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 March 31, 1997
OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from --------------- to ------------------
Commission file number 0-16079
AIR METHODS CORPORATION
(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
7301 South Peoria, Englewood, Colorado 80112
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
N/A
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
---- ----
The number of shares of Common Stock, par value $.06, outstanding as of
May 7, 1997 was 8,110,230.
TABLE OF CONTENTS
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 and December 31, 1996 1
Statements of Operations for the three months ended
March 31, 1997 and 1996 3
Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 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 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIR METHODS CORPORATION
BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
MARCH 31, DECEMBER 31,
1997 1996
-----------------------------------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 1,959 2,058
Current installments of notes receivable 401 392
Receivables, net:
Trade 1,647 1,165
Insurance proceeds 13 270
Other 306 213
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1,966 1,648
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Inventories 1,523 1,583
Work-in-process on medical interiors and product
contracts 302 192
Costs and estimated earnings in excess of billings on
uncompleted contracts 342 682
Prepaid expenses and other 626 554
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Total current assets 7,119 7,109
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Equipment and leasehold improvements:
Flight and ground support equipment 43,080 42,448
Furniture and office equipment 1,534 1,494
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44,614 43,942
Less accumulated depreciation and amortization (10,781) (10,013)
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Net equipment and leasehold improvements 33,833 33,929
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Excess of cost over the fair value of net assets acquired,
net of accumulated amortization of $526 and $502 at
March 31, 1997 and December 31, 1996, respectively 1,901 1,925
Notes receivable, less current installments 1,351 1,454
Patent application costs and other assets, net of
accumulated amortization of $618 and $588 at March
31, 1997 and December 31, 1996, respectively 943 972
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$ 45,147 45,389
========================================
(Continued)
See accompanying notes to financial statements.
1
AIR METHODS CORPORATION
BALANCE SHEETS, CONTINUED
(Amounts in thousands, except share and per share amounts)
MARCH 31, DECEMBER 31,
1997 1996
--------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
Current liabilities:
Notes payable $ 30 352
Current installments of long-term debt 1,779 1,780
Current installments of obligations under capital leases 838 819
Accounts payable 633 614
Accrued overhaul and parts replacement costs 1,712 1,582
Deferred revenue 1,112 629
Other accrued liabilities 1,048 831
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Total current liabilities 7,152 6,607
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Long-term debt, less current installments 10,486 10,642
Obligations under capital leases, less current installments 3,543 3,732
Accrued overhaul and parts replacement costs 3,644 4,157
Other liabilities 840 823
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Total liabilities 25,665 25,961
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Stockholders' equity:
Preferred stock, $1 par value. Authorized 5,000,000 -- --
shares, none issued
Common stock, $.06 par value. Authorized
16,000,000 shares; issued 8,135,836 shares at
March 31, 1997 and December 31, 1996 487 487
Additional paid-in capital 49,696 49,696
Accumulated deficit (note 3) (30,701) (30,755)
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Total stockholders' equity 19,482 19,428
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$ 45,147 45,389
==============================================
See accompanying notes to financial statements.
2
AIR METHODS CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
THREE MONTHS ENDED MARCH 31,
---------------------------------------
1997 1996
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(unaudited) (unaudited)
Revenue:
Flight revenue $ 6,677 6,348
Sales of medical interiors and products 782 1,405
International franchise revenue 99 150
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7,558 7,903
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Operating expenses:
Flight centers 2,091 2,116
Aircraft operations 1,965 2,050
Aircraft rental 324 390
Cost of medical interiors and products sold 1,103 1,261
Depreciation and amortization 821 704
Loss on disposition of assets -- 17
General and administrative 992 997
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7,296 7,535
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Operating income 262 368
Other income (expense):
Interest expense (317) (311)
Interest and dividend income 109 86
Other, net -- 1
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Net income $ 54 144
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Income per common share $ .01 .02
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Weighted average number of common shares outstanding 8,110,230 8,082,037
=======================================
See accompanying notes to financial statements.
3
AIR METHODS CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
THREE MONTHS ENDED MARCH 31,
----------------------------------
1997 1996
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(unaudited) (unaudited)
Cash flow from operating activities:
Net income $ 54 144
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense 821 704
Vesting of common stock and options issued for services and in
connection with employee stock compensation agreements, net of
forfeitures -- 26
Loss on retirement and sale of equipment -- 17
Changes in assets and liabilities:
Decrease (increase) in prepaid and other current assets (72) 19
Increase in receivables (318) (182)
Decrease (increase) in parts inventories 60 (21)
Decrease (increase) in work-in-process on medical interiors and costs
in excess of billings 230 (110)
Increase (decrease) in accounts payable and other accrued liabilities 236 (17)
Increase (decrease) in deferred revenue and other liabilities 500 (537)
Increase (decrease) in accrued overhaul and parts replacement costs (383) 112
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Net cash flow provided by operating activities 1,128 155
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Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (672) (1,013)
Proceeds from retirement and sale of equipment -- 1
Net decrease (increase) in patent development costs and other assets 94 (7)
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Net cash used by investing activities (578) (1,019)
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Cash flows from financing activities:
Net payments under short-term notes payable (322) (89)
Proceeds from issuance of debt 271 2,500
Payments of long-term debt (428) (345)
Payments of capital lease obligations (170) (156)
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Net cash provided (used) by financing activities (649) 1,910
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Increase (decrease) in cash and cash equivalents (99) 1,046
Cash and cash equivalents at beginning of period 2,058 2,699
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Cash and cash equivalents at end of period $ 1,959 3,745
==================================
See accompanying notes to financial statements.
4
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 financial statements and notes thereto for the
fiscal year ended December 31, 1996.
(2) INCOME PER SHARE
Per-share information is based on the weighted-average number of
shares of common stock outstanding during each of the periods.
Shares issuable upon the exercise of warrants and stock options
are not included in the calculations, since their inclusion would
be anti-dilutive.
(3) STOCKHOLDERS' EQUITY
Changes in the stockholders' equity for the three months ended
March 31, 1997, consisted of the following (amounts in thousands
except share amounts):
THREE MONTHS ENDED
MARCH 31, 1997
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Shares Amount
-------------------------------------------
Balance at January 1, 1997 8,135,836 $ 19,428
Net income -- 54
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Balance at March 31, 1997 8,135,836 $ 19,482
===========================================
As of March 31, 1997 the Company's total accumulated deficit was
$30,701,000. 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income of $54,000 for the three months ended March 31,
1997, compared to net income of $144,000 for the quarter ended March 31, 1996.
The decrease in net income for the first quarter reflects the investment of over
$650,000 in the design and qualification of medical interior systems for the
U.S. Army UH-60Q helicopter.
Flight revenue increased $329,000, or 5.2%, from $6,348,000 for the three months
ended March 31, 1996, to $6,677,000 for the three months ended March 31, 1997.
The increase was caused by a 3.3% increase in flight hours from 3,000 hours in
1996 to 3,100 in 1997 and by annual increases in the majority of the Company's
contracts based on changes in the Consumer Price Index.
Sales of medical interiors and products decreased $623,000, or 44.3%, from
$1,405,000 for the three months ended March 31, 1996, to $782,000 for the first
quarter of 1997. In the first quarter of 1997 the Company recognized revenue of
$634,000 from the design and manufacture of four medical interior systems for
the U.S. Army UH-60Q helicopter. Revenue recorded in the comparable quarter in
1996 consisted primarily of $1,009,000 from the design of a medical interior for
a Lockheed L-1011 aircraft and $309,000 from the design and installation of an
interior for an MD900 Explorer helicopter. The cost of medical interiors
decreased 12.5% for the three months ended March 31, 1997, as compared to the
previous year, reflecting the decrease in the volume of products sold. Cost of
medical interiors for 1997 also included an investment of over $650,000 in
developmental costs, including an allocation of manufacturing overhead, on the
UH-60Q helicopter system. In 1996 the cost of medical interiors included
$321,000 of modular medical interior development costs. Without the effect of
the developmental costs in both years the cost of medical interiors would have
decreased 52.1% from 1996 to 1997.
The Company recognized revenue of $99,000 from its Brazilian franchise during
the three months ended March 31, 1997, compared to $150,000 in the first quarter
of 1996. Revenue recognized in 1997 represents royalties earned on franchise
operations in the first quarter while revenue in 1995 was the second minimum
installment of the 10-year franchise agreement. Under the exclusive franchise
agreement, the Brazilian company purchased the right to use the trademarks and
expertise of the Company in providing air medical services in Brazil in exchange
for an initial acquisition price plus annual royalties based on gross revenues.
The franchise commenced air medical operations in January 1996.
Flight center costs, consisting primarily of pilot and mechanics salaries and
fringe benefits, decreased 1.2% for the three months ended March 31, 1997,
compared to 1996. Health insurance and workers compensation insurance premiums
decreased $132,000 due to changes enacted during 1996 encouraging the use of
other health plans and higher deductibles and to lower workers compensation
claims. This decrease was offset by increases in pilot and mechanic salaries for
merit pay raises. Flight center costs generally vary with the number of
operating agreements served by the Company; the Company has not added any new
bases in 1996 or 1997.
Aircraft operating expenses decreased 4.1% for the three months ended March 31,
1997, in comparison to the three months ended March 31, 1996, primarily as a
result of a $115,000 reduction in hull and liability insurance for the Company's
fleet during the quarter. 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 16.9% for the three months ended March 31,
1997, compared to 1996. Rental expense in 1996 included $68,000 for the
short-term lease of a helicopter while one of the Company's aircraft was
undergoing refurbishment.
6
Depreciation and amortization expense increased 16.6% for the three months ended
March 31, 1997. The increase is primarily the result of the addition of one Bell
222 helicopter and two new medical interiors to the fleet in late 1996. The
Company has also increased its rotable and office equipment inventory by
$570,000 since March 31, 1996. The helicopter was placed in service to upgrade a
hospital client to a larger aircraft, while the two medical interiors replaced
fully depreciated interiors on existing aircraft.
FINANCIAL CONDITION
Cash and cash equivalents decreased $99,000 from $2,058,000 at December 31,
1996, to $1,959,000 as of March 31, 1997. The Company had a working capital
deficit of $33,000 as of March 31, 1997, down from net working capital of
$502,000 as of December 31, 1996. The decrease in the Company's working capital
position is due primarily to a decrease in costs and estimated earnings in
excess of billings and to an increase in deferred revenue on hospital
contracts. As the Company nears the completion of the first two UH-60Q medical
interior systems, progress billings have been submitted under the contract to
cover costs and estimated earnings.
The Company has renewed an operating agreement with one of its hospital clients
in the first quarter of 1997, providing for an upgrade in the type of aircraft
servicing the contract. Three other agreements are due for renewal in 1997 and
the Company has historically negotiated renewals with its customers under
favorable terms. In the second and third quarters of 1997 the Company expects to
complete the production of four UH-60Q medical interior units. The Company also
expects authorization to produce and deliver four additional UH-60Q helicopter
upgrades in 1997. In addition, continued growth is anticipated for the Company's
Brazilian franchise operations. There can be no assurance that the Company will
successfully renew the operating agreements expiring in 1997 or will generate
new profitable contracts for the Products Division. However, based on the
backlog of projects for the Products Division, anticipated contract renewals
with hospital customers, and expected growth in the Brazilian franchise, the
Company expects to generate sufficient cash flow to meet its operational needs.
7
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
8
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 14, 1997 By \s\ Aaron D. Todd
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On behalf of the Company, and as
Principal Financial and
Accounting Officer
9