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 September 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.
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(Exact name of registrant as specified in its charter)
Ohio 31-1458309
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3939 International Gateway, Columbus, Ohio 43219
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(Address of principal executive offices) (Zip Code)
(614) 237-9777
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 October 31, 2000 - 10,900,153
<PAGE>
AIRNET SYSTEMS, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000
PART I: FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 Financial Statements (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 2000 and 1999 . . . . . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
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AIRNET SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In thousands, except share data SEPTEMBER 30, DECEMBER 31,
2000 1999
---------------- ---------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $3,064 $1,667
Accounts receivable:
Trade, less allowances 17,036 14,919
Shareholders, affiliates, and associates 136 154
Inventory and spare parts 9,543 10,426
Taxes refundable 614 2,382
Deferred taxes 631 934
Deposits and prepaids 1,782 1,733
---------------- ---------------
Total current assets 32,806 32,215
Net property and equipment 83,206 84,733
Other assets:
Goodwill, net of accumulated amortization 7,659 7,920
Other intangibles, net of accumulated amortization 295 375
Investment in partnerships and other 1,884 2,234
---------------- ---------------
Total assets $125,850 $127,477
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,176 $5,203
Salaries and related liabilities 3,306 2,792
Accrued expenses 2,469 1,206
Deferred taxes 243 196
Current portion of notes payable 29 29
---------------- ---------------
Total current liabilities 11,223 9,426
Notes payable, less current portion 27,397 33,919
Deferred tax liability 10,425 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 September 30, 2000
and December 31, 1999 128 128
Additional paid-in-capital 77,909 78,182
Retained earnings 20,518 15,207
Treasury shares, 1,861,000 and 1,343,000 shares held at cost
at September 30, 2000 and December 31, 1999, respectively (21,750) (19,766)
---------------- ---------------
Total shareholders' equity 76,805 73,751
---------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $125,850 $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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET REVENUES
Air transportation, net of excise tax
Bank delivery $24,809 $24,980 $75,714 $74,514
Express delivery 8,794 8,321 26,092 20,504
Fixed base and other operations 172 237 468 809
------------ ------------ ------------ ------------
TOTAL NET REVENUES 33,775 33,538 102,274 95,827
COSTS AND EXPENSES
Air transportation
Wages and benefits 4,105 4,397 13,493 12,337
Aircraft fuel 2,868 3,153 8,615 8,425
Aircraft maintenance 2,372 1,742 6,905 5,876
Ground couriers and outside services 7,251 6,693 21,030 18,260
Depreciation 3,364 2,962 10,250 8,336
Other operating 6,037 6,630 18,423 18,738
Fixed base operations 212 288 827 851
Selling, general and administrative 3,719 5,408 12,104 12,931
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 29,928 31,273 91,647 85,754
------------ ------------ ------------ ------------
Income from operations 3,847 2,265 10,627 10,073
Interest expense 563 582 1,779 1,801
------------ ------------ ------------ ------------
Income before income taxes 3,284 1,683 8,848 8,272
Provision for income taxes 1,313 690 3,536 3,381
------------ ------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 1,971 993 5,312 4,891
Cumulative effect of writing off start-up
costs, net of tax - - - (2,488)
------------ ------------ ------------ ------------
NET INCOME $1,971 $993 $5,312 $2,403
============ ============ ============ ============
Income per common share - basic and
assuming dilution
Income before cumulative effect of a
change in accounting principle $0.18 $0.09 $0.48 $0.43
Cumulative effect of writing off
start-up costs - - - (0.22)
------------ ------------ ------------ ------------
Net income $0.18 $0.09 $0.48 $0.21
============ ============ ============ ============
</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>
NINE MONTHS ENDED
In thousands SEPTEMBER 30,
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $5,312 $2,403
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 10,349 8,438
Amortization of intangibles 394 658
Deferred taxes 394 (728)
Provision for losses on accounts receivable 127 285
Loss on disposition of assets 83 32
Cash provided by (used in) operating assets and liabilities:
Accounts receivable (2,225) (3,555)
Inventory and spare parts 883 (1,435)
Prepaid expenses (49) 596
Accounts payable (27) 276
Accrued expenses 1,262 (1,742)
Taxes refundable 1,768 3,359
Salaries and related liabilities 514 1,602
Other, net 311 77
------------ ------------
Net cash provided by operating activities 19,096 12,754
INVESTING ACTIVITIES:
Purchases of property and equipment (9,288) (13,750)
Payments for covenants not to compete (15) (170)
Proceeds from sales of property and equipment 382 12
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,921) (13,908)
FINANCING ACTIVITIES:
Proceeds from 1996 Incentive Stock Plan programs 162 218
Net borrowings (repayments) under the revolving credit facility (6,500) 900
Repayment of long-term debt (22) (20)
Purchase of treasury shares (2,418) -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,778) 1,098
------------ ------------
Net increase (decrease) in cash 1,397 (56)
Cash and cash equivalents at beginning of period 1,667 1,142
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,064 $1,086
============ ============
</TABLE>
See notes to condensed consolidated financial statements
5
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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 audited 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 nine months ended September 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.
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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 nine months ended September 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 Nine Months Ended
September 30, 2000 September 30, 2000
-------------------- --------------------
<S> <C> <C>
Net Revenues
Bank Delivery $24,809 $75,714
Express Delivery 8,794 26,092
Other 172 468
-------------------- --------------------
Total 33,775 102,274
Income(loss) from operations
Bank Delivery 3,925 11,918
Express Delivery 52 (858)
Other (130) (433)
-------------------- --------------------
Total $3,847 $10,627
</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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Income before the cumulative effect of a change
in accounting principle $ 1,971 $ 993 $ 5,312 $ 4,891
Net income 1,971 993 5,312 2,403
Denominator:
Basic - weighted average shares outstanding 10,893 11,402 11,123 11,393
Diluted
Stock options - associates, officers, and
directors - 18 - 6
----------- ---------- ---------- ----------
Adjusted weighted average shares outstanding 10,893 11,420 11,123 11,399
Income per common share - basic and assuming dilution:
Income before the cumulative effect of a change
in accounting principle $ 0.18 $ 0.09 $ 0.48 $ 0.43
Net income $ 0.18 $ 0.09 $ 0.48 $ 0.21
</TABLE>
For the three months and nine months ended September 30, 2000, 1,171,000 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
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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; acceptance of pricing strategies by current and potential customers;
acceptance of AirNet's services by diverse markets; competitor reaction to
AirNet pricing strategies; availability of qualified pilots and support
personnel; 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 SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net revenues were $33.8 million for the three months ended September 30, 2000,
an increase of $0.2 million, or 0.7%, over the same period of 1999.
Revenues from Bank Delivery decreased $0.2 million, or 0.7%, as a result of one
less flying day in the current quarter and increased market competition. These
decreases were offset by a 2% rate increase effective January 1, 2000.
Express Delivery revenues increased $0.5 million, or 5.7% primarily as a result
of rate increases to most customers effective January 1, 2000, and volume growth
from both the Company's Mercury Business Services ("Mercury") and Medical
divisions. Mercury revenues grew by $0.5 million while premium and ground
transportation services, which include services to the medical industry,
increased $0.3 million. These increases were offset by decreases in wholesale,
standard and other service revenues of approximately $0.3 million.
Total costs and expenses were $29.9 million for the three months ended September
30, 2000, a decrease of $1.3 million, or 4.3%, over the same period in 1999,
resulting in income from operations of $3.8 million for the third quarter of
2000, compared to $2.3 million over the same period last year, a 69.8% increase.
Air transportation expenses were up $0.4 million, or 1.6%, for the quarter ended
September 30, 2000 compared to the same period in 1999. Fuel costs increased
$0.6 million due to higher aviation fuel prices but were offset by income from
the fuel surcharge programs. Maintenance
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costs grew by $0.6 million due to increased labor and parts costs. Higher usage
of outside charter operators due to a lack of pilots and the cost-effectiveness
for chartering certain routes contributed $0.6 million to the overall increase.
Depreciation expense increased $0.4 million due to aircraft additions and
improvements. The shift towards higher usage of outside vendors and decreased
team member headcount significantly lowered expense in wages and benefits by
$0.3 million, supplies and uniform expense by $0.4 million and workers
compensation expense through improved claims management by $0.2 million. The
Company also experienced a $0.2 million reduction in costs associated with
shipping packages with the commercial airlines due to decreased volumes
associated with SDX services (shipments via the commercial airlines). Other
operational costs decreased primarily as a result of lower shipment volumes in
the Express Delivery segment.
Selling, general and administrative expense decreased $1.7 million, or 31.2%,
over the same period in the prior year primarily due to the prior year including
$1.1 million in one-time costs associated with management changes, personnel
costs, and professional fees not in the current year. Additional decreases can
be attributed to the reduction in administrative staff headcount over the past
year.
Interest expense was $0.6 million for the three months ended September 30, 2000,
which is comparable to the interest expense for the three months ended September
30, 1999. The notes payable balance has decreased by $0.9 million over the past
year. However, interest rates have increased from approximately 6.0% at
September 30, 1999 to approximately 7.5% at September 30, 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
Revenues increased $6.4 million, or 6.7%, to $102.3 million for the nine months
ended September 30, 2000 compared to $95.8 million for the same period in 1999.
Bank Delivery revenues increased $1.2 million, or 1.6%, to $75.7 million. This
increase is primarily the result of rate increases effective January 1, 2000.
Express Delivery revenues increased $5.6 million, or 27.3%, due to rate
increases effective in 2000 and volume growth in the Company's premium, ground
transportation and Mercury divisions. Premium and ground transportation services
grew $4.5 million due to the addition of new customers requiring time-sensitive
deliveries of just-in-time parts and medical products. Mercury contributed $1.2
million of the increase in revenues. 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 $91.6 million for the nine months ended September
30, 2000, an increase of $5.9 million, or 6.9%, over the same period in 1999
resulting in income from operations of $10.6 million for the nine months ended
September 30, 2000 compared to $10.1 million for the same period of 1999.
Effective January 1, 1999, AirNet adopted the provisions of SOP 98-5, Reporting
on the Costs of Start-Up Activities. 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, 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 $6.7 million, or 9.4%. Approximately $1.7
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 resulting in a full year of expense in 2000
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compared to a partial year in 1999. Fuel costs increased by $2.2 million due to
higher aviation fuel prices and an increase in flight hours but were partially
offset by income of $2.1 million from the fuel surcharge program. Maintenance
costs are up $1.0 million primarily due to increased labor and parts costs. An
increase of $1.0 million relates to the use of outside charter operators due to
a lack of pilots and the cost-effectiveness of chartering certain routes.
Depreciation expense is up $1.9 million due to aircraft additions and
improvements which occurred during 1999. Wages and benefits expense increased
$1.2 million due to increased pilot wages and the addition of the 2000 incentive
compensation plan. Crew training expense increased $0.3 million due to
outsourced flight simulator training beginning in late 1999. Premium reductions
and improved claims management in the aircraft, air cargo and workers
compensation areas resulted in a $0.7 million decrease in insurance expense year
over year. Other operational costs increased as a result of the increase in
Express Delivery volumes.
Selling, general and administrative expenses decreased $0.8 million, or 6.4%,
for the nine month period primarily due to the prior year including $1.2 million
in one-time costs associated with management changes, personnel costs, and
professional fees not in the current year. The current year impact on the
overall change includes an increase of $0.7 million in wages and benefits which
can be attributed to the 2000 incentive compensation plan and growth in
commissions expense of $0.3 million due to volume increases in the Express
Delivery segment. These were offset by a $0.3 million decrease in amortization
expense due to the expiration of certain non-compete covenants in the third
quarter of 1999 and the impact of reductions in administrative staff year over
year.
Interest expense was $1.8 million for the nine months ended September 30, 2000,
which is comparable to the interest expense for the nine months ended September
30, 1999. The notes payable balance has decreased by $0.9 million over the past
year. However, interest rates have increased from approximately 6.0% at
September 30, 1999 to approximately 7.5% at September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES. Net cash provided by operating activities
was $19.1 million for the nine months ended September 30, 2000, compared to
$12.8 million for the same period in 1999.
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 September 30, 2000 was $27.4 million, which is a $6.5
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 AirNet's
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 $9.3 million for the nine
months ended September 30, 2000 compared to $13.8 million for the same period in
1999. Substantially all of the 2000 expenditures were incurred for aircraft
inspections, major engine overhauls and related
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flight equipment. AirNet anticipates it will have approximately $14.0 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. There was no additional
repurchase activity in the third quarter ending September 30, 2000.
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 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 September 30, 2000, AirNet had a balance of
$27.4 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 September 30, 2000, a one
hundred basis point change in interest rates would impact net interest expense
by approximately $274,000 per year. As discussed in the liquidity and capital
resources section of Item 2, AirNet entered into two interest rate swap
agreements with a bank as a hedge against the interest rate risk associated with
borrowings.
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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 owed to it by Continental Courier Systems, Inc. for
overnight courier services performed.
On April 27, 2000, Continental answered AirNet's complaint, denying
any indebtedness to AirNet and asserting several counterclaims,
including violations of 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.
On June 6, 2000, AirNet filed a motion to dismiss all of the
counterclaims.
On October 24, 2000, the Court ruled on AirNet's motion to dismiss
and dismissed several of the asserted counterclaims. The Court did
not dismiss the antitrust claims and in early November of 2000,
AirNet filed a motion for reconsideration of that decision. AirNet
believes that those counterclaims not yet dismissed are without merit
and intends to vigorously defend against them. At this time, AirNet
does 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. Not Applicable
Item 5. Other Information. Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit No. Description
----------- ----------------------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months ended
September 30, 2000.
12
<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: November 6, 2000 By: /s/ William R. Sumser
-----------------------------
William R. Sumser,
Chief Financial Officer
(Duly Authorized Officer)
(Principal Financial Officer)
13
<PAGE>
AIRNET SYSTEMS, INC.
INDEX TO EXHIBITS
Exhibit No. Description
27 Financial Data Schedule. Filed herewith.
14
