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, 1999
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
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 3, 1999, was 8,215,737.
TABLE OF CONTENTS
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 1999
and December 31, 1998 1
Consolidated Statements of Operations for
the three months ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 1999 and 1998 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 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Air Methods Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
March 31, December 31,
1999 1998
-----------------------------
(unaudited)
Assets
- -------
Current assets:
Cash and cash equivalents $ 3,397 2,407
Current installments of notes receivable 68 66
Receivables:
Trade 7,173 7,298
Less allowance for doubtful accounts (1,110) (1,404)
-----------------------------
6,063 5,894
Insurance proceeds 226 154
International franchise fee 56 74
Other 357 259
-----------------------------
6,702 6,381
-----------------------------
Inventories 2,288 2,077
Work-in-process on medical interiors and products contracts 93 147
Costs and estimated earnings in excess of billings on
uncompleted contracts 153 --
Prepaid expenses and other 777 849
-----------------------------
Total current assets 13,478 11,927
-----------------------------
Equipment and leasehold improvements:
Flight and ground support equipment 59,876 59,371
Furniture and office equipment 2,762 2,648
-----------------------------
62,638 62,019
Less accumulated depreciation and amortization (17,851) (16,747)
-----------------------------
Net equipment and leasehold improvements 44,787 45,272
-----------------------------
Excess of cost over the fair value of net assets acquired,
net of accumulated amortization of $732 and $705 at
March 31, 1999 and December 31, 1998, respectively 1,849 1,876
Notes receivable, less current installments 603 607
Patent application costs and other assets, net of accumulated
amortization of $924 and $866 at March 31, 1999 and December
31, 1998, respectively 1,671 1,094
-----------------------------
Total assets $ 62,388 60,776
=============================
(Continued)
1
Air Methods Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS, Continued
(Amounts in thousands, except share and per share amounts)
March 31, December 31,
1999 1998
(unaudited)
-----------------------------
Liabilities and Stockholders' Equity
- -------------------------------------
Current liabilities:
Notes payable $ 701 1,125
Current installments of long-term debt 2,841 2,781
Current installments of obligations under capital leases 481 554
Accounts payable 1,361 1,191
Accrued overhaul and parts replacement costs 2,725 2,640
Deferred revenue 990 531
Billings in excess of costs and estimated earnings on
uncompleted contracts -- 119
Deferred income taxes 255 315
Other accrued liabilities 1,895 1,709
-----------------------------
Total current liabilities 11,249 10,965
Long-term debt, less current installments 20,135 19,718
Obligations under capital leases, less current installments 2,278 2,351
Accrued overhaul and parts replacement costs 5,038 4,586
Deferred income taxes 523 554
Other liabilities 876 931
-----------------------------
Total liabilities 40,099 39,105
-----------------------------
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 8,281,343 shares at March 31, 1999
and December 31, 1998 494 494
Additional paid-in capital 49,995 49,979
Accumulated deficit (28,200) (28,802)
-----------------------------
Total stockholders' equity 22,289 21,671
-----------------------------
Total liabilities and stockholders' equity $ 62,388 60,776
=============================
See accompanying notes to consolidated financial statements.
2
Air Methods Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
Three Months Ended March 31,
-----------------------------
1999 1998
-----------------------------
(unaudited) (unaudited)
Revenue:
Flight revenue $ 11,345 9,789
Sales of medical interiors and products 1,536 982
Parts and maintenance sales and services 420 434
International franchise fees 21 74
Gain on disposition of assets, net -- 934
Other 16 --
-----------------------------
13,338 12,213
-----------------------------
Operating expenses:
Flight centers 3,853 3,248
Aircraft operations 3,118 2,844
Aircraft rental 553 430
Cost of medical interiors and products sold 1,068 874
Cost of parts and maintenance sales and services 365 325
Depreciation and amortization 1,189 1,041
Bad debt expense 561 467
General and administrative 1,528 1,543
-----------------------------
12,235 10,772
-----------------------------
Operating income 1,103 1,441
Other income (expense):
Interest expense (550) (597)
Interest and dividend income 38 34
Other, net 11 22
-----------------------------
Net income $ 602 900
=============================
Basic and diluted income per common share $ .07 .11
=============================
Weighted average number of common shares outstanding - basic 8,230,737 8,158,489
=============================
Weighted average number of common shares outstanding - diluted 8,241,736 8,300,259
=============================
See accompanying notes to consolidated financial statements.
3
Air Methods Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Ended March 31,
-----------------------------------
1999 1998
-----------------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 602 900
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense 1,189 1,041
Bad debt expense 561 467
Vesting of common stock options issued for services 16 15
Gain on disposition of assets, net -- (934)
Changes in assets and liabilities:
Decrease in prepaid and other current assets 72 83
Increase in receivables (882) (1,192)
Increase in parts inventories (211) (94)
Decrease (increase) in work-in-process on medical interiors and
costs in excess of billings (99) 1,075
Increase (decrease) in accounts payable, other accrued liabilities,
and income tax liabilities 265 (106)
Increase in deferred revenue, billings in excess of costs, and other
liabilities 285 124
Increase (decrease) in accrued overhaul and parts replacement costs 143 (33)
-----------------------------------
Net cash provided by operating activities 1,941 1,346
-----------------------------------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (225) (2,978)
Proceeds from retirement and sale of equipment -- 3,003
Net increase in patent development costs, notes receivable, and other assets (633) (84)
-----------------------------------
Net cash used by investing activities (858) (59)
-----------------------------------
Cash flows from financing activities:
Net payments under short-term notes payable (424) (687)
Proceeds from issuance of debt 1,150 1,188
Payments of long-term debt (673) (647)
Payments of capital lease obligations (146) (132)
Proceeds from issuance of common stock, net -- 40
-----------------------------------
Net cash used by financing activities (93) (238)
-----------------------------------
Increase in cash and cash equivalents 990 1,049
Cash and cash equivalents at beginning of period 2,407 3,396
-----------------------------------
Cash and cash equivalents at end of period $ 3,397 4,445
===================================
See accompanying notes to consolidated financial statements.
4
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, 1998.
(2) Income per Share
Basic earnings per share is computed by dividing income available
to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share
is computed by dividing income available to common stockholders
by all dilutive potential common shares outstanding during the
period.
(3) Stockholders' Equity
Changes in the stockholders' equity for the three months ended
March 31, 1999, consisted of the following (amounts in thousands
except share amounts):
Three Months Ended
March 31, 1999
---------------------------
Shares
Outstanding Amount
---------------------------
Balance at January 1, 1999 8,230,737 $ 21,671
Vesting of common stock options for services -- 16
Net income -- 602
---------------------------
Balance at March 31, 1999 8,230,737 $ 22,289
===========================
As of March 31, 1999, the Company's total accumulated deficit was
$28,200,000. 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
(4) Business Segment Information
In 1998 the Company adopted Statement of Financial Accounting
Standard No. 131, Disclosures About Segments of an Enterprise
and Related Information, which changes the way the Company
defines and reports information about its operating segments.
The Company identifies operating segments based on management
responsibility and the type of products or services offered.
The operating segments and their principal products or
services are as follows:
- Flight Services Division - provides air medical transportation
services to hospitals throughout the U.S. under exclusive operating
agreements. Services include aircraft operation and maintenance.
- Mercy Air Service, Inc. ("Mercy") - provides air medical
transportation services in southern California to the general
population as an independent community-based service. Services include
aircraft operation and maintenance, medical care, dispatch and
communications, and medical billing and collection.
- Products Division - designs, manufactures, and installs aircraft
medical interiors and other aerospace products for domestic and
international customers
The Company evaluates the performance of its segments based on
net income. Intersegment sales are reflected at cost-related
prices.
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 Flight Services, Products, and Corporate Activities
for internal reporting and performance evaluation purposes.
Flight
Services Products Corporate Intersegment
For quarter ended March 31, Division Mercy Division Activities Eliminations Consolidated
------------------------------------------------------------------------------------
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
====================================================================================
1998
External revenue $ 7,704 3,458 978 73 -- 12,213
Intersegment revenue -- -- 544 -- (544) --
------------------------------------------------------------------------------------
Total revenue 7,704 3,458 1,522 73 (544) 12,213
------------------------------------------------------------------------------------
Operating expenses 5,230 2,370 1,375 650 (383) 9,242
Depreciation & amortization 720 190 47 84 -- 1,041
Bad debt expense -- 467 -- -- -- 467
Interest expense 236 288 -- 73 -- 597
Interest income -- (1) -- (33) -- (34)
------------------------------------------------------------------------------------
Segment net income (loss) $ 1,518 144 100 (701) (161) 900
====================================================================================
Total assets N/A 17,026 N/A 43,505 N/A 60,531
====================================================================================
6
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's operations, continued royalty revenue from Unimed
Air, Year 2000 compliance issues, and other matters. The actual
results that the Company achieves may differ materially from those
discussed in such forward-looking statements due to the risks and
uncertainties described below, as well as in the Company's annual
report on Form 10-K.
Results of Operations
The Company reported net income of $602,000 for the three months ended
March 31, 1999, compared to net income of $900,000 for the quarter
ended March 31, 1998. Net income for the first quarter of 1998
included gains on the sale and disposition of two aircraft, net of
related costs, of $737,000. Without the effect of the gains, operating
results improved from $163,000 to $602,000 due to improved performance
for the Company's Flight Services and Products Divisions.
Flight revenue increased $1,556,000, or 15.9%, from $9,789,000 for the
three months ended March 31, 1998, to $11,345,000 for the three months
ended March 31, 1999. Flight revenue for the Flight Services Division
increased 9.8% due to the addition of 2 new contracts since March 31,
1998, annual price increases in contracts with hospital clients, and a
14.2% increase in flight volume for continuing contracts. Revenue
earned on the new contracts totaled over $530,000 in the first quarter
of 1999. Flight revenue for Mercy increased 28.8% in the first quarter
of 1999 compared to the first quarter of 1998 due to the addition of 2
new bases in Las Vegas and San Diego and a 6.5% increase in transport
volume. Transport volume in the first quarter of 1998 was adversely
impacted by the El Nino weather pattern because the Visual Flight
Rules certified aircraft were unable to fly during periods of heavy
rain. In the first quarter of 1999 Mercy further expanded its
operations in San Diego with the purchase of the business operations
of another air ambulance service provider.
Sales of medical interiors and products increased $554,000, or 56.4%,
from $982,000 for the three months ended March 31, 1998, to $1,536,000
for the first quarter of 1999. 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 by product
line was as follows:
- - $1,148,000 - manufacture and installation of modular, multi-
functional interiors
- - $388,000 - design and manufacture of other aerospace products
Significant projects in 1998 included production of electrical system
components for the U. S. Air Force HH-60G helicopter, manufacture and
installation of a Bell 407 medical interior, and design and
integration of avionics and communications systems for a special-use
police helicopter. Revenue recognized in 1998 consisted of the
following:
- - $54,000 - design and manufacture of multi-mission interiors
- - $385,000 - manufacture and installation of modular, multi-
functional interiors
- - $543,000 - manufacture of other aerospace products
7
Cost of medical interiors increased by 22.2% for the three months
ended March 31, 1999, as compared to the previous year, reflecting the
increase in volume of sales. All significant projects in process or
completed during the quarter, with the exception of SCITS, represent
adaptations of the multi-mission or multi-functional interiors.
International franchise fees decreased $53,000, or 71.6%, for the
three months ended March 31, 1999, compared to the first quarter of
1998 due to negotiated reductions in fees caused by the recent
devaluation of the Brazilian currency. Under the exclusive franchise
agreement, Unimed Air, a Brazilian company, purchased the right to use
the trademarks and expertise of the Company in providing air medical
services in Brazil.
In the first quarter of 1998 the Company recognized net gains totaling
$934,000 on the disposition of assets. Gains included $870,000 from
the insurance settlement for one of the Company's helicopters
destroyed in an accident in January 1998.
Flight center costs, consisting primarily of pilot, mechanic, and
medical staff salaries and fringe benefits, increased 18.6% for the
three months ended March 31, 1999, compared to 1998. Flight center
costs for the Flight Services Division increased 5.2% primarily due to
the addition of 2 new hospital contracts. Increases in salaries for
merit pay raises was offset by lower workers compensation insurance
rates in 1999. Flight center costs related to Mercy's operations
increased 56.2% in the first quarter of 1999, almost entirely due to
costs of approximately $400,000 for the 2 new bases established after
March 1998.
Aircraft operating expenses increased 9.6% for the three months ended
March 31, 1999, in comparison to the three months ended March 31,
1998. 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 1998, the Company has added six helicopters
and three airplanes to its fleet for the Flight Services Division and
one helicopter for Mercy to support expanded operations. Total flight
hours increased 27% for Flight Services Division and remained
relatively unchanged for Mercy's operations, excluding the impact of
the new contracts.
Aircraft rental expense increased by 28.6% for the three months ended
March 31, 1999, compared to 1998. Lease expense in the first quarter
of 1999 related to four new aircraft for the Flight Services Division
totaled $185,000.
Depreciation and amortization expense increased 14.2% for the three
months ended March 31, 1999, primarily due to the addition of one Bell
407 helicopter and one Bell 222 helicopter, as well as new medical
interiors, to the Flight Services Division's fleet of owned aircraft.
Bad debt expense is estimated during the period the related services
are performed based on historical experience for Mercy's operations.
The provision is adjusted as required based on actual collections in
subsequent periods. The increase of 20.1% in 1999 compared to 1998
reflects the increase in flight revenue for Mercy. Bad debt expense
remained consistent at approximately 14% of Mercy's flight revenue,
net of contractual allowances under agreements with third-party
payers, in 1999 compared to 1998.
Financial Condition
Cash and cash equivalents increased $990,000 from $2,407,000 at
December 31, 1998, to $3,397,000 as of March 31, 1999, while net
working capital increased from $962,000 to $2,229,000 over the same
period. The improvement in cash and working capital positions in the
first quarter of 1999 is due primarily to cash flow generated from
operations. The acquisition of equipment and other intangible assets
in the first quarter was partially funded by $1.2 million in new debt.
8
Outlook 1999
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual
results may differ materially.
Flight Services Division
In the first quarter of 1999, the Flight Services Division extended
an operating agreement due for renewal at the end of 1998 for an
additional 10 years, pending execution of final contract, and began
operations under one new contract. No other contracts are due for
renewal in 1999. Start up costs associated with the contract
extension and the new contract were incurred primarily in the first
quarter of 1999. The Company expects 1999 flight activity for current
hospital contracts to remain consistent with historical levels.
The Company expects operating royalties generated by Unimed Air, its
Brazilian franchisee, during the remainder of 1999 to remain
consistent with the levels attained in the first quarter.
Mercy Air Service
The Company expects flight volume for Mercy's operations to be
consistent with historical levels during the remainder of 1999 with
increases for a full year of operations at its two new locations in
Las Vegas and San Diego. In the first quarter of 1999 Mercy further
expanded its operations in San Diego with the purchase of the
business operations of another air ambulance service provider.
Products Division
In the first quarter of 1999 the Products Division received contracts
to produce medical interiors for Bell 407, Bell 430, and MD902
helicopters. The Company expects to complete the manufacture of
modular, multi-functional interiors for six aircraft, including the
three helicopters under the new contracts, during the second and
third quarters of 1999 and to continue design work on the
developmental phase of the SCITS program for the U.S. Air Force
throughout 1999.
The Department of Defense has allocated funds for and approved seven
Multi-Mission Medevac Systems developed by the Company for the U.S.
Army UH-60Q helicopter. Authorization to commence production for six
units is expected in 1999. Orders for these units have not yet been
received, and there is no assurance that the work will be performed
or units delivered in 1999 or in future periods.
The last comprehensive design review for the SCITS program is
scheduled in the first half of 1999. 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 1999 or in future
periods.
There can be no assurance that the Company will continue to renew
operating agreements for the Flight Services Division, generate new
profitable contracts for the Products Division, or expand flight
volume for Mercy. In addition, there can be no assurance that Unimed
Air will continue to generate royalties from operations. However,
based on the anticipated level of flight activity for its hospital
customers and Mercy and the backlog of projects for the Products
Division, the Company expects to generate sufficient cash flow to meet
its operational needs throughout 1999.
Year 2000 Update
The Year 2000 issue ("Y2K") results from computer programs being
written using two digits rather than four to designate a year. Date-
sensitive systems may fail to process dates correctly after December
31, 1999, possibly resulting in major system failure or
miscalculations.
9
State of Readiness
The Company initiated assessment of computer systems in 1996 and
anticipates minimal need for new equipment beyond the routine system
upgrade schedule. The Company has formed a corporate-wide Y2K project
team led by the information services manager and supervised by the
Chief Financial Officer to ensure an uninterrupted transition to the
year 2000 by assessing, modifying, and testing information technology
(IT) and non-IT systems. IT systems include the Company's software and
hardware; non-IT systems include embedded chip technology in various
manufacturing equipment, avionics systems, utilities, and
communication systems. The team has categorized the Company's systems
into mission critical and non-critical systems based on the expected
impact of failure or malfunction on the Company's operations. A
comprehensive inventory and testing of IT systems indicated an
anticipated failure rate of approximately 16%. Systems anticipated to
fail will be replaced or brought into compliance prior to the end of
the second quarter of 1999. None of these systems is considered
mission-critical.
The Company uses primarily software programs written and updated by
outside firms, and Y2K upgrades are covered under standard maintenance
contracts. The Company has received vendor representations of Y2K
compliance for approximately 85% of its mission-critical software as
of March 31, 1999. The remaining 15% will be addressed with the
vendors prior to the end of the second quarter of 1999.
The Company has been in contact with the primary manufacturers of its
airframe and avionics equipment to determine the impact of imbedded
chip technology on the Company's flight systems. The airframe
manufacturer has completed initial tests of its products and has not
identified significant Y2K issues. The avionics manufacturer has
identified potential problems and the expected dates those problems
may be experienced in its equipment. Initial review of these
communications indicates that imbedded chip technology will not cause
the Company's fleet to be grounded as a result of Y2K issues.
Evaluation of the Company's mission critical systems will include an
analysis of the cost of replacing airframe or avionics equipment
compared to the associated risk of failure or malfunction. Although
the Company has evaluated its airframe and avionics equipment based on
the vendor communications, there can be no assurance that all Y2K
issues have been identified or that the equipment will perform without
interruption in the year 2000.
The Company has begun the development of a standard questionnaire for
significant suppliers and customers to determine the status of their
Y2K programs. The Company has not yet determined the full extent to
which it is vulnerable to the failure of vendors or customers to
address Y2K compliance issues.
Costs of Year 2000 Compliance
Because most of the software updates related to Y2K compliance have
been covered by the Company's existing maintenance contracts, the
amounts expensed in the first quarter of 1999 were immaterial. Total
capitalized costs associated with hardware and software upgrades were
approximately $22,000 for the quarter ended March 31, 1999, including
costs associated with new systems which will be Year 2000 compliant
even though such compliance was not the primary reason for
installation. The Company has not used and does not plan to employ
independent contractors to assess or test Y2K compliance. The process
for tracking internal costs, primarily salaries and benefits for
employees dedicating time to Y2K compliance issues, does not capture
all of the costs of Y2K compliance. Management expects, but makes no
assurance, that changes required for Y2K will not have a material
adverse effect on its financial position or results of operations. The
Company expects to fund the cost of Y2K compliance through operating
cash flows.
Risks Associated with Year 2000
The Company presently believes that planned hardware and software
upgrades will prevent significant operational problems for information
systems resulting from Year 2000 issues. However, if such upgrades are
not timely or properly implemented, the Year 2000 problem could affect
the ability of the Company to maintain its fleet, manufacture
10
products, procure materials, manage patient billings and collections,
or perform other functions, which may have a material adverse effect
on the Company's financial condition and results of operations.
Additionally, failure of third party suppliers or customers to become
Year 2000 compliant on a timely basis could create a need to change
suppliers or otherwise impair the Company's ability to procure spare
parts, materials, or services or to receive timely payment of accounts
receivable, any of which could have a material adverse effect on the
Company's financial condition and results of operations.
At the present, the Company is unable to develop a most reasonably
likely worst case scenario for failure to achieve Year 2000
compliance. With the completion of the evaluation phase of the Y2K
project, the Company will be better able to determine such a scenario.
Contingency Plans
The Company does not currently have in place contingency plans if Year
2000 issues are not resolved in time or go undetected. The Company
will develop contingency plans as it considers necessary as a result
of completion of the evaluation of IT and non-IT systems and vendor
and customer surveys.
The Company can give no assurance that it can identify and correct all
Year 2000 issues which may affect operations. In addition, the Company
can give no assurance that vendors, customers, public utilities,
governmental agencies, or other service providers will not experience
Year 2000 problems which may have a material adverse impact on the
Company's operations. Forward-looking statements contained in the Year
2000 Update should be read in conjunction with the Company's
cautionary statement regarding forward-looking statements contained on
page 7 of this report, which is provided under the "Safe Harbor"
provisions of the Private Securities Litigation Reform Act of 1995.
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 risk 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, all of which have fixed
interest rates. Interest rates on these instruments approximate
current market rates as of March 31, 1999.
11
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
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AIR METHODS CORPORATION
Date: May 11, 1999 By \s\ Aaron D. Todd
On behalf of the Company, and as
Principal Financial and Accounting
Officer
13