<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 1-13025
AIRNET SYSTEMS, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1458309
--------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3939 International Gateway, Columbus, Ohio 43219
-------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 237-9777
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(Registrant's telephone number, including area code)
NOT APPLICABLE
----------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
___ ___
Common Shares, $.01 Par Value,
Outstanding as of July 31, 2000 - 10,892,784
<PAGE>
AIRNET SYSTEMS, INC.
FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
<S> <C> <C>
Condensed Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 ............................................................ 3
Condensed Consolidated Statements of Operations for the three months and
six months ended June 30, 2000 and 1999 ...................................... 4
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 ....................................................... 5
Notes to Condensed Consolidated Financial Statements ......................... 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................................... 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk ...................11
PART II: OTHER INFORMATION
Items 1 through 6 ....................................................................12
Signatures .............................................................................14
</TABLE>
2
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<TABLE>
<CAPTION>
AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except share data JUNE 30, DECEMBER 31,
2000 1999
------------------- ------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,664 $1,667
Accounts receivable:
Trade, less allowances 16,261 14,919
Shareholders, affiliates, and associates 337 154
Inventory and spare parts 7,058 10,426
Taxes refundable 1,551 2,382
Deferred taxes 1,286 934
Deposits and prepaids 1,608 1,733
------------------- ------------------
Total current assets 29,765 32,215
Net property and equipment 83,739 84,733
Other assets:
Goodwill, net of accumulated amortization 7,746 7,920
Other intangibles, net of accumulated amortization 318 375
Investment in partnerships and other 1,967 2,234
------------------- ------------------
TOTAL ASSETS $123,535 $127,477
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,989 $5,203
Salaries and related liabilities 4,230 2,792
Accrued expenses 1,846 1,206
Deferred taxes 46 196
Current portion of notes payable 29 29
------------------- ------------------
Total current liabilities 11,140 9,426
Notes payable, less current portion 26,205 33,919
Deferred tax liability 11,398 10,381
Shareholders' equity:
Preferred shares, $.01 par value; 10,000,000 shares
authorized; and no shares issued and outstanding - -
Common shares, $.01 par value; 40,000,000 shares authorized;
and 12,753,000 shares issued at June 30, 2000
and December 31, 1999 128 128
Additional paid-in-capital 78,006 78,182
Retained earnings 18,548 15,207
Treasury shares, 1,870,000 and 1,343,000 shares held at cost
at June 30, 2000 and December 31, 1999, respectively (21,890) (19,766)
------------------- ------------------
Total shareholders' equity 74,792 73,751
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $123,535 $127,477
=================== ==================
</TABLE>
See notes to condensed consolidated financial statements
3
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AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
<TABLE>
<CAPTION>
In thousands, except per share data
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
NET REVENUES
Air transportation, net of excise tax
Bank delivery $25,825 $25,104 $50,905 $49,534
Express delivery 8,874 6,291 17,298 12,183
Fixed base and other operations 126 371 296 571
--------------- --------------- -------------- --------------
TOTAL NET REVENUES 34,825 31,766 68,499 62,288
COSTS AND EXPENSES
Air transportation 26,210 23,391 52,719 46,394
Fixed base operations 335 307 616 562
Selling, general and administrative 4,415 3,770 8,384 7,524
--------------- --------------- -------------- --------------
TOTAL COSTS AND EXPENSES 30,960 27,468 61,719 54,480
--------------- --------------- -------------- --------------
Income from operations 3,865 4,298 6,780 7,808
Interest expense 590 597 1,216 1,219
--------------- --------------- -------------- --------------
Income before income taxes 3,275 3,701 5,564 6,589
Provision for income taxes 1,309 1,517 2,224 2,691
--------------- --------------- -------------- --------------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 1,966 2,184 3,340 3,898
Cumulative effect of writing off start-up
costs, net of tax - - - (2,488)
--------------- --------------- -------------- --------------
NET INCOME $1,966 $2,184 $3,340 $1,410
=============== =============== ============== ==============
Income per common share - basic and assuming dilution
Income before cumulative effect of a
change in accounting principle $0.18 $0.19 $0.30 $0.34
Cumulative effect of writing off
start-up costs - - - (0.22)
--------------- --------------- -------------- --------------
Net income $0.18 $0.19 $0.30 $0.12
=============== =============== ============== ==============
</TABLE>
See notes to condensed consolidated financial statements
4
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AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED
In thousands JUNE 30,
2000 1999
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $3,340 $1,410
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Cumulative effect of writing off start-up costs - 2,488
Depreciation 6,951 5,443
Amortization of intangibles 263 437
Deferred taxes 516 (721)
Provision for losses on accounts receivable 88 90
Loss on disposition of assets 80 22
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (1,613) (3,729)
Inventory and spare parts 3,368 (1,146)
Prepaid expenses 125 410
Accounts payable (214) (878)
Accrued expenses 640 (2,159)
Taxes payable 831 2,689
Salaries and related liabilities 1,438 1,012
Other, net 250 82
--------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,063 5,450
INVESTING ACTIVITIES:
Purchases of property and equipment (6,049) (8,347)
Payments for covenants not to compete (15) (143)
Proceeds from sales of property and equipment 12 -
--------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (6,052) (8,490)
FINANCING ACTIVITIES:
Proceeds from 1996 Incentive Stock Plan programs 119 135
Net borrowings (repayments) under the revolving credit facility (7,700) 3,400
Repayment of long-term debt (14) (13)
Purchase of treasury shares (2,419) -
--------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,014) 3,522
--------------- --------------
Net increase (decrease) in cash (3) 482
Cash and cash equivalents at beginning of period 1,667 1,142
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,664 $1,624
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
AIRNET SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
AirNet Systems, Inc. and its subsidiaries ("AirNet" or the "Company") operate a
fully integrated national air transportation network which provides delivery
service for time-critical shipments for customers in the U.S. banking industry
and other industries requiring the express delivery of packages. AirNet also
offers retail aviation fuel sales and related ground services for customers at
its Columbus, Ohio facility.
The accompanying unaudited condensed consolidated financial statements include
the accounts of AirNet Systems, Inc. and its subsidiaries. These financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. These financial statements should be read in
conjunction with the year ended December 31, 1999 consolidated financial
statements of AirNet Systems, Inc. included in Item 8 of the Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 (File No. 1-13025) (the
"1999 Annual Report on Form 10-K") which contain additional disclosures
including a summary of AirNet's accounting policies.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results of interim periods. Certain
prior period balances have been reclassified to conform with the current year
presentation. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2000.
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in those financial
statements and accompanying notes thereto. Actual results could differ from
those estimates.
2. SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information, which established annual and interim reporting and
disclosure standards for an enterprise's operating segments. SFAS No. 131 became
effective for fiscal years beginning after December 15, 1997. The Company has
historically not segregated costs between its Bank Delivery and Express Delivery
operations. Prior to the quarter ended March 31, 2000, AirNet did not report
segment information due to accounting system limitations. The Company modified
its accounting systems and began reporting segment information on a going
forward basis beginning with the quarter ended March 31, 2000, as restatement of
prior periods is impracticable.
AirNet divides its business into two operating segments: Bank Delivery and
Express Delivery. The Bank Delivery segment transports canceled checks and
related information for the U.S. banking industry. The Express Delivery segment
provides specialized, high priority delivery service for customers requiring
late pick-ups and early deliveries combined with prompt, on-line delivery
information.
6
<PAGE>
The accounting policies used for each segment are described in Note 1 -
Significant Accounting Policies of the Notes to Consolidated Financial
Statements included in Item 8 of the 1999 Annual Report on Form 10-K. AirNet has
no inter-segment sales. AirNet's assets are not allocated between segments due
to significant overlap in usage of the aircraft fleet, vehicles and facilities.
Management evaluates the performance of each segment based on operating income.
Summarized financial information concerning AirNet's reportable segments is
shown in the following table for the three and six months ended June 30, 2000.
The "Other" category includes AirNet's fixed base operations and income and
expense not allocated to the reportable segments.
<TABLE>
<CAPTION>
(in thousands) Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------ ----------------
<S> <C> <C>
Net Revenues
Bank Delivery $25,825 $50,905
Express Delivery 8,874 17,298
Other 126 296
------------------ ---------------
Total 34,825 68,499
Income(loss) from operations
Bank Delivery 4,327 7,993
Express Delivery (317) (910)
Other (145) (303)
------------------ ---------------
Total $3,865 $6,780
</TABLE>
3. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income
per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Income before the cumulative effect of a change
in accounting principle $ 1,966 $ 2,184 $ 3,340 $ 3,898
Net income 1,966 2,184 3,340 1,410
Denominator:
Basic - weighted average shares outstanding 11,068 11,393 11,239 11,388
Diluted
Stock options - associates, officers, and directors - 5 - 2
------------ ------------- ------------ ------------
Adjusted weighted average shares outstanding 11,068 11,398 11,239 11,390
Income per common share - basic and assuming dilution:
Income before the cumulative effect of a change
in accounting principle $ 0.18 $ 0.19 $ 0.30 $ 0.34
Net income $ 0.18 $ 0.19 $ 0.30 $ 0.12
</TABLE>
For the three months and six months ended June 30, 2000, 1,177,000 common shares
subject to outstanding stock options were excluded from the diluted weighted
average shares outstanding calculation, as their exercise prices exceeded the
average fair market value of the underlying common shares for the period.
7
<PAGE>
AIRNET SYSTEMS, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT
Except for the historical information contained in this Form 10-Q, the matters
discussed, including, but not limited to, information regarding future economic
performance and plans and objectives of AirNet's management, are forward-looking
statements which involve risks and uncertainties. When used in this document,
the words "anticipate", "estimate", "expect", "may", "plan", "project" and
similar expressions are intended to be among statements that identify
forward-looking statements. Such statements involve risks and uncertainties
including, but not limited to, the following which could cause actual results to
differ materially from any such forward-looking statement: potential regulatory
changes by the Federal Aviation Administration ("FAA"), which could increase the
regulation of AirNet's business, or the Federal Reserve, which could change the
competitive environment of transporting canceled checks; adverse weather
conditions; the ability to attract and retain qualified pilots; technological
advances and increases in the use of electronic funds transfers; as well as
other economic, competitive and domestic and foreign governmental factors
affecting AirNet's markets, price and other facets of its operations. Should one
or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual outcomes may vary materially from those
indicated. AirNet undertakes no responsibility to update for changes related to
these or any other factors that may hereafter occur. Refer to the 1999 Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, for additional
detail relating to risk factors expressed in forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net revenues were $34.8 million for the three months ended June 30, 2000, an
increase of $3.1 million, or 9.6%, over the same period of 1999. Revenues from
Bank Delivery increased $0.7 million, or 2.9%. The increase in Bank Delivery
revenues is primarily the result of rate increases effective January 1, 2000.
Express Delivery revenues increased $2.6 million, or 41.1%. Within the Express
Delivery segment, revenues from premium and ground transportation services
increased $2.3 million due to the addition of new customers requiring
time-sensitive deliveries of just-in-time parts and medical products. In
addition, price increases to most customers were implemented on January 1, 2000.
Revenues from Mercury Business Services ("Mercury") accounted for $0.4 million
of the increase. These increases were offset by decreases in wholesale and
standard service revenues of approximately $0.1 million.
Total costs and expenses were $31.0 million for the three months ended June 30,
2000, an increase of $3.5 million, or 12.7%, over the same period in 1999,
resulting in income from operations of $3.9 million for the three months ended
June 30, 2000, compared to $4.3 million for the same period of 1999, or a 10.1%
decrease.
Air transportation expenses were up $2.8 million, or 12.1%, for the three month
period compared to the same period in 1999. Approximately $0.9 million of the
increase in transportation costs, including ground courier costs, operational
wages and related benefits, and commercial air freight cost, can be directly
attributed to the addition of sales contracts entered into in the third quarter
of 1999. Fuel costs increased $0.6 million but were offset by income from the
fuel surcharge program. Maintenance costs were up $0.2 million due to increased
labor and parts costs. Depreciation expense increased $0.7 million due to
aircraft additions and improvements. Wages and benefits expense increased $0.7
million due to increased pilot wages and the addition of an incentive
compensation plan in January 2000 which aligns personnel goals with AirNet's
financial
8
<PAGE>
performance. An increase of $0.2 million relates to the use of outside
charter operators due to a lack of pilots and the cost-effectiveness for
chartering certain routes. Costs associated with shipping packages with the
commercial airlines increased due to increased volumes associated with Mercury
and SDX (shipments via the commercial airlines) growth. Other operational costs
increased as a result of the increase in Express Delivery volumes.
Selling, general and administrative expense increased $0.6 million, or 17.1%,
over the same period in the prior year primarily due to the addition of the new
incentive compensation plan in January 2000 to align personnel goals with
AirNet's financial performance and commissions on increased Express sales.
Interest expense was $0.6 million for the three months ended June 30, 2000,
which is comparable to the interest expense for the three months ended June 30,
1999, as the notes payable balance was slightly lower but interest rates
increased in 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Revenues were $68.5 million for the six months ended June 30, 2000, an increase
of $6.2 million, or 10.0%, over the same period of 1999. Revenues from Bank
Delivery increased $1.4 million, or 2.8%. The increase in Bank Delivery revenues
is primarily the result of rate increases effective January 1, 2000. Express
Delivery revenues increased $5.1 million, or 42.0%. Increased revenues from
Mercury accounted for $0.6 million of the increase. Revenues from AirNet's
premium and ground transportation services increased $5.0 million due to the
addition of new customers requiring time-sensitive deliveries of just-in-time
parts and medical products. In addition, price increases to most customers were
implemented on January 1, 2000. These Express Delivery increases were offset by
decreases in standard, wholesale, and other service revenues. Fixed base and
other operations decreased $0.3 million compared to the prior year primarily due
to a $0.1 million loss on the sale of an aircraft in 2000 compared to a $0.2
million gain on the sale of an aircraft in the same period of 1999.
Total costs and expenses were $61.7 million for the six months ended June 30,
2000, an increase of $7.2 million, or 13.3%, over the same period in 1999
resulting in income from operations of $6.8 million for the six months ended
June 30, 2000 compared to $7.8 million for the same period of 1999. In the prior
year, AirNet adopted the provisions of the SOP 98-5, Reporting on the Costs of
Start-Up Activities, as of January 1, 1999. The effect of the adoption of SOP
98-5 was to record a charge for the cumulative effect of a change in accounting
principle of $2.5 million for the 1999 period, net of taxes of $1.7 million
($0.22 per common share), to expense costs that had been capitalized prior to
1999.
Air transportation expenses were up $6.3 million, or 13.6%. Approximately $2.0
million of the increase in transportation costs, including ground courier costs,
operational wages and related benefits, and commercial air freight cost, can be
directly attributed to the addition of sales contracts entered into in the third
quarter of 1999. Fuel costs increased by $1.6 million due to higher aviation
fuel prices and an increase in flight hours. However, the increase in these
costs were partially offset by income of $1.2 million from the fuel surcharge
program. Maintenance costs are up $0.4 million primarily due to increased labor
and parts costs. Depreciation expense is up $1.5 million due to aircraft
additions and improvements which occurred during 1999. Wages and benefits
expense increased $1.5 million due to increased pilot wages and the addition of
the 2000 incentive compensation plan. An increase of $0.5 million relates to the
use of outside charter operators due to a lack of pilots and the
cost-effectiveness of chartering certain routes. Crew training expense increased
$0.3 million due to outsourced flight simulator training beginning in late 1999.
Insurance expense decreased approximately $ 0.5 million due to premium
reductions and improved claims management in the aircraft, air cargo and workers
compensation areas. Other operational costs increased as a result of the
increase in Express Delivery volumes.
9
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Selling, general and administrative expenses increased $0.9 million, or 11.4%,
for the six month period. Of the increase in selling, general and administrative
expense, $0.7 million can be attributed to the 2000 incentive compensation plan.
Commissions expense increased $0.2 million due to the growth in Express Delivery
segment. In addition, amortization expense is down $0.2 million due to the
expiration of certain non-compete covenants in the third quarter of 1999.
Interest expense was $1.2 million for the six months ended June 30, 2000, which
is comparable to the interest expense for the six months ended June 30, 1999, as
the notes payable balance was slightly lower but interest rates increased
slightly from year to year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES. Net cash provided by operating activities
was $16.1 million for the six months ended June 30, 2000, compared to $5.4
million for the same period in 1999. The increase is partly the result of
proceeds associated with the sale of an aircraft in 2000 which was purchased in
1999 for resale purposes.
CURRENT CREDIT ARRANGEMENTS. AirNet maintains a credit agreement with a bank
that provides a $50.0 million unsecured revolving credit facility. The credit
agreement limits the availability of funds to designated percentages of accounts
receivable, inventory and the wholesale value of aircraft and equipment. In
addition, the credit agreement requires the maintenance of minimum net worth and
cash flow levels, imposes limits on payments of dividends to 50% of net income
and restricts the amount of additional debt which may be incurred. AirNet's
outstanding balance at June 30, 2000 was $26.2 million, which is a $7.7 million
decrease from the balance at December 31, 1999.
In September 1999, AirNet entered into two interest rate swap agreements with a
bank as a hedge against the interest rate risk associated with borrowings. The
swap agreements each have a notional amount of $5.0 million and effectively lock
in a portion of AirNet's variable rate revolving credit liability at fixed rates
of 6.3% and 6.5% plus a margin based on AirNet's funded debt ratio. These swap
agreements are in effect for a period of three years ending in September 2002.
The differential to be paid or received is accrued as interest rates change and
is recognized as an adjustment to interest expense in the statements of
operations. AirNet does not use derivative financial instruments for speculative
purposes.
INVESTING ACTIVITIES. Capital expenditures totaled $6.0 million for six months
ended June 30, 2000 compared to $8.3 million for the same period in 1999.
Substantially all of the 2000 expenditures were incurred for aircraft
inspections, major engine overhauls and related flight equipment. AirNet
anticipates it will have approximately $16.0 million in total capital
expenditures in 2000. AirNet anticipates it will continue to acquire aircraft
and flight equipment as necessary to maintain growth and continue offering
quality service to its customers.
STOCK REPURCHASE PROGRAM. AirNet announced a stock repurchase program in
February 2000 allowing AirNet to purchase up to $3.0 million of its common
shares. Management and the Board of Directors believe that AirNet's common
shares represent an excellent value and an appropriate investment. Purchases of
these common shares will be made over time in the open market or through
privately negotiated transactions. In the first half of 2000, AirNet repurchased
547,400 common shares for approximately $2.4 million.
AirNet anticipates that operating cash and capital expenditure requirements will
continue to be funded by cash flow from operations, cash on hand and bank
borrowings.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
AirNet's operations historically have been somewhat seasonal and somewhat
dependent on the number of banking holidays falling during the week. Because
financial institutions are currently
10
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AirNet's principal customers, AirNet's air system is scheduled primarily around
the needs of financial institution customers. When financial institutions are
closed, there is no need for AirNet to operate a full system. AirNet's fiscal
quarter ending December 31, is often the most impacted by bank holidays
(including Thanksgiving and Christmas) recognized by its primary customers.
When these holidays fall on Monday through Thursday, AirNet's revenue and net
income are adversely affected. AirNet's annual results fluctuate as well.
Operating results are also affected by the weather. AirNet generally experiences
higher maintenance costs during its fiscal quarter ending March 31. Winter
weather often requires additional costs for de-icing, hangar rental and other
aircraft services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INFLATION AND INTEREST RATES
AirNet is exposed to certain market risks from transactions that are entered
into during the normal course of business. AirNet's primary market risk exposure
relates to interest rate risk. At June 30, 2000, AirNet had a balance of $26.2
million on its revolving credit facility. This facility bears interest at
AirNet's option, at a fixed rate determined by the Eurodollar rate, a negotiated
rate or a floating rate. Based on borrowings at June 30, 2000, a one hundred
basis point change in interest rates would impact net interest expense by
approximately $262,000 per year. In September 1999, AirNet entered into two
interest rate swap agreements with a bank as a hedge against the interest rate
risk associated with borrowings. The swap agreements each have a notional amount
of $5.0 million and effectively lock in a portion of AirNet's variable rate
revolving credit liability at fixed rates of 6.3% and 6.5% plus a margin based
on AirNet's funded debt ratio. These swap agreements contain a three year term
which expires in September 2002.
11
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AIRNET SYSTEMS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On April 6, 2000, AirNet filed an action in the United States
District Court for the District of Maryland seeking to recover
on a $0.5 million debt owned to it by Continental Courier
Systems, Inc. for overnight couriers services performed.
On April 27, 2000, Continental answered AirNet's complaint,
denying any indebtedness to AirNet and asserting several
counterclaims, including violations of the federal antitrust
laws and state law claims of fraud and tortious competition.
Continental is seeking up to $0.8 million on each claim and is
seeking treble damages on the antitrust claims. AirNet believes
that Continental's counterclaims are without merit, has filed a
motion to dismiss all of the counterclaims and intends to
vigorously defend against them. However, at this time, we do
not believe it is feasible to predict the outcome of either
AirNet's claims nor Continental's counterclaims. The timing of
the final resolution is also uncertain.
Item 2. Changes in Securities and Use of Proceeds. Not Applicable
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders (the "Annual Meeting") of
AirNet Systems, Inc. (the "Company") was held on May 12, 2000. The
number of common shares of the Company outstanding and entitled to
vote at the Annual Meeting was 11,393,362. The number of Common
Shares represented in person or by proxy at the Annual Meeting was
10,179,144.
(b) Directors elected at the Annual Meeting:
<TABLE>
<S> <C> <C>
Gerald G. Mercer
For: 10,144,132
Withheld: 35,012 Broker non-vote: -0-
Joel E. Biggerstaff
For: 10,145,188
Withheld: 33,956 Broker non-vote: -0-
Roger D. Blackwell
For: 10,008,898
Withheld: 170,246 Broker non-vote: -0-
Russell M. Gertmenian
For: 10,027,241
Withheld: 151,903 Broker non-vote: -0-
J. F. Keeler, Jr.
For: 10,146,199
Withheld: 32,945 Broker non-vote: -0-
David P. Lauer
For: 10,145,379
Withheld: 33,765 Broker non-vote: -0-
James E. Riddle
For: 10,145,192
Withheld: 33,952 Broker non-vote: -0-
</TABLE>
12
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(c) See Item 4(b) for voting results for directors.
Proposal to amend Section 1.10 of AirNet's Code of
Regulations to permit shareholders to appoint proxies by any
method permitted by Ohio law.
For: 10,155,761
Against: 16,033
Abstentions: 7,350
(d) Not applicable.
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
----------- -------------------------------------------
3.1 Certificate regarding adoption of amendment
to Section 1.10 of the Code of Regulations
of AirNet Systems, Inc. by the shareholders
on May 12, 2000.
3.2 Code of Regulations of AirNet Systems, Inc.
(reflecting amendments through May 12,
2000). [for SEC reporting compliance
purposes only]
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended June 30, 2000.
13
<PAGE>
AIRNET SYSTEMS, INC.
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.
Dated: August 8, 2000 By: /s/ William R. Sumser
-----------------------------------
William R. Sumser,
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
14
<PAGE>
AIRNET SYSTEMS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Certificate regarding adoption of amendment to Section 1.10 of
the Code of Regulations of AirNet Systems, Inc. by the
shareholders on May 12, 2000. Filed herewith.
3.2 Code of Regulations of AirNet Systems, Inc. (reflecting
amendments through May 12, 2000). [for SEC reporting
compliance purposes only]. Filed herewith.
27 Financial Data Schedule. Filed herewith.
</TABLE>
15