SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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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 of (I.R.S. employer
incorporation or organization) identification no.)
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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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.06 PAR VALUE PER SHARE (THE "COMMON STOCK")
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(Title of Class)
NASDAQ STOCK MARKET
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(Name of each exchange on which registered)
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
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of
the Registrant as of March 9, 2001, was approximately $26,363,000.(1) The number
of outstanding shares of Common Stock as of March 9, 2001, was 8,394,015.
____________________
1 Excludes 1,121,329 shares of Common Stock held by directors, officers, and
shareholders whose ownership exceeds five percent of the shares outstanding
at March 9, 2001. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management of policies of
the Registrant, or that such person is controlled by or under common
control with the Registrant.
TABLE OF CONTENTS
TO FORM 10-K
Page
----
PART I
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Competition . . . . . . . . . . . . . . . . . . . . . . . . 3
Contracts in Process . . . . . . . . . . . . . . . . . . . 3
Employees . . . . . . . . . . . . . . . . . . . . . . . . . 3
Government Regulation . . . . . . . . . . . . . . . . . . . 4
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . 4
Facilities . . . . . . . . . . . . . . . . . . . . . . . . 4
Equipment and Parts . . . . . . . . . . . . . . . . . . . . 4
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 7
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . 9
Results of Operations . . . . . . . . . . . . . . . . . . . 9
Liquidity and Capital Resources . . . . . . . . . . . . . . 12
Outlook for 2001 . . . . . . . . . . . . . . . . . . . . . 13
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . 14
New Accounting Standards . . . . . . . . . . . . . . . . . 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 16
i
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . 17
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K . . IV-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-3
ii
PART I
ITEM 1. BUSINESS
GENERAL
Air Methods Corporation, a Delaware corporation (Air Methods or the Company),
was originally incorporated in Colorado in 1982 and now serves as one of the
largest providers of air medical emergency transport services and systems
throughout North America. As of December 31, 2000, the Company's Air Medical
Services Division (hospital-based operations) provided air medical
transportation services to hospitals located in 17 states under 24 operating
agreements with terms ranging from one to ten years and had transported
approximately 177,000 patients. Mercy Air Service, Inc. (Mercy Air), the
Company's wholly owned subsidiary, is an independent provider of air medical
transportation services in California, Nevada, Missouri, and Illinois
(community-based operations). The Company's Products Division designs,
manufactures, and installs aircraft medical interiors and other aerospace
products. Financial information for each of the Company's operating segments is
included in the notes to the Company's consolidated financial statements in Item
8 of this report.
Air Medical Services Division
The Company's Air Medical Services Division provides its hospital clients with
helicopters and airplanes equipped with medical interiors approved by the
Federal Aviation Administration (FAA) to transport persons requiring intensive
medical care from either the scene of an accident or general care hospitals to
highly skilled trauma centers or tertiary care centers. The Air Medical Services
Division conducts its operations using predominantly Instrument Flight Rules
(IFR) certified aircraft and IFR-rated pilots. Maintenance and operation of the
aircraft in accordance with Federal Aviation Regulations (FAR) Part 135
standards is the division's responsibility. The hospital clients are responsible
for providing medical personnel and all medical care. Under the typical
operating agreement with a hospital, the division earns approximately 70% of its
revenue from a fixed monthly fee and 30% from an hourly flight fee from the
hospital, regardless of when, or if, the hospital is reimbursed for these
services by its patients, their insurers, or the federal government. Both
monthly and hourly fees are generally subject to annual increases based on
changes in the consumer price index and in hull and liability insurance
premiums. Because the majority of the division's flight revenue is generated
from fixed monthly fees, seasonal fluctuations in flight hours do not
significantly impact monthly revenue in total. In 2000 the Air Medical Services
Division expanded operations under two operating agreements into St. Cloud,
Minnesota, and Orum, Utah, and discontinued services in Grand Junction,
Colorado, when the hospital customer chose not to extend its operating agreement
with the Company.
The Company performs non-destructive component testing, engine repair, and
component overhaul at its headquarters in the Denver metropolitan area. The
Company is a Customer Service Facility for Bell Helicopter, Inc. (Bell) and an
FAA-Certified Repair Station authorized to perform airframe, avionics, and
limited engine repair. In-house repair, maintenance, and testing capabilities
provide cost savings and decrease aircraft down time by avoiding the expense and
delay of having this work performed by nonaffiliated vendors.
The Company operates some of its Air Medical Services Division contracts under
the service mark AIR LIFE(R) and has successfully defended the service mark
against infringement actions in Colorado, California, and Kansas. The air
medical transportation industry identifies the service mark with the Company's
high quality of customer support and standard of service.
1
Mercy Air Service, Inc.
In July 1997 the Company acquired Mercy Air which has operated as a
community-based provider of air medical transportation services throughout
southern California since 1988. Community-based operations include medical care,
aircraft operation and maintenance, 24-hour communications and dispatch, and
medical billing and collections. Mercy Air operates nine helicopters under both
Instrument Flight Rules and Visual Flight Rules in southern California and Las
Vegas and is a leading provider of air medical transportation services in
Orange, Riverside, San Diego, Kern, San Bernardino, and Los Angeles counties.
Although Mercy Air does not contract directly with specific hospitals, it has
long-standing relationships with several leading healthcare institutions in the
greater Los Angeles and San Diego metropolitan areas. Mercy Air provides air
medical services in the Santa Barbara region under a joint venture agreement
which calls for Mercy Air to provide medical staffing, dispatch, and medical
billing and collection and to share equally in the net operating results of the
venture with its partner. Revenue from Mercy Air's flight operations consists of
flight fees billed directly to patients, their insurers, or governmental
agencies. Due to weather conditions and other factors, the number of flights is
generally higher during the summer months than during the remainder of the year,
causing revenue generated from Mercy Air's operations to fluctuate accordingly.
In 2000 Mercy Air opened operations in Boulder City, Nevada, and added a Bell
222 helicopter at its Rialto, California headquarters primarily to provide organ
procurement team and physician transport services.
In April 2000, Mercy Air acquired through a newly formed company substantially
all of the business assets of Area Rescue Consortium of Hospitals, a Missouri
non-profit organization, for $11,268,000. The newly formed company, ARCH Air
Medical Service, Inc. (ARCH), operates as a Missouri corporation and a wholly
owned subsidiary of Mercy Air. The purchase price includes a provision under
which the sellers will receive 50% of all collections greater than 50% of
charges on transports older than six months, up to a maximum of $1,500,000. Also
in April 2000, ARCH acquired two fixed wing aircraft and related equipment and
inventory from SkyLife Aviation, LLC, for $1,699,000. Area Rescue Consortium of
Hospitals has provided air medical transportation services in the St. Louis
metropolitan area and surrounding communities since 1987. ARCH will continue air
medical transportation operations as a community-based provider. In July 2000
Mercy Air acquired an air medical service program in Cape Girardeau, Missouri,
to be operated within ARCH using a Eurocopter BO-105 helicopter.
Products Division
The Company's Products Division manufactures modular, multi-functional medical
interiors; multi-mission interiors; and other aerospace products. The key
features of the multi-functional and multi-mission interiors are flexibility of
configuration for multiple transport needs and simplicity of installation and
maintenance. Although medical interiors ranging from basic life support systems
to intensive care units have comprised the majority of the Products Division's
business, the combination of its engineering, manufacturing, and certification
capabilities has also allowed the division to design and integrate other
aerospace products, such as aircraft navigation systems, environmental control
systems, and structural and electrical systems. Manufacturing capabilities
include composites, machining and welding, sheetmetal, and upholstery. The
division also offers quality assurance and certification services pursuant to
Parts Manufacturer Approvals (PMA's). During 2000, the division was awarded
two certifications from the International Organization for Standardization:
ISO9001: 1994 (Quality Systems) and EN46001 (Medical Devices). ISO9001 is a
general quality management standard while the other certification relates to
specific standards for the Medical Device industry.
The Products Division markets its services and products both domestically and
internationally to a variety of customers through an extensive network of
marketing representatives. Development of the modular, multi-functional interior
has enabled the division to move from its prior concentration in custom-designed
projects to produce components individually for a variety of airframes. The
Company maintains patents covering several products, including the
Multi-Functional Floor, Articulating Patient Loading System, and Modular
Equipment Frame, all of which were developed as part of the modular interior.
Raw materials and components used in the manufacture of interiors and other
products are generally widely available from several different vendors.
In 2000 the Products Division completed the manufacture of six Multi-Mission
Medevac Systems for the UH-60Q helicopter for the U.S. Army. The division
completed the testing and evaluation phase of a Spinal Cord Injury Transport
System (SCITS) for the U.S. Air Force and obtained U.S. Food and Drug
2
Administration (FDA) approval. The four SCITS test units previously manufactured
by the Company were refurbished during late 2000 for use in operational
evaluation scheduled for the first half of 2001. During 2000 the division
installed components of its multi-functional or multi-mission interiors for nine
commercial customers, in addition to completing three medical interiors, four
autopilot installations, and various other projects for the Air Medical Services
Division.
COMPETITION
Competition in the air medical transportation industry comes primarily from four
national operators: Corporate Jets, Inc.; OmniFlight, Inc.; Petroleum
Helicopters, Inc.; and Rocky Mountain Helicopters, Inc. Mercy Air also faces
competition from smaller regional carriers and alternative air ambulance
providers such as local governmental entities. Operators generally compete on
the basis of price, safety record, accident prevention and training, and the
medical capability of the aircraft offered. Price is a significant element of
competition as many healthcare organizations continue to move toward
consolidation and strict cost containment, reflecting uncertainty concerning the
future structure of healthcare providers and reimbursement. The Company believes
that its competitive strengths center on the quality of its customer service and
the medical capability of the aircraft it deploys.
The Company's competition in the aircraft interior design and manufacturing
industry comes primarily from two companies based in the United States and one
European company. Competition is based mainly on product features, performance,
price, and weight. The Company believes that it has demonstrated the ability to
compete on the basis of each of these factors.
CONTRACTS IN PROCESS
As of December 31, 2000, the Company was continuing the production of SCITS
operational test units and multifunctional interiors for five commercial
customers. These projects are scheduled for delivery in the first and second
quarters of 2001, with remaining revenue estimated at $3 million. As of December
31, 1999, the portion of medical interiors and other products in process to be
completed was $2.9 million.
EMPLOYEES
As of December 31, 2000, the Company retained 514 full time and 91 part time
employees, comprised of 190 pilots; 169 aviation machinists, airframe and
powerplant ("A&P") engineers and other manufacturing/maintenance positions; 132
flight nurses and paramedics; and 114 business and administrative personnel. The
Company's pilots are IFR-rated where required by contract, and all have
completed an extensive ground school and flight training program at the
commencement of their employment with the Company, as well as local area
orientation and annual training provided by the Company. All of the Company's
aircraft mechanics must possess FAA A&P licenses. All flight nurses and
paramedics hold the appropriate state and county licenses, as well as
Cardiopulmonary Resuscitation, Advanced Cardiac Life Support, and Pediatric
Advanced Life Support certifications.
The Company's employees are not covered by any collective bargaining agreements
and management believes that its relations with employees are satisfactory. The
Company provides salary and benefits packages competitive with those offered by
other providers of air medical services based on the individual qualifications
of employees.
3
GOVERNMENT REGULATION
The Company is subject to the Federal Aviation Act of 1958, as amended. All
flight and maintenance operations of the Company are regulated and actively
supervised by the U.S. Department of Transportation through the FAA. Medical
interiors and other aerospace products developed by the Company are subject to
FAA certification. The Company, Mercy Air, and ARCH each hold a Part 135 Air
Carrier Certificate and a Part 145 Repair Station Certificate from the FAA. In
addition, the SCITS unit developed by the Products Division is subject to FDA
regulation.
ITEM 2. PROPERTIES
FACILITIES
The Company leases its headquarters, consisting of approximately 70,000 square
feet of office and hangar space, in metropolitan Denver, Colorado at Centennial
Airport. The lease expires in March 2003 and the approximate annual rent is
$586,000. Mercy Air's headquarters consist of approximately 19,000 square feet
of office and hangar space owned by the Company in Rialto, California. The
Company pays minimal rent for the land at the airport where the facilities are
located. ARCH's headquarters consist of approximately 11,500 square feet of
office and hangar space owned by the Company in St. Louis, Missouri. The Company
believes that these facilities are in good condition and suitable for the
Company's present requirements.
EQUIPMENT AND PARTS
As of December 31, 2000, the Company managed and operated a fleet of 61
aircraft, consisting of 52 helicopters and 9 airplanes, for its Air Medical
Services Division and Mercy Air operations. Of these aircraft, the Company owns
25 helicopters and one airplane and leases 19 helicopters and 3 airplanes. The
Company operates 8 helicopters and 5 airplanes owned by client hospitals and
other third parties in connection with existing air medical contracts. The
composition of the Company's owned and leased helicopter and airplane fleet as
of December 31, 2000, is as follows:
4
COMPANY OWNED AIRCRAFT (1)
(Dollar amounts in thousands)
--------------------------------
Total
Total Net Book
Type Number Cost Value
----------- ------- ------- ---------
Helicopters:
Bell 206 5 $ 4,830 $ 3,040
Bell 222 13 25,883 17,525
Bell 407 2 4,010 3,418
Bell 412 4 11,801 7,473
BK 117 1 7,559 4,262
------- ------- ---------
25 54,083 35,718
Airplanes:
Cessna 421B 1 263 114
------- ------- ---------
TOTALS 26 $54,346 $35,832
====== ========= =======
COMPANY LEASED AIRCRAFT
(Dollar amounts in thousands)
-----------------------------
Average
Remaining Total Rents Remaining
Type Number Term in Years Over Lease Life Payments
------------- ------ -------------- ---------------- ----------
Helicopters:
Bell 222 4 8 $ 4,605 $ 3,829
Bell 407 7 8 13,933 11,424
Bell 412 1 8 2,463 2,073
BO 105 1 10 654 621
BK 117 6 9 10,656 9,877
------ ---------------- ----------
19 32,311 27,824
Airplanes:
King Air B100 2 9 1,523 1,409
Pilatus PC-12 1 8 2,911 2,329
------ ---------------- ----------
4,434 3,738
---------------- ----------
TOTALS 22 $ 36,745 $ 31,562
====== ================ ==========
<FN>
(1) Includes aircraft acquired under capital leases.
5
The Company generally pays all insurance, taxes, and maintenance expense for
each aircraft in its fleet. Because helicopters are insured at replacement cost
which usually exceeds book value, the Company believes that helicopter accidents
covered by hull and liability insurance will generally result in full
reimbursement of any damages sustained. In the ordinary course of business, the
Company may from time to time purchase and sell helicopters in order to best
meet the specific needs of its contracts.
The Company has experienced no significant difficulties in obtaining required
parts for its helicopters. Repair and replacement components are purchased
primarily through Bell, since Bell aircraft make up the majority of the
Company's fleet. Bell is a major helicopter manufacturer with extensive links to
the defense industry, and the Company does not anticipate any interruption in
Bell's manufacturing of replacement parts and components in the near future. Any
termination of production by Bell would require the Company to obtain spare
parts from other suppliers, which are not currently in place.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 2000.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market System under
the trading symbol "AIRM." The following table shows, for the periods
indicated, the high and low closing prices for the Company's common stock. The
quotations for the common stock represent prices between dealers and do not
reflect adjustments for retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
YEAR ENDED DECEMBER 31, 2000
--------------------------------
Common Stock High Low
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First Quarter . . . . . . $ 5 3/16 $ 3 1/16
Second Quarter. . . . . . 4 15/16 3 5/32
Third Quarter . . . . . . 5 3 3/16
Fourth Quarter. . . . . . 4 1/4 3 1/4
YEAR ENDED DECEMBER 31, 1999
--------------------------------
Common Stock High Low
-------------------------------------------------
First Quarter . . . . . . $ 2 13/16 $ 1 9/16
Second Quarter. . . . . . 2 3/8 1 1/2
Third Quarter . . . . . . 3 2 1/8
Fourth Quarter. . . . . . 3 11/16 2 5/8
As of March 9, 2001, there were approximately 329 holders of record of the
Company's common stock. The Company estimates that it has approximately 3,400
beneficial owners of common stock.
The Company has not paid any cash dividends since its inception and intends to
retain any future earnings to finance the growth of the Company's business
rather than to pay dividends. Payment of cash dividends is restricted by the
Company's line of credit agreements.
7
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected consolidated financial information of the
Company and its subsidiary which has been derived from the Company's audited
consolidated financial statements. This selected financial data should be read
in conjunction with the consolidated financial statements of the Company and
notes thereto appearing in Item 8 of this report. Revenue for the year ended
2000 increased in part as a result of the acquisition of ARCH. See "Business -
General" in Item 1 and "Management's Discussion and Analysis" in Item 7 of this
report.
SELECTED FINANCIAL DATA OF THE COMPANY
(Amounts in thousands except share and per share amounts)
Year Ended December 31,
-------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue $ 75,293 57,258 48,699 38,977 30,257
Operating expenses:
Operating 61,393 45,634 40,242 31,017 25,072
General and administrative 7,854 6,508 6,240 4,645 3,825
Other income (expense), net (1,889) (1,926) (1,960) (1,619) (1,052)
---------------------------------------------------------------
Income before income taxes 4,157 3,190 257 1,696 308
Income tax benefit - 255 - - -
---------------------------------------------------------------
Net income $ 4,157 3,445 257 1,696 308
===============================================================
Basic income per common share $ .50 .42 .03 .21 .04
===============================================================
Diluted income per common share $ .49 .42 .03 .21 .04
===============================================================
Weighted average number of shares
of Common Stock outstanding - basic 8,334,445 8,219,601 8,202,668 8,121,395 8,100,545
===============================================================
Weighted average number of shares
of Common Stock outstanding - diluted 8,559,389 8,222,187 8,449,904 8,188,547 8,259,154
===============================================================
As of December 31,
---------------------------------------
2000 1999 1998 1997 1996
---------------------------------------
BALANCE SHEET DATA:
Total assets $75,250 62,716 60,776 59,869 45,389
Long-term liabilities 29,885 27,003 28,140 29,013 19,354
Stockholders' equity 29,416 25,140 21,671 21,213 19,428
8
ITEM 7. 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 8 of this report. This report,
including the information incorporated by reference herein, 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 Air Medical Services and
products markets, the continuation and/or renewal of flight service contracts,
the acquisition of new and profitable Products Division contracts, the volume of
Mercy Air's operations, and other matters. The actual results that the Company
achieves may differ materially from those discussed in such forward-looking
statements due to the risks and uncertainties described in the Business section
of this report, in Management's Discussion and Analysis of Financial Condition
and Results of Operations, and in other sections of this report, as well as in
the Company's Quarterly reports on Form 10-Q. The Company undertakes no
obligation to update any forward-looking statements.
RESULTS OF OPERATIONS
Year ended December 31, 2000 compared to 1999
The Company reported net income of $4,157,000 for the year ended December 31,
2000, compared to $3,445,000 for the year ended December 31, 1999. The
improvement in operating results in 2000 is attributable to strong flight volume
for Air Medical Services and Mercy Air, the acquisition of ARCH, and increased
revenue from the Products Division.
Flight revenue increased $16,404,000, or 32.4%, from $50,577,000 for the year
ended December 31, 1999, to $66,981,000 for the year ended December 31, 2000.
Flight revenue for Mercy Air increased 74.6% for the year ended December 31,
2000, compared to 1999, primarily due to the acquisition of ARCH in April 2000.
Flight revenue for ARCH totaled $11,604,000 from the acquisition date through
December 31, 2000. Absent the impact of the ARCH acquisition, flight revenue for
Mercy Air increased 14.4% for the year due to revenue of $1,185,000 from 2 new
locations opened in 2000 and to an increase in transport volume of approximately
12% during 2000 compared to 1999. Flight revenue for the Air Medical Services
Division increased 6.5% for the year ended December 31, 2000, primarily due to
revenue of approximately $1,800,000 from new or expanded contracts and to annual
price increases in contracts with hospital clients, offset in part by the
expiration of a contract in July 2000. Flight volume for continuing contracts
also increased approximately 5% in 2000. Flight revenue is recorded net of
contractual allowances under agreements with third-party payers.
Sales of medical interiors and products increased $1,519,000, or 30.5%, from
$4,981,000 for the year ended December 31, 1999, to $6,500,000 for the year
ended December 31, 2000. Significant projects in 2000 included completion of six
UH-60Q Multi-Mission Medevac Systems for the U.S. Army and design work on a
Spinal Cord Injury Transport System (SCITS) for the U.S. Air Force, as well as
manufacture of medical interiors or multi-functional interior components for
eight commercial customers. Revenue by product line for the year ended December
31, 2000, was as follows:
- - $3,238,000 - manufacture and installation of modular, multi-functional
interiors
- - $2,308,000 - manufacture of multi-mission interiors
- - $954,000 - design and manufacture of other aerospace products
Significant projects in 1999 included design and manufacture of SCITS units for
the U.S. Air Force and manufacture of multi-functional interiors for six Bell
helicopters and one MD902 helicopter. The Company also began production of six
UH-60Q Multi-Mission Medevac Systems in the third quarter of 1999. Revenue by
product line for the year ended December 31, 1999, was as follows:
- - $2,480,000 - manufacture and installation of modular, multi-functional
interiors
- - $985,000 - manufacture of multi-mission interiors
- - $1,516,000 - design and manufacture of other aerospace products
9
Cost of medical interiors and products increased by 20.7% for the year ended
December 31, 2000, as compared to the previous year. The increase is consistent
with the increase in related product revenue over the same period. In addition,
the average net margin earned on projects during 2000 was 28% compared to 24% in
1999, primarily due to the maturity of product lines manufactured in 2000.
Parts and maintenance sales and services decreased 17.8% for the year ended
December 31, 2000, compared to the year ended December 31, 1999, due to a
decrease in sales volume. Cost of parts and maintenance sales and services for
the year also decreased accordingly.
In the year ended December 31, 2000, the Company recognized net gains totaling
$343,000 on the disposition of assets, including $330,000 from an insurance
settlement for one of the Company's helicopters damaged in an accident.
Flight center costs (consisting primarily of pilot, mechanic, and medical staff
salaries and benefits) increased 40.5% for the year ended December 31, 2000,
compared to 1999. Flight center costs related to ARCH totaled $3,675,000 from
the acquisition date through year-end. Without the effect of the ARCH
acquisition, Mercy Air's flight center costs increased 21.6% for the year due to
the addition of personnel to staff two new base locations opened during the year
and increases in salaries for merit pay raises. The Company also increased
matching and supplemental contributions to the employee defined contribution
retirement plan in July 1999 and again in January 2000. Flight center costs for
the Air Medical Services Division increased 15.7% for the year primarily due to
the addition or expansion of hospital contracts, merit pay raises, and increases
in retirement plan contributions.
Aircraft operating expenses increased 32.6% for the year ended December 31,
2000, in comparison to the year ended December 31, 1999. Aircraft operating
expenses consist of fuel, insurance, and maintenance costs and generally are a
function of the size of the fleet, type of aircraft flown, and number of hours
flown. The Company has added 13 aircraft to its fleet since the prior year,
including 6 helicopters and 2 fixed wing aircraft added as a result of the ARCH
acquisition. Excluding the effect of the ARCH fleet, aircraft operating expenses
increased 16.1% in 2000. Aircraft maintenance costs increased due to additions
to the fleet and to growth in flight volume, as well as to the expiration of the
warranty period for most of the Company's Bell 407 helicopters and to increased
expenditures for on-condition aircraft parts. In addition, the Company's hull
and liability insurance rates increased approximately 20% effective July 1,
2000, due to generally hardening insurance market conditions.
Aircraft rental expense increased 62.0% for the year ended December 31, 2000,
in comparison to the year ended December 31, 1999. Lease expense for ARCH
aircraft totaled $728,000 from the acquisition date through December 31, 2000.
Lease expense related to five other new aircraft totaled $602,000 for 2000. The
impact of adding new aircraft was offset in part by the refinance of two
helicopter leases and expiration of two other lease agreements during 1999.
Depreciation and amortization expense increased 6.1% for the year ended December
31, 2000, reflecting the addition of ARCH's buildings and equipment and a Bell
222 helicopter to Mercy Air's fleet.
Bad debt expense is estimated during the period the related services are
performed based on historical experience for Mercy Air's operations. The
provision is adjusted as required based on actual collections in subsequent
periods. The increase of 72.5% for the year ended December 31, 2000, compared to
1999 reflects the acquisition of ARCH in April 2000. Bad debt expense related to
ARCH flight revenue totaled approximately $2,784,000 from the acquisition date
through year-end. Bad debt expense related to Mercy Air's California and Nevada
operations remained unchanged as improved collection rates offset the increase
in flight volume. Bad debt expense related to the Air Medical Services Division
was not significant in either 2000 or 1999.
General and administrative expenses increased 20.7% for the year ended December
31, 2000, compared to the year ended December 31, 1999, reflecting the impact of
the ARCH transaction. Excluding ARCH expenses, general and administrative
expenses increased 7.5%, primarily due to merit pay increases and changes in
administrative staffing to manage the expanded employee base with the
acquisition of ARCH and addition of new bases.
The Company recognized a tax benefit of $255,000 in 1999 and no tax expense or
benefit in 2000 primarily due to recognition of deferred tax assets for which a
valuation allowance had previously been provided. The remaining deferred tax
asset at December 31, 2000, for which a valuation allowance has been recorded,
will be recognized in the financial statements when its realization is more
likely than not.
10
Year ended December 31, 1999 compared to 1998
The Company reported net income of $3,445,000 for the year ended December 31,
1999, compared to $257,000 for the year ended December 31, 1998. The change in
operating results in 1999 is attributable to improved profitability for all
three divisions of the Company, driven by increased flight volume for the
Company's Air Medical Services Division and subsidiary Mercy Air, higher volume
of contracts for Products Division, and cost containment of operating expenses.
Flight revenue increased $7,581,000, or 17.6%, from $42,996,000 for the year
ended December 31, 1998, to $50,577,000 for the year ended December 31, 1999.
Flight revenue for the Air Medical Services Division increased 11.2% for the
year ended December 31, 1999, primarily due to revenue of $2.6 million from new
or expanded contracts and to annual price increases in contracts with hospital
clients. Flight volume for continuing contracts also increased approximately 8%
in 1999. Flight revenue for Mercy Air increased 29.9% for the year ended
December 31, 1999, compared to 1998, due to a full year of operations at new
bases in San Diego and Las Vegas and to the purchase of the business operations
of another air ambulance service provider in San Diego in March 1999. Transport
volume also increased 12.9%, excluding the effect of the new bases, for the year
ended December 31, 1999, as Mercy Air achieved all-time record high patient
transports during the third quarter of 1999. Flight revenue is recorded net of
contractual allowances under agreements with third-party payers.
Sales of medical interiors and products increased $1,691,000, or 51.4%, from
$3,290,000 for the year ended December 31, 1998, to $4,981,000 for the year
ended December 31, 1999. Significant projects and revenue by product line for
the year ended December 31, 1999, are described above.
Significant projects in 1998 included production of electrical system components
for the U. S. Air Force HH-60G helicopter, manufacture of multi-functional
interiors for three Bell helicopters, and SCITS design work. Revenue recognized
in the year ended December 31, 1998, consisted of the following:
- - $1,594,000 - manufacture and installation of modular, multi-functional
interiors
- - $90,000 - design and manufacture of multi-mission interiors
- - $1,606,000 - design and manufacture of other aerospace products
Cost of medical interiors and products increased by 33.0% for the year ended
December 31, 1999, as compared to the previous year. The increase is consistent
with the increase in related product revenue over the same period. In addition,
the average net margin earned on projects during 1999 was 24% compared to 15% in
1998, partly due to the commencement of production on UH-60Q Multi-Mission
Medevac Systems.
Parts and maintenance sales and services increased 21.0% for the year ended
December 31, 1999, compared to the year ended December 31, 1998, due to an
increase in sales volume. Cost of parts and maintenance sales and services for
the year also increased accordingly.
Flight center costs increased 16.6% for the year ended December 31, 1999,
compared to 1998. Flight center costs for the Air Medical Services Division
increased 10.0% in 1999, primarily due to $557,000 in costs for new hospital
contracts and increases in salaries for merit pay raises. Flight center costs
related to Mercy Air's operations increased 31.8% in the year ended December 31,
1999, primarily due to costs of approximately $850,000 for new bases of
operation established during 1998 and to merit pay raises.
Aircraft operating expenses decreased 1.8% for the year ended December 31, 1999,
in comparison to the year ended December 31, 1998. The impact of adding four
helicopters and two airplanes to the fleet was offset by lower aircraft
maintenance costs for both the Air Medical Services Division and Mercy Air
during 1999. The Company's hull insurance rates also decreased approximately 30%
effective July 1, 1999.
11
Aircraft rental expense increased 7.3% for the year ended December 31, 1999,
compared to the previous year. Lease expense related to three new aircraft for
the Air Medical Services Division totaled $510,000 in 1999. The impact of adding
these aircraft was offset in part during the year by refinance or expiration of
three lease agreements.
Depreciation and amortization expense increased 21.2% for the year ended
December 31, 1999, reflecting the addition of a Bell 222 helicopter, as well as
two new medical interiors, to the Air Medical Services Division's fleet of owned
aircraft. The Company completed the renovation of its corporate headquarters
facility in Colorado and Mercy Air's headquarters in California in early 1999,
increasing depreciable leasehold improvements by approximately $635,000.
Expenses in 1999 also include approximately $225,000 for amortization of a
non-compete agreement related to the buyout of another air ambulance service
provider in San Diego.
The increase of 39.4% in bad debt expense for the year ended December 31, 1999,
compared to 1998 reflects the increase in flight revenue for Mercy Air. Bad debt
expense for the year ended December 31, 1999, was approximately 20% of Mercy
Air's net flight revenue, compared to 19% in 1998. Bad debt expense related to
the Air Medical Services Division was not significant in either 1999 or 1998.
General and administrative expenses remained relatively constant for the year
ended December 31, 1999, compared to 1998, despite the revenue growth over the
same period. Most of the general and administrative costs are fixed in nature
and do not vary with revenue volume.
In the year ended December 31, 1999, the Company recorded an income tax benefit
of $255,000 from the recognition of a portion of its deferred tax asset as a
result of current period taxable losses. A deferred tax liability was generated
by a change in tax accounting method for Mercy Air's trade receivables from cash
to accrual basis when the Company acquired Mercy Air in 1997. The taxable income
created by this change was unable to be offset by the Company's net operating
loss carryforwards but could be offset by current period taxable losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $7,735,000 as of December 31, 2000, compared
to $4,621,000 at December 31, 1999. The change in working capital position is
primarily attributable to an increase in receivables resulting from the ARCH
acquisition and increased revenue for all three operating segments. The impact
of the increase in receivables on working capital was offset in part by a shift
in contract billings from costs in excess of billings to billings in excess of
costs in 2000. The balance of costs in excess of billings in 1999 consisted
primarily of costs on the UH-60Q project which were invoiced in January 2000
after billing terms for the contract were finalized. In addition, the Company
received a $1,875,000 contract in December 2000 which provided for a 50%
downpayment prior to the commencement of production.
The Company had cash and cash equivalents of $4,107,000 as of December 31, 2000,
compared to $2,242,000 at December 31, 1999. Cash generated by operations
increased to $7,127,000 in 2000 from $6,123,000 in 1999. The increase is
primarily due to the Company's improved profitability as discussed above in
"Results of Operations." Cash from operations was also impacted by the increase
in receivables and decrease in costs in excess of billings, as noted in
discussion of the change in working capital.
Cash used for investing activities totaled $5,461,000 in 2000, compared to
$3,608,000 in 1999, driven primarily by the purchase of ARCH assets. Other
significant equipment acquisitions included a Bell 222 helicopter for Mercy
Air's fleet. Equipment acquisitions in 2000 were offset in part by proceeds of
$1,158,000 from the insurance settlement for one of the Company's helicopters
damaged in an accident. Significant equipment acquisitions in 1999 included two
aircraft medical interiors.
Financing activities generated $199,000 in 2000, compared to using $2,680,000 in
1999. Primary uses of cash in both years consisted of payments for long-term
debt and capital lease obligations and purchases of common stock into treasury.
In 2000, these payments were offset by proceeds from new note agreements and
issuance of common stock for options exercised.
12
Repayment of debt and capital lease obligations as well as operating lease
agreements constitute the Company's long-term commitments to use cash. Balloon
payments on long-term debt are due as follows: $1.1 million in 2003, $700,000 in
2004, and $3.1 million in 2007.
In April 2000 the Company entered into an agreement with a financial institution
for a $1,500,000 line of credit with a one-year term and a variable interest
rate equal to the prime rate. At December 31, 2000, the Company had drawn
$1,000,000 against the line. The Company also holds a $2 million line of credit
which expires in August 2001 and has a variable interest rate equal to the
bank's index rate. Both lines have covenants which limit the Company's ability
to merge or consolidate with another entity, dispose of assets, pay dividends,
and change the nature of business operations. The Company is also required to
maintain certain financial ratios as defined in the agreements. At December 31,
2000, the Company was in compliance with the financial covenants.
In February 2000 the Company entered into a $1.1 million note payable with
interest at 8.99% to finance the acquisition of the Bell 222 helicopter which
collateralizes the note. In March 2000 the Company entered into a $900,000 note
payable with interest at 8.67% to finance the acquisition of the assets of Area
Rescue Consortium of Hospitals. The note is collateralized by a Bell 222
helicopter. In April 2000 the Company entered into a $1,350,000 note payable
related to the ARCH acquisition, with interest at 8.01%. The note is
collateralized by two buildings and various equipment. In the third quarter of
2000, the Company entered into two notes payable totaling $425,000 with interest
at 10.5% to finance the acquisition and installation of two Bell 407 autopilots.
As of December 31, 2000, the Company held unencumbered aircraft with a net book
value of $5.1 million and has additional equity in other encumbered aircraft
which could be utilized as collateral for borrowing funds as an additional
source of working capital if necessary. The Company believes that these
borrowing resources coupled, with continued favorable results of operations,
will allow the Company to meet its obligations in the coming year.
OUTLOOK FOR 2001
The statements contained in this Outlook are based on current expectations.
These statements are forward-looking, and actual results may differ materially.
The Company undertakes no obligation to update any forward-looking statements.
Air Medical Services Division
Six hospital contracts are due for renewal in 2001. Two of the contracts were
renewed during the first quarter of 2001, both for additional five-year terms;
renewals on the other four contracts are still pending. During the first quarter
the Company entered into two agreements to expand services with current hospital
customers in Texas and Arizona with the deployment of additional aircraft. A
third Bell 412 helicopter was added to the operations in Texas during the first
quarter, and a third Bell 407 helicopter is expected to be added to the
operations in Arizona during the second quarter. The Company expects 2001 flight
activity for current hospital contracts to remain consistent with historical
levels.
Mercy Air Service
The Company expects flight volume for Mercy Air's operations to be consistent
with historical levels during 2001, subject to seasonal, weather-related
fluctuations, with increases for a full year of operations within the ARCH
subsidiary. The Company expects to open a second base in Illinois as part of the
ARCH operations during 2001.
Products Division
In the fourth quarter of 2000 and first quarter of 2001, the Products Division
was awarded five new contracts valued at approximately $3,800,000 to manufacture
medical interior systems for multiple types of aircraft. Work on all five
contracts is expected to continue through the first quarter of 2002.
The Company has received a verbal commitment and expects to be awarded a
contract for five HH-60L (formerly known as UH-60Q) Multi-Mission Medevac
Systems during the second quarter of 2001. Production will commence immediately
upon award and is expected to be completed in the first quarter of 2002. The
current U.S. Army Aviation Modernization Plan continues to define a requirement
for 357 units in total over the next 20 years. The U.S. Army Program Objective
Memorandum (POM) anticipates funding for this requirement with eight units per
year scheduled in fiscal years 2002 and 2003 and fifteen units per year
scheduled from fiscal year 2004 through the end of the program. There is no
assurance that the current contract option will be exercised or orders for
additional units received in 2001 or in future periods.
13
The Development Contract of the SCITS program for the U.S. Air Force (USAF) is
expected to be completed in the second quarter of 2001. The long-range USAF plan
defines a requirement for 75 to 250 units over the next five years. Although the
Company expects the Production Contract to be awarded in the third quarter of
2001, there can be no assurance that the contract will be awarded in 2001 or in
future periods.
There can be no assurance that the Company will continue to renew operating
agreements for the Air Medical Services Division, generate new profitable
contracts for the Products Division, or expand flight volume for Mercy Air.
However, based on the anticipated level of flight activity for its hospital
customers and Mercy Air and the projects in process for the Products Division,
the Company expects to generate sufficient cash flow to meet its operational
needs throughout 2001.
RISK FACTORS
Actual results achieved by the Company may differ materially from those
described in forward-looking statements as a result of various factors,
including but not limited to, those discussed above in "Outlook for 2001" and
those described below.
- - Flight volume - All of Mercy Air's revenue and approximately 30% of the Air
Medical Services Division's revenue is dependent upon flight volume.
Approximately 21% of the Company's operating expenses also vary with number
of hours flown. Poor visibility, high winds, and heavy precipitation can
affect the safe operation of helicopters and therefore result in a reduced
number of flight hours due to the inability to fly during these conditions.
Prolonged periods of adverse weather conditions, especially in southern
California and Missouri where Mercy Air's operations are concentrated,
could have an adverse impact on the Company's operating results. In
southern California and the St. Louis region, the months from November
through February tend to have lower flight volume due to weather conditions
and other factors, resulting in lower operating revenue for Mercy Air
during these months. Flight volume for Mercy Air's operations can also be
affected by the distribution of calls among competitors by local government
agencies and the entrance of new competitors into a market.
- - Collection rates - Mercy Air invoices patients and their insurers directly
for services rendered and recognizes revenue net of estimated contractual
allowances. The level of bad debt expense is driven by collection rates on
these accounts. Collectibility is primarily dependent upon the health of
the U.S. economy, especially in southern California and the St. Louis
region. Changes in estimated contractual allowances and bad debts are
recognized based on actual collections in subsequent periods. A significant
or sustained downturn in the U.S. economy could have an adverse impact on
the Company's bad debt expense.
- - Dependence on third party suppliers - The Company currently obtains a
substantial portion of its helicopter spare parts and components from Bell
Helicopter, Inc. (Bell) and American Eurocopter Corporation (AEC), because
its fleet is composed primarily of Bell and Eurocopter aircraft, and
maintains supply arrangements with other parties for its engine and related
dynamic components. Based upon the manufacturing capabilities and industry
contacts of Bell, AEC, and other suppliers, the Company believes it will
not be subject to material interruptions or delays in obtaining aircraft
parts and components but does not have an alternative source of supply for
Bell, AEC, and certain other aircraft parts. Failure or significant delay
by these vendors in providing necessary parts could, in the absence of
alternative sources of supply, have a material adverse effect on the
Company. Because of its dependence upon Bell and AEC for helicopter parts,
the Company could also be subject to adverse impacts from unusually high
price increases which are greater than overall inflationary trends.
Increases in the Company's flight fees billed to its customers are
generally limited to changes in the consumer price index.
14
- - Department of Defense funding - Two of the significant projects in process
for the Products Division, UH-60Q and SCITS, are both dependent upon
Department of Defense funding. Failure of the U.S. Congress to approve
funding for the production of additional UH-60Q or SCITS units could have a
material adverse impact on Products Division revenue.
- - Governmental regulation - The air medical transportation services and
products industry is subject to extensive regulation by governmental
agencies, including the Federal Aviation Administration, which impose
significant compliance costs on the Company. In addition, reimbursement
rates for air ambulance services established by governmental programs such
as Medicare directly affect Mercy Air's revenue and indirectly affect Air
Medical Services Division's revenue from its hospital customers. Changes in
laws or regulations or reimbursement rates could have a material adverse
impact on the Company's cost of operations or revenue from flight
operations.
- - Competition - The Air Medical Services Division faces significant
competition from several national and regional air medical transportation
providers for contracts with hospitals and other healthcare institutions.
Mercy Air also faces competition from smaller regional carriers and
alternative air ambulance providers such as sheriff departments. Operators
generally compete on the basis of price, safety record, accident prevention
and training, and the medical capability of the aircraft offered. There can
be no assurance that the Company will be able to continue to compete
successfully for new or renewing contracts in the future.
NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (Statement
133), which is effective for fiscal years beginning after June 15, 2000.
Statement 133 requires companies to record derivatives on the balance sheet as
assets or liabilities measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies under the standard for hedge
accounting. The adoption of Statement 133 will have no effect on the Company's
consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, Revenue Recognition (SAB 101), which provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. Subsequently, the SEC delayed the
implementation date of SAB 101 for registrants with fiscal years beginning after
December 15, 1999. The Company adopted SAB 101 in the fourth quarter of 2000.
The adoption had no effect on the Company's consolidated financial statements.
In March 2000 the FASB issued FASB Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation and Interpretation of APB Opinion No.
25 (FIN 44). This opinion provides guidance on the accounting for certain stock
option transactions and subsequent amendments to stock option transactions. FIN
44 is effective July 1, 2000, but certain conclusions cover specific events that
occur after either December 15, 1998, or January 12, 2000. To the extent that
FIN 44 covers events occurring during the period from December 15, 1998, and
January 12, 2000, but before July 1, 2000, the effects of applying this
Interpretation are to be recognized on a prospective basis. The adoption of FIN
44 had no effect on the Company's consolidated financial statements.
15
ITEM 7A. 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 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, except the line of credit.
Based on the amounts outstanding at December 31, 2000, the annual impact of a 1%
change in interest rates would be approximately $10,000. Interest rates on these
instruments approximate current market rates as of December 31, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
Company's Proxy Statement to be filed on or prior to April 30, 2001, for the
Annual Meeting of Stockholders to be held June 27, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Proxy Statement to be filed on or prior to April 30, 2001, for the
Annual Meeting of Stockholders to be held June 27, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Proxy Statement to be filed on or prior to April 30, 2001, for the
Annual Meeting of Stockholders to be held June 27, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Proxy Statement to be filed on or prior to April 30, 2001, for the
Annual Meeting of Stockholders to be held June 27, 2001.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
1. Financial Statements included in Item 8 of this report:
Independent Auditors' Report
Consolidated Balance Sheets, December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended December
31, 2000, 1999, and 1998
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended December
31, 2000, 1999, and 1998
Notes to Consolidated Financial Statements
2. Financial Statement Schedules included in Item 8 of this report:
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2000, 1999, and 1998
All other supporting schedules have been omitted because the
information required is included in the financial statements or
notes thereto or have been omitted as not applicable or not
required.
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -------------------------
2.1 Asset Purchase Agreement, dated March 23, 2000, among
the Company, Mercy Air, and Area Rescue Consortium of
Hospitals(9)
2.2 Aircraft Purchase Agreement, dated April 25, 2000, by
and between ARCH and SkyLife Aviation, LLC(9)
3.1 Certificate of Incorporation(1)
3.2 Amendments to Certificate of Incorporation(2)
3.3 By-Laws as Amended(6)
4.1 Specimen Stock Certificate(2)
4.2 Form of Reissued Warrant Agreement, dated May 3, 1995
between the Company and Americas Partners, concerning
warrants originally issued December 28, 1993(7)
4.3 Form of Reissued Warrant Agreement, dated May 3, 1995
between the Company and Americas Partners, concerning
warrants originally issued February 21, 1994(7)
10.1 1995 Air Methods Corporation Employee Stock Option
Plan(4)
10.2 Nonemployee Director Stock Option Plan, as amended(5)
10.3 Equity Compensation Plan for Nonemployee Directors,
adopted March 12, 1993(3)
10.4 Employment Agreement, dated June 1, 1994, between the
Company and George Belsey(6)
IV-1
10.5 Employment Agreement, dated November 30, 1993, between
the Company and Michael Prieto(6)
10.6 Employment Agreement dated July 10, 1995, between the
Company and Aaron D. Todd(8)
10.7 Employment Agreement dated April, 2000, between the
Company and Neil Hughes
10.8 Aircraft Lease Agreement, dated April 21, 2000, between
ARCH and C.I.T. Leasing Corporation(9)
10.9 Loan Agreement, dated April 25, 2000, between ARCH
and Firstar Bank, N.A.(9)
21 Subsidiary of Registrant
23 Consent of KPMG LLP
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended December 31, 2000.
____________________
1 Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-15007), as declared effective on August 27, 1987, and
incorporated herein by reference.
2 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992, and incorporated herein by reference.
3 Filed as an exhibit to the Company's Registration Statement on Form S-8
(Registration No. 33-65370), filed with the Commission on July 1, 1993, and
incorporated herein by reference.
4 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by reference.
5 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993, and incorporated herein by reference.
6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994, and incorporated herein by reference.
7 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
transitional fiscal year ended December 31, 1994 and incorporated herein by
reference.
8 Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995 and incorporated herein by reference.
9 Filed as an exhibit to the Company's Current Report on Form 8-K dated April
25,2000, and incorporated herein by reference.
IV-2
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 27, 2001 By: /s/ George W. Belsey
------------------- -------------------------
George W. Belsey
Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated.
/s/ George W. Belsey Chairman of the Board March 27, 2001
- -----------------------
George W. Belsey Chief Executive Officer
/s/ Aaron D. Todd Chief Financial Officer March 27, 2001
- -----------------------
Aaron D. Todd Secretary and Treasurer
/s/ Ralph J. Bernstein Director March 27, 2001
- -----------------------
Ralph J. Bernstein
/s/ Samuel H. Gray Director March 27, 2001
- -----------------------
Samuel H. Gray
/s/ Carl H. McNair, Jr. Director March 27, 2001
- -----------------------
Carl H. McNair, Jr.
/s/ Lowell D. Miller Director March 27, 2001
- -----------------------
Lowell D. Miller, Ph.D.
/s/ Donald R. Segner Vice-Chairman of the Board March 27, 2001
- -----------------------
Donald R. Segner
/s/ Morad Tahbaz Director March 27, 2001
- -----------------------
Morad Tahbaz
IV-3
AIR METHODS CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
Independent Auditors' Report. . . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements
- ---------------------------------
CONSOLIDATED BALANCE SHEETS,
December 31, 2000 and 1999 . . . . . . . . . . . . . . F-2
CONSOLIDATED STATEMENTS OF OPERATIONS,
Years Ended December 31, 2000, 1999, and 1998. . . . . F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY,
Years Ended December 31, 2000, 1999, and 1998. . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS,
Years Ended December 31, 2000, 1999, and 1998. . . . . F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
December 31, 2000 and 1999 . . . . . . . . . . . . . . F-8
Schedules
- ---------
II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999, and 1998. . . . . F-27
All other supporting schedules are omitted because they are inapplicable, not
required, or the information is presented in the consolidated financial
statements or notes thereto.
IV-4
Independent Auditors' Report
----------------------------
BOARD OF DIRECTORS AND STOCKHOLDERS
AIR METHODS CORPORATION:
We have audited the accompanying consolidated balance sheets of Air Methods
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Air Methods
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with auditing principles generally
accepted in the United States of America.
KPMG LLP
Denver, Colorado
March 2, 2001
F-1
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------------------------
2000 1999
--------- --------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,107 2,242
Current installments of notes receivable (note 4) 108 74
Receivables:
Trade (notes 5 and 11) 17,980 8,603
Less allowance for doubtful accounts (4,231) (1,210)
--------- --------
13,749 7,393
Insurance proceeds 499 220
Income tax refund -- 205
Other 862 593
--------- --------
15,110 8,411
Inventories (note 5) 3,142 2,504
Work-in-process on medical interior and products contracts 193 172
Costs and estimated earnings in excess of billings
on uncompleted contracts (note 3) -- 772
Prepaid expenses and other current assets 1,024 1,019
--------- --------
Total current assets 23,684 15,194
--------- --------
Equipment and leasehold improvements (notes 5 and 6):
Flight and ground support equipment 67,819 61,356
Buildings and office equipment 5,541 3,641
--------- --------
73,360 64,997
Less accumulated depreciation and amortization (26,001) (21,289)
--------- --------
Net equipment and leasehold improvements 47,359 43,708
Excess of cost over the fair value of net assets acquired, net of accumulated
amortization of $922 and $810 at December 31, 2000 and 1999, respectively 1,921 1,637
Notes receivable, less current installments (note 4) 618 534
Other assets, net of accumulated amortization of $1,721 and $1,256 at
December 31, 2000 and 1999, respectively 1,668 1,643
--------- --------
Total assets $ 75,250 62,716
========= ========
(Continued)
F-2
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------------
2000 1999
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Current liabilities:
Notes payable (note 5) $ 1,000 700
Current installments of long-term debt (note 5) 3,571 3,073
Current installments of obligations under capital leases (note 6) 331 424
Accounts payable 2,065 1,378
Accrued overhaul and parts replacement costs 4,143 2,114
Deferred revenue 1,071 972
Billings in excess of costs and estimated earnings on uncompleted contracts (note 3) 1,011 --
Deferred income taxes (note 9) 55 231
Accrued salaries and wages 852 520
Other accrued liabilities 1,850 1,161
--------- --------
Total current liabilities 15,949 10,573
Long-term debt, less current installments (note 5) 17,504 17,757
Obligations under capital leases, less current installments (note 6) 3,235 1,931
Accrued overhaul and parts replacement costs 7,901 6,301
Deferred income taxes (note 9) -- 132
Other liabilities 1,245 882
--------- --------
Total liabilities 45,834 37,576
--------- --------
Stockholders' equity (note 7):
Preferred stock, $1 par value. Authorized 5,000,000 shares,
none issued -- --
Common stock, $.06 par value. Authorized 16,000,000 shares; issued 9,084,515 and
8,378,843 shares at December 31, 2000 and 1999, respectively 545 503
Additional paid-in capital 50,113 50,002
Accumulated deficit (21,200) (25,357)
Treasury stock at par, 701,576 and 127,822 common shares at December 31, 2000 and
1999, respectively (42) (8)
--------- --------
Total stockholders' equity 29,416 25,140
Commitments and contingencies (notes 5, 6, 10, and 11)
Total liabilities and stockholders' equity $ 75,250 62,716
========= ========
See accompanying notes to consolidated financial statements.
F-3
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
2000 1999 1998
----------- ---------- ----------
Revenue:
Flight revenue (note 8) $ 66,981 50,577 42,996
Sales of medical interiors and products 6,500 4,981 3,290
Parts and maintenance sales and services 1,258 1,531 1,265
Gain on disposition of assets, net 343 -- 873
Other 211 169 275
----------- ---------- ----------
75,293 57,258 48,699
----------- ---------- ----------
Operating expenses:
Flight centers 22,713 16,167 13,868
Aircraft operations 17,635 13,297 13,547
Aircraft rental (note 6) 3,176 1,960 1,826
Cost of medical interiors and products sold 4,597 3,808 2,863
Cost of parts and maintenance sales and services 1,092 1,239 988
Depreciation and amortization 5,485 5,168 4,264
Bad debt expense 6,695 3,882 2,785
Loss on disposition of assets, net --- 113 --
General and administrative 7,854 6,508 6,240
Other -- -- 101
----------- ---------- ----------
69,247 52,142 46,482
----------- ---------- ----------
Operating income 6,046 5,116 2,217
Other income (expense):
Interest expense (2,144) (2,138) (2,250)
Interest and dividend income 185 155 210
Other, net 70 57 80
----------- ---------- ----------
Income before income taxes 4,157 3,190 257
Income tax benefit (note 9) -- 255 --
----------- ---------- ----------
Net income $ 4,157 3,445 257
=========== ========== ==========
Basic income per common share (note 7) $ .50 .42 .03
Diluted income per common share (note 7) $ .49 .42 .03
=========== ========== ==========
Weighted average number of common shares outstanding - basic 8,334,445 8,219,601 8,202,668
=========== ========== ==========
Weighted average number of common shares outstanding - diluted 8,559,389 8,222,187 8,449,904
=========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------------------
Total
Common Stock Treasury Stock Additional Accumu- Stock-
----------------------------- ------------------------- Paid-in lated holders'
Shares Amount Shares Amount Capital Deficit Equity
------------ --------------- ---------- ------------- --------- -------- -------
BALANCES AT JANUARY 1, 1998 8,173,705 490 25,606 (1) 49,783 (29,059) 21,213
Issuance of common shares for options
exercised and services rendered 107,638 7 -- -- 281 -- 288
Purchase of treasury shares -- -- 25,000 (2) (85) -- (87)
Net income -- -- -- -- -- 257 257
--------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 8,281,343 497 50,606 (3) 49,979 (28,802) 21,671
Issuance of common shares for options
exercised and services rendered 97,500 6 -- -- 245 -- 251
Purchase of treasury shares - -- 77,216 (5) (222) -- (227)
Net income -- -- -- -- -- 3,445 3,445
--------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999 8,378,843 503 127,822 (8) 50,002 (25,357) 25,140
Issuance of common shares for options
exercised and services rendered 705,672 42 -- -- 2,457 -- 2,499
Purchase of treasury shares -- -- 573,754 (34) (2,346) -- (2,380)
Net income -- -- -- -- -- 4,157 4,157
--------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 2000 9,084,515 $ 545 701,576 $ (42) 50,113 (21,200) 29,416
============ =============== ========== ============= ========= ======== =======
See accompanying notes to consolidated financial statements.
F-5
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------
2000 1999 1998
--------- ------- -------
Cash flows from operating activities:
Net income $ 4,157 3,445 257
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 5,485 5,168 4,264
Bad debt expense 6,695 3,882 2,785
Common stock and options issued for services 60 60 60
Loss (gain) on disposition of assets (343) 113 (873)
Changes in operating assets and liabilities, net of effects of acquisitions:
Increase in receivables (13,394) (5,912) (4,102)
Decrease (increase) in inventories 96 (427) 5
Decrease (increase) in prepaid expenses and other current assets 43 (170) (236)
Decrease (increase) in work-in-process on medical interior and product contracts
and costs in excess of billings 751 (797) 1,185
Increase (decrease) in accounts payable, income tax liabilities, and other
accrued liabilities 1,284 (347) 175
Increase (decrease) in accrued overhaul and parts replacement costs 820 835 (42)
Increase (decrease) in deferred revenue, billings in excess of costs, and other liabilities 1,473 273 (97)
--------- ------- -------
Net cash provided by operating activities 7,127 6,123 3,381
--------- ------- -------
Cash flows from investing activities:
Acquisition of net assets of Area Rescue Consortium of Hospitals and SkyLife
Aviation, LLC (note 2) (2,367) -- --
Acquisition of equipment and leasehold improvements (3,248) (2,868) (7,184)
Proceeds from disposition and sale of equipment and assets held for sale 1,158 -- 2,978
Increase in notes receivable and other assets, net (1,004) (740) (205)
--------- ------- -------
Net cash used by investing activities (5,461) (3,608) (4,411)
--------- ------- -------
(Continued)
F-6
AIR METHODS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(AMOUNTS IN THOUSANDS)
- ------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------
2000 1999 1998
-------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,439 191 228
Payments for purchases of common stock (2,380) (227) (87)
Net borrowings (payments) under short-term notes payable 300 (425) 396
Proceeds from long-term debt 3,794 1,150 7,857
Payments of long-term debt (3,597) (2,819) (7,693)
Payments of capital lease obligations (357) (550) (660)
-------- ------- -------
Net cash provided (used) by financing activities 199 (2,680) 41
-------- ------- -------
Increase (decrease) in cash and cash equivalents 1,865 (165) (989)
Cash and cash equivalents at beginning of year 2,242 2,407 3,396
-------- ------- -------
Cash and cash equivalents at end of year $ 4,107 2,242 2,407
======== ======= =======
Interest paid in cash during the year $ 2,148 2,148 2,230
======== ======= =======
Income taxes paid in cash during the year $ 308 290 390
======== ======= =======
<FN>
Non-cash investing and financing activities:
In the year ended December 31, 2000, the Company assumed a capital lease obligation
of $1,568 to finance the buyout of a helicopter. The Company also issued notes
payable of $48 to finance insurance policies.
Capital lease obligations of $90 were assumed to acquire equipment during the year
ended December 31, 1998.
See accompanying notes to consolidated financial statements.
F-7
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation and Business
Air Methods Corporation, a Delaware corporation, and its subsidiaries (Air
Methods or the Company) serves as one of the largest providers of
aeromedical emergency transport services and systems throughout North
America. The Company also designs, manufactures, and installs medical
aircraft interiors and other aerospace products for domestic and
international customers. As more fully discussed in Note 2, in April 2000,
Mercy Air Service, Inc. (Mercy Air), a wholly owned subsidiary of the
Company, acquired through a newly formed company substantially all of the
business assets of Area Rescue Consortium of Hospitals. The new company,
ARCH Air Medical Service, Inc. (ARCH), operates as a wholly owned
subsidiary of Mercy Air. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company holds a 50%
ownership interest in two joint ventures which are accounted for under the
equity method.
The preparation of financial statements in conformity with auditing
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments with original maturities of three
months or less to be cash equivalents. Cash equivalents of $1,263,000 and
$1,518,000 at December 31, 2000 and 1999, respectively, consist of
short-term money market funds.
Inventories
Inventories are comprised primarily of expendable aircraft parts which are
recorded at the lower of cost (average cost) or market.
Work-in-Process on Medical Interior and Products Contracts
Work-in-process on medical interior and products contracts represents
costs of the manufacture and installation of medical equipment and
modification of aircraft for third parties. Certain medical interior
contracts provide for reimbursement of all costs plus an incremental
amount. Revenue on these contracts is recorded as costs are incurred. In
addition, when the total cost to complete a medical interior under a
fixed fee contract can be reasonably estimated, revenue is recorded as
costs are incurred using the percentage of completion method of accounting.
Losses on contracts in process are recognized when determined.
F-8
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Equipment and Leasehold Improvements
Hangar, equipment, and leasehold improvements are recorded at cost.
Maintenance and repairs, other than major overhauls, are expensed when
incurred. Major modifications and costs incurred to place aircraft
in service are capitalized. Improvements to helicopters and airplanes
leased under operating leases are included in flight and ground support
equipment in the accompanying financial statements. Leasehold improvements
to hangar and office space are included in buildings and office equipment
in the accompanying financial statements. Depreciation is computed using
the straight-line method over the shorter of the useful lives of the
equipment or the lease term, as follows:
Description Lives Residual value
---------------------------------------- ------------ ---------------
Buildings, including hangars 40 years 10%
Helicopters, including medical equipment 8 - 25 years 10 - 25%
Airplanes, including medical equipment 8 - 20 years 0 - 10%
Ground support equipment and rotables 5 - 10 years 0 - 10%
Furniture and office equipment 3 - 10 years
Engine and Airframe Overhaul Costs
The Company uses the accrual method of accounting for major engine and
airframe component overhauls and replacements whereby the cost of the
next overhaul or replacement is estimated and accrued based on usage of the
aircraft component over the period between overhauls or replacements.
Excess of Cost Over the Fair Value of Net Assets Acquired
Excess of cost over the fair value of net assets acquired, or goodwill, is
being amortized using the straight-line method over 25 years.
Patent Application Costs and Supplemental Type Certificates
The Company capitalizes legal costs associated with new patent applications
and the defense of existing patents. At such time as patents are granted,
these costs are amortized over the estimated useful economic life of
the patents. Costs relating to unsuccessful patent applications are
charged to operations.
F-9
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Patent Application Costs and Supplemental Type Certificates, continued
The Company also capitalizes incremental direct costs related to the
application for multiple Supplemental Type Certificates (STC's). STC's
are issued by the Federal Aviation Administration (FAA) and represent
the FAA's approval and certification of the airworthiness of an aircraft
modification, such as a medical interior. A multiple STC allows the
modification to be made to more than one aircraft without additional
certification. STC costs are amortized using the straight-line method over
the estimated useful economic life of the STC, typically 5 years.
Long-lived Assets
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ("Statement 121"). Statement 121 requires that long-lived
assets and certain identifiable intangible assets, including goodwill, to
be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
Revenue Recognition and Uncollectible Receivables
Fixed fee revenue under the Company's operating agreements with hospitals
is recognized monthly over the term of the agreements. Revenue relating to
emergency flights is recognized upon completion of the services. Revenue
and accounts receivable are recorded net of estimated contractual
allowances under agreements with third-party payers. Uncollectible trade
receivables are charged to operations using the allowance method.
Stock-based Compensation
The Company accounts for its employee stock compensation plans as
prescribed under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. Pro forma disclosures of net income and income
per share required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-based Compensation ("Statement 123"), are included in
Note 7 to the consolidated financial statements.
F-10
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes
The Company accounts for income taxes using the asset and liability method
required by Statement of Financial Accounting Standard No. 109, Accounting
for Income Taxes. Deferred tax assets and liabilities are recognized for
future income tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a
change in rates is recognized in income in the period that includes the
enactment date.
Income Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share,
requires presentation of both basic earnings per share and diluted earnings
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
outstanding and dilutive potential common shares during the period.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents, accounts receivable, notes payable,
accounts payable, and accrued liabilities:
The carrying amounts approximate fair value because of the short
maturity of these instruments.
Notes receivable and long-term debt:
The carrying amounts approximate fair value since the interest rates
on these instruments approximate current market rates.
F-11
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(2) ACQUISITION OF SUBSIDIARY
On April 25, 2000, Mercy Air acquired through a newly formed company
substantially all of the business assets of Area Rescue Consortium of
Hospitals for $11,268,000. The purchase agreement includes a provision
under which the sellers will receive 50% of all collections greater than
50% of standard billing rates for transports older than six months, up to a
maximum of $1,500,000. Amounts due under this provision are expensed to
operations in the period in which they are incurred. Also on April 25,
2000, ARCH acquired two fixed wing aircraft and related equipment and
inventory from SkyLife Aviation, LLC for $1,699,000. Funding for the
acquisitions was provided primarily by the sale of five helicopters and two
fixed wing aircraft to a company for $10.6 million. The aircraft will be
leased back from the company under a ten-year operating lease. ARCH also
entered into a $1,350,000 note payable. The remainder of the cash payment
was funded from Company treasuries. The allocation of the purchase price
for both acquisitions was as follows (amounts in thousands):
Assets purchased:
Aircraft $10,600
Equipment 1,749
Inventory 734
13,083
--------
Liabilities assumed (116)
--------
Purchase price $12,967
========
The acquisition has been accounted for using the purchase method of
accounting and the results of ARCH's operations have been included with
those of the Company since April 25, 2000. The unaudited pro forma revenue,
net income, and income per common share for the years ended December 31,
2000 and 1999, assuming the acquisition occurred at the beginning of the
periods presented, are as follows (amounts in thousands except per share
amounts):
Year ended December 31
----------------------
2000 1999
------- ------
Revenue $79,788 72,249
======= ======
Net income $ 4,386 4,618
======= ======
Basic income per common share $ 0.53 0.56
======= ======
Diluted income per common share $ 0.51 0.56
======= ======
The pro forma information does not necessarily represent the results that
would have occurred if the acquisition had been consummated on January 1,
1999, nor are they necessarily indicative of the results of future
operations.
F-12
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(3) COSTS IN EXCESS OF BILLINGS AND BILLINGS IN EXCESS OF COSTS
As of December 31, 2000, the estimated period to complete contracts in
process ranges from one to seven months, and the Company expects to collect
all related accounts receivable and costs and estimated earnings in excess
of billings on uncompleted contracts within one year. The following
summarizes contracts in process at December 31 (amounts in thousands):
2000 1999
--------- -------
Costs incurred on uncompleted contracts $ 4,627 2,992
Estimated earnings 5,366 2,827
--------- -------
9,993 5,819
Less billings to date (11,004) (5,047)
--------- -------
Costs in excess of billings (billings in excess of costs) $ (1,011) 772
========= =======
(4) NOTES RECEIVABLE
Future minimum payments under all notes receivable are as follows (amounts
in thousands):
Year ending December 31:
2001 $ 181
2002 181
2003 181
2004 316
2005 37
Thereafter 31
------
927
Less amounts representing interest (201)
------
Present value of minimum payments 726
Less current installments (108)
------
$ 618
======
F-13
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(5) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following at December 31 (amounts in
thousands):
2000 1999
------ ----
Borrowings under a $1.5 million line of credit with interest at 9% at
December 31, 2000, collateralized by certain receivables,
inventories, and equipment $1,000 --
Borrowings under a $2 million line of credit, collateralized
by certain receivables and inventories -- 700
------ ----
$1,000 700
====== ====
The Company's $2.0 million line of credit agreement expires in August 2001
and the $1.5 million line of credit agreement expires in April 2001. Both
lines have various covenants which limit the Company's or its subsidiaries'
ability to merge or consolidate with another entity, dispose of assets, pay
dividends, and change the nature of business operations. The Company is
also required to maintain certain financial ratios as defined in the
agreements. At December 31, 2000, the Company was in compliance with the
covenants.
Aggregate maturities of long-term debt are as follows (amounts in
thousands):
Year ending December 31:
2001 $ 3,571
2002 3,222
2003 3,584
2004 2,484
2005 2,433
Thereafter 5,781
-------
$21,075
=======
F-14
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(5) NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED
Long-term debt consists of the following at December 31 (amounts in
thousands):
2000 1999
-------- -------
Note payable to a company with interest at 9.52%, due in monthly
installments of principal and interest through July 2007 with all remaining
principal due in August 2007, collateralized by flight equipment $ 8,661 9,237
Note payable to a company with interest at 7.5%, due in monthly
installments of principal and interest through June 2003 with all remaining
principal due in July 2003, collateralized by flight equipment 2,723 3,301
Notes payable to a company with interest rates from 8.01% to 10.5%, due
in monthly installments of principal and interest through December 2006,
collateralized by flight and other equipment 2,722 2,653
Notes payable to a company with interest rates from 8.67% to 8.99%, due
in monthly payments of principal and interest through April 2007,
collateralized by flight equipment 1,837 --
Notes payable to a company with interest rates from 6.84% to 6.91%, due
in monthly payments of principal and interest through November 2003,
collateralized by flight equipment 1,425 1,865
Note payable to a company with interest at 8.01%, due in monthly
payments of principal and interest through April 2007, collateralized by
buildings 1,264 --
Note payable to a company with interest at 8.16%, due in monthly
payments of principal and interest through March 2004 with all remaining
principal due in April 2004, collateralized by flight equipment 1,019 1,100
Notes payable to companies with interest rates from 8.47% to 9.18%, due
in monthly installments of principal and interest through June 2002,
collateralized by flight equipment 858 1,813
Notes payable to former shareholders of Mercy Air with interest at 9%, due
in monthly installments of principal and interest through July 2002,
collateralized by certain receivables 534 816
Other 32 45
======== =======
21,075 20,830
Less current installments (3,571) (3,073)
-------- -------
$17,504 17,757
======== =======
F-15
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(6) LEASES
The Company leases hangar and office space under noncancelable operating
leases and leases certain equipment and aircraft under noncancelable
operating and capital leases. As of December 31, 2000, future minimum lease
payments under capital and operating leases are as follows (amounts in
thousands):
Capital Operating
leases leases
---------------------
Year ending December 31:
2001 $ 533 4,308
2002 534 4,300
2003 534 3,925
2004 2,635 3,745
2005 -- 3,743
Thereafter -- 13,258
---------------------
Total minimum lease payments 4,236 $ 33,279
Less amounts representing interest (670) ==========
---------
Present value of minimum capital lease payments 3,566
Less current installments (331)
---------
$ 3,235
=========
Rent expense relating to operating leases totaled $4,215,000, $2,850,000,
and $2,719,000 for the years ended December 31, 2000, 1999, and 1998.
At December 31, 2000 and 1999, leased property held under capital leases
included in equipment, net of accumulated depreciation, totaled $3,328,000
and $3,043,000, respectively.
F-16
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY
(A) WARRANTS
In connection with various offerings of common stock and other
transactions by the Company, warrants to purchase 200,000 shares of
the Company's common stock were issued at or above market value and
are outstanding as of December 31, 2000. All outstanding warrants are
exercisable at $3.00 per share and expire on February 21, 2002.
(B) STOCK OPTION PLANS
The Company has a Stock Option Plan and a predecessor plan (together,
"the Plan") which provides for the granting of incentive stock options
(ISO's) and nonqualified stock options (non-ISO's), stock appreciation
rights, and supplemental stock bonuses. Under the Plan, 3,500,000
shares of common stock are reserved for options. The Company also
grants non-ISO's outside of the Plan. Generally, the options granted
under the Plan have an exercise price equal to the fair market value
on the date of grant, vest in three equal installments beginning one
year from the date of grant, and expire five years from the date of
grant. The majority of options issued in 1999 vested immediately.
The Nonemployee Director Stock Option Plan authorizes the grant of
nonstatutory stock options to purchase an aggregate of 300,000 shares
of common stock to nonemployee directors of the Company. Each
nonemployee director completing one fiscal year of service will
receive a five-year option to purchase 5,000 shares, exercisable at
the then current fair market value of the Company's common stock.
F-17
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
The following is a summary of option activity, including options granted
and outstanding outside of the Plan, during the years ended December 31,
2000, 1999, and 1998:
Weighted Average
Shares Exercise Price
---------- ----------------
Outstanding at January 1, 1998 2,281,658 3.71
Granted 151,640 3.32
Canceled (450,464) 6.36
Exercised (107,638) 2.12
----------
Outstanding at December 31, 1998 1,875,196 3.13
----------
Granted 716,172 2.88
Canceled (312,740) 2.96
Exercised (97,500) 1.98
----------
Outstanding at December 31, 1999 2,181,128 3.12
Granted 37,112 3.96
Canceled (49,504) 3.41
Exercised (630,672) 3.33
----------
Outstanding at December 31, 2000 1,538,064 3.05
==========
Options exercisable at:
December 31, 1998 1,397,286 3.12
December 31, 1999 2,070,510 3.12
December 31, 2000 1,167,828 3.09
F-18
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, because the Company grants its
options at or above market value, no compensation cost has been recognized
relating to the plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the provisions of
Statement 123, the Company's net income and income per share would have
been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share amounts):
2000 1999 1998
------ ----- -----
Net income (loss):
As reported $4,157 3,445 257
Pro forma 3,992 2,182 (278)
Basic income (loss) per share:
As reported $ .50 .42 .03
Pro forma .46 .27 (.03)
Diluted income (loss) per share:
As reported $ .49 .42 .03
Pro forma .45 .27 (.03)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999, and 1998, respectively: dividend
yield of 0% for all years; expected volatility of 59%, 69%, and 62%;
risk-free interest rates of 5.2%, 5.3%, and 4.7%; and expected lives of 3
years for all years. The weighted average fair value of options granted
during the years ended December 31, 2000, 1999, and 1998, was $1.74, $1.49,
and $1.60, respectively.
F-19
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
The following table summarizes information about fixed stock options
outstanding at December 31, 2000:
Weighted-Average Weighted-
Remaining Weighted- Average
Range of Number Contractual Average Number Exercise
Exercise Price Outstanding Life (Years) Exercise Price Exercisable Price
- --------------- ----------- ----------------- --------------- ----------- ----------
$ 1.81 to 2.88 374,828 3.1 $ 2.66 207,391 $ 2.65
3.00 to 4.53 1,163,236 2.3 3.17 960,437 3.19
----------- ------------
1,538,064 1,167,828
=========== ============
(C) NONEMPLOYEE DIRECTOR COMPENSATION PLAN
In February 1993, the Board of Directors adopted the Air Methods
Corporation Equity Compensation Plan for Nonemployee Directors which
was subsequently approved by the Company's stockholders on March 12,
1993. Under this compensation plan, 150,000 shares of common stock are
reserved for issuance to non-employee directors. As of December 31,
2000, no shares are outstanding under this plan.
(D) STOCK REPURCHASE PLAN
On August 5, 1994, the Board of Directors approved a stock repurchase
plan authorizing the repurchase of up to 10% of the outstanding shares
of the Company's common stock to be retired. Repurchases may be made
from time to time in the open market or in privately negotiated
transactions. The plan authorizes, but does not require, the Company
to repurchase shares. Actual repurchases in any period are subject to
approval by the Finance Committee of the Board of Directors and will
depend on market conditions and other factors. As of December 31,
2000, 681,470 shares, or 7.5% of common stock issued, had been
repurchased under this plan.
F-20
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
(E) INCOME PER SHARE
The reconciliation of basic to diluted weighted average common shares
outstanding is as follows for the years ended December 31:
2000 1999 1998
--------- --------- ---------
Weighted average number of common shares
outstanding - basic 8,334,445 8,219,601 8,202,668
Dilutive effect of:
Common stock options 198,000 2,586 224,628
Common stock warrants 26,944 -- 22,608
-------------------------------
Weighted average number of common shares
outstanding - diluted 8,559,389 8,222,187 8,449,904
===============================
Common stock options totaling 139,736, 2,170,439, and 163,059, and
common stock warrants of -0-, 275,000, and 225,000 were not included
in the diluted income per share calculation for the years ended
December 31, 2000, 1999, and 1998, respectively, because their effect
would have been anti-dilutive.
(8) REVENUE
The Company has operating agreements and leases with various hospitals and
hospital systems to provide services and aircraft for periods ranging from
1 to 10 years. The agreements provide for revenue from monthly fixed fees
and flight fees based upon the utilization of aircraft in providing
emergency medical services. The fixed-fee portions of the agreements and
leases provide for the following revenue for years subsequent to December
31, 2000 (amounts in thousands):
Year ending December 31:
2001 $20,675
2002 14,197
2003 9,893
2004 7,586
2005 3,888
Thereafter 10,290
------
$66,529
======
F-21
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(9) INCOME TAXES
For income tax purposes, the Company has net operating loss carryforwards
at December 31, 2000, of approximately $22 million, expiring at various
dates through 2012. Alternative minimum tax (AMT) loss carryforwards
available to offset future AMT taxable income approximate net operating
loss carryforwards for regular federal income tax purposes. In 1991, the
Company acquired all of the outstanding common shares of Air Methods
Corporation, a Colorado corporation ("AMC"). As a result of the acquisition
of AMC and other issuances of stock, the utilization of approximately $6
million of the aforementioned net operating loss carryforwards is subject
to an annual limitation of $1,032,000 per year, as adjusted for unused
yearly limitations, by the provisions of Section 382 of the Internal
Revenue Code. Any future tax benefits recognized through utilization of
AMC's net operating loss carryforwards as of the acquisition date will be
applied to reduce the excess of cost over the fair value of net assets
acquired. The net operating loss carryforwards include $365,000 in
deductions relating to stock option exercises which will be credited to
additional paid-in capital upon realization. The deferred tax asset at
December 31, 2000, for which a valuation allowance has been recorded, will
be recognized when realization is more likely than not.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2000 and 1999 are as follows (amounts in thousands):
2000 1999
--------- --------
Deferred tax assets:
Overhaul and parts replacement cost,
principally due to the accrual method $ 4,890 3,416
Allowance for uncollectible accounts 1,822 1,399
Net operating loss carryforwards 9,014 11,607
Deferred revenue 391 201
Other 399 368
--------- --------
Total gross deferred tax assets 16,516 16,991
Less valuation allowance (3,536) (5,132)
--------- --------
Net deferred tax assets 12,980 11,859
--------- --------
Deferred tax liabilities:
Equipment and leasehold improvements,
principally due to differences in bases and
depreciation methods (12,980) (11,827)
Receivables, principally due to difference in
bases resulting from acquisition of subsidiary (55) (363)
Other -- (32)
--------- --------
Total deferred tax liabilities (13,035) (12,222)
--------- --------
Net deferred tax liability $ (55) (363)
========= ========
F-22
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(9) INCOME TAXES, CONTINUED
In the acquisition of Mercy Air in July 1997, the Company acquired trade
receivables of $3.1 million. Mercy Air, a subchapter S corporation, had
elected to be treated as a cash basis taxpayer. Upon acquisition, however,
the new subsidiary was required to use the accrual method of accounting.
This change in accounting method for tax purposes results in the
recognition of approximately $3.1 million in taxable income over four years
which may not be offset by the Company's net operating loss carryforwards.
The net deferred tax liability represents the liability related to the
taxable income to be recognized in future years.
In the year ended December 31, 1999, the Company recorded an income tax
benefit of $255,000 attributable to a reduction in deferred tax liabilities
recorded in the acquisition of Mercy Air as a result of current period
taxable losses of the Company.
Reconciliation of income taxes on income before income taxes computed at
the federal statutory rate and income taxes as recorded is as follows for
the years ended December 31 (amounts in thousands):
2000 1999 1998
-------- ------- -----
Tax at the federal statutory rate $ 1,413 1,085 87
State income taxes, net of federal benefit 275 211 17
Change in valuation allowance,
including revisions for filed returns (1,688) (1,551) (104)
-------- ------- -----
Net income tax benefit $ -- (255) --
======== ======= =====
(10) EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement plan whereby employees
may contribute up to 15% of their annual salaries. Effective July 1, 2000,
the Company increased its contributions from 1% to 1.5% of annual salaries
for all employees. The Company also matches 50% of the employees'
contributions up to 6% of their annual salaries. Company contributions
totaled approximately $810,000, $399,000, and $261,000 for the years ended
December 31, 2000, 1999, and 1998, respectively.
In 1995 the Board of Directors approved a profit sharing plan which
provides for the distribution of 5% of the Company's net income to its
employees beginning in 1996. The amount distributed to employees in the
years ended December 31, 1999 and 1998 totaled $107,000 and $83,000. The
plan was discontinued in 2000.
F-23
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(11) BUSINESS AND CREDIT CONCENTRATIONS
A significant percentage of the Company's trade receivables are related to
the flight operations of Mercy Air in southern California, Nevada, Missouri
and Illinois. Mercy Air receivables are due from medical insurance
companies and federal and state government insurance programs, as well as
private citizens. The diversity in types of payers may mitigate the
potential impact of the geographical concentration of receivables.
(12) BUSINESS SEGMENT INFORMATION
The Company identifies operating segments based on management
responsibility and the type of products or services offered. Operating
segments and their principal products or services are as follows:
- Air Medical 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 - provides air medical transportation services to the
general population as an independent community-based service in
southern California and Nevada and in Missouri and Illinois through
its wholly owned subsidiary ARCH. 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 accounting policies of the operating segments are as described in Note
1. 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 Air Medical Services, Products, and Corporate Activities for
internal reporting and performance evaluation purposes.
F-24
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(12) BUSINESS SEGMENT INFORMATION, CONTINUED
Air Medical
Services Mercy Products Corporate Intersegment
Division Air Division Activities Eliminations Consolidated
------------- ------- -------- ----------- ------------- -------------
2000
External revenue $ 33,882 34,752 6,514 145 -- 75,293
Intersegment revenue 30 -- 1,841 -- (1,871) --
------------- ------- -------- ----------- ------------- -------------
Total revenue 33,912 34,752 8,355 145 (1,871) 75,293
------------- ------- -------- ----------- ------------- -------------
Operating expenses 27,037 22,171 6,474 2,889 (1,574) 56,997
Depreciation & amortization 3,320 1,642 209 314 -- 5,485
Bad debt expense -- 6,695 -- -- -- 6,695
Interest expense 970 1,128 -- 46 -- 2,144
Interest income (54) (6) -- (125) -- (185)
------------- ------- -------- ----------- ------------- -------------
Segment net income (loss) 2,639 3,122 1,672 (2,979) (297) 4,157
============= ======= ======== =========== ============= =============
Total assets N/A 29,461 N/A 45,789 N/A 75,250
============= ======= ======== =========== ============= =============
1999
External revenue $ 31,555 20,522 4,993 188 -- 57,258
Intersegment revenue 41 -- 2,786 -- (2,827) --
------------- ------- -------- ----------- ------------- -------------
Total revenue 31,596 20,522 7,779 188 (2,827) 57,258
Operating expenses 24,035 12,271 6,357 2,702 (2,330) 43,035
Depreciation & amortization 3,466 1,213 205 284 -- 5,168
Bad debt expense -- 3,882 -- -- -- 3,882
Interest expense 1,040 1,046 -- 52 -- 2,138
Interest income (74) (7) -- (74) -- (155)
Income tax benefit -- (255) -- -- -- (255)
------------- ------- -------- ----------- ------------- -------------
Segment net income (loss) $ 3,129 2,372 1,217 (2,776) (497) 3,445
============= ======= ======== =========== ============= =============
Total assets N/A 19,295 N/A 43,421 N/A 62,716
============= ======= ======== =========== ============= =============
1998
External revenue $ 29,290 15,845 3,289 275 -- 48,699
Intersegment revenue 14 -- 3,298 -- (3,312) --
------------- ------- -------- ----------- ------------- -------------
Total revenue 29,304 15,845 6,587 275 (3,312) 48,699
------------- ------- -------- ----------- ------------- -------------
Operating expenses 22,490 11,095 5,812 2,553 (2,597) 39,353
Depreciation & amortization 2,962 807 172 323 -- 4,264
Bad debt expense -- 2,785 -- -- -- 2,785
Interest expense 1,006 1,095 -- 149 -- 2,250
Interest income (80) (7) -- (123) -- (210)
------------- ------- -------- ----------- ------------- -------------
Segment net income (loss) $ 2,926 70 603 (2,627) (715) 257
============= ======= ======== =========== ============= =============
Total assets N/A 17,598 N/A 43,178 N/A 60,776
============= ======= ======== =========== ============= =============
F-25
AIR METHODS CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
- --------------------------------------------------------------------------------
(13) QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for 2000 and 1999 is as follows
(amounts in thousands except per share data):
Quarter
First Second Third Fourth
------- ------ ------ -------
2000
Revenue $14,591 19,490 21,896 19,316
Operating income 876 2,474 2,347 349
Net income (loss) 417 2,015 1,853 (128)
Basic and diluted income (loss) per
common share .05 .24 .22 (.02)
1999
Revenue 13,338 14,068 14,971 14,881
Operating income 1,103 1,276 1,784 953
Net income 602 879 1,310 654
Basic and diluted income per
common share .07 .11 .16 .08
Income per common share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly income per share does not
necessarily equal the total computed for the year.
F-26
Independent Auditors' Report
----------------------------
BOARD OF DIRECTORS AND STOCKHOLDERS
AIR METHODS CORPORATION:
Under date of March 2, 2001, we reported on the consolidated balance sheets of
Air Methods Corporation and subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, which are included in the Company's
Annual Report on Form 10-K for the year 2000. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule II. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Denver, Colorado
March 2, 2001
F-27
AIR METHODS CORPORATION
AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
Balance at
Beginning Transfers Balance at
Description of Period Additions (a) and Other Deductions (b) End of Period
- ------------------------------- ----------- ------------- --------- -------------- -------------
Allowance for trade receivables
Year ended December 31, 2000 $ 1,210 6,695 (3,674) 4,231
Year ended December 31, 1999 1,404 3,882 -- (4,076) 1,210
Year ended December 31, 1998 2,528 2,785 -- (3,909) 1,404
<FN>
- -------------------
Notes:
(a) Amounts charged to expense.
(b) Bad debt write-offs and charges to allowances.
See accompanying Independent Auditors' Report.
F-28