Ù/2ÿñH5   d 1$&%*ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿñ'AIRNET SYSTEMS, INC."ñ'CONSOLIDATED BALANCE SHEETS*ñ'In thousands, except per share datañ^December 31,ñ^December 31, ñ^1999 ñ^1998 ñ'ASSETSñ'Current assets:!ñ'Cash and cash equivalentsñ"$ 1,667ñ"$ 1,142ñ 'Accounts receivable:1ñ 'Trade, less allowances of $598 and $290 at ñ "14,919 ñ "13,077/ñ 'December 31, 1999 and 1998, respectively/ñ 'Shareholders, affiliates, and associates ñ "154 ñ "163 ñ 'Inventory and spare parts ñ "10,426 ñ "9,386ñ'Taxes refundable ñ"2,382 ñ"4,199ñ'Deferred taxes ñ"934 ñ"1,969ñ'Deposits and prepaids ñ"1,733 ñ"2,748ñ"---------ñ"---------ñ'Total current assets ñ"32,215 ñ"32,684!ñ'Net property and equipment ñ"84,733 ñ"78,817ñ'Other assets:Añ'Goodwill, net of accumulated amortization of $715 and $3712ñ'at December 31, 1999 and 1998, respectively ñ"7,920 ñ"8,237Cñ'Other intangibles, net of accumulated amortization of $2,264=ñ'and $1,918 at December 31, 1999 and 1998, respectively ñ"375 ñ"678*ñ'Investment in partnership and other ñ"2,234 ñ"2,490ñ'Start-up costs ñ"-- ñ"4,223ñ"---------ñ"---------ñ'Total assetsñ"$ 127,477ñ"$ 127,129ñ"=========ñ"=========+ñ!'LIABILITIES AND SHAREHOLDERS' EQUITYñ"'Current liabilities:ñ$'Accounts payableñ$"$ 5,203ñ$"$ 5,930'ñ%'Salaries and related liabilities ñ%"2,792 ñ%"1,284ñ&'Accrued expenses ñ&"1,206 ñ&"3,889ñ''Deferred taxes ñ'"196 ñ'"2,282'ñ('Current portion of notes payable ñ("29 ñ("26ñ)"---------ñ)"--------- ñ*'Total current liabilities ñ*"9,426 ñ*"13,411*ñ,'Notes payable, less current portion ñ,"33,919 ñ,"35,480ñ-'Deferred tax liability ñ-"10,381 ñ-"8,564ñ/'Shareholders' equity:6ñ0'Preferred shares, $.01 par value; 10,000 shares7ñ1'authorized; and no shares issued and outstanding ñ1"-- ñ1"--?ñ2'Common shares, $.01 par value; 40,000 shares authorized;>ñ3'and 12,753 shares issued at December 31, 1999 and 1998 ñ3"128 ñ3"128!ñ4'Additional paid-in-capital ñ4"78,182 ñ4"78,455ñ5'Retained earnings ñ5"15,207 ñ5"11,423;ñ6'Treasury shares, 1,343 and 1,375 shares held at cost2ñ7'at December 31, 1999 and 1998, respectivelyñ8"(19,766)ñ8"(20,332)ñ9"---------ñ9"---------!ñ:'Total shareholders' equity ñ:"73,751 ñ:"69,674ñ;"---------ñ;"---------1ñ<'Total liabilities and shareholders' equityñ<"$ 127,477ñ<"$ 127,129ñ="=========ñ="=========5ñ?'See notes to consolidated financial statementsñA'AIRNET SYSTEMS, INC.,ñB'CONSOLIDATED STATEMENTS OF OPERATIONS*ñC'In thousands, except per share datañD^Year EndedñD^Year EndedñD^Year EndedñE^ December 31,ñE^December 31,ñE^ December 31, ñF^1999 ñF^1998 ñF^1997ñG'NET REVENUESFñH'Air transportation, net of excise tax of $3,592, $3,106, andDñI'$2,113 for the years ended December 31, 1999, 1998, and 1997:ñJ'Check deliveryñJ"$ 98,951ñJ"$ 93,206ñJ"$ 80,707ñK'Express delivery ñK"28,714 ñK"19,109 ñK"15,660&ñL'Fixed base and other operations ñL"1,033 ñL"1,366 ñL"1,395ñM"---------ñM"---------ñM"---------ñN'Total net revenuesñN"128,698ñN"113,681 ñN"97,762ñO"---------ñO"---------ñO"---------ñQ'COSTS AND EXPENSESñR'Air transportationñS'Wages and benefits ñS"16,389 ñS"13,871 ñS"11,253ñT'Aircraft fuel ñT"11,307 ñT"10,160 ñT"10,176ñU'Aircraft maintenance ñU"7,625 ñU"7,407 ñU"7,489+ñV'Ground couriers and outside services ñV"25,438 ñV"21,301 ñV"14,817ñW'Depreciation ñW"11,391 ñW"10,101 ñW"8,363 ñX'Other ñX"25,165 ñX"19,953 ñX"13,933ñY'Fixed base operations ñY"1,089 ñY"853 ñY"1,101*ñZ'Selling, general and administrative ñZ"17,237 ñZ"13,782 ñZ"8,551ñ["---------ñ["---------ñ["---------ñ\'Total costs and expensesñ\"115,641 ñ\"97,428 ñ\"75,683ñ]"---------ñ]"---------ñ]"---------ñ^'Income from operations ñ^"13,057 ñ^"16,253 ñ^"22,079%ñ_'Acquisition termination charge ñ_"-- ñ_"5,570 ñ_"--ñ`'Interest expense ñ`"2,477 ñ`"1,336 ñ`"109ña"---------ña"---------ña"---------!ñb'Income before income taxes ñb"10,580 ñb"9,347 ñb"21,970!ñc'Provision for income taxes ñc"4,308 ñc"3,711 ñc"8,767ñd"---------ñd"---------ñd"---------;ñe'Income before cumulative effect of accounting change ñe"6,272 ñe"5,636 ñe"13,2039ñg'Cumulative effect of accounting change, net of taxñg"(2,488) ñg"-- ñg"--ñi"---------ñi"---------ñi"---------ñj'Net incomeñj"$ 3,784ñj"$ 5,636ñj"$ 13,203ñk"---------ñk"---------ñk"---------ñl'Income per common share;ñn'Income before cumulative effect of accounting changeñn"$ 0.55ñn"$ 0.46ñn"$ 1.059ño'Cumulative effect of accounting change, net of tax ñp"(0.22) ñp"-- ñp"--ñq"---------ñq"---------ñq"---------ñr'Net incomeñr"$ 0.33ñr"$ 0.46ñr"$ 1.05ñs"---------ñs"---------ñs"---------2ñt'Income per common share - assuming dilution;ñu'Income before cumulative effect of accounting changeñu"$ 0.55ñu"$ 0.46ñu"$ 1.049ñv'Cumulative effect of accounting change, net of tax ñv"(0.22) ñv"-- ñv"--ñw"---------ñw"---------ñw"---------ñx'Net incomeñx"$ 0.33ñx"$ 0.46ñx"$ 1.04ñy"---------ñy"---------ñy"---------5ñ{'See notes to consolidated financial statementsñ}'AIRNET SYSTEMS, INC.,ñ~'CONSOLIDATED STATEMENTS OF CASH FLOWSñ'In thousandsñ€^Year Endedñ€^Year Endedñ€^Year Endedñ^ December 31,ñ^ December 31,ñ^ December 31, ñ‚^1999 ñ‚^1998 ñ‚^1997ñƒ'Operating activitiesñ„'Net incomeñ„"$ 3,784ñ„"$ 5,636ñ„"$ 13,2036ñ…'Adjustments to reconcile net income to net cash(ñ†'provided by operating activities:-ñ‡'Cumulative effect of accounting change ñ‡"2,488 ñ‡"-- ñ‡"--ñˆ'Depreciation ñˆ"11,525 ñˆ"10,209 ñˆ"8,431"ñ‰'Amortization of intangibles ñ‰"789 ñ‰"1,067 ñ‰"353ñŠ'Deferred taxes ñŠ"766 ñŠ"4,218 ñŠ"5,1692ñ‹'Provision for losses on accounts receivable ñ‹"504 ñ‹"150 ñ‹"84$ñŒ'Loss on disposition of assets ñŒ"102 ñŒ"55 ñŒ"616Cñ'Cash provided by (used in) operating assets and liabilities:ñŽ'Accounts receivableñŽ"(2,338)ñŽ"(1,574)ñŽ"(2,589) ñ'Inventory and spare partsñ"(1,040)ñ"(3,333)ñ"(1,005)ñ'Prepaid expenses ñ"1,015 ñ"112ñ"(2,004)ñ‘'Start-up costs ñ‘"--ñ‘"(2,165)ñ‘"(2,522)ñ’'Accounts payable ñ’"(727) ñ’"1,448 ñ’"(149)'ñ“'Salaries and related liabilities ñ“"1,508 ñ“"(324) ñ“"(546)ñ”'Accrued expensesñ”"(2,684) ñ”"2,168 ñ”"857ñ•'Taxes payable ñ•"3,553ñ•"(6,423) ñ•"2,386ñ–'Other, net ñ–"257 ñ–"742 ñ–"(308)ñ—"--------ñ—"--------ñ—"--------0ñ˜'Net cash provided by operating activities ñ˜"19,502 ñ˜"11,986 ñ˜"21,976ñš'Investing activitiesKñœ'Acquisition of Mercury Business Services, Inc., net of cash acquired ñœ"--ñœ"(1,827) ñœ"--Eñ'Acquisition of Pacific Air Charter, Inc., net of cash acquired ñ"-- ñ"-- ñ"(240)Bñž'Acquisition of Data Air Courier, Inc., net of cash acquired ñž"-- ñž"(34)ñž"(4,123)AñŸ'Acquisition of Midway Aviation, Inc., net of cash acquired ñŸ"-- ñŸ"-- ñŸ"(53)*ñ 'Purchases of property and equipmentñ "(17,639)ñ "(18,706)ñ "(30,062)-ñ¡'Payments for covenants not to compete ñ¡"(170) ñ¡"(540) ñ¡"(105)4ñ¢'Proceeds from sales of property and equipment ñ¢"96 ñ¢"415 ñ¢"592ñ£"--------ñ£"--------ñ£"--------,ñ¤'Net cash used in investing activitiesñ¤"(17,713)ñ¤"(20,692)ñ¤"(33,991)ñ¦'Financing activities7ñ§'Proceeds from 1996 Incentive Stock Plan Programs ñ§"293 ñ§"1,947 ñ§"2,100Fñ¨'Net borrowings (repayments) under the revolving credit facilityñ¨"(1,500) ñ¨"25,800 ñ¨"9,500"ñ©'Repayment of long-term debt ñ©"(57) ñ©"(24)ñ©"(1,560)3ñª'Proceeds from the issuance of long-term debt ñª"-- ñª"-- ñª"230!ñ«'Purchase of treasury stock ñ«"--ñ«"(20,000)ñ«"(5,762)ñ¬"--------ñ¬"--------ñ¬"--------:ñ­'Net cash provided by (used in) financing activitiesñ­"(1,264) ñ­"7,723 ñ­"4,508ñ®"--------ñ®"--------ñ®"--------&ñ°'Net increase (decrease) in cash ñ°"525 ñ°"(983)ñ°"(7,507)5ñ±'Cash and cash equivalents at beginning of year ñ±"1,142 ñ±"2,125 ñ±"9,632ñ²"--------ñ²"--------ñ²"--------/ñ³'Cash and cash equivalents at end of yearñ³"$ 1,667ñ³"$ 1,142ñ³"$ 2,125ñ´"========ñ´"========ñ´"========5ñ¶'See notes to consolidated financial statementsñ¸'AIRNET SYSTEMS, INC.(ñ¹'CONSOLIDATED STATEMENTS OF EQUITYñº'In thousands ñ»^Common ñ»^Sharesñ¼^---------ñ¼^----------ñ¼^Additionalñ½^Number ofñ½^Paid-inñ½^Retainedñ½^Treasury ñ¾^Shares ñ¾^Amountñ¾^Capitalñ¾^Earnings ñ¾^Shares ñ¾^Total ñÀ'Balance December 31, 1996 ñÀ"12,621ñÀ"$ 126ñÀ"$ 78,009ñÀ"($ 7,416) ñÀ"$ --ñÀ"$ 70,719ñÁ'Net income ñÁ"-- ñÁ"-- ñÁ"-- ñÁ"13,203 ñÁ"-- ñÁ"13,203ñÂ'Exercise stock options ñÂ"128ñÂ"1 ñÂ"1,821 ñÂ"-- ñÂ"-- ñÂ"1,8222ñÃ'Exercise stock options with treasury shares ñÃ"-- ñÃ"-- ñÃ"(104) ñÃ"-- ñÃ"329 ñÃ"2252ñÄ'Issuance of Common Shares - Associate StockñÅ'Purchase ProgramñÅ"4ñÅ"1 ñÅ"52 ñÅ"-- ñÅ"-- ñÅ"53ñÆ'Purchase treasury shares ñÆ"-- ñÆ"-- ñÆ"-- ñÆ"--ñÆ"(5,762)ñÆ"(5,762)ñÇ"--------ñÇ"--------ñÇ"--------ñÇ"--------ñÇ"--------ñÇ"-------- ñÈ'Balance December 31, 1997 ñÈ"12,753 ñÈ"128 ñÈ"79,778 ñÈ"5,787ñÈ"(5,433) ñÈ"80,260ñÊ'Net income ñÊ"-- ñÊ"-- ñÊ"-- ñÊ"5,636 ñÊ"-- ñÊ"5,6362ñË'Exercise stock options with treasury shares ñË"-- ñË"-- ñË"(685) ñË"-- ñË"2,184 ñË"1,4994ñÌ'Issuance of treasury shares - Associate StockñÍ'Purchase Program ñÍ"-- ñÍ"-- ñÍ"(34) ñÍ"-- ñÍ"315 ñÍ"281:ñÎ'Issuance of treasury shares- acquisition of Mercury ñÎ"-- ñÎ"-- ñÎ"(604) ñÎ"-- ñÎ"2,427 ñÎ"1,823:ñÏ'Issuance of treasury shares - associate stock bonus ñÏ"-- ñÏ"-- ñÏ"-- ñÏ"-- ñÏ"175 ñÏ"175ñÐ'Purchase treasury shares ñÐ"-- ñÐ"-- ñÐ"-- ñÐ"--ñÐ"(20,000)ñÐ"(20,000)ñÑ"--------ñÑ"--------ñÑ"--------ñÑ"--------ñÑ"--------ñÑ"-------- ñÒ'Balance December 31, 1998 ñÒ"12,753 ñÒ"128 ñÒ"78,455 ñÒ"11,423ñÒ"(20,332) ñÒ"69,674ñÔ'Net income ñÔ"-- ñÔ"-- ñÔ"-- ñÔ"3,784 ñÔ"-- ñÔ"3,7844ñÕ'Issuance of treasury shares - Associate StockñÖ'Purchase Program ñÖ"-- ñÖ"-- ñÖ"(273) ñÖ"-- ñÖ"566 ñÖ"293ñ×"--------ñ×"--------ñ×"--------ñ×"--------ñ×"--------ñ×"-------- ñØ'Balance December 31, 1999 ñØ"12,753ñØ"$ 128ñØ"$ 78,182ñØ"$ 15,207ñØ"($19,766)ñØ"$ 73,751ñÙ"========ñÙ"========ñÙ"========ñÙ"========ñÙ"========ñÙ"========