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.
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<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>
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<TABLE>
AIRT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (UNAUDITED)
<CAPTION>
Three Months Ended Six months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
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.
</TABLE>
3</page>
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<TABLE>
AIRT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
(Unaudited)
<S> <C> <C>
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.
</TABLE>
4</page>
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<TABLE>
AIRT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
September 30,
2000 1999
<S> <C> <C>
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.
</TABLE>
5</page>
<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>
<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>
<PAGE>
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>
<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>
<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>
<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>
<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>
<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>
<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>
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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>
