x 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, 2000 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
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
3524 Airport Road
Maiden, North Carolina 28650
(Address of principal executive
offices) (Zip Code)
(704) 377-2109
(Registrant's telephone number, including area code)
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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. [ ]
The aggregate market value of voting stock held by non-affiliates
of the registrant as of June 8, 2000, computed by reference to the
average of the closing bid and asked prices for such stock on such date,
was $3,036,320. As of the same date, 2,746,153 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 three 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"), aviation related parts brokerage and overhaul services through its wholly owned subsidiary, Mountain Aircraft Services, LLC ("MAS"), and aviation ground support equipment products through its wholly owned subsidiary, Global Ground Support, LLC ("Global"). For the fiscal year ended March 31, 2000 the Company's air cargo services through MAC and CSA accounted for approximately 55.5% of the Company's consolidated revenues, aviation related parts brokerage and overhaul services through MAS accounted for 15.6% of consolidated revenues and aircraft deice and other equipment products through Global accounted for 28.9% of consolidated revenues. The Company's air cargo services are provided primarily to one customer -- Federal Express Corporation ("Federal Express"). Revenues from contracts with Federal Express accounted for approximately 55.5% of the Company's consolidated revenues for the year ended March 31, 2000. Certain financial data with respect to the Company's overnight air cargo, aviation services and ground support equipment segments are set forth in Note 15 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 Maiden, North Carolina, the principal places of business of CSA, MAS and Global are, respectively, Iron Mountain, Michigan, Kinston, North Carolina and Olathe, Kansas.
Diversification and Acquisition.
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, of which the Company and MAC are members (99% of the profits and losses are allocated to the Company and 1% to MAC).
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, the Company diversified Global's product line to include additional model aircraft deicers and scissor-lift ground support equipment. Global is organized as a limited liability company, of which the Company and MAS are members (99% of the profits and losses are allocated to MAS and 1% to the Company).
The organization of MAS and Global reflects the Company's strategy to diversify its operations within the aviation industry to reduce its dependence on the air cargo service segment.
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 100.0% of MAC and CSA's revenues (55.5% of the Company's consolidated revenues).
For the fiscal year ended March 31, 2000, MAC and CSA provided air delivery service primarily to Federal Express. As of March 31, 2000, 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.
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. 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, 2000:
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
Total 95
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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 6,500 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 5,700 hours.
In May 2000, MAC completed its FAA certification to commence operation of a Part 145 maintenance facility at its Kinston, N.C. location. MAC's future plans include the ability to perform heavy maintenance for regional/trunk FAA Part 121 certified carriers.
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.
Aviation Related Parts Brokerage and Overhaul Services.
In October 1993, the Company organized MAS to diversify its customer base and business mix. 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.
Services offered by MAS include engine overhaul management, aircraft maintenance and component repair. Services are provided under standard purchase contracts.
In addition, MAS sells aircraft parts, of which approximately 5% of the amount sold in the fiscal year ended March 31, 2000 were used in connection with maintenance performed by MAS. Sales of parts by MAS do not include any parts purchased for maintenance of aircraft operated by MAC or CSA.
MAS's inventory of parts held for sale was approximately $3.7 million at March 31, 2000 and included parts for use in primarily 15 types of commercial and military aircraft, all of which are generally in current use. MAS maintains its own inventory controls and documentation, sets stocking levels and determines the conditions for surplus parts disposal.
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, 2000, MAS provided services or parts to over 75 customers, with five customers accounting for approximately 95% of the Company's revenues for the year.
MAS's operations are not materially seasonal.
Aircraft Deice and Other Equipment Products.
In August 1997, the Company organized Global to acquire the Simon Deicer Division of Terex Aviation Ground Equipment to further diversify the Company's customer base and business mix within the aviation industry. Global manufactures, sells, services and supports aircraft devices on a worldwide basis. During the fiscal year ended March 31, 2000, the Company diversified Global's product line to include additional model aircraft deicers and scissor-lift ground support equipment. Global's primary customers are passenger and cargo airlines, 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 four basic models of deicing equipment: a 3,200 gallon capacity model, a 2,100 gallon capacity model, a 1,200 gallon capacity model and a 700 gallon capacity model. 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 recently 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. Although the Company believes that Global is the second largest supplier of deicing equipment in the United States, the Company believes that FMC Corp. is the dominant competitor in the industry and is several times larger and has more financial resources than Global.
Global's business has historically been highly seasonal, with the bulk of deicing equipment being purchased by customers in the late summer and fall in preparation for winter months. Accordingly, 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 plans to reduce Global's seasonal fluctuation in revenues by the recent introduction of ground support equipment to broaden its product line.
Backlog.
The Company's backlog consists of "firm" orders supported by customer purchase orders with fixed delivery dates for the deicing equipment sold by Global and for parts and equipment sold by MAS. At March 31, 2000, the Company's backlog of orders was $18.2 million, of which $16.4 million was attributable to Global and approximately $1.8 million was attributable to MAS, all of which the Company expects to be filled in the current fiscal year.
Governmental Regulation.
Under the Federal Aviation Act of 1958, as amended, the FAA has safety jurisdiction over flight operations generally, including flight equipment, flight 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 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 has secured appropriate operating certificates and airworthiness certificates for all aircraft operated by it.
The FAA periodically conducts routine reviews of MAC and CSA's operating procedures and flight and maintenance records.
The Airline Deregulation Act of 1978 created a new class of domestic certificated all-cargo carriers. Pursuant to such certificate, aircraft of specified size may be operated within the United States, without restriction on routes.
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 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 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 June 7, 2000, the Company and its subsidiaries had 454 full-time and full-time-equivalent employees, of which 8 are employed by the Company, 276 are employed by MAC, 53 are employed by CSA, 47 are employed by MAS and 70 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. 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 was renewed
in May 1996, and is currently scheduled to expire on May 31, 2001, and
may be renewed for an additional five-year period. In connection with
the renewal, the monthly rental payment for this facility increased to
$8,073.
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, 2000, of approximately $1,500.
On November 16, 1995, the Company entered into a twenty-one and a half year premises and facilities lease with Global TransPark Foundation, Inc. to lease approximately 53,000 square feet of a new 66,000 square foot aircraft hangar shop and office facility at the North Carolina Global TransPark in Kinston, North Carolina. On August 10, 1996, MAS's component repair services and part of MAC's aircraft maintenance operations were relocated to this facility. Rent under this lease increases over time as follows: 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 began operations at this facility in August 1996.
MAS operates an engine overhaul management facility in Miami, Florida, leasing, from a third party, approximately 4,700 square feet of shop space. The lease expires in April 2001, and the monthly rental payment is $3,063.
Global leases a 112,500 square foot production facility in Olathe, Kansas. The facility is leased, from a third party, under a three-year lease agreement which expires in August 2001. The monthly rental payment, as of March 31, 2000, was $35,903.
As of March 31, 2000, 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.
The Company is not aware of any pending or threatened lawsuits that if adversely decided would have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.
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 May 1, 2000, the number of holders of record of the Company's Common Stock was approximately 390. 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 1998 through March 2000 is as follows:
Common Stock
Quarter Ended High Low
June 30, 1998 14 9 1/2
September 30, 1998 11 5 7/8
December 31, 1998 7 4 1/2
March 31, 1999 6 1/4 2 1/4
June 30, 1999 6 1/2 3
September 30, 1999 5 1/2 3
December 31, 1999 4 1/8 2 1/2
March 31, 2000 4 3 1/5
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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. The $0.10 per share cash dividend, declared on May 18, 2000, was paid on June 13, 2000 to stockholders of record on May 29,2000.
Item 6. Selected Financial Data
(In thousands except per share data)
Year Ended March31,
2000 1999 1998 1997 1996
Operating Revenues $ 58,846 $ 52,120 $ 51,001 $ 34,979 $ 35,432
Net earnings $ 362 $ 523 $ 1,706 $ 1,323 $ 1,612
Earnings per share-Basic $ 0.13 $ 0.19 $ 0.64 $ 0.51 $ 0.58
Earnings per share-Diluted $ 0.13 $ 0.19 $ 0.61 $ 0.47 $ 0.53
Total assets $ 23,936 $ 20,852 $ 18,289 $ 11,118 $ 10,220
Long-term obligations, including
current portion $ 1,486 $ 1,364 $ 1,144 $ 222 $ 10
Stockholders' equity $ 9,383 $ 9,636 $ 9,712 $ 8,254 $ 7,414
Average common shares
outstanding-Basic 2,758 2,698 2,660 2,619 2,771
Average common shares
outstanding-Diluted 2,837 2,794 2,788 2,794 3,021
Dividend declared per common
share (1)(2)(3)(4) $ 0.08 $ 0.14 $ 0.10 $ - $ 0.15
Dividend paid per common
share(1)(2)(3)(4) $ 0.08 $ 0.14 $ 0.10 $ 0.08 $ 0.07
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(1) On February 1, 1996, the Company declared a cash dividend of $0.08 per common share that was paid on April 22, 1996.
(2) On May 14, 1998, the Company declared a cash dividend of $0.14 per common share payable on June 12, 1998 to stockholders of record on May 19, 1998.
(3) On April 30, 1999, the Company declared a cash dividend of $0.08 per common share payable on June 9,1999 to stockholders of record on May 14, 1999.
(4) On May 18, 2000, the Company declared a cash dividend of $.10 per common share payable on June 13, 2000 to stockholders of record on May 29, 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company's most significant component of revenue is generated through its air cargo subsidiaries, Mountain Air Cargo, Inc. (MAC) and CSA Air, Inc. (CSA), which are short-haul express air freight carriers flying nightly contracts for a major express delivery company out of 80 cities, principally located in 30 states in the eastern half of the United States and in Puerto Rico, Canada and the Virgin Islands.
Separate agreements cover the three types of aircraft operated by MAC and CSA-Cessna Caravan, Fokker F-27, and Short Brothers SD3-30. Cessna Caravan and Fokker F-27 aircraft (a total of 93 aircraft at March 31, 2000) are owned by and dry-leased from a major air express company (Customer), and Short Brothers SD3-30 aircraft (two aircraft at March 31, 2000) are owned by the Company and operated under wet-lease arrangements with the Customer. Pursuant to such agreements, the Customer determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by the Company. Under the terms of the dry-lease service agreements, which currently cover approximately 98% of the revenue aircraft operated, the Company passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost.
Agreements are renewable annually and may be terminated by the Customer at any time upon 15 to 30 days notice. The Company believes that the short term and other provisions of its agreements with the Customer are standard within the air freight contract delivery service industry. The Company is not contractually precluded from providing such services to other firms, and has done so in the past. Loss of its contracts with the Customer would have a material adverse effect on the Company.
In May 1997, to expand its revenue base, the Company's Mountain Aircraft Services, LLC (MAS) subsidiary expanded its offering of aircraft component repair services. MAS's revenue contributed approximately $9,169,000 and $5,291,000 to the Company's revenues in fiscal 2000 and 1999, respectively, and are included in Aircraft Services and Other in the accompanying consolidated statement of earnings.
In August 1997, the Company acquired certain assets and order backlog and assumed certain liabilities of Simon Deicer Company, a division of Terex Aviation Ground Equipment, Inc. located in Olathe, Kansas. The acquisition, renamed Global Ground Support, LLC (Global), manufactures, services and supports aircraft deicers and other ground support equipment on a worldwide basis. Global is operated as a subsidiary of MAS. Global's revenue contributed approximately $17,009,000 and $13,396,000 to the Company's revenues in fiscal 2000 and 1999, respectively.
In June 1999, Global was awarded a four-year, $25,000,000 contract to supply deicing equipment to the United States Air Force. The Company was subsequently made aware that a competing bidder had filed a protest opposing the awarding of the contract to Global. In September 1999 the General Accounting Office finalized the denial of the protest and upheld the awarding of the Air Force contract to Global.
As a result of the delays created by this protest, revenue originally anticipated to commence during the quarter ending December 31, 1999 was delayed until the quarter ending March 31, 2000. Additionally, the protest and its resulting delay caused Global to incur substantial legal fees and additional overhead costs relating to fixed production costs which would have been absorbed by operations but was reallocated to other product lines during the nine-month period ended December 31, 1999 resulting in lower margins in the existing product lines.
The Company's four subsidiaries operate in three business segments. Each business segment has separate management teams and infrastructures that offer different products and services. The subsidiaries have been combined into the following reportable segments: air cargo, aviation services and aviation ground equipment.
The accounting policies for all reportable segments are the same as those described in the other portions of Footnote 1 of Notes to Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on operating income.
The following table summarizes the changes and trends in the Company's expenses as a percentage of revenue:
Fiscal Year Ended March 31,
2000 1999 1998
Operating revenue (in thousands) $ 58,846 $ 52,120 $ 51,001
Expense as a percentage of revenue:
Flight operations 23.31% 27.20% 27.29%
Maintenance and brokerage 35.11 33.87 33.17
Ground equipment 25.58 22.03 20.89
General and administrative 12.78 13.84 11.19
Depreciation and amortization 1.57 1.25 1.12
Facility and start-up/merger expenses - - 0.37
Total costs and expenses 98.35% 98.19% 94.03%
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Seasonality
Global's business has historically been highly seasonal. In general, 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 due to the nature of its product line. The Company is currently attempting to reduce Global's seasonal fluctuation in revenues and earnings by broadening its product line to increase revenues and earnings in the first and fourth fiscal quarters. The Company expended exceptional effort in fiscal 1999 and 2000 to design and produce prototype equipment to expand its product line to include additional deicer models and three models of scissor-lift equipment for catering, cabin service and maintenance service of aircraft. These costs were expensed as incurred. As indicated above, in June 1999, the Company was awarded a four-year contract to supply deicing equipment to the United States Air Force for a total amount of approximately $25 million. Although the first shipments under this contract did not commence until the quarter ended March 31, 2000, the Company anticipates that revenue from this contract will contribute to management's plan to reduce Global's seasonal fluctuation in revenues. The remainder of the Company's business is not materially seasonal.
Results of Operations
Fiscal 2000 vs. 1999
Consolidated revenue increased $6,726,000 (12.9%) to $58,846,000 for the fiscal year ended March 31, 2000 compared to the prior fiscal year. The increase in 2000 revenue primarily resulted from increases in revenue from MAS of $3,878,000 (73.3%) to $9,169,000 and an increase at Global of $3,614,000 (27.0%) to $17,009,000, partly offset by a $723,000 decrease in air cargo revenue.
Operating expenses increased $6,698,000 (13.1%) to $57,872,000 for fiscal 2000 compared to fiscal 1999. The net increase in operating expenses consisted of the following changes: cost of flight operations decreased $459,000 (3.2%) as a result of decreases in pilot and flight personnel and costs associated with pilot travel; maintenance and brokerage expenses increased $3,005,000 (17.0%) primarily as a result of increases associated with cost of parts and labor related to the expansion of MAS's repair facility offset in part by lower outside maintenance costs; ground equipment costs increased $3,571,000 (31.1%), as a result of increased sales at Global; depreciation and amortization increased $273,000 (42.1%) as a result additional depreciable assets acquired throughout the Company's operations during fiscal 2000; the general and administrative expense increase of $309,000 (4.3%) is primarily the result of costs associated with the expansion of MAS's repair shop operations and increases in general wages and benefits, professional fees and staff expense.
On a segment basis, the most significant impacts on the Company's operating results comparing the fiscal year ended March 31, 2000 to the prior period resulted from changes in parent company revenue and expense, the ground equipment operation at Global and the aircraft services operation at MAS. Current year Corporate operating loss increased $622,000 due to the elimination of aircraft rental revenue and increased general and administrative and depreciation expense over the prior year. In the fiscal year ended March 31, 2000, Global had an operating loss of $591,000 compared to a prior period loss of $498,000. March 31, 2000 operating income at MAS of $650,000 compared to an
operating loss of $79,000 in the prior year. Several factors
contributed to the changes in Global's and MAS's operating results.
Although Global's revenue for the fiscal year ended March 31, 2000 was
27.0% greater than revenue for the prior fiscal year, unused productive
capacity and legal cost associated with the protest and delay in
finalizing the Air Force contract and higher than normal production,
engineering and design cost associated with the introduction of new
products caused an increase in Global's current period loss. MAS's
current fiscal year revenue increased 73.3% compared to its prior fiscal
year. The increase in revenue, and operating income, was primarily due
to increased brokerage sales and revenue and income generated by the
expansion of aircraft component repair service offered by MAS's 145
repair facility located in Kinston, N.C.
Operating income for the Company's overnight air cargo operations was
$2,680,000 in the fiscal year ended March 31, 2000, up 0.5% from
$2,666,000 in the prior fiscal year.
Non-operating expense increased a net $307,000 due to increased current year interest expense related to higher levels of borrowing on the Company's line of credit to fund the expanded operations of Global and MAS.
Provision for income taxes decreased $118,000 (30.8%) due to decreased taxable income. The provision for income taxes for the fiscal years ended March 31, 2000, 1999 and 1998 were different from the Federal statutory rates due to state tax provisions.
Fiscal 1999 vs. 1998
Consolidated revenue increased $1,094,000 (2.1%) to $52,120,000 for the fiscal year ended March 31, 1999 compared to the prior fiscal year. The increase in 1999 revenue primarily resulted from increases in revenue from MAS and the impact of a full year of revenue from Global in fiscal 1999. However, Global's revenue for the full fiscal year ended March 31, 1999 was only approximately 5.0% greater than revenue for the seven months of operations of Global included in the prior fiscal year.
Operating expenses increased $3,219,000 (6.7%) to $51,173,000 for fiscal 1999 compared to fiscal 1998. The net increase in operating expenses consisted of the following changes: cost of flight operations increased $256,000 (1.8%) as a result of increases in pilot and flight personnel and costs associated with pilot travel; maintenance and brokerage expenses increased $739,000 (4.4%) primarily as a result of increases associated with cost of parts and labor related to the expansion of MAS's repair facility offset in part by lower outside maintenance costs; ground equipment costs increased $830,000 (7.8%), as a result of twelve months of Global operation in fiscal 1999 versus seven months of operation in fiscal 1998; depreciation and amortization increased $80,000 (14.0%) as a result of a full year of depreciation related to Global's acquired assets and additional depreciable assets acquired during fiscal 1999; the general and administrative expense increase of $1,503,000 (26.3%) is primarily the result of costs associated with the Company's full twelve month fiscal 1999 operation of Global, the expansion of MAS's repair shop operations and increases in professional fees and staff expense.
On a segment basis, the most significant impact on the Company's operating results comparing the fiscal year ended March 31, 1999 to the prior period resulted from the ground equipment operation at Global. In the fiscal year ended March 31, 1999, Global had an operating loss of $498,000 compared to operating income in the prior period of $1,071,000. Several factors contributed to this change in Global's operating results. First, Global's revenue for the full fiscal year ended March 31, 1999 was only 5.0% greater than revenue for the seven months of operations included in the prior fiscal year. The Company believes that fiscal 1999 revenue reflects both the effect of significantly reduced demand for aircraft deicer equipment due to above-normal winter temperatures and significant price competition that resulted in above- normal sales discounts. The Company anticipates that the four-year contract recently awarded to Global to supply the United States Air Force with deicing equipment for a total of $25 million will reduce the sensitivity of Global's operating results to seasonal weather conditions. Because production under that contract did not commence until the quarter ending March 31, 2000, the full impact of the contract will not occur until the year ending March 31, 2001. Second, during fiscal 1999, Global incurred significant expense developing new products to diversify its product line. In fiscal 1999, Global designed three basic models of scissor-lift equipment for catering, cabin service and maintenance service of aircraft, as well as lower priced aircraft deicer models. Operating income for the Company's overnight air cargo operations was $2,666,000 in the fiscal year ended March 31, 1999, down 8.2% from $3,141,000 in the prior fiscal year. Aviation services provided by MAS had an operating loss of $79,000 in the fiscal year ended March 31, 1999 compared to an operating loss of $139,000 the prior year.
Non-operating expense decreased a net $139,000 (77.7%) due to a fiscal 1998 $418,000 provision to fulfill contractual benefits related to the death of the Company's Chairman partially offset by increased current year interest expense related to the use of the Company's line of credit for the operation of Global and MAS.
Provision for income taxes decreased $802,000 (67.6%) due to
decreased taxable income offset in part by a higher effective tax rate.
The provision for income taxes for the fiscal years ended March 31, 2000
and 1998 were different from the Federal statutory rates due to state
tax provisions.
Liquidity and Capital Resources
As of March 31, 2000 the Company's working capital amounted to $6,743,000, a decrease of $231,000 compared to March 31, 1999. The net decrease primarily resulted from cash required for the expanded operations of Global and MAS.
The Company's unsecured line of credit provides credit in the aggregate of up to $7,500,000 and matures in August 2000. Amounts advanced under the line of credit bear interest at the 30 day "LIBOR" rate plus 137 basis points. The Company anticipates that it will renew the line of credit before its scheduled expiration.
Under the terms of the line of credit the Company may not encumber certain real or personal property. As of March 31, 2000, the Company was in a net borrowing position against its credit line of $3,988,000. Management believes that funds anticipated from operations and existing credit facilities will provide adequate cash flow to meet the Company's future financial needs.
The respective years ended March 31, 2000, 1999 and 1998 resulted in the following changes in cash flow: operating activities provided $263,000 in 2000 and used $1,528,000 and $759,000 in 1999 and 1998. Investing activities used $177,000, $936,000, and $2,093,000 in 2000, 1999 and 1998 and financing activities used $204,000 in 2000 and provided $2,533,000 and $668,000 in 1999 and 1998. Net cash decreased $119,000 and $2,184,000, respectively in 2000 and 1998 and increased $69,000 for 1999.
Cash provided by operating activities was $1,791,000 more for the year ended March 31, 2000 compared to 1999 principally due to increases in accounts payable and income tax payable partially offset by increases in accounts receivable, inventory and costs and estimated earnings in excess of billings on uncompleted contracts and decreases in accrued expenses.. Cash used in investing activities for the year ended March 31, 2000 was approximately $759,000 less than 1999, principally due to decreased capital expenditures. Cash used in financing activities was $2,737,000 more in 2000 compared to 1999 principally due to a decrease in proceeds relating to borrowings under the line of credit.
During the fiscal year ended March 31, 2000 the Company repurchased 24,300 shares of its common stock at a total cost of $78,437. Pursuant to its previously announced stock repurchase program, $176,700 remains available for repurchase of 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 $0.08 per share cash dividend in June 1999 and declared an $.10 per share cash dividend on May 18, 2000, payable on June 13, 2000 to shareholders of record dated May 29, 2000.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities", which requires all derivative instruments to be recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period either in other comprehensive income or in current earnings depending on the use of the derivatives and whether it qualifies for hedge accounting. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2001. The Company has not yet completed its analysis of the impact of SFAS No. 133 on the Company's financial position and results of operations.
Deferred Retirement Obligation
The Company's former Chairman and Chief Executive Officer passed away on April 18, 1997. In addition to amounts previously expensed, under the terms of his supplemental retirement agreement, death benefits with a present value of approximately $418,000 were expensed in the first quarter 1998. The death benefits are payable in the amount of $75,000 per year for 10 years.
Impact of Inflation
The Company believes that due to the current low levels of inflation the impact of inflation and changing prices on its revenues
and net earnings will not have a material effect on its manufacturing operations, or on its air cargo business since the major cost components of its operations, consisting principally of fuel, crew and certain maintenance costs are reimbursed, without markup, under current contract terms.
Recent IRS Audit
During the fiscal year ended March 31, 1999, the Internal Revenue Service (IRS) concluded an examination of the Company's fiscal years 1997, 1996 and 1995 tax returns. The outcome of the IRS audit did not have a material impact on the Company's financial condition or results of operations.
Year 2000 Results to Current Period
The Company did not experience any disruptions to its business or the services it provides customers as a result of any Year 2000 issues. Additionally, the Company has not been notified by any customers of any Year 2000 related problems related to products or services provided by the Company. Although the Company has not yet experienced or been made aware of any Year 2000 problems to date, there can be no assurance that there will not be any Year 2000 related issues in the future.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold or issue derivative financial instruments
for trading or other purposes. The Company is exposed to changes in
interest rates on its line of credit, which bears interest based on the
30-day LIBOR rate plus 137 basis points. If the LIBOR interest rate had
been increased by one percentage point, based on the year-end balance of
the line of credit, annual interest expense would have increased by
approximately $39,000.
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Air T, Inc.
Denver, North Carolina
We have audited the accompanying consolidated balance sheets of Air T, Inc. and subsidiaries (the "Company") as of March 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the years then ended. 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 Air T, Inc. as of March 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2000 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP DLEOITTE & TOUCHE LLP Charlotte, North Carolina June 2, 2000 |
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended March 31,
2000 1999 1998
Operating Revenues (Note 10):
Cargo $ 18,823,692 $ 19,546,633 $ 18,999,331
Maintenance 13,712,681 13,603,365 14,226,260
Ground equipment 17,009,311 13,395,761 12,763,091
Aircraft services and other 9,300,454 5,574,258 5,011,840
58,846,138 52,120,017 51,000,522
Operating Expenses:
Flight operations 13,717,147 14,176,484 13,920,520
Maintenance and brokering 20,658,917 17,653,906 16,915,164
Ground equipment 15,052,477 11,481,881 10,652,102
General and administrative 7,521,446 7,212,251 5,709,003
Depreciation and amortization 921,791 648,929 569,329
Start-up/merger expense (Note 2) - - 188,520
57,871,778 51,173,451 47,954,638
Operating Income 974,360 946,566 3,045,884
Non-operating Expense (Income):
Interest 638,138 330,821 22,382
Deferred retirement expense
(Note 12) 24,996 24,996 438,833
Investment income (183,227) (196,624) (281,857)
Cash surrender value
of life insurance (133,378) (121,929) (25,118)
Loss on asset sale 256 2,828 -
346,785 40,092 154,240
Earnings Before Income Taxes 627,575 906,474 2,891,644
Income Taxes (Note 11) 265,718 383,770 1,185,574
Net Earnings $ 361,857 $ 522,704 $ 1,706,070
Net Earnings Per Share (Note 13):
Basic $ 0.13 $ 0.19 $ 0.64
Diluted $ 0.13 $ 0.19 $ 0.61
Average Share Outstanding:
Basic 2,757,549 2,697,509 2,659,765
Diluted 2,837,398 2,793,954 2,787,875
See notes to consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 144,513 $ 263,362
Marketable securities (Note 3) 1,295,678 2,086,259
Accounts receivable, Less
allowance for doubtful
accounts of $159,058 in
2000 and $123,180 in 1999 7,960,978 7,008,987
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Note 5) 210,178 -
Inventories (Note 4) 9,741,675 6,925,545
Deferred tax asset (Note 11) 321,097 259,842
Prepaid expenses and other 228,757 174,450
Total Current Assets 19,902,876 16,718,445
PROPERTY AND EQUIPMENT (Note 1)
Furniture,fixtures and improvements 5,404,453 4,845,932
Flight equipment and rotables inventory 1,057,531 1,010,250
6,461,984 5,856,182
Less depreciation (3,867,778) (2,992,556)
Property and equipment, net 2,594,206 2,863,626
Deferred Tax Asset (Note 11) 438,554 398,763
Intangible Pension Asset (Note 12) 430,778 498,119
Other Assets 570,032 372,691
Total Assets $ 23,936,447 $ 20,851,644
See notes to consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank (Note7) $ 3,988,191 $ 3,893,502
Accounts payable 7,517,640 4,267,890
Accrued expenses (Note 6) 1,090,838 1,690,036
Income taxes payable (Note 11) 470,247 -
Current portion of long-term obligations 64,833 57,853
Total Current Liabilities 13,131,749 9,909,281
Capital Lease and Other Obligation
(less current portion) (Note 8) 36,440 23,920
Deferred Retirement Obligation
(less current portion) (Note 12) 1,512,377 1,282,545
Stockholders' Equity (Note 9):
Preferred stock, $1 par value,
authorized 10,000,000 shares,
none issued - -
Common stock, par value $.25;
authorized 4,000,000 shares;
2,740,353 and 2,764,653 shares
issued and outstanding in 2000
and 1999,respectively 684,416 690,491
Additional paid in capital 6,976,795 7,049,157
Accumulated other comprehensive loss (597,904) (154,745)
Retained earnings 2,192,574 2,050,995
Total Stockholders' Equity 9,255,881 9,635,898
Total Liabilities and
Stockholders' Equity $ 23,936,447 $ 20,851,644
See notes to consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 361,857 $ 522,704 $ 1,706,070
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 921,791 648,929 569,329
Deferred tax provision (101,046) (233,625) (80,000)
Net periodic pension cost 219,456 166,853 182,213
Loss on sale of assets 256 2,828 -
Change in provision for doubtful
accounts 35,878 19,180 47,000
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (987,869) (355,066) (3,406,098)
Costs and estimated earnings in
excess of billings on uncompleted
contracts (Note 5) (210,178) - -
Inventories (2,816,130) (1,599,932) (2,733,378)
Prepaid expense and other (251,648) (85,338) (131,608)
Accounts payable 3,249,750 292,257 3,163,849
Accrued expenses (629,703) (143,728) (449,177)
Income taxes payable 470,247 (762,961) 373,045
Total adjustments (99,196) (2,050,603) (2,464,825)
Net cash provided by (used in)
operating activities 262,661 (1,527,899) (758,755)
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition - - (715,981)
Capital expenditures (652,627) (1,251,146) (1,050,626)
Purchase of marketable securities (100,000) (189,250) (1,042,995)
Sale of marketable securities 575,143 504,503 716,446
Net cash used in investing
activities (177,484) (935,893) (2,093,156)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit,net 94,689 2,977,423 916,079
Payment of cash dividend (220,278) (377,687) (265,144)
Repurchase of common stock (78,437) (149,500) (67,254)
Proceeds from exercise of stock
options - 83,000 84,250
Net cash provided by (used in)
financing activities (204,026) 2,533,236 667,931
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (118,849) 69,444 (2,183,980)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 263,362 193,918 2,377,898
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 144,513 $ 263,362 $ 193,918
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Other comprehensive loss $ 443,159 $ 154,745 $ -
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 608,938 $ 349,560 $ 20,108
Income/Franchise taxes paid/received) (596,993) 1,566,436 840,477
See notes to consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Additional Compre-
(Note9) Paid-In hensive Retained Total
Shares Amount Capital Income Earnings Equity
(Loss)
Balance,
March 31,1997 2,651,433 $ 662,858 $7,126,294 - $ 465,052 $8,254,204
Comprehensive Income:
Net earnings 1,706,070
Other Comprehensive Income:
Unrealized loss on
available-for-sale
securities -
Total Comprehensive Income 1,706,070
Repurchase and
retirement of
common stock (15,780) (4,617) (62,637) - - (67,254)
Exercise of
stock options 76,000 19,000 65,250 - - 84,250
Cash dividend
($.10 per share) - - - - (265,144) (265,144)
Balance,
March 31,1998 2,711,653 677,241 7,128,907 - 1,905,978 9,712,126
Comprehensive Income:
Net earnings 522,704
Other Comprehensive Loss:
Unrealized loss on
available-for-sale
securities (154,745)
Total Comprehensive Income 367,959
Repurchase and
retirement of
common stock (23,000) (5,750) (143,750) - - (149,500)
Exercise of
stock options 76,000 19,000 64,000 - - 83,000
Cash dividend
($.14 per share) - - - - (377,687) (377,687)
Balance,
March 31,1999 2,764,653 690,491 7,049,157 (154,745) 2,050,955 9,635,898
Comprehensive Income:
Net earnings 361,857
Other Comprehensive Loss:
Unrealized loss on
available-for-sale
securities (315,438)
Excess of additional
pension liability over
unrecognized prior
service cost (127,721)
Total Comprehensive
Income (81,302)
Repurchase and
retirement of
common stock (24,300) (6,075) (72,362) - - (78,437)
Cash dividend
($.08 per share) - - - - (220,278) (220,278)
Balance,
March 31,2000 2,740,353 $ 684,416 $6,976,795 $(597,904) $2,192,574 $9,255,881
See notes to consolidated financial statements.
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AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2000, 1999, AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activity - The Company, through its operating subsidiaries, is an air cargo carrier specializing in the overnight delivery of small package air freight, a provider of aircraft parts, engine overhaul management and component repair services and a manufacturer of aircraft ground service equipment.
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 and Global Ground Support, LLC. All significant intercompany transactions and balances have been eliminated.
Concentration of Credit Risks - The Company's potential exposure to concentrations of credit risk consists of trade accounts receivable and investments. 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 Company has customer concentrations in two areas of operations, air cargo which provides service to one major customer and aviation parts and repair service which provides service to approximately 75 customers, five of which are considered major customers. 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.
Inventories - Inventories of the manufacturing subsidiary are carried at the lower of cost (first in, first out) or market. Parts and supplies inventory are carried at the lower of average cost or market. Consistent with industry practice, the Company includes in current assets aircraft parts and supplies, 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 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 are recognized on the percentage-of-completion method, in accordance with AICPA Statement of Position 81-1, "Accounting for Performance of Construction Type and Certain Production Type Contracts", as a result of a significant increase in overhaul contracts in fiscal 2000. Prior to 2000 such contracts were immaterial. 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 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. In addition, the Company bills the customer generally 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 based on the intrinsic method of accounting, 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.
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 generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.
Recent Accounting Pronouncements - In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 133, ("SFAS 133") "Accounting for Derivative Instruments and Hedging Activities", requires all derivative instruments to be recognized on the balance sheet at their fair value. Changes in the fair value of derivatives are to be recorded each period either in other comprehensive income or in current earnings depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2001. The Company has not yet completed its analysis of the impact of SFAS No. 133 on the Company's financial position and results of operations.
Reclassifications - Certain prior year reclassifications have been made to 1999 and 1998 amounts to conform to current year presentation.
2. BUSINESS ACQUISITION, FACILITY START-UP AND MERGER EXPENSES
On August 29, 1997, the Company acquired certain assets and assumed certain liabilities of the Simon Deicer Division of Terex, Inc. for $716,000 cash. The acquired entity, renamed Global Ground Support, LLC (Global), manufactures, sells and services aircraft deice equipment on a worldwide basis. The acquisition was accounted for using the purchase method; accordingly, the assets and liabilities (which included $1,523,000 inventory, $288,000 fixed assets and $3,000 accounts receivable, net of $1,049,000 in customer deposits and $49,000 warranty obligation) of the acquired entity have been recorded at their estimated fair value at the date of acquisition. Global's results of operations have been included in the Consolidated Statements of Earnings since the date of acquisition.
The following table presents unaudited pro-forma results of operations as if the acquisition had occurred on April 1, 1997. These pro-forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of fiscal 1998, or of results which may occur in the future. Furthermore, no effect has been given in the pro-forma information for operating benefits that are expected to be realized through the combination of the entities because precise estimates of such benefits cannot be quantified.
Year Ended March 31,
1998
Operating revenues $ 52,761,000
Net earnings 1,718,000
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Net earnings per share - diluted .65
During fiscal year 1998 the Company incurred $189,000 in costs related to the start-up of a newly certificated FAA 145 component repair facility and professional fees associated with fiscal 1997 merger discussions, terminated in April 1997. These costs have been expensed in the accompanying Consolidated Statement of Earnings.
During fiscal year 1997 the Company incurred $348,000 in start-up
and merger expenses related to the relocation of certain of its
aircraft maintenance facilities and the above mentioned proposed
merger terminated in April 1997.
3. MARKETABLE SECURITIES
Marketable securities consists primarily of individual stocks, bonds, mutual funds and certificates of deposit. The Company has classified marketable securities as available-for-sale and they are carried at fair value. If significant, unrealized gains and losses on such securities are excluded from earnings and reported as a separate component of stockholders' equity, net of the related income taxes, 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. The Company recorded a realized loss of approximately $26,000 in 2000 and a realized gain of approximately $155,000 in 1999 in the accompanying consolidated statements of earnings.
At March 31, 2000 and 1999, marketable securities consist of the following investment types:
2000 1999
Real estate $ 140,000 $ 245,882
Mutual funds 970,010 1,313,628
Equity securities 68,814 430,601
Certificate of deposit 116,854 -
Corporate bonds - 96,148
Total
$ 1,295,678 $ 2,086,259
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4. INVENTORIES
Inventories consist of the following:
March 31,
2000 1999
Aircraft parts and supplies $ 3,626,641 $ 2,395,333
Aircraft equipment manufacturing:
Raw materials 3,198,978 2,111,076
Work in process 1,486,847 850,758
Finished goods 1,429,209 1,568,378
Total $ 9,741,675 $ 6,925,545
5. UNCOMPLETED CONTRACTS
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Overhaul contracts in process accounted for under the percentage of completion method at March 31, 2000 are summarized as follows:
Costs incurred on uncompleted contracts $ 126,731 Estimated earnings 83,447 Subtotal $ 210,178 Less billings to date - Costs and estimated earnings in excess of billings on uncompleted contracts $ 210,178 |
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31,
2000 1999
Salaries, wages and related items $ 677,345 $ 1,055,426
Profit sharing 129,189 163,150
Other 284,304 471,460
$ 1,090,838 $ 1,690,036
7. FINANCING ARRANGEMENTS
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During fiscal 2000 the Company increased its bank financing line to $7,500,000 under an unsecured revolving line of credit which expires on August 31, 2000. The Company anticipates it will renew the line of credit prior to its scheduled expiration. Amounts advanced bear interest at the 30-day "LIBOR" rate plus 137 basis points. The LIBOR rate at March 31, 2000 was 6.13%. At March 31, 2000 and 1999, the amounts outstanding against the line were $3,988,191 and $3,893,502, respectively. At March 31, 2000, $3,511,809 was available under the line.
8. LEASE COMMITMENTS
The Company has operating lease commitments for office equipment and its office and maintenance facilities. The Company leases its corporate office and certain maintenance facilities from a company controlled by Company officers for $8,073 per month under a five year lease which expires in May 2001.
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 four 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.
At March 31, 2000, future minimum annual rental payments under non- cancellable operating leases with initial or remaining terms of more than one year are as follows:
2001 $ 621,142 2002 202,006 Total minimum lease payments $ 823,148 |
Rent expense for operating leases amounted to approximately $728,000, $623,000, and $369,000 for 2000, 1999 and 1998, respectively. Rent expense to related parties was $96,900, $96,900 and $96,900 for 2000, 1999 and 1998, respectively.
9. STOCKHOLDERS' EQUITY
The Company may issue up to 10,000,000 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, 2000.
The Company has granted options to purchase shares of common stock to certain Company employees and outside directors at prices ranging from $1.00 to $6.375 per share. 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 1991 and 1992 vested over a five year period and must be exercised within five years of the vesting date while options granted in fiscal 1999 and 2000 vest over one to three year periods and must be exercised within one to ten years of the vesting date. Options
outstanding at March 31, 2000 have a weighted average contractual life of 3.3 years. The Company has reserved an aggregate of 285,200 common shares for issuance upon exercise of these stock options. Of the outstanding options at March 31, 2000 the exercise prices per share range from $1.00 to $6.38, and 145,900 shares are currently exercisable.
The following table summarizes information about stock options at March 31, 2000:
Options Outstanding Options Exercisible
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Options Contractual Exercise Options Exercise
Price Outstanding Life(Years) Price Exercisible Price
$ 1.00 8,000 - $ 1.00 8,000 $ 1.00
1.25 26,000 .8 1.25 26,000 1.25
2.75 157,200 3.0 2.75 52,400 2.75
6.38 5,000 8.4 6.38 5,000 6.38
3.19 89,000 4.6 3.19 54,500 3.19
$1.00 to 6.38 285,200 3.3 $ 2.77 145,900 $ 2.71
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Option information is summarized as follows:
Weighted
Average
Executive Stock Shares Exercise Price
Option Plan Per Share
Outstanding March 31, 1997 186,000 $ 1.12
Exercised 76,000 1.11
Outstanding March 31, 1998 110,000 1.12
Granted 162,200 2.86
Exercised 76,000 1.09
Outstanding March 31, 1999 196,200 2.57
Granted 89,000 3.19
Outstanding March 31, 2000 285,200 2.77
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The fair value of each option granted in 2000 and 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions listed below.
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% 5.7%
Weighted average expected life, in years 4.6 3.0
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The Company measures stock-based compensation using the intrinsic value method in accordance with APB Opinion No. 25 and FASB Interpretation No. 28. 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" the Company's pro forma net income would have been $279,927, or $0.10 per diluted share, for 2000. The effect on 1999 was considered immaterial.
The Company has announced its intention to repurchase up to $3,200,000 of the Company's common stock under a share repurchase program. At March 31, 2000 the Company had repurchased a total of 715,080 shares at a total cost of $3,023,300 and may expend up to an additional $176,700 under this program.
10. REVENUES FROM MAJOR CUSTOMER
Approximately 55.5%, 63.1% and 64.0% of the Company's revenues were derived from services performed for a major air express company in 2000, 1999 and 1998, respectively.
11. INCOME TAXES
The provision for income taxes consists of:
Year Ended March 31,
2000 1999 1998
Current:
Federal $ 300,146 $ 582,625 $ 1,080,000
State 66,900 35,000 186,000
Total current 367,046 617,625 1,266,000
Deferred:
Federal (82,731) (191,280) (65,500)
State (18,315) (42,345) (14,500)
Total deferred (101,046) (233,625) (80,000)
Total $ 266,000 $ 384,000 $ 1,186,000
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The consolidated income tax provision was different from the amount computed using the statutory Federal income tax rate for the following reasons:
2000 1999 1998
Income tax provision at
U.S. Statutory rate $ 213,000 $ 308,000 $ 983,000
State income taxes 32,000 52,000 159,000
Reduction in valuation allowance - - (133,200)
Meal and entertainment
disallowance 17,000 21,000 85,000
Other net 4,000 3,000 92,200
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Income tax provision $ 266,000 $ 384,000 $ 1,186,000
The tax effect of temporary differences that gave rise to the Company's deferred tax assets at March 31, 2000 and 1999 are as follows:
2000 1999
Book accruals over tax, net:
Warranty reserve $ 57,903 $ 16,787
Accounts receivable reserve 61,428 46,808
Accrued insurance 21,378 48,471
Accrued vacation 72,093 63,868
Deferred compensation 387,698 317,082
Other 89,035 73,447
Fixed assets 70,166 92,142
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Total $ 759,651 $ 658,605
The deferred tax asset is classified in the accompanying 2000 and 1999 consolidated balance sheets according to the classification of the related asset and liability.
12. 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, 2000, 1999 and 1998 was $229,000, $191,000, and $203,000, respectively.
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, 2000, 1999, and 1998 expense was $126,000, $147,000 and $466,000, respectively.
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. The following table sets forth the funded status of the plan at March 31, 2000
and 1999.
March 31,
2000 1999
Vested benefit obligation $ 1,204,109 $ 918,575
Accumulated benefit obligation 1,204,109 924,835
Projected benefit obligation 1,206,770 911,230
Plan assets at fair value - -
Projected benefit obligation greater
than plan assets 1,206,770 911,230
Unrecognized prior service cost (432,356) (503,083)
Unrecognized actuarial gain/(loss) (128,804) 18,569
Adjustment required to recognize
minimum liability 558,499 498,119
Accrued pension cost recognized in the
consolidated balance sheet $ 1,204,109 $ 924,835
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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 the additional liability which exceeds the unrecognized prior service cost in fiscal 2000 totaled $127,721 and is reported as a component of accumulated other comprehensive loss.
The projected benefit obligation was determined using an assumed discount rate of 7%. The liability relating to these benefits has been included in deferred retirement obligation in the accompanying financial statements.
Net periodic pension expense for fiscal 2000 and 1999 included the following:
2000 1999
Future service cost $ 53,106 $ 41,965
Interest cost 77,987 56,867
Amortization 88,363 68,021
Net periodic pension cost $ 219,456 $ 166,853
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The net periodic pension costs are included in general and administrative expenses in the accompanying consolidated statements of earnings.
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 the next 10 years. As of March 31, 2000 accruals related to the unpaid present value of the benefit amounted to approximately $358,000.
13. 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 common share equivalents and were included in the weighted average common shares.
The computation of basic and diluted earnings per common share is as follows:
Year Ended March 31,
2000 1999 1998
Net earnings $ 361,857 $ 522,704 $1,706,070
Weighted average common shares:
Shares outstanding - basic 2,757,549 2,697,509 2,659,765
Dilutive stock options 79,849 96,445 128,110
Shares outstanding - diluted 2,837,398 2,793,954 2,787,875
Net earnings per common share:
Basic $ 0.13 $ 0.19 $ 0.64
Diluted $ 0.13 $ 0.19 $ 0.61
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14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2000
Operating Revenues $ 10,790 $ 13,906 $ 15,579 $ 18,571
Operating Income (Loss) 109 (618) 761 721
Earnings (Loss) Before
Income Taxes 19 (751) 602 758
Net Earnings (Loss) 11 (465) 374 442
Net Earnings (Loss) Per
Share -Basic $ - $ (0.17) $ 0.14 $ 0.16
Net Earnings (Loss) Per
Share -Diluted - (0.17) 0.14 0.16
1999
Operating Revenues $ 12,510 $ 12,916 $ 12,465 $ 14,229
Operating Income 525 446 100 (124)
Earnings (Loss) Before
Income Taxes 511 426 25 (56)
Net Earnings (Loss) 307 239 16 (39)
Net Earnings (Loss) Per
Share -Basic $ 0.11 $ 0.09 $ 0.01 $ (0.02)
Net Earnings (Loss) Per
Share -Diluted 0.11 0.09 0.01 (0.02)
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15. SEGMENT INFORMATION
The Company's four subsidiaries operate in three business segments.
Each business segment has separate management teams and infra-
structures that offer different products and services. The
subsidiaries have been combined into the following reportable
segments: air cargo, aviation services, and aviation ground
equipment. The ground equipment segment represents operations since
its acquisition in August 1997.
The accounting policies for all reportable segments are the same as those described in the other portions of Footnote 1 of Notes to Consolidated Financial Statements. The Company evaluates the performance of its operating segments based on operating income.
Segment data is summarized as follows:
Year Ended March 31,
2000 1999 1998
Operating Revenues
Overnight Air Cargo $ 32,667,694 $ 33,433,473 $ 33,609,527
Ground Equipment 17,009,311 13,395,761 12,763,091
Aviation Services 9,169,133 5,290,783 4,626,089
Corporate - - 26,933
Total $ 58,846,138 $ 52,120,017 $ 51,025,640
Operating Income (Loss)
Overnight Air Cargo $ 2,679,793 $ 2,665,801 $ 3,140,747
Ground Equipment (591,440) (497,629) 1,070,636
Aviation Services 650,033 (79,329) (138,663)
Corporate (1,764,026) (1,142,277) (1,026,836)
Total $ 974,360 $ 946,566 $ 3,045,884
Identifiable Assets
Overnight Air Cargo $ 10,690,024 $ 10,231,038 $ 8,950,619
Ground Equipment 3,366,272 2,056,020 1,566,686
Aviation Services 948,855 210,882 374,742
Corporate 8,931,296 8,353,704 7,397,356
Total $ 23,936,447 $ 20,851,644 $ 18,289,403
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Capital Expenditures, net
Overnight Air Cargo $ 353,409 $ 258,621 $ 373,560 Ground Equipment 58,483 623,545 463,556 Aviation Services 132,238 195,930 213,510 Corporate 108,497 173,050 - Total $ 652,627 $ 1,251,146 $ 1,050,626 |
Depreciation and Amortization
Overnight Air Cargo $ 322,479 $ 203,954 $ 248,810 Ground Equipment 283,664 174,415 63,611 Aviation Services 161,781 156,856 176,546 Corporate 153,867 113,704 80,362 Total $ 921,791 $ 648,929 $ 569,329 |
(1) Includes income from inter-segment transactions.
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 54, 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 43, 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 56, 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 63, was elected a director in August 1994 and joined the Company as a Vice President in April 1997. 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 52, 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.
Menda J. Street, age 48, has served as Vice President of MAC since 1984, and in various other capacities at MAC since 1979.
Claude S. Abernethy, Jr., age 73, 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., Wellco Enterprises Inc. and Ridgeview Incorporated.
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 44, 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 70, 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 77, 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, since November 1992 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, 2000 all executive officers, directors and greater than ten-percent beneficial owners have complied with all applicable Section 16(a) filing requirements, except that Mr. Moore was late in filing a Form 4 report with respect to his acquisition of shares in February 1999.
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, 2000 with total compensation of $100,000 or more.
SUMMARY COMPENSATION TABLE
Long-term
Compensation
Annual Compensation Awards
Securities
Name and Principal Underlying
Position Year Salary Bonus ($) Options (#)
Walter Clark (1) 2000 130,189 15,080 50,000
Chief Executive 1999 132,527 20,900 -
Officer 1998 76,236 10,000 -
J. Hugh Bingham 2000 203,325 15,080 -
President 1999 203,774 20,900 9,000
1998 184,445 70,721 -
John J. Gioffre 2000 126,545 11,311 -
Vice President 1999 128,297 15,675 9,000
1998 127,142 52,641 -
J. Leonard Martin (2) 2000 126,849 6,880 -
Vice President 1999 129,955 4,000 9,000
1998 117,751 15,953 -
William H. Simpson 2000 203,463 15,080 9,000
Executive Vice 1999 204,008 20,900 -
President 1998 195,809 70,721 -
__________________________________________
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(1) Mr. Walter Clark commenced his employment in April 1997.
(2) Mr. Martin commenced his employment in April 1997.
The following table sets forth, for each of the executive officers listed in the Summary Compensation Table information with respect to grants of options to purchase Common Stock made by the Company to such executive officers during the fiscal year ended March 31, 2000, as well as a calculation of the potential realizable value based upon assumed annual rates of stock price appreciation of five and ten percent per year.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Percent Realizable
Individual of Value at
Grants Total Exer- Assumed
Number Options cise Annual Rates
of Granted or of Stock
Securities to Base Price
Underly- Employees Price Appreciation
ing in for Option
Options Fiscal Expiration Term (3)
Name Granted(#) Year ($/SH) Date 5%($) 10%($)
Walter
Clark(1) 50,000 56.2% 3.19 1/28/05 100,309 254,202
J.Hugh Bingham - - - - - -
John J. Gioffre - - - - - -
J.Leonard
Martin - - - - - -
William H.
Simpson (2) 9,000 10.1% 3.19 1/28/05 7,932 17,528
__________________________________________
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(1) The options were granted pursuant to the Company's 1998 Omnibus Securities Award Plan (the "Plan"). Options become exercisable upon the date of grant. The options expire five years after the date of grant. In addition, the options expire immediately upon the termination of employment, other than termination by the Company without cause or as a result of death, permanent disability or retirement after age 55 with the consent of the Company. Options expire three months after termination of employment without cause, one year after death, permanent disability or retirement after age 55 with consent of the Company.
(2) The options were granted pursuant to the Plan. Options become exercisable with respect to one-half of the total number of shares on the date of grant and with respect to the other one half on the first anniversary of the date of grant. In addition, upon a "change in control" of the Company, as defined in the Plan, the options become immediately exercisable. The options expire five years after the date of grant. In addition, the options expire immediately upon the termination of employment, other than termination by the Company without cause or as a result of death, permanent disability or retirement after age 55 with the consent of the Company. Options expire three months after termination of employment without cause, one year after death, permanent disability or retirement after age 55 with the consent of the Company.
(3) These amounts, based on the assumed 5% and 10% appreciation rates prescribed by the Securities and Exchange Commission rules, are not intended to forecast possible future appreciation, if any, of the price of the Common Stock and may not reflect the actual value ultimately realized by recipients of the options.
The following table sets forth, for each of the executive officers
listed in the Summary Compensation Table who exercised options to
purchase shares of Common Stock during the most recent fiscal year, the
number of shares purchased and the value realized upon exercise, which
is determined based on the aggregate fair market value of the shares at
the time of the exercise minus the aggregate exercise price. The table
also sets forth the number of shares of Common Stock underlying
unexercised options at March 31, 2000 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, 2000 based upon the
closing bid price of the Company's Common Stock in the over-the-counter
market on that date ($3.50 per share) and the exercise price of the
options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying In-the-Money
Shares Unexercised Options
Acquired Value Options at FY-End(#) at FY-End ($)
On Realized Exercis- Unexerci- Exercis- Unexerci-
Name Exercise # ($) able able able able
Walter Clark - - 50,000 - 15,500 -
J.Hugh Bingham - - 9,000 6,000 15,750 4,500
John J.Gioffre - - 7,000 6,000 11,250 4,500
J.Leonard Martin - - 3,000 6,000 2,250 4,500
William H.Simpson - - 28,500 4,500 57,395 1,395
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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.
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.
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, 2000 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 of Beneficial Percent
Class Name and Address of Ownership of
Beneficial Owner as of June 1,2000 Class
Common Walter Clark and Caroline 1,339,716(1) 47.7%
Stock, par Clark, Executors(1)
value $.25 P.O. Box 488
per share Denver, North Carolina 28650
William H. Simpson 266,080(2) 9.6%
P.O. Box 488
Denver, North Carolina 28650
_____________________________
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(1) Includes 1,279,272 shares controlled by such individuals as the executors of the estate of David Clark, 8,222 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 20,500 shares under options granted by the Company.
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 May 1, 1999 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
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, 2000. 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 DIRECTORS AND EXECUTIVE OFFICERS
Shares and Percent of
Common Stock Beneficially
Owned as of June 1, 2000
Name Position with Company No.of Shares Percent
J. Hugh Bingham President, Chief 122,080(1)(2) 4.4% Operating Officer, Director
Walter Clark Chairman of the 1,337,494(3) 47.6%
Board of Directors
and Chief Executive
Officer
John J. Gioffre Vice President- 60,580(4) 2.2%
Finance, Chief
Financial Officer,
Secretary and
Treasurer, Director
J. Leonard Martin Vice President, 3,100(5) *
Director
William H. Simpson Executive Vice 266,080(1)(6) 9.6%
President, Director
Claude S. Abernathy, Jr. Director 44,611(7)(8) 1.6%
Sam Chesnutt Director 10,100(7) *
Allison T. Clark Director 3,222(7)
Herman A. Moore Director 31,000(7) 1.1%
George C. Prill Director 46,966(7) 1.7%
All directors N/A 1,942,033(9) 68.2%
and executive
officers as a
group (11
persons)
__________________________________________
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* Less than one percent.
(1) Includes 1,200 shares jointly held by Messrs. Simpson and Bingham.
(2) Includes 3,000 shares under options granted by the Company to Mr.
Bingham.
(3) 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.
(4) Includes 3,000 shares under options granted by the Company to
Mr. Gioffre.
(5) Such 100 shares are held by Mr. Martin's spouse of which shares Mr.
Martin disclaims beneficial ownership and 3,000 shares under
options granted by the Company to Mr. Martin.
(6) Includes 20,500 shares under options granted by the Company to Mr.
Simpson.
(7) Includes 1,000 shares under options granted by the Company.
(8) Includes 20,400 shares held by the Estate of Raenelle B. Abernethy,
of which Mr. Abernethy is the executor.
(9) Includes an aggregate of 87,500 shares of Common Stock members of
such group have the right to acquire within 60 days.
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. On May 30, 1996, 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. The lease may be extended for an additional five-year term, with rental payments to be adjusted to reflect changes in the consumer price index. Upon the renewal, the monthly rental payment was increased from $7,000 to $8,073. The Company paid aggregate rental payments of $96,876 to Airport Associates pursuant to such lease during the fiscal year ended March 31, 2000. The Company believes that the terms of such lease are no less favorable to the Company than would be available from an independent third party.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this report:
1. Financial Statements
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, 2000 and 1999.
(iii) Consolidated Statements of Earnings for each of the three
years in the period ended March 31, 2000.
(iv) Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended March 31, 2000.
(v) Consolidated Statements of Cash Flows for each of the three years
in the period ended March 31, 2000.
(vi) Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
No schedules are required to be submitted.
3. Exhibits
No. Description
3.1 Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1994
3.2 By-laws of the Company, 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
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 NationsBank of North Carolina, N.A., the Company and its subsidiaries, dated January 17, 1995, incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the period ended December 31, 1994
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 Form of option to purchase the following amounts of Common Stock issued by the Company to William H. Simpson during the following fiscal years ended March 31, incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1993: *
Number of Shares 1993 1992 40,000 40,000
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 Amendment No. 1 to Omnibus Securities Award Plan.
21.1 List of subsidiaries of the Company, incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998
* 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, 2000.
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 14, 2000
By: /s/ John J. Gioffre
John J. Gioffre, Vice President - Finance
(Principal Financial and Accounting Officer)
Date: June 14, 2000
|
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 14, 2000
By: /s/ J. Hugh Bingham
J. Hugh Bingham, Director
Date: June 14, 2000
By: /s/ Allison T. Clark
Allison T. Clark, Director
Date: June 14, 2000
By: /s/ Walter Clark
Walter Clark, Director
Date: June 14, 2000
|
By: /s/ Sam Chesnutt
Sam Chesnutt, Director
Date: June 14, 2000
By: /s/ John J. Gioffre
John J. Gioffre, Director
Date: June 14, 2000
By: /s/ J. Leonard Martin
J. Leonard Martin, Director
Date: June 14, 2000
By: /s/ Herman A. Moore
Herman A. Moore, Director
Date: June 14, 2000
By: /s/ George C. Prill
George C. Prill, Director
Date: June 14, 2000
By: /s/ William Simpson
William Simpson, Director
Date: June 14, 2000
|
EXHIBIT INDEX
Exhibit Number Document
27.1 Financial Data Schedules
| ARTICLE 5 |
| "This schedule contains summary financial information extracted from Air T, Inc. SEC Form 10-K for YEAR ended MARCH 31, 2000 (identify specific financial statements) and is qualified in its entirety by reference to such financial statements." |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | MAR 31 2000 |
| PERIOD END | MAR 31 2000 |
| CASH | 144513 |
| SECURITIES | 1295678 |
| RECEIVABLES | 7960978 |
| ALLOWANCES | 0 |
| INVENTORY | 9741675 |
| CURRENT ASSETS | 19902876 |
| PP&E | 6461984 |
| DEPRECIATION | 3867778 |
| TOTAL ASSETS | 23936447 |
| CURRENT LIABILITIES | 13131749 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 684416 |
| OTHER SE | 0 |
| TOTAL LIABILITY AND EQUITY | 23936447 |
| SALES | 58846138 |
| TOTAL REVENUES | 58846138 |
| CGS | 0 |
| TOTAL COSTS | 57871778 |
| OTHER EXPENSES | (291353) |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 638138 |
| INCOME PRETAX | 627575 |
| INCOME TAX | 265718 |
| INCOME CONTINUING | 361857 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 361857 |
| EPS BASIC | 0.13 |
| EPS DILUTED | 0.13 |
AMENDMENT NO. 1
TO
AIR TRANSPORTATION HOLDING COMPANY, INC.
1998 OMNIBUS SECURITIES AWARD PLAN
1. Purpose
The purpose of this Amendment No. 1 (this "Amendment") to the Air Transportation Holding Company, Inc. 1998 Omnibus Securities Award Plan (the "Plan") is to increase by 200,000 the number of shares of common stock that may be made issued under the Plan and to change the name of the Plan to "AirT, Inc. 1998 Omnibus Securities Award Plan," effective upon the change of the name of Air Transportation Holding Company, Inc. to AirT, Inc. Terms not otherwise defined herein shall have the meanings given them in the Plan.
2. Effective Date
The effective date of this Amendment shall be June 21, 1999.
3. Increase in Number of Shares
The Plan is hereby amended to increase the number of shares that may be subject to options granted under the Plan from One Hundred Sixty-five Thousand (165,000) to Three Hundred Sixty-five Thousand (365,000), and accordingly Section 6.1 of the Plan is hereby restated as follows:
6.1 Available Shares. The maximum number of shares of Common Stock that shall be available for grant of Awards under the Plan (including incentive stock options) during its term, shall not exceed 365,000. (Such amount shall be subject to adjustment as provided in Section 6.2.) Any shares of Common Stock related to Awards that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares shall be available again for grant under the Plan. Moreover, shares of Common Stock with respect to which a stock appreciation right has been exercised and paid in cash shall again become eligible for grant under the Plan; provided that if such shares of Common Stock subject to Awards are settled in cash in lieu of Common Stock or are exchanged with the Committee's permission for Awards not involving Common Stock, such shares shall not be available again for grant under the Plan. The maximum number of shares available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional performance shares. The shares of Common Stock available for issuance under the Plan may be authorized and unissued shares, treasury shares, shares issued and outstanding or shares owned by a Subsidiary.
4. Change in Name of Plan
The Plan is amended, effective upon the change in the name of Air Transportation Holding Company, Inc. to AirT, Inc., by changing the name of the Plan, including all references in the Plan to the name of the Plan, to "AirT, Inc. 1998 Omnibus Securities Award Plan."
5. Approval of Amendment
This Amendment is expressly made subject to the approval of the stockholders of the Corporation in the manner prescribed by law. If this Amendment is not so approved by the stockholders on or before one year after the adoption of this Amendment by the Board of Directors of the Corporation, this Amendment shall not become effective.