Air T, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2013, compared with fiscal 2012. The filing is an annual report rather than a quarterly report; the supplied “2012 Q4” metadata does not match the filing period.
Business Context
Air T operates three segments: overnight air cargo services through Mountain Air Cargo and CSA Air; ground equipment sales through Global Ground Support; and ground support and airport facility maintenance through Global Aviation Services. FedEx accounted for 48% of consolidated revenue and all overnight air cargo revenue. The company operated 85 FedEx aircraft at March 31, 2013, including eight soft-parked aircraft.
Financial Performance and Liquidity
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Revenue | $103.1 million | $89.4 million | +15% |
| Operating income | $2.7 million | $2.1 million | +32% |
| Operating margin | 2.6% | 2.3% | Improved |
| Net income | $1.67 million | $1.35 million | +24% |
| Diluted EPS | $0.68 | $0.55 | +24% |
| Net margin | 1.6% | 1.5% | Improved |
| Cash flow from operations | $4.36 million | $0.75 million | Increase of $3.61 million |
| Capital expenditures | $0.38 million | $1.00 million | Decreased |
| Cash and equivalents | $9.20 million | $5.81 million | +58% |
| Working capital | $22.67 million | $22.15 million | +$0.52 million |
| Long-term debt, including current portion | None | None | No change |
Revenue mix was 48% overnight air cargo, 39% ground equipment sales and 13% ground support services. The company had a fully available $7.0 million secured revolving credit facility expiring August 31, 2014, with no balance outstanding. Operating cash flow benefited substantially from a $4.6 million inventory reduction, partly offset by a $2.7 million increase in accounts receivable.
Material Changes Versus Prior Period
- Overnight air cargo revenue increased 3% to $49.9 million, but segment operating income declined 14% to $3.1 million because of higher management, flight and maintenance department costs.
- Ground equipment sales increased 26% to $40.3 million and moved from a $0.6 million operating loss to $0.9 million of operating income. The improvement was driven primarily by $7.7 million of USAF flight-line tow tractor sales versus $85,000 in the prior year, although margins on those sales were described as very slim.
- Ground support services revenue increased 44% to $12.9 million, while operating income increased 24% to $0.9 million. New customers and locations drove growth, but startup and station operating costs reduced margins.
- Backlog declined to $6.5 million from $15.3 million; management expected all FY2013 backlog to be fulfilled in fiscal 2014.
- GGS inventory-reduction initiatives materially improved operating cash flow. The company also reclassified equipment leased to customers from inventory to property and equipment.
- General and administrative expense increased 10% to $12.5 million, including higher staffing, professional fees and profit-sharing costs.
Outlook, Risks and Unusual Items
- No quantitative revenue or earnings guidance was provided.
- Current FedEx agreements extended through October 31, 2013 and could be terminated by FedEx on 30 days’ notice. Replacement negotiations had been put on hold, although management expected agreements to be negotiated in the future; terms could differ materially.
- USAF contracts were subject to annual extension options and did not require minimum purchases. Deicing and tow tractor volumes depend on USAF requirements and funding, with defense-budget reductions and sequestration identified as risks.
- GGS remains exposed to seasonal demand and weather conditions affecting deicing equipment sales. Competition and low margins, particularly on tow tractors, remain concerns.
- GAS depends materially on two customers, which represented approximately 55% of segment revenue. FedEx represented approximately 34% of consolidated accounts receivable at year-end.
- The company is subject to FAA certification and safety requirements, product and service liability risks, aviation-industry conditions, fuel and input-cost pressures, and customer concentration risk.
- The company reported no material pending litigation, but disclosed employment-related claims covered by insurance. Management believed these matters would not materially affect results or financial position.
- On May 17, 2013, the board declared a $0.30-per-share dividend payable June 28, 2013. The prior fiscal-year dividend was $0.25 per share.
- The independent auditor issued an unqualified opinion on the financial statements. Because Air T is a smaller reporting company, the auditor did not provide an attestation opinion on internal control over financial reporting; management concluded controls were effective.
Investor Verification Items
- Verify the status, economics and renewal terms of the FedEx agreements after October 31, 2013.
- Assess whether USAF order volumes and contract extensions can replace the unusually high FY2013 tow tractor contribution.
- Review the decline in backlog and its implications for FY2014 equipment revenue.
- Examine segment margins, especially the lower-margin ground equipment sales and startup costs at GAS.
- Reconcile operating cash flow with working-capital movements, particularly inventory reductions and rising accounts receivable.
- Review exposure to customer concentration, FAA compliance, weather-related seasonality, product liability and the disclosed related-party facility lease.