10-Q 1 a10-q.txt COVER 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 ------------------------------------------------------------------------ (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 AIRNET SYSTEMS, INC. FORM 10-Q FOR QUARTER ENDED JUNE 30, 2000
PART I: FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) 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
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AIRNET SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS In thousands, except share data JUNE 30, DECEMBER 31, 2000 1999 ------------------- ------------------ ASSETS (UNAUDITED) 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 =================== ==================
See notes to condensed consolidated financial statements 3 AIRNET SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
In thousands, except per share data THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 --------------- --------------- -------------- -------------- 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 =============== =============== ============== ==============
See notes to condensed consolidated financial statements 4 AIRNET SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited
SIX MONTHS ENDED In thousands JUNE 30, 2000 1999 --------------- -------------- 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 =============== ==============
See notes to condensed consolidated financial statements 5 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 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.
(in thousands) Three Months Ended Six Months Ended June 30, 2000 June 30, 2000 ------------------ ---------------- 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
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):
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------- ------------ ------------ 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
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 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 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 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 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 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: 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-
12 (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 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 AIRNET SYSTEMS, INC. INDEX TO 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. 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.
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