-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UdZDdDHHzSImBdhQTzNCe0Ac+wrX3ycoODS55/MyBCU/Bgn4CBCmJ9UoqVxXifZf DCs8YyTfJbiTkYw5Fw6gDQ== 0000353184-03-000042.txt : 20031112 0000353184-03-000042.hdr.sgml : 20031112 20031112164906 ACCESSION NUMBER: 0000353184-03-000042 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIR T INC CENTRAL INDEX KEY: 0000353184 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 521206400 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11720 FILM NUMBER: 03994488 BUSINESS ADDRESS: STREET 1: 3524 AIRPORT RD CITY: MAIDEN STATE: NC ZIP: 28650 BUSINESS PHONE: 7043772109 MAIL ADDRESS: STREET 1: P O BOX 488 CITY: DENVER STATE: NC ZIP: 28037 FORMER COMPANY: FORMER CONFORMED NAME: AIR TRANSPORTATION HOLDING CO INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ATLANTA EXPRESS AIRLINE CORP DATE OF NAME CHANGE: 19840321 10-Q 1 spt.txt AIR T, INC. SEPTEMBER 30, 2003 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2003 Commission File Number 0-11720 Air T, Inc. (Exact name of registrant as specified in its charter) Delaware 52-1206400 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 488, Denver, North Carolina 28037 (Address of principal executive offices) (704) 377-2109 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 2,726,320 Common Shares, par value of $.25 per share were outstanding as of October 25, 2003. This filing contains 25 pages. AIR T, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations for the three and six-month periods ended September 30, 2003 and 2002 (Unaudited) 3 Condensed Consolidated Balance Sheets at September 30, 2003 (Unaudited) and March 31, 2003 4 Condensed Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2003 and 2002 (Unaudited) 5 Condensed Consolidated Statement of Stockholders' Equity and Other Comprehensive Loss at September 30, 2003 (Unaudited) 6 Notes to Condensed Consolidated Financial Statements (Unaudited) 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-18 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 Item 4. Controls and Procedures 18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 Signatures 20 Exhibit Index 21 Officers' Certifications 22-25 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six months Ended September 30, September 30, 2003 2002 2003 2002 Operating Revenues: Overnight air cargo $ $8,514,30 7,715,802 $15,799,77 $14,338,48 6 4 5 Ground equipment 5,108,772 1,458,718 8,879,365 5,034,177 13,623,07 9,174,520 24,679,139 19,372,662 8 Operating Expenses: Flight-air cargo 3,702,484 3,634,906 6,854,869 6,844,315 Maintenance-air cargo 3,134,575 2,711,471 5,535,086 4,854,147 Ground equipment 3,782,400 1,365,975 6,650,201 4,250,948 General and administrative 1,926,660 1,705,290 3,749,521 3,478,161 Depreciation and amortization 137,820 146,598 275,377 294,021 12,683,93 9,564,240 23,065,054 19,721,592 9 Operating Income (Loss) 939,139 (389,720) 1,614,085 (348,930) Non-operating (Income) Expense: Interest (48,434) 25,822 (90,158) 10,587 Cash surrender value of life insurance (6,000) (6,000) (14,500) (12,000) Deferred retirement expense 5,250 5,250 10,500 10,500 (Gain) loss on impairment of - - marketable securities (13,810) 161,197 Investment income and other (30,219) (49,957) (66,303) (97,405) (79,403) (38,695) (160,461) 72,879 Earnings (Loss) From Continuing Operations Before Income Taxes 1,018,542 (351,025) 1,774,546 (421,809) Income Tax Expense (Benefit) 406,178 (127,985) 718,482 (158,133) Earnings (Loss) From Continuing Operations $ $ $ $ 612,364 (223,040) 1,056,064 (263,676) Loss From Discontinued Operations, Net of Income taxes (253,945) (140,485) (348,857) (260,997) Net Earnings (Loss) $ $ $ $ 358,419 (363,525) 707,207 (524,673) Basic and Diluted Earnings (Loss) Per Share: Continuing Operations $ $ $ $ 0.22 (0.08) 0.39 (0.10) Discontinued Operations (0.09) (0.05) (0.13) (0.09) Total Basic and Diluted Net Earnings (Loss) Per Share $ $ $ $ 0.13 (0.13) 0.26 (0.19) Weighted Average Shares Outstanding: Basic 2,726,320 2,726,320 2,726,320 2,726,320 Diluted 2,733,614 2,726,320 2,726,320 2,726,320 See notes to condensed financial statements.
AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, MARCH 31, 2003 2003 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ $ 412,626 79,715 Marketable securities 817,800 1,057,042 Accounts receivable, less allowance for doubtful accounts of $464,212 at September 30, 2003 and $449,358 at March 31, 2003 5,684,288 6,239,144 Notes receivable-current 33,452 - Income taxes receivable 41,903 - Inventories, net 6,818,510 6,275,288 Assets held for sale - 1,950,000 Deferred tax asset 682,897 1,036,998 Prepaid expenses and other 110,246 129,029 Total Current Assets 14,601,722 16,767,216 Property and Equipment 6,858,737 7,092,032 Less accumulated depreciation (4,987,387) (4,788,779) Property and Equipment, net 1,871,350 2,303,253 Deferred Tax Asset 1,130,784 1,096,883 Intangible Pension Asset 189,862 219,862 Other Assets 976,392 940,479 Notes Receivable-long-term 298,284 - Total Assets $ $ 19,068,394 21,327,693 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable 3,490,565 4,436,291 Accrued expenses 2,173,120 1,691,341 Billings in excess of costs and estimated earnings on uncompleted contracts 290,978 760,979 Income taxes payable - 180,278 Current portion of long-term debt and obligations 110,682 113,130 Total Current Liabilities 6,065,345 7,182,019 Capital Lease Obligations (less current portion) 32,122 50,070 Long-term Debt (less current portion) 369,193 2,345,910 Deferred Retirement Obligations (less current portion) 2,159,754 2,138,712 Stockholders' Equity: Preferred stock, $1 par value, authorized 50,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,726,320 and 2,726,320 shares issued and outstanding 681,580 681,580 Additional paid in capital 6,863,898 6,863,898 Retained earnings 3,236,763 2,529,556 Accumulated other comprehensive loss (340,261) (464,052) 10,441,980 9,610,982 Total Liabilities and Stockholders' $ $ Equity 19,068,394 21,327,693 SEPTEMBER 30, MARCH 31, 2003 2003 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ $ 412,626 79,715 Marketable securities 817,800 1,057,042 Accounts receivable, less allowance for doubtful accounts of $464,212 at September 30, 2003 and $449,358 at March 31, 2003 5,684,288 6,239,144 Notes receivable-current 33,452 - Income taxes receivable 41,903 - Inventories, net 6,818,510 6,275,288 Assets held for sale - 1,950,000 Deferred tax asset 682,897 1,036,998 Prepaid expenses and other 110,246 129,029 Total Current Assets 14,601,722 16,767,216 Property and Equipment 6,858,737 7,092,032 Less accumulated depreciation (4,987,387) (4,788,779) Property and Equipment, net 1,871,350 2,303,253 Deferred Tax Asset 1,130,784 1,096,883 Intangible Pension Asset 189,862 219,862 Other Assets 976,392 940,479 Notes Receivable-long-term 298,284 - Total Assets $ $ 19,068,394 21,327,693 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable 3,490,565 4,436,291 Accrued expenses 2,173,120 1,691,341 Billings in excess of costs and estimated earnings on uncompleted contracts 290,978 760,979 Income taxes payable - 180,278 Current portion of long-term debt and obligations 110,682 113,130 Total Current Liabilities 6,065,345 7,182,019 Capital Lease Obligations (less current portion) 32,122 50,070 Long-term Debt (less current portion) 369,193 2,345,910 Deferred Retirement Obligations (less current portion) 2,159,754 2,138,712 Stockholders' Equity: Preferred stock, $1 par value, authorized 50,000 shares, none issued - - Common stock, par value $.25; authorized 4,000,000 shares; 2,726,320 and 2,726,320 shares issued and outstanding 681,580 681,580 Additional paid in capital 6,863,898 6,863,898 Retained earnings 3,236,763 2,529,556 Accumulated other comprehensive loss (340,261) (464,052) 10,441,980 9,610,982 Total Liabilities and Stockholders' $ $ Equity 19,068,394 21,327,693 See notes to condensed financial statements.
AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30, 2003 2002 > CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 707,207 $(524,673 ) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Change in accounts receivable and inventory reserves 77,323 123,314 Depreciation and amortization 275,377 354,331 Deferred tax provision (benefit) 320,200 (42,097) Loss on disposal of assets and impairment - of investments 130,716 Net periodic pension cost 79,998 42,498 Change in assets and liabilities which provided (used) cash Accounts receivable 540,002 430,229 Income taxes receivable - (41,903) Inventories (363,087) 768,378 Prepaid expenses and other 31,942 8,821 Accounts payable (945,726) (562,800) Accrued expenses 450,375 (124,508) Billings in excess of costs and estimated earnings on uncompleted contracts - (470,001) Costs and estimated earnings in excess of billings on uncompleted contracts - - Income taxes payable (180,278) (510,731) Total adjustments (225,778) 618,151 Net cash provided by operating activities 481,429 93,478 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of assets-discontinued - operations 1,550,000 Proceeds from sale of marketable securities - 325,575 Proceeds from sale of equipment - 140,000 Capital expenditures (71,041) (192,490) Net cash provided by (used in) investing activities 1,804,534 (52,490) CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) borrowings on line of credit (1,953,05 319,535 2) Payment of cash dividend - (325,854) Proceeds from exercise of stock options - 5,500 Net cash used in financing activities (1,953,05 (819) 2) NET INCREASE IN CASH & CASH EQUIVALENTS 332,911 40,169 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 79,715 31,770 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ $ 412,626 71,939 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ $ 63,539 212,763 Income taxes 405,743 229,015 SUMMARY OF SIGNIFICANT NON-CASH INFORMATION: Note receivable from sale of assets- $ $ - discontinued operations 331,736 Change in fair value of derivatives 41,612 29,000 Increase in fair value of marketable securities 82,179 33,256 See notes to condensed financial statements.
AIR T, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE LOSS (UNAUDITED)
Accumulate d Other Additiona Comprehens Total l ive Common Stock Paid-In Retained Income Stockholde r's Shares Amount Capital Earnings (Loss) Equity Balance, March 31, $ $ 2003 2,726,32 $681,580 $6,863,89 $2,529,55 (464,052) 9,610,982 0 8 6 Comprehensive Income: Net earnings 707,207 Other Comprehensive Income: Unrealized gain on securities 82,179 Change in fair value of derivatives 41,612 Total comprehensive income 830,998 Balance, September $ 30, 2003 2,726,32 $681,580 $6,863,89 $3,236,76 (340,261) $10,441,98 0 8 3 0 See notes to condensed financial statements.
AIR T, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. Financial Statements The Condensed Consolidated Balance Sheet as of September 30, 2003, the Condensed Consolidated Statements of Operations for the three and six-month periods ended September 30, 2003 and 2002, the Condensed Consolidated Statements of Cash Flows for the six- month periods ended September 30, 2003 and 2002 and the Condensed Consolidated Statement of Stockholders' Equity and Other Comprehensive Loss have been prepared by Air T, Inc. (the Company) without audit. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, cash flows and equity position as of September 30, 2003, and for prior periods presented, have been made. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2003. The results of operations for the period ended September 30 are not necessarily indicative of the operating results for the full year. B. Income Taxes The tax effect of temporary differences, primarily asset reserves and accrued liabilities, gave rise to the Company's deferred tax asset in the accompanying September 30, 2003 and March 31, 2003 consolidated balance sheets. 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. The income tax provisions (benefit) for continuing operations for the respective six-months ended September 30, 2003 and 2002 differ from the federal statutory rate primarily as a result of state income taxes and permanent timing differences. C. Net Earnings (Loss) Per Share Basic earnings (loss) per share has been calculated by dividing net earnings (loss) by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (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. For the six month period ended September 30, 2003 all outstanding stock options were anti- dilutive. The computation of basic and diluted earnings (loss) per common share is as follows:
Three Months Six months Ended Ended September 30, September 30, 2003 2002 2003 2002 Net earnings (loss) $ $ 358,419 $(363,525 707,207 $(524,67 ) 3) Basic and Diluted Earnings (Loss) Per Share: Continuing Operations $ $ $ $ 0.22 (0.08) 0.39 (0.10) Discontinued Operations (0.09) (0.05) (0.13) (0.09) Total Basic and Diluted Net Earnings (Loss) Per $ $ $ $ Share 0.13 (0.13) 0.26 (0.19) Weighted Average Shares Outstanding: Basic 2,726,320 2,726,320 2,726,32 2,726,32 0 0 Plus: Incremental shares from stock options - - - 7,294 Diluted 2,733,614 2,726,320 2,726,32 2,726,32 0 0
Inventories Inventories consist of the following:
September 30, 2003 March 31, 2003 Aircraft parts and supplies $ $ 1,999,983 2,088,315 Aircraft equipment manufacturing: Raw materials 3,722,547 2,595,448 Work in process 872,128 745,409 Finished goods 1,416,282 1,940,077 Total Inventory 8,010,940 7,369,249 Reserves (1,192,430) (1,093,961) Total, net of reserves $ $ 6,818,510 6,275,288
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 effective for the Company beginning April 1, 2003. Adoption of SFAS No. 143 did not have an 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 was effective for the Company beginning April 1, 2002. 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 condensed consolidated statements of financial position and results of operations and is detailed in Note H 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, initial recognition and initial measurement provisions of this Interpretation are currently effective and did not affect our financial position and results of operations for the three and six months ended September 30, 2003. The Company's ground equipment subsidiary warranties its products for up to a two-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known. As of September 30, 2003 the Company's warranty reserve amounted to $150,000. Product warranty reserve activity during the six-months ended September 30, 2003 is as follows: Balance at 3/31/03 $116,000 Additions to reserve 66,000 Use of reserve (32,000) Balance at 9/30/03 $150,000 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. The Company has elected to continue to account for its stock-based compensation under the provisions of Accounting Principles Bulletin No. 25. The Company has applied the fair value recognition provisions of SFAS NO. 123 to its stock-based compensation and has determined that there is no effect on net income and earnings per share for the three-month and six-month periods ended September 30, 2003 and 2002 respectively. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). This Interpretation requires that variable interest entities created after January 31, 2003, and variable interest entities in which an interest is obtained after that date, be evaluated for consolidation into an entity's financial statements. For variable interest entities created or acquired prior to that date, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 31, 2003. The adoption of FIN 46 is not expected to 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 beginning July 1,2003, although 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 Company's financial position or results of operations. Derivative Financial Instruments As required by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", the Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. The Company is exposed to market risk, such as changes in interest rates. To manage the volatility relating to interest rate risk, the Company may enter into interest rate hedging arrangements from time to time. The Company does not utilize derivative financial instruments for trading or speculative purposes. During the second quarter of fiscal 2003, the Company had outstanding two interest rate swaps with a notional amount of $2.4 million, and $2 million respectively. These agreements were originally entered into at respective interest rates of 6.97% and 6.5% respectively. On July 31, 2002 the Company elected to unwind its $2,000,000 (6.5%) revolving credit line swap in consideration for $58,750, the fair-market-value termination fee as of that date. The fair value of the remaining swap changed by $30,000 from a liability of $129,000 at March 31, 2003, to a liability of $99,000 as of September 30, 2003. This liability is included in long-term debt in the condensed consolidated balance sheets. The Company assesses the effectiveness of the swap using the hypothetical derivative method. On October 30, 2003, the Company terminated its remaining credit line swap for $97,500. The amount included in accumulated other comprehensive loss of $99,000 will be reclassified to earnings as interest expense is recognized over the remaining term of the thanks line. G. Financing Arrangements On August 31, 2003 the Company amended its $7,000,000 secured long-term revolving credit line to extend its expiration date to August 31, 2005. The revolving credit line contains customary events of default, a subjective acceleration clause and restrictive covenants that, among other matters, require the Company to maintain certain financial ratios. Under the provisions of the revolving credit line, the sale of MAS as described in Note H. would be considered an event of default. The Company has obtained a waiver for this covenant as of September 30, 2003. As of September 30, 2003, the Company was in compliance with all of the restrictive covenants. The amount of credit available to the Company under the agreement at any given time is determined by an availability calculation, based on the eligible borrowing base, as defined in the credit agreement, which includes the Company's outstanding receivables, inventories and equipment, with certain exclusions. The credit facility is secured by substantially all of the Company's assets. Amounts advanced under the credit facility bear interest at the 30-day "LIBOR" rate plus 137 basis points. The LIBOR rate at September 30, 2003 was 1.11%. At September 30, 2003 and March 31, 2003, the amounts outstanding against the line were $271,000 and $2,217,000, respectively. At September 30, 2003, $3,479,000 was available under the terms of the credit facility. The Company has classified its outstanding bank debt of $271,000 as long-term as of September 30, 2003, to reflect the terms included under the amendment signed on August 31, 2003. H. Discontinued Operations During the fourth quarter of fiscal 2003, Company management agreed to a plan to sell the assets of Mountain Aircraft Services, LLC (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 and closed on the transaction on August 14, 2003. In conjunction with the above 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 agreement signed on August 14, 2003, the Company also entered into a three year consignment agreement granting the buyer an exclusive right to sell the remaining $1,025,000 net value of MAS inventory included in the Company's condensed consolidated balance sheet as of September 30, 2003. Upon termination of the consignment agreement the buyer will return all unsold inventory to the Company. Accordingly, the accompanying condensed 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 September 30, 2003 and March 31, 2003 is as follows:
September 30, 2003 March 31, 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 for the six-months ended September 30, 2003 and 2002 is as follows: 2003 2002 Revenue $ 2,565,931 $ 2,749,546 Operating Loss $ (373,819) $ (193,965) Loss before income taxes $ (571,897) $ (427,864) Income tax benefit 223,040 166,867 Net loss $ (348,857) $ (260,997) I. 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. On August 14, 2003, the Company closed on its transaction to sell certain assets and the business operations of MAS. Therefore the operations of MAS and the consigned inventory, as discussed in Note H. Discontinued Operations, are 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 Corporation, and the ground equipment segment encompasses the operations of Global Ground Support, LLC. Segment data is summarized as follows:
Three months ended September 30, Six months ended September 30, 200 200 2003 200 3 2 2 Operating Revenues Overnight Air $ $ $ 15,799,774 $ Cargo 8,5 7,7 14, 14, 15, 338 306 802 ,48 5 Ground Equipment 8,879,365 5,1 1,4 5,0 08, 58, 34, 772 718 177 Total $ $ $ 24,679,139 $ 13, 9,1 19, 623 74, 372 ,07 520 ,66 8 2 Operating Income (Loss) Overnight Air $ $ $ 2,006,175 Cargo 988 694 1,3 ,37 ,87 09, 8 6 510 Ground Equipment 1,013,381 694 (55 (56 ,97 2,6 9,2 1 03) 57) Corporate (1) (1,405,471) (74 (53 (1, 4,2 1,9 089 10) 93) ,18 3) Total $ $ $ 1,614,085 $ 939 (38 (34 ,13 9,7 8,9 9 20) 30) Depreciation and Amortization Overnight Air $ $ $ 110,476 Cargo 55, 64, 129 675 808 ,74 3 Ground Equipment 82,067 40, 46, 94, 399 123 184 Corporate 82,834 41, 35, 70, 746 667 094 Total $ $ $ 275,377 $ 137 146 294 ,82 ,59 ,02 0 8 1 Capital Expenditures, net Overnight Air $ $ $ 32,148 $ Cargo 23, 9,1 17, 534 38 752 Ground Equipment 15,548 11, 90, 94, 131 467 884 Corporate 23,345 22, 79, 79, 548 057 854 Total $ $ $ 71,041 $ 57, 178 192 213 ,66 ,49 2 0 11 As of Sep Mar tem ch ber 31, 30, 200 200 3 3 Identifiable Assets Overnight Air $ $ Cargo 4,3 4,1 81, 30, 440 676 Ground Equipment 10, 8,6 115 15, ,53 032 1 Corporate 3,1 4,6 61, 84, 239 070 Total $ $ 17, 17, 658 429 ,21 ,77 0 8
J. 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. Recently the plaintiffs amended the complaint to add a patent infringement claim, which appears to involve the same materials and information that constitute the alleged trade secrets Global has not yet responded to the newly-filed patent claim. The Company does not believe that the action has any merit and intends to defend the lawsuit vigorously. In November 2002, Global and the Company filed suit in North Carolina state court against affiliates of the plaintiffs in the Catalyst & Chemical Services et al v. Terex, et al action alleging defamation. This action has been removed to, and is pending before, the United States District Court for the District of Columbia. The Company is currently aware of certain intellectual property and environmental matters, some of which involve pending or threatened lawsuits. If adversely decided, management believes the results of these pending or threatened lawsuits would not have a material adverse effect on the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Continuing Operations. Overview The Company's most significant component of revenues, which accounted for 64.0% of revenues for the six months ended September 30, 2003, was generated by its air cargo subsidiaries, Mountain Air Cargo, Inc.(MAC) and CSA Air, Inc.(CSA). MAC and CSA are short-haul express air freight carriers. MAC and CSA's revenues contributed approximately $15,800,000 and $14,338,000 to the Company's revenues for the six-month periods ended September 30, 2003 and 2002, respectively. The increase in revenues was primarily attributed to increased cargo and maintenance services, related to aircraft fleet modernization and route expansion, provided during the current period. Under the terms of the dry-lease service agreements, which currently cover approximately 98% of the revenue-generating aircraft operated, the Company passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost. Separate agreements cover the four types of aircraft operated by MAC and CSA-Cessna Caravan, Fokker F-27, ATR 42 and Short Brothers SD3-30. Cessna Caravan and Fokker F-27 and ATR 42 aircraft (a total of 99 aircraft at September 30, 2003) are owned by and dry-leased from Federal Express Corporation (Customer), and Short Brothers SD3-30 aircraft (two aircraft at September 30, 2003) 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. Agreements are renewable annually and may be terminated by the Customer at any time upon 15 to 30 days' notice. The Company believes that the short term and other provisions of its agreements with the Customer are standard within the air freight contract delivery service industry. The Company is not contractually precluded from providing such services to other firms, and has done so in the past. Loss of its contracts with the Customer would have a material adverse effect on the Company. Global Ground Support, LLC (Global), another subsidiary of the Company, manufactures, services and supports aircraft deicers and other specialized equipment on a worldwide basis. Global's revenue contributed approximately $8,879,000 and $5,034,000 to the Company's revenues for the six-month periods ended September 30, 2003 and 2002, respectively. The increase in revenues in 2003 was primarily related to a current period increase in sales of mobile deicers and a large scale airport contract. Until the second quarter of fiscal 2004, the business of Global had been adversely affected by reduced orders from commercial airlines and aviation related companies. The decrease in orders, which started in early 2001, declined further after September 11, 2001. Global, which also derives a significant portion of its revenue from sale of products for military applications, experienced temporary declines in orders for certain military programs due to funding delays during fiscal 2003. 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. The subsidiaries have been combined into the following reportable segments: overnight air cargo and ground equipment in the accompanying condensed consolidated financial statements. Critical Accounting Policies and Estimates The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company's estimates and assumptions, related to both continuing and discontinued operations could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The most significant estimates made by management include allowance for doubtful accounts receivable, reserves for excess and obsolete inventories, deferred tax asset valuation, retirement benefit obligations and valuation of revenue recognized under the percentage of completion method. Following is a discussion of critical accounting policies and related management estimates and assumptions necessary in determining the value of related assets or liabilities. Allowance for Doubtful Accounts. An allowance for doubtful accounts receivable is established based on management's estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports and customer financial condition. The estimates can be affected by changes in the aviation industry, customer credit issues or general economic conditions. Inventories. The Company's parts inventories are valued at the lower of cost or market. Provisions for excess and obsolete inventories are based on assessment of slow-moving and obsolete inventories. Historical part usage, estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates. Estimates are subject to volatility and can be affected by reduced equipment utilization, the retirement of aircraft or ground equipment and changes in the aviation industry. Deferred Taxes. Deferred tax assets and liabilities net of valuation allowance, if any, reflect the likelihood of the recoverability of these assets. Company judgement of the recoverability of these assets is based primarily on estimates of current and expected future earnings and tax planning. Retirement Benefits Obligation. The Company currently determines the value of retirement benefits assets and liabilities on an actuarial basis using an appropriate discount rate. Values are affected by the Company's outside actuary's estimates of the expected return on insurance policies and the discount rates used. Changes in the discount rate used will affect the amount of pension gain or loss recognized in other comprehensive income. Revenue Recognition. Cargo revenue is recognized upon completion of contract terms and maintenance revenue is recognized when the service has been performed. Revenue from product sales is recognized when contract terms are completed and title has passed to customers. Revenues from overhaul contracts on customer owned parts, certain labor service contracts and long term fixed price manufacturing projects are recognized on the percentage-of- completion method. Revenues for contracts under percentage of completion are measured by the percentage of cost incurred to date, to estimated total cost for each contract or workorder; unanticipated changes in job performance, job conditions and estimated profitability may result in revisions to costs and income, and are recognized in the period in which the revisions are determined. Seasonality Global's business has historically been highly seasonal. Due to the nature of its product line, the bulk of Global's revenues and earnings have typically occurred during the second and third fiscal quarters in anticipation of the winter season, and comparatively little has occurred during the first and fourth fiscal quarters. The Company has continued its efforts to reduce Global's seasonal fluctuation in revenues and earnings by broadening its product line to increase revenues and earnings in the first and fourth fiscal quarters. Global is currently in the fifth year of a multi-year 1999 contract to supply deicing equipment to the United States Air Force, and has been awarded two large scale contracts, each of which the Company believes contributed to management's plan to reduce seasonal airport deicer fluctuation in revenues. However, as these contracts are completed, seasonal trends for Global's business may resume. The remainder of the Company's business is not materially seasonal. Results of Operations The operations of MAS have been reclassified as discontinued operations and, therefore, are not included in the Results of Continuing Operations discussed below. Consolidated revenue increased $5,306,000 (27.4%) to $24,679,000 and $4,449,000 (48.5%) to $13,623,000, respectively, for the six and three-month periods ended September 30, 2003 compared to their equivalent 2002 periods. The six and three- month current period net increase in revenue primarily resulted from increased revenue at both Global and MAC, as described in the Overview section of Item 2. Operating expenses increased $3,343,000 (17.0%) to $23,065,000 for the six-month period ended September 30, 2003 and $3,120,000 (32.6%) to $12,684,000 for the three-month period ended September 30, 2003 compared to their equivalent 2002 periods. The change in operating expenses for the six-month period consisted of the following: cost of flight operations increased $11,000 (0.2%), primarily as a result of schedule changes which increased costs associated with airport fees, pilot salaries and travel partially offset by decreased fuel costs; maintenance expense increased $681,000 (14.0%), primarily as a result of increases in the cost of parts, outside maintenance and maintenance salaries, related to aircraft fleet modernization and route expansion; ground equipment increased $2,399,000 (56.4%), as a result of higher cost of parts and labor associated with increased Global sales; and general and administrative expense increased $271,000 (7.8%) primarily as a result of increased profit sharing accrual, staffing, contract labor, rent and professional fees. The change in operating expenses for the three-month period consisted of the following: cost of flight operations increased $68,000 (1.9%), primarily as a result of schedule changes which increased costs associated with airport fees, pilot salaries and travel partially offset by decreased fuel costs; maintenance expense increased $423,000 (15.6%), primarily as a result of increased cost of parts, outside maintenance and maintenance salaries stated above; ground equipment increased $2,416,000 (176.9%), as a result of higher cost of parts and labor associated with increased Global sales; and general and administrative expense increased $221,000 (13.0%) primarily as a result of increased profit sharing accrual, staffing, rent, contract labor and professional fees. As discussed above, the current six month period's increased revenues and related operating income resulted primarily from increased production related to commercial equipment orders and a large scale airport contract at Global and increased service revenues in the air cargo sector. During the six month period ended September 30, 2003 Global's revenue and operating income increased $3,845,000 (76.4%) and $1,583,000 (278.2%), respectively, to $8,879,000 and $1,013,000, respectively, compared to the six months ended September 30, 2002. Net non-operating income increased $233,000 and $41,000, respectively, for the six and three-month periods ended September 30, 2003 compared to September 30, 2002. The six-month increase in non-operating income was principally due to no loss on impairment of marketable securities in the current year and decreased interest expense. The three-month increase was principally due to decreased interest expense. Pretax earnings increased $2,196,000 and $1,370,000, respectively, for the six and three-month periods ended September 30, 2003, compared to their respective September 30, 2002 periods. The six-month increase was principally due to the above stated increase in air cargo and ground equipment earnings. The provision for income taxes increased $877,000 and $534,000 for the six and three-month periods ended September 30, 2003, respectively compared to their respective 2002 periods, primarily due to the increased profits for the periods ended September 30, 2003. The effective tax rate for the three and six- month periods ended September 30, 2003 and 2002 averaged approximately 39%. Liquidity and Capital Resources As of September 30, 2003 the Company's working capital amounted to $8,536,000, a decrease of $1,049,000 compared to March 31, 2003. The net decrease primarily resulted from decreased assets held for sale and accounts receivable and increased accrued expenses, partially offset by increased inventory and decreased accounts payables and billings in excess of cost. On August 31, 2003 the Company amended its $7,000,000 secured long-term revolving credit 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. Under the provisions of the revolving credit line, the sale of MAS as described in Note H. would be considered an event of default. The Company has obtained a waiver for this covenant as of September 30, 2003. As of September 30, 2003, the Company was in compliance with all of the restrictive covenants. The amount of credit available to the Company under the agreement at any given time is determined by an availability calculation, based on the eligible borrowing base, as defined in the credit agreement, which includes the Company's outstanding receivables, inventories and equipment, with certain exclusions. The credit facility is secured by substantially all of the Company's assets. Amounts advanced under the credit facility bear interest at the 30-day "LIBOR" rate plus 137 basis points. The LIBOR rate at September 30, 2003 was 1.11%. At September 30, 2003 and March 31, 2003, the amounts outstanding against the line were $271,000 and $2,217,000, respectively. At September 30, 2003, an additional $3,479,000 was available under the terms of the credit facility. The Company has not currently, nor in the past, engaged in the use of structured finance arrangements, known as off-balance sheet financing transactions, with unconsolidated entities or other persons. The Company has classified the $271,000 outstanding balance on its credit line as of September 30, 2003 as long-term to reflect the terms included under the amendment signed on August 31, 2003. The respective six-month periods ended September 30, 2003 and 2002 resulted in the following changes in cash flow: operating activities provided $481,000 and $93,000, investing activities provided $1,805,000 and used $52,000 and financing activities used $1,953,000 and $1,000. Net cash increased $333,000 and $40,000 for the respective six-month periods ended September 30, 2003 and 2002. Cash provided by operating activities was $388,000 more for the six-months ended September 30, 2003 compared to the similar 2002 period, principally due to increased earnings and accrued expenses, offset by decreased accounts payable, billings in excess of cost and an increase in inventory. Cash provided by investing activities for the six-months ended September 30, 2003 was approximately $1,857,000 more than the comparable period in 2002, principally due to proceeds from the sale of MAS assets-discontinued operations and marketable securities and decreased capital expenditures. Cash used in financing activities for the six-months ended September 30, 2003 was approximately $1,952,000 more than the comparable 2002 period, principally due to a decrease in net borrowings under the line of credit in 2003 partially offset by a current period decrease in cash dividend. There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1998, adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the board. On May 27, 2003, the Company declared that, due to losses sustained in fiscal 2003, no common share dividend would be paid during fiscal 2004. Deferred Retirement Obligation Contractual death benefits for the Company's former Chairman and Chief Executive Officer who passed away on April 18, 1997 are payable by the Company in the amount of $75,000 per year for 10 years from the date of his death. Impact of Inflation The Company believes the impact of inflation and changing prices on its revenues and net earnings will not have a material effect on its manufacturing operations because increased costs due to the currently low level of inflation could be passed on to its customers, or on to its air cargo business since the major cost components of its operations, consisting principally of fuel, crew and certain maintenance costs are reimbursed, without markup, under current contract terms. 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 effective for the Company beginning April 1, 2003. Adoption of SFAS No. 143 did not have an 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 was effective for the Company beginning April 1, 2002. 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 condensed consolidated statements of financial position and results of operations and is detailed in Note H Discontinued Operations in the Company's financial statements. 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, initial recognition and initial measurement provisions of this Interpretation are currently effective and did not affect our financial position and results of operations for the three and six months ended September 30, 2003. The Company's ground equipment subsidiary warranties its products for up to a two-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known. As of September 30, 2003 the Company's warranty reserve amounted to $150,000. Product warranty reserve activity during the six-months ended September 30, 2003 is as follows: Balance at 3/31/03 $116,000 Additions to reserve 66,000 Use of reserve (32,000) Balance at 9/30/03 $150,000 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. The Company has elected to continue to account for its stock-based compensation under the provisions of Accounting Principles Bulletin No. 25. The Company has applied the fair value recognition provisions of SFAS NO. 123 to its stock-based compensation and has determined that there is no effect on net income and earnings per share for the three-month and six-month periods ended September 30, 2003 and 2002 respectively. In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"). This Interpretation requires that variable interest entities created after January 31, 2003, and variable interest entities in which an interest is obtained after that date, be evaluated for consolidation into an entity's financial statements. For variable interest entities created or acquired prior to that date, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 31, 2003. The adoption of FIN 46 is not expected to 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 beginning July 1,2003, although 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 Company's financial position or results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company does not hold or issue derivative financial instruments for trading purposes. As of September 30, 2003 the Company had outstanding one interest rate swap agreement to reduce its exposure to the fluctuations of LIBOR-based variable interest rates. The Company is exposed to changes in interest rates on certain portions of its line of credit, which bears interest based on the 30-day LIBOR rate plus 137 basis points. If the LIBOR interest rate had been increased by one percentage point, based on the balance of the line of credit at September 30, 2003, interest expense for the six months ended September 30, 2003 would have increased by approximately $1,500. On October 30, 2003 the Company terminated its remaining credit line swap for $97,500. Item 4. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, and they have concluded that these disclosure controls and procedures are effective. During the quarter ended September 30, 2003, the Company made certain changes to its internal control procedures related to operations to enhance procedures to verify the independence of vendors and to periodically review nonstandard payment terms required by vendors. There was no change in internal controls over financial reporting during or subsequent to the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. PART II -- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) 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, 2003 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 10.15 Amendment No 2. to Loan Agreement among Bank of America N.A. the Company and its subsidiaries, dated August 31, 2003. 21.1 List of subsidiaries of the Company, incorporated by reference to Exhibit 21.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997 31.1 Section 302 Certification of Walter Clark 31.2 Section 302 Certification of John J. Gioffre 32.1 Section 906 Certification of Walter Clark 32.2 Section 906 Certification of John J. Gioffre _______________________ * Management compensatory plan or arrangement required to be filed as an exhibit to this report. b. Reports on Form 8-K No Current Reports on Form 8-K were filed in the three months ended September 30, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AIR T, INC. (Registrant) Date: November 6, 2003 Walter Clark, Chief Executive Officer Date: November 6, 2003 John J. Gioffre, Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AIR T, INC. (Registrant) Date: November 6, 2003 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: November 6, 2003 /s/ John Gioffre John J. Gioffre, Chief Financial Officer AIR T, INC EXHIBIT INDEX PAGE 10.1 Amendment No 2. to Loan Agreement among Bank of America N.A. the Company and its subsidiaries, dated August 31, 2003. 31.1 Section 302 Certification of Walter Clark 22 31.2 Section 302 Certification of John J. Gioffre 23 32.1 Section 906 Certification of Walter Clark 24 32.2 Section 906 Certification of John J. Gioffre 25 EX-10 4 amnd.txt BANK OF AMERICA AMENDMENT #2 AMENDMENT NO. 2 TO LOAN DOCUMENTS This Amendment No. 2 (the "Amendment") dated as of August 31, 2003, is between Bank of America, N.A. ("Lender") and Air T, Inc. and Affiliates: CSA Air, Inc., Mountain Air Cargo, Inc., Mountain Aircraft Services, LLC, and Global Ground Support, LLC ("Borrower"). RECITALS A. Borrower has executed various documents concerning credit extended by the Lender, including, without limitation, the following documents (the "Loan Documents"): 1. A certain Loan Agreement and Exhibit "A" Borrowing Base Agreement dated as of May 23, 2001 and as amended on August 31, 2002 (together with any previous amendments, the "Loan Agreement"). B. Lender and Borrower desire to amend the Loan Documents. AGREEMENT 1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Loan Documents. 2. Amendments to Loan Agreement. The Loan Agreement is hereby amended as follows: (a) Modification of Paragraph. The paragraph entitled "AFFIRMATIVE COVENANTS under (A) Financial Condition subparagraph (iii)" is hereby amended to read in its entirety as follows: Maintain on a consolidated basis a ratio of Funded Debt to EBITDA not exceeding 3.0:1.0. "Funded Debt" means all outstanding liabilities for borrowed money and other interest-bearing liabilities, including current and long-term debt, less the non-current portion of Subordinated Liabilities. "EBITDA" means net income, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, amortization and other non-cash charges. This ratio will be calculated at the end of each reporting period for which Bank requires financial statements from Borrower, using the results of the twelve-month period ending with that reporting period. "Subordinated Liabilities" means liabilities subordinated to Borrower's obligations to Bank in a manner acceptable to Bank in its sole discretion. (b) Modification of Paragraph. The paragraph entitled "AFFIRMATIVE COVENANTS under Financial Statements and Other Information (B [subparagraphs i & ii])" is hereby amended to read in its entirety: i. Furnish to Bank annual audited financial statements and 10K filings of Air T, Inc. for each fiscal year of Borrower, within 150 days after the close of each such fiscal year. These statements will be on a consolidated basis. ii. Furnish to Bank company prepared 10Q filings and related financial statements of Air T, Inc., including a balance sheet and income statement for each quarter of each fiscal year, within 60 days after the close of each such period. These statements will be on a consolidated basis. (c) Modification of Borrowing Base Agreement. The Borrowing Base Agreement is modified as follows: "Maximum amount shall mean the lesser of $7,000,000.00 or the Borrowing Base. The "Borrowing Base" at any time, shall be equal to (i) 85% of Eligible Accounts Receivables, plus (ii) 50% of *Eligible Accounts Receivable - Accruals plus (iii) 50% of the value of Eligible Inventory plus, (iv) 40% of Eligible of Inventory-parts, total Eligible Inventory availability not to exceed 50% of loan balance plus (v) 50% of adjusted book value of Property, Plant and Equipment. *As used herein, "Eligible Accounts Receivable - Accruals" shall mean all accounts receivable of Borrower which represent Borrower's right to receive payment, which are absolute and not contingent upon the fulfillment of any condition whatsoever, but have not yet been invoiced, due to an existing agreement with the Customer. (d) Addition to Borrowing Base Agreement. The following paragraph is added to the Borrowing Base Agreement as follows: "Rent at leased locations (subject to statutory or contractual landlord's liens) if Borrowing Base leverage goes over 70% for 90 days, reserves in the amount of 2 times rent for the Kansas location (Global) will be required. (e) Addition of Reporting Requirement to Borrowing Base Agreement: The following reporting requirement is added as follows: Accounts Payable Aging: Not later than 25 days after and as of the end of each month, a Summary Aging of Borrower's Trade Accounts Payable. 3. Representations and Warranties. When Borrower signs this Amendment, Borrower represents and warrants to Lender that: (a) there is no event which is, or with notice or lapse of time or both would be, a default under the Loan Documents except those events, if any, that have been disclosed in writing to Lender or waived in writing by Lender, (b) the representations and warranties in the Loan Documents are true as of the date of this Amendment as if made on the date of this Amendment, (c) this Amendment does not conflict with any law, agreement, or obligation by which Borrower is bound, and (d) this Amendment is within Borrower's powers, has been duly authorized, and does not conflict with any of Borrower's organizational papers. 4. Effect of Amendment. Except as provided in this Amendment, all of the terms and conditions of the Loan Documents shall remain in full force and effect. 5. Counterparts. This Amendment may be executed in counterparts, each of which when so executed shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 6. FINAL AGREEMENT. THIS WRITTEN AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES. This Amendment is executed as of the date stated at the beginning of this Amendment. Bank of America, N.A. By Typed Name Title Air T, Inc. CSA Air, Inc. By (Seal) By (Seal) Typed Name Typed Name Title Title Mountain Air Cargo, Inc. Mountain Aircraft Services, LLC By (Seal) By (seal) Typed Name Typed Name Title Title ] Global Ground Support, LLC By (Seal) Typed Name Title Amend_lp.doc 1 02/28/02 EX-31 5 wc.txt AIR T, INC. SEPTEMBER 30, 2003-CERT OF WALTER CLARK Exhibit 31.1 CERTIFICATION I, Walter Clark, Chief Executive Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Air T, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ Walter Clark Walter Clark, Chief Executive Officer EX-31 6 jg.txt AIR T, INC. SEPTEMBER 30, 2003-CERT OF JOHN J. GIOFFRE Exhibit 31.2 CERTIFICATION I, John Gioffre, Chief Financial Officer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Air T, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 12, 2003 /s/ John J. Gioffre John J. Gioffre, Chief Financial Officer EX-32 7 wcsmry.txt AIR T, INC. SEPTEMBER 30, 2003-CERT OF WALTER CLARK Exhibit 32.1 CERTIFICATION The undersigned hereby certifies in his capacity as an officer of Air T, Inc. (the "Company") that the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period. Date: November 12, 2003 /s/ Walter Clark Walter Clark, Chief Executive Officer EX-32 8 jgsmry.txt AIR T, INC. SEPTEMBER 30, 2003-CERT OF JOHN J. GIOFFRE Exhibit 32.2 CERTIFICATION The undersigned hereby certifies in his capacity as an officer of Air T, Inc. (the "Company") that the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2003 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period. Date: November 12, 2003 /s/ John J. Gioffre John J. Gioffre, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----