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 June 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.
2,743,953 Common Shares, par value of $.25 per share were outstanding as
of August 10, 2000.
This filing contains 14 pages.
</page>
<PAGE>
AIR T, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings
for the three-month periods ended
June 30, 2000 and 1999 (Unaudited) 3
Consolidated Balance Sheets at
June 30, 2000 (Unaudited)
and March 31, 2000 4
Consolidated Statements of Cash
Flows for the three-month periods
ended June 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 8-11
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
</page>
<PAGE>
<TABLE>
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
2000 1999
<S> <C> <C>
Operating Revenues:
Cargo $ 4,254,410 $ 4,357,067
Maintenance 2,579,679 3,475,825
Ground equipment 5,723,587 730,620
Aircraft services and other 1,854,696 2,226,542
14,412,372 10,790,054
Operating Expenses:
Flight operations 3,001,972 3,052,317
Maintenance and brokering 3,882,556 5,161,249
Ground equipment 4,903,427 638,982
General and administrative 1,998,932 1,588,775
Depreciation and amortization 219,623 239,357
14,006,510 10,680,680
Operating Income 405,862 109,374
Non-operating Expense (Income):
Interest 159,981 129,258
Deferred retirement expense 6,249 6,249
Loss on sale of asset 2,149 -
Investment income (42,621) (45,254)
125,758 90,253
Earnings Before Income Taxes 280,104 19,121
Income Taxes 114,648 8,600
Net Earnings $ 165,456 $ 10,521
Net Earnings Per Share:
Basic $ 0.06 $ -
Diluted $ 0.06 $ -
Average Shares Outstanding:
Basic 2,748,586 2,764,653
Diluted 2,799,604 2,846,476
<FN>
See notes to consolidated financial statements.
</TABLE>
</page>
3
<PAGE>
<TABLE>
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, 2000 March 31,2000
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 436,854 $ 144,513
Marketable securities 1,317,828 1,295,678
Accounts receivable, net 5,912,147 7,960,978
Costs and estimated earnings in excess
of billings on uncompleted contracts 259,705 210,178
Inventories 11,279,658 9,741,675
Deferred tax asset, net 321,097 321,097
Prepaid expenses and other 200,843 228,757
Total Current Assets 19,728,132 19,902,876
Property and Equipment 6,679,186 6,461,984
Less accumulated depreciation (4,073,824) (3,867,778)
2,605,362 2,594,206
Deferred Tax Asset 438,554 438,554
Intangible Pension Asset 460,778 430,778
Other Assets 528,283 570,033
Total Assets $ 23,761,109 $ 23,936,447
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank $ 5,311,416 $ 3,988,191
Accounts payable 5,969,296 7,517,640
Accrued expenses 1,224,778 1,090,838
Income taxes payable 409,537 470,247
Current portion of long-term obligations 64,833 64,833
Total Current Liabilities 12,979,860 13,131,749
Capital Lease Obligation (less current
portion) 50,072 36,440
Deferred Retirement Obligations (less
current portion) 1,578,875 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; 2,746,153 and
2,740,353 shares issued 685,866 684,416
Additional paid in capital 6,958,394 6,976,795
Accumulated other comprehensive loss (575,130) (597,904)
Retained Earnings 2,083,172 2,192,574
9,152,302 9,255,881
Total Liabilities & Stockholders' Equity $ 23,761,109 $ 23,936,477
<FN>
See notes to consolidated financial statements.
</TABLE>
4
</page>
<PAGE>
<TABLE>
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 165,456 $ 10,521
Adjustments to reconcile net earnings to net
cash used in operations:
Depreciation and amortization 219,623 239,357
Change in retirement obligation 66,498 53,607
Loss on sale of assets 2,149 -
Change in assets and liabilities:
Accounts receivable 2,048,831 2,264,156
Cost and estimated earnings in excess of
billings on uncompleted contracts (49,527) -
Inventories (1,537,983) (1,791,750)
Prepaid expenses and other 39,664 (85,208)
Accounts payable (1,548,344) (883,286)
Accrued expenses 133,940 (752,655)
Income taxes payable (60,710) -
Total adjustments (974,129) (955,779)
Net cash used in operating activities (520,403) (945,258)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (218,672) (91,164)
Purchase of marketable securities - (100,000)
Proceeds from sale of marketable securities - 246,830
Net cash (used in)provided by
investing activities (218,672) 55,666
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net 1,323,225 1,014,009
Payment of cash dividend (274,858) (220,278)
Repurchase of common stock (39,451) -
Proceeds from exercise of stock options 22,500 -
Net cash provided by financing activities 1,031,416 793,731
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 292,341 (95,861)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 144,513 263,362
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 436,854 $ 167,501
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Other comprehensive gain (loss) $ 22,774 $ (44,769)
Equipment capital lease 19,894 -
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 194,979 $ 86,813
Income/Franchise taxes 17,596 31,049
<FN>
See notes to consolidated financial statements.
</TABLE>
5
</page>
<PAGE>
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Financial Statements
The Consolidated Balance Sheet as of June 30, 2000, the Consolidated
Statements of Earnings for the three-month periods ended June 30, 2000 and 1999
and the Consolidated Statements of Cash Flows for the three-month periods ended
June 30, 2000 and 1999 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 June 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 June 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 June 30, 2000 and March 31, 2000 consolidated balance sheets.
The income tax provisions for the three-months ended June 30, 2000 and 1999
differ from the federal statutory rate primarily as a result of state income
taxes and permanent tax 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
</page>
<PAGE>
The computation of basic and diluted earnings per common share is as follows:
Three months ended June 30,
2000 1999
Net earnings $ 165,456 $ 10,521
Weighted average common shares:
Shares outstanding-basic 2,748,586 2,764,653
Dilutive stock options 51,018 81,823
Shares outstanding-diluted 2,799,604 2,846,476
Net earnings per common share:
Basic $ .06 $ -
Diluted $ .06 $ -
7
</page>
<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, periodically
operated 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 June 30, 2000) are owned by and
dry-leased from a major air express company (Customer), and Short Brothers SD3-
30 aircraft (two aircraft at June 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.
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 approximately $1,820,000 and
$2,213,000 to the Company's revenues for the three-months periods ended June 30,
2000 and 1999, respectively.
8
</page>
<PAGE>
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 $5,724,000 and $731,000 to the Company's revenues for
the three-month periods ended June 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 three models of scissor-
lift equipment for catering, cabin service and maintenance 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 $3,622,000 (33.6%) to $14,412,000 for the
three-month period ended June 30, 2000 compared to its equivalent 1999 period.
The increase in revenue primarily resulted from an increase in operations of
Global, partially offset by decreases in cargo, maintenance and component repair
services.
Operating expenses increased $3,326,000 (31.1%) to $14,007,000 for the
three-month period ended June 30, 2000 compared to its equivalent 1999 period.
The increase in operating expenses consisted of the following: cost of flight
operations decreased $50,000 (1.6%) primarily as a result of decreases in costs
associated with pilot travel; maintenance expense decreased $1,279,000 (24.8%)
primarily as a result of decreases associated with cost of parts, contract labor
and outside maintenance related to the overhaul and repair operations of MAC and
MAS; ground equipment increased $4,264,000 (667.4%), as a result of cost of
parts and labor associated with increased Global sales; depreciation decreased
$20,000 (8.2%) primarily as a result of decreased depreciation related to the
completion of certain assets' depreciable lives; general and administrative
expense increased $410,000 (25.8%) primarily as a result of increased wages and
benefits, insurance, professional fees and telephone, particularly related to
the expansion of Global.
9
</page>
<PAGE>
Results of Operations (cont'd)
The current period's increased revenue and operating income resulted
primarily from the commencement of the above mentioned Air Force contract at
Global, offset, in part, by decreased heavy maintenance and brokerage parts
revenue and operating income in the air cargo and aviation services sectors.
During the quarter ended June 30, 2000 Global's revenue and operating income
increased, respectively, $4,993,000 (683.4%) and $562,000 (157.0%) to $5,724,000
and $204,000 compared to the quarter ended June 30, 1999.
Global incurred significant expense in fiscal 1999 and 2000 to develop new
equipment to diversify its product line in order to expand its customer base and
reduce seasonality. Global started production of its new line of hydraulically
operated scissor-lift equipment for ground service of aircraft during the first
quarter of fiscal 2000 and is in the process of finalizing the design of lower
priced aircraft deicer models for the 2000-2001 winter season.
The $36,000 increase in non-operating expense was principally due to an
increase in credit line interest related to higher levels of borrowing to fund
the expanded operations of MAS and Global in the first quarter of 2000 compared
to 1999.
Pretax earnings increased $261,000 for the three-month period ended June 30,
2000 compared to 1999, principally due to the above stated increase in Global
earnings, partially offset by a decrease in current period earnings for the air
cargo and aircraft services sectors.
The provision for income taxes for the three-month period ended June 30,
2000 increased $106,000 compared to the 1999 period, primarily due to increased
taxable income and a lower effective tax rate.
Liquidity and Capital Resources
As of June 30, 2000 the Company's working capital amounted to $6,748,000, a
decrease of $23,000 compared to March 31, 2000.
The Company's unsecured line of credit provides credit up to $7,500,000.
The line, which matures on August 31, 2000, is currently in the process of being
renewed before its scheduled expiration date. 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 may not encumber certain
real or personal property. As of June 30, 2000 the Company was in a net
borrowing position against its credit line of $5,311,000. 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.
10
</page>
<PAGE>
Liquidity and Capital Resources (cont'd)
The respective three-month periods ended June 30, 2000 and 1999 resulted in
the following changes in cash flow: operating activities used $520,000 in 2000
and $945,000 in 1999, investing activities used $219,000 in 2000 and provided
$56,000 in 1999 and financing activities provided $1,031,000 in 2000 and
$794,000 in 1999. Net cash increased $292,000 and decreased $96,000 during the
three months ended June 30, 2000 and 1999, respectively.
Cash used in operating activities was $425,000 lower for the three-months
ended June 30, 2000 compared to the similar 1999 period, principally due to
increased income and an increase in accrued expenses, partially offset by a
decrease in accounts payable.
Cash used in investing activities for the three-months ended June 30, 2000
was approximately $274,000 more than the comparable period in 1999, principally
due to increased capital expenditures and lower net proceeds from marketable
securities transactions.
Cash provided by financing activities was $238,000 more in the 2000 three-
month period than in the corresponding 1999 period due to an increase in
borrowings under the line of credit in 2000, partially offset by an increase in
cash dividends.
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 $.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 the currently low level of inflation
could be passed on to its customers, or on to 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.
11
</page>
<PAGE>
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 $53,000.
12
</page>
<PAGE>
PART II -- OTHER INFORMATION
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
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 quarter of fiscal
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.
AIR T, INC.
(Registrant)
Date: August 11, 2000 /s/ Walter Clark
Walter Clark, Chief Executive Officer
Date: August 11, 2000 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer
14
</page>
