-----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, DNqtGtxSDw9abijNSJJp7FtWSresXHYXzYSi3TLb60KrU0GOojnvZO+ZZaTNDPLM /4kshmGrMpuVSnQk3RVCxw== 0000353184-04-000038.txt : 20041110 0000353184-04-000038.hdr.sgml : 20041110 20041110155847 ACCESSION NUMBER: 0000353184-04-000038 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20041110 DATE AS OF CHANGE: 20041110 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11720 FILM NUMBER: 041133203 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-K/A 1 tenka.txt AIR T, INC. 3/31/04 10K/A 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 EX-23 3 dttenka.txt AIR T, INC. 3/31/04 10K/A CONSENT LETTER FROM DELOITTE Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement No. 333-37224 on Form S-8 of Air T, Inc. and subsidiaries of our report dated June 21, 2004 which report expresses an unqualified opinion, appearing in this Annual Report on Form 10-K/A of Air T, Inc. for the year ended March 31, 2004. /s/ Deloitte & Touche LLP Charlotte, North Carolina November 9, 2004 EX-31 4 wctenka.txt AIR T, INC. 3/31/04 10K/A WALTER CLARK CERTIFICATION Exhibit 31.1 CERTIFICATION I, Walter Clark, Chief Executive Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K/A 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 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)) 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) 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 (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter 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 10, 2004 /s/ Walter Clark Walter Clark Chief Executive Officer EX-31 5 jgtenka.txt AIR T, INC. 3/31/04 10K/A JOHN GIOFFRE CERTIFICATION Exhibit 31.2 CERTIFICATION I, John Gioffre, Chief Financial Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K/A 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 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)) 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) 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 (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter 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 10, 2004 /s/ John J. Gioffre John J. Gioffre Chief Financial Officer EX-32 6 wcjgka.txt AIR T, INC. 3/31/04 10K/A 1350 CERTIFICATION Exhibit 32.1 CERTIFICATION The undersigned hereby certifies in his capacity as an officer of Air T, Inc. (the "Company") that, to the best of his knowledge, the Annual Report of the Company on Form 10-K for the fiscal year ended March 31, 2004, as amended by Amendment No. 1 on Form 10-K/A, 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 10, 2004 /s/ Walter Clark Walter Clark, Chief Executive Officer Date: November 10, 2004 /s/ John J. Gioffre John J. Gioffre, Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----