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 December 31, 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.
2,724,320 Common Shares, par value of $.25 per share were outstanding
as of January 31, 2002.
This filing contains 18 pages.
AIR T, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings (Loss)
for the three and nine-month periods ended
December 31, 2001 and 2000 (Unaudited) 3
Consolidated Balance Sheets at
December 31, 2001 (Unaudited)
and March 31, 2001 4
Consolidated Statements of Cash
Flows for the nine-month periods
ended December 31, 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 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
2
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Nine months Ended
December 31, December 31,
2001 2000 2001 2000
Operating Revenues:
Cargo $ 4,887,585 $ 5,092,020 $14,732,919 $14,071,350
Maintenance 2,368,391 2,288,298 7,173,960 7,129,545
Ground equipment 6,758,345 11,133,140 26,479,654 23,369,693
Aircraft services and other 1,754,582 2,068,899 10,228,826 5,533,680
15,768,903 20,582,357 58,615,359 50,104,268
Operating Expenses:
Flight operations 3,477,843 3,691,669 10,597,732 10,018,156
Maintenance and services 4,271,437 3,969,676 17,171,098 11,505,174
Ground equipment 5,198,062 9,375,995 21,078,142 19,867,998
General and administrative 2,263,049 2,279,638 6,825,249 6,136,572
Depreciation and amortization 176,056 214,573 528,955 661,244
15,386,447 19,531,551 56,201,176 48,189,144
Operating Income 382,457 1,050,806 2,414,183 1,915,124
Non-operating Expense (Income):
Interest 121,377 197,548 374,299 556,658
Deferred retirement expense 6,249 6,249 18,747 18,747
Investment income (22,879) (13,967) (57,707) (84,576)
Other - 39,438 - 41,047
104,747 229,268 335,339 531,876
Earnings Before
Income Taxes 277,709 821,537 2,078,844 1,383,248
Income Tax 121,477 323,537 833,721 552,996
Net Earnings $ 156,232 $ 498,000 $ 1,245,123 $ 830,252
Net Earnings Per Share:
Basic $ 0.06 $ 0.18 $ 0.46 $ 0.30
Diluted $ 0.06 $ 0.18 $ 0.45 $ 0.30
Weighted Average Shares Outstanding:
Basic 2,716,764 2,731,220 2,714,323 2,742,853
Diluted 2,776,076 2,780,372 2,769,960 2,774,473
See Notes to Consolidated Financial Statements.
3
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 MARCH 31, 2001
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 202,681 $ 97,799
Marketable securities 982,851 875,836
Accounts receivable, net 8,063,014 11,089,528
Costs and estimated earnings in excess
of billings on uncompleted contracts 142,194 194,067
Inventories, net 10,479,638 10,783,686
Deferred tax asset 666,023 444,764
Prepaid expenses and other 149,139 203,765
Total Current Assets 20,685,540 23,689,445
Property and Equipment, net 3,147,144 3,254,172
Deferred Tax Asset 493,581 567,282
Intangible Pension Asset 451,631 361,631
Other Assets 636,857 660,682
Total Assets $25,414,753 $ 28,533,212
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,241,982 $ 8,879,628
Accrued expenses 1,990,776 1,573,468
Income taxes payable 469,886 287,846
Current portion of long-term obligations 678,703 699,719
Total Current Liabilities 8,381,347 11,440,661
Capital Lease Obligation (less current portion) 116,268 105,007
Long-term Debt (less current portion) 4,098,266 5,163,829
Deferred Retirement Obligation (less current portion 1,852,894 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; 2,722,320 and 2,705,153 shares issued 680,580 676,288
Additional paid in capital 6,853,898 6,828,640
Retained earnings 4,046,246 3,206,642
Accumulated other comprehensive loss (614,746) (541,255)
10,965,978 10,170,315
Total Liabilities and Stockholders' Equity $25,414,753 $ 28,533,212
See Notes to Consolidated Financial Statements.
4
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
December 31,
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,245,123 $ 830,252
Adjustments to reconcile net earnings
to net cash provided by (used in) operations:
Depreciation and amortization 528,955 661,244
Change in deferred tax asset (147,558) (97,000)
Change in retirement obligation 199,494 120,495
Gain on sale of asset - 41,047
Changes in assets and liabilities:
Accounts receivable 3,026,514 (3,583,531)
Cost and estimated earnings in excess of
billings on uncompleted contracts 51,873 (60,603)
Inventories 304,048 (2,556,532)
Prepaid expenses and other (11,549) 72,842
Accounts payable (3,637,646) 1,126,500
Accrued expenses 396,294 335,897
Income taxes payable 182,040 (18,222)
Total adjustments 892,465 (3,957,863)
Net cash provided by (used in) operating activities 2,137,588 (3,127,611)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (397,172) (618,795)
Sale of marketable securities - 570,164
Net cash used in investing activities (397,172) (48,631)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments of) proceeds from line of credit , net (1,259,563) 3,551,003
Payment of cash dividend (405,520) (274,858)
Repurchase of common stock (42,785) (189,377)
Proceeds from exercise of stock options 72,334 30,500
Net cash (used in) provided by financing activities (1,635,534) 3,117,268
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 104,882 (58,974)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 97,799 144,513
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 202,681 $ 85,539
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Other comprehensive gain $ 120,509 $ 2,776
Equipment capital lease - 19,894
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 379,601 $ 526,320
Income/Franchise taxes 791,902 669,192
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 December 31, 2001, the
Consolidated Statements of Earnings for the three and nine-month periods
ended December 31, 2001 and 2000 and the Consolidated Statements of Cash
Flows for the nine-month periods ended December 31, 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 December 31, 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 December 31 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 December 31, 2001 and March 31, 2001 consolidated balance
sheets.
The income tax provisions for the nine-months ended December 31, 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 potential common
shares 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 Nine months Ended
December 31, December 31,
2001 2000 2001 2000
Net earnings $ 156,232 $ 498,000 $1,245,123 $ 830,252
Weighted average common shares:
Shares outstanding - basic 2,716,764 2,731,220 2,714,323 2,742,853
Dilutive stock options 59,312 49,152 55,637 31,620
Shares outstanding - diluted 2,776,076 2,780,372 2,769,960 2,774,473
Net earnings per common share:
Basic $ 0.06 $ 0.18 $ 0.46 $ 0.30
Diluted $ 0.06 $ 0.18 $ 0.45 $ 0.30
D. Inventories
Inventories consist of the following:
December 31, 2001 March 31,2001
Aircraft parts and supplies $ 4,880,050 $ 5,458,681
Aircraft equipment manufacturing:
Raw materials 3,474,168 2,666,270
Work in process 951,060 1,131,565
Finished goods 1,174,360 1,527,170
Total $ 10,479,638 $ 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 materially 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. The
Company is evaluating the impact of these standards and has 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, SFAS 133 establishes 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 SFAS 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 December 31, 2001. Because the swaps are considered perfectly effective
the change in fair value of the swaps is recorded as other comprehensive
loss 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 December 31, 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 December 31, 2001
was 1.87%. At December 31, 2001 and 2000, the amounts outstanding against
the line were $4,504,000 and $7,539,000, respectively. At December 31,
2001, $5,196,000 was available under the entire credit facility.
H. Segment Information
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: overnight air cargo, aviation
services and aviation ground equipment.
9
Segment data is summarized as follows:
As of and for the
Nine months ended December 31,
2001 2000
Operating Revenues
Overnight Air Cargo $ 21,906,879 $ 21,256,697
Ground Equipment 26,479,654 23,369,693
Aviation Services 10,210,826 5,459,877
Corporate 18,000 18,000
Total $ 58,615,359 $ 50,104,267
Operating Income
Overnight Air Cargo $ 1,809,239 $ 2,017,524
Ground Equipment 3,126,906 1,421,759
Aviation Services (524,545) 234,830
Corporate (1) (1,997,417) (1,758,989)
Total $ 2,414,183 $ 1,915,124
Depreciation and Amortization
Overnight Air Cargo $ 205,154 $ 232,834
Ground Equipment 148,371 199,919
Aviation Services 114,265 107,163
Corporate 61,165 121,328
Total $ 528,955 $ 661,244
Capital Expenditures, net
Overnight Air Cargo $ 180,947 $ 173,082
Ground Equipment 48,634 65,751
Aviation Services 35,297 203,184
Corporate 103,890 17,181
Total $ 368,768 $ 459,198
Identifiable Assets
Overnight Air Cargo $ 2,781,630 $ 4,685,741
Ground Equipment 12,383,531 14,883,813
Aviation Services 6,736,786 8,798,680
Corporate 3,512,806 1,084,276
Total $ 25,414,753 $ 29,452,510
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 45.2% and 37.4% 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 $26,480,000 and $23,370,000 to the Company's revenues for the
nine-month periods ended December 31, 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 $21,907,000 and $21,257,000 to the
Company's revenues for the nine-month periods ended December 31, 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 December 31,
2001) are owned by and dry-leased from a major air express company
(Customer), and Short Brothers SD3-30 aircraft (two aircraft at December
31, 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 $10,211,000 and $5,460,000 to the
Company's revenues for the nine-month periods ended December 31, 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
These costs were expensed as incurred. In June 1999, Global was awarded a
four-year contract to supply deicing equipment to the United States Air
Force (USAF) 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 fourth quarter of fiscal 2002. The Company anticipates that revenue
from the USAF contract will continue to contribute to management's plan
to reduce Global's seasonal fluctuation in revenues. The Company
believes that this seasonal trend was not reflected in Global's current third
quarter results due to the September 11, 2001 terrorist attacks and weakening
aviation market discussed below. The remainder of the Company's business
is not materially seasonal.
Results of Operations
Consolidated revenue increased $8,511,000 (17.0%) to $58,615,000 and
decreased $4,813,000 (23.4%) to $15,769,000, respectively, for the nine and
three-month periods ended December 31, 2001 compared to their equivalent
2000 periods. The nine-month current period net increase in revenue
primarily resulted from increased Philadelphia Airport contract revenue at
Global and a $4,700,000 engine sale by MAS. The three months ended December
31, 2001 decrease in revenue in part resulted from the effects of the
September 11, 2001 terrorist attacks against the United States which
exacerbated weak aviation market conditions; resulting in decreased
commercial aircraft deicer orders at Global and aircraft component overhaul
and parts orders at MAS.
Operating expenses increased $8,012,000 (16.6%) to $56,201,000 for the
nine-month period ended December 31, 2001 and decreased $4,145,000 (21.2%)
to $15,386,000 for the three-month period ended December 31, 2001 compared
to their equivalent 2000 periods. The change in operating expenses for the
nine-month period consisted of the following: cost of flight operations
increased $580,000 (5.8%), primarily as a result of increases in costs
associated with pilot salaries and airport fees, partially offset by
decreased pilot travel costs; maintenance and brokerage expense increased
$5,666,000 (49.3%), primarily as a result of cost of parts related to
engine and brokerage parts sales and increased outside maintenance costs;
12
Results of Operations (Cont'd)
ground equipment increased $1,210,000 (6.1%), as a result of cost of parts
and labor associated with increased Global sales; depreciation and
amortization decreased $132,000 (20.0%) primarily as a result of decreased
depreciation related to the completion of certain assets' depreciable
lives; general and administrative expense increased $689,000 (11.2%)
primarily as a result of increased wages, performance based bonuses and
benefits, particularly related to the increased earnings of Global and
additional accounts receivable reserves, partially offset by decreased
professional fees and contract labor.
The change in operating expenses for the three-month period consisted
of the following: cost of flight operations decreased a net of $214,000
(5.8%), primarily as a result of decreased travel cost and airport fees,
partly offset by increased pilot salaries; maintenance and brokerage
expense increased $302,000 (7.6%), primarily as a result of increases
associated with cost of parts, labor and outside maintenance related to the
overhaul and repair operations of MAC and MAS; ground equipment decreased
$4,178,000 (44.6%), as a result of lower cost of parts and labor associated
with Global's decreased sales; depreciation and amortization decreased
$39,000 (18.0%) as a result of decreased depreciation related to the
completion of certain assets' depreciable lives related to the expansion of
MAS and Global; general and administrative expense decreased $17,000 (0.7%)
primarily as a result of decreased professional fees partially offset by
increased wages.
Non-operating expense decreased $197,000 and $125,000, respectively,
for the current nine and three-month periods ended December 31, 2001. The
decreases were principally due to decreased credit-line interest expense.
Pretax earnings increased $696,000 and decreased $544,000,
respectively, for the nine and three-month periods ended December 31, 2001,
compared to their respective December 31, 2000 periods. The nine-month
increase was principally due to a $1,929,000 increase in profitability at
Global, partially offset by changes in fleet utilization and a reduction in
workorders, in part due to the September 11, 2001 terrorist attacks, which
decreased earnings from other corporate operations. The $544,000 decrease
for the three-month period ended December 31, 2001 compared to 2000
earnings was due to the above mentioned September 11, 2001 attacks,
intensified by an already weakening aviation market which substantially
reduced Global's revenue and earnings. Reduced aircraft utilization and
maintenance workorders caused further decreases in earnings in each of
Air T's other operating sectors.
The provision for income taxes increased $281,000 and decreased
$202,000 for the nine and three-month periods ended December 31, 2001,
compared to their respective 2000 periods due to respective increased and
decreased taxable income.
13
Liquidity and Capital Resources
As of December 31, 2001 the Company's working capital amounted to
$12,304,000, an increase of $55,000 compared to March 31, 2001. The net
increase primarily resulted from increased cash from operations, decreased
accounts payable, 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 is 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 December 31, 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 December 31, 2001
was 1.87%. At December 31, 2001 and 2000, the amounts outstanding against
the line were $4,504,000 and $7,539,000, respectively. At December 31,
2001, an additional $5,196,000 was available under the entire credit
facility.
The respective nine-month periods ended December 31, 2001 and 2000
resulted in the following changes in cash flow: operating activities
provided $2,138,000 and used $3,128,000, investing activities used $397,000
and $49,000 and financing activities used $1,636,000 and provided
$3,117,000. Net cash increased $105,000 and decreased $59,000 for the
respective nine-month periods ended December 31, 2001 and 2000.
Cash provided by operating activities was $5,265,000 more for the nine-
months ended December 31, 2001 compared to the similar 2000 period,
principally due to decreased accounts receivable and decreased inventory
and increased profitability, partially offset by decreased accounts
payable.
Cash used in investing activities for the nine-months ended December
31, 2001 was approximately $349,000 more than the comparable period in,
2000, principally due to a decrease in sale of marketable securities,
partially offset by decreased capital expenditures.
14
Liquidity and Capital Resources (Cont'd)
Cash used in financing activities for the nine-months ended December
31, 2001 was approximately $4,753,000 more than the comparable 2000 period,
principally due to a decrease in borrowings under the line of credit in
2001.
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.
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 materially impact the Company's
financial position and results of operations.
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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. The
Company is evaluating the impact of these standards and has 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
Activities", as amended. SFAS 133 establishes 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 SFAS 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
December 31, 2001. Because the swaps are considered completely effective
the change in fair market value of the swaps are recorded in other
comprehensive loss and long-term debt on the balance sheet.
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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 $45,000.
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PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
3.1 Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1 of the Company's Quarterly
Reports on Form 10-Q for the period ended September 30,
2001.
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
_______________________
b. Reports on Form 8-K
No Current Reports on Form 8-K were filed in the three months ended
December 31, 2001.
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: January 31, 2002 /s/ Walter Clark
Walter Clark, Chief Executive Officer
Date: January 31, 2002 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer
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