AIRNET SYSTEMS INC (Form: 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.

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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(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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Exhibit 99.1

AirNet Systems, Inc. Completes Sale of Jetride, Inc.


CONTACT:
Gary Qualmann		Bob Lentz
AirNet Systems, Inc.		InvestQuest, Inc.
(614) 409-4832		(614) 876-1900

COLUMBUS, Ohio — September 26, 2006 — AirNet Systems, Inc. (AMEX: ANS) today announced completion of the sale of its passenger charter business, including the aircraft and substantially all of the aircraft related assets of Jetride, Inc., a wholly-owned subsidiary, to Pinnacle Air, LLC (“Pinnacle”). The purchase price was $41 million in cash.

AirNet will repay debt secured by Jetride aircraft, which was approximately $29 million at closing. Following repayment of Jetride’s debt as well as payment of applicable taxes and expenses related to the transaction, AirNet plans to use the remaining sale proceeds to further reduce debt outstanding under its revolving credit facility.

AirNet Systems, Inc.

AirNet Systems, Inc. focuses the Company’s resources on providing value-added, time-critical aviation services to a diverse set of customers in the most service-intensive, cost-effective manner possible. AirNet operates an integrated national transportation network that provides expedited transportation services to banks and time-critical small package shippers nationwide. The Company’s aircraft are located strategically throughout the United States. To find out more, visit AirNet’s website at www.airnet.com .

Pinnacle Air, LLC

Pinnacle Air, LLC operates Pinnacle Air Executive Jet Charter and Pinnacle Air Services FBO (Fixed Base Operator). The Pinnacle Air fleet includes 9 Learjets, 2 Falcon 50s and 1 Citation VII and operates on a Federal Aviation Regulation Part 135 certificate, which was obtained in 2004. Primary aircraft operations are in Northwest Arkansas, Bridgeport, Connecticut and Las Vegas, Nevada. Pinnacle Air has received the prestigious Q-Star rating for safety, professionalism and performance.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

Except for the historical information contained in this release of AirNet Systems, Inc., 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 that involve risks and uncertainties. When used in this release, the words “believe”, “anticipate”, “estimate”, “expect”, “intend”, “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 forward-looking statement: potential regulatory changes by the Federal Aviation Administration (“FAA”), Department of Transportation (“DOT”) and Transportation Security Administration (“TSA”), which could increase the regulation of AirNet’s business, or the Federal Reserve, which could change the competitive environment of transporting canceled checks; changes in check processing and shipment patterns of bank customers; the continued acceleration of migration of AirNet’s Bank customers to electronic alternatives to the physical movement of cancelled checks; the Company’s plans to increase the number of contracted air routes to achieve a more variable cost structure, disruptions to operations due to adverse weather conditions, air traffic-control-related constraints or aircraft accidents; potential further declines in the value of aircraft in AirNet’s fleet and any related asset impairment charges; potential changes in locally and federally mandated security requirements; increases in aviation fuel costs not fully offset by AirNet’s fuel surcharge program; acts of war and terrorist activities; the acceptance of AirNet’s time-critical service offerings within targeted Express markets; technological advances and increases in the use of electronic funds transfers; the availability and cost of financing required for operations; the impact of unusual items resulting from ongoing evaluation of AirNet’s business strategies; as well as other economic, competitive and domestic and foreign governmental factors affecting AirNet’s markets, prices 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. Please refer to the sections captioned “Forward-looking statements” and “Risk factors” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 of AirNet Systems, Inc. for additional details relating to risk factors that could affect AirNet’s results and cause those results to differ materially from those expressed in forward-looking statements.

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