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 MARCH 31, 1998
------------------------------------------
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 May 1,
1998, was 8,188,489.
<PAGE>
TABLE OF CONTENTS
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for
the three months ended March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 4
Notes to Consolidated 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. CONSOLIDATED FINANCIAL STATEMENTS
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 31, December 31,
1998 1997
-------------------------
Assets (unaudited)
- ------
Current assets:
Cash and cash equivalents $ 4,445 3,396
Current installments of notes receivable 60 58
Receivables:
Trade 6,159 6,766
Less allowance for doubtful accounts (1,219) (2,528)
-------------------------
4,940 4,238
Insurance proceeds 88 --
International franchise fee 219 145
Other 542 681
-------------------------
5,789 5,064
-------------------------
Inventories 2,176 2,082
Work-in-process on medical interiors and
product contracts 130 212
Costs and estimated earnings in excess
of billings on uncompleted contracts 127 1,120
Prepaid expenses and other 537 620
-------------------------
Total current assets 13,264 12,552
-------------------------
Equipment and leasehold improvements:
Flight and ground support equipment 55,006 54,540
Furniture and office equipment 2,344 2,287
-------------------------
57,350 56,827
Less accumulated depreciation and amortization (13,731) (13,143)
-------------------------
Net equipment and leasehold improvements 43,619 43,684
-------------------------
Excess of cost over the fair value of net
assets acquired, net of accumulated
amortization of $627 and $601 at March
31, 1998 and December 31, 1997, respectively 1,931 1,957
Notes receivable, less current installments 670 673
Patent application costs and other assets,
net of accumulated amortization of $758
and $717 at March 31, 1998 and December
31, 1997, respectively 1,047 1,003
-------------------------
$60,531 59,869
=========================
(Continued)
See accompanying notes to consolidated financial statements.
1
<PAGE>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, Continued
(Amounts in thousands, except share and per share amounts)
March 31, December 31,
1998 1997
----------------------------
Liabilities and Stockholders' Equity (unaudited)
- ------------------------------------
Current liabilities:
Notes payable $ 42 729
Current installments of long-term debt 2,715 2,655
Current installments of obligations
under capital leases 673 659
Accounts payable 971 1,050
Income taxes payable -- 156
Accrued overhaul and parts
replacement costs 2,189 2,008
Deferred revenue 1,086 942
Deferred income taxes 315 159
Other accrued liabilities 1,492 1,285
----------------------------
Total current liabilities 9,483 9,643
Long-term debt, less current installments 20,161 19,680
Obligations under capital leases, less
current installments 2,670 2,816
Accrued overhaul and parts replacement costs 4,623 4,837
Deferred income taxes 710 944
Other liabilities 716 736
----------------------------
Total liabilities 38,363 38,656
----------------------------
Stockholders' equity (note 3):
Preferred stock, $1 par value. Authorized
5,000,000 shares, none issued -- --
Common stock, $.06 par value. Authorized
16,000,000 shares; issued 8,194,095 and
8,173,705 shares at March 31, 1998 and
December 31, 1997 490 489
Additional paid-in capital 49,837 49,783
Accumulated deficit (28,159) (29,059)
----------------------------
Total stockholders' equity 22,168 21,213
----------------------------
$ 60,531 59,869
============================
See accompanying notes to consolidated financial statements.
2
<PAGE>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
Three Months Ended March 31,
1998 1997
----------------------------
(unaudited) (unaudited)
Revenue:
Flight revenue $ 9,789 6,677
Sales of medical interiors and products 982 711
Parts sales 254 46
Maintenance services 180 25
International franchise fees 74 99
Gain on disposition of assets, net 934 --
----------------------------
12,213 7,558
----------------------------
Operating expenses:
Flight centers 3,248 2,091
Aircraft operations 2,844 1,965
Aircraft rental 430 324
Cost of medical interiors and products sold 874 1,033
Cost of parts sales 225 36
Cost of maintenance services 100 34
Depreciation and amortization 1,041 821
Bad debt expense 467 --
General and administrative 1,543 992
----------------------------
10,772 7,296
----------------------------
Operating income 1,441 262
Other income (expense):
Interest expense (597) (317)
Interest and dividend income 34 109
Other, net 22 --
----------------------------
Net income $ 900 54
============================
Basic and diluted income per common share $ .11 .01
============================
Weighted average number of common shares
outstanding - basic 8,158,489 8,110,230
============================
Weighted average number of common shares
outstanding - diluted 8,300,259 8,151,087
============================
See accompanying notes to consolidated financial statements.
3
<PAGE>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended
March 31,
------------------------
1998 1997
------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 900 54
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization expense 1,041 821
Bad debt expense 467 --
Vesting of common stock options issued for services 15 --
Gain on disposition of assets, net (934) --
Changes in assets and liabilities:
Decrease (increase) in prepaid and other current
assets 83 (72)
Increase in receivables (1,192) (318)
Decrease (increase) in parts inventories (94) 60
Decrease in work-in-process on medical interiors
and costs in excess of billings 1,075 230
Increase (decrease) in accounts payable, other
accrued liabilities, and deferred taxes (106) 236
Increase in deferred revenue and other liabilities 124 500
Decrease in accrued overhaul and parts
replacement costs (33) (383)
----------------------
Net cash provided by operating activities 1,346 1,128
----------------------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (2,978) (672)
Proceeds from retirement and sale of equipment 3,003 --
Net decrease (increase) in patent development costs
and other assets (84) 94
---------------------
Net cash used by investing activities (59) (578)
----------------------
Cash flows from financing activities:
Net payments under short-term notes payable (687) (322)
Proceeds from issuance of debt 1,188 271
Payments of long-term debt (647) (428)
Payments of capital lease obligations (132) (170)
Proceeds from issuance of common stock, net 40 --
----------------------
Net cash used by financing activities (238) (649)
----------------------
Increase (decrease) in cash and cash equivalents 1,049 (99)
Cash and cash equivalents at beginning of period 3,396 2,058
----------------------
Cash and cash equivalents at end of period $ 4,445 1,959
======================
See accompanying notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the consolidated financial
statements for the respective periods. Interim results are not necessarily
indicative of results for a full year. The consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 1997.
(2) INCOME PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common stockholders by all dilutive potential
common shares outstanding during the period.
(3) STOCKHOLDERS' EQUITY
Changes in the stockholders' equity for the three months ended March 31,
1998, consisted of the following (amounts in thousands except share
amounts):
Three Months Ended
March 31, 1998
---------------------
Shares
Outstanding Amount
---------------------
Balance at January 1, 1998 8,148,099 $21,213
Issuance of common stock for
options exercised 20,390 57
Vesting of common stock
options for services -- 15
Retirement of common shares (5,000) (17)
Net income -- 900
---------------------
Balance at March 31, 1998 8,163,489 $22,168
=====================
As of March 31, 1998 the Company's total accumulated deficit was
$28,159,000. Of that amount, $20,467,000 relates to Cell Technology, a
predecessor company, which was involved in the research and development of
a biological response modifier.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. For this purpose, statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes", "expects",
"anticipates", "plans", "estimates", and similar words and expressions are
intended to identify such statements. These forward-looking statements include
statements concerning the size, structure and growth of the Company's flight
services and products markets, the continuation and/or renewal of flight service
contracts, the acquisition of new and profitable Products Division contracts,
the expansion of Mercy Air Service, Inc. ("Mercy") operations, continued royalty
revenue from Unimed Air, and other matters. The actual results that the Company
achieves may differ materially from those discussed in such forward-looking
statements due to the risks and uncertainties described below, as well as in the
Company's annual report on Form 10-K.
RESULTS OF OPERATIONS
The Company reported net income of $900,000 for the three months ended March 31,
1998, compared to net income of $54,000 for the quarter ended March 31, 1997.
The increase in net income for the first quarter is attributable to gains from
the disposition of aircraft, the purchase of Mercy in July 1997, and improvement
in the operating results of the Company's Products Division.
Flight revenue increased $3,112,000, or 46.6%, from $6,677,000 for the three
months ended March 31, 1997, to $9,789,000 for the three months ended March 31,
1998. The increase is due to flight revenue of $3.1 million generated by Mercy's
operations in the first quarter of 1998. Flight revenue from the Company's
hospital agreements remained relatively constant as compared with the first
quarter of 1997 due to annual price increases in the contracts offset by a
reduction in flight volume during the quarter.
Sales of medical interiors and products increased $271,000, or 38.1%, from
$711,000 for the three months ended March 31, 1997, to $982,000 for the first
quarter of 1998. In the first quarter of 1998 the Company recognized revenue of
$392,000 from the production of electrical system components for the U. S. Air
Force HH-60G helicopter, $297,000 from the manufacture and installation of a
medical interior for a Bell 407 helicopter, and $114,000 from the design and
integration of avionics and communications systems for a special-use police
helicopter. Revenue recorded in the comparable quarter in 1997 consisted
primarily of $634,000 from the design and manufacture of four medical interior
systems for the U.S. Army UH-60Q helicopter. The cost of medical interiors
decreased 15.4% for the three months ended March 31, 1998, as compared to the
previous year, reflecting the completion of the developmental phase of the
multi-mission interior for the UH-60Q helicopter in 1997. Cost of medical
interiors for the first quarter of 1997 included an investment of over $650,000
in developmental costs, including an allocation of manufacturing overhead, on
the UH-60Q interior system.
The increase in parts and maintenance sales and services in the first quarter of
1998 compared to the first quarter of 1997 is due to the acquisition of Mercy.
Mercy provides helicopter maintenance services and parts to customers primarily
in Southern California. Cost of parts and maintenance sales and services also
increased correspondingly in the first quarter of 1998.
International franchise fees decreased $25,000, or 25.3%, from $99,000 for the
three months ended March 31, 1997, to $74,000 for the three months ended March
31, 1998. The decrease is due to a decline in the number of subscribers to the
Brazilian franchise since the first quarter of 1997. 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 an initial acquisition price plus annual royalties based
on gross revenues.
6
<PAGE>
In the first quarter of 1998 the Company recognized net gains totaling $934,000
on the disposition of assets. Gains included $870,000 from the insurance
settlement for one of the Company's helicopters destroyed in an accident in
January 1998.
Flight center costs, consisting primarily of pilot and mechanic salaries and
fringe benefits, increased 55.3% for the three months ended March 31, 1998,
compared to 1997. Flight center costs related to Mercy's operations totaled
$870,000 for the first quarter of 1998. Without the effect of the Mercy
acquisition, flight center costs increased 13.8% as a result of the addition of
two new hospital contracts since March 1997 and increases in salaries for merit
pay raises. Workers compensation expense was also adjusted by approximately
$27,000 in 1998 due to the expected impact of the helicopter crash on the
Company's workers compensation insurance rates.
Aircraft operating expenses increased 44.7% for the three months ended March 31,
1998, in comparison to the three months ended March 31, 1997. 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. The Company has added 11 helicopters to its fleet since March 31,
1997, including the 7 aircraft added as a result of the Mercy acquisition.
Absent the impact of the Mercy transaction, aircraft operating expenses
increased 1.2% in the first quarter of 1998.
Aircraft rental expense increased by 32.7% for the three months ended March 31,
1998, compared to 1997. Since March 31, 1997, the Company has added four leased
helicopters to its fleet, including two aircraft servicing Mercy's operations.
Lease expense in the first quarter of 1998 related to the new helicopters
totaled $154,000. The addition of new helicopters was partially offset by the
elimination of rental expense for a helicopter previously leased from Mercy.
Depreciation and amortization expense increased 26.8% for the three months ended
March 31, 1998. The addition of Mercy's equipment increased depreciation by
$190,000 during the first quarter. The remainder of the increase is primarily
due to the addition of one Bell 407 helicopter to the Company's fleet of owned
aircraft during 1997.
Bad debt expense is estimated during the period the related services are
performed based on historical experience for Mercy's operations. The provision
is adjusted as required based on actual collections in subsequent periods. Bad
debt expense increased in 1998 compared to an immaterial amount in 1997 because
Mercy bills patients and their insurers directly for services rendered rather
than billing hospital customers.
The increase in general and administrative expenses for the quarter ended March
31, 1998, compared to the quarter ended March 31, 1997, reflects the impact of
the Mercy transaction. Excluding Mercy's expenses, general and administrative
expenses would have increased 12.0%. This increase is primarily due to increases
in administrative and human resources functions to manage the expanded employee
base.
Interest expense increased 88.3% from the first quarter of 1997 to the first
quarter of 1998. Interest expense related to new debt incurred in the
acquisition of Mercy totaled approximately $285,000 in the first quarter of
1998.
Interest income decreased 68.8% in the three months ended March 31, 1998,
compared to the same period in 1997, primarily due to the settlement at the
acquisition date of notes receivable to the Company from Mercy.
FINANCIAL CONDITION
Cash and cash equivalents increased $1,049,000 from $3,396,000 at December 31,
1997, to $4,445,000 as of March 31, 1998, while net working capital increased
from $2,909,000 to $3,781,000 over the same period. The improvement in cash and
working capital positions in the first quarter of 1998 is due primarily to cash
flow generated from operations. The acquisition of equipment in the first
quarter was partially funded by $1.2 million in new debt. The Company's cash
position was also increased by $3 million from the disposition of fixed assets
in the first quarter.
7
<PAGE>
During the first quarter of 1998, the Company renewed operating agreements with
three of its hospital clients. The Company also decided not to pursue renewal of
its fourth contract expiring in 1998, but to redeploy the helicopter assigned to
that contract to its Mercy operations. In the second quarter of 1998, the
Company expects to complete production of electrical system components for the
U. S. Air Force HH-60G helicopter, as well as the installation of a Bell 407
medical interior and avionics and communications systems for a police
helicopter. The Company also expects to receive authorization to produce and
deliver seven additional UH-60Q helicopter upgrades in 1998. Final orders for
these units have not yet been received, and there is no assurance that the work
will be performed or units delivered in 1998 or in future periods. In 1998 the
Company anticipates expansion of the geographical coverage of Mercy's operations
to other contiguous regions. Operating royalties generated by Unimed Air, the
Company's Brazilian franchise, are expected to remain consistent with the levels
attained in the first quarter of 1998.
There can be no assurance that the Company will continue to renew operating
agreements for the Flight Services Division, generate new profitable contracts
for the Products Division, or successfully expand Mercy's operations. In
addition, there can be no assurance that Unimed Air will continue to generate
royalties from operations. However, based on the backlog of projects for the
Products Division, anticipated level of flight activity for its hospital
customers, and expected growth in Mercy's operations, the Company expects to
generate sufficient cash flow to meet its operational needs in 1998.
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
Not Applicable.
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: May 11, 1998 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 THREE MONTHS ENDED
MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4445
<SECURITIES> 0
<RECEIVABLES> 7008
<ALLOWANCES> (1219)
<INVENTORY> 2306
<CURRENT-ASSETS> 13264
<PP&E> 57350
<DEPRECIATION> (13731)
<TOTAL-ASSETS> 60531
<CURRENT-LIABILITIES> 9483
<BONDS> 0
<COMMON> 490
0
0
<OTHER-SE> 49837
<TOTAL-LIABILITY-AND-EQUITY> 60531
<SALES> 1416
<TOTAL-REVENUES> 12213
<CGS> 1199
<TOTAL-COSTS> 10772
<OTHER-EXPENSES> 22 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563 <F2>
<INCOME-PRETAX> 900
<INCOME-TAX> 0
<INCOME-CONTINUING> 900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 900
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1> Net non-operating income
<F2> Net of interest income of $34
</FN>
</TABLE>
