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, 1996
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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 __________________
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 of (I.R.S. Employer
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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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
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The number of shares of Common Stock, par value $.06, outstanding
as of August 2, 1996 was 8,105,730.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996 and December 31,
1995 1
Statements of Operations for the three months and
for the six months ended June 30, 1996 and 1995 3
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 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 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security
Holders 8
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)
June 30, December 31,
1996 1995
------------ ------------
(unaudited)
Assets
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Current Assets:
Cash and cash equivalents $ 3,889 2,699
Current installment of notes receivable 373 356
Receivables:
Trade 1,061 881
Insurance proceeds 113 249
Other 211 367
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1,385 1,497
------ ------
Inventories 1,400 1,263
Work-in-progress on medical interiors 518 131
Prepaid expenses and other 381 611
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Total current assets 7,946 6,557
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Equipment and leasehold improvements:
Flight and ground support equipment 38,576 37,228
Furniture and office equipment 1,370 1,326
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39,946 38,554
Less accumulated depreciation and amortization (8,456) (7,138)
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Net property and equipment 31,490 31,416
Excess of cost over the fair value of net assets acquired,
net of accumulated amortization of $453 and $405 at
June 30,1996 and December 31, 1995, respectively 1,974 2,022
Notes receivable, less current installments 1,653 1,843
Patent application costs and other assets, net of
accumulated amortization of $554 and $510 at
June 30, 1996 and December 31, 1995, respectively 786 748
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$ 43,849 42,586
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(Continued)
See accompanying notes to financial statements.
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AIR METHODS CORPORATION
BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, December 31,
1996 1995
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(unaudited)
Liabilities and Stockholders' Equity
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Current Liabilities:
Notes payable $ 513 693
Current installments of long-term debt 1,943 1,435
Current installments of obligations under capital leases 782 751
Accounts payable 653 974
Accrued overhaul and parts replacement costs 2,022 1,407
Deferred revenue 998 1,052
Other accrued liabilities 781 883
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Total current liabilities 7,692 7,195
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Long-term debt, less current installments 7,887 6,671
Obligations under capital leases, less current installments 4,161 4,552
Accrued overhaul and parts replacement costs 4,146 4,329
Other liabilities 809 777
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Total liabilities 24,695 23,524
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Stockholders' equity:
Common stock, $.06 par value. Authorized 16,000,000 shares;
issued 8,126,336 and 8,103,502 shares at June 30, 1996
and December 31, 1995, respectively 486 485
Additional paid-in capital 49,684 49,640
Accumulated deficit (note 3) (31,016) (31,063)
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Total stockholders' equity 19,154 19,062
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$ 43,849 42,586
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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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
Flight revenue $ 6,665 6,528 13,013 13,124
Sales of medical interiors and products 374 424 1,779 1,705
International franchise revenue -- -- 150 --
Gain on disposition of assets, net -- 4 -- --
------ ------ ------ ------
7,039 6,956 14.942 14,829
------ ------ ------ ------
Operating expenses:
Flight centers 1,824 2,139 3,940 4,270
Aircraft operations 2,242 1,887 4,292 3,832
Aircraft rental 372 322 762 803
Medical interiors and parts 742 451 2,003 1,538
Depreciation and amortization 713 647 1,417 1,303
Loss on disposition of assets, net 1 -- 18 11
General and administrative 993 947 1,990 1,938
------ ------ ------ ------
6,887 6,393 14,422 13,695
------ ------ ------ ------
Operating income 152 563 520 1,134
Other income (expense):
Interest expense (351) (313) (662) (752)
Interest and dividend income 102 71 188 137
Other, net -- (1) 1 54
------ ------ ------ ------
Net income (loss) $ (97) 320 47 573
====== ====== ====== ======
Income (loss) per common share $ (.01) .04 .01 .07
====== ====== ====== ======
Weighted average number of
common shares outstanding 8,095,515 8,075,023 8,088,776 8,065,307
========= ========= ========= =========
See accompanying notes to financial statements.
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AIR METHODS CORPORATION
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(unaudited)
Six Months Ended June 30,
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1996 1995
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Cash flow from operating activities:
Net income $ 47 573
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization expense 1,417 1,303
Vesting of common stock and options issued for services and in connection
with employee stock compensation agreements, net of forfeitures 25 63
Loss on retirement and sale of equipment, net 18 15
Changes in assets and liabilities:
Decrease in prepaid and other current assets 230 1,470
Decrease (increase) in receivables 112 (274)
Decrease (increase) in inventories (137) 152
Increase in work-in-progress on medical interiors (387) (227)
Decrease in accounts payable and other accrued liabilities (423) (400)
Increase (decrease) in deferred revenue and other liabilities (22) 487
Increase in accrued overhaul and parts replacement costs 432 58
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Net cash flow provided by operating activities 1,312 3,220
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Cash flow from investing activities:
Acquisition of equipment and leasehold improvements (1,419) (376)
Proceeds from retirement and sale of equipment and assets held for sale 2 4,109
Net decrease in notes receivable, patent application costs
and other assets 91 421
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Net cash provided (used) by investing activities (1,326) 4,154
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Cash flow from financing activities:
Issuance of common stock and warrants for cash 20 --
Net payments under short-term notes payable (180) (1,778)
Proceeds from issuance of debt 2,500 --
Payments of long-term debt (776) (4,334)
Payments of capital lease obligations (360) (354)
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Net cash provided (used) by financing activities 1,204 (6,466)
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Increase in cash and cash equivalents 1,190 908
Cash and cash equivalents at beginning of period 2,699 696
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Cash and cash equivalents at end of period $ 3,889 1,604
====== ======
See accompanying notes to financial statements.
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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 fiscal year ended December 31, 1995.
(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 the effect of their
inclusion would be anti-dilutive.
(3) STOCKHOLDERS' EQUITY
--------------------
Changes in the stockholders' equity for the six months ended
June 30, 1996 consisted of the following (amounts in thousands
except share amounts):
Six Months Ended
June 30, 1996
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Shares Amount
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Balance at January 1, 1996 8,103,502 $ 19,062
Issuance of common shares for
services rendered 12,424 25
Issuance of common shares for cash 10,410 20
Net income -- 47
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Balance at June 30, 1996 8,126,336 $ 19,154
========= ======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss of $97,000 and net income of
$47,000 for the three and six months ended June 30, 1996,
respectively, compared to net income of $320,000 and
$573,000 for the comparable periods in 1995. The decrease
in net income is primarily attributable to an increase in
the cost of medical interiors due to significant investment
in a new modular medical interior.
Flight revenue increased $137,000 or 2.1% in the three
months ended June 30, 1996, but decreased $111,000 or 0.8%
in the six months ended June 30, 1996, in comparison to the
same periods in the previous year. The increase for the
second quarter is due almost entirely to annual increases in
the majority of the Company's hospital contracts based on
changes in the Consumer Price Index (CPI). Revenue for the
six months ended June 30, 1995, included $654,000 from the
lease of two of the Company's aircraft which were both sold
in 1995. Revenue flight hours remained basically unchanged
at 6,100 hours for the six months ended June 30, 1996,
compared to 6,200 hours for the six months ended June 30,
1995.
Sales of medical interiors and products decreased $50,000 or
11.8% for the three months ended June 30, 1996, but
increased $74,000 or 4.3% for the six months ended June 30,
1996, respectively, compared to the same periods in 1995.
In the second quarter of 1996 the Company recognized revenue
of approximately $200,000 from the manufacture of an
interior for a Bell 412 helicopter for an international
customer and $80,000 from the design and installation of
medical interiors for two MD900 Explorer helicopters. The
six months ended June 30, 1996, also included revenue from
the design and installation of a medical interior for a
Lockheed L-1011 aircraft. Projects which generated revenue
in the six months ended June 30, 1995, included sales of
passenger oxygen systems and a medical interior for a Bell
412 helicopter as well as the refurbishment of a medical
interior for a hospital client. The cost of medical
interiors increased by 64.5% for the second quarter of 1996
and 30.2% for the six months ended June 30, 1996, as
compared to the previous year. The increases reflected the
Company's investment of more than $500,000 in non-recurring
development activities during the first six months of 1996
for a lightweight, modular medical interior adaptable to
various types of aircraft.
The Company recognized $150,000 in international franchise
revenue during the six months ended June 30, 1996. This
payment is the second installment of a 10-year, $2,250,000
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.
Flight center costs decreased 14.7% and 7.7% for the three
and six months ended June 30, 1996, respectively, as a
result of decreases in workers compensation insurance rates
and in health insurance claims. These expenses consist
primarily of pilot and mechanic salaries and fringe
benefits.
Aircraft operating expenses increased by 18.8% and 12.0% for
the three and six months ended June 30, 1996, respectively,
in comparison to the three and six months ended June 30,
1995. The increases reflect a 7.5% increase in hull and
liability insurance for the fleet in 1996 and the addition
of two leased backup helicopters to the Company's insurance
policy for several months in 1996. In addition, maintenance
expense for the six months ended June 30, 1996,
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increased 11.2% due to higher overhaul and repair activity
for the fleet. 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 increased by 15.5% for the second
quarter of 1996 but decreased 5.1% for the six months ended
June 30, 1996, as compared to 1995. Rental expense for the
second quarter included $119,000 for the short-term lease of
an aircraft while one of the Company's helicopters was
undergoing refurbishment. A previously leased aircraft was
purchased by one of the Company's hospital customers during
the year ended December 31, 1995, causing the decrease in
the expense for the six-month period.
Depreciation and amortization expense increased 10.2% and
8.7% for the three and six months ended June 30, 1996,
respectively, in comparison to 1995. The increases are
primarily the result of the addition of approximately
$280,000 of medical interior costs, $1,070,000 of rotable
and shop equipment, and $210,000 of office equipment,
including computer hardware and software to meet growing
engineering demands as the Company's design and
manufacturing business expands.
The increases in general and administrative expenses were
minimal for both the three and six months ended June 30,
1996, compared to the previous year, reflecting consistency
in staffing levels and types of services provided in 1995
and 1996.
Interest expense increased 12.1% for the quarter ended
June 30, 1996, but decreased 12.0% for the six months ended
June 30, 1996. The increase for the second quarter of 1996
is due to interest paid on a $2.5 million note payable
signed in March 1996. The decrease over the six-month
period is due primarily to the retirement of the note
payable which had financed the Company's hull and liability
insurance premiums in 1995 and to the paydown of existing
debt.
FINANCIAL CONDITION
The Company had cash and cash equivalents of $3,889,000 and
working capital of $254,000 as of June 30, 1996, as compared
to cash and cash equivalents of $2,699,000 and a working
capital deficit of $638,000 at December 31, 1995. The
increase in cash and cash equivalents and the improvement in
the working capital position in the six months ended
June 30, 1996, is primarily due to proceeds of $2,500,000
received from a note payable in March 1996 and to the
positive cash flow generated by the Company's operations.
The Company has successfully completed the renewal of
contracts with seven of its hospital customers in 1996 with
one more renewal expected during the fourth quarter of 1996.
During the third quarter of 1996 the Company has contracts
to complete the manufacture and installation of medical
interiors for a Bell 412 helicopter and for a fixed wing
aircraft for the Company's Brazilian franchisee. In
addition, in July 1996 the Company was selected to provide
two medical interior systems for the U.S. Army UH-60Q
helicopter during 1996 and 1997. The Memorandum of
Agreement between the Company and the prime contractor
includes an option exercisable by the U.S. Army for two more
interiors to be delivered in 1997 and 1998 and an additional
87 units to be delivered from 1998 to 2002. Based on the
backlog of projects for the Product Division and the
renewals with hospital customers, the Company expects to
generate sufficient cash flow to meet its operational needs.
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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 United States District Court for the
District of Minnesota alleging that the Company had
wrongfully discharged him. The District Court issued a
directed verdict in favor of the Company in September 1995.
The Eighth Circuit of the U.S. Court of Appeals in July 1996
upheld the lower court's ruling.
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 1996 Annual Meeting of Stockholders was held on May 23,
1996. At the meeting, Messrs. Roy L. Morgan, Samuel H. Gray
and Morad Tahbaz were elected to Class II directorships.
Two additional matters were brought before the stockholders:
Proposal II, amending the Employee Stock Option Plan (the
"Plan") to increase the number of shares authorized for
issuance from 1.5 million to 2.5 million and to allow the
issuance of options to consultants and non-employee
directors of the Company; and Proposal III, approving
granted options under the Plan as amended.
Voting results were as follows:
Total Vote
Total Vote For Withheld From
Each Director Each Director
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Roy L. Morgan 6,572,876 221,378
Samuel H. Gray 6,583,710 210,544
Morad Tahbaz 6,581,360 212,894
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
Proposal II
(Employee Stock Option Plan
Amendments) 3,309,268 519,389 47,843 2,917,754
Proposal III
(Option Grants) 5,357,175 697,071 51,499 688,509
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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
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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: August 8, 1996 By Aaron D. Todd
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On behalf of the Company, and as
Principal Financial and Accounting
Officer
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