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, 2000
----------------
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
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AIR METHODS CORPORATION
-----------------------
(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
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(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification Number)
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 5,
2000, was 8,303,203.
<PAGE>
TABLE OF CONTENTS
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 1
Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AIR METHODS CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,462 2,242
Current installments of notes receivable 76 74
Receivables:
Trade 8,056 8,603
Less allowance for doubtful accounts (810) (1,210)
------------ -------------
7,246 7,393
Insurance proceeds 165 220
Other 555 798
------------ -------------
7,966 8,411
------------ -------------
Inventories 2,394 2,504
Work-in-process on medical interiors and products contracts 352 172
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,080 772
Prepaid expenses and other 834 1,019
------------ -------------
Total current assets 16,164 15,194
------------ -------------
Equipment and leasehold improvements:
Flight and ground support equipment 62,556 61,356
Furniture and office equipment 3,727 3,641
------------ -------------
66,283 64,997
Less accumulated depreciation and amortization (22,497) (21,289)
------------ -------------
Net equipment and leasehold improvements 43,786 43,708
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $835 and $810 at March 31,
2000 and December 31, 1999, respectively 1,612 1,637
Notes receivable, less current installments 514 534
Other assets, net of accumulated amortization of $1,368 and
$1,256 at March 31, 2000 and December 31, 1999,
respectively 1,535 1,643
------------ -------------
Total assets $ 63,611 62,716
============ =============
</TABLE>
(Continued)
1
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<TABLE>
<CAPTION>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
(Amounts in thousands, except share and per share amounts)
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
<S> <C> <C>
Liabilities and Stockholders' Equity (unaudited)
- ------------------------------------
Current liabilities:
Notes payable $ -- 700
Current installments of long-term debt 3,238 3,073
Current installments of obligations under capital leases 430 424
Accounts payable 1,026 1,378
Accrued overhaul and parts replacement costs 2,315 2,114
Deferred revenue 1,433 972
Deferred income taxes 231 231
Other accrued liabilities 1,362 1,681
------------ -------------
Total current liabilities 10,035 10,573
Long-term debt, less current installments 18,847 17,757
Obligations under capital leases, less current installments 1,848 1,931
Accrued overhaul and parts replacement costs 6,363 6,301
Deferred income taxes 55 132
Other liabilities 870 882
------------ -------------
Total liabilities 38,018 37,576
------------ -------------
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 8,584,849 and 8,378,843 shares at
March 31, 2000 and December 31, 1999,
respectively 514 503
Additional paid-in capital 50,036 50,002
Accumulated deficit (24,940) (25,357)
Treasury stock, 281,646 and 127,822 common shares
at March 31, 2000 and December 31, 1999,
respectively (17) (8)
------------ -------------
Total stockholders' equity 25,593 25,140
------------ -------------
Total liabilities and stockholders' equity $ 63,611 62,716
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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<TABLE>
<CAPTION>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ----------
(unaudited) (unaudited)
<S> <C> <C>
Revenue:
Flight revenue $ 12,848 11,345
Sales of medical interiors and products 1,475 1,536
Parts and maintenance sales and services 252 420
Other 16 37
------------ ----------
14,591 13,338
------------ ----------
Operating expenses:
Flight centers 4,593 3,853
Aircraft operations 3,272 3,118
Aircraft rental 550 553
Cost of medical interiors and products sold 1,074 1,068
Cost of parts and maintenance sales and services 219 365
Depreciation and amortization 1,345 1,189
Bad debt expense 944 561
General and administrative 1,718 1,528
------------ ----------
13,715 12,235
------------ ----------
Operating income 876 1,103
Other income (expense):
Interest expense (523) (550)
Interest and dividend income 44 38
Other, net 20 11
------------ ----------
Net income $ 417 602
============ ==========
Basic and diluted income per common share (note 2) $ .05 .07
============ ==========
Weighted average number of common shares outstanding - basic 8,281,782 8,230,737
============ ==========
Weighted average number of common shares outstanding - diluted 8,624,674 8,241,736
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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<TABLE>
<CAPTION>
AIR METHODS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ -------
(unaudited) (unaudited)
------------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 417 602
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 1,345 1,189
Bad debt expense 944 561
Vesting of common stock options issued for services 15 16
Changes in assets and liabilities:
Decrease in prepaid and other current assets 185 72
Increase in receivables (499) (882)
Decrease (increase) in parts inventories 110 (211)
Increase in work-in-process on medical interiors and costs in excess of billings (488) (99)
Increase (decrease) in accounts payable, other accrued liabilities, and income tax liabilities (748) 265
Increase in deferred revenue and other liabilities 449 285
Increase in accrued overhaul and parts replacement costs 45 143
------------ -------
Net cash provided by operating activities 1,775 1,941
------------ -------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (1,068) (225)
Net decrease (increase) in notes receivable and other assets 14 (633)
------------ -------
Net cash used by investing activities (1,054) (858)
------------ -------
Cash flows from financing activities:
Net payments under short-term notes payable (700) (424)
Proceeds from issuance of debt 2,000 1,150
Payments of long-term debt (745) (673)
Payments of capital lease obligations (77) (146)
Payments for purchases of common stock (590) --
Proceeds from issuance of common stock, net 611 --
------------ -------
Net cash provided (used) by financing activities 499 (93)
------------ -------
Increase in cash and cash equivalents 1,220 990
Cash and cash equivalents at beginning of period 2,242 2,407
------------ -------
Cash and cash equivalents at end of period $ 3,462 3,397
============ =======
</TABLE>
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, 1999.
(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.
The reconciliation of basic to diluted weighted average common shares
outstanding is as follows for the quarters ended March 31 (amounts in
thousands except share and per share amounts):
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Weighted average number of common shares outstanding - basic 8,281,782 8,230,737
Dilutive effect of:
Common stock options 308,383 10,999
Common stock warrants 34,509 --
--------- ---------
Weighted average number of common shares outstanding - diluted 8,624,674 8,241,736
========= =========
</TABLE>
Common stock options totaling 18,120 and 1,781,293 and common stock
warrants of 75,000 and 275,000 were not included in the diluted income per
share calculation for the quarters ended March 31, 2000 and 1999,
respectively, because their effect would have been anti-dilutive.
(3) STOCKHOLDERS' EQUITY
---------------------
Changes in stockholders' equity for the three months ended March 31, 2000,
consisted of the following (amounts in thousands except share amounts):
<TABLE>
<CAPTION>
Shares
Outstanding Amount
------------ --------
<S> <C> <C>
Balance at January 1, 2000 8,251,021 $25,140
Issuance of common shares for options exercised 206,006 611
Vesting of common stock options for services rendered -- 15
Purchase of treasury shares (153,824) (590)
Net income -- 417
------------ --------
Balance at March 31, 2000 8,303,203 $25,593
============ ========
</TABLE>
As of March 31, 2000, the Company's total accumulated deficit was
$24,940,000. 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>
(4) BUSINESS SEGMENT INFORMATION
------------------------------
Summarized financial information for the Company's operating segments is
shown in the following table (amounts in thousands). Amounts in the
"Corporate Activities" column represent corporate headquarters expenses and
results of insignificant operations. The Company does not allocate assets
between Air Medical Services, Products, and Corporate Activities for
internal reporting and performance evaluation purposes.
<TABLE>
<CAPTION>
Air
Medical
Services Products Corporate Intersegment
FOR QUARTER ENDED MARCH 31: Division Mercy Air Division Activities Eliminations Consolidated
- ---------------------------- ---------- ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2000
External revenue $ 8,096 5,012 1,475 8 -- 14,591
Intersegment revenue -- -- 407 -- (407) --
---------- ---------- --------- ------------- ------------- -------------
Total revenue 8,096 5,012 1,882 8 (407) 14,591
---------- ---------- --------- ------------- ------------- -------------
Operating expenses 6,320 3,214 1,504 705 (337) 11,406
Depreciation & amortization 879 335 53 78 -- 1,345
Bad debt expense -- 944 -- -- -- 944
Interest expense 241 256 -- 26 -- 523
Interest income (17) (1) -- (26) -- (44)
---------- ---------- --------- ------------- ------------- -------------
Segment net income (loss) $ 673 264 325 (775) (70) 417
========== ========== ========= ============= ============= =============
Total assets N/A 20,632 N/A 42,979 N/A 63,611
========== ========== ========= ============= ============= =============
1999
External revenue $ 7,342 4,381 1,540 75 -- 13,338
Intersegment revenue 8 -- 724 -- (732) --
---------- ---------- --------- ------------- ------------- -------------
Total revenue 7,350 4,381 2,264 75 (732) 13,338
---------- ---------- --------- ------------- ------------- -------------
Operating expenses 5,430 3,230 1,683 678 (547) 10,474
Depreciation & amortization 818 258 40 73 -- 1,189
Bad debt expense -- 561 -- -- -- 561
Interest expense 258 263 -- 29 -- 550
Interest income (19) (2) -- (17) -- (38)
---------- ---------- --------- ------------- ------------- -------------
Segment net income (loss) $ 863 71 541 (688) (185) 602
========== ========== ========= ============= ============= =============
Total assets N/A 17,795 N/A 44,593 N/A 62,388
========== ========== ========= ============= ============= =============
</TABLE>
(5) SUBSEQUENT EVENT
-----------------
On April 25, 2000, Mercy Air Service, Inc. (Mercy Air), a wholly owned
subsidiary of Air Methods Corporation (the Company or Air Methods),
acquired through a newly formed company substantially all of the business
assets of Area Rescue Consortium of Hospitals, a Missouri non-profit
organization, for $11,268,000. The newly formed company, ARCH Air Medical
Service, Inc. (ARCH), will provide air medical transportation services as a
Missouri corporation and a wholly owned subsidiary of Mercy Air. The
purchase agreement includes an earn-out provision under which the sellers
will receive 50% of all collections greater than 50% of charges on
receivables older than six months, up to a maximum of $1,500,000. Also on
April 25, 2000, ARCH acquired two fixed wing aircraft and related equipment
and inventory from SkyLife Aviation, LLC, a Missouri limited liability
company, for $1,699,000. Funding for the acquisitions was provided
primarily by the sale of five helicopters and two fixed wing aircraft to
C.I.T. Leasing Corporation (CIT) for $10.6 million. The aircraft will be
leased back from CIT under an operating lease with monthly lease payments
due over ten years. ARCH also entered into a $1,350,000 note payable to
Firstar Bank, N.A., with interest at 8.01% and monthly principal and
interest payments over seven years. The remainder of the purchase price was
funded from Company treasuries.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in Item 1 of this report. 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 volume of Mercy Air's operations, 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. The Company
undertakes no obligation to update any forward-looking statements.
RESULTS OF OPERATIONS
The Company reported net income of $417,000 for the three months ended March 31,
2000, compared to net income of $602,000 for the quarter ended March 31, 1999.
The reduction in net income is attributed to the factors discussed below.
Flight revenue increased $1,503,000, or 13.2%, from $11,345,000 for the three
months ended March 31, 1999, to $12,848,000 for the three months ended March 31,
2000. Flight revenue for the Air Medical Services Division increased 10.5% due
to $152,000 from 3 new contracts started since March 1999, annual price
increases in contracts with hospital clients, and a 16.6% increase in flight
volume for continuing contracts. Flight revenue for Mercy Air increased 18.2% in
the first quarter of 2000 compared to the first quarter of 1999 due to expansion
of operations in San Diego in March 1999 and a 23.1% increase in transport
volume at other base locations.
Sales of medical interiors and products decreased $61,000, or 4.0%, from
$1,536,000 for the three months ended March 31, 1999, to $1,475,000 for the
first quarter of 2000, primarily due to a decrease in orders for
multi-functional interiors. Significant projects in 2000 included manufacture of
six UH-60Q Multi-Mission Medevac Systems for the U.S. Army and design work on a
Spinal Cord Injury Transport System (SCITS) for the U.S. Air Force. Revenue by
product line was as follows:
- - $1,251,000 - design and manufacture of multi-mission interiors
- - $224,000 - design and manufacture of other aerospace products
Significant projects in 1999 included design work for a Spinal Cord Injury
Transport System (SCITS) for the U.S. Air Force and the manufacture of
multi-functional interiors for five Bell helicopters and one MD902 helicopter.
Revenue recognized in 1999 consisted of the following:
- - $1,148,000 - manufacture and installation of modular, multi-functional
interiors
- - $388,000 - design and manufacture of other aerospace products
Cost of medical interiors remained relatively unchanged for the three months
ended March 31, 2000, as compared to the previous year. Cost of medical
interiors and products includes fixed overhead expenses for the Products
Division which do not decrease with a decrease in sales.
Parts and maintenance sales and services decreased 40.0% for the quarter ended
March 31, 2000, compared to the quarter ended March 31, 1999, due to a decrease
in volume of sales. Parts sales in the first quarter of 1999 included $90,000
for the sale of a single aircraft part to a customer. Cost of parts and
maintenance sales and services for the quarter also decreased accordingly.
7
<PAGE>
Flight center costs (consisting primarily of pilot, mechanic, and medical staff
salaries and fringe benefits) increased 19.2% for the three months ended March
31, 2000, compared to 1999. Flight center costs for the Air Medical Services
Division increased 23.9% primarily due to the addition of 3 new hospital
contracts and to increases in salaries for merit pay raises. The Company also
increased matching and supplemental contributions to the employee defined
contribution retirement plan since the first quarter of 1999. Flight center
costs related to Mercy Air's operations increased 10.6% in the first quarter of
2000, primarily due to merit pay raises and the change to retirement plan
contributions.
Aircraft operating expenses increased 4.9% for the three months ended March 31,
2000, in comparison to the three months ended March 31, 1999. 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. Since the first quarter of 1999, the Company has added one Bell 430
and two Bell 407 helicopters to its fleet for the Air Medical Services Division
and one Bell 222 helicopter for Mercy Air to support expanded operations. Total
flight hours increased 8.5% for Air Medical Services Division and 24.6% for
Mercy Air's operations, excluding the impact of new contracts. Increases for new
aircraft were partially offset in the first quarter of 2000 by a decrease in
hull insurance rates effective July 1, 1999.
Depreciation and amortization expense increased 13.1% for the three months ended
March 31, 2000, primarily due to the addition of one Bell 222 helicopter, as
well as new medical interiors, to the fleet of owned aircraft. The Company also
completed the renovation of its corporate headquarters facility in Colorado and
Mercy Air's headquarters in California during 1999, increasing depreciable
leasehold improvements by approximately $635,000. Expenses in the first quarter
of 2000 included three months of amortization of a non-compete agreement related
to the buyout of another air ambulance service provider in San Diego, compared
to one month in the first quarter of 1999.
Bad debt expense is estimated during the period the related services are
performed based on historical experience for Mercy Air's operations. The
provision is adjusted as required based on actual collections in subsequent
periods. The increase of 68.3% in 2000 compared to 1999 reflects the increase in
flight revenue for Mercy Air. In addition, the first quarter of 1999 included
the reversal of previously established reserves with the improvement in
collections from the fourth quarter of 1998 to the first quarter of 1999. Bad
debt expense for the first quarter of 2000 was approximately 20% of Mercy Air's
flight revenue, net of contractual allowances under agreements with third-party
payers, consistent with historical annual rates.
General and administrative expenses increased 12.4% in the quarter ended March
31, 2000, compared to the first quarter of 1999, due in part to merit pay salary
increases for administrative personnel.
FINANCIAL CONDITION
Net working capital increased from $4,621,000 at December 31, 1999, to
$6,129,000 at March 31, 2000. Cash and cash equivalents increased $1,220,000
from $2,242,000 to $3,462,000 over the same period, due to cash generated by
operations and proceeds from the issuance of two notes. In February 2000 the
Company entered into a $1.1 million note payable to a company with interest at
8.99% to finance the acquisition of the Bell 222 helicopter which collateralizes
the note. In March 2000 the Company entered into a $900,000 note payable to a
company with interest at 8.67% to finance the acquisition of the assets of Area
Rescue Consortium of Hospitals. The note is collateralized by a Bell 222
helicopter.
OUTLOOK 2000
The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The Company undertakes no obligation to update any forward-looking statements.
8
<PAGE>
Air Medical Services Division
In the first quarter of 2000, the Air Medical Services Division extended an
operating agreement due for renewal for an additional 2 years. The Company
expects to expand services under an existing contract in June 2000 with the
deployment of an additional aircraft. At the end of July 2000, the Company will
discontinue services to one hospital customer which did not renew its operating
agreement with the Company. One other contract is due for renewal in 2000.
Flight activity for continuing hospital contracts is expected to remain
consistent with historical levels during the remainder of 2000.
Mercy Air Service
On April 25, 2000, Mercy Air acquired through a newly formed company
substantially all of the business assets, including five Eurocopter BK-117
helicopters, of Area Rescue Consortium of Hospitals, a Missouri non-profit
organization, for $11,268,000. ARCH, a wholly owned subsidiary of Mercy Air,
will operate as an independent provider of air medical transportation services.
Also on April 25, 2000, ARCH acquired two Beechcraft King Air 100 airplanes and
related equipment and inventory from SkyLife Aviation, LLC, for $1,699,000.
The Company expects flight volume for Mercy Air's operations to be consistent
with historical levels during the remainder of 2000.
Products Division
The Company expects to complete production of six UH-60Q Multi-Mission Medevac
Systems during the second quarter of 2000. The current contract for the UH-60Q
program includes an option for five additional units which has not yet been
exercised. The Army Program Objective Memorandum (POM) includes funding for 357
units in total over the next 10 to 20 years. There can be no assurance that the
current contract option will be exercised or orders for additional units will be
received in 2000 or in future periods.
The testing phase of the SCITS program for the U.S. Air Force will continue in
the second quarter of 2000. The long-range Air Force plan includes between 75
and 250 SCITS units over the next 5 years. The production contract for SCITS has
not yet been awarded and there is no assurance that the contract will be awarded
in 2000 or in future periods.
At the end of the first quarter of 2000, the Products Division received a
contract to manufacture an emergency medical interior system for a Bell 412
helicopter. The work is expected to be completed during the second and third
quarters of 2000.
There can be no assurance that the Company will continue to renew operating
agreements for the Air Medical Services Division, generate new profitable
contracts for the Products Division, expand flight volume for Mercy Air, or
successfully integrate the ARCH acquisition. However, based on the anticipated
level of flight activity for its hospital customers and Mercy Air and the
backlog of projects for the Products Division, the Company expects to generate
sufficient cash flow to meet its operational needs throughout the remainder of
2000.
RISK FACTORS
Actual results achieved by the Company may differ materially from those
described in forward-looking statements as a result of various factors,
including but not limited to, those discussed above in "Outlook for 2000" and
those described below.
- - Flight volume - All of Mercy Air's revenue and approximately 30% of the Air
Medical Services Division's revenue is dependent upon flight volume.
Approximately 22% of the Company's operating expenses also vary with number
of hours flown. Poor visibility, high winds, and heavy precipitation can
affect the safe operation of helicopters and therefore result in a reduced
number of flight hours due to the inability to fly during these conditions.
Prolonged periods of adverse weather conditions, especially in southern
California where Mercy Air's operations are concentrated, could have an
adverse impact on the Company's
9
<PAGE>
operating results. In southern California, the months from November through
February tend to have lower flight volume due to weather conditions and
other factors, resulting in lower operating revenue for Mercy Air during
these months. Flight volume for Mercy Air's operations can also be affected
by the distribution of calls among competitors by local government agencies
and the entrance of competitors into a market.
- - Collection rates - Mercy Air invoices patients and their insurers directly
for services rendered, and the level of bad debt expense is driven by
collection rates on these accounts. Collectibility is primarily dependent
upon the health of the U.S. economy, especially in southern California. A
significant or sustained downturn in the U.S. economy could have an adverse
impact on the Company's bad debt expense.
- - Dependence on third party suppliers - The Company currently obtains a
substantial portion of its helicopter spare parts and components from Bell
Helicopter, Inc. (Bell), because its fleet is composed primarily of Bell
aircraft, and maintains supply arrangements with other parties for its
engine and related dynamic components. Based upon the manufacturing
capabilities and industry contacts of Bell and other suppliers, the Company
believes it will not be subject to material interruptions or delays in
obtaining aircraft parts and components but does not have an alternative
source of supply for Bell and certain other aircraft parts. Failure or
significant delay by these vendors in providing necessary parts could, in
the absence of alternative sources of supply, have a material adverse
effect on the Company. Because of its dependence upon Bell for helicopter
parts, the Company could also be subject to adverse impacts from unusually
high price increases which are greater than overall inflationary trends.
Increases in the Company's flight fees billed to its customers are
generally limited to changes in the consumer price index.
- - Department of Defense funding - The two major projects in process for the
Products Division, UH-60Q and SCITS, are both dependent upon Department of
Defense funding. Failure of the U.S. Congress to approve funding for the
production of additional UH-60Q or SCITS units could have a material
adverse impact on Products Division revenue.
- - Governmental regulation - The air medical transportation services and
products industry is subject to extensive regulation by governmental
agencies, including the Federal Aviation Administration, which impose
significant compliance costs on the Company. In addition, reimbursement
rates for air ambulance services established by governmental programs such
as Medicare directly affect Mercy Air's revenue and indirectly affect Air
Medical Services Division's revenue from its hospital customers. Changes in
laws or regulations or reimbursement rates could have a material adverse
impact on the Company's cost of operations or revenue from flight
operations.
- - Competition - The Air Medical Services Division faces significant
competition from several national and regional air medical transportation
providers for contracts with hospitals and other healthcare institutions.
Operators generally compete on the basis of price, safety record, accident
prevention and training, and the medical capability of the aircraft
offered. There can be no assurance that the Company will be able to
continue to compete successfully for new or renewing contracts in the
future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange and interest rates. The Company
does not use financial instruments to any degree to manage these risks and does
not hold or issue financial instruments for trading purposes. All of the
Company's product sales, international franchise revenue, and related
receivables are payable in U.S. dollars. The Company is subject to interest rate
risk on its debt obligations and notes receivable, most of which have fixed
interest rates. Interest rates on these instruments approximate current market
rates as of March 31, 2000.
10
<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
Current Report on Form 8-K, dated April 25, 2000,
regarding the Company's acquisition of substantially
all of the assets of Area Rescue Consortium of Hospitals
11
<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 9, 2000 By /s/ Aaron D. Todd
------------------------------------------
On behalf of the Company, and as
Principal Financial and Accounting Officer
12
<PAGE>
<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, 2000, 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3462
<SECURITIES> 0
<RECEIVABLES> 8776
<ALLOWANCES> 810
<INVENTORY> 2746
<CURRENT-ASSETS> 16164
<PP&E> 66283
<DEPRECIATION> 22497
<TOTAL-ASSETS> 63611
<CURRENT-LIABILITIES> 10035
<BONDS> 0
0
0
<COMMON> 497
<OTHER-SE> 50036
<TOTAL-LIABILITY-AND-EQUITY> 63611
<SALES> 1727
<TOTAL-REVENUES> 14591
<CGS> 1293
<TOTAL-COSTS> 13715
<OTHER-EXPENSES> 20 <F1>
<LOSS-PROVISION> 944
<INTEREST-EXPENSE> 479 <F2>
<INCOME-PRETAX> 417
<INCOME-TAX> 0
<INCOME-CONTINUING> 417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 417
<EPS-BASIC> .05
<EPS-DILUTED> .05
<FN>
<F1> Net non-operating income
<F2> Net of interest income of $44
</TABLE>
