AirNet Systems, Inc. Reports 2007 Results

COLUMBUS, Ohio, March 31 /PRNewswire-FirstCall/ -- AirNet Systems, Inc.
(Amex: ANS) today reported total net revenues declined 7% to $161.0 million
for the twelve months ended December 31, 2007 from $172.8 million for 2006.
Income from continuing operations before income taxes was $5.5 million for
2007 compared to a loss from continuing operations before income taxes of
$(11.7) million for 2006. Net income was $3.4 million, or $0.33 per basic and
diluted share, for the year 2007 compared to a net loss of $(13.3) million, or
$(1.31) per share, the prior year.
Total net revenues declined 11% to $37.9 million for the three months
ended December 31, 2007 from $42.8 million for the same period a year ago.
The loss from continuing operations before income taxes was $(27,000) for the
fourth quarter 2007 versus income from continuing operations before income
taxes of $2.8 million the prior year. The Company reported a net loss of
$(0.5) million, or $(0.05) per share, for the fourth quarter 2007 compared to
net income of $1.8 million, or $0.18 per basic and diluted share, a year ago.
At December 31, 2007, AirNet had no loans outstanding under its revolving
credit facility or term loan versus an aggregate amount of $8.0 million in
loans outstanding on the same date the prior year.
Bruce D. Parker, Chairman of the Board and Chief Executive Officer, said,
"We are generally pleased with our results for 2007 that were achieved by an
outstanding team of employees despite challenging market conditions. During
the past year we continued to adapt to the rapidly changing banking
environment resulting from the banking industry's transition to electronic
alternatives for the presentment of checks. We significantly changed our
weekday air transportation network multiple times during the year to reduce
cost. We implemented a new tiered pricing structure for our weekday bank
services, grew our scheduled express charter business, increased our emphasis
on charter flights for large integrated carriers, significantly reduced our
ground courier costs and eliminated our debt.
Mr. Parker continued, "Nonetheless, we are in a challenging environment.
Bank Services shipments declined in each quarter of 2007 compared to the same
period of the prior year on an accelerating basis, a trend that is expected to
continue in 2008 and we are operating in an increasingly uncertain national
economy. We will remain focused on actively managing our costs, changing our
air transportation network to meet customer needs, and expanding our dedicated
charter flying and our express business."
2007 Results
Total net revenues declined 7% to $161.0 million for the twelve months
ended December 31, 2007 from $172.8 million for the year 2006. A $1.4 million
increase in net revenues for Aviation Services was offset by lower Bank
Services net revenues ($12.1 million) and Express Services net revenues ($1.0
million) respectively. Fuel surcharge revenue for Bank Services and Express
Services was $15.8 million and $15.3 million, and $7.7 million and $8.8
million, for the years 2007 and 2006, respectively.
Pounds shipped per weekday flying day for cancelled checks declined 31%
for 2007 compared to 2006. Including proof of deposit (unprocessed checks) and
interoffice mail deliveries for AirNet's customers, the total number of pounds
shipped per weekday flying day for Bank Services declined approximately 26%
for 2007 versus the prior year.
Costs and Expenses
Total costs and expenses declined 15% to $155.3 million for 2007 from
$182.9 million for 2006. This year-over-year difference was primarily due to
a reduction in asset impairment charges, which was $2.2 million for 2007
versus $24.6 million for 2006. The asset impairment charges for both years
are in accordance with the requirements of Statement of Financial Accounting
Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets. Additionally, the Company recognized a $0.9 million net gain on
the disposition of aircraft assets in 2007 reflecting the excess of insurance
proceeds over the net book value of the aircraft. Excluding the impairment of
assets and net gain on disposition of assets, total costs and expenses
declined 3% to $153.9 million for 2007 from $158.5 million the prior year.
Depreciation expense was $4.7 million for 2007 versus $9.7 million for
2006, a reduction of 52%. This decline was primarily due to the impairment of
assets in the third quarter of 2006. Additionally, aircraft engine
depreciation, which is based on engine hours operated, declined due to fewer
flight hours in 2007 compared to 2006.
Aircraft fuel expense declined approximately 9% to $25.5 million for 2007
due to lower usage caused by a decline in the number of hours flown. This
decline was partially offset by an increase in fuel prices in 2007. The
Company implemented a 10% reduction in the number of flights within its air
transportation network on March 26, 2007 and other modifications in October
2007. The number of subcontracted flights increased during the remainder of
2007, which also contributed to the decline in aircraft fuel expense for 2007
compared to the prior year.
Contracted air costs declined to $16.0 million for 2007 compared to $16.6
million a year ago. This 3% decrease was principally due to a reduction in
the number of AirNet's shipments transported on commercial passenger airlines.
Also contributing to the decline were the elimination and restructuring of
certain air routes throughout 2007.
Aircraft maintenance expense increased 29% to $23.1 million for 2007 from
$18.0 million the prior year. The increase was primarily caused by the
Company expensing approximately 75% of engine maintenance plan prepayments and
an increase in retail maintenance costs associated with maintenance services
provided to third parties.
Interest Expense
Interest expense declined to $0.3 million for 2007 from $1.5 million for
2006. This was attributable to full payment of the amount outstanding under
the Company's revolving credit facility and repayment of the principal balance
outstanding under the Company's term loan during 2007. The Company had no
outstanding debt at December 31, 2007 compared to $8.0 million on the same
date of the prior year.
Income Taxes
The provision for income taxes was $2.1 million for 2007 compared to $1.7
million for 2006. The effective income tax rate, excluding the effect of
discontinued operations, was 38.1% for 2007 and 14.2% for 2006. The
difference in the statutory income rates was primarily attributable to changes
of approximately ($0.2) million and $6.2 million for 2007 and 2006,
respectively in the valuation allowance for deferred assets.
Fourth Quarter 2007 Results
Bank Services net revenues, including fuel surcharges, declined 16% to
$22.9 million for the fourth quarter 2007 from $27.1 million a year ago. Fuel
surcharge revenue was $4.3 million versus $3.3 million for the fourth quarter
of 2007 and 2006, respectively. Total pounds shipped for Bank Services per
weekday flying day declined 30% for the fourth quarter 2007 versus the same
period last year. A 39% reduction in the volume of weekday cancelled checks
delivered for bank customers during the fourth quarter 2007 was partially
offset by an increase in proof of deposit (unprocessed checks) compared to the
fourth quarter 2006.
Express Services net revenues declined approximately 1% to $14.7 million
for the fourth quarter 2007 from $14.9 million the prior year. The decrease
primarily related to fewer shipments from a low margin customer. Charter
flights for Express Services customers increased 10% for the fourth quarter
2007 compared to the same period a year ago. The 2007 increase over 2006 in
Express Revenues-Charter was directly related to the increase in the number of
Company charters for AMCI customers. Fuel surcharge revenue of $2.3 million
for the fourth quarter 2007 versus $1.8 million the prior year offset a
revenue decline in Non Charter Express shipments
Costs and Expenses
Total costs and expenses declined 4% to $38.0 million for the fourth
quarter 2007 from $39.6 million for the same period in 2006. Lower ground
courier costs ($1.6 million) and aircraft maintenance costs ($1.5 million)
were partially offset by increased aircraft fuel expense ($0.8 million) and
higher travel, training and other operating expense ($0.6 million).
Ground courier costs decreased 18% to $7.3 million for the fourth quarter
2007 from $8.8 million a year ago. This was principally due to a decline in
the number of Express Shipments related to one customer and cost reduction
initiatives.
Depreciation expense declined 25% to $1.0 million for the fourth quarter
2007 from $1.3 million for the same period in 2006. This was due to lower
aircraft values attributable to the third quarter 2006 impairment of assets
coupled with reduced flight hours compared to the same period last year.
Aircraft fuel expense increased approximately 14% to $6.6 million for the
fourth quarter 2007 from $5.8 million for the fourth quarter 2006 primarily
reflecting the impact of higher fuel costs.
Contracted air costs rose to $4.5 million for the fourth quarter 2007 from
$4.0 million for the same period a year ago. Costs related for back-up and
subcontracted air routes continued to increase primarily due a shortage of
pilots.
Aircraft maintenance costs declined 24% to $4.5 million for the fourth
quarter 2007 from $6.0 million the prior year, principally due to the timing
of major maintenance activities.
Selling, general and administrative expenses were $4.7 million for the
fourth quarter 2007 versus $5.0 million for the same period in the prior year.
One-time expenses related to management changes in the fourth quarter 2006
were partially offset by higher consulting and professional expenses in the
fourth quarter 2007.
Interest (Income) Expense
Interest income was $44,000 for the fourth quarter 2007 compared to
interest expense of $0.3 million for the same period in 2006. The Company
repaid its revolving credit facility and the principal amount outstanding
under its term loan during the third quarter 2007.
Income Taxes
The provision for income taxes was $0.5 million for the fourth quarter
2007 versus $1.1 million for the same period in 2006. The tax expense
recognized in the fourth quarter 2007 was the result of adjusting the
Company's annualized effective tax rate upward to reflect an increase in
forecasted income for 2007 from that anticipated in the prior quarter. The
Company's effective tax rate in 2006 reflected a net increase in the valuation
allowance for deferred tax assets recognized in that quarter.
Income Tax Method Change
On March 11, 2008, the Company received notice from the Internal Revenue
Service (IRS) of approval for its discretionary income tax method change,
which was filed in December 2006. As required by SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), the effect of the method change will be
reported in the period in which IRS approval is obtained; therefore, AirNet
has not reflected the impact of the method change in the December 31, 2007
consolidated financial statements. The Company is in the process of
evaluating the total impact of the method change; however, it will materially
reduce its current taxes payable. Additionally, its deferred tax assets and
the need for the associated valuation allowance could materially change. As a
result of the method change approval, the Company has applied for a refund of
2007 federal tax estimated payments of approximately $1.7 million which it
expects to receive in 2008. Additionally, the Company intends to file an
amended tax return for a refund of income taxes previously paid of
approximately $5.6 million, the payment of which is subject to review and
approval by the IRS. The Company expects to receive this refund in 2009.
AirNet Systems, Inc.
AirNet Systems, Inc. focuses its 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.
AirNet's aircraft are located strategically throughout the United States. To
find out more, visit AirNet's website at www.airnet.com.
Safe Harbor Statement
Except for the historical information contained in this news release, 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 news release, the words "believe", "will", "expect" and similar
expressions are intended to be among statements that identify forward-looking
statements. Such statements involve risks and uncertainties, which could cause
actual results to differ materially from any forward-looking statement. The
following factors, in addition to those included in the disclosures under the
heading "ITEM 1A - RISK FACTORS" of Part I of AirNet's Annual Report on Form
10-K for the fiscal year ended December 31, 2007 could cause actual results to
differ materially from those expressed in our forward-looking statements: the
ability to obtain any required regulatory approvals of the merger on the
proposed terms and schedule; the failure of AirNet's shareholders to approve
and adopt the merger and the merger agreement; the failure to satisfy the
conditions to the closing of the transaction; uncertainty surrounding the
merger making it more difficult to maintain relationships with AirNet's
customers and team members; 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 cancelled checks; changes in the
way the FAA is funded which could increase AirNet's operating costs; changes
in check processing and shipment patterns of bank customers; changes in check
processing and shipment patterns of the Federal Reserve System's Check Relay
Network; the continued acceleration in the migration of AirNet's Bank Services
customers to electronic alternatives to the physical movement of cancelled
checks; disruptions to the Internet or AirNet's technology infrastructure,
including those impacting AirNet's computer systems and corporate website; the
impact of prolonged weakness in the United States economy on time-critical
shipment volumes; significant changes in the volume of shipments transported
on AirNet's air transportation network, customer demand for AirNet's various
services or the prices it obtains for its services; the acceptance by AirNet's
weekday Bank Services customers of AirNet's pricing structure; pilot shortages
which could result in a reduction in AirNet's flight schedule or require
subcontracting of certain routes; disruptions to operations due to adverse
weather conditions, air traffic control-related constraints or aircraft
accidents; 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; technological
advances and increases in the use of electronic funds transfers; the
availability and cost of financing required for operations; other economic,
competitive and domestic and foreign governmental factors affecting AirNet's
markets, prices and other facets of its operations; as well as other risks
described from time to time in AirNet's filings with the SEC. 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 disclosures included in "ITEM 1A - RISK
FACTORS" of Part I and in the section captioned "Forward-looking statements"
in "ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" of Part II of the Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 of AirNet Systems, Inc. (File No. 1-13025)
for additional details relating to risk factors that could affect AirNet's
results and cause those results to differ materially from those expressed in
the forward-looking statements.

AIRNET SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except per share data

Three Months Ended Year Ended
December 31, December 31,
2007 2006 2007 2006
NET REVENUES, NET OF EXCISE TAX
Air Transportation, net of excise
tax of $3,008 and $3,729 for the
years ended December 31, 2007
and 2006, respectively:

Bank Services $22,865 $27,090 $99,853 $112,034
Express Services 14,709 14,919 58,163 59,187
Aviation Services 343 752 3,013 1,586
Total net revenues 37,917 42,761 161,029 172,807

COSTS AND EXPENSES
Aircraft fuel 6,568 5,784 25,473 27,909
Aircraft maintenance 4,525 5,977 23,136 17,998
Operating wages and benefits 5,048 4,641 19,127 19,071
Contracted air costs 4,452 3,974 16,041 16,550
Ground courier 7,250 8,834 32,841 35,248
Depreciation 967 1,285 4,685 9,700
Insurance, rent and landing
fees 2,352 2,605 8,409 8,639
Travel, training and other
operating 2,128 1,537 6,579 5,468
Selling, general and
administrative 4,705 5,016 17,654 17,939
Net (gain) on disposition of
assets (7) (48) (890) (140)
Impairment of assets - - 2,216 24,560
Total costs and expenses 37,988 39,605 155,271 182,942

Income (loss) from continuing
operations before interest and
income taxes (71) 3,156 5,758 (10,135)

Interest expense (income) (44) 310 251 1,532

Income (loss) from continuing
operations before income taxes (27) 2,846 5,507 (11,667)
Provision for income taxes 450 1,079 2,100 1,654

Income (loss) from continuing
operations (477) 1,767 3,407 (13,321)

Income from discontinued operations
(including 2006 gain on sale of
$610, net of tax) - 12 - 29

Net income (loss) $(477) $1,779 $3,407 $(13,292)

Income (loss) per common share -
basic and diluted:
Continuing operations $(0.05) $0.18 $0.33 $(1.31)
Discontinued operations - - - -
Net income (loss) per common share -
basic and diluted $(0.05) $0.18 $0.33 $(1.31)

Reconciliation of GAAP to Non-GAAP
Information:
Income (loss) from continuing
operations before income taxes $(27) $2,846 $5,507 $(11,667)
Impairment of assets - - 2,216 24,560
Income (loss) from continuing
operations before income taxes
and impairment of assets (Non-GAAP)
(Note 1) $(27) $2,846 $7,723 $12,893

Total costs and expenses $37,988 $39,605 $155,271 $182,942
Net (gain) on disposition of assets (7) (48) (890) (140)
Impairment of assets - - 2,216 24,560
Total costs and expenses before net
gain on disposition of assets
and impairment of assets (Non-GAAP)
(Note 2) $37,995 $39,653 $153,945 $158,522

Note 1 - Under generally accepted accounting principles (GAAP),impairment
of assets is required to be included in the income from continuing
operations before income taxes. The Company believes that the presentation
of the following supplemental information, excluding the impairment of
assets, is useful and informative to readers in providing a more complete
view of AirNet's operating results.

Note 2 - Under generally accepted accounting principles (GAAP), net (gain)
on disposition of assets and impairment of assets is required to be
included in total costs and expenses. The Company believes that the
presentation of the following supplemental information, excluding the net
(gain) on disposition of assets and impairment of assets, is useful and
informative to readers in providing a more complete view of AirNet's
operating results.

SOURCE AirNet Systems, Inc.

Ray Druseikis, AirNet Systems, Inc., +1-614-409-4996; or Bob Lentz,
InvestQuest, Inc., +1-614-876-1900