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, 1997
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 0-16079
AIR METHODS CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
7301 South Peoria, Englewood, Colorado 80112
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report: N/A
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
The number of shares of Common Stock, par value $.06, outstanding as of August
1, 1997, was 8,111,924.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1997 and December 31, 1996 1
Statements of Operations for the three and six months
ended June 30, 1997 and 1996 3
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIR METHODS CORPORATION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,639 2,058
Current installments of notes receivable (note 4) 410 392
Receivables, net:
Trade 1,354 1,165
Insurance proceeds -- 270
Other 426 213
------------ ----------
1,780 1,648
------------ ----------
Inventories 1,642 1,583
Work-in-process on medical interiors and product
contracts 199 192
Costs and estimated earnings in excess of billings on
uncompleted contracts 300 682
Prepaid expenses and other 445 554
------------ ----------
Total current assets 7,415 7,109
------------ ----------
Equipment and leasehold improvements:
Flight and ground support equipment 43,823 42,448
Furniture and office equipment 1,551 1,494
------------ ----------
45,374 43,942
Less accumulated depreciation and amortization (11,576) (10,013)
------------ ----------
Net equipment and leasehold improvements 33,798 33,929
------------ ----------
Excess of cost over the fair value of net assets acquired,
net of accumulated amortization of $551 and $502 at
June 30, 1997 and December 31, 1996, respectively 1,876 1,925
Notes receivable, less current installments (note 4) 1,246 1,454
Patent application costs and other assets, net of accumulated
amortization of $643 and $588 at June 30, 1997 and
December 31, 1996, respectively 900 972
------------ ----------
$ 45,235 45,389
============ ==========
(Continued)
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
AIR METHODS CORPORATION
BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 8 352
Current installments of long-term debt 1,786 1,780
Current installments of obligations under capital leases 843 819
Accounts payable 489 614
Accrued overhaul and parts replacement costs 1,130 1,582
Deferred revenue 1,132 629
Other accrued liabilities 894 831
---------- ----------
Total current liabilities 6,282 6,607
---------- ----------
Long-term debt, less current installments 11,328 10,642
Obligations under capital leases, less current installments 2,947 3,732
Accrued overhaul and parts replacement costs 4,045 4,157
Other liabilities 742 823
---------- ----------
Total liabilities 25,344 25,961
---------- ----------
Stockholders' equity:
Preferred stock, $1 par value. Authorized 5,000,000
shares, none issued -- --
Common stock, $.06 par value. Authorized 16,000,000
shares; issued 8,137,530 and 8,135,836 shares at
June 30, 1997 and December 31, 1996, respectively 487 487
Additional paid-in capital 49,701 49,696
Accumulated deficit (note 3) (30,297) (30,755)
---------- ----------
Total stockholders' equity 19,891 19,428
---------- ----------
$ 45,235 45,389
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
AIR METHODS CORPORATION
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------------------------------------------
1997 1996 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Flight revenue $7,021 6,665 13,698 13,013
Sales of medical interiors and products 899 374 1,681 1,779
International franchise revenue 115 -- 214 150
----------------------------------------------------------------------
8,035 7,039 15,593 14,942
----------------------------------------------------------------------
Operating expenses:
Flight centers 1,763 1,824 3,854 3,940
Aircraft operations 2,662 2,242 4,627 4,292
Aircraft rental 444 372 768 762
Medical interiors and products sold 656 742 1,759 2,003
Depreciation and amortization 846 713 1,667 1,417
Loss on disposition of assets, net 1 1 1 18
General and administrative 1,021 993 2,013 1,990
----------------------------------------------------------------------
7,393 6,887 14,689 14,422
----------------------------------------------------------------------
Operating income 642 152 904 520
Other income (expense):
Interest expense (309) (351) (626) (662)
Interest and dividend income 65 102 174 188
Other, net 6 -- 6 1
----------------------------------------------------------------------
Net income (loss) $ 404 (97) 458 47
======================================================================
Income (loss) per common share $ .05 (.01) .06 .01
======================================================================
Weighted average number of common shares
outstanding 8,110,795 8,095,515 8,110,512 8,088,776
======================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
AIR METHODS CORPORATION
STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1997 1996
--------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 458 47
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 1,667 1,417
Vesting of common stock and options issued for
services and in connection with employee stock
compensation agreements, net of forfeitures 5 25
Loss on retirement and sale of equipment 1 18
Changes in assets and liabilities:
Decrease in prepaid and other current assets 109 230
Decrease (increase) in receivables (132) 112
Increase in parts inventories (59) (137)
Decrease (increase) in work-in-process on
medical interiors and costs in excess of
billings 375 (387)
Net decrease in accounts payable and other
accrued liabilities (62) (423)
Net increase (decrease) in deferred revenue and
other liabilities 422 (22)
Increase (decrease) in accrued overhaul and parts
replacement costs (564) 432
---------------------------
Net cash flow provided by operating activities 2,220 1,312
---------------------------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (1,433) (1,419)
Proceeds from retirement and sale of equipment -- 2
Net decrease in notes receivable, patent development
costs and other assets 207 91
---------------------------
Net cash used by investing activities (1,226) (1,326)
---------------------------
Cash flows from financing activities:
Issuance of common stock and warrants for cash -- 20
Net payments under short-term notes payable (344) (180)
Proceeds from issuance of debt 1,571 2,500
Payments of long-term debt (879) (776)
Payments of capital lease obligations (761) (360)
---------------------------
Net cash provided (used) by financing activities (413) 1,204
---------------------------
Increase in cash and cash equivalents 581 1,190
Cash and cash equivalents at beginning of period 2,058 2,699
---------------------------
Cash and cash equivalents at end of period $ 2,639 3,889
===========================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial statements for the
respective periods. Interim results are not necessarily indicative of
results for a full year. The financial statements should be read in
conjunction with the Company's audited consolidated financial statements
and notes thereto for the year ended December 31, 1996.
(2) INCOME (LOSS) PER SHARE
Per-share information is based on the weighted-average number of shares
of common stock outstanding during each of the periods. Shares issuable
upon the exercise of warrants and stock options are not included in the
calculations, since their inclusion would be anti-dilutive.
(3) STOCKHOLDERS' EQUITY
Changes in the stockholders' equity for the six months ended June 30,
1997, consisted of the following (amounts in thousands except share
amounts):
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
--------------------------------------
Shares Amount
--------------------------------------
<S> <C> <C>
Balance at January 1, 1997 8,135,836 $19,428
Issuance of common shares for services 1,694 5
rendered
Net income -- 458
--------------------------------------
Balance at June 30, 1997 8,137,530 $19,891
======================================
</TABLE>
(4) SUBSEQUENT EVENT
On July 31, 1997, the Company completed the acquisition of all of the
common stock of Mercy Air Service, Inc. ("Mercy"), an independent
provider of air medical transportation services in southern California.
The purchase price was approximately $6.2 million and is subject to
working capital post-closing adjustments. Approximately $4.6 million was
paid in cash at closing, with the remaining balance financed by the
sellers over five years. Most of the funding for the cash payment was
provided by the refinancing of six of Mercy's helicopters with Finova
Capital Corporation ("Finova"). The note from Finova provides for
monthly principal and interest payments of 9.52% interest over ten
years. No shares of Company stock were issued in the transaction. As
part of the transaction, the notes receivable to the Company from Mercy
were paid in full.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $404,000 and $458,000 for the three
and six months ended June 30, 1997, respectively, compared to a net
loss of $97,000 for the quarter ended June 30, 1996, and net income of
$47,000 for the six months ended June 30, 1996. The improvement in
operating results is primarily attributable to increased flight
revenue from the Company's hospital contracts and sales of medical
interiors in the second quarter, containment of flight center costs,
and improved margins on sales of medical interiors and products.
Flight revenue increased $356,000, or 5.3%, and $685,000, or 5.3%, for
the three and six months ended June 30, 1997, respectively, compared
to 1996. The increase was caused by a 6.6% increase in revenue flight
hours from 6,100 hours in 1996 to 6,500 in 1997 and by annual
increases in the majority of the Company's contracts based on changes
in the Consumer Price Index.
Sales of medical interiors and products increased $525,000 (or 140.4%)
for the quarter ended June 30, 1997, but decreased $98,000 (or 5.5%)
for the six months ended June 30,1997, in comparison to the comparable
periods in 1996. In the second quarter of 1997 the Company recognized
revenue of $592,000 from the design and manufacture of four
multi-mission medical interior systems for the U.S. Army UH-60Q
helicopter, for a total of $1.4 million in revenue from this project
in the six months ended June 30, 1997. The revenue recorded in the
comparable six-month period in 1996 consisted primarily of $1,009,000
from the design of a medical interior for a Lockheed L-1011 aircraft,
$389,000 from the design and installation of medical interiors for two
MD900 Explorer helicopters, and $200,000 from the manufacture of an
interior for a Bell 412 helicopter. The cost of medical interiors
decreased 11.6% and 12.2% for the three and six months ended June 30,
1997, respectively, as compared to the previous year. The decrease
over the six-month period reflected the decrease in the volume of
products sold as well as the decrease in developmental costs incurred
on the UH-60Q helicopter system compared to the developmental costs
incurred on the modular medical interior in 1996. Most of the
developmental costs on UH-60Q were incurred in 1996 and the first
quarter of 1997. Cost of medical interiors in the second quarter also
reflected the reduction of previously established warranty reserves
based on the Company's historical warranty claims experience.
The Company recognized revenue of $115,000 and $214,000 from its
Brazilian franchise during the three and six months ended June 30,
1997, respectively, compared to $150,000 in the six months ended June
30, 1996. Revenue recognized in 1997 represents royalties earned on
franchise operations while revenue in 1996 was the second minimum
installment of the 10-year franchise agreement. Under the exclusive
franchise agreement, the Brazilian company purchased the right to use
the trademarks and expertise of the Company in providing air medical
services in Brazil in exchange for a minimum acquisition price plus
annual royalties based on gross revenues. The franchise commenced air
medical operations in January 1996.
Flight center costs, consisting primarily of pilot and mechanics
salaries and fringe benefits, decreased 3.3% and 2.2% for the three
and six months ended June 30, 1997, respectively, compared to 1996. In
1997 the Company reached a settlement with the Federal Aviation
Administration for costs incurred as the result of a fatal helicopter
accident in 1994. The settlement provided for reimbursement of workers
compensation claims and other expenses totaling approximately
$240,000. The resultant decrease in flight center costs was partially
offset by increases in pilot and mechanic salaries for merit pay
raises.
6
<PAGE>
Aircraft operating expenses increased by 18.7% and 7.8% for the three
and six months ended June 30, 1997, respectively, in comparison to the
three and six months ended June 30, 1996. The increase is primarily
due to higher repair and maintenance costs for the fleet in 1997
driven in part by a 4.2% increase in total flight hours for the six
months ended June 30, 1997, compared to the prior year. Included in
repair and maintenance costs for the quarter ended June 30, 1997, was
the cost of overhauling a Bell 412 combining gearbox and a Bell 206
engine prior to their scheduled overhaul dates. In addition, the
Company has added 3 helicopters to its fleet since June 30, 1996.
Aircraft operating expenses consist of fuel, insurance, and
maintenance costs and generally are a function of the size of the
fleet, the type of aircraft flown, and the number of hours flown.
Aircraft rental expenses increased 19.4% and 0.8% for the three and
six months ended June 30, 1997, respectively, as compared to 1996. The
increase is due to the short-term lease of a backup helicopter during
the second quarter of 1997 while one of the Company's aircraft was
undergoing a scheduled engine overhaul.
Depreciation and amortization expense increased 18.7% and 17.6% for
the three and six months ended June 30, 1997, respectively. The
increases are primarily the result of the addition of one Bell 222
helicopter, two Bell 407 helicopters, and one new medical interior to
the fleet since June 30, 1996. The Company has also increased its
rotable and office equipment inventories by $516,000 since June 30,
1996.
FINANCIAL CONDITION
Cash and cash equivalents increased $581,000 from $2,058,000 at
December 31, 1996, to $2,639,000 as of June 30, 1997; net working
capital also improved from $502,000 to $1,133,000 over the same
period. The increase in cash and cash equivalents in the six months
ended June 30, 1997, is primarily due to the positive cash flow
generated by the Company's operations. An increase in deferred revenue
on hospital contracts and a decrease in costs and estimated earnings
in excess of billings on the UH-60Q project contributed to the
improvement in cash flow from operations. In addition the Company's
cash position improved as a result of the refinancing of one of its
helicopters during the second quarter of 1997.
The Company has renewed all three of its hospital-based contracts
expiring in 1997 for terms ranging from one to five years and has
renewed two contracts due to expire in 1998 for five-year terms. In
June 1997 the Company signed a ten-year operating agreement with a new
hospital customer, increasing the number of its programs to 20 across
the United States; operations under the new contract are expected to
begin in the fourth quarter. Continued steady growth is also expected
in revenue from the Brazilian franchise operations in the last two
quarters of 1997.
During the third and fourth quarters of 1997 the Company expects to
complete the production of the two UH-60Q medical interior units
currently in process. The authorization to produce four additional
UH-60Q units is currently not expected until the fourth quarter of
1997 or the first quarter of 1998. In August 1997 the Company's
Products Division was awarded a $1.1 million contract to manufacture
wiring harnesses for the U.S. Air Force HH-60G helicopter and a
contract to install a medical interior in a Bell 407 which will be
owned by one of the Company's current hospital customers.
7
<PAGE>
In July 1997 the Company completed its acquisition of Mercy Air
Service, Inc., an independent provider of helicopter air medical
transportation services in southern California. Historically revenue
from Mercy's operations has averaged about 50% of the Company's flight
revenue. As a result of the acquisition and expected synergies in hull
and liability insurance premiums, training expenses, and other costs,
the Company anticipates growth in both total revenue and net operating
results during the remainder of 1997. There can be no assurance that
the Company will generate new profitable contracts for the Products
Division or that expected growth from the Mercy transaction will be
realized. However, based on the acquisition of Mercy, contract
renewals and new contract with hospital customers, backlog of projects
for the Products Division, and expected growth in the Brazilian
franchise, the Company anticipates sufficient cash flow to meet its
operational needs throughout the remainder of 1997. The Company also
has an unused $2 million line of credit to supplement other working
capital sources, if necessary.
All statements except those which refer to historical operations for
the Company constitute forward-looking information. Although these
estimates are based on reliable information and past experience,
operating results are affected by a wide variety of factors, many of
which are beyond the control of the Company. These factors include the
timing and pricing of orders for the Products Division, funding
approval for the governmental contracts, competitive pressures in the
air medical market, and realization of synergies from the
consolidation of operations with Mercy.
8
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Stockholders was held on June 12,
1997. At the meeting, Messrs. Joseph E. Bernstein, Ralph J.
Bernstein, and Lowell D. Miller were elected to Class III
directorships. Voting results were as follows:
Total Vote
Total Vote For Withheld From
Each Director Each Director
Joseph E. Bernstein 1,772,167 21,363
Ralph J. Bernstein 1,772,084 21,446
Lowell D. Miller 1,772,084 21,446
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
9
<PAGE>
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.
AIR METHODS CORPORATION
Date: August 14, 1997 By \s\ AARON D. TODD
-------------------------------------------
On behalf of the Company, and as Principal
Financial and Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2639
<SECURITIES> 0
<RECEIVABLES> 1804
<ALLOWANCES> (24)
<INVENTORY> 1841
<CURRENT-ASSETS> 7415
<PP&E> 45374
<DEPRECIATION> (11576)
<TOTAL-ASSETS> 45235
<CURRENT-LIABILITIES> 6282
<BONDS> 0
0
0
<COMMON> 487
<OTHER-SE> 49701
<TOTAL-LIABILITY-AND-EQUITY> 45235
<SALES> 1681
<TOTAL-REVENUES> 15593
<CGS> 1759
<TOTAL-COSTS> 14689
<OTHER-EXPENSES> 6<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452<F2>
<INCOME-PRETAX> 458
<INCOME-TAX> 0
<INCOME-CONTINUING> 458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458
<EPS-PRIMARY> .06
<EPS-DILUTED> .0
<FN>
<F1> Net non-operating income
<F2> Net of interest income of $174
</FN>
</TABLE>
