SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
Form 10-K/A
(Amendment No. 1)
_________________
(Mark One)
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, 2004
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
3524 Airport Road
Maiden, North Carolina 28650
(Address of principal executive offices) (Zip Code)
(704) 377-2109
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.25 per share
(Title of Class)
__________________
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes (X) No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K (X).
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12G-2). Yes No (X)
The aggregate market value of voting stock held by non-affiliates of
the registrant computed by reference to the average of the closing bid and
asked prices for such stock on September 30, 2003, was $3,588,724. As of
May 20, 2004, 2,686,825 shares of Common Stock were outstanding.
PRELIMINARY NOTE
This Amendment No. 1 on Form 10-K/A (this "Amendment") amends the
Annual Report on Form 10-K (the "Annual Report") for the year ended March
31, 2004 of Air T, Inc. (the "Company") solely to correct the captions of
the Company's consolidated statements of operations, consolidated statements
of cash flows and the consolidated statements of stockholders' equity and
comprehensive income (loss) which inadvertently included the words
"condensed" and "(unaudited)" in those captions. The Company is filing
this Amendment to clarify any uncertainty arising from these errors,
although the report of the independent auditors accompanying the financial
statements included in the Annual Report clearly indicates that such
auditors have audited those statements. These errors appeared only in the
EDGAR transmission copy of the Annual Report, and this Amendment is being
filed promptly after the Company became aware of these transmission errors.
Pursuant to Rule 12b-15 under the Securities Act of 1934, the Company
is restating in this Amendment the complete Item 8 of the Annual Report
although the only changes being effected are the deletion of the words
"condensed" and "(unaudited)" from the captions of the specified financial
statements as noted above. Because this Amendment includes Item 8, the
Company has restated Item 9A, even though the Company is reporting no
changes in matters reported in that Item. Pursuant to Rule 12b-15, the
Company has included as exhibits to this Amendment new certifications of
its principal executive officer and principal financial officer, as well as
a consent of its independent auditors to the inclusion of their report in
this Amendment, and has revised the list of exhibits included in Item 15
accordingly.
PART II
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Air T, Inc.
Maiden, North Carolina
We have audited the accompanying consolidated balance sheets of Air T, Inc.
and subsidiaries (the "Company") as of March 31, 2004 and 2003, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in
the period ended March 31, 2004. 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 standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of March
31, 2004 and 2003, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2004, in conformity
with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Charlotte, North Carolina
June 21, 2004
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
2004 2003 2002
Operating Revenues (Note 11):
Overnight air cargo $36,168,096 $29,898,840 $29,258,086
Ground equipment 19,828,749 12,972,887 30,344,889
55,996,845 42,871,727 59,602,975
Operating Expenses:
Flight-air cargo 15,465,662 14,432,941 14,418,205
Maintenance-air cargo 13,863,329 10,328,867 9,978,664
Ground equipment 14,805,098 10,126,022 23,491,805
General and administrative
(Note 7) 7,903,173 6,728,795 7,697,010
Depreciation and amortization 557,551 626,582 572,621
52,594,813 42,243,207 56,158,305
Operating Income 3,402,032 628,520 3,444,670
Non-operating Expense (Income):
Interest (41,438) (30,728) 288,761
Deferred retirement expense
(Note 13) 21,000 21,000 88,078
Investment income (69,421) (90,003) (115,562)
Other (34,247) 84,636 (115,942)
(124,106) (15,095) 145,335
Earnings From Continuing
Operations Before Income Taxes 3,526,138 643,615 3,299,335
Income Taxes (Note 12) 1,362,306 277,249 1,282,827
Earnings From Continuing
Operations 2,163,832 366,366 2,016,508
Loss From Discontinued
Operations, Net of Income
Taxes (Note 10) (425,970) (1,590,577) (738,009)
Net Earnings (Loss) $ 1,737,862 $(1,224,211) $ 1,278,499
Basic Earnings (Loss) Per Share
(Note 14):
Continuing Operations $ 0.80 $ 0.13 $ 0.74
Discontinued Operations (0.16) (0.58) (0.27)
Total Basic Net Earnings
(Loss) Per Share $ 0.64 $ (0.45) $ 0.47
Diluted Earnings (Loss) Per Share
(Note 14):
Continuing Operations $ 0.80 $ 0.13 $ 0.72
Discontinued Operations (0.16) (0.58) (0.26)
Total Diluted Net Earnings
(Loss) Per Share $ 0.64 $ (0.45) $ 0.46
Weighted Average Shares
Outstanding:
Basic 2,716,447 2,726,320 2,716,823
Diluted 2,727,919 2,726,320 2,788,700
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
2004 2003
ASSETS (Note 6)
Current Assets:
Cash and cash equivalents $ 459,449 $ 79,715
Marketable securities (Note 2) 849,018 1,057,042
Accounts receivable, less allowance for
doubtful accounts of $367,505 in 2004
and $449,358 in 2003 5,094,849 6,150,108
Notes and other non-trade receivables-current 146,137 17,573
Assets held for sale (Note 10) - 1,950,000
Inventories (Notes 3 and 10) 6,460,072 6,275,288
Deferred tax asset (Note 12) 1,254,870 1,036,998
Prepaid expenses and other 151,879 129,029
Total Current Assets 14,416,274 16,695,753
Property and Equipment (Note 10):
Furniture, fixtures and improvements 5,802,939 5,609,003
Flight equipment and rotables inventory 2,573,431 1,483,029
8,376,370 7,092,032
Less accumulated depreciation (5,105,802) (4,788,779)
Property and Equipment, net 3,270,568 2,303,253
Deferred Tax Asset (Note 12) 288,920 1,096,883
Intangible Pension Asset (Note 13) 79,695 219,862
Other Assets 54,635 61,447
Cash surrender value of life insurance policies 1,059,862 879,032
Notes and other non-trade receivables-long-term 403,584 71,463
Total Assets $ 19,573,538 $ 21,327,693
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
March 31,
2004 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,540,350 $ 4,436,291
Accrued expenses (Note 5) 2,200,209 1,691,341
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 4) 80,129 760,979
Income taxes payable (Note 12) 172,359 180,278
Current portion of long-term obligations
(Notes 7 & 13) 94,807 113,130
Total Current Liabilities 6,087,854 7,182,019
Capital Lease Obligations (less current
portion) (Note 7) 52,659 50,070
Long-term Debt (Note 6) 131,864 2,345,910
Deferred Retirement Obligations (less
current portion (Note 13) 1,624,361 2,138,712
Stockholders' Equity (Note 9):
Preferred stock, $1 par value, authorized
50,000 shares, none issued - -
Common stock, par value $.25; authorized
4,000,000 shares; 2,686,827 and
2,726,320 shares issued and
outstanding in 2004 and 2003, respectively 671,706 681,580
Additional paid in capital 6,834,279 6,863,898
Retained earnings 4,127,484 2,529,556
Accumulated other comprehensive income
(loss), net 43,331 (464,052)
Total Stockholders' Equity 11,676,800 9,610,982
Total Liabilities and Stockholders'
Equity $ 19,573,538 $ 21,327,693
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,737,862 $(1,224,211) $ 1,278,499
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Change in accounts receivable and
inventory reserves 248,801 (432,187) 616,049
Depreciation and amortization 557,551 797,778 722,058
Deferred tax provision (benefit) 590,091 (838,030) (283,805)
Other-than-temporary impairment
charge on securities - 161,000 -
Periodic pension cost 266,802 276,283 253,609
Asset impairment charge on
discontinued operations - 1,655,895 -
Change in assets and liabilities
which provided (used) cash
Accounts receivable 1,137,112 (339,476) 4,983,300
Notes receivable (4,036) (17,467) (61,469)
Inventories (784,773) 1,195,955 291,324
Prepaid expenses and other (192,258) (69,489) 58,495
Accounts payable (1,153,568) 892,723 (5,336,060)
Accrued expenses 490,545 (279,040) 356,793
Billings in excess of costs and
estimated earnings on
uncompleted contracts (680,850) 760,979 -
Income taxes payable (7,919) (174,917) 67,349
Total adjustments 467,498 3,590,007 1,667,643
Net cash provided by operating
activities 2,205,360 2,365,796 2,946,142
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets of
discontinued operations 1,550,000 140,000 50,000
Proceeds from sale of marketable
securities 362,500 - 13,496
Capital expenditures (1,260,819) (466,867) (776,097)
Net cash provided by (used in)
investing activities 651,681 (326,867) (712,601)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments on line of credit (2,197,880) (1,370,630) (1,479,100)
Repayment of term loan - (300,000) (450,000)
Payment of cash dividend - (325,854) (405,520)
Repurchase of common stock (179,427) - (42,785)
Executive pension payment (100,000) - -
Proceeds from exercise of stock options - 5,500 77,835
Net cash used in financing activities (2,477,307) (1,990,984) (2,299,570)
NET INCREASE (DECREASE) IN CASH & CASH
EQUIVALENTS 379,734 47,945 (66,029)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 79,715 31,770 97,799
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 459,449 $ 79,715 $ 31,770
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Note receivable from sale of assets-
discontinued operations $ 334,523 $ - $ -
Capital leases entered into during
fiscal year 51,361 - 24,581
Settlement installments due former
executive officer 200,000 - -
Increase in fair value of marketable
securities 159,086 - -
Change in fair value of deravitives 64,936 21,276 119,690
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 109,050 368,670 609,912
Income taxes 515,418 274,587 1,039,595
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS)
Accumulated
Common Stock other
(Note 9) Compre-
Additional hensive Total
Paid-In Retained Income Stockholders
Shares Amount Capital Earnings (Loss) Equity
Balance,March
31, 2001 2,705,153 $ 676,288 $6,828,640 $3,206,642 $ (541,255) $10,170,315
Comprehensive
Income:
Net Earnings 1,278,499
Other compre-
hensive income
(loss),
Unrealized gain
on securities 119,690
Pension liability
adjustment 20,691
Change in fair
value of
derivatives (119,000)
Total Compre-
hensive Income 1,299,880
Repurchase and -
retirement of
common stock (13,500) (3,375) (39,410) (42,785)
Exercise of
stock options 32,667 8,167 69,668 77,835
Cash dividend
($0.15 per
share) (405,520) (405,520)
Balance, March
31, 2002 2,724,320 681,080 6,858,898 4,079,621 (519,874) 11,099,725
Comprehensive Loss:
Net loss (1,224,211)
Other compreh-
ensive income
(loss),
Other than
temporary impair-
ment charges on
securities 161,000
Unrealized gain on
securities 74,098
Pension liability
adjustment (158,000)
Change in fair
value of
derivatives (21,276)
Total Compre-
hensive Loss (1,168,389)
Exercise of
stock options 2,000 500 5,000 5,500
Cash dividend
($0.12 per
share) (325,854) (325,854)
Balance, March
31, 2003 2,726,320 681,580 6,863,898 2,529,556 (464,052) 9,610,982
Comprehensive
Income Net
earnings 1,737,862
Other compre-
hensive income:
Unrealized gain
on securities 159,086
Pension liabil-
ity adjustment 283,361
Change in fair
value of
derivatives 64,936
Total Compre-
hensive Income 2,245,245
Repurchase and
retirement of
common stock (39,493) (9,874) (29,619) (139,934) (179,427)
-
-
Balance, March
31, 2004 2,686,827 $ 671,706 $6,834,279 $4,127,484 $ 43,331 $11,676,800
See notes to consolidated financial statements.
AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2004, 2003, AND 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activities - Air T, Inc. (the Company), through its
operating subsidiaries, is an air cargo carrier specializing in the
overnight delivery of small package air freight and a manufacturer of
aircraft ground service equipment. In the fourth quarter of fiscal
2003, management committed to a plan to discontinue the operations of
the aviation services sector of its business. The Company finalized
the sale of certain assets of this business and discontinued its
aviation services operations in fiscal 2004. See Note 10
"Discontinued Operations".
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries,
Mountain Air Cargo, Inc., CSA Air, Inc., MAC Aviation Services, LLC
(MACAS), formerly known as Mountain Aircraft Services, LLC (MAS) and
Global Ground Support, LLC (Global). All significant intercompany
transactions and balances have been eliminated.
Concentration of Credit Risk - The Company's potential exposure to
concentrations of credit risk consists of trade accounts and notes
receivable. Accounts receivable are normally due within 30 days and
the Company performs periodic credit evaluations of its customers'
financial condition. Notes receivable payments are normally due
monthly.
Substantially all of the Company's customers are concentrated in the
aviation industry and revenue can be materially affected by current
economic conditions and the price of certain supplies such as fuel,
the cost of which is passed through to the customer. The Company has
customer concentrations in two areas of operations, air cargo which
provides service to one major customer and ground support equipment
which provides equipment and services to approximately 90 customers,
one of which is considered a major customer. The loss of a major
customer would have a material impact on the Company's results of
operations. See Note 11. "Revenues From Major Customer".
Cash Equivalents - Cash equivalents consist of liquid investments
with maturities of three months or less when purchased.
Marketable Securities - Marketable securities consists primarily of
investments in mutual funds and preferred stocks. The Company has
classified marketable securities as available-for-sale and they are
carried at fair value in the accompanying consolidated balance sheets.
Unrealized gains and losses on such securities are excluded from
earnings and reported as a separate component of accumulated other
comprehensive income (loss) until realized. Realized gains and losses
on marketable securities are determined by calculating the difference
between the basis of each specifically identified marketable security
sold and its sales price.
Inventories - Inventories related to the Company's manufacturing
operations are carried at the lower of cost (first in, first out) or
market. Aviation parts and supplies inventories are carried at the
lower of average cost or market. Consistent with industry practice,
the Company includes aircraft parts and supplies in current assets,
although a certain portion of these inventories may not be used or
sold within one year.
Property and Equipment - Property and equipment is stated at cost or,
in the case of equipment under capital leases, the present value of
future lease payments. Rotables inventory represents aircraft parts,
which are repairable, capitalized and depreciated over their estimated
useful lives. Depreciation and amortization are provided on a
straight-line basis over the shorter of the asset's service life or
related lease term, as follows:
Flight equipment and intellectual property 7 years
Other equipment and furniture 3 to 7 years
Revenue Recognition - Cargo revenue is recognized upon completion of
contract terms and maintenance revenue is recognized when the service
has been performed. Revenue from product sales is recognized when
contract terms are completed and title has passed to customers.
Revenues from overhaul contracts on customer owned parts and long term
fixed price construction projects are recognized on the percentage-of-
completion method, in accordance with AICPA Statement of Position No.
81-1, "Accounting for Performance of Construction Type and Certain
Production Type Contracts". Revenues for contracts under percentage
of completion are measured by the percentage of cost incurred to date
to estimated total cost for each contract or workorder. Contract costs
include all direct material and labor costs and overhead costs related
to contract performance. Unanticipated changes in job performance,
job conditions and estimated profitability may result in revisions to
costs and income, and are recognized in the period in which the
revisions are determined. Such contracts generally have a customer
retainage provision. Except for a construction contract at Global,
which is billed on a progress billing basis, the Company generally
bills its customer at the time of completion of the contract or
workorder.
Operating Expenses Reimbursed by Customer - The Company, under the
terms of its air cargo dry-lease service contracts, passes through to
its major customer certain cost components of its operations without
markup. The cost of flight crews, fuel, landing fees, outside
maintenance and certain other direct operating costs are included in
operating expenses and billed to the customer, at cost, and included
in overnight air cargo revenue on the accompanying statements of
operations.
Stock Based Compensation - The Company measures employee stock
compensation plans using the intrinsic value method with pro-forma
disclosure of net earnings and earnings per share determined as if the
fair value based method had been applied in measuring compensation
cost.
As the Company uses the intrinsic value method, and all stock-based
compensation has an exercise price equal to the market price at the
date of grant, no compensation cost has been included in the
accompanying financial statements. The following table sets forth
compensation costs net of taxes, and proforma net income (loss) if
compensation cost for the Company's stock-based compensation awards
had been recorded at the grant dates based on the fair market value
method described in FASB Statement No. 123, "Accounting for Stock-
Based Compensation":
Stock based 2004 2003 2002
compensation
Net income as
reported $ 1,738,000 (1,224,000 1,278,000
Compensation costs,
net of taxes $ - - 46,000
Proforma net
income $ 1,738,000 (1,224,000) 1,232,000
Proforma net income per
diluted share $ 0.64 (0.45) 0.44
Financial Instruments - The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, accounts
receivable, notes receivable, accrued expenses, and long-term debt
approximate their fair value at March 31, 2004 and 2003 because of
their relatively short maturity or their variable interest nature.
Income Taxes - Deferred income taxes are provided for temporary
differences between the tax and financial accounting bases of assets
and liabilities using the asset and liability method. Deferred income
taxes are recognized for the tax consequence of such temporary
differences at the enacted tax rate expected to be in effect when the
differences reverse.
Accounting Estimates - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and
assumptions that affect the amounts reported and disclosed. Actual
results could differ from those estimates. Significant estimates
include the allowance for doubtful accounts, inventory reserves,
intangible pension asset, deferred retirement obligations, revenue
recognized under the percentage of completion method and valuation of
long-lived assets.
Derivative Financial Instruments -As required by SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", the
Company recognizes all derivatives as either assets or liabilities in
the consolidated balance sheets and measures those instruments at fair
value.
The Company is exposed to market risk, such as changes in interest
rates. To manage the volatility relating to interest rate risk, the
Company may enter into interest rate hedging arrangements from time to
time. The Company does not utilize derivative financial instruments
for trading or speculative purposes.
Recent Accounting Pronouncements - The FASB has issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets".
SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It requires that
the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived
asset. SFAS No. 143 was adopted by the Company in fiscal 2004 and did
not have a material effect on the Company's financial position and
results of operations.
SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and
amends Accounting Principles Bulletin (APB) No. 30 "Reporting the
Results of Operations-Discontinued Events and Extraordinary Items".
Along with establishing a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be
disposed of by sale, this standard retains the basic provisions of APB
No. 30 for the presentation of discontinued operations in the income
statement but broadens that presentation to include a component of an
entity. SFAS No. 144 is effective for fiscal 2003. The effect of the
adoption of SFAS No. 144 on management's plan to discontinue the
operations of MAS is reflected in the Company's consolidated
statements of financial position and results of operations and is
detailed in Note 10 Discontinued Operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others". This
Interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing
the guarantee. The disclosure requirements of this Interpretation are
currently effective and did not affect the Company's financial
position and results of operations. The initial recognition and
initial measurement provisions of this Interpretation are applicable
on a prospective basis to guarantees issued or modified after December
31, 2002. The Company has evaluated all of its guarantees under the
provisions of FIN 45 and does not believe the effect of its adoption
on its financial position and results of operations was not material.
The Company warranties its ground equipment products for up to a two-
year period from date of sale. Product warranty reserves are recorded
at time of sale based on the historical average warranty cost and are
adjusted as actual warranty cost becomes known. As of March 31, 2004
the Company's warranty reserve amounted to $147,000.
Product warranty reserve activity during fiscal 2004 and fiscal 2003
is as follows:
Balance at 3/31/02 $119,000
Additions to reserve 199,000
Use of reserve (202,000)
Balance at 3/31/03 116,000
Additions to reserve 217,000
Use of reserve (186,000)
Balance at 3/31/04 $147,000
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure". This Statement
amends FASB Statement No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this Statement amends
the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. Because the Company has
elected to continue to account for its stock-based compensation under
the provisions of Accounting Principles bulletin No. 25, SFAS No. 148
has no impact on the Company's consolidated statement of operations
for 2004. However, the disclosure provisions of SFAS No. 148 are
reflected in the accompanying notes to the Company's consolidated
financial statements.
In January 2003, the FASB issued FIN 46 "Consolidation of Variable
Interest Entities" which requires the primary beneficiary of a
variable interest entity's activities to consolidate the variable
interest entity. In December 2003, the FASB issued FIN 46 (Revised
December 2003) (FIN 46R), "Consolidation of Variable Interest Entities
- An Interpretation of ARB No. 51," which supercedes and amends
certain provisions of FIN 46. While FIN 46R retains many of the
concepts and provisions of FIN 46, it also provides additional
guidance related to the application of FIN 46 and certain additional
scope exceptions, and incorporates several FASB Staff Positions issued
related to the application of FIN 46. The provisions of FIN 46 are
immediately applicable to variable interest entities created, or
interests in variable interest entities obtained, after January 31,
2003 and the provisions of FIN 46R are required to be applied to such
entities, except for special purpose entities, by the end of the first
reporting period ending after March 15, 2004 (March 31, 2004 for the
Company). For variable interest entities created, or interests in
variable interest entities obtained, on or before January 31, 2003,
FIN 46 or FIN 46R was required to be applied to special-purpose
entities by the end of the first reporting period ending after
December 15, 2003 (December 31, 2003 for the Company), and was
required to be applied to all other non-special purpose entities by
the end of the first reporting period ending after March 15, 2004
(March 31, 2004 for the Company). Adoption of FIN 46 did not have an
impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 is effective for the Company July 1, 2003,
although the FASB has recently proposed that implementation of certain
provisions of SFAS No. 150 be postponed indefinitely. The Company has
determined that the adoption of SFAS No. 150 will not have an impact
on the financial position or results of operations.
Reclassifications - Certain reclassifications have been made to fiscal
2003 and 2002 amounts to conform to the current year presentation.
2. MARKETABLE SECURITIES
Marketable securities consist of the following investment types:
Fair Value at
March 31,
2004 2003
Preferred stocks $ - $ 313,600
Mutual funds 849,018 743,442
Total $ 849,018 1,057,042
The Company did not realize any gains or losses on sales of marketable
securities in fiscal 2004, 2003 or 2002. Unrealized gains reflected
in other comprehensive income totaled $159,000, $74,000 and $120,000
in fiscal 2004, 2003 and 2002. As of March 31, 2004 $119,000 in
unrealized gains and an unrealized loss of $40,000 for 2003 are
included in accumulated other comprehensive income (loss).
An other-than-temporary impairment charge of $161,000 was recorded in
the consolidated statement of operations in the year ended March, 31,
2003.
3. INVENTORIES
Inventories consist of the following:
March 31,
2004 2003
Aircraft parts and supplies $ 1,892,916 $ 2,088,315
Aircraft equipment manufacturing:
Raw materials 3,508,363 2,595,448
Work in process 1,563,259 745,409
Finished goods 920,149 1,940,077
Total inventories 7,884,687 7,369,249
Reserves (1,424,615) (1,093,961)
Total, net of reserves $ 6,460,072 $ 6,275,288
4. UNCOMPLETED CONTRACTS
Construction and overhaul contracts in process accounted for under the
percentage of completion method are summarized as follows:
March 31,
2004 2003
Costs incurred and estimated
on uncompleted contracts $ 2,860,483 $ 803,605
Less billings to date 2,940,612 1,564,584
Billings in excess of
costs and estimated
earnings $ (80,129) $ (760,979)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
March 31,
2004 2003
Salaries, wages and related items $ 1,040,224 $ 819,848
Profit sharing 486,879 81,000
Health insurance 266,905 305,834
Professional fees 204,236 223,922
Warranty reserves 147,287 116,000
Other 54,678 144,737
Total $ 2,200,209 $ 1,691,341
6. FINANCING ARRANGEMENTS
On August 31, 2003 the Company amended its $7,000,000 secured bank
financing line to extend its expiration date to August 31, 2005.
The credit facility contains customary events of default, a subjective
clause and restrictive covenants that, among other matters, require
the Company to maintain certain financial ratios. There is no
requirement for the Company to maintain a lock-box arrangement under
this agreement. Under the provisions of the revolving credit line,
the sale of certain assets of its aviation services business as
described in Note 10. would be considered an event of default. The
Company has obtained a waiver for this covenant. As of March 31,
2004, the Company was in compliance with all of the restrictive
covenants.
The amount of credit available to the Company under the agreement at
any given time is determined by an availability calculation, based on
the eligible borrowing base, as defined in the credit agreement, which
includes the Company's outstanding receivables, inventories and
equipment, with certain exclusions. The credit facility is secured by
substantially all of the Company's assets.
Amounts advanced under the credit facility bear interest at the 30-day
"LIBOR" rate plus 137 basis points. The LIBOR rate at March 31, 2004
was 1.11%. At March 31, 2004 and 2003, the amounts outstanding against
the line were $132,000 and $2,217,000, respectively. At March 31,
2004, an additional $3,175,000 was available under the terms of the
credit facility.
The Company has classified the $132,000 outstanding balance on its
credit line as of March 31, 2004 as long-term to reflect the terms
included under the amendment signed on August 31, 2003.
7. LEASE COMMITMENTS
The Company has operating lease commitments for office equipment and
its office and maintenance facilities, as well as capital leases for
certain office and other equipment. The Company leases its corporate
offices from a company controlled by certain Company officers for
$11,255 per month under two five-year leases which expire in May 2006.
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 related to the composition
of aircraft fleet, the lease may be canceled by the Company. The
Company currently considers the lease to be non-cancelable for eight
and one-half years and has calculated rent expense on a straight-line
basis over this portion of the lease term.
In August 1997 Global, located in Olathe, Kansas, leased approximately
57,000 square feet of manufacturing space for $17,030 per month, under
a two-year operating lease. In September 1998, the lease was expanded
to 112,500 square feet of manufacturing and office space for $35,903
per month and the term extended to August 2001. In April 2001 the
lease was renewed through August 2006; monthly rental will increase
over the life of the lease, based on increases in the Consumer Price
Index.
At March 31, 2004, future minimum annual lease payments under capital
and non-cancellable operating leases with initial or remaining terms
of more than one year are as follows:
Capital Operating
Leases Leases
$
2005 37,547 $ 705,476
2006 26,318 710,632
2007 13,203 386,399
2008 13,203 216,699
2009 6,602 261,147
Total minimum lease payments 96,873 $ 2,280,353
less amount representing
interest 13,728
Present value of lease
payments 83,145
Less current maturities 30,486
Long-term maturities $ 52,659
Rent expense for operating leases totaled approximately $704,000,
$713,000, and $759,000 for fiscal 2004, 2003 and 2002, respectively,
and includes amounts to related parties of $132,260 in fiscal 2004 and
$109,860 in fiscal 2003 and 2002.
8. DERIVATIVE FINANCIAL INSTRUMENTS
In May 2001, the Company entered into two interest-rate swaps with
notional amounts of $2.4 million, and $2 million respectively. These
agreements were originally entered into at respective interest rates
of 6.97% and 6.5%. On July 31, 2002 the Company elected to unwind its
$2,000,000 (6.5%) revolving credit line swap in consideration for
$58,750, the fair-market-value termination fee as of that date. On
October 30, 2003, the Company terminated its remaining credit line
swap for $97,500, the fair-market-value termination fee as of that
date. The $75,000 balance included in accumulated other comprehensive
income (loss) at March 31, 2004 will be ratably amortized into
interest expense over the remaining term of the Company's credit line.
9. STOCKHOLDERS' EQUITY
The Company may issue up to 50,000 shares of preferred stock, in one
or more series, on such terms and with such rights, preferences and
limitations as determined by the Board of Directors. No preferred
shares have been issued as of March 31, 2004.
The Company has granted options to purchase up to a total of 64,000
shares of common stock to certain Company employees and outside
directors at prices of $3.19 and $6.38 per share. As of March 31,
2004, 301,000 shares remain available for issuance under future option
grants. 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 1998 and 2000 are fully vested and
must be exercised within one to five years of the vesting date.
The following table summarizes information about stock options at
March 31, 2004:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Option Remaining Average Average
Grant Exercise Options Contract- Exercise Options Exercise
Date Price Outstand- ual Life Price Exercis- Price
ing (Years) able
1/28/00 $ 3.19 59,000 .8 $ 3.19 59,000 $ 3.19
8/13/98 6.38 5,000 4.4 6.38 5,000 6.38
64,000 1.1 $ 3.44 64,000 $ 3.44
Option activity is summarized as follows:
Weighted Average
Exercise Price
Shares Per Share
Outstanding March 31, 2001 259,200 $ 2.93
Exercised (32,667) 2.75
Outstanding March 31, 2002 226,533 3.00
Exercised (2,000) 2.75
Expired (160,533) 2.83
Outstanding March 31, 2003 64,000 3.44
Exercised - -
Outstanding March 31, 2004 64,000 $ 3.44
The fair value of options granted in fiscal 2000 and 1998, was
estimated on the date of grant using the Black-Scholes option-pricing
model with the assumptions listed below. No options were granted
since fiscal 2000.
2000 1998
Weighted average fair value per option $1.62 $ 1.15
Assumptions used:
Weighted average expected volatility 65.1% 61.0%
Weighted average expected dividend yield 2.4% 2.2%
Weighted average risk-free interest rate 6.59% 5.70%
Weighted average expected life, in years 4.6 3.0
During fiscal 2004 the Company suspended its stock repurchase program.
Except for 39,493 shares repurchased in conjunction with the
retirement of an executive officer (see Note 13), no common shares
were repurchased in fiscal 2004. Through March 31, 2004 the Company
had repurchased and retired a total of 829,273 shares at a total cost
of $3,437,045.
10. DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2003, Company management agreed to
a plan to sell the assets of MAS and to discontinue the operations of
the Company's aviation service sector business. The Company entered
into a letter of intent on June 19, 2003 to sell certain assets and
the business operations of MAS to an investor group, which included
former management of MAS, for consideration of $1,950,000. On August
14, 2003, the Company closed on the transaction for consideration
totaling $1,885,000, comprised of $1,550,000 in cash and a $335,000
promissory note. The sale resulted in the recognition of losses
totaling $1,121,000. In conjunction with the sale, the Company agreed
to indemnify the buyer and its affiliates with respect to certain
matters related to contractual representations and warranties and the
operation of the business prior to closing. Although no assurances
can be made, the Company does not believe the indemnities provided
will have a material effect on its financial condition or results of
operations.
Under the terms of the sale agreement, the Company also entered into a
three-year consignment agreement granting the buyer an exclusive right
to sell remaining MAS inventory not included in the sale transaction.
Upon termination of the consignment agreement, all unsold inventory
will be returned to the Company. Inventory on consignment under this
agreement amounted to $704,000 as of March 31, 2004. The accompanying
consolidated financial statements reflect the sale of certain MAS
assets and reclassify the net operations of MAS as discontinued
operations, net of tax, for all periods presented.
A summary of the assets held for sale at March 31, 2004 and 2003 is as
follows:
2004 2003
Inventory $ - $ 1,900,000
Property, plant and equipment - 50,000
Assets held for sale $ - $ 1,950,000
A summary of the operating results of the discontinued operations is
as follows:
2004 2003 2002
Revenue $ 2,575,259 $ 5,977,697 $ 11,355,128
Operating loss (500,901) (942,110) (90,491)
Loss before income taxes (698,902) (2,598,005) (1,190,337)
Income tax benefit 272,932 1,007,428 452,328
Net loss $ (425,970) $(1,590,577) $ (738,009)
The loss before income taxes on discontinued operations for the year
ended March 31, 2003, was comprised of a $942,110 loss from operations
and $1,655,895 impairment charge recorded to write down certain assets
held for sale to their estimated fair value.
11. REVENUES FROM MAJOR CUSTOMER
Approximately 64.5%, 69.5% and 41.2% of the Company's revenues were
derived from services performed for Federal Express in fiscal 2004,
2003 and 2002, respectively. In addition, approximately 16.4%, 19.9%
and 22.9% of the Company's revenues for fiscal 2004, 2003 and 2002
respectively, were generated from Global's US Air Force contract.
12. INCOME TAXES
The provision (benefit) for income taxes consists of:
Year Ended March 31, 2004
Continuing Discontinued
Operations Operations Total
Current:
Federal $ 1,082,000 $ (665,000) $ 417,000
State 228,000 (147,000) 81,000
Total current 1,310,000 (812,000) 498,000
Deferred:
Federal 43,000 441,000 484,000
State 9,000 98,000 107,000
Total deferred 52,000 539,000 591,000
Total $ 1,362,000 $ (273,000) $1,089,000
Year Ended March 31, 2003
Continuing Discontinued
Operations Operations Total
Current:
Federal $ 278,000 $ (226,000) $ 52,000
State 56,000 - 56,000
Total current 334,000 (226,000) 108,000
Deferred:
Federal (102,000) (582,000) (684,000)
State 45,000 (199,000) (154,000)
Total deferred (57,000) (781,000) (838,000)
Total $ 277,000 $(1,007,000) $ (730,000)
Year Ended March 31, 2002
Continuing Discontinued
Operations Operations Total
Current:
Federal $ 1,209,000 $ (293,000) $ 916,000
State 264,000 (65,000) 199,000
Total current 1,473,000 (358,000) 1,115,000
Deferred:
Federal (137,000) (77,000) (214,000)
State (53,000) (17,000) (70,000)
Total deferred (190,000) (94,000) (284,000)
Total $ 1,283,000 $ (452,000) $ 831,000
The income tax provision for continuing operations was different from
the amount computed using the statutory Federal income tax rate for
the following reasons:
2004 2003 2002
Income tax provi-
sion at U.S.
statutory rate $1,199,000 34.0% $219,000 34.0% $1,122,000 34.0%
State income
taxes, net of
Federal benefit 163,000 4.6 31,000 4.8 154,000 4.7
Meal and
entertainment
disallowance 19,000 0.5 15,000 2.4 23,0000 0.7
Other, net (19,000) (0.5) (71,000)(11.0) (16,000) (0.5)
Change in
valuation
allowance - 83,000 12.9 -
Income tax
provision $1,362,000 38.6% $277,000 43.1% $1,283,000 38.9%
Deferred tax asset is comprised of the following components
2004 2003
Net deferred tax
asset
Warranty reserve 56,853 46,864
Accounts receivable reserve 142,924 174,523
Inventory reserve 690,214 543,578
Accrued insurance 104,552 74,784
Accrued vacation' 174,971 94,290
Deferred compensation 698,269 658,559
Other 94,904 97,132
Fixed assets (405,467) (88,124)
MAS discontinued operations - 545,705
State loss carryforward 70,000 70,000
Valuation allowance (83,430) (83,430)
Total 1,543,790 2,133,881
The deferred tax items are reported on a net current and non-current
basis in the accompanying fiscal 2004 and 2003 consolidated balance
sheets according to the classification of the related asset and
liability. The Company has state net operating loss carryforwards as
of March 31, 2004 with a tax effected amount of approximately $70,000.
The state loss carryforwards will expire in varying periods through
March 2023. At March 31, 2004 the Company had deferred tax assets of
$21,853 for capital loss carryforwards and $61,577 for unrealized
capital losses. The Company recorded a full valuation allowance of
$83,430 on the deferred tax assets relating to these capital losses at
March 31, 2004 based on management's belief that realization is
unlikely.
13. EMPLOYEE BENEFITS
The Company has a 401K defined contribution plan (AirT 401(K)
Retirement Plan). All employees of the Company are eligible to
participate in the plan. The Company's contribution to the 401(K)
plan for the years ended March 31, 2004, 2003 and 2002 was $231,000,
$232,000, and $228,000, respectively and was recorded in general and
administrative expenses in the consolidated statements of operations.
The Company, in each of the past three years, has paid a discretionary
profit sharing bonus in which all employees have participated. Profit
sharing expense in fiscal 2004, 2003, and 2002 was $487,000, $81,000
and $562,000, respectively, and was recorded in general and
administrative expenses in the consolidated statements of operations.
Effective January 1, 1996 the Company entered into supplemental
retirement agreements with certain key executives of the Company, to
provide for a monthly benefit upon retirement. The Company has
purchased life insurance policies for which the Company is the sole
beneficiary to facilitate the funding of benefits under these
supplemental retirement agreements. The cost of funding these
benefits is recorded in general and administrative expense on the
consolidated statements of operations and is offset by increases in
the cash surrender value of the life insurance policies..
Effective December 31, 2003, an executive officer and director of the
company resigned his employment with AirT. In consideration of
approximately $300,000 the executive agreed to forgo certain
retirement and other contractual benefits for which the Company had
previously accrued aggregate liabilities of $715,000. See Item 2.
Resignation of Executive Officer.
The above-mentioned cancellation of contractual retirement benefits
reduced recorded liabilities by $715,000. The difference between the
recorded liability and ultimate cash payment of $300,000 resulted in a
$305,000 reduction in actuarial losses, recorded in Other
Comprehensive Loss, a $90,000 reduction in intangible assets and a net
$20,000 reduction in executive compensation charges included in the
statement of operations.
The Company also agreed to purchase from the former executive officer
118,480 shares of AirT common stock held by him (representing
approximately 4.3% of the outstanding shares of common stock at
December 31, 2003) for $4.54 per share (80% of the January 5, 2004
closing price). The stock repurchase will take place in three
installments over a one-year period, starting January 12, 2004, and
will total approximately $538,000. The repurchase of the former
executive's stock will be recorded in the period that the repurchase
occurs as treasury stock transactions and all such stock will be
subsequently retired. All installment payments required to be made on
January 12, 2004, have been made.
The following tables set forth the funded status of the Company's
supplemental retirement plan at March 31, 2004 and 2003 and the change
in the projected benefit obligation during fiscal 2004 and 2003:
March 31,
2004 2003
Vested benefit obligation and accumulated
benefit obligation $ 1,462,384 $ 1,918,826
Projected benefit obligation 1,462,384 1,918,826
Plan assets at fair value - -
Projected benefit obligation greater than
plan assets 1,462,384 1,918,826
Unrecognized prior service cost (149,324) (219,862)
Unrecognized actuarial gain (loss) 69,629 (283,363)
Adjustment required to recognize minimum
liability 79,695 503,225
Accrued pension cost recognized in the
consolidated balance sheets $ 1,462,384 $ 1,918,826
2004 2003
Projected benefit obligation beginning
of year 1,918,826 $ 1,555,827
Service cost 72,789 70,244
Interest cost 113,510 112,194
Actuarial loss due to change
in assumption 72,315 180,561
Non-cash reduction due to partial
settlement (415,056) -
Benefits paid (300,000) -
Projected benefit obligation
end of year $ 1,462,384 $ 1,918,826
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," the Company
has recorded an additional minimum liability of $79,695 at March 31,
2004 and $503,225 at March 31, 2003, 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
unrecognized prior service cost. The portion of the additional
minimum liability in excess of unrecognized prior service cost
decreased by $283,000 in fiscal 2004 and is reported as a component of
other comprehensive loss for the year ended March 31, 2004 due to the
above-mentioned settlement.
The projected benefit obligation was determined using an assumed
discount rate of 5.75% at March 31, 2004 and 6.5% at March 31, 2003.
The liability relating to these benefits has been included in deferred
retirement obligation in the accompanying financial statements.
Net periodic pension expense for fiscal 2004, 2003 and 2002 consisted
of the following:
2004 2003 2002
Service cost 72,789 70,244 62,944
Interest cost 113,510 112,194 97,665
Amortization of unrecognized prior
service cost and actuarial losses 99,714 93,845 93,000
Gain on partial settlement (19,211) - -
Net periodic pension cost 266,802 276,283 253,609
The Company's former Chairman and CEO passed away on April 18, 1997.
Under the terms of his supplemental retirement agreement,
approximately $498,000 in present value of death benefits is required
to be paid to fulfill death benefit payments over 10 years after his
death. As of March 31, 2004 and 2003 accruals related to the unpaid
present value of the benefit amounted to approximately $226,000 and
$293,000, respectively (of which approximately $152,000 and $220,000,
respectively is included under defined retirement obligations in the
accompanying consolidated balance sheets). Net periodic pension costs
are included in general and administrative expenses in the
accompanying consolidated statements of operations.
14. NET EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per share has been calculated by dividing net
earnings (loss) by the weighted average number of common shares
outstanding during each period. For purposes of calculating diluted
earnings (loss) per share, shares issuable under employee stock
options were considered potential common shares and were included in
the weighted average common shares unless they were anti-dilutive. As
of March 31, 2004 5,000 shares of outstanding stock options were anti-
dilutive.
The computation of basic and diluted weighted average common shares
outstanding is as follows:
Year Ended March 31,
2004 2003 2002
Basic 2,716,447 2,726,320 2,716,823
Incremental Shares From Stock Options 11,472 - 71,877
Diluted 2,727,919 2,726,320 2,788,700
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands except per share data)
During the fourth quarter of fiscal 2003, management agreed to a plan
to discontinue the operations of MAS and dispose of its assets. The
Company closed on the transaction to sell certain MAS assets and
operations on August 14, 2003. As a result, the Company has
retroactively reflected the discontinued operations of MAS in the
accompanying consolidated statements of financial position and results
of operations.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
2004
Operating Revenues $11,056 $13,623 $12,980 $18,338
Operating Income $ 675 $ 939 $ 370 $ 1,418
Earnings Before Income Taxes $ 444 $ 612 $ 493 $ 1,977
Net Earnings $ 349 $ 358 $ 230 $ 801
Basic and Diluted Net Earnings
per share $ 0.13 $ 0.13 $ 0.08 $ 0.30
2003
Operating Revenues $10,198 $ 9,176 $11,233 $12,265
Operating Income (Loss) $ 41 $ (390) $ 160 $ 818
(Loss) Earnings Before Income
Taxes $ (70) $ (351) $ 177 $ 888
Net (Loss) Earnings $ (161) $ (363) $ 37 $ (737)
Basic and Diluted Net (Loss)
Earnings per share $ (0.06) $ (0.13) $ 0.01 $ (0.27)
16. SEGMENT INFORMATION
The Company operates three subsidiaries in two continuing business
segments. Each business segment has separate management teams and
infrastructures that offer different products and services. During
the fourth quarter of fiscal 2003, Company management agreed to a plan
to sell the assets of MAS and to discontinue the operations of the
Company's aviation service sector business (MAS). The Company
completed an agreement to sell certain assets and operation on August
14, 2003. The operations of MAS are, therefore, not presented in the
segment information below. The subsidiaries with continuing
operations have been combined into the following two reportable
segments: overnight air cargo and ground equipment. The overnight
air cargo segment encompasses services provided primarily to one
customer, Federal Express, and the ground equipment segment
encompasses the operations of Global.
The accounting policies for all reportable segments are the same as
those described in Note 1 to the Consolidated Financial Statements.
The Company evaluates the performance of its operating segments based
on operating income from continuing operations.
Segment data is summarized as follows:
2004 2003 2002
Operating Revenues
Overnight Air Cargo $ 36,168,096 $ 29,898,840 $ 29,258,086
Ground Equipment 19,828,749 12,972,887 30,344,889
Total $ 55,996,845 $ 42,871,727 $ 59,602,975
Operating Income from
Continuing operations
Overnight Air Cargo $ 3,988,995 $ 2,621,003 $ 2,215,901
Ground Equipment 2,039,691 204,642 3,335,477
Corporate (1) (2,626,654) (2,197,125) (2,106,708)
Total $ 3,402,032 $ 628,520 $ 3,444,670
Identifiable Assets
Overnight Air Cargo $ 5,727,470 $ 4,130,676 $ 3,852,042
Ground Equipment 9,646,490 8,615,032 10,051,691
Corporate 3,093,449 4,684,070 2,856,792
Total $ 18,467,409 $ 17,429,778 $ 16,760,525
Capital Expenditures, net
Overnight Air Cargo $ 1,101,355 $ 131,626 $ 107,264
Ground Equipment 75,775 155,528 216,032
Corporate 83,689 175,670 303,184
Total $ 1,260,819 $ 462,824 $ 626,480
Depreciation and
Amortization
Overnight Air Cargo $ 200,128 $ 243,635 $ 228,051
Ground Equipment 187,284 239,699 253,377
Corporate 170,139 143,248 91,193
Total $ 557,551 $ 626,582 $ 572,621
(1) Includes income from inter-segment transactions,
eliminated in consolidation.
17. COMMITMENTS AND CONTINGENCIES
Global and one of its employees are defendants in a lawsuit filed in
March 2002 in the United States District Court for the District of
Columbia, Catalyst & Chemical Services et al v. Terex, et al. In
this action, the plaintiffs allege that they provided to Global and
the employee certain trade secrets regarding aircraft de/anti-icing
systems that were then disclosed by Global and the employee to third
parties. The plaintiffs allege misappropriation of trade secrets,
breach of contract and violation of the federal Racketeer Influenced
and Corrupt Organizations Act and seek monetary damages. The Company
and its employee have filed an answer in this action denying all
liability. Upon Global's motion, the court has dismissed the
plaintiff's claims under the Racketeer Influenced and Corrupt
Organizations Act. The Company does not believe that the action has
any merit and intends to defend the lawsuit vigorously. In November
2002, Global and the Company filed suit in North Carolina state court
against affiliates of the plaintiffs in the Catalyst & Chemical
Services et al v. Terex, et al action alleging defamation. This
action has been moved to, and is pending before, the United States
District Court for the Western District of North Carolina.
The Company is currently involved in certain intellectual property,
personal injury and environmental matters, which involve pending or
threatened lawsuits. Management believes the results of these pending
or threatened lawsuits will not have a material adverse effect on the
Company's results of operations or financial position.
Item 9A. Controls and Procedures.
As of the end of the period covered by this report, management,
including the Company's Chief Executive Officer and our Chief Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures with respect to the information
generated for use in this report. Based upon, and as of the date of that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the disclosure controls and procedures were effective to
provide reasonable assurance that information required to be disclosed in
the reports we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods
specified in the Commission's rules and forms.
Except as described below, there was no change in our internal control
over financial reporting during or subsequent to the fourth fiscal quarter
for the fiscal year ended March 31, 2004, that has materially affected, or
is reasonably likely to materially affect, our internal control over
financial reporting.
It should be noted that while the Company's management, including the
Chief Executive Officer and the Chief Financial Officer, believe that the
Company's disclosure controls and procedures provide a reasonable level of
assurance, they do not expect that the disclosure controls and procedures
or internal controls will prevent all error and all fraud. A control
system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls.
The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under
all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error
or fraud may occur and not be detected.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this report:
1. Financial Statements
a. The following 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, 2004 and 2003.
(iii)Consolidated Statements of Operations for each of the three years
in the period ended March 31, 2004.
(iv) Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended March 31, 2004.
(v) Consolidated Statements of Cash Flows for each of the three years in
the period ended March 31, 2004.
(vi) Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
No schedules are required to be submitted.
3. Exhibits
No. Description
3.1 Restated Certificate of Incorporation, incorporated by reference to
Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 2001
3.2 By-laws of the Company, as amended, incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996
4.1 Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1994
10.1 Aircraft Dry Lease and Service Agreement dated February 2, 1994
between Mountain Air Cargo, Inc. and Federal Express Corporation,
incorporated by reference to Exhibit 10.13 to Amendment No. 1 on
Form 10-Q/A to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1993
10.2 Loan Agreement among Bank of America, N.A. the Company and its
subsidiaries, dated May 23, 2001, incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 2001
10.3 Aircraft Wet Lease Agreement dated April 1, 1994 between Mountain Air
Cargo, Inc. and Federal Express Corporation, incorporated by
reference to Exhibit 10.4 of Amendment No. 1 on Form 10-Q/Q to the
Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1994
10.4 Adoption Agreement regarding the Company's Master 401(k) Plan and
Trust, incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1993*
10.5 Amendment No. 1 to Omnibus Securities Award Plan incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on Form
10-K for the year ended March 31, 2000*
10.6 Premises and Facilities Lease dated November 16, 1995 between Global
TransPark Foundation, Inc. and Mountain Air Cargo, Inc.,
incorporated by reference to Exhibit 10.5 to Amendment No. 1 on Form
10-Q/A to the Company's Quarterly Report on Form 10-Q for the period
ended December 31, 1995
10.7 Employment Agreement dated January 1, 1996 between the Company,
Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and
William H. Simpson, incorporated by reference to Exhibit 10.8 to
the Company's Annual Report Form 10-K for the fiscal year ended
March 31, 1996*
10.8 Employment Agreement dated January 1, 1996 between the Company,
Mountain Air Cargo Inc. and Mountain Aircraft Services, LLC and
John J. Gioffre, incorporated by reference to Exhibit 10.9 to the
Company's Annual Report Form 10-K for the fiscal year ended March
31, 1996*
10.9 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*
10.10 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
10.11 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
10.12 ISDA Schedule to Master Agreement between Bank of America, N.A.
and the Company dated May 23, 2001, incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 2001
10.13 Amendment No 1. to Loan Agreement among Bank of America, N.A.,
the Company and its subsidiaries, dated August 31, 2002, incorp-
orated by reference to Exhibit 10.15 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2002
10.14 Lease Agreement between Little Mountain Airport Associates, Inc.
and Mountain Air Cargo, Inc., dated June 1, 1991, most recently
amended May 28, 2001, incorporated by reference to Exhibit 10.15 to
the Company's Annual Report on Form 10-K for the year ended
March 31, 2003
10.15 Agreement dated January 12, 2004 between the Company and J. Hugh
Bingham, incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the year ended March 31, 2004*
10.16 Amendment No 2. to Loan Agreement among Bank of America, N.A.,
the Company and its subsidiaries, dated August 31, 2003, incor-
porated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 2003
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
year ended March 31, 2004
23.1 Consent of Deloitte & Touche LLP
31.1 Certification of Walter Clark
31.2 Certification of John J. Gioffre
32.1 Section 1350 Certification
__________________
* Management compensatory plan or arrangement required to be filed as
an exhibit to this report.
b. Reports on Form 8-K.
The Company filed the following Current reports on Form 8-K in the
last quarter of the fiscal year ended March 31, 2004:
Current Report on form 8-K dated January 12, 2004 announcing the
resignation of J. Hugh Bingham.
Current Report on form 8-K dated February 13, 2004 announcing
unaudited financial results for the period ended December 31, 2003.
AIR T, INC.
EXHIBIT INDEX
Exhibit Number Document
23.1 Consent of Deloitte & Touche LLP
31.1 Certification of Walter Clark
31.2 Certification of John J. Gioffre
32.1 Section 1350 certification