addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. It requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" and Accounting Principles Bulletin No. 30. Along
with establishing a single accounting model, based on the framework
established in SFAS No. 121, for long-lived assets to be disposed of by
sale, this standard retains the basic provisions of APB30 for the
presentation of discontinued operations in the income statement but
broadens that presentation to include a component of an entity. SFAS No.
144 is effective for fiscal years beginning after December 15, 2001. We
are evaluating the impact of these standards and have not yet determined
the effect of adoption on our financial position and results of operations.
Derivative Financial Instruments
On April 1, 2001, we adopted Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
15
Activities", as amended, FAS 133 established accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The implementation of FAS 133 at April 1, 2001
had no material effect on the Company's financial position or results of
operations.
We are exposed to market risk, such as changes in interest rates. To
manage the volatility relating to interest rate risk, we may enter into
interest rate hedging arrangements from time to time. We do not utilize
derivative financial instruments for trading or speculative purposes.
During the first quarter, we entered into two interest rate swaps with
a notional amount of $3 million, and $2 million, respectively. These
agreements were entered into as cash flow hedges to fix the interest rates
on the $3 million term portion and $2 million of the revolving portion of
the credit facility at respective interest rates of 6.97% and 6.5%
respectively. The fair value of these swaps had decreased by $194,000 at
September 30, 2001. Because the swaps are considered completely effective
the change in fair market value of the swaps are recorded in other
comprehensive income and long-term debt on the balance sheet.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold or issue derivative financial instruments
for trading purposes. On May 31, 2001 the Company entered into swap
agreements to fix the interest rates on the $3 million term portion and $2
million of the revolving portion of its credit facility at respective
interest rates of 6.97% and 6.50% to reduce its exposure to the
fluctuations of LIBOR-based variable interest rates. The Company is
exposed to changes in interest rates on certain portions of 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 year-end balance of the line of credit, annual interest
expense would have increased by approximately $63,000.
16
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on
August 22, 2001. At the annual meeting, stockholders
voted to re-elect each of the members of the Board of
Directors, to ratify the Board's appointment of Deloitte &
Touche as independent auditors for the fiscal year ending
March 31, 2001, and to approve an amendment to the
Company's Certificate of Incorporation to reduce the
number of authorized shares of preferred stock to 50,000.
In each instance, 1,774,992 votes were cast in favor and
no votes were cast against. There were no abstentions or
broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
3.1 Restated Certificate of Incorporation.
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
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
_______________________
b. Reports on Form 8-K
No Current Reports on Form 8-K were filed in the three months ended
September 30, 2001.
17
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.
AIR T, INC.
(Registrant)
Date: October 30, 2001 /s/ Walter Clark
Walter Clark, Chief Executive Officer
Date: October 30, 2001 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer
18
AIR T, INC.
EXHIBIT INDEX
EXHIBIT PAGE
3.1 Restated Certificate of Incorporation 20-23
19