8-K 1 l22513ae8vk.htm AIRNET SYSTEMS 8-K Airnet Systems 8-K
 

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 2, 2006 (September 26, 2006)
AirNet Systems, Inc.
(Exact name of registrant as specified in its charter)
         
Ohio   001-13025   31-1458309
         
(State or other jurisdiction
of incorporation) 		  (Commission File Number)   (IRS Employer
Identification No.)
7250 Star Check Drive, Columbus, Ohio 43217
 
(Address of principal executive offices) (Zip Code)
(614) 409-4900
 
(Registrant’s telephone number, including area code)
Not Applicable
 
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 

 

Item 1.02. Termination of a Material Definitive Agreement.
     On September 26, 2006, AirNet Systems, Inc. (“AirNet”) and its wholly-owned subsidiary Jetride, Inc. (“Jetride”) completed the sale of the Jetride passenger charter business to Pinnacle Air, LLC (“Pinnacle”) as described more fully in “Item 2.01. Completion of Acquisition or Disposition of Assets” of this Current Report on Form 8-K.
Repayment of Term Loans Secured by Jetride Aircraft
     In connection with the closing of the sale transaction, on September 26, 2006, Jetride repaid in full six term loans which had been (a) secured by aircraft used in the Jetride passenger charter business, and (b) guaranteed by AirNet. In June 2004, Jetride entered into four of the term loans, each with a seven-year term and a fixed interest rate of approximately 6.7%. In July 2004, Jetride entered into the other two term loans, each with a seven-year term and a fixed interest rate of approximately 6.5%. As of September 26, 2006, there was an aggregate principal amount of approximately $28.2 million outstanding under the six loans. In addition to the outstanding principal amount, Jetride paid approximately $0.3 million in accrued interest and early termination prepayment penalties through the repayment date. Each of the loan documents and corresponding security and guaranty agreements entered into in connection with the six term loans was terminated in full upon repayment of the underlying term loans at the closing.
Resignation of Wynn D. Peterson as Executive Officer of AirNet
     In connection with the sale of the Jetride passenger charter business to Pinnacle, Wynn D. Peterson, AirNet’s Senior Vice President, Jetride Services, resigned as an executive officer of AirNet on September 26, 2006 to become President of Pinnacle and New Jetride (as defined below), a subsidiary of Pinnacle. As a result of his resignation, Mr. Peterson will not be entitled to receive any payment under AirNet’s 2006 Incentive Compensation Plan. As of September 26, 2006, Mr. Peterson held vested stock options covering an aggregate of 29,930 common shares, with exercise prices ranging from $3.81 to $9.50. These stock options will remain exercisable until December 25, 2006 in accordance with the terms of the stock option agreements under which they were granted. In addition, Mr. Peterson held unvested stock options covering an aggregate of 4,600 common shares, with exercise prices ranging from $4.13 to $4.95, which he forfeited upon his resignation.
Item 2.01. Completion of Acquisition or Disposition of Assets.
     Pursuant to the terms of the Purchase Agreement, dated as of July 26, 2006 (the “Purchase Agreement”), among AirNet, Pinnacle and Jetride, on September 26, 2006, AirNet and Jetride completed the sale of the Jetride passenger charter business to Pinnacle. The purchase price was $41.0 million in cash, of which $40.0 million was consideration for the sale of nine company-owned aircraft and related engine maintenance programs and $1.0 million was consideration for the sale of all of the outstanding capital stock of a newly-created subsidiary of Jetride, also named Jetride, Inc. (“New Jetride”). Of the total consideration, $40.0 million was paid at closing, and $1.0 million was paid into escrow to cover indemnification claims which may be made by Pinnacle for up to eighteen months after the closing. The amount held in the escrow will be released to AirNet in two installments approximately six and twelve months after the closing,

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to the extent such amounts are not used to satisfy indemnification claims.
     AirNet retained the net working capital of the Jetride passenger charter business, which was approximately $2.2 million as of September 26, 2006. AirNet and Jetride also retained substantially all of the pre-closing liabilities of the Jetride passenger charter business.
     In connection with the transaction, AirNet agreed to provide certain transition services to Pinnacle and its subsidiaries for various specified time periods and various monthly fees, which initially aggregate to approximately $37,500 per month, primarily for aircraft maintenance services. In addition, AirNet entered into three subleases with New Jetride, each for a one year term, under which New Jetride will lease a portion of AirNet’s facilities located at Rickenbacker International Airport, Dallas Love Field and Birmingham International Airport. The aggregate monthly lease payments under the three subleases is approximately $10,000.
     Pinnacle made offers of employment to all of the employees of Jetride. Wynn D. Peterson, AirNet’s Senior Vice President, Jetride Services, resigned as an executive officer of AirNet to become President of Pinnacle and New Jetride, a subsidiary of Pinnacle.
     In connection with the closing of the sale transaction, Jetride repaid in full six term loans which had been secured by aircraft used in Jetride’s passenger charter business. The aggregate principal amount of the loans repaid was approximately $28.2 million plus accrued interest and early termination prepayment penalties of approximately $0.3 million through the repayment date. Following repayment of Jetride’s loans and payment of applicable taxes and expenses related to the transaction, AirNet plans to use the remaining sale proceeds to further reduce debt outstanding under AirNet’s revolving credit facility. AirNet’s lenders under the revolving credit facility consented to the sale of the Jetride passenger charter business and the various transactions necessary to complete the sale.
     The foregoing summary of the sale of the Jetride passenger charter business and the Purchase Agreement is not intended to be complete, and is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which was filed as Exhibit 2.1 to AirNet’s Current Report on Form 8-K, dated and filed on July 28, 2006, and is incorporated herein by reference.
     Cautionary Statement: The Purchase Agreement contains representations and warranties of each of the parties thereto. The assertions embodied in those representations and warranties are qualified by information in schedules that the parties delivered in connection with the execution of the Purchase Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from those generally available to shareholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts. Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of facts, or for any other purpose, at the time they were made or otherwise.

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Item 8.01. Other Events.
     In connection with the sale of the Jetride passenger charter business to Pinnacle, Wynn D. Peterson, AirNet’s Senior Vice President, Jetride Services, resigned as an executive officer of AirNet on September 26, 2006 to become President of Pinnacle and New Jetride, a subsidiary of Pinnacle. Mr. Peterson had served as the principal operating officer of the Jetride passenger charter business since June 2005.
     On September 26, 2006, AirNet issued a news release announcing that the sale of the Jetride passenger charter business to Pinnacle had been completed. A copy of AirNet’s news release is filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
     (a) Not applicable.
     (b) Pro Forma Financial Information:
     The following pro forma financial information is being filed herewith:
  —   Unaudited Condensed Pro Forma Consolidated Balance Sheet as of June 30, 2006
  —   Unaudited Condensed Pro Forma Consolidated Statement of Operations for the six months ended June 30, 2006
  —   Unaudited Condensed Pro Forma Consolidated Statement of Operations for the fiscal year ended December 31, 2005
  —   Unaudited Condensed Pro Forma Consolidated Statement of Operations for the fiscal year ended December 31, 2004
  —   Unaudited Condensed Pro Forma Consolidated Statement of Operations for the fiscal year ended December 31, 2003
     The following unaudited condensed pro forma consolidated financial statements are based on AirNet Systems, Inc’s. historical consolidated financial statements, and are adjusted to give effect to the sale by AirNet and Jetride of the Jetride passenger charter business to Pinnacle on September 26, 2006 (the “Sale of the Jetride Business”) as if the Sale of the Jetride Business had occurred at the beginning of each of the periods presented and represent, in the opinion of AirNet’s management, all adjustments necessary to present AirNet’s pro forma consolidated results of operations and financial position in accordance with Article 11 of SEC Regulation S-X and are based upon available information and assumptions considered reasonable under the circumstances. The unaudited condensed pro forma consolidated financial statements should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in “Item 1. Financial Statements” of Part I of AirNet’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, and the audited consolidated financial statements and notes thereto included in “Item 8. Financial Statements and Supplementary Data” of Part II of AirNet’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

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AIRNET SYSTEMS, INC.
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET — Unaudited
                         
    Historical             Pro Forma  
In thousands, except par value data   June 30,     Pro Forma     June 30,  
    2006     Adjustments(1)     2006  
     
ASSETS
                        
Current assets:
                        
Cash and cash equivalents
   $ 1,645     $ —     $ 1,645  
Accounts receivable, less allowances
     22,552       —       22,552  
Taxes receivable
     1,823       —       1,823  
Deposits and prepaids
     2,043       1,000       3,043  
Assets related to discontinued operations
     40,938       (38,675)       2,263  
     
Total current assets
     69,001       (37,675 )     31,326  
 
                        
Net property and equipment
     52,537       —       52,537  
 
                        
Deposits and other assets
     154       —       154  
 
                        
     
Total assets
   $ 121,692     $ (37,675 )   $ 84,017  
     
 
                        
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
Current liabilities:
                        
Accounts payable and accrued expenses
   $ 8,372     $ —     $ 8,372  
Salaries and related liabilities
     3,986       —       3,986  
Current portion of notes payable
     1,854       —       1,854  
Notes payable related to discontinued operations
     28,761       (28,761) (2)     —  
Other liabilities related to discontinued operations
     583       (142) (2)     441  
     
Total current liabilities
     43,556       (28,903 )     14,653  
 
                        
Notes payable, less current portion
     20,524       (9,928 )(2)     10,596  
Deferred income taxes
     7,485       —       7,485  
 
                        
Shareholders’ equity:
                        
Preferred shares, $.01 par value; 10,000 shares authorized; no shares issued and outstanding
     —       —       —  
Common shares, $.01 par value; 40,000 shares authorized; 12,763 issued at June 30, 2006
     128       —       128  
Additional paid-in-capital
     76,186       —       76,186  
Retained deficit
     (2,789 )     1,156       (1,633 )
Accumulated other comprehensive loss
     (13 )     —       (13 )
Treasury shares, 2,606 common shares held at cost at
                     —  
June 30, 2006
     (23,385 )     —       (23,385 )
     
Total shareholders’ equity
     50,127       1,156       51,283  
 
                        
     
Total liabilities and shareholders’ equity
   $ 121,692     $ (37,675 )   $ 84,017  
     
Notes to Condensed Pro Forma Consolidated Balance Sheet
(1)   Reflects the elimination of the net assets of Jetride, Inc. acquired by Pinnacle Air, LLC on September 26, 2006.
 
(2)   Reflects the use of proceeds from the sale of Jetride to reduce debt.

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AIRNET SYSTEMS, INC.
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS — Unaudited
                         
In thousands, except per share data   Historical             Pro Forma  
    June 30,     Pro Forma     June 30,  
    2006     Adjustments (1)     2006  
     
NET REVENUES, NET OF EXCISE TAX
                        
Bank services
   $ 57,385     $ —     $ 57,385  
Express services
     29,025       —       29,025  
Aviation services
     649       —       649  
     
Total net revenues
     87,059       —       87,059  
 
                        
COSTS AND EXPENSES
                        
Wages and benefits
     9,711       —       9,711  
Aircraft fuel
     14,715       —       14,715  
Aircraft maintenance
     8,285       —       8,285  
Contracted air costs
     8,608       —       8,608  
Ground courier
     16,896       —       16,896  
Depreciation
     5,751       —       5,751  
Insurance, rent and landing fees
     3,989       —       3,989  
Travel, training and other
     2,678       —       2,678  
Selling, general and administrative
     9,237       —       9,237  
Net (gain) on disposition of assets
     (12 )     —       (12 )
     
Total costs and expenses
     79,858       —       79,858  
 
                        
     
Income from continuing operations before interest expense
     7,201       —       7,201  
Interest expense
     973       (316) (2)     657  
     
 
Income from continuing operations before income taxes
     6,228       316       6,544  
Provision for income taxes
     2,267       115 (3)     2,382  
     
 
                        
Income from continuing operations
   $ 3,961     $ 201     $ 4,162  
     
 
                        
Income from continuing operations per common share — basic and diluted:
   $ 0.39     $ 0.02     $ 0.41  
     
Notes to Condensed Pro Forma Consolidated Statement of Operations
  (1)   Amounts do not reflect the one-time net gain on the sale of Jetride, Inc. on September 26, 2006. Jetride, Inc’s results were reflected as discontinued operations at June 30, 2006 in AirNet’s second quarter Form 10-Q.
 
  (2)   Reduction of interest costs resulting from the paydown of existing debt from the proceeds received from the sale of Jetride, Inc. to Pinnacle Air, LLC.
 
  (3)   Adjustment to income tax provision to reflect the tax effect of the above entries.

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AIRNET SYSTEMS, INC.
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS — Unaudited
In thousands, except per share data
                         
    Historical             Pro Forma  
    December 31,     Pro Forma     December 31,  
    2005     Adjustments (1)     2005  
     
NET REVENUES, NET OF EXCISE TAX
                        
Bank services
   $ 113,748     $ —     $ 113,748  
Express services
     52,346       —       52,346  
     
Total delivery services revenues
     166,094       —       166,094  
Passenger Charter services
     29,454       29,454       —  
Aviation services and other
     865       —       865  
     
Total net revenues
     196,413       29,454       166,959  
 
                        
COSTS AND EXPENSES
                        
Wages and benefits
     24,469       4,522       19,947  
Aircraft fuel
     34,487       6,858       27,629  
Aircraft maintenance
     22,521       5,621       16,900  
Contracted air costs
     14,587       171       14,416  
Ground courier
     31,610       —       31,610  
Depreciation
     14,714       2,588       12,126  
Insurance, rent and landing fees
     9,625       990       8,635  
Travel, training and other
     10,929       5,480       5,449  
Selling, general and administrative
     19,837       496       19,341  
Net (gain) on disposition of assets
     (159 )     —       (159 )
Impairment of property and equipment
     16,073       —       16,073  
     
Total costs and expenses
     198,693       26,726       171,967  
     
 
                        
Income (loss) from operations
     (2,280 )     2,728       (5,008 )
Interest expense
     4,066       2,469 (2)     1,597  
     
 
                        
Income (loss) before income taxes
     (6,346 )     259       (6,605 )
Provision (benefit) for income taxes
     (2,100 )     85 (3)     (2,185 )
     
 
                        
Net income (loss)
   $ (4,246 )   $ 174     $ (4,420 )
     
 
                        
Income (Ioss) per common share — basic and diluted
   $ (0.42 )   $ 0.02     $ (0.44 )
     
Notes to Condensed Pro Forma Consolidated Statement of Operations
  (1)   Adjustment to eliminate results of Jetride, Inc.
 
  (2)   Includes $510 reduction of interest costs resulting from the paydown of existing debt from the proceeds received from the sale of Jetride, Inc. to Pinnacle Air, LLC.
 
  (3)   Adjustment to income tax provision to reflect the tax effect of the above entries.

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AIRNET SYSTEMS, INC.
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS — Unaudited
                         
In thousands, except per share data   Historical             Pro Forma  
    December 31,     Pro Forma     December 31,  
    2004     Adjustments (1)     2004  
     
NET REVENUES, NET OF EXCISE TAX
                        
Bank services
   $ 106,117     $ —     $ 106,117  
Express services
     49,096       —       49,096  
     
Total Delivery Services
     155,213       —       155,213  
Passenger Charter Services
     18,494       18,494       —  
Aviation services
     1,243       —       1,243  
     
Total net revenues
     174,950       18,494       156,456  
 
                        
COSTS AND EXPENSES
                        
Wages and benefits
     24,823       3,253       21,570  
Aircraft fuel
     26,865       3,653       23,212  
Aircraft maintenance
     15,086       2,118       12,968  
Contracted air costs
     13,813       144       13,669  
Ground courier
     30,285       —       30,285  
Depreciation
     19,513       1,887       17,626  
Insurance, rent and landing fees
     10,115       1,231       8,884  
Travel, training and other
     9,359       2,805       6,554  
Selling, general and administrative
     18,661       545       18,116  
Net gain on disposition of assets
     34       —       34  
Impairment of property and equipment
     42,991       —       42,991  
Impairment of goodwill
     4,018       —       4,018  
     
Total costs and expenses
     215,563       15,636       199,927  
 
                        
     
Income (loss) before interest expense
     (40,613 )     2,858       (43,471 )
Interest expense
     2,468       1,631 (2)     837  
     
 
                        
Income (loss) before income taxes
     (43,081 )     1,227       (44,308 )
Provision (benefit) for income taxes
     (8,935 )     258 (3)     (9,193 )
     
 
                        
Net income (loss)
   $ (34,146 )   $ 969     $ (35,115 )
     
 
                        
Income (loss) per common share — basic and diluted:
   $ (3.38 )   $ 0.10     $ (3.48 )
     
Notes to Condensed Pro Forma Consolidated Statement of Operations
  (1)   Adjustment to eliminate results of Jetride, Inc.
 
  (2)   Includes $390 reduction of interest costs resulting from the paydown of existing debt from the proceeds received from the sale of Jetride, Inc. to Pinnacle Air, LLC.
 
  (3)   Adjustment to income tax provision to reflect the tax effect of the above entries.

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AIRNET SYSTEMS, INC.
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS — Unaudited
                         
In thousands, except per share data   Historical             Pro Forma  
    December 31,     Pro Forma     December 31,  
    2003     Adjustments (1)     2003  
     
NET REVENUES, NET OF EXCISE TAX
                        
Bank services
   $ 103,399     $ —     $ 103,399  
Express services
     36,963       —       36,963  
     
Total Delivery Services
     140,362       —       140,362  
Passenger Charter Services
     7,599       7,599       —  
Aviation services
     1,261       —       1,261  
     
Total net revenues
     149,222       7,599       141,623  
 
                        
COSTS AND EXPENSES
                        
Wages and benefits
     23,297       1,527       21,770  
Aircraft fuel
     19,227       1,182       18,045  
Aircraft maintenance
     12,242       807       11,435  
Contracted air costs
     9,929       —       9,929  
Ground courier
     25,834       —       25,834  
Depreciation
     17,535       548       16,987  
Insurance, rent and landing fees
     9,895       1,077       8,818  
Travel, training and other
     8,003       902       7,101  
Selling, general and administrative
     17,032       296       16,736  
Net (gain) on disposition of assets
     (3 )     —       (3 )
     
Total costs and expenses
     142,991       6,339       136,652  
 
                        
     
Income from continuing operations before interest expense
     6,231       1,260       4,971  
Interest expense
     1,340       638 (2)     702  
     
 
                        
Income from continuing operations before income taxes
     4,891       622       4,269  
Provision for income taxes
     2,103       267 (3)     1,836  
     
 
                        
Income from continuing operations
   $ 2,788     $ 355     $ 2,433  
     
 
                        
Income from continuing operations per common share — basic and diluted:
   $ 0.28     $ 0.04     $ 0.24  
     
Notes to Condensed Pro Forma Consolidated Statement of Operations
  (1)   Adjustment to eliminate results of Jetride, Inc.
 
  (2)   Includes $160 reduction of interest costs resulting from the paydown of existing debt from the proceeds received from the sale of Jetride, Inc. to Pinnacle Air, LLC.
 
  (3)   Adjustment to income tax provision to reflect the tax effect of the above entries.

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     (c) Not applicable.
     (d) Exhibits: The following exhibits are being filed with or incorporated by reference in this Current Report on Form 8-K:
     
Exhibit No.   Description
 
    
2.1
  Purchase Agreement, dated as of July 26, 2006, among Jetride, Inc., an Ohio corporation; Pinnacle Air, LLC, a Delaware limited liability company; and AirNet Systems, Inc., an Ohio corporation (the exhibits and schedules referenced in the Purchase Agreement have been omitted pursuant to Item 601(b)(2) of SEC Regulation S-K. AirNet Systems, Inc. hereby agrees to furnish supplementally a copy of any such omitted exhibit or schedule to the Securities and Exchange Commission upon its request), incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of AirNet Systems, Inc., dated and filed on July 28, 2006 (File No. 001-13025).
 
    
99.1
  News Release issued by AirNet Systems, Inc. on September 26, 2006

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SIGNATURE
     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 hereunto duly authorized.
         
  AIRNET SYSTEMS, INC.
 		  
Dated: October 2, 2006  By:   /s/ Gary W. Qualmann    
       
    Gary W. Qualmann
Chief Financial Officer, Treasurer
and Secretary 		  
 

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