SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _____________
Commission file number 0-11720
AIR T, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1206400
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3524 Airport Road
Maiden, North Carolina 28650
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(Address of principal executive offices) (Zip Code)
(704) 377-2109
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.25 per share
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(Title of Class)
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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 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [|X|]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12G-2). Yes No |X|
The aggregate market value of voting stock held by non-affiliates of
the registrant, computed by reference to the average of the closing bid and
asked prices for such stock on September 30, 2002, was $2,490,306. As of June 5,
2003, 2,726,320 shares of Common Stock were outstanding.
PART I
Item 1. Business.
Air T, Inc., incorporated under the laws of the State of Delaware in
1980 (the "Company"), operates in two industry segments, providing overnight air
cargo services to the air express delivery industry through its wholly owned
subsidiaries, Mountain Air Cargo, Inc. ("MAC") and CSA Air, Inc. ("CSA"), and
aviation ground support equipment products through its wholly owned subsidiary,
Global Ground Support, LLC ("Global"). During fiscal 2003 the Company decided to
dispose of its aviation related parts brokerage and overhaul services through
its wholly owned subsidiary, Mountain Aircraft Services, LLC ("MAS"). The
Company entered into a letter of intent on June 19, 2003 to sell the business
operations of MAS. The Company's financial statements have been reclassified to
reflect the results of MAS as a discontinued operation. For the fiscal year
ended March 31, 2003 the Company's air cargo services through MAC and CSA
accounted for approximately 69.7% of the Company's consolidated revenues and
aircraft deice and other ground support equipment products through Global
accounted for 30.3% of consolidated revenues. The Company's air cargo services
are provided exclusively to one customer, Federal Express Corporation ("Federal
Express"). Revenues from contracts with Federal Express accounted for
approximately 68.3% of the Company's consolidated revenues for the year ended
March 31, 2003. Certain financial data with respect to the Company's overnight
air cargo and ground support equipment segments are set forth in Note 16 of
Notes to Consolidated Financial Statements included under Part II, Item 8 of
this report. Such data are incorporated herein by reference.
The principal place of business of the Company and MAC is 3524 Airport
Road, Maiden, North Carolina; the principal places of business of CSA and Global
are, respectively, Iron Mountain, Michigan and Olathe, Kansas. The principal
place of business of MAS is located in Kinston, North Carolina.
Diversification.
In October 1993, the Company organized MAS to diversify its customer
base and business mix. MAS provides aircraft maintenance, parts and other
aviation related services to the commercial and military aviation industries.
MAS is organized as a limited liability company 100% owned by Air T. During the
fourth quarter of fiscal 2003, Company management, in order to focus its
resources on core operations, agreed to a plan to sell MAS assets and to
discontinue the operations of the Company's aviation service sector business.
See Note 10 of Notes to Consolidated Financial Statements included under Part
II, Item 8 of this report.
In August 1997, the Company organized Global to acquire the Simon
Deicer Division of Terex Aviation Ground Equipment, and the acquisition was
completed that month. Global is located in Olathe, Kansas and manufactures,
sells and services aircraft ground support equipment sold to domestic and
international passenger and cargo airlines, as well as to airports. During the
fiscal year ended March 31, 2000, Global diversified its product line to include
additional models of aircraft deicers and scissor-lift ground support equipment.
Global is organized as a limited liability company 100% owned by Air T.
Overnight Air Cargo Services.
MAC and CSA provide small package overnight air freight delivery
services on a contract basis throughout the eastern half of the United States
and Canada, and in Puerto Rico and the U.S. Virgin Islands. MAC and CSA's
revenues are derived principally pursuant to "dry-lease" service contracts.
Under the dry-lease service contracts, the customer leases its aircraft to MAC
(or CSA) for a nominal amount and pays an administrative fee to MAC (or CSA).
Under these arrangements, all direct costs related to the operation of the
aircraft (including fuel, maintenance, landing fees and pilot costs) are passed
through to the customer. For the most recent fiscal year, operations under
dry-lease service contracts accounted for 98.0% of MAC and CSA's revenues (68.3%
of the Company's consolidated revenues).
For the fiscal year ended March 31, 2003, MAC and CSA provided air
delivery service exclusively to Federal Express. As of March 31, 2003, MAC and
CSA operated an aggregate of 95 aircraft under agreements with Federal Express.
Separate agreements cover the three types of aircraft operated by MAC and CSA
for Federal Express -- Cessna Caravan, Fokker F-27 and Short Brothers SD3-30.
Cessna Caravan and Fokker F-27 aircraft are dry-leased from Federal Express, and
Short Brothers SD3-30 aircraft are owned by the Company and operated under
"wet-lease" arrangements with Federal Express, which provide for a fixed fee per
flight regardless of the amount of cargo carried. Pursuant to such agreements,
Federal Express determines the schedule of routes to be flown by MAC and CSA.
2
Agreements with Federal Express are renewable annually and may be
terminated by Federal Express any time upon 15 to 30 days' notice. The Company
believes that the short term and other provisions of its agreements with Federal
Express are standard within the air freight contract delivery service industry.
Loss of Federal Express as a customer would have a material adverse effect on
MAC, CSA and the Company.
MAC and CSA operate under separate aviation certifications. MAC is
certified to operate under Part 121, Part 135 and Part 145 of the regulations of
the Federal Aviation Administration (the "FAA"). These certifications permit MAC
to operate and maintain aircraft that can carry up to 18,000 pounds of cargo and
provide maintenance services to third party operators. CSA is certified to
operate under Part 135 of the FAA regulations. This certification permits CSA to
operate aircraft with a maximum cargo capacity of 7,500 pounds.
MAC and CSA, together, operated or held for sale the following aircraft
as of March 31, 2003:
Form of Number of
Type of Aircraft Model Year Ownership Aircraft
---------------- ---------- --------- ---------
Cessna Caravan, 208A and 208B
(single turbo prop) 1985-1996 dry lease 73
Fokker F-27 (twin turbo prop) 1968-1981 dry lease 20
Short Brothers SD3-30
(twin turbo prop) 1981 owned 2
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Total 95
====
Of the 95 aircraft fleet, 93 aircraft (the Cessna Caravan and Fokker
F-27 aircraft) are owned by Federal Express. Under the dry-lease service
contracts, certain maintenance expense, including cost of parts inventory, and
maintenance performed by personnel not employed by the Company, is passed
directly to the customer, and the expense of daily, routine maintenance and
aircraft service checks is charged to the customer on an hourly basis.
Accordingly, the Company does not anticipate maintenance expense, such as engine
overhauls, to be material to the Company's operating results.
All FAA Part 135 aircraft, including Cessna Caravan models 208A and
208B, and Short Brothers SD3-30 aircraft are maintained on FAA approved
inspection programs. The inspection intervals range from 100 to 200 hours. The
engines are produced by Pratt & Whitney, and overhaul periods are based on FAA
approved schedules. The current overhaul period on the Cessna aircraft is 7,500
hours. The Short Brothers manufactured aircraft are maintained on an "on
condition" maintenance program (i.e., maintenance is performed when performance
deviates from certain specifications) with engine inspections at each phase
inspection and in-shop maintenance at predetermined intervals.
The Fokker F-27 aircraft are maintained under a FAA Part 121
maintenance program. The program consists of A, B, C, D and I service checks.
The engine overhaul period is 6,700 hours.
In May 2000, MAC completed its FAA certification to commence operation
of a Part 145 maintenance facility at its Kinston, N.C. location.
The Company operates in highly competitive markets and competes with
approximately 50 other contract cargo carriers in the United States. MAC and
CSA's contracts are renewed on an annual basis. Accurate industry data is not
available to indicate the Company's position within its marketplace (in large
measure because most of the Company's competitors are privately held), but
management believes that MAC and CSA, combined, constitute one of the largest
contract carriers of the type described immediately above.
The Company's air cargo operations are not materially seasonal.
Aircraft Deice and Other Equipment Products.
Global manufactures, sells, services and supports aircraft devices on a
worldwide basis. Starting in fiscal 2000, Global began to diversify its product
line to include additional models of aircraft deicers and scissor-lift ground
support equipment.
3
Global's primary customers are passenger and cargo airlines, the U.S. Air Force,
as well as airports located in the United States and in international markets.
Global's operations are located in Olathe, Kansas.
In the manufacture of its ground service equipment, Global assembles
components acquired from third party suppliers. Components are readily available
from a number of different suppliers. The primary components are the chassis
(which is similar to the chassis of a medium to heavy truck) and heating
equipment.
Global manufactures five basic models of mobile deicing equipment
ranging from 700 to 3,200 gallon capacity models in addition to fixed pedestal
mounted deicers. Each model can be customized as requested by the customer,
including the addition of twin engine deicing systems, fire suppressant
equipment, modifications for open or enclosed cab design, a patented forced-air
deicing nozzle to substantially reduce glycol usage, and color and style of the
exterior finish. Global also manufactures three models of scissor-lift
equipment, for catering, cabin service and maintenance service of aircraft.
Global competes primarily on the basis of reliability of its products, prompt
delivery and price. The market for aviation ground service equipment is highly
competitive.
Global's mobile deicing equipment business, in addition to being highly
seasonal, was significantly impacted by the softening economy and effect of the
September 11, 2001 terrorist attacks on the United States. Historically, the
bulk of Global's revenues have occurred during the second and third fiscal
quarters, and comparatively little revenue has occurred during the first and
fourth fiscal quarters. The Company has reduced Global's seasonal fluctuation in
revenues by the introduction of a line of non-deicer related ground support
equipment, the January 2000 commencement of a long-term contract to provide
deicing equipment to the United States Air Force and other non-seasonal
contracts.
Revenue from Global's contract with the U.S. Air Force accounted for
approximately 19.9% of the Company's consolidated revenue for the year ended
March 31, 2003.
Aviation Related Parts Brokerage and Overhaul Services.
MAS provides aircraft maintenance and parts and other aviation related
services to the commercial and military aviation industries. MAS's principal
offices and primary overhaul facilities are located at the Global TransPark in
Kinston, North Carolina and Miami, Florida.
MAS's customers include the commercial air cargo and passenger aviation
industries and manufacturers of commercial and military aircraft and contract
maintenance companies serving the commercial and military aviation industry. MAS
also provides parts or services under contracts directly with the U.S.
government. For the fiscal year ended March 31, 2003, MAS provided services or
parts to over 80 customers, with five customers accounting for approximately 85%
of MAS's revenues for the year.
MAS's operations are not materially seasonal.
As stated above, during the fourth quarter of fiscal 2003, Company
management agreed to a plan to discontinue the operations of the Company's
aviation service sector business and sell MAS assets. Accordingly, the
accompanying consolidated financial statements reflect the MAS assets as held
for sale and reclassify the net operations of MAS as discontinued operations net
of tax for all periods presented.
Backlog.
The Company's backlog for its continuing operations consists of "firm"
orders supported by customer purchase orders for the deicing equipment sold by
Global and for parts and equipment sold by MAS. At March 31, 2003, the Company's
backlog of orders was $5.1 million attributable to Global, all of which the
Company expects to be filled in the current fiscal year. In addition, the
backlog of MAS orders at March 31, 2003 was $0.7 million.
Governmental Regulation.
Under the Federal Aviation Act of 1958, as amended, the FAA has safety
jurisdiction over flight operations generally, including flight equipment,
flight
4
and ground personnel training, examination and certification, certain ground
facilities, flight equipment maintenance programs and procedures, examination
and certification of mechanics, flight routes, air traffic control and
communications and other matters. The Company has been subject to FAA regulation
since the commencement of its business activities. The FAA is concerned with
safety and the regulation of flight operations generally, including equipment
used, ground facilities, maintenance, communications and other matters. The FAA
can suspend or revoke the authority of air carriers or their licensed personnel
for failure to comply with its regulations and can ground aircraft if questions
arise concerning airworthiness. The FAA also has power to suspend or revoke for
cause the certificates it issues and to institute proceedings for imposition and
collection of fines for violation of federal aviation regulations. The Company,
through its subsidiaries, holds all operating airworthiness and other FAA
certificates that are currently required for the conduct of its business,
although these certificates may be suspended or revoked for cause.
The FAA periodically conducts routine reviews of MAC and CSA's
operating procedures and flight and maintenance records.
The FAA has authority under the Noise Control Act of 1972, as amended,
to monitor and regulate aircraft engine noise. The aircraft operated by the
Company are in compliance with all such regulations promulgated by the FAA.
Moreover, because the Company does not operate jet aircraft, noncompliance is
not likely. Such aircraft also comply with standards for aircraft exhaust
emissions promulgated by the Environmental Protection Agency pursuant to the
Clean Air Act of 1970, as amended.
Because of the extensive use of radio and other communication
facilities in its aircraft operations, the Company is subject to the Federal
Communications Act of 1934, as amended.
Maintenance and Insurance.
The Company, through its subsidiaries, maintains its aircraft under the
appropriate FAA standards and regulations.
The Company has secured public liability and property damage insurance
in excess of minimum amounts required by the United States Department of
Transportation. The Company has also obtained all-risk hull insurance on
Company-owned aircraft.
The Company maintains cargo liability insurance, workers' compensation
insurance and fire and extended coverage insurance, for leased as well as owned
facilities and equipment.
Employees.
At May 9, 2003, the Company and its subsidiaries had 367 full-time and
full-time-equivalent employees, of which 10 are employed by the Company, 256 are
employed by MAC, 49 are employed by CSA, 10 are employed by MAS and 42 are
employed by Global. None of the Company's employees are represented by a union.
The Company believes its relations with its employees are good.
Item 2. Properties.
The Company leases the Little Mountain Airport in Maiden, North
Carolina from a corporation whose stock is owned in part by J. Hugh Bingham,
William H. Simpson and John J. Gioffre, officers and directors of the Company,
and the estate of David Clark, of which, Walter Clark, the Company's chairman
and Chief Executive Officer, is a co-executor and beneficiary, and Allison
Clark, a director, is a beneficiary. The facility consists of approximately 65
acres with one 3,000 foot paved runway, approximately 20,000 square feet of
hangar space and approximately 10,300 square feet of office space. The
operations of the Company and MAC are headquartered at this facility. The lease
for this facility extends through May 31, 2006, and the monthly lease payment is
$9,155.
The Company also leases approximately 800 square feet of office space
and approximately 6,000 square feet of hangar space at the Ford Airport in Iron
Mountain, Michigan. CSA's operations are headquartered at these facilities.
These facilities are leased, from a third party, under an annually renewable
agreement with a monthly rental payment, as of March 31, 2003, of approximately
$1,698.
On November 16, 1995, the Company entered into a twenty-one and
one-half year premises and facilities lease with Global TransPark Foundation,
Inc. to lease approximately 53,000 square feet of a 66,000 square foot aircraft
hangar shop and office facility at the North Carolina Global TransPark in
Kinston, North Carolina. In August 1996, the maintenance, repair and parts
brokerage operation of MAC and MAS were relocated to this facility. Rent under
this lease increases over time as follows:
5
the first 18 months, no rent; the next 5-year period, $2.25 per square foot; the
next 5-year period, $3.50 per square foot; the next 5-year period, $4.50 per
square foot; and the final 5-year period, $5.90 per square foot. This lease is
cancelable under certain conditions at the Company's option. The Company
currently considers the lease to be non-cancelable for eight and one-half years
and has calculated rent expense on a straight-line basis over this portion of
the lease term. The Company began operations at this facility in August 1996.
MAS operates a parts brokerage facility in Miami, Florida, leasing,
from a third party, approximately 2,700 square feet of space. The lease, signed
in April 2002, expires in February 2004, with monthly rental payments of $1,523.
MAS also operates a facility in Kinston, North Carolina under a month to month
lease with a monthly rental payment of $1,225.
Global leases a 112,500 square foot production facility in Olathe,
Kansas. The facility is leased, from a third party, under a five-year lease
agreement, which expires in August 2006. The monthly rental payment, as of March
31, 2003, was $29,341, and the monthly rental will increase to $29,809 over the
life of the lease, based on increases in the Consumer Price Index.
As of March 31, 2003, the Company leased hangar space from third
parties at 35 other locations for aircraft storage. Such hangar space is leased,
from third parties, at prevailing market terms.
The table of aircraft presented in Item 1 lists the aircraft operated
by the Company's subsidiaries and the form of ownership.
Item 3. Legal Proceedings.
Global and one of its employees are defendants in a lawsuit filed in
March 2002 in the United States District Court for the District of Columbia,
Catalyst & Chemical Services et al v. Terex, et al. In this action, the
plaintiffs allege that they provided to Global and the employee certain trade
secrets regarding aircraft de/anti-icing systems that were then disclosed by
Global and the employee to third parties. The plaintiffs allege misappropriation
of trade secrets, breach of contract and violation of the federal Racketeer
Influenced and Corrupt Organizations Act and seek monetary damages. The Company
and its employee have filed an answer in this action denying all liability. Upon
Global's motion, the court has dismissed the plaintiff's claims under the
Racketeer Influenced and Corrupt Organizations Act. The Company does not believe
that the action has any merit and intends to defend the lawsuit vigorously. In
November 2002, Global and the Company filed suit in North Carolina state court
against affiliates of the plaintiffs in the Catalyst & Chemical Services et al
v. Terex, et al action alleging defamation. This action has been removed to, and
is pending before, the United States District Court for the Western District of
North Carolina.
The Company is currently aware of certain intellectual property and
environmental matters, some of which involve pending or threatened lawsuits. If
adversely decided, management believes the results of these pending or
threatened lawsuits would not have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
Item 5. Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is publicly traded in the over-the-counter
market under the NASDAQ symbol "AIRT."
As of June 5, 2003 the number of holders of record of the Company's
Common Stock was approximately 431. Over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions. The range of high and low bid
quotations per share for the Company's common stock from April 2001 through
March 2003 is as follows:
6
Common Stock
Quarter Ended High Low
June 30, 2001...................................... 4.48 2.81
September 30, 2001................................. 4.15 2.29
December 31, 2001.................................. 6.49 2.50
March 31, 2002..................................... 6.31 2.70
June 30, 2002...................................... 3.97 2.99
September 30, 2002................................. 3.46 2.94
December 31, 2002.................................. 3.00 1.90
March 31, 2003..................................... 2.20 1.41
The Company's Board of Directors has adopted a policy to pay a
regularly scheduled annual cash dividend in the first quarter of each fiscal
year. On May 27, 2003, the Company declared that, due to losses sustained in
fiscal 2003, no common share dividend would be paid in fiscal 2004.
7
Item 6. Selected Financial Data
The operations of MAS have been reclassified as discontinued operations for all
years presented below.
(In thousands except per share data)
Year Ended March 31,
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2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Operating revenues ........................ $ 42,872 $ 59,603 $ 61,668 $ 49,546 $ 46,829
Earnings from continuing operations ....... 366 2,016 1,418 102 663
(Loss) earnings
from discontinued operations ........... (1,590) (738) (129) 260 (140)
Net (loss) earnings ...................... (1,224) 1,278 1,289 362 523
Basic (loss) earnings per share:
Continuing operations .................. 0.13 0.74 0.52 0.04 0.25
Discontinued operations ................ (0.58) (0.27) (0.05) 0.09 (0.06)
Total basic net (loss) earnings per share . (0.45) 0.47 0.47 0.13 0.19
Diluted (loss) earnings per share:
Continuing operations .................. 0.13 0.72 0.51 0.04 0.24
Discontinued operations ................ (0.58) (0.27) (0.05) 0.09 (0.05)
Total diluted net (loss) earnings per share (0.45) 0.45 0.46 0.13 0.19
Total assets .............................. 21,328 22,903 28,533 23,936 20,852
Long-term obligations, including
current portion ........................ 2,459 4,158 5,969 1,486 1,364
Stockholders' equity ...................... 9,611 11,100 10,170 9,383 9,636
Average common shares outstanding-Basic ... 2,726 2,717 2,733 2,758 2,698
Average common shares outstanding-Diluted . 2,726 2,789 2,781 2,837 2,794
Dividend declared per common share (1) .... $ 0.12 $ 0.15 $ 0.10 $ 0.08 $ 0.14
Dividend paid per common share (1) ........ $ 0.12 $ 0.15 $ 0.10 $ 0.08 $ 0.14
- --------
(1) On May 27, 2003, the Company declared that, due to losses sustained in
fiscal 2003, no common share dividend would be paid in fiscal 2004.
8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company's most significant component of revenue, which accounted
for 69.5% of revenue in fiscal 2003, was generated through its air cargo
subsidiaries, Mountain Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA).
MAC and CSA are short-haul express air freight carriers. MAC and CSA's
revenue contributed approximately $29,898,000 and $29,264,000 to the Company's
revenues in fiscal 2003 and 2002, 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 March 31, 2003) are owned by
and dry-leased from Federal Express Corporation (Customer), and Short Brothers
SD3-30 aircraft (two aircraft at March 31, 2003) are owned by the Company and
operated periodically 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.
Global manufactures, services and supports aircraft deicers and ground
support equipment on a worldwide basis. Global's revenue contributed
approximately $12,973,000 and $30,345,000 to the Company's revenues in fiscal
2003 and 2002, respectively. The decrease in revenues in 2003 was primarily due
to decreased commercial and military equipment orders and the April 2002
completion of a large scale airport deicer system contract.
During fiscal 2003, the Company decided to dispose of its aircraft
component parts brokerage and repair services operation and accordingly, the
Company's financial statements have been reclassified to reflect the results of
MAS as a discontinued operation. See Note 10 of Notes to Consolidated Financial
Statements included elsewhere in this report.
The Company's continuing operations operate in two business segments,
providing overnight air cargo services to the air express delivery services and
aviation ground support equipment products to passenger and cargo airlines and
airports. 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 and ground
equipment in the accompanying consolidated financial statements.
The following table summarizes the changes and trends in the Company's
operating expenses for continuing operations as a percentage of revenue:
Fiscal Year Ended March 31,
--------------------------------------
2003 2002 2001
--------- -------- ---------
Operating revenue (in thousands) .. $ 42,872 $ 59,603 $ 61,668
Expense as a percentage of revenue:
Flight operations .............. 33.66% 24.20% 24.30%
Maintenance .................... 24.09 16.70 16.20
Ground equipment ............... 23.73 39.50 42.60
General and administrative ..... 16.08 13.20 12.10
Depreciation and amortization .. 1.35 0.90 1.10
--------- -------- ---------
Total costs and expenses .......... 98.91% 94.50% 96.30%
--------- -------- ---------
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Critical Accounting Policies and Estimates
The preparation of the Company's financial statements in conformity
with accounting principles generally accepted in the U.S. requires the use of
estimates and assumptions to determine certain assets, liabilities, revenues and
expenses. Management bases these estimates and assumptions upon the best
information available at the time of the estimates or assumptions. The Company's
estimates and assumptions could change materially as conditions within and
beyond our control change. Accordingly, actual results could differ materially
from estimates. The most significant estimates made by management include
allowance for doubtful accounts receivable, reserves for excess and obsolete
inventories, deferred tax asset valuation, retirement benefit obligations,
valuation of revenue recognized under the percentage of completion method and
valuation of long-lived assets associated with the MAS operations. During the
fourth quarter of fiscal 2003, Company management agreed to a plan to sell MAS
assets and to discontinue the operations of the Company's aviation service
sector business. Following is a discussion of critical accounting policies and
related management estimates and assumptions necessary in determining the value
of related assets or liabilities. A full description of all significant
accounting policies is included in Note 1 to our consolidated financial
statements included elsewhere in this report.
Allowance for Doubtful Accounts. An allowance for doubtful accounts
receivable is established based on management's estimates of the collectability
of accounts receivable. The required allowance is determined using information
such as customer credit history, industry information, credit reports and
customer financial condition. The estimates can be affected by changes in the
aviation industry, customer credit issues or general economic conditions.
Inventories. The Company's parts inventories are valued at the lower of
cost or market. Provisions for excess and obsolete inventories are based on
assessment of slow-moving and obsolete inventories. Historical part usage,
estimated future demand and anticipated transactions between willing buyers and
sellers provide the basis for estimates. Estimates are subject to volatility and
can be affected by reduced equipment utilization, the retirement of aircraft or
ground equipment and changes in the aviation industry.
Deferred Taxes. Deferred tax assets and liabilities net of valuation
allowance, if any, reflect the likelihood of the recoverability of these assets.
Company judgement of the recoverability of these assets is based primarily on
estimates of current and expected future earnings and tax planning.
Retirement Benefits Obligation. The Company currently determines the
value of retirement benefits assets and liabilities on an actuarial basis using
a 6.5% discount rate. Values are affected by our outside actuary's estimates of
the expected return on insurance policies and the discount rates used. Changes
in the discount rate used will affect the amount of pension gain or loss
recognized in other comprehensive income.
Revenue Recognition. Cargo revenue is recognized upon completion of
contract terms and maintenance revenue is recognized when the service has been
performed. Revenue from product sales is recognized when contract terms are
completed and title has passed to customers. Revenues from overhaul contracts on
customer owned parts, certain labor service contracts and long term fixed price
manufacturing projects are recognized on the percentage-of-completion method.
Revenues for contracts under percentage of completion are measured by the
percentage of cost incurred to date, to estimated total cost for each contract
or workorder; unanticipated changes in job performance, job conditions and
estimated profitability may result in revisions to costs and income, and are
recognized in the period in which the revisions are determined.
Valuation of Long-Lived Assets. The Company adopted Financial
Accounting Standards Board Statement of Financial Accounting Standards (SFAS)
No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" on April
1, 2002. The Company assesses long-lived assets used in operations for
impairment when events and circumstances indicate the assets may be impaired and
the undiscounted cash flows estimated to be generated by those assets are less
than their carrying amount. In the event it is determined that the carrying
values of long-lived assets are in excess of the fair value of those assets, the
Company then will write-down the value of the assets to fair value. The Company
has applied the discontinued operations provisions of SFAS No. 144 for the MAS
operations and has reflected the long-lived assets associated with the MAS
subsidiary at management's best estimate of their fair value at March 31, 2003.
10
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 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. In June
1999, Global was awarded a four-year contract to supply deicing equipment to the
United States Air Force, and in January 2001 and March 2003 Global received
additional large scale, non-seasonal, contracts which the Company believes
contributed to management's plan to reduce seasonal fluctuation in revenues
during fiscal 2003, 2002 and 2001. However, as these contracts are completed,
seasonal trends for Global's business may resume. The remainder of the Company's
business is not materially seasonal.
Results of Continuing Operations
As discussed above, the operations of MAS have been reclassed as
discontinued operations and, therefore, are not included in the Results of
Continuing Operations discussed below.
Fiscal 2003 vs. 2002
Consolidated revenue from continuing operations decreased $16,731,000
(28.1%) to $42,872,000 for the fiscal year ended March 31, 2003 compared to the
prior fiscal year. The decrease in 2003 revenue primarily resulted from a
decrease in Global revenue of $17,372,000 (57.3%) to $12,973,000, partially
offset by a $640,000 (3.9%) increase in air cargo revenue to $29,899,000 in
fiscal 2003.
The business of Global has been adversely affected by reduced orders
from commercial airlines and aviation related companies, due principally to the
continued severe downturn in the commercial aviation industry, which started in
early 2001 and significantly increased after September 11, 2001. Although this
business also derives a significant portion of its revenue from sale of products
for military applications, certain military programs that use the Company's
products have not been fully funded to date and the Company is uncertain as to
the timing of such funding or the final decision to use Company products.
Operating expenses from continuing operations decreased $13,915,000
(24.7%) to $42,407,000 for fiscal 2003 compared to fiscal 2002. The net decrease
in operating expenses consisted of the following changes: cost of flight
operations decreased $15,000 (0.1%) as a result of decreases in personnel cost
and costs associated with pilot travel partially offset by increases in fuel and
landing fees; maintenance expenses increased $350,000 (3.5%) primarily as a
result of increases associated with contract service costs, partially offset by
decreases in contract services related to the operations of MAC; ground
equipment costs decreased $13,373,000 (56.8%), as a result of decreased sales at
Global; depreciation and amortization increased $61,000 (11.8%) as a result of
purchases of certain assets; general and administrative expense decrease of
$968,000 (12.3%) primarily as a result of decreased profit sharing expense,
staffing, contract labor, rent and related facilities cost, partially offset by
increases in professional fees.
On a continuing operations segment basis, the most significant impacts
on the Company's operating results comparing the fiscal year ended March 31,
2003 to the prior period resulted from changes in the ground equipment operation
at Global. In the fiscal year ended March 31, 2003, Global had operating income
of $205,000 compared to prior period income of $3,335,000. Several factors
contributed to the changes in Global's operating results. Global's current
fiscal year operating income decreased compared to its prior fiscal year
primarily due to completion of a large scale airport contract, lower sales
volume on its U.S. Air Force contract and declines in commercial equipment
orders. Operating income for the Company's overnight air cargo operations was
$2,621,000 in the fiscal year ended March 31, 2003, an increase of 18.3% from
$2,216,000 in the prior fiscal year. The increase primarily resulted from
increased levels of aircraft maintenance revenue.
Non-operating expense decreased a net $160,000 due to decreased current
year interest expense related to decreased borrowing on the Company's line of
credit, partially offset by an other than temporary impairment charge on
marketable securities.
Provision for income taxes decreased $1,006,000 (78.4%) primarily due
to decreased earnings at Global. The provision for income taxes for the fiscal
years ended March 31, 2003, 2002 and 2001 were different from the Federal
statutory rates due to state tax provisions and a reduction in the Company's
excise tax accrual due to a favorable tax ruling.
11
Fiscal 2002 vs. 2001
Consolidated revenue from continuing operations decreased $2,065,000
(3.4%) to $59,603,000 for the fiscal year ended March 31, 2002 compared to the
prior fiscal year. The decrease in 2002 revenue primarily resulted from
decreases in Global revenue of $1,061,000 (3.4%) to $30,345,000 and a $1,004,000
(3.3%) decrease in air cargo revenue to $29,258,000.
Operating expenses decreased $3,103,000 (5.2%) to $56,322,000 for
fiscal 2002 compared to fiscal 2001. The net decrease in operating expenses
consisted of the following changes: cost of flight operations decreased $547,000
(3.7%) as a result of decreases in fuel, landing fees, and costs associated with
pilot travel partially offset by increases in pilot and flight personnel costs;
maintenance expenses decreased $29,000 (0.3%) due to lower outside maintenance
and parts costs at MAC; ground equipment costs decreased $2,748,000 (10.5%), as
a result of decreased sales at Global; depreciation and amortization decreased
$162,000 (23.9%) as a result of certain assets becoming fully depreciated, or
written off during fiscal 2002; the general and administrative expense increase
of $384,000 (5.1%) is primarily the result of increases in general wages and
benefits, insurance cost and staff expense.
On a segment basis, the most significant impacts on the Company's
operating results comparing the fiscal year ended March 31, 2002 to the prior
period resulted from changes in the ground equipment operation at Global. In the
fiscal year ended March 31, 2002, Global had operating income of $3,335,000
compared to prior period income of $2,049,000. Several factors contributed to
the changes in Global's operating results. Global's fiscal year operating income
increased compared to its prior fiscal year primarily due to commencement of a
large scale airport contract and higher sales volume on its U.S. Air Force
contract offsetting declines in commercial equipment orders. Operating income
for the Company's overnight air cargo operations was $2,216,000 in the fiscal
year ended March 31, 2002, a decrease of 10.5% from $2,476,000 in the prior
fiscal year. The decrease resulted from decreased levels of aircraft
maintenance.
Non-operating expense decreased a net $109,000 due to decreased
interest expense related in fiscal 2002 to decreased borrowing on the Company's
line of credit.
Provision for income taxes increased $548,000 (74.6%) due to changes in
the effective tax rate. The provision for income taxes for the fiscal years
ended March 31, 2003, 2002 and 2001 were different from the federal statutory
rates due to state tax provisions and a reduction in the Company's excise tax
accrual due to a favorable tax ruling.
Liquidity and Capital Resources
As of March 31, 2003 the Company's working capital amounted to
$9,585,000, a decrease of $1,636,000 compared to March 31, 2002. The net
decrease primarily resulted from decreased inventory, partially offset by an
increase in assets held for sale.
On August 31, 2002 the Company amended its bank financing line to a
$7,000,000 credit facility. Under the terms of the agreement, the $7,000,000
secured long-term revolving credit line expires on August 31, 2004.
The credit facility contains customary events of default, a subjective
clause and restrictive covenants that, among other matters, require the Company
to maintain certain financial ratios. As of March 31, 2003, 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 March 31, 2003 was 1.33%.
At March 31, 2003 and 2002, the amounts outstanding against the line were
$2,217,000 and $3,860,000, respectively. At March 31, 2003, an additional
$2,199,000 was available under the terms of the credit facility.
The Company has not currently, nor in the past, engaged in the use of
structured finance arrangements, known as off-balance sheet financing
transactions, with unconsolidated entities or other persons.
The Company has classified the $2,217,000 outstanding balance on its
credit line as of March 31, 2003 as long-term to reflect the terms included
under the amendment signed on August 31, 2002.
12
The following table of material debt and lease commitments at March 31,
2003 summarizes the effect these obligations are expected to have on the
Company's cash flow in the future periods.
Contractual Obligations Total 2004 2005 2006 2007 2008
- ----------------------- ----- ---- ---- ---- ---- ----
Long-term bank debt $2,217,000 $ -- $2,217,000 $ -- $ -- $ --
Operating leases .. 2,356,000 698,000 680,000 685,000 272,000 21,000
Capital leases .... 98,000 46,000 39,000 13,000 -- --
---------- ---------- ---------- ---------- ---------- ----------
Total ............. $4,671,000 $ 744,000 $2,936,000 $ 698,000 $ 272,000 $ 21,000
---------- ---------- ---------- ---------- ---------- ----------
The respective years ended March 31, 2003, 2002 and 2001 resulted in
the following changes in cash flow: operating activities provided $2,317,000 and
$2,890,000, respectively in 2003 and 2002 and used $1,129,000 in 2001. Investing
activities used $278,000, $657,000 and $227,000, respectively, in 2003, 2002 and
2001 and financing activities used $1,991,000 and $2,300,000, respectively, in
2003 and 2002 and provided $1,310,000 in 2001. Net cash increased $48,000 in
2003 and decreased $66,000 and $47,000, respectively, in 2002 and 2001.
Cash provided by operating activities was $573,000 less for the year
ended March 31, 2003, compared to 2002 principally due to decreases in earnings
from continuing operations and inventory, partially offset by increases in
accounts payable. Cash used in investing activities for the year ended March 31,
2003 was approximately $379,000 less than 2002, principally due to decreased
capital expenditures and proceeds from sale of assets. Cash used in financing
activities was $309,000 less in 2003 compared to 2002 principally due to changes
relating to borrowings under the line of credit.
During the fiscal year ended March 31, 2003 the Company repurchased
none of its common stock .
There are currently no commitments for significant capital
expenditures. The Company's Board of Directors, on August 7, 1997, 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 $0.12 per share
cash dividend in June 2002 and on May 27, 2003, the Company declared that, due
to losses sustained in fiscal 2003, no common share dividend would be paid
fiscal 2004.
Deferred Retirement Obligation
Contractual death benefits for the Company's former Chairman and Chief
Executive Officer who passed away on April 18, 1997 are payable by the Company
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.
Outlook
The Company believes its ground support equipment order declines were
largely the result of the economic downturn and effects of the September 11,
2001 terrorist attacks which particularly impacted the aviation sector of the
economy. The Company's current forecast for fiscal 2004 suggests that the
commercial aviation market will grow at a rate that is substantially less than
the rest of the economy. Increased military and Homeland Security budgets, and
pending funding approvals, may help offset the expected lower than normal order
levels from commercial customers.
Given the uncertainties associated with the above factors, the Company
continues to operate in a highly unpredictable environment.
As stated above, during the fourth quarter of fiscal 2003, Company
management agreed to a plan to sell MAS assets and to discontinue the operations
of the Company's aviation service sector business. See Note 10 of Notes to
Consolidated Financial Statements included elsewhere in this report.
13
Based on the current general economic and industry outlook and cost
cutting measures implemented over the past twelve months, the Company believes
its existing cash and cash equivalents, cash flow from operations, and funds
available from current and renewed credit facilities will be adequate to meet
its current and anticipated working capital requirements through 2004. If these
sources are inadequate or become unavailable, then the Company may pursue
additional funds through the financing of unencumbered assets, although there is
no assurance these additional funds will be sufficient to replace the sources
that are inadequate or become unavailable.
Actual results for fiscal 2004 will depend upon a number of factors
beyond the Company's control, including, in part, the timing, speed and
magnitude of the economic recovery, military funding and commercial aviation
capital spending.
Forward Looking Statements
Certain statements in this Report, including those contained in
"Outlook," are "forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the Company's financial
condition, results of operations, plans, objectives, future performance and
business. Forward-looking statements include those preceded by, followed by or
that include the words "believes," "expects," "anticipates," "estimates,"
"depends" or similar expressions. These forward-looking statements involve risks
and uncertainties. Actual results may differ materially from those contemplated
by such forward-looking statements, because of, among other things, potential
risks and uncertainties, such as:
Economic conditions in the Company's markets;
The continuing impact of the events of September 11, 2001, or any subsequent
terrorist activities;
The Company's ability to manage its cost structure for capital expenditures
and operating expenses and match them to shifting customer volume levels;
Market acceptance of the Company's new commercial and military equipment and
services.
Competition from other providers of similar equipment and services;
Changes in government regulation and technology
Mild winter weather conditions reducing the demand for deicing equipment
A forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances, and those future events or circumstances may not
occur. We are under no obligation, and we expressly disclaim any obligation, to
update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise.
Derivative Financial Instruments
As required by SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value.
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 of fiscal 2003, the Company had outstanding
two interest rate swaps with a notional amount of $2.4 million, and $2 million
respectively. These agreements were originally entered into at respective
interest rates of 6.97% and 6.5% respectively. On July 31, 2002 the Company
elected to unwind its $2,000,000 (6.5%) revolving credit line swap in
consideration of $58,750, the fair-market-value termination fee as of that date.
The fair value of the remaining swap decreased by $56,000 from a liability of
$73,000 as of March 31, 2002 to a liability of $129,000 as of March 31, 2003.
The Company assesses the effectiveness of the swap using the hypothetical
derivative method and has determined that it qualifies as an effective hedge
under SFAS No. 133 at March 31, 2003 and 2002.
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board (FASB)
approved Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
requires 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
14
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
impacted the Company's financial position and results of operations.
The FASB has issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" and SFAS 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. Upon adoption the Company does not expect it to have a
material effect on the Company's financial position and results of operations.
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 amends
Accounting Principles Bulletin (APB) No. 30 "Reporting the Results of
Operations-Discontinued Events and Extraordinary Items". 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 APB No. 30 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 the current fiscal year. The effect of the
adoption of SFAS No. 144 on management's plan to discontinue the operations of
MAS is reflected in the Company's consolidated statements of financial position
and results of operations and is detailed in Note 10 of Notes to Consolidated
Financial Statements included elsewhere in this report.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This statement requires gains and losses from the extinguishment
of debt to be classified as extraordinary only if they meet the criteria for
extraordinary treatment set forth in APB Opinion No. 30. The statement also
amends SFAS No. 13, "Accounting for Leases", to require that certain lease
modifications that have economic effects similar to sale-leaseback transactions
be accounted for in the same manner as such transactions. Finally, the statement
makes certain technical corrections, which the FASB deemed to be nonsubstantive,
to a number of existing accounting pronouncements. The rescission of SFAS No. 4,
44, and 64 is effective for the Company in fiscal 2004. The amendment of SFAS
No. 13 is effective for transactions occurring after May 15, 2002, and all other
provisions of the statement are effective for financial statements issued on or
after May 15, 2002. This statement did not have an effect on the Company's
consolidated statements of financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement is effective for
exit or disposal activities initiated after December 31, 2002. Liabilities for
costs associated with an exit activity should be initially measured at fair
value, when incurred. This statement applies to costs associated with an exit
activity that does not involve an entity newly acquired in a business
combination, or a disposal activity covered by SFAS No. 144. The adoption of
this statement did not have an effect on the Company's financial position and
results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of this Interpretation are
currently effective and did not affect the Company's financial position and
results of operations. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The Company has evaluated
all of its guarantees under the provisions of FIN 45 and does not believe the
effect of its adoption on its financial position and results of operations will
be material.
The Company's ground equipment subsidiary warranties its products for
up to a two-year period from date of sale. Product warranty reserves are
recorded at time of sale based on the historical average warranty cost and are
adjusted as actual warranty cost becomes known. As of March 31, 2003 the
Company's warranty reserve amounted to $116,000.
Product warranty reserve activity during fiscal 2003 is as follows:
Balance at 3/31/02 $119,000
Additions to reserve 199,000
Use of reserve (202,000)
---------
Balance at 3/31/03 $116,000
--------
15
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". This Statement amends
FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. Because the Company has elected to continue to
account for its stock-based compensation under the provisions of Accounting
Principles Bulletin No. 25, SFAS No. 148 has no impact on the Company's
consolidated statement of operations for 2003. However, the disclosure
provisions of SFAS No. 148 are reflected in the accompanying notes to the
Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"). This Interpretation
requires that variable interest entities created after January 31, 2003, and
variable interest entities in which an interest is obtained after that date, be
evaluated for consolidation into an entity's financial statements. This
Interpretation also applies, beginning July 1, 2003, to all variable interest
entities in which an enterprise holds an interest that it acquired before
February 1, 2003. The Company has determined that the adoption of FIN 46 will
not have an impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 is effective for the Company in fiscal year 2004. The Company is in the
process of evaluating the impact of adopting SFAS No. 150 and has not yet
determined the effect of its adoption on its financial position and results of
operations.
16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold or issue derivative financial instruments for
trading purposes. As of March 31, 2003 the Company had outstanding one interest
rate swap agreement 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 balance of the line of credit at March 31,
2003, annual interest expense would have increased by approximately $22,000.
17
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Air T, Inc.
Maiden, North Carolina
We have audited the accompanying consolidated balance sheets of Air T, Inc. and
subsidiaries (the "Company") as of March 31, 2003 and 2002, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows for each of the three years in the period ended
March 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 10 to the consolidated financial statements, the Company
has presented the results of its aviation service business in loss from
discontinued operations in the accompanying consolidated financial statements as
a result of the decision to discontinue these operations and sell substantially
all of the related assets of the aviation service business.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
June 19, 2003
18
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
-------------------------------------------------------------------
2003 2002 2001
------------------- ------------------- -------------------
Operating Revenues (Note 11):
Cargo $ 19,688,555 $ 19,891,562 $ 20,344,612
Maintenance 10,210,285 9,366,524 9,917,749
Ground equipment 12,972,887 30,344,889 31,405,711
------------------ ------------------- -------------------
42,871,727 59,602,975 61,668,072
------------------ ------------------- -------------------
Operating Expenses:
Flight 14,432,941 14,418,205 14,965,001
Maintenance 10,328,867 9,978,664 10,007,942
Ground equipment 10,174,888 23,547,474 26,295,686
General and administrative 6,892,795 7,861,010 7,477,345
Depreciation and amortization 577,716 516,952 679,335
------------------ ------------------- -------------------
42,407,207 56,322,305 59,425,309
------------------ ------------------- -------------------
Operating Income 464,520 3,280,670 2,242,763
Non-operating Expense (Income):
Interest (30,728) 288,761 346,592
Deferred retirement expense (Note 13) 21,000 88,078 24,996
Investment income (90,003) (115,562) (114,467)
Cash surrender value of life insurance (164,000) (164,000) (95,457)
Other 84,636 (115,942) (71,222)
------------------ ------------------- -------------------
(179,095) (18,665) 90,442
------------------ ------------------- -------------------
Earnings From Continuing Operations
Before Income Taxes 643,615 3,299,335 2,152,321
Income Taxes (Note 12) 277,249 1,282,827 734,779
------------------- ------------------- -------------------
Earnings From Continuing Operations 366,366 2,016,508 1,417,542
------------------- ------------------- -------------------
Loss From Discontinued Operations,
net of Income Taxes (Note 10) (1,590,577) (738,009) (128,617)
------------------- ------------------- -------------------
Net (Loss) Earnings $ (1,224,211) $ 1,278,499 $ 1,288,925
=================== =================== ===================
Basic (Loss) Earnings Per Share (Note 14):
Continuing Operations $ 0.13 $ 0.74 $ 0.52
Discontinued Operations (0.58) (0.27) (0.05)
------------------- ------------------- -------------------
Total Basic Net (Loss) Earnings Per Share $(0.45) $ 0.47 $ 0.47
=================== =================== ===================
Diluted (Loss) Earnings Per Share (Note 14):
Continuing Operations $ 0.13 $ 0.72 $ 0.51
Discontinued Operations (0.58) (0.27) (0.05)
------------------- ------------------- -------------------
Total Diluted Net (Loss) Earnings Per Share $ (0.45) $ 0.45 $ 0.46
=================== =================== ===================
Weighted Average Shares Outstanding:
Basic 2,726,320 2,716,823 2,733,428
Diluted 2,726,320 2,788,700 2,780,732
See notes to consolidated financial statements.
19
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
-------------------------
2003 2002
----------- -----------
ASSETS (Note 6)
Current Assets:
Cash and cash equivalents ......................... $ 79,715 $ 31,770
Marketable securities (Note 2) .................... 1,057,042 982,028
Accounts receivable, less allowance for
doubtful accounts of $449,358 in 2003 and
$455,805 in 2002 ............................. 6,239,144 5,875,754
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 4) ................ -- 14,320
Inventories (Notes 3 and 10) ...................... 6,275,288 9,907,430
Assets held for sale (Note 10) .................... 1,950,000 --
Deferred tax asset (Note 12) ...................... 1,036,998 727,665
Prepaid expenses and other ........................ 129,029 188,245
------------ ------------
Total Current Assets ............................ 16,767,216 17,727,212
============ ============
Property and Equipment (Notes 1 and 10):
Furniture, fixtures and improvements .............. 5,609,003 7,210,133
Flight equipment and rotables inventory ........... 1,483,029 1,329,153
------------ ------------
7,092,032 8,539,286
Less accumulated depreciation ..................... (4,788,779) (5,020,238)
------------ ------------
Property and equipment, net ....................... 2,303,253 3,519,048
Deferred Tax Asset (Note 12) .......................... 1,096,883 568,186
Intangible Pension Asset (Note 13) .................... 219,862 290,862
Other Assets .......................................... 940,479 797,454
------------ ------------
Total Assets $ 21,327,693 $ 22,902,762
============ ============
See notes to consolidated financial statements.
20
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31,
----------------------------
2003 2002
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................... $ 4,436,291 $ 3,543,568
Accrued expenses (Note 5) ............................ 1,691,341 1,915,605
Billings in excess of costs and estimated earnings
on uncompleted contracts (Note 4) ................. 760,979 --
Income taxes payable (Note 12) ....................... 180,278 355,195
Current portion of long-term obligations (Notes 6 & 7) 113,130 691,812
------------ ------------
Total Current Liabilities ......................... 7,182,019 6,506,180
------------ ------------
Capital Lease Obligations (less current
portion) (Note 7) .................................... 50,070 87,718
Long-term Debt (Note 6) .................................. 2,345,910 3,378,934
Deferred Retirement Obligations (less current
portion) (Note 13) ................................... 2,138,712 1,830,205
Stockholders' Equity (Note 9):
Preferred stock, $1 par value, authorized
50,000 shares, none issued ....................... -- --
Common stock, par value $.25; authorized
4,000,000 shares; 2,726,320 and
2,724,320 shares issued and outstanding
in 2003 and 2002, respectively ................... 681,580 681,080
Additional paid in capital ............................ 6,863,898 6,858,898
Retained earnings ..................................... 2,529,556 4,079,621
Accumulated other comprehensive loss .................. (464,052) (519,874)
------------ ------------
Total Stockholders' Equity ........................ 9,610,982 11,099,725
------------ ------------
Total Liabilities and Stockholders' Equity ....... $ 21,327,693 $ 22,902,762
============ ============
See notes to consolidated financial statements.
21
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
-------------------------------------------
2003 2002 2001
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings ........................................... $(1,224,211) $ 1,278,499 $ 1,288,925
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities:
Change in accounts receivable and inventory reserves ........ (432,187) 616,049 172,844
Depreciation and amortization ............................... 748,912 666,389 826,018
Deferred tax provision ...................................... (838,030) (283,805) (252,395)
Other-than-temporary impairment charge on securities ........ 161,000 -- --
Net periodic pension cost ................................... 276,283 253,609 240,385
Impairment charge on discontinued operations ................ 1,655,895 -- --
Changes in assets and liabilities which provided (used) cash:
Accounts receivable ...................................... (356,943) 4,921,831 (3,133,354)
Inventories .............................................. 1,195,955 291,324 (1,834,225)
Prepaid expenses and other ............................... (69,489) 58,495 (49,547)
Accounts payable ......................................... 892,723 (5,336,060) 1,361,988
Accrued expenses ......................................... (279,040) 356,793 432,626
Billings in excess of costs and estimated earnings on
uncompleted contracts ................................ 760,979 -- --
Income taxes payable ..................................... (174,917) 67,349 (182,401)
----------- ----------- -----------
Total adjustments ...................................... 3,541,141 1,611,974 (2,418,061)
----------- ----------- -----------
Net cash provided by (used in) operating activities ........... 2,316,930 2,890,473 (1,129,136)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets ............................. 140,000 50,000 30,581
Capital expenditures ........................................... 134,005 (720,428) (720,545)
Sale and maturity of marketable securities ..................... -- 13,496 462,617
----------- ----------- -----------
Net cash provided by (used in) investing activities ............ 274,005 (656,932) (227,347)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on line of credit .................. (1,370,630) (1,479,100) 1,740,910
Repayment of term loan ......................................... (300,000) (450,000) --
Payment of cash dividend ....................................... (325,854) (405,520) (274,858)
Repurchase of common stock ..................................... -- (42,785) (186,783)
Proceeds from excercise of stock options ....................... 5,500 77,835 30,500
----------- ----------- -----------
(1,990,984) (2,299,570) 1,309,769
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............. 47,945 (66,029) (46,714)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 31,770 97,799 144,513
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 79,715 $ 31,770 $ 97,799
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Capital leases entered into during fiscal year ................. $ -- $ 24,581 $ 138,181
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................................... $ 368,670 $ 609,912 $ 722,885
Income taxes ................................................ 274,587 1,039,595 1,091,684
See notes to consolidated financial statements.
22
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Accumulated
Common Stock (Note 9) Additional Other Total
Paid-In Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Income (Loss) Equity
------ ------ ------- -------- ------------- ------
Balance, March 31, 2000 2,740,353 $ 684,416 $ 6,976,795 $ 2,192,574 $ (597,904) $ 9,255,881
Comprehensive Income:
Net earnings 1,288,925
Other Comprehensive income (loss):
Unrealized gain on securities 74,980
Pension liability adjustment (18,331)
Total Comprehensive Income 1,345,574
Repurchase and retirement
of common stock (61,200) (14,628) (172,155) - - (186,783)
Exercise of stock options 26,000 6,500 24,000 30,500
Cash dividend ($0.10 per share) - - - (274,857) - (274,857)
--------- ------- --------- --------- -------- ----------
Balance, March 31, 2001 2,705,153 676,288 6,828,640 3,206,642 (541,255) 10,170,315
Comprehensive Income:
Net earnings 1,278,499
Other Comprehensive income (loss):
Unrealized gain on securities 119,690
Pension liability adjustment 20,691
Change in fair value of
derivatives (119,000)
Total Comprehensive Income 1,299,880
Repurchase and retirement
of common stock (13,500) (3,375) (39,410) - - (42,785)
Exercise of stock options 32,667 8,167 69,668 77,835
Cash dividend ($0.15 per share) - - - (405,520) - (405,520)
--------- ------- --------- --------- -------- ----------
Balance, March 31, 2002 2,724,320 681,080 6,858,898 4,079,621 (519,874) 11,099,725
Comprehensive Loss:
Net loss (1,224,211)
Other Comprehensive income (loss):
Other than temporary impairment
charge on securities 161,000
Unrealized gain on securities 74,098
Pension liability adjustment (158,000)
Change in fair value of derivatives (21,276)
Total Comprehensive Loss
(1,168,389)
Exercise of stock options 2,000 500 5,000 5,500
Cash dividend ($0.12 per share) - - - (325,854) - (325,854)
--------- ------- --------- --------- -------- ----------
Balance, March 31, 2003 2,726,320 $ 681,580 $ 6,863,898 $ 2,529,556 $ (464,052) $ 9,610,982
=========== ============== ============= ============== ============ ==============
See notes to consolidated financial statements.
23
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2002, 2001, AND 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activities - Air T, Inc. (Company), through its
operating subsidiaries, is an air cargo carrier specializing in the
overnight delivery of small package air freight and a manufacturer of
aircraft ground service equipment. In the fourth quarter of 2003
management committed to a plan to discontinue the operations of the
aviation services sector of its business. See Note 10 Discontinued
Operations.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
Mountain Air Cargo, Inc., CSA Air, Inc., Mountain Aircraft Services,
LLC (MAS) and Global Ground Support, LLC (Global). All significant
intercompany transactions and balances have been eliminated.
Concentration of Credit Risk - The Company's potential exposure to
concentrations of credit risk consists of trade accounts receivable.
Accounts receivable are normally due within 30 days and the Company
performs periodic credit evaluations of its customers' financial
condition.
Substantially all of the Company's customers are concentrated in the
aviation industry and revenue can be materially affected by current
economic conditions and the price of certain supplies such as fuel, the
cost of which is passed through to the customer. The Company has
customer concentrations in two areas of operations, air cargo which
provides service to one major customer and ground support equipment
which provides equipment and services to approximately 90 customers,
one of which is considered a major customer. The loss of a major
customer would have a material impact on the Company's results of
operations.
Cash Equivalents - Cash equivalents consist of liquid investments with
maturities of three months or less when purchased.
Marketable Securities - Marketable securities consists primarily of
investments in mutual funds and preferred stocks. The Company has
classified marketable securities as available-for-sale and they are
carried at fair value in the accompanying consolidated balance sheets.
Unrealized gains and losses on such securities are excluded from
earnings and reported as a separate component of accumulated other
comprehensive loss until realized. Realized gains and losses on
marketable securities are determined by calculating the difference
between the basis of each specifically identified marketable security
sold and its sales price.
Inventories - Inventories of the manufacturing subsidiary are carried
at the lower of cost (first in, first out) or market. Aviation parts
and supplies inventories are carried at the lower of average cost or
market. Consistent with industry practice, the Company includes
aircraft parts and supplies in current assets, although a certain
portion of these inventories may not be used within one year.
Property and Equipment - Property and equipment is stated at cost or,
in the case of equipment under capital leases, the present value of
future lease payments. Rotables inventory represents aircraft parts
which are repairable, capitalized and depreciated over their estimated
useful lives. Depreciation and amortization are provided on a
straight-line basis over the shorter of the asset's service life or
related lease term, as follows:
Flight equipment and intellectual property 7 years
Other equipment and furniture 3 to 7 years
Revenue Recognition - Cargo revenue is recognized upon completion of
contract terms and maintenance revenue is recognized when the service
has been performed. Revenue from product sales is recognized when
contract terms are completed and title has passed to customers.
Revenues from overhaul contracts on customer owned parts and long term
fixed price construction projects are recognized on the
percentage-of-completion method, in accordance with AICPA Statement of
Position No. 81-1, "Accounting for Performance of Construction Type and
Certain Production Type Contracts". Revenues for contracts under
percentage of completion are measured by the percentage of cost
incurred to date to estimated total cost for each contract or
workorder. Contract costs include all direct material and labor costs
and overhead costs related to contract performance. Unanticipated
changes in job performance, job conditions and estimated profitability
may result in
24
revisions to costs and income, and are recognized in the period in
which the revisions are determined. Such contracts generally have no
customer retainage provisions. Except for a construction contract at
Global, which is billed on a progress billing basis, the Company
generally bills its customer at the time of completion of the contract
or workorder.
Operating Expenses Reimbursed by Customer - The Company, under the
terms of its air cargo dry-lease service contracts, passes through to
its major customer certain cost components of its operations without
markup. The cost of flight crews, fuel, landing fees, outside
maintenance and certain other direct operating costs are included in
operating expenses and billed to the customer, at cost, as cargo and
maintenance revenue.
Stock Based Compensation - The Company measures employee stock
compensation plans using the intrinsic method with pro-forma disclosure
of net earnings and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost.
As the Company uses the intrinsic method no compensation cost has been
included in the accompanying financial statements. Had compensation
cost for the Company's stock-based compensation awards been determined
at the grant dates based on the fair market value method described in
FASB Statement No. 123, "Accounting for Stock-Based Compensation",
compensation cost, net of taxes, would have increased $46,000 and
$49,000, respectively in fiscal 2002 and 2001. The Company's pro-forma
net (loss) income would have been $(1,224,211), or $(0.45) per diluted
share, $1,232,623, or $0.44 per diluted share and $1,240,350, or $0.45
per diluted share, respectively, for 2003, 2002 and 2001.
Financial Instruments - The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, accounts
receivable, accrued expenses, and long-term debt approximate their fair
value at March 31, 2003 and 2002 because of their relatively short
maturity or their variable interest nature.
Income Taxes - Income taxes are provided for temporary differences
between the tax and financial accounting bases of assets and
liabilities using the asset and liability method. Deferred income taxes
are recognized for the tax consequence of such temporary differences at
the enacted tax rate expected to be in effect when the differences
reverse.
Accounting Estimates - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and
assumptions that affect the amounts reported. Actual results could
differ from those estimates. Significant estimates include the
allowance for doubtful accounts, inventory reserves, intangible pension
asset, deferred retirement obligations, revenue recognized under the
percentage of completion method and valuation of long-lived assets.
Derivative Financial Instruments -As required by SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", the
Company recognizes all derivatives as either assets or liabilities in
the consolidated statement of financial position and measures those
instruments at fair value.
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.
Recent Accounting Pronouncements - On June 29, 2001, the Financial
Accounting Standards Board (FASB) approved Statement of Financial
Accounting Standards (SFAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires 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 impacted the Company's financial position and
results of operations.
The FASB has issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" and SFAS 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
25
long-lived asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. Upon adoption the Company does not expect it to
have a material effect on the Company's financial position and results
of operations. 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 amends Accounting Principles Bulletin (APB) No. 30
"Reporting the Results of Operations-Discontinued Events and
Extraordinary Items". 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 APB No. 30 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 the
current fiscal year. The effect of the adoption of SFAS No. 144 on
management's plan to discontinue the operations of MAS is reflected in
the Company's consolidated statements of financial position and results
of operations and is detailed in Note 10 Discontinued Operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". This statement requires gains and losses from
the extinguishment of debt to be classified as extraordinary only if
they meet the criteria for extraordinary treatment set forth in APB
Opinion No. 30. The statement also amends SFAS No. 13, "Accounting for
Leases", to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the
same manner as such transactions. Finally, the statement makes certain
technical corrections, which the FASB deemed to be nonsubstantive, to a
number of existing accounting pronouncements. The rescission of SFAS
No. 4, 44, and 64 is effective for the Company in fiscal 2004. The
amendments of SFAS No. 13 is effective for transactions occurring after
May 15, 2002, and all other provisions of the statement are effective
for financial statements issued on or after May 15, 2002. This
statement did not have an effect on the Company's consolidated
statements of financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement is
effective for exit or disposal activities initiated after December 31,
2002. Liabilities for costs associated with an exit activity should be
initially measured at fair value, when incurred. This statement applies
to costs associated with an exit activity that does not involve an
entity newly acquired in a business combination, or a disposal activity
covered by SFAS No. 144. The adoption of this statement did not have an
effect on the Company's financial position and results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". This
Interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The disclosure requirements of this Interpretation are
currently effective and did not affect the Company's financial position
and results of operations. The initial recognition and initial
measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31,
2002. The Company has evaluated all of its guarantees under the
provisions of FIN 45 and does not believe the effect of its adoption on
its financial position and results of operations will be material.
The Company's ground equipment subsidiary warranties its products for
up to a two-year period from date of sale. Product warranty reserves
are recorded at time of sale based on the historical average warranty
cost and are adjusted as actual warranty cost becomes known. As of
March 31, 2003 the Company's warranty reserve amounted to $116,000.
Product warranty reserve activity during fiscal 2003 is as follows:
Balance at 3/31/01 $211,000
Additions to reserve 147,000
Use of reserve (239,000)
---------
Balance at 3/31/02 119,000
Additions to reserve 199,000
Use of reserve (202,000)
---------
Balance at 3/31/03 $116,000
---------
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". This Statement
amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends
the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Because the Company has
elected to continue
26
to account for its stock-based compensation under the provisions of
Accounting Principles bulletin No. 25, SFAS No. 148 has no impact on
the Company's consolidated statement of operations for 2003. However,
the disclosure provisions of SFAS No. 148 are reflected in the
accompanying notes to the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"). This
Interpretation requires that variable interest entities created after
January 31, 2003, and variable interest entities in which an interest
is obtained after that date, be evaluated for consolidation into an
entity's financial statements. This Interpretation also applies,
beginning July 1, 2003, to all variable interest entities in which an
enterprise holds an interest that it acquired before February 1, 2003.
The Company has determined that the adoption of FIN 46 will not have an
impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 is effective for the Company in fiscal year 2004.
The Company is in the process of evaluating the impact of adopting SFAS
No. 150 and has not yet determined the effect of its adoption on its
financial position and results of operations.
Reclassifications - Certain reclassifications have been made to 2002
and 2001 amounts to conform to the current year presentation.
2. MARKETABLE SECURITIES
Marketable securities consist of the following investment types:
March 31,
-----------------------------------
2003 2002
---- ----
Preferred stocks $ 313,600 $ 242,200
Mutual funds 743,442 739,828
---------------- ---------------
Total $ 1,057,042 $ 982,028
================ ===============
An other-than-temporary impairment charge of $161,000 was recorded in
the consolidated statement of operations in the year ended March, 31,
2003.
3. INVENTORIES
Inventories consist of the following:
March 31,
----------------------------
2003 2002
---- ----
Aircraft parts and supplies $ 2,088,315 $ 5,373,398
Aircraft equipment manufacturing:
Raw materials 2,595,448 2,777,175
Work in process 745,409 914,730
Finished goods 1,940,077 1,432,332
-------------- -------------
Total inventory 7,369,249 10,497,635
Reserves (1,093,961) (590,205)
-------------- -------------
Total, net of reserves $ 6,275,288 $ 9,907,430
============== =============
4. UNCOMPLETED CONTRACTS
Overhaul contracts in process accounted for under the percentage of
completion method are summarized as follows:
March 31,
------------------------
2003 2002
------------- ----------
Costs incurred on uncompleted contracts $ 532,479 $ 6,337
Estimated earnings 271,126 7,983
------------ ----------
Total 803,605 14,320
Less billings to date 1,564,584 -
------------ ----------
Net (over) under billings $ (760,979) $ 14,320
============ ==========
27
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31,
2003 2002
---- ----
Salaries, wages and related items $ 819,848 $ 613,671
Profit sharing 81,000 556,363
Health insurance 305,834 305,834
Professional fees 223,922 199,524
Warranty reserves 116,000 119,000
Other 144,737 121,212
------------ ------------
Total $ 1,691,341 $ 1,915,605
=========== ============
6. FINANCING ARRANGEMENTS
On August 31, 2002 the Company amended its bank financing line to a
$7,000,000 credit facility. Under the terms of the amended agreement,
the $7,000,000 secured long-term revolving credit line expires on
August 31, 2004.
The revolving credit line contains customary events of default, a
subjective acceleration clause and restrictive covenants that, among
other matters, require the Company to maintain certain financial
ratios. As of March 31, 2003, 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 March 31, 2003
was 1.33%. At March 31, 2003 and 2002, the amounts outstanding against
the line were $2,217,000 and $3,860,000, respectively. At March 31,
2003, $2,199,000 was available under the terms of the credit facility.
The Company has classified its outstanding bank debt of $2,217,000 as
long-term as of March 31, 2003, to reflect the terms included under the
agreement signed on August 31, 2002. See Note 8 for derivative
financial instruments associated with the bank financing line of
credit.
During fiscal 2003 Air T, Inc. had guaranteed a $215,000 contractual
obligation of its Global subsidiary; subsequent to fiscal year-end, the
guarantee was released.
7. LEASE COMMITMENTS
The Company has operating lease commitments for office equipment and
its office and maintenance facilities as well as capital leases for
certain office and other equipment. The Company leases its corporate
offices from a company controlled by Company officers for $9,155 per
month under a five-year lease, which expires in May 2006. Subsequent to
fiscal year-end 2003 the Company leased additional office space under
similar terms of agreement for $2,100 per month.
In August 1996, the Company relocated certain portions of its
maintenance operations to a new maintenance facility located at the
Global TransPark in Kinston, N. C. Under the terms of the long-term
facility lease, after an 18 month grace period (from date of
occupancy), rent will escalate from $2.25 per square foot to $5.90 per
square foot, per year, over the 21.5 year life of the lease. However,
based on the occurrence of certain events the lease may be canceled by
the Company. The Company currently considers the lease to be
non-cancelable for eight and one-half years and has calculated rent
expense on a straight-line basis over this portion of the lease term.
In August 1997 Global, located in Olathe, Kansas, leased approximately
57,000 square feet of manufacturing space for $17,030 per month, under
a two-year operating lease originally set to expire in September 1999.
In September 1998, the lease was expanded to 112,500 square feet of
manufacturing and office space for $35,903 per month expiring August
2001.
28
In April 2001 the lease was renewed through August 2006; monthly rental
will increase from $28,967 to $30,842 over the life of the lease, based
on increases in the Consumer Price Index.
At March 31, 2003, future minimum annual lease payments under capital
and non-cancellable operating leases with initial or remaining terms of
more than one year are as follows:
Capital Operating
Leases Leases
----------- -----------
2004 $ 46,124 698,371
2005 38,703 679,811
2006 13,115 685,434
2007 271,437
2008 -- 21,132
---------- ----------
Total minimum lease payments .... 97,942 $2,356,185
==========
Less amount representing interest 8,537
----------
Present value of lease payments . 89,405
Less current maturities ......... 39,335
----------
Long-term maturities ............ $ 50,070
==========
Rent expense for operating leases totaled approximately $713,000,
$759,000, and $819,000 for 2003, 2002 and 2001, respectively. Rent
expense, included above, to related parties was $109,860 for both 2003
and 2002 and $96,900 for 2001.
8. DERIVATIVE FINANCIAL INSTRUMENTS
As required by SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", the Company recognizes all derivatives as either
assets or liabilities in the statement of financial position and
measures those instruments at fair value.
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 of fiscal 2003, the Company had outstanding
two interest rate swaps with a notional amount of $2.4 million, and $2
million respectively. These agreements were originally entered into at
respective interest rates of 6.97% and 6.5% respectively. On July 31,
2002 the Company elected to unwind its $2,000,000 (6.5%) revolving
credit line swap in consideration for $58,750, the fair-market-value
termination fee as of that date. The fair value of the remaining swap
decreased by $56,000 from a liability of $73,000 at March 31, 2002, to
a liability of $129,000 as of March 31, 2003. This liability is
included in long-term debt on the consolidated balance sheets. The
Company assesses the effectiveness of the swap using the hypothetical
derivative method and has determined that it qualifies as an effective
hedge at March 31, 2003 and 2002 under SFAS No. 133.
9. STOCKHOLDERS' EQUITY
The Company may issue up to 50,000 shares of preferred stock, in one or
more series, on such terms and with such rights, preferences and
limitations as determined by the Board of Directors. No preferred
shares have been issued as of March 31, 2003.
The Company has granted options to purchase up to a total of 64,000
shares of common stock to certain Company employees and outside
directors at prices of $3.19 and $6.38 per share. As of March 31, 2003,
301,000 shares remain available for future issuance. All options were
granted at exercise prices which approximated the fair market value of
the common stock on the date of grant. Options granted in fiscal 1999
and 2000 are fully vested and must be exercised within five to nine
years of the vesting date.
29
The following table summarizes information about stock options at March
31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Option Remaining Average Average
Grant Exercise Options Contractual Exercise Options Exercise
Date Price Outstanding Life (Years) Price Exercisable Price
---- ----- ----------- ------------ ----- ----------- ------
1/28/00 $ 3.19 59,000 1.8 $3.19 59,000 $3.19
8/13/98 6.38 5,000 5.4 6.38 5,000 6.38
------------- ----------
$3.19 and 6.38 64,000 2.1 $3.44 64,000 $ 3.44
============= ==========
Option information is summarized as follows:
Weighted Average
Exercise Price Per
--------------------
Shares Share
Outstanding March 31, 2000 285,200 2.77
Exercised (26,000) 1.17
------------- ---------------------
Outstanding March 31, 2001 259,200 2.93
Exercised (32,667) 2.75
------------- ---------------------
Outstanding March 31, 2002 226,533 3.00
Exercised (2,000) 2.75
Expired (160,533) 2.83
------------- ---------------------
Outstanding March 31, 2003 64,000 3.44
------------- ---------------------
The fair value of options granted in fiscal 2000 and 1999, was
estimated on the date of grant using the Black-Scholes option-pricing
model with the assumptions listed below. No options were granted in
fiscal 2002 or 2001.
2000 1999
---- ----
Weighted average fair value per option $ 1.62 $ 1.15
Assumptions used:
Weighted average expected volatility 65.1% 61.0%
Weighted average expected dividend yield 2.4% 2.2%
Weighted average risk-free interest rate 6.59% 5.70%
Weighted average expected life, in years 4.6 3.0
The Company measures stock-based compensation using the intrinsic value
method in accordance with APB Opinion No. 25. Had compensation cost for
the Company's stock-based compensation awards been determined at the
grant dates based on the fair market value method described in FASB
Statement No. 123, "Accounting for Stock-Based Compensation",
compensation cost, net of taxes, would have increased $46,000 and
$49,000, respectively in fiscal 2002 and 2001. The Company's pro-forma
net (loss) income would have been $(1,224,211), or $(0.45) per diluted
share, $1,232,623, or $0.44 per diluted share and $1,240,350, or $0.45
per diluted share, respectively, for 2003, 2002 and 2001.
During fiscal 2003 the Company suspended its stock repurchase program.
No common shares were repurchased in fiscal 2003. Through March 31,
2003 the Company had repurchased and retired a total of 789,780 shares
at a total cost of $3,257,622.
10. DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2003, Company management, in order to focus
its resources on core operations, agreed to a plan to sell the assets of MAS and
to discontinue the operations of the Company's aviation service sector business.
Accordingly, the accompanying consolidated financial statements reflect the MAS
assets as held for sale and reclassify the net operations of MAS as discontinued
operations, net of tax, for all periods presented. The Company entered into a
letter of intent on June 19, 2003 to sell the business operations of MAS.
A summary of the assets held for sale at March 31, 2003 is as follows:
2003 2002
Inventory $ 1,900,000 -
Property, plant and equipment 50,000 -
--------------- ---------------
Assets held for sale $ 1,950,000 -
=============== ===============
A summary of the operating results of the discontinued operations is as follows:
2003 2002 2001
Revenue $ 5,977,697 $ 11,355,128 $ 8,577,801
Operating earnings (loss) (942,110) (904,911) 274,336
Loss before income taxes (2,598,005) (1,190,337) (207,446)
Income tax benefit 949,428 452,328 78,829
-------------- --------------- --------------
Net loss $ (1,648,577) $ (738,009) $ (128,617)
-------------- --------------- --------------
The loss before income taxes on discontinued operations as of March 31, 2003,
which totaled $2,598,005, was comprised of a $942,110 loss from operations and
$1,655,895 impairment charge recorded to write down MAS assets to their
estimated fair value.
11. REVENUES FROM MAJOR CUSTOMER
Approximately 69.5%, 41.2% and 43.1% of the Company's revenues were derived
from services performed for a major air express company in 2003, 2002 and 2001,
respectively. In addition, approximately 19.9%, 22.9% and 13.9% of the Company's
revenues for 2003, 2002 and 2001 respectively, were generated from Global's US
Air Force contract.
12. INCOME TAXES
The provision for income taxes consists of:
Year Ended March 31, 2003
--------------------------------------------
Discontinued Continued
Operations Operations Total
Current:
Federal ......... $ (226,000) $ 278,000 $ 42,000
State ........... -- 56,000 66,000
-------- ------- -------
Total current (226,000) 334,000 108,000
Deferred:
Federal ......... (582,000) (102,000) (684,000)
State ........... (199,000) 45,000 (154,000)
-------- ------- -------
Total deferred (781,000) (57,000) (838,000)
-------- ------- -------
Total ........... $(1,007,000) $ 277,000 $ (730,000)
Year Ended March 31, 2002
--------------------------------------------
Discontinued Continued
Operations Operations Total
Current:
Federal ......... $ (293,000) $ 1,209,000 $ 916,000
State ........... (65,000) 264,000 199,000
-------- ------- -------
Total current (358,000) 1,473,000 1,115,000
Deferred:
Federal ......... (77,000) (137,000) (214,000)
State ........... (17,000) (53,000) (70,000)
-------- ------- -------
Total deferred (94,000) (190,000) (284,000)
-------- ------- -------
Total ........... $ (452,000) $ 1,283,000 $ 831,000
31
Year Ended March 31, 2002
--------------------------------------------
Discontinued Continued
Operations Operations Total
Current:
Federal ......... $ (55,000) $ 785,000 $ 730,000
State ........... (12,000) 190,000 178,000
Total current (67,000) 975,000 908,000
Deferred:
Federal ......... (10,000) (197,000) (207,000)
State ........... (2,000) (43,000) (45,000)
Total deferred (12,000) (240,000) (252,000)
Total ........... $ (79,000) $ 735,000 $ 656,000
The income tax provision for continuing operations was different from the
amount computed using the statutory Federal income tax rate for the following
reasons:
2003 2002 2001
Income tax provision at U.S. Statutory rate $ 219,000 $ 1,122,000 $ 732,000
State income taxes ......................... 31,000 154,000 99,000
Meal and entertainment disallowance ........ 15,000 23,000 18,000
Other, net ................................. (71,000) (16,000) 23,000
Change in valuation allowance .............. 83,000 -- (137,000)
----------- ----------- -----------
Income tax provision ....................... $ 277,000 $ 1,283,000 $ 735,000
----------- ----------- -----------
2003 2002
Book accruals over tax, net:
Warranty reserve ........... $ 46,864 $ 47,742
Accounts receivable reserve 174,523 177,008
Inventory reserve .......... 422,269 227,937
Accrued insurance .......... (32,846) (7,103)
Accrued vacation ........... 94,290 86,879
Deferred compensation ...... 658,559 565,097
Other ...................... 326,071 198,277
Fixed assets ............... (88,124) 14
MAS discontinued operations 545,705 --
State loss carry forward ... 70,000 --
Valuation allowance ........ (83,430) --
----------- -----------
Total ...................... $ 2,133,881 $ 1,295,851
----------- -----------
The deferred tax items are reported on a net current and noncurrent basis
in the accompanying 2003 and 2002 consolidated balance sheets according to the
classification of the related asset and liability.
The Company has state net operating loss carryforwards as of March 31, 2003
with a tax effected amount of approximately $70,000. The state loss
carryforwards will expire in varying periods through March 2023.
At March 31, 2003 the Company had deferred tax assets of $21,853 for capital
loss carryforwards and $61,577 for unrealized capital losses. The Company
recorded a full valuation allowance of $83,430 on the deferred tax assets
relating to these capital losses at March 31, 2003 based on management's belief
that realization is unlikely.
32
13. EMPLOYEE BENEFITS
The Company has a 401K defined contribution plan (AirT 401(K) Retirement
Plan). All employees of the Company are eligible to participate in the plan. The
Company's contribution to the 401(K) plan for the years ended March 31, 2003,
2002 and 2001 was $232,000, $228,000, and $229,000, respectively and was
recorded in general and administrative expenses in the consolidated statements
of operations.
The Company, in each of the past three years, has paid a discretionary
profit sharing bonus in which all employees have participated. The Company's
March 31, 2003, 2002, and 2001 expense was $81,000, $562,000 and $400,000,
respectively and was recorded in general and administrative expenses in the
consolidated statements of operations.
Effective January 1, 1996 the Company entered into supplemental retirement
agreements with certain key executives of the Company, to provide for a monthly
benefit upon retirement. Cost of funding the benefit is recorded in general and
administrative expense on the consolidated statements of operations. The
following tables set forth the funded status of the plan at March 31, 2003 and
2002 and the change n the projected benefit obligation from March 31, 2002 to
March 31, 2003.
March 31,
2003 2002
Vested benefit obligation and accumulated benefit obligation ..... $ 1,918,826 $ 1,555,827
Projected benefit obligation ..................................... 1,918,826 1,555,827
Plan assets at fair value ........................................ -- --
--------- ---------
Projected benefit obligation greater than plan assets ............ 1,918,826 1,555,827
Unrecognized prior service cost .................................. (219,862) (290,862)
Unrecognized actuarial loss ...................................... (283,363) (125,361)
Adjustment required to recognize minimum liability ............... 503,225 416,223
--------- ---------
Accrued pension cost recognized in the consolidated balance sheets $ 1,918,826 $ 1,555,827
--------- ---------
Projected benefit obligation, March 31, 2002 $ 1,555,827
Service cost 70,244
Interest cost 112,194
Actuarial loss $ 1,918,826
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," the Company has recorded
an additional minimum liability representing the excess of the accumulated
benefit obligation over the fair value of plan assets and accrued pension
liability for its pension plan. The additional liability has been offset by an
intangible asset to the extent of prior service cost. The portion of additional
minimum liability in excess of unrecognized prior service cost in fiscal 2003
totaled $158,000 and is reported as a component of accumulated other
comprehensive loss.
The projected benefit obligation was determined using an assumed discount rate
of 6.5% for fiscal year 2003 and 7% for fiscal years 2002 and 2001. The
liability relating to these benefits has been included in deferred retirement
obligation in the accompanying financial statements.
33
Net periodic pension expense for fiscal 2003, 2002 and 2001 included the
following:
2003 2002 2001
Future service cost ..... $ 70,244 $ 62,944 $ 58,826
Interest cost ........... 112,194 97,665 87,425
Amortization ............ 93,845 93,000 94,134
Net periodic pension cost $276,283 $253,609 $240,385
The Company's former Chairman and CEO passed away on April 18, 1997. Under
the terms of his supplemental retirement agreement, approximately $498,000 in
present value of death benefits is required to be paid to fulfill death benefit
payments over 10 years after his death. As of March 31, 2003 and 2002 accruals
related to the unpaid present value of the benefit amounted to approximately
$293,000 and $324,000, respectively (of which approximately $220,000 and
$274,000, respectively is included under defined retirement obligations in the
accompanying consolidated balance sheets). The net periodic pension costs are
included in general and administrative expenses in the accompanying consolidated
statements of operations.
14. NET EARNINGS PER COMMON 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 unless they were anti-dilutive. As of
March 31, 2003 all outstanding stock options were anti-dilutive.
The computation of basic and diluted earnings per common share is as
follows:
Year Ended March 31,
2003 2002 2001
Net (loss) earnings ....................... $(1,224,211) $1,278,499 $1,288,925
Basic (Loss) Earnings Per Share:
Continuing Operations ................. $ 0.13 $ 0.74 $ 0.52
Discontinued Operations ............... $ (0.58) $ (0.27) $ (0.05)
Total Basic Net (Loss) Earnings Per Share . $ (0.45) $ 0.47 $ 0.47
Diluted (Loss) Earnings Per Share:
Continuing Operations ................. $ 0.13 $ 0.72 $ 0.51
Discontinued Operations ............... $ (0.58) $ (0.27) $ (0.05)
Total Diluted Net (Loss) Earnings Per Share $ (0.45) $ 0.45 $ 0.46
Weighted Average Shares Outstanding:
Basic ................................ 2,726,320 2,716,823 2,733,428
Diluted .............................. 2,726,320 2,788,700 2,780,732
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except per share data)
During the fourth quarter of 2003, management agreed to a plan to discontinue
the operations of MAS and dispose of its assets. As a result, the Company has
reflected the discontinued operations of MAS in the accompanying consolidated
statements of financial position and results of operations. The quarterly
financial information below has been reconciled to amounts previously reported
on Form 10-Q.
34
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2003
Operating Revenues - as previously reported ..... $ 11,891 $ 10,231 $ 13,432
Less revenues associated with discontinued
operations ......................... (1,693) (1,055) (2,199)
------ ----- ------ ------
Operating Revenues .............................. 10,198 9,176 11,233 12,265
------ ----- ------ ------
Operating Income (Loss) - as previously reported $ (32) $ (511) $ 147
Less operating loss associated with discontinued
operations ........................ (73) (121) (13)
------ ----- ------ ------
Operating Income (Loss) ......................... 41 (390) 160 654
------ ----- ------ ------
(Loss) Earnings Before Income Taxes
- as previously reported ........... $ (268) $ (581) $ 71
Less loss associated with discontinued operations (198) (230) (106)
------ ----- ------ ------
(Loss) Earnings Before Income Taxes ............. (70) (351) 177 888
------ ----- ------ ------
Net (Loss) Earnings - as previously reported .... $ (161) $ 364 $ 37
Less net (loss) earnings associated with
discontinued operations .......... (118) (147) 73
------ ----- ------ ------
Net (Loss) Earnings ............................. (43) (217) 110 516
------ ----- ------ ------
Diluted Net (Loss) Earnings per share
- as previously reported .......... $ (0.06) $ (0.13) $ 0.01
Diluted Net (Loss) per share associated
with discontinued operations ....... (0.04) (0.05) (0.03)
------ ----- ------ ------
Diluted Net (Loss) Earnings per share ........... (0.02) (0.08) 0.04 0.23
------ ----- ------ ------
2002
Operating Revenues - as previously reported ..... $ 17,573 $ 25,273 $ 15,769 $ 12,343
Less revenues associated with
discontinued operations ........... (1,540) (6,905) (1,766) (1,144)
------ ----- ------ ------
Operating Revenues .............................. 16,033 18,368 14,003 11,199
------ ----- ------ ------
Operating Income (Loss) - as
previously reported ............... $ 701 $ 1,331 $ 382 $ (38)
Less operating income (loss) associated
with discontinued operations ..... (113) 37 (165) (664)
------ ----- ------ ------
Operating Income (Loss) ......................... 814 1,294 547 626
------ ----- ------ ------
Earnings Before Income Taxes
- as previously reported .......... $ 571 $ 1,230 $ 278 $ 30
Less loss associated with
discontinued operations .......... (264) 95) (325) (506)
------ ----- ------ ------
Earnings Before Income Taxes .................... 835 1,325 603 536
------ ----- ------ ------
Net Earnings - as previously reported ........... $ 343 $ 746 $ 156 $ 34
Less net loss associated with
discontinued operations ............ (164) (59) (201) (314)
------ ----- ------ ------
Net Earnings .................................... 507 805 357 348
------ ----- ------ ------
Diluted Net Earnings per share - as
previously reported ............... $ 0.13 $ 0.27 $ 0.06 $ 0.13
Diluted Net Loss per share associated
with discontinued operations ...... (0.05) (0.02) (0.07) (0.01)
------ ----- ------ ------
Diluted Net Earnings per share .................. 0.18 0.29 0.13 0.12
------ ----- ------ ------
16. SEGMENT INFORMATION
The Company operates three subsidiaries in two continuing business segments.
Each business segment has separate management teams and infrastructures that
offer different products and services. During the fourth quarter of fiscal 2003,
Company management agreed to a plan to sell the assets of MAS and to discontinue
the operations of the Company's aviation service sector business. The operations
of MAS are, therefore, not presented in the segment information below. The
subsidiaries with continuing operations have been combined into the following
two reportable segments: overnight air cargo and ground equipment. The overnight
air cargo segment encompasses services provided primarily to one customer,
Federal Express, and the ground equipment segment encompasses the operations of
Global.
The accounting policies for all reportable segments are the same as those
described in Note 1 to the Consolidated Financial Statements. The Company
evaluates the performance of its operating segments based on operating income
from continuing operations.
35
Segment data is summarized as follows:
Year Ended March 31,
2003 2002 2001
Overnight Revenues
Overnight Air Cargo $ 29,898,840 $ 29,258,086 $ 30,262,362
Ground Equipment .. 12,972,887 30,344,889 31,405,711
Corporate ........ -- -- --
Total ........... $ 42,871,727 $ 59,602,975 $ 61,668,073
Operating Income from continuing operations
Overnight Air Cargo $ 2,621,003 $ 2,215,901 $ 2,475,522
Ground Equipment ... 204,642 3,335,477 2,048,844
Corporate (1) ..... (2,361,125) (2,270,708) (2,281,603)
Total ............. $ 464,520 $ 3,280,670 $ 2,242,763
Identifiable Assets
Overnight Air Cargo .. $ 4,130,676 $ 3,852,042 $ 4,957,327
Ground Equipment ..... 8,615,032 10,051,691 13,531,515
Corporate ............ 4,684,070 2,856,792 1,181,725
Total ................ $ 17,429,778 $ 16,760,525 $ 19,670,567
Capital Expenditures, net
Overnight Air Cargo .. $ 131,626 $ 107,264 $ 371,505
Ground Equipment ..... (123,490) 271,672 77,288
Corporate ............ 126,785 303,184 42,102
Total ................ $ 134,921 $ 682,120 $ 490,895
Depreciation and Amortization
Overnight Air Cargo .. $ 243,635 $ 228,051 $ 261,122
Ground Equipment ..... 190,833 197,708 271,496
Corporate ............ 143,248 91,193 146,717
Total ............... $ 577,716 $ 516,952 $ 679,335
(1) Includes income from inter-segment transactions, which eliminate in
consolidation.
36
17. COMMITMENTS AND CONTINGENCIES
Global and one of its employees are defendants in a lawsuit filed in March 2002
in the United States District Court for the District of Columbia, Catalyst &
Chemical Services et al v. Terex, et al. In this action, the plaintiffs allege
that they provided to Global and the employee certain trade secrets regarding
aircraft de/anti-icing systems that were then disclosed by Global and the
employee to third parties. The plaintiffs allege misappropriation of trade
secrets, breach of contract and violation of the federal Racketeer Influenced
and Corrupt Organizations Act and seek monetary damages. The Company and its
employee have filed an answer in this action denying all liability. Upon
Global's motion, the court has dismissed the plaintiff's claims under the
Racketeer Influenced and Corrupt Organizations Act. The Company does not believe
that the action has any merit and intends to defend the lawsuit vigorously. In
November 2002, Global and the Company filed suit in North Carolina state court
against affiliates of the plaintiffs in the Catalyst & Chemical Services et al
v. Terex, et al action alleging defamation. This action has been moved to, and
is pending before, the United States District Court for the Western District of
North Carolina.
The Company is currently aware of certain intellectual property and
environmental matters, some of which involve pending or threatened lawsuits. If
adversely decided, management believes the results of these pending or
threatened lawsuits would not have a material adverse effect on the Company.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company had no disagreements on accounting or financial disclosure matters
with its independent certified public accountants to report under this Item 9.
PART III
Item 10. Directors and Executive Officers of the Registrant.
J. Hugh Bingham, age 57, has served as President and Chief Operating Officer of
the Company since April 1997, as Senior Vice President of the Company from June
1990 until April 1997, as Executive Vice President from June 1983 to June 1990,
and as a director since March 1987. Mr. Bingham also serves as Chief Executive
Officer and a director of MAC, as Chief Executive Officer of MAS and as an
Executive Vice President and director of CSA.
Walter Clark, age 46, has served as Chairman of the Board of Directors
of the Company and Chief Executive Officer since April 1997. Mr. Clark also
serves as a director of MAC and CSA. Mr. Clark was elected a director of the
Company in April 1996. Mr. Clark was self-employed in the real estate
development business from 1985 until April 1997.
John J. Gioffre, age 59, has served as Vice President-Finance and Chief
Financial Officer of the Company since April 1984 and as Secretary/Treasurer of
the Company since June 1983. He has served as a director of the Company since
March 1987. Mr. Gioffre also serves as Vice-President, Secretary/Treasurer and a
director of MAC and CSA and as Vice President- Finance, Treasurer and Secretary
of MAS.
J. Leonard Martin, age 66, was elected a director in August 1994 and joined the
Company as a Vice President in April 1997. He served as Chief Executive Officer
of Global from August 1997 to January 2001. From June 1995 until April 1997, Mr.
Martin was an independent aviation consultant. From April 1994 to June 1995, Mr.
Martin served as Chief Operating Officer of Musgrave Machine & Tool, Inc., a
machining company. From January 1989 to April 1994, Mr. Martin served as a
consultant to the North Carolina Air Cargo Authority in connection with the
establishment of the Global TransPark air cargo facility in Kinston, North
Carolina. From 1955 through 1988 Mr. Martin was employed by Piedmont Airlines, a
commercial passenger airline, in various capacities, ultimately serving as
Senior Vice President-Passenger Services.
William H. Simpson, age 55, has served as Executive Vice President of the
Company since June 1990, as Vice President from June 1983 to June 1990, and as a
director of the Company since June 20, 1985. Mr. Simpson is also the President
and a director of MAC, the Chief Executive Officer and a director of CSA and
Executive Vice President of MAS.
Claude S. Abernethy, Jr., age 76, was elected as director of the
Company in June 1990. For the past five years, Mr. Abernethy has served as a
Senior Vice President of IJL Wachovia Securities, a securities brokerage and
investment banking firm, and its predecessor. Mr. Abernethy is also a
director of Carolina Mills, Inc. and Wellco Enterprises, Inc.
37
Sam Chesnutt, age 66, was elected a director of the Company in August
1994. Mr. Chesnutt serves as President of Sam Chesnutt and Associates, an
agribusiness consulting firm. From November 1988 to December 1994, Mr.
Chesnutt served as Executive Vice President of AgriGeneral Company, L.P., an
agribusiness firm.
Allison T. Clark, age 47, has served as a director of the Company since
May 1997. Mr. Clark has been self-employed in the real estate development
business since 1987.
Herman A. Moore, age 73, was elected a director of the Company on
June 22, 1998. Mr. Moore is the president of Herman A. Moore & Assoc., Inc.,
a real estate development company.
George C. Prill, age 80, has served as a director of the Company since
June 1982, as Chief Executive Officer and Chairman of the Board of Directors
from August 1982 until June 1983, and as President from August 1982 until
spring 1984. Mr. Prill has served as an Editorial Director for General
Publications, Inc., a publisher of magazines devoted to the air
transportation industry, from November 1992 until 2001 and was retired from
1990 until that time. From 1979 to 1990, Mr. Prill served as President of
George C. Prill & Associates, Inc., of Charlottesville, Virginia, which
performed consulting services for the aerospace and airline industry. Mr.
Prill has served as President of Lockheed International Company, as Assistant
Administrator of the FAA, as a Senior Vice President of the National
Aeronautic Association and Chairman of the Aerospace Industry Trade Advisory
Committee.
The officers of the Company and its subsidiaries each serve at the pleasure of
the Board of Directors. Allison Clark and Walter Clark are brothers.
Each director receives a director's fee of $500 per month and an attendance fee
of $500 is paid to outside directors for each meeting of the board of directors
or a committee thereof. Pursuant to the Company's 1998 Omnibus Securities Award
Plan (the "Plan") each director who is not an employee of the Company received
an option to purchase 1,000 shares of Common Stock at an exercise price of
$6.375 per share (the closing bid price per share on the date of stockholder
approval of the Plan.) The Plan provides for a similar option award to any
director first elected to the board after the date the stockholders approved the
Plan. Such options expire ten years after the date they were granted.
To the Company's knowledge, based solely on review of the copies of reports
under Section 16(a) of the Securities Exchange Act of 1934 that have been
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended March 31, 2003 all executive officers,
directors and greater than ten-percent beneficial owners have complied with all
applicable Section 16(a) filing requirements.
Item 11. Executive Compensation.
The following table sets forth a summary of the compensation paid during each of
the three most recent fiscal years to the Company's Chief Executive Officer and
to the four other executive officers on March 31, 2003 with total compensation
of $100,000 or more.
SUMMARY COMPENSATION TABLE
Annual Compensation
Position Year Salary($)(1) Bonus ($)
Walter Clark ........... 2003 99,001 --
Chief Executive Officer 2002 111,522 52,140
2001 125,732 46,900
J. Hugh Bingham ........ 2003 191,335 --
President .............. 2002 193,304 52,564
2001 193,004 46,900
John J. Gioffre ........ 2003 120,767 --
Vice President ......... 2002 122,058 39,880
2001 121,788 35,175
J. Leonard Martin ...... 2003 121,214 --
Vice President ......... 2002 122,659 59,900
2001 122,673 24,880
38
William H. Simpson ..... 2003 193,705 --
Executive Vice President 2002 195,364 52,140
2001 194,803 46,900
- ------------------------------------------
(1) Includes perquisites in aggregate amount no greater than 10% of the
officer's base salary plus bonus.
The following table sets forth, the number of shares of Common Stock underlying
unexercised options at March 31, 2003 held by each of the executive officers
listed in the Summary Compensation Table. The table also includes the value of
such options at March 31, 2003 based upon the closing bid price of the Company's
Common Stock in the over-the-counter market on that date ($1.41 per share) and
the exercise price of the options. None of the executive officers listed in this
table exercised any options in fiscal 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
Walter Clark 50,000 - - -
J. Hugh Bingham - - - -
John J. Gioffre - - - -
J. Leonard Martin - - - -
William H. Simpson 9,000 - - -
EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company and each of its subsidiaries entered into
employment agreements with J. Hugh Bingham, John J. Gioffre and William H.
Simpson, each of substantially similar form. Each of such employment agreements
provides for an annual base salary ($130,000, $103,443 and $165,537 for Messrs.
Bingham, Gioffre and Simpson, respectively) which may be increased upon annual
review by the Compensation Committee of the Company's Board of Directors. In
addition, each such agreement provides for the payment of annual incentive bonus
compensation equal to a percentage (2.0%, 1.5% and 2.0% for Messrs. Bingham,
Gioffre and Simpson, respectively) of the Company's consolidated earnings before
income taxes and extraordinary items as reported by the Company in its Annual
Report on Form 10-K. Payment of such bonus is to be made within 15 days after
the Company files its Annual Report on Form 10-K with the Securities and
Exchange Commission.
The initial term of each such employment agreement expired on March 31, 1999,
and the term is automatically extended for additional one-year terms unless
either such executive officer or the Company's Board of Directors gives notice
to terminate automatic extensions which must be given by December 1 of each year
(commencing with December 1, 1996).
Each such agreement provides that upon the executive officer's retirement, he
shall be entitled to receive an annual benefit equal to $75,000 ($60,000 for Mr.
Gioffre), reduced by three percent for each full year that the termination of
his employment precedes the date he reaches age 65. The retirement benefits
under such agreements may be paid at the executive officer's election in the
form of a single life annuity or a joint and survivor annuity or a life annuity
with a ten-year period certain. In addition, such executive officer may elect to
receive the entire retirement benefit in a lump sum payment equal to the present
value of the benefit based on standard insurance annuity mortality tables and an
interest rate equal to the 90-day average of the yield on ten-year U.S. Treasury
Notes.
Retirement benefits shall be paid commencing on such executive officer's 65th
birthday, provided that such executive officer may elect to receive benefits on
the later of his 62nd birthday, in which case benefits will be reduced as
described above, or the date on which his employment terminates, provided that
notice of his termination of employment is given at least one year prior to the
termination of employment. Any retirement benefits due under the employment
agreement shall be offset by any other retirement benefits that such executive
officer receives under any plan maintained by the Company. In the event such
executive officer becomes totally disabled prior to retirement, he will be
entitled to receive retirement benefits calculated as described above.
39
In the event of such executive officer's death before retirement, the agreement
provides that the Company shall be required to pay an annual death benefit to
such officer's estate equal to the single life annuity benefit such executive
officer would have received if he had terminated employment on the later of his
65th birthday or the date of his death, payable over ten years; provided that
such amount would be reduced by five percent for each year such executive
officer's death occurs prior to age 65, but in no event more than 50 percent.
Each of the employment agreements provides that if the Company terminates such
executive officer's employment other than for "cause" (as defined in the
agreement), such executive officer be entitled to receive a lump sum cash
payment equal to the amount of base salary payable for the remaining term of the
agreement (at the then current rate) plus one-half of the maximum incentive
bonus compensation that would be payable if such executive officer continued
employment through the date of the expiration of the agreement (assuming for
such purposes that the amount of incentive bonus compensation would be the same
in each of the years remaining under the agreement as was paid for the most
recent year prior to termination of employment). Each of the agreements further
provides that if any payment on termination of employment would not be
deductible by the Company under Section 280G(b)(2) of the Internal Revenue Code,
the amount of such payment would be reduced to the largest amount that would be
fully deductible by the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock (determined in accordance with Rule 13d-3 of
the Securities and Exchange Commission) of the Company as of June 1, 2002 by
each person that beneficially owns five percent or more of the shares of Common
Stock. Each person named in the table has sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned, except as
otherwise set forth in the notes to the table.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Amount of
Title Beneficial Ownership Percent
of Class Name and Address of Beneficial Owner as of June 1, 2002 Of Class
- -------- ------------------------------------ ------------------ --------
Common Stock, Walter Clark and Caroline Clark, Executors(1) 1,342,416(1) 48.7%
par value $.25 P.O. Bocx 488
per share Denver, North Carolina 28650
William H. Simpson 270,580(2) 9.7%
P.O. Box 488
Denver, North Carolina 28650
- -----------------------------
(1) Includes 1,279,272 shares controlled by such individuals as the
executors of the estate of David Clark, 10,922 shares owned by Walter
Clark, 50,000 shares purchasable by Walter Clark under options awarded
by the Company and 2,222 shares owned by Caroline Clark.
(2) Includes 1,200 shares held jointly with J. Hugh Bingham and 9,000
shares under options granted by the Company.
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock of the Company by each director of the
Company and by all directors and executive officers of the Company as a group as
of June 1, 2003. Each person named in the table has sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned,
except as otherwise set forth in the notes to the table.
40
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Shares and Percent of Common Stock Beneficially
Owned as of June 1, 2003
Name Position with Company No. of Shares Percent
J. Hugh Bingham President, Chief Operating Officer, 119,680(1) 4.3%
Director
Walter Clark Chairman of the Board of Directors 1,340,194(2) 48.0%
and Chief Executive Officer
John J. Gioffre Vice President-Finance, Chief 57,580 2.1%
Financial Officer, Secretary and
Treasurer, Director
J. Leonard Martin Vice President, Director 100(3) *
William H. Simpson Executive Vice President, Director 271,180(1)(4) 9.7%
Claude S. Abernethy, Jr. Director 44,011(5)(6) 1.6%
Sam Chesnutt Director 12,100(5) *
Allison T. Clark Director 3,222(5) *
Herman A. Moore Director 1,000(5) *
George C. Prill Director 46,966(5) 1.7%
All directors and executive N/A 1,894,833(7) 67.9%
officers as a group (10
persons)
* Less than one percent.
(1) Includes 1,200 shares jointly held by Messrs. Simpson and Bingham.
(2) Includes 1,279,272 shares held by the estate of David Clark, of which
Mr. Walter Clark is a co-executor and 50,000 shares under options
granted by the Company to Mr. Walter Clark.
(3) Such 100 shares are held by Mr. Martin's spouse of which shares Mr.
Martin disclaims beneficial ownership.
(4) Includes 9,000 shares under options granted by the Company to Mr.
Simpson.
(5) Includes 1,000 shares under options granted by the Company.
(6) Includes 20,400 shares held by the Estate of Raenelle B. Abernethy,
of which Mr. Abernethy is the executor.
(7) Includes an aggregate of 64,000 shares of Common Stock members of such group
have the right to acquire within 60 days.
This table summarizes share and exercise price information about equity
compensation plans as of March 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price remaining available for
of outstanding options, of outstanding options, future issuance under
warrants and rights warrants and rights equity compensation plans
----------------------- ---------------------- -------------------------
Equity compensation plans
approved by security holders 64,000 $3.44 301,000
Equity compensation plans not
approved by security holders None N/A N/A
41
Item 13. Certain Relationships and Related Transactions.
The Company leases its corporate and operating facilities at the Little
Mountain, North Carolina airport from Little Mountain Airport Associates, Inc.
("Airport Associates"), a corporation whose stock is owned by J. Hugh Bingham,
William H. Simpson, John J. Gioffre, the estate of David Clark and three
unaffiliated third parties. Walter Clark and Allison Clark are beneficiaries of
the estate of David Clark, and Walter Clark is also a co- executor of the
estate. On May 31, 2001, the Company renewed its lease for this facility,
scheduled to expire on that date, for an additional five-year term, and adjusted
the rent to account for increases in the consumer price index. Upon the renewal,
the monthly rental payment was increased from $8,073 to $9,155. The Company paid
aggregate rental payments of $109,860 to Airport Associates pursuant to such
lease during the fiscal year ended March 31, 2003. In May 2003 the Company
leased additional office space from Airport Associates under terms similar to
the above lease at a monthly rental payment of $2,100. The Company believes that
the terms of such leases are no less favorable to the Company than would be
available from an independent third party.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have, through
direct knowledge and discussions with subsidiary management and department
heads, evaluated the Company's disclosure controls and procedures within 90 days
of the filing date of this report, and they concluded that these controls and
procedures are effective in providing material information relating to the
Company and its subsidiaries.
Changes in Internal Controls.
There were no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this report:
1. Financial Statements
a. The following financial statements are incorporated herein by reference
in Item 8 of Part II of this report:
(i) Independent Auditors' Report.
(ii) Consolidated Balance Sheets as of March 31, 2003 and 2002.
(iii) Consolidated Statements of Operations for each of the three years
in the period ended March 31, 2003.
(iv) Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended March 31, 2003.
(v) Consolidated Statements of Cash Flows for each of the three years
in the period ended March 31, 2003.
(vi) Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
No schedules are required to be submitted.
3. Exhibits
No. Description
3.1 Restated Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2001
3.2 By-laws of the Company, as amended, 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
42
10.1 Aircraft Dry Lease and Service Agreement dated February 2, 1994 between
Mountain Air Cargo, Inc. and Federal Express Corporation, incorporated
by reference to Exhibit 10.13 to Amendment No. 1 on Form 10-Q/A to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
December 31, 1993
10.2 Loan Agreement among Bank of America, N.A. the Company and its
subsidiaries, dated May 23, 2001, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 2001.
10.3 Aircraft Wet Lease Agreement dated April 1, 1994 between Mountain Air
Cargo, Inc. and Federal Express Corporation, incorporated by reference
to Exhibit 10.4 of Amendment No. 1 on Form 10-Q/Q to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1994
10.4 Adoption Agreement regarding the Company's Master 401(k) Plan and
Trust, incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1993*
10.5 Amendment No. 1 to Omnibus Securities Award Plan incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on Form 10-K
for the year ended March 31, 2000*.
10.6 Premises and Facilities Lease dated November 16, 1995 between Global
TransPark Foundation, Inc. and Mountain Air Cargo, Inc., incorporated
by reference to Exhibit 10.5 to Amendment No. 1 on Form 10-Q/A to the
Company's Quarterly Report on Form 10-Q for the period ended December
31, 1995
10.7 Employment Agreement dated January 1, 1996 between the Company,
Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and William
H. Simpson, incorporated by reference to Exhibit 10.8 to the Company's
Annual Report Form 10-K for the fiscal year ended March 31, 1996*
10.8 Employment Agreement dated January 1, 1996 between the Company,
Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and John J.
Gioffre, incorporated by reference to Exhibit 10.9 to the Company's
Annual Report Form 10-K for the fiscal year ended March 31, 1996*
10.9 Employment Agreement dated January 1, 1996 between Company, Mountain
Air Cargo Inc. and Mountain Aircraft Services, LLC and J. Hugh Bingham,
incorporated by reference to Exhibit 10.10 to the Company's Annual
Report Form 10k for the fiscal year end March 31, 1996.*
10.10 Employment Agreement dated September 30, 1997 between Mountain Aircraft
Services, LLC and J. Leonard Martin, incorporated by reference to
Exhibit 10.10 to the Company's Quarterly Report Form 10-Q for the
quarter ended December 31, 1997.*
10.11 Omnibus Securities Award Plan, incorporated by reference to Exhibit
10.11 to the Company's Quarterly Report Form 10-Q for the quarter ended
June 30, 1998.*
10.12 Commercial and Industrial Lease Agreement dated August 25, 1998 between
William F. Bieber and Global Ground Support, LLC, incorporated by
reference to Exhibit 10.12 of the Company's Quarterly Report on 10Q for
the period ended September 30, 1998.
10.13 Amendment, dated February 1, 1999, to Aircraft Dry Lease and Service
Agreement dated February 2, 1994 between Mountain Air Cargo, Inc. and
Federal Express Corporation, incorporated by reference to Exhibit 10.13
of the Company's Quarterly Report on 10Q for the period ended December
31, 1998.
10.14 ISDA Schedule to Master Agreement between Bank of America, N.A. and the
Company dated May 23, 2001, incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 2001
43
10.15 Amendment No 1. to Loan Agreement among Bank of America, N.A. The
Company and its subsidiaries, dated August 31, 2002, incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 2002
10.16 Lease Agreement between Little Mountain Airport Associates, Inc. and
Mountain Air Cargo, Inc., dated June 1, 1991, most recently amended May
28, 2001
21.1 List of subsidiaries of the Company, incorporated by reference to
Exhibit 21.1 to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997
23.1 Consent of Deloitte & Touche LLP
99.1 Certification of Walter Clark
99.2 Certification of John Gioffre
------------------
* Management compensatory plan or arrangement required to be filed as an
exhibit to this report.
b. Reports on Form 8-K.
No Current Reports on Form 8-K were filed in the last quarter of the fiscal
year ended March 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Walter Clark
Walter Clark, Chief Executive Officer
(Principal Executive Officer)
Date: June 20, 2003
By: /s/ John J. Gioffre
John J. Gioffre, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: June 20, 2003
44
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Claude S. Abernethy
Claude S. Abernethy, Jr., Director
Date: June 20, 2003
By: /s/ J. Hugh Bingham
J. Hugh Bingham, Director
Date: June 20, 2003
By: /s/ Allison T. Clark
Allison T. Clark, Director
Date: June 20, 2003
By: /s/ Walter Clark
Walter Clark, Director
Date: June 20, 2003
By: /s/ Sam Chesnutt
Sam Chesnutt, Director
Date: June 20, 2003
By: /s/ John J. Gioffre
John J. Gioffre, Director
Date: June 20, 2003
By: /s/ J. Leonard Martin
J. Leonard Martin, Director
Date: June 20, 2003
45
By: /s/ Herman A. Moore
Herman A. Moore, Director
Date: June 20, 2003
By: /s/ George C. Prill
George C. Prill, Director
Date: June 20, 2003
By: /s/ William Simpson
William Simpson, Director
Date: June 20, 2003
46
Exhibit Number Document
23.1 Consent of Deloitte & Touche LLP
47
CERTIFICATION
I, Walter Clark, Chief Executive Officer, certify that:
1. I have reviewed this Annual Report on Form 10-K of Air T, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and b) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 20, 2003 /s/ Walter Clark
Walter Clark, Chief Executive Officer
CERTIFICATION
I, John Gioffre, Chief Financial Officer, certify that:
1. I have reviewed this Annual Report on Form 10-K of Air T, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared; b) evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and b) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 20, 2003 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer
AIR T, INC
EXHIBIT INDEX
PAGE
10.15 Lease Agreement between Little Mountain Airport Associates, Inc. and
Mountain Air Cargo, Inc., dated June 1, 1991, most recently amended May
28, 2001
23.1 Consent of Deloitte & Touche LLP
99.1 Certification of Walter Clark 52
99.2 Certification of John J. Gioffre 54
CERTIFICATION
The undersigned hereby certifies in his capacity as an officer of Air T, Inc.
(the "Company") that the Annual Report of the Company on Form 10-K for the
fiscal year ended March 31, 2003 fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934 and that the information contained
in such report fairly presents, in all material respects, the financial
condition of the Company at the end of such period and the results of operations
of the Company for such period.
Date: June 20, 2003 /s/ Walter Clark
Walter Clark, Chief Executive Officer
CERTIFICATION
The undersigned hereby certifies in his capacity as an officer of Air T, Inc.
(the "Company") that the Annual Report of the Company on Form 10-K for the
fiscal year ended March 31, 2003 fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934 and that the information contained
in such report fairly presents, in all material respects, the financial
condition of the Company at the end of such period and the results of operations
of the Company for such period.
Date: June 20, 2003 /s/ John Gioffre
John J. Gioffre, Chief Financial Officer