SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16079
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AIR METHODS CORPORATION
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(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
7301 South Peoria, Englewood, Colorado 80112
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
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N/A
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Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.
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
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The number of shares of Common Stock, par value $.06, outstanding
as of October 31, 1995 was 8,077,399.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995
and December 31, 1994 1
Statements of Operations for the three and nine
months ended September 30, 1995 and 1994 3
Statements of Cash Flows for the nine months
ended September 30, 1995 and 1994 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
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIR METHODS CORPORATION
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
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Assets (unaudited)
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Current Assets:
Cash and cash equivalents $ 2,864 696
Current installment of notes receivable 348 324
Receivables:
Trade 1,075 900
Insurance proceeds 216 49
Employees and other 270 65
-------- --------
1,561 1,014
-------- --------
Inventories 1,413 1,522
Work-in-progress on medical interiors 10 240
Assets held for sale 14 4,529
Prepaid expenses and other 646 1,511
-------- --------
Total current assets 6,856 9,836
-------- --------
Equipment and leasehold improvements:
Flight and ground support equipment 36,558 36,221
Furniture and office equipment 1,242 1,161
-------- --------
37,800 37,382
Less accumulated depreciation and amortization (6,499) (4,667)
-------- --------
Net property and equipment 31,301 32,715
-------- --------
Excess of cost over the fair value of net assets acquired,
net of accumulated amortization of $ 381 and $ 308 at September
30, 1995 and December 31, 1994, respectively 2,046 2,119
Notes receivable, less current installments 1,934 2,197
Patent application costs and other assets, net of
accumulated amortization of $ 489 and $ 424 at September
30, 1995 and December 31, 1994, respectively 950 1,267
-------- --------
$ 43,087 48,134
======== ========
(Continued)
See accompanying notes to financial statements.
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AIR METHODS CORPORATION
BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1995 1994
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Liabilities and Stockholders' Equity (unaudited)
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Current Liabilities:
Notes payable $ 781 2,278
Current installments of long-term debt 1,137 4,870
Current installments of obligations under capital leases 734 722
Accounts payable 981 746
Accrued overhaul and parts replacement costs 1,300 804
Deferred revenue 720 10
Accrued restructuring expenses and
other accrued liabilities 1,868 2,298
-------- --------
Total current liabilities 7,521 11,728
-------- --------
Long-term debt, less current installments 6,705 7,569
Obligations under capital leases, less current installments 4,734 5,302
Accrued overhaul and parts replacement costs 4,282 4,559
Other liabilities 892 945
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Total liabilities 24,134 30,103
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Stockholders' equity:
Common stock, $.06 par value. Authorized 16,000,000 shares;
issued 8,102,644 and 8,051,765 shares at September
30, 1995 and December 31, 1994, respectively 485 481
Additional paid-in capital 49,637 49,572
Accumulated deficit (note 3) (31,169) (32,022)
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Total stockholders' equity 18,953 18,031
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$ 43,087 48,134
======== ========
See accompanying notes to financial statements.
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AIR METHODS CORPORATION
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
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1995 1994 1995 1994
---- ---- ---- ----
Revenue:
Flight revenue $ 6,658 6,831 19,782 19,857
Sales of medical interiors and products 1,056 488 2,761 962
International franchise revenue 100 -- 100 --
Gain on disposition of assets, net -- 65 -- --
-------- -------- -------- --------
7,814 7,384 22,643 20,819
-------- -------- -------- --------
Operating expenses:
Flight centers 1,800 2,232 6,070 6,808
Aircraft operations 2,580 2,226 6,412 6,389
Aircraft rental 321 496 1,124 2,038
Medical interiors and parts 869 1,045 2,407 2,098
Depreciation and amortization 670 629 1,973 1,843
Loss on disposition of assets, net 5 -- 16 1,647
General and administrative 1,032 1,098 2,970 4,013
Restructuring and other non-recurring expenses -- -- -- 3,010
-------- -------- -------- --------
7,277 7,726 20,972 27,846
-------- -------- -------- --------
Operating income (loss) 537 (342) 1,671 (7,027)
Other income (expense):
Interest expense (326) (348) (1,078) (986)
Interest and dividend income 69 87 206 229
Other, net -- -- 54 6
-------- -------- -------- --------
Net income (loss) $ 280 (603) 853 (7,778)
========= ========= ========= =========
Income (loss) per common share $ .03 (.08) .11 (.98)
========= ========= ========= =========
Weighted average number of
common shares outstanding 8,075,695 8,022,730 8,068,769 7,899,990
========== ========== ========== ==========
See accompanying notes to financial statements.
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AIR METHODS CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
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SEPTEMBER 30,
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1995 1994
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Cash flows from operating activities:
Net income (loss) $ 853 (7,778)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense 1,973 1,843
Vesting of common stock and options issued for services and in connection
with employee stock compensation agreements, net of forfeitures 69 (227)
Loss on retirement and sale of equipment 16 1,647
Provision for restructuring and non-recurring expenses -- 2,218
Changes in assets and liabilities:
Decrease (increase) in prepaid and other current assets 1,257 (616)
Decrease (increase) in receivables (502) 617
Decrease in inventories 109 487
Decrease in work-in-progress on medical interiors 193 418
Increase (decrease) in accounts payable, accrued restructuring expenses,
and other accrued liabilities (194) 393
Increase in deferred revenue and other liabilities 656 975
Increase in accrued overhaul and parts replacement costs 219 836
-------- --------
Net cash provided by operating activities 4,649 813
-------- --------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (430) (3,699)
Proceeds from retirement and sale of equipment and assets held for sale 4,109 675
Proceeds from maturity of short-term investments -- 504
Decrease in notes receivable, patent application costs and other assets 490 267
-------- --------
Net cash provided (used) by investing activities 4,169 (2,253)
-------- --------
Cash flows from financing activities:
Issuance of common stock and warrants for cash -- 6,059
Net payments under short-term notes payable (1,497) (2,069)
Payments for syndication and solicitation costs -- (152)
Proceeds from issuance of debt -- 985
Payments of long-term debt (4,597) (1,443)
Payments of capital lease obligations (556) (1,629)
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Net cash provided (used) by financing activities (6,650) 1,751
-------- --------
Increase in cash and cash equivalents 2,168 311
Cash and cash equivalents at beginning of period 696 2,154
-------- --------
Cash and cash equivalents at end of period $ 2,864 2,465
========= ========
See accompanying notes to financial statements.
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NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
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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 transitional fiscal year ended December 31, 1994.
(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
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Changes in the stockholders' equity for the nine months ended
September 30, 1995 consisted of the following (amounts in
thousands except share amounts):
Nine Months Ended
September 30, 1995
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Shares Amount
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Balance at January 1, 1995 8,051,765 $ 18,031
Issuance of common shares for
options exercised and services rendered 50,879 72
Amortization of deferred compensation expense -- (3)
Net income -- 853
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Balance at September 30, 1995 8,102,644 18,953
========= ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $280,000 and $853,000 for
the three and nine months ended September 30, 1995,
respectively, compared to net losses of $603,000 and
$7,778,000 for the comparable periods in 1994. The loss for
the nine months ended September 30, 1994, included a
restructuring charge of $3,010,000 and net losses on the
disposition of assets and other non-recurring items of
$2,365,000. Without the restructuring charge and other non-
recurring items, the loss for the nine-month period would
have been $2,403,000. The improvement in operating results
is primarily attributable to the improved performance of the
Company's Products Division and to a reduction in general
and administrative expenses.
Sales of medical interiors and products increased $568,000
(or 116.4%) and $1,799,000 (or 187.0%) for the three and
nine months ended September 30, 1995, respectively, in
comparison to the comparable periods in 1994. In the third
quarter of 1995 the Company recognized revenue of $458,000
from the design of a medical interior for a Lockheed L-1011
aircraft and $350,000 from the sale of a medical interior
for a Bell 206 helicopter and other equipment to a Brazilian
customer. The nine months ended September 30, 1995 also
included revenue from the sale of a medical interior for a
Bell 412 helicopter, the sale of passenger oxygen systems,
the installation of an advanced navigational and weather
detection system, and the refurbishment of an interior for
an existing customer. The revenue recorded in the
comparable nine-month period in 1994 related to the
completion of five emergency medical interiors for Bell
Helicopters, Inc. for use outside the United States and to
the sale of a medical interior to one of the Company's
hospital customers. The cost of medical interiors decreased
16.8% for the three months ended September 30, 1995 as
compared to the previous year but increased 14.7% for the
nine months ended September 30, 1995. The increase for the
nine-month period reflects the increase in the volume of
products sold. The increase in cost of sales is less than
the increase in sales primarily because of higher margins
earned on the work performed in 1995 compared to 1994. Cost
of sales also includes Product Division overhead costs,
including facilities rent and management salaries, which do
not vary with the volume of products completed. In
addition, the cost of medical interiors for the nine months
ended September 30, 1994, included $653,000 of payments for
work on a medical interior that the Company had
subcontracted to an outside vendor. The work done by the
subcontractor was subsequently determined to be
unsatisfactory and was reperformed by the Company. The
decrease in cost of medical interiors for the three months
ended September 30, 1995, is due primarily to significant
costs incurred in the three-month period ended September 30,
1994, for the development of the interior sold to one of the
Company's hospital customers.
Flight revenue remained basically unchanged in the three and
nine months ended September 30, 1995 in comparison to the
same periods in the previous year. In general, the
Company's contracts with hospital clients are subject to
annual increases based on changes in the Consumer Price
Index (CPI). The volume of revenue hours flown by the
Company's fleet is dependent upon hospital demand and to a
lesser extent weather conditions; total revenue hours for
the three and nine months ended September 30, 1995 decreased
5% compared to the hours for the same periods in the
previous year primarily because of the termination of air
charter operations and 3 airplane medical contracts during
the quarter ended September 30, 1994. The effect of
terminating these operations was offset by revenue of
$460,000 from the short-term lease of one of the Company's
aircraft during the nine months ended September 30, 1995.
Flight center costs decreased 19.4% and 10.8% for the three
and nine months ended September 30, 1995, due to the
decrease in the number of airplane medical contracts. The
Company also experienced a decrease in workers compensation
insurance premiums for the period because claims filed for
the policy year were less than projected by the insurance
carrier. In addition, flight center costs for the three
months ended September 30, 1994, included approximately
$97,000 in termination fees associated with the discontinued
airplane contracts.
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The Company recognized $100,000 of international franchise
revenue during the quarter ended September 30, 1995,
representing the first installment of a ten-year franchise
agreement signed in February 1995 with a Brazilian company.
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 of
$2,250,000 plus annual royalties based on gross revenues.
Aircraft operating expenses increased by 15.9% and 0.4% for
the three and nine months ended September 30, 1995,
respectively, in comparison to the three and nine months
ended September 30, 1994. The increase is primarily due to
higher repair and maintenance costs for the fleet in 1995.
Included in repair and maintenance costs for the quarter
ended September 30, 1995, was the cost of refurbishing and
upgrading the interior for one of the Company's aircraft as
well as the cost of repainting two aircraft. 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 expense decreased by 35.3% and 44.8% for the
three and nine months ended September 30, 1995,
respectively, as compared to 1994. The Company has
eliminated seven leased aircraft from its fleet which had
been in operation during all or part of the nine months
ended September 30, 1994. An eighth previously leased
aircraft was purchased by one of the Company's hospital
customers during the nine months ended September 30, 1995,
and is still operated by the Company. Lease expense
recognized on these aircraft in the nine months ended
September 30, 1994, totaled $998,000.
Depreciation and amortization expense increased 6.5% and
7.1% for the three and nine months ended September 30, 1995,
respectively. The increases are primarily the result of
the addition of approximately $650,000 of equipment to the
Company's rotable equipment inventory during the nine months
ended September 30, 1995.
The 6.0% and 26.0% decreases in general and administrative
expenses for the three- and nine-month periods ended
September 30, 1995, respectively, reflect the effects of the
Company's restructuring plan which was implemented in the
quarters ended March 31 and June 30, 1994. The
restructuring plan included a reduction in the
administrative work force and a decreased reliance on
outside contractors and other professional services,
resulting in declines in administrative expense of
approximately $366,000 and $120,000, respectively, for the
nine months ended September 30, 1995. The Company's Board
of Directors has met quarterly in the current year as
compared to monthly during the restructuring, causing a
decrease of $176,000 in costs for the nine months ended
September 30, 1995. In addition, in the nine months ended
September 30, 1994, the Company incurred expenses of almost
$280,000 associated with the development of a proposed joint
venture to provide air medical services in Mexico and the
pursuit of other manufacturing and service contracts. While
the Company continued to seek additional manufacturing and
service contracts in 1995, costs associated with these
efforts were only $42,000 for the nine months ended
September 30, 1995.
Interest expense decreased 6.3% in the third quarter of 1995
as compared to the same quarter in the previous year but
increased 9.3% for the nine months ended September 30, 1995.
In previous years the Company has generally procured
financing for its aircraft hull and liability insurance
premium through a note payable; however, the Company chose
not to finance the new premium beginning in July 1995.
Interest expense for the quarter, therefore, was lower than
in the quarter ended September 30, 1994. The increase for
the nine months is due to interest incurred on notes to
finance the acquisition of two aircraft; one aircraft was
placed in service in May 1994 and the other in January 1995.
The aircraft placed in service in January 1995 was
subsequently sold in March 1995.
Operating expenses for the nine months ended September 30,
1994, included $1,647,000 of valuation allowances and losses
on the disposition of aircraft and $3,010,000 of
restructuring expenses. The Company did not incur any
similar costs in the nine months ended September 30, 1995.
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FINANCIAL CONDITION
Cash and cash equivalents increased $2,168,000 from $696,000
at December 31, 1994, to $2,864,000 as of September 30,
1995; the working capital deficit also decreased from
$1,892,000 to $665,000 over the same period. The increase
in cash and cash equivalents and the improvement in the
working capital position in the nine months ended September
30, 1995, is primarily due to the sale of one of the
Company's aircraft which generated approximately $700,000 in
cash after the retirement of the related debt and to the
positive cash flow generated by the Company's two operating
divisions. The positive cash flow from operations is a
result of both increased business in the Product Division
and cost containment measures taken since the restructuring
in 1994.
The Company expects to continue profitable operations in the
last quarter of 1995 and into 1996. Revenue will continue
to be recognized on the design and manufacture of the
medical interior for the Lockheed L-1011 aircraft through
the completion of the project in the second quarter of 1996.
The Company believes that cash flow generated from
operations will remain sufficient to meet its obligations
throughout fiscal 1995 without additional external
financing. In addition, the Company has four unencumbered
aircraft valued at approximately $7.4 million which could be
used to obtain additional financing, if necessary.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1992, a former employee brought a lawsuit
against the Company in the U. S. District Court for the
District of Minnesota alleging that the Company had
wrongfully discharged him. In September 1995 the District
Court issued a directed verdict in favor of the Company.
The employee appealed the case to the Eighth Circuit of the
U. S. Court of Appeals in November 1995. Management of the
Company believes the ultimate outcome of this action will
not have a material adverse impact on the Company's
financial position or results of operations.
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
10.1 Employment Agreement dated July 10, 1995, between the
Company and Aaron Todd
10.2 July 1, 1995 Amendment to Employment Agreement between
the Company and George W. Belsey
10.3 July 1, 1995 Amendment to Employment Agreement between
the Company and Michael G. Prieto
11.1 Calculation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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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: November 13, 1995 By Aaron D. Todd
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On behalf of the Company, and as
Principal Financial and Accounting
Officer
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