SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 8-K/A-1
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Data of Report (Date of earliest event reported) October 16, 2002
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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 Number)
7301 South Peoria, Englewood, Colorado 80112
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
--------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report: N/A
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Rocky Mountain Holdings, L.L.C.
- ----------------------------------------------
On October 16, 2002, Air Methods Corporation (the "Company") acquired 100% of
the membership interest of Rocky Mountain Holdings, L.L.C. ("RMH"), a Delaware
limited liability company, from Rocky Mountain Holdings, Inc. and AMC
Helicopters, Inc. The $28 million cash purchase price for RMH was increased to
$33.6 million to reflect increases in net equity since December 31, 2001, which
also decreased RMH's indebtedness at closing. RMH's long-term debt and
outstanding balances on RMH's line of credit totaled $36.2 million as of
September 30, 2002. Except for approximately $1.6 million of RMH debt that was
repaid in connection with the acquisition, the long-term debt remains
outstanding, either as debt of RMH or as debt assumed or replaced by the
Company. The $5 million outstanding balance on the RMH line of credit was rolled
into the new revolving credit facility described below. The purchase price is
subject to changes in net equity from September 30, 2002, until the date of
closing, to be determined by independent audit within 91 days of the closing
date, as extended.
The purchase price was negotiated by the Company and the sellers, and includes
an earn-out provision under which the sellers may receive up to $2.6 million of
additional consideration over the next nine years based on actual collections
against certain receivables. The Company incurred costs and fees of
approximately $1 million in connection with the acquisition, including legal
fees of Company counsel and a fee of $750,000 paid to Americas Partners for its
services in connection with the acquisition. Ralph Bernstein and Morad Tahbaz,
directors of the Company, are partners of Americas Partners. In addition, the
Company incurred debt origination fees and expenses of approximately $2.6
million, including fees paid to CIBC World Markets Corp. for investment banking
services in arranging the financing for the acquisition and legal fees paid to
counsel for the lenders.
RMH pioneered the first hospital-based air medical service program over thirty
years ago and currently provides air medical transport services throughout the
United States under both the community-based and hospital-based service delivery
models utilizing a fleet of over 80 helicopters and fixed-wing aircraft. RMH
also maintains a national dispatch and communications center in Omaha, Nebraska,
and aircraft maintenance and overhaul operations at its Provo, Utah headquarters
and in Greenville, South Carolina. The Company plans to continue all of RMH's
operations and to retain the RMH bases, equipment and air medical transport
service personnel. Certain of the RMH administrative functions are planned to be
combined with those of the Company.
Financing the Acquisition
- ---------------------------
Subordinated Notes. The purchase price was financed in part through the issuance
- ------------------
of $23 million in subordinated notes (the "Notes") to Prudential Capital
Partners, L.P. and an affiliate of PCP ("PCP"). Each of the Company and its
subsidiaries, RMH, Arch Air Medical Services and Mercy Air Service, is a direct
obligor on the Notes and is fully responsible for their payment. The Notes are
unsecured and provide for quarterly payment of interest only at 12% per annum,
with all principal due October 16, 2007.
Except as set forth below, the Notes may not be prepaid until July 1, 2004, and
prepayments after July 1, 2004 will be at a declining premium. Up to 25% of the
Notes outstanding at closing may be prepaid at any time without premium with the
proceeds of an underwritten public equity offering providing net proceeds to the
Company of at least $10 million or, if PCP has transferred at least 50% of its
Warrants (described below), a private placement of Company equity securities. In
addition, the Company may prepay the Notes held by PCP at par upon the
occurrence of a Liquidity Event (generally, a sale of all of the Company's
equity or assets) if PCP's "cash on cash" return has exceeded 2:1.
1
The purchase agreement entered into in connection with the Note issuance (the
"SPA") contains various covenants that limit, among other things, the Company's
ability to:
- - create liens;
- - prepay indebtedness (except in connection with refinancing of Aircraft
Indebtedness);
- - make certain loans;
- - engage in transactions with affiliates on other than arms' length terms;
- - make any material change to the nature of the Company's business;
- - sell or discount receivables;
- - lease real property in excess of specified expenditure levels;
- - enter into a merger or consolidation;
- - sell assets; or
- - pay dividends.
With certain exceptions, the Company may not permit the aggregate of (i) new
indebtedness, plus (ii) the net present value of future lease payments under
newly originated operating leases, plus (iii) Unfinanced Capital Expenditures
(as defined) (collectively (i), (ii) and (iii) being referred to as "Capital
Debt") to exceed $33 million per year in 2003 and 2004 and $38.5 million per
year in 2005 and thereafter. The Company is also subject to a limitation on the
amount it may expend in acquisitions without prior consent of the majority of
the noteholders ($12.5 million in 2003, $20 million in 2004 and $30 million per
year thereafter), which amount may be increased during 2004 and 2005 with 50% of
the proceeds of a public equity offering by the Company.
The SPA also contains covenants requiring the Company to maintain:
- - a Fixed Charge Coverage Ratio (as defined) of not less than 1:1 for 2003
(increasing thereafter);
- - a total debt to EBITDA ratio of not more than 4.05:1.00 (increasing after
3/31/04);
- - a minimum net worth;
- - a senior debt to EBITDA ratio of 3.05:1.00 (decreasing after 3/31/04); and
- - a minimum EBITDA of $26.6 million (increasing after 1/1/04).
Payment obligations under the Notes accelerate upon the occurrence of defined
events of default, including the following: failure to pay principal or
interest or to perform covenants included in the SPA, the senior credit facility
or other indebtedness; events of insolvency or bankruptcy, judgments of $500,000
that are not paid or discharged timely; failure to file and keep effective a
registration statement relating to the Warrants issued to PCP; and a Change of
Control. A Change of Control occurs when (i) any person becomes the beneficial
owner of 40% or more of the Company's stock, (ii) directors of the Company at
October 16, 2002, or directors approved by them, cease to comprise a majority of
the Company's board of directors, (iii) foreign persons in the aggregate own or
control 20% or more of the Company's voting stock, or (iv) the Company or any
subsidiary that holds an air carrier certificate ceases to be a citizen of the
United States. If the Notes are prepaid prior to final maturity, a Yield
Maintenance Payment is required that is designed to provide the holders with
approximately the same amount of interest they would have received had the Notes
been paid at maturity.
The Company also issued transferable warrants ("Warrants") to PCP to purchase
443,224 shares of Air Methods Common Stock with an exercise price of $.06 per
share, exercisable through October 2008, and entered into a Stockholders'
Agreement with PCP. Under the Stockholders' Agreement, the Company is required
to file a registration statement by December 30, 2002 registering the common
stock underlying the Warrants, to have such registration statement declared
effective within 90 days after filing, and to maintain the effectiveness of the
registration statement continuously thereafter. Failure to satisfy any of these
obligations will result in monetary penalties (beginning at $38,333 per month,
increasing monthly) and can constitute an event of default under the SPA.
One representative of PCP is permitted to participate in all Company board
meetings as an observer. If the Company issues equity securities in the future
(other than in a public offering), any holder of unexercised Warrants is
entitled to pre-emptive rights to participate in that offering to maintain the
percentage ownership represented by the unexercised Warrants.
2
Senior Credit Facility. To finance the remainder of the purchase price and
- ------------------------
related closing costs and to provide working capital and letter of credit
availability for the combined entities, Air Methods entered into a $35 million
revolving credit facility with certain lenders, with PNC Bank, National
Association (PNC) acting as agent. Borrowings under the credit facility are
secured by substantially all of the Company's non-aircraft assets, including
accounts receivable, inventory, equipment and general intangibles. Indebtedness
under the credit facility will have a first priority claim to the assets pledged
to secure it. The Company and its three subsidiaries are each a direct obligor
on the credit facility. The facility matures October 16, 2006 but can be prepaid
at any time, subject to payment of an early termination fee ranging from .25% to
2% if the termination occurs prior to October 16, 2004.
Indebtedness under the credit facility will bear interest, at the Company's
option, at either (i) the higher of the federal funds rate plus 0.50% or the
prime rate as announced by PNC plus an applicable margin ranging from 0 to 0.75%
or (ii) at a rate equal to LIBOR plus an applicable margin ranging from 1.75% to
3.00%. The applicable margin in each case is based upon the ratio of senior debt
(as defined in the credit facility) to EBITDA (as defined in the credit
facility) for the four most recently completed fiscal quarters.
The amount of borrowing permitted under the credit facility is based on a
borrowing base comprised of (i) 75% of accounts receivable from Medicare,
Medicaid, insurance companies and community-based payors and 85% of other
accounts receivable, and (ii) the lesser of (A) 60% of inventory valued at the
lower of cost or market, (B) 85% of inventory valued at liquidation value, or
(C) $15 million. Based on assets at the time of the closing, approximately $33.6
million was available under the credit facility, and borrowings under the credit
facility at closing were approximately $16 million, leaving approximately $17.6
million of unused borrowing availability.
The credit facility contains various covenants that limit, among other things,
the Company's ability to:
- - create liens;
- - declare dividends;
- - make loans and investments;
- - enter into real property leases exceeding specified expenditure levels;
- - make any material change to the nature of the Company's business;
- - enter into any transaction with affiliates other than on arms' length
terms;
- - prepay indebtedness, except in connection with refinancing Aircraft
Indebtedness or, with respect to the Notes issued to PCP, with proceeds of
equity issuances;
- - enter into a merger or consolidation; or
- - sell assets.
The credit agreement also contains covenants requiring the Company to maintain:
- - a fixed charge coverage ratio of not less than 1.1:1.00 (increasing after
1/1/04); and
- - a minimum net worth.
With certain exceptions the Company may not permit its Capital Debt to exceed
$30 million per year in 2003 and 2004 and $35 million per year in 2005 and 2006.
Under the credit facility the Company may not expend more than $10 million per
year for acquisitions without prior consent of the majority of the member banks,
and debt incurred in any acquisition must be less than twice the cash purchase
price. No acquisition may occur without prior consent unless there is $10
million of undrawn availability under the credit facility.
Payment obligations under the credit facility accelerate upon the occurrence of
defined events of default, including the following: failure to pay principal or
interest, or to perform covenants, under the credit facility, the Notes or other
indebtedness; events of insolvency or bankruptcy; judgments of $250,000 are not
paid or discharged timely; failure to maintain the first priority status of
liens under the credit facility; levy against a material portion of the
Company's assets; default under the Notes; suspension of material governmental
permits; interruption of operations at any Company facility that has a material
adverse effect; and a Change of Control (which has the same definition in the
credit facility as in the SPA).
3
The descriptions of the Subordinated Notes and the Senior Credit Facility are
summaries, and do not contain all of the exceptions and qualifications that may
apply. Reference is made to the copies of such documents filed as exhibits to
this Form 8-K.
4
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and pro forma financial information are filed
as part of this report:
a. Financial statements of RMH:
Independent Auditors' Report
Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001 and
2000
Statements of Operations for the nine months ended September 30, 2002 and
2001 (unaudited), and the years ended December 31, 2001, 2000, and 1999
Statements of Members' Equity for the nine months ended September 30, 2002
(unaudited), and the years ended December 31, 2001, 2000, and 1999
Statements of Cash Flows for the nine months ended September 30, 2002 and
2001 (unaudited), and the years ended December 31, 2001, 2000, and 1999
b. Unaudited pro forma financial information:
Pro Forma Combined Balance Sheet - September 30, 2002
Pro Forma Combined Statement of Operations for the nine months ended
September 30, 2002
Pro Forma Combined Statement of Operations for the year ended December 31,
2001
Notes to Pro Forma Combined Financial Statements
The following exhibits were filed as part of the Form 8K dated October 16, 2002:
c. Exhibits
2.1 Membership Interest Purchase Agreement, dated June 6, 2002, among Air
Methods Corporation; Rocky Mountain Holdings, LLC; Rocky Mountain
Holdings, Inc.; and AMC Helicopters, Inc.
4.1 Common Stock Purchase Warrant, dated October 16, 2002, between Air
Methods Corporation and Prudential Capital Partners Management Fund,
L.P.
4.2 Common Stock Purchase Warrant, dated October 16, 2002, between Air
Methods Corporation and Prudential Capital Partners, L.P.
10.1 Revolving Credit and Security Agreement, dated October 16, 2002, among
Air Methods Corporation; Rocky Mountain Holdings, LLC; Mercy Air
Service, Inc.; ARCH Air Medical Service, Inc.; and PNC Bank N.A.
10.2 Securities Purchase Agreement, dated October 16, 2002, between Air
Methods Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service,
Inc.; ARCH Air Medical Service, Inc.; Prudential Capital Partners,
L.P.; and Prudential Capital Partners Management Fund, L.P.
10.3 Stockholders' Agreement by and between Air Methods Corporation,
Prudential Capital Partners, L.P.; and Prudential Capital Partners
Management Fund, L.P.
10.4 Senior Subordinated Note, dated October 16, 2002, between Air Methods
Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service, Inc.;
ARCH Air Medical Service, Inc.; and Prudential Capital Partners, L.P.
10.5 Senior Subordinated Note, dated October 16, 2002, between Air Methods
Corporation; Rocky Mountain Holdings, LLC; Mercy Air Service, Inc.;
ARCH Air Medical Service, Inc.; and Prudential Capital Partners
Management Fund, L.P.
5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIR METHODS CORPORATION
Date: December 30, 2002 By \s\ Aaron D. Todd
------------------------------------------
On behalf of the Company, and as Principal
Financial and Accounting Officer
6
ROCKY MOUNTAIN HOLDINGS, L.L.C.
REPORT ON AUDITS OF FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2000 AND FOR
THE YEARS ENDING DECEMBER 31, 2001, 2000
AND 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Rocky Mountain Holdings, L.L.C.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of members' equity and of cash flows present fairly, in all material
respects, the financial position of Rocky Mountain Holdings, L.L.C. at December
31, 2001, 2000, and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 19, 2002, except for Note 11 for
which the date is December 19, 2002
ROCKY MOUNTAIN HOLDINGS, L.L.C.
BALANCE SHEETS
(in thousands)
September 30, December 31,
------------ -------------------
2002 2001 2000
------------ --------- ---------
ASSETS (unaudited)
Current assets:
Cash $ 1,157 $ 939 $ 151
Trade accounts receivable, less allowance for doubtful accounts
of $15,170 (unaudited) at September 30, 2002 and $12,984 and $12,404
at December 31, 2001 and 2000, respectively 18,964 17,887 15,724
Notes receivable, current portion 4 3 506
Inventories, less allowance for excess and slow-moving of $588
(unaudited) at September 30, 2002 and $540 and $442 at
December 31, 2001 and 2000, respectively 9,877 11,273 10,818
Prepaid expenses 1,485 2,285 2,152
Equipment held for sale 2,827 4,356 2,587
------------ --------- ---------
Total current assets 34,314 36,743 31,938
------------ --------- ---------
Rotable inventories, less accumulated depreciation of $972 (unaudited),
at September 30, 2002 and $843 and $518 at December 31, 2001
and 2000, respectively 2,342 2,176 2,273
------------ --------- ---------
Property and equipment:
Land 189 189 189
Buildings and office equipment 5,447 4,862 4,425
Helicopters and other aircraft 50,633 48,958 43,067
Operational equipment 2,948 2,329 1,671
------------ --------- ---------
59,217 56,338 49,352
Less accumulated depreciation and amortization (17,299) (14,911) (13,805)
------------ --------- ---------
Net property and equipment 41,918 41,427 35,547
------------ --------- ---------
Other assets:
Notes receivable, net of current portion 22 24 -
Refundable deposits and long-term prepaid expenses 1,501 1,868 1,502
Goodwill, less accumulated amortization of $235 (unaudited),
at September 30, 2002 and $235 and $189 at December 31,
2001 and 2000, respectively 465 465 467
Deferred financing costs 530 646 324
------------ --------- ---------
Total other assets 2,518 3,003 2,293
------------ --------- ---------
Total assets $ 81,092 $ 83,349 $ 72,051
============ ========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable $ 2,562 $ 2,649 $ 1,144
Accrued liabilities 6,334 6,597 4,485
Notes payable related to equipment held for sale 2,603 4,284 2,458
Current installments of long-term debt 5,935 3,185 2,657
Current installments of obligations under capital leases 265 55 113
Other liabilities 624 49 107
------------ --------- ---------
Total current liabilities 18,323 16,819 10,964
Long-term debt, net of current installments 30,726 40,814 37,761
Obligations under capital leases, net of current installments 470 13 68
Other liabilities, net of current portion 504 464 606
------------ --------- ---------
Total liabilities 50,023 58,110 49,399
------------ --------- ---------
Commitments (Notes 6, 7 and 10)
Members' equity:
Contributed capital 20,385 19,037 19,037
Retained earnings 10,684 6,202 3,615
------------ --------- ---------
Total members' equity 31,069 25,239 22,652
------------ --------- ---------
Total liabilities and members' equity $ 81,092 $ 83,349 $ 72,051
============ ========= =========
The accompanying notes are an integral part of the financial statements
2
ROCKY MOUNTAIN HOLDINGS, L.L.C.
STATEMENTS OF OPERATIONS
(in thousands)
Nine Months Ended
September 30, Year Ended December 31,
------------------------ -------------------------------
2002 2001 2001 2000 1999
----------- ----------- --------- --------- ---------
(unaudited)
Net operating revenues $ 77,042 $ 64,814 $ 87,880 $ 75,862 $ 68,700
----------- ----------- --------- --------- ---------
Operating expenses:
Flying operations:
Salaries, wages and benefits 26,781 23,517 32,033 26,314 22,477
Operating lease expense 4,849 5,139 6,754 7,603 8,981
Repairs and maintenance 14,510 11,514 14,492 11,864 11,135
Insurance 2,602 2,041 2,650 2,129 1,838
Other flying operations expenses 8,800 8,689 11,182 9,106 7,733
Fuel and oil 1,465 1,410 1,911 1,833 1,229
General and administrative 4,836 3,100 4,688 3,738 3,784
Depreciation and amortization 3,036 2,995 4,055 3,686 3,407
Support services 3,432 3,012 4,290 3,758 2,700
----------- ----------- --------- --------- ---------
Total operating expenses 70,311 61,417 82,055 70,031 63,284
----------- ----------- --------- --------- ---------
Operating income 6,731 3,397 5,825 5,831 5,416
Other income (expense):
Interest expense (2,185) (2,659) (3,468) (3,375) (2,535)
Interest income 28 38 62 135 131
Gain on insurance recovery - 58 58 39 -
Gain (loss) on sale of property and equipment (68) 321 172 (5) 2
----------- ----------- --------- --------- ---------
Total other expense (2,225) (2,242) (3,176) (3,206) (2,402)
----------- ----------- --------- --------- ---------
Net income $ 4,506 $ 1,155 $ 2,649 $ 2,625 $ 3,014
=========== =========== ========= ========= =========
The accompanying notes are an integral part of the financial statements
3
ROCKY MOUNTAIN HOLDINGS, L.L.C.
STATEMENT OF MEMBERS' EQUITY
(in thousands)
Total
Contributed Retained Members'
Capital Earnings Equity
------------- ---------- ----------
BALANCE AT JANUARY 1, 1999 $ 23,496 $ 561 $ 24,057
Distributions to members (4,459) (561) (5,020)
1999 net income - 3,014 3,014
------------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 19,037 3,014 22,051
Distributions to members - (2,024) (2,024)
2000 net income - 2,625 2,625
------------- ---------- ----------
BALANCE AT DECEMBER 31, 2000 19,037 3,615 22,652
Distributions to members - (62) (62)
2001 net income - 2,649 2,649
------------- ---------- ----------
BALANCE AT DECEMBER 31, 2001 19,037 6,202 25,239
Distributions to members (unaudited) - (24) (24)
Capital contribution by members (unaudited) 1,348 - 1,348
2002 net income (unaudited) - 4,506 4,506
------------- ---------- ----------
BALANCE AT SEPTEMBER 30, 2002 (UNAUDITED) $ 20,385 $ 10,684 $ 31,069
============= ========== ==========
The accompanying notes are an integral part of the financial statements
4
ROCKY MOUNTAIN HOLDINGS, L.L.C.
STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30, Year Ended December 31,
------------------ -------------------------------
2002 2001 2001 2000 1999
-------- -------- --------- --------- ---------
(unaudited)
Cash flows from operating activities:
Net income $ 4,506 $ 1,155 $ 2,649 $ 2,625 $ 3,014
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 2,914 2,890 3,872 3,567 3,295
Amortization of goodwill - 34 46 41 48
Amortization of deferred financing fees 122 71 137 78 64
Provision for doubtful accounts 2,117 (898) 580 2,804 4,366
Provision for excess and slow-moving inventory 48 75 98 51 -
Gain on insurance recovery - (58) (58) (39) -
Loss (gain) on sale of property and equipment 68 (321) (172) 5 (2)
Expense paid through capital contribution from members 1,348 - - - -
Changes in operating assets and liabilities:
Trade accounts receivable (3,193) (1,492) (2,770) (7,704) (7,128)
Inventories 1,348 914 (553) (2,275) 928
Prepaid expenses 829 872 (133) (600) 135
Refundable deposits and long-term prepaid expenses 71 340 525 257 307
Accounts payable (88) 667 1,505 (512) 468
Accrued liabilities (313) 173 2,112 199 1,333
Other liabilities 614 (628) 90 (207) (460)
-------- -------- --------- --------- ---------
Net cash provided by (used in) operating activities 10,391 3,794 7,928 (1,710) 6,368
-------- -------- --------- --------- ---------
Cash flows from investing activities:
Additions to rotable inventories (295) (78) (78) (9) -
Purchase of intangibles - (43) (43) - -
Purchase of property and equipment (3,351) (2,150) (4,784) (3,078) (10,029)
Proceeds from sale-leaseback transaction 758 - - - 307
Proceeds from sale of property and equipment - 906 648 16 75
Proceeds from insurance recovery - 612 609 133 -
Payments received on notes receivable 8 382 506 492 454
-------- -------- --------- --------- ---------
Net cash used in investing activities (2,880) (371) (3,142) (2,446) (9,193)
-------- -------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt - 1,772 2,150 8,084 12,504
Principal payments on long-term debt (7,142) (5,977) (5,854) (1,810) (4,617)
Principal payments on obligations under capital leases (121) (83) (113) (123) (244)
Deferred financing fees (6) (106) (119) (116) (320)
Distributions to members (24) (64) (62) (2,024) (5,020)
-------- -------- --------- --------- ---------
Net cash provided by (used in) financing activities (7,293) (4,458) (3,998) 4,011 2,303
-------- -------- --------- --------- ---------
Net increase (decrease) in cash 218 (1,035) 788 (145) (522)
Cash - beginning of period 939 151 151 296 818
-------- -------- --------- --------- ---------
Cash - end of period $ 1,157 $ (884) $ 939 $ 151 $ 296
======== ======== ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 2,187 $ 2,648 $ 3,460 $ 3,360 $ 2,566
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations for equipment $ 788 $ - $ - $ - $ 307
Notes payable on purchase of property and equipment - 4,186 8,255 6,034 800
Capitalized fees on refinancing of notes payable - 19 338 - -
Refinance of capital leases with notes payable - - - - 1,910
Short-term note payable on equipment held for sale 2,603 1,229 4,284 2,458 6,536
Note payable for aircraft deposit - 830 830 - 814
Debt retirement on sale of property and equipment - 2,427 2,427 837 703
Receivable from sale of property and equipment - - - 625 -
Note payable on purchase of intangible asset - - - 98 -
Accounts receivable replaced by note receivable - 27 27 - -
The accompanying notes are an integral part of the financial statements
5
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies:
-----------------------------------------------------------
Organization and Description of Business
----------------------------------------
Rocky Mountain Holdings, L.L.C. (the Company), a Delaware limited liability
company, is in the air medical transport services business, providing air
medical transport services to hospitals and regional ambulance authorities
primarily throughout the United States of America. All business of the
Company is conducted under the Company's name and the trade names "Rocky
Mountain Helicopters," "LifeNet," "LifeCom," "MedFlight," "Complete Billing
Solutions," "The Wisdom Well," and "Advantage Aviation." The Company is
owned equally by the members, AMC Helicopters, Inc. and Rocky Mountain
Holdings, Inc. (the Members) under an agreement that unless terminated
earlier by the Members will dissolve the Company on December 31, 2024.
Revenue Recognition
--------------------
Revenue is recognized at the time services are rendered or products are
shipped and title passes to the customer.
Cash Concentration
-------------------
The Company's cash is held in two banks, one in Utah and one in
Pennsylvania, the balances of which may at times exceed federally insured
limits.
Inventories
-----------
Inventories consist of purchased and overhauled parts, accessories and
supplies, primarily consumed in the maintenance and repair or modification
of the Company's aircraft. Rotable inventories include components that are
repaired and reused as opposed to those parts that are consumed in
operations, and are depreciated over 15 years. The cost of creating a
usable rotary inventory component is capitalized. The cost of repairing
rotable inventories is charged to expense as incurred.
Inventories are stated at the lower of cost or market, cost being
determined on the basis of average cost. Except for serialized parts for
which actual cost is used.
Property and Equipment
------------------------
Property and equipment are stated at cost. Equipment under capital leases
is recorded at the lesser of the fair value of the asset or the present
value of minimum lease payments.
Depreciation of property and equipment is calculated on the straight-line
method over the useful lives of the related assets and considers salvage
value of the related asset. Equipment under capital leases and leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the equipment.
Continued
6
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, Continued:
-------------------------------------------------------------
Major additions, betterments and renewals are capitalized. Maintenance and
repairs, including major overhauls, are charged to operating expenses as
they are incurred.
Depreciation and amortization are computed over the following useful lives:
Helicopters and aircraft 15 - 25 years
Leasehold improvements - helicopters 7 years
Operational and office equipment 3-5 years
Buildings 30 years
At the time assets are retired or otherwise disposed of, the cost and
accumulated depreciation or amortization are removed from the related
accounts and the difference, net of proceeds, is recorded as a gain or
loss.
Goodwill and Deferred Financing Costs
-----------------------------------------
Goodwill is recorded at cost and is amortized on a straight-line basis over
15 years. Deferred financing costs are amortized on a straight-line basis,
which approximates the effective interest method.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), Business
Combinations, and No 142 ("SFAS 142"), Goodwill and Other Intangible
Assets. SFAS 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. SFAS
141 also specifies criteria that must be met in order for intangible assets
acquired in a purchase business combination to be recognized and reported
apart from goodwill. SFAS 142 requires that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142.
SFAS 142 also requires that intangible assets with definite lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No.
144 ("SFAS 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets. The Company adopted the provisions of SFAS 141 immediately and SFAS
142 effective January 1, 2002. The adoption of SFAS 142, including the
transitional impairment test, were completed and did not have a significant
effect on the Company's 2002 financial statements.
Continued
7
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, Continued:
-------------------------------------------------------------
Impairment of Long-Lived Assets
----------------------------------
Management periodically reviews long-lived assets, for possible impairment.
Recoverability of long-lived assets is measured by comparison of the
carrying amount of the Company's long-lived assets to the future net cash
flows expected to be generated from the assets. No impairment has been
recognized in the accompanying financial statements.
Income Taxes
-------------
As a limited liability company that is treated for income tax purposes as a
partnership, the allocated share of the Company's federal and state taxable
income or loss for each year is included in the income tax returns of the
Members.
Use of Estimates
------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management of the Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Accounts receivable balances from one of the Company's lines of business
are subject to a significant risk of uncollectiblity. Management
continually estimates the provision for doubtful accounts by performing
extensive analytical procedures. The actual collection results of these
receivables could differ significantly from management's estimates.
New Accounting Standards
--------------------------
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities, on
January 1, 2001. The adoption of this standard did not have a significant
effect on the Company's financial statements.
In August 2002, the FASB issued SFAS No. 143 ("SFAS 143"), Accounting for
Asset Retirement Obligations, which addresses the accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS 143 is effective for the
Company January 1, 2003. The Company has evaluated the impact of this
standard and does not believe its adoption will have a significant effect
on the Company's financial statements.
Continued
8
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
1. Organization and Summary of Significant Accounting Policies, Continued:
-------------------------------------------------------------
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses the accounting
and reporting for the impairment and disposal of long-lived assets. The
Company has adopted SFAS No. 144 effective January 1, 2002 and such
adoption did not have a significant effect on its financial statements.
In May 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections as of April 2002. The Company has evaluated the impact of this
standard and does not believe its adoption will have a significant effect
on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred, rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination
costs and certain employee severance costs that are associated with a
restructuring, discontinued operation, plant closing, or other exit or
disposal activity. Previous accounting guidance was provided by Emerging
Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146
replaces EITF No. 94-3, and is required to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. The Company does
not believe the adoption of SFAS No. 146 will have a significant effect on
its financial statements.
Reclassifications
-----------------
Certain balances in the 2001 and 2000 financial statements have been
reclassified to conform to the September 30, 2002 (unaudited) presentation.
These changes had no effect on total assets, total liabilities, and
members' equity or net income.
Interim Financial Data
------------------------
The interim financial data as of September 30, 2002 and for the nine months
ended September 30, 2002 and 2001 is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.
Continued
9
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
2. Notes Receivable:
------------------
Notes receivable consists of the following (in thousands):
September 30, December 31,
------------- ----------------------
2002 2001 2000
------------- ---------- ----------
(unaudited)
Note receivable from a corporation,
interest at prime plus 2% (11.50% at
December 31, 2000), due in monthly
installments through November 2001. $ - $ - $ 506
Note receivable from an individual,
interest at 10%, due in monthly
installments through April 2006. 26 27 -
------------- ---------- ----------
26 27 506
Less current portion (4) (3) (506)
------------- ---------- ----------
$ 22 $ 24 $ -
============= ========== ==========
3. Equipment Held for Sale
--------------------------
At September 30, 2002, equipment held for sale consisted of two helicopters
that were purchased at a cost of $2,827,000 (unaudited) using short-term
notes payable. Management's intention is to sell and then leaseback these
two helicopters subsequent to September 30, 2002 at their original cost. At
December 31, 2001, equipment held for sale consisted of three helicopters
that were purchased at a cost of $4,356,000 using short-term notes payable.
One of these helicopters was sold in March 2002 and the remaining two were
sold in September 2002 at their original cost. At December 31, 2000,
equipment held for sale consisted of two helicopters that were purchased at
a cost of $2,587,000 using short-term notes payable. One of these
helicopters was sold at its original cost in January 2001 and the other was
sold at its original cost and leased back by the Company in November 2001.
Continued
10
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
4. Property and Equipment:
-------------------------
Helicopters and other aircraft consist of the following (in thousands):
September 30, December 31,
------------ ------------------
2002 2001 2000
------------ -------- --------
(unaudited)
Helicopters and other aircraft $ 39,335 $ 39,335 $ 34,206
Leasehold improvements - helicopters 9,281 8,203 8,355
Construction in process 2,017 1,420 506
------------ -------- --------
$ 50,633 $ 48,958 $ 43,067
============ ======== ========
5. Goodwill:
--------
Goodwill consists of the following (in thousands):
September 30, December 31,
------------- --------------------
2002 2001 2000
------------- --------- ---------
(unaudited)
Goodwill $ 700 $ 700 $ 656
Less accumulated amortization (235) (235) (189)
------------- --------- ---------
$ 465 $ 465 $ 467
============= ========= =========
The Company adopted SFAS No. 142 effective January 1, 2002. In accordance
with SFAS 142, prior period amounts were not restated. A reconciliation of
the previously reported net income for the nine months ended September 30,
2001 and the years ended December 31, 2001, 2000 and 1999 to the pro forma
amounts adjusted for the reduction of amortization expense related to
goodwill is as follows (in thousands):
September 30, December 31,
------------ ----------------------------
2001 2001 2000 1999
------------ -------- -------- --------
(unaudited)
Reported net income $ 1,155 $ 2,649 $ 2,625 $ 3,014
Add: amortization adjustment 34 46 41 48
------------ -------- -------- --------
Pro forma net income $ 1,189 $ 2,695 $ 2,666 $ 3,062
============ ======== ======== ========
6. Capital and Operating Lease Obligations:
----------------------------------------
The Company leases aircraft and operational equipment under capital and
operating lease agreements. The leases are generally on a long-term basis
whereby the Company pays taxes, maintenance, insurance and certain other
operating expenses. These leases generally contain renewal options for
periods ranging from three to ten years. Certain of the leases provide for
rental increases at specified intervals.
Continued
11
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
6. Capital and Operating Lease Obligations, Continued:
-------------------------------------------
Operational equipment under capital leases, which are included in property
and equipment, consist of the following (in thousands):
September 30, December 31,
-------------- -------------------------------
2002 2001 2000 1999
-------------- --------- --------- ---------
(unaudited)
Operational equipment $ 813 $ 895 $ 895 $ 895
Less accumulated amortization (160) (847) (692) (527)
-------------- --------- --------- ---------
$ 653 $ 48 $ 203 $ 368
============== ========= ========= =========
Future minimum lease payments at December 31, 2001 are as follows (in
thousands):
Capital Operating
leases leases
--------- ----------
Year ended December 31:
2002 $ 58 $ 6,170
2003 13 6,013
2004 - 5,977
2005 - 5,558
2006 - 4,087
Thereafter - 9,946
--------- ----------
Total minimum lease payments 71 $ 37,751
==========
Less amount representing interest (at rates
ranging from 8% to 10%) (3)
---------
Present value of net minimum lease payments 68
Less current installments of obligations under
capital leases (55)
---------
Obligations under capital leases, net of
current installments $ 13
=========
Certain aircraft operating lease agreements require that major components
have a specified percentage of their allowable operating life remaining at
the end of the lease term. If the remaining useful life on these major
components falls below the specified percentage, an additional expense is
accrued as aircraft maintenance costs.
Lease and rental expense charged to operations was $5,429,000 (unaudited)
and $5,623,000 (unaudited) for the nine months ended September 30, 2002 and
2001, respectively, and $7,405,000, $8,159,000 and $9,324,000,
respectively, for the years ended December 31, 2001, 2000 and 1999.
Continued
12
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Long-term Debt:
----------------
Long-term debt consists of the following (in thousands):
September 30, December 31,
------------- --------------------
2002 2001 2000
------------- --------- ---------
(unaudited)
Helicopters and aircraft:
0.00% due 2002-2005 $ 1,017 $ 1,393 $ 688
6.89% due 2008 2,171 2,281 -
7.13% due 2008 8,201 8,612 -
7.15% due 2008 4,312 4,528 -
7.43% due 2008 5,077 5,330 -
7.48% due 2008 1,253 1,315 -
8.02% due 2006 3,531 3,800 -
8.49% due 2007 1,278 1,355 1,450
8.70% due 2004 631 490 546
8.82% due 2007 - - 1,840
8.96% due 2007 - 2,447 2,626
9.12% due 2003 2,303 - 3,109
9.27% due 2006 - 2,029 16,261
9.41% due 2007 1,921 - -
9.55% due 2004 445 701 1,401
9.75% due 2007 - - 605
Real estate and buildings:
One Month LIBOR Rate + 2.00% (3.82% (unaudited)
at September 30, 2002 and 3.86% at December
31, 2001) due 2011 1,612 1,690 -
8.81% due 2010 - - 704
10.00% due 2007 - - -
Operational and office equipment:
0.00% due 2001 - - 196
3.89% due 2000 - - -
7.31% due 2005 12 - -
8.50% due 2000 - - -
10.00% due 2003 31 39 49
Lines of credit:
Prime Rate due 2003 (134) 1,989 10,943
Two Month LIBOR Rate + 2.50% (4.31% (unaudited)
at September 30, 2002 and 4.72% at December
31, 2001) due 2003 3,000 6,000 -
------------- --------- ---------
Total long-term debt 36,661 43,999 40,418
Less current installments (5,935) (3,185) (2,657)
------------- --------- ---------
Long-term debt, net of current installments $ 30,726 $ 40,814 $ 37,761
============= ========= =========
Under the terms of the above long-term debt, the Company must comply with
certain restrictive covenants, including a restriction on capital
expenditures and maintaining certain financial ratios. At September 30,
2002 (unaudited) and December 31, 2001, the Company was in compliance with
these covenants.
Continued
13
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
7. Long-term Debt, Continued:
---------------
At December 31, 2001, the Company had one line of credit, which expires in
2003. The line of credit, subject to certain covenants and conditions,
allows the Company to borrow up to $20,000,000 at either the bank's prime
rate or a LIBOR rate plus 2.50%. At September 30, 2002 and December 31,
2001, $9,180,000 (unaudited) and $9,620,000, respectively, of additional
borrowings were available under this line of credit. Receivables,
inventories and other unencumbered tangible assets collateralize this line
of credit.
The scheduled principal maturities of debt outstanding at December 31, 2001
are as follows (in thousands):
2002 $ 3,185
2003 10,840
2004 3,694
2005 3,054
2006 6,083
Thereafter 17,143
-------
43,999
=======
Long-term debt is collateralized by substantially all of the Company's
property and equipment.
The fair value of the Company's long-term debt with fixed interest rates
was estimated by discounting future cash flows using rates currently
offered for borrowings with similar maturities at December 31, 2001 and
2000. The Company's long-term debt with variable interest rates
approximates fair value as of December 31, 2001 and 2000.
The carrying amounts and fair values of long-term debt at December 31, 2001
and 2000 were as follows (in thousands):
Carrying Value Fair Value
---------------- ----------------
2001 2000 2001 2000
------- ------- ------- -------
Long-term debt $43,999 $40,418 $45,706 $42,996
Continued
14
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
8. Employee Benefits:
-------------------
The Company sponsors a self-insured health benefit plan to provide
comprehensive medical, dental and vision coverage for the employees of the
Company and their covered family members. Approximately 28% of the expense
of the plan is borne by the employees. The Company carries an excess
reimbursement policy, which covers 100 percent of payments exceeding
$80,000 during a 12-month period per individual. Total expense under this
plan was $2,518,000 (unaudited) and $1,861,000 (unaudited), respectively,
for the nine months ended September 30, 2002 and 2001, and $2,713,000,
$1,586,000 and $1,386,000, respectively for the years ended December 31,
2001, 2000 and 1999.
The Company sponsors a 401(k) retirement plan for substantially all of its
employees. The Company matches 30% of the employees' contributions up to 6%
of their compensation. Employees vest in the Company's match over a
five-year period. The Company contributed to the Plan $222,000 (unaudited)
and $131,000 (unaudited), respectively, for the nine months ended September
30, 2002 and 2001, and $179,000, $54,000 and $48,000, respectively, for the
years ended 2001, 2000 and 1999.
9. Related Party Transactions:
-----------------------------
The Company has agreed to pay an annual management fee of $240,000 for
consulting services, technical knowledge and advice from its Members. In
addition, the Company incurs expenses payable to the Members for legal and
travel related to operations. Such expenses amounted to $39,000 (unaudited)
and $61,000 (unaudited), respectively, for the nine months ended September
30, 2002 and 2001, and $135,000, $44,000 and $12,000, respectively, for the
years ended 2001, 2000 and 1999.
10. Commitments:
------------
During 1999, the Company entered into a commitment agreement (1999 aircraft
purchase agreement) to purchase eight aircraft for approximately
$16,000,000. Four of the eight aircraft were delivered prior to December
31, 2001. As part of the commitment to purchase these additional aircraft,
the Company committed deposits totaling $814,000 collateralized by a 0%
interest-bearing note payable. As of December 31, 2001, the deposit and
related note payable totaled $563,000 for this future commitment.
Continued
15
ROCKY MOUNTAIN HOLDINGS, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
10. Commitments, Continued:
-----------
During 2001, the Company entered into a commitment agreement (2001 aircraft
purchase agreement) to purchase ten aircraft for approximately $16,600,000.
Two of the ten aircraft were delivered in December of 2001. As part of the
commitment to purchase these aircraft, the Company committed deposits
totaling $830,000 collateralized by a 0% interest-bearing note payable. As
of December 31, 2001, the deposit and related note payable totaled $830,000
for this future commitment.
As of September 30, 2002, three of the ten aircraft had been delivered
under the 2001 aircraft purchase agreement (unaudited). The remaining seven
aircraft will be delivered between October 2002 and September 2005. As of
September 30, 2002, the deposit and related note payable associated with
this commitment totaled $593,000 (unaudited). In addition, as of September
30, 2002, five of the eight aircraft had been delivered (unaudited) under
the 1999 aircraft purchase agreement. The remaining three aircraft will be
delivered, as customer demand requires. In addition, as of September 30,
2002, the deposit and related note payable associated with this commitment
totaled $424,000 (unaudited).
11. Subsequent Events:
------------------
In June 2002, the Company and its members entered into a Definitive
Purchase Agreement (the "Agreement") to sell 100% of the membership
interests in the Company to Air Methods Corporation. The Agreement provides
for a cash purchase price of $28,000,000 due at closing, subject to
customary closing and post-closing adjustments. Additional consideration of
up to $2,600,000 is possible through earn-out provisions set forth in the
Agreement, which, if earned, would be paid out over the next nine years.
In April 1996, the Members of the Company created the Senior Management
Incentive Program (the "EAR Plan"). Under the EAR Plan, participating
members of management of the Company were issued certain "Equity
Appreciation Rights", which entitle them to receive compensation based on
the "increase in equity" of the Company as defined by the EAR Plan.
However, payment of this compensation is contingent upon the occurrence of
a "Liquidating Event" as defined by the EAR Plan. In accordance with the
EAR Plan, the Agreement signed in June of 2002 between the Company's
members and Air Methods Corporation for the purchase of the membership
interests of the Company constituted a "Liquidating Event" under the EAR
Plan. As a result, the EAR Plan participants were paid, by the members,
approximately $881,000 in October 2002 and $59,000 in November 2002. An
additional $408,000 is expected to be paid in January 2003. For the
nine-months ending September 30, 2002 the Company recorded $1,348,000
(unaudited) of compensation expense and a corresponding contribution of
capital from members relating to these EAR payments. In addition, based on
future events an additional amount of up to $323,000 may be paid out over
the next nine-years.
16
Air Methods Corporation and Subsidiaries
Pro Forma Financial Information
(unaudited)
The accompanying unaudited pro forma combined balance sheet presents the
historical financial information of Air Methods Corporation (the Company), as of
September 30, 2002, as adjusted for the acquisition of Rocky Mountain Holdings
LLC (RMH), as if the transaction had occurred on September 30, 2002.
The accompanying unaudited pro forma combined statements of operations for the
nine months ended September 30, 2002, and the year ended December 31, 2001,
combine the historical operations of the Company with the historical operations
of RMH as if the transaction had occurred on January 1, 2001.
The acquisition will be accounted for under the purchase method of accounting
and the acquisition cost will be allocated to the acquired assets and assumed
liabilities based on fair values. The unaudited pro forma combined financial
statements have been prepared by the Company's management based upon the
historical financial statements of the Company and RMH and preliminary estimates
of fair values, which are subject to change pending a final analysis of the fair
values. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. The pro forma financial
statements and notes thereto should be read in conjunction with the historical
financial statements included in the Company's previous filings with the
Securities and Exchange Commission and RMH financial statements included herein.
AIR METHODS CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2002 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
HISTORICAL
-------------------------------
AIR METHODS ROCKY MOUNTAIN PRO FORMA PRO FORMA
CORPORATION HOLDINGS, L.L.C. ADJUSTMENTS COMBINED
-------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,606 1,157 4,763
Current installments of notes receivable 40 4 44
Receivables, net 25,441 18,964 44,405
Inventories 4,165 9,212 13,377
Work-in-process on medical interiors
and product contracts 42 665 707
Costs and estimated earnings in excess
of billings on uncompleted contracts 866 -- 866
Deferred tax asset 5,537 -- 5,537
Assets held for sale 416 2,827 3,243
Prepaid expenses and other 1,532 1,485 3,017
------------- ----------------- ------------ ----------
Total current assets 41,645 34,314 0 75,959
------------- ----------------- ------------ ----------
Equipment and leasehold improvements:
Aircraft and ground support equipment 75,243 47,614 9,467 (g) 132,324
Other equipment 6,337 14,917 (204)(g) 21,050
------------- ----------------- ------------ ----------
Total equipment 81,580 62,531 9,263 153,374
Accumulated depreciation and amortization (34,229) (18,271) 18,271 (g) (34,229)
------------- ----------------- ------------ ----------
Net equipment and leasehold improvements 47,351 44,260 27,534 119,145
Excess of cost over fair value of net
assets acquired 2,974 465 (465)(a) 2,974
Notes receivable, less current portion 113 22 135
Other assets, net 5,907 2,031 2,600 (k) 10,538
------------- ----------------- ------------ ----------
Total assets $ 97,990 81,092 29,669 208,751
============= ================= ============ ==========
<FN>
See accompanying notes to pro forma combined financial statements. (Continued)
AIR METHODS CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 2002 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
HISTORICAL
-------------------------------
AIR METHODS ROCKY MOUNTAIN PRO FORMA PRO FORMA
CORPORATION HOLDINGS, L.L.C. ADJUSTMENTS COMBINED
------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of long-term debt $ 3,384 8,538 (285)(i) 11,637
Current installments of capital leases 379 265 644
Accounts payable 3,190 2,562 5,752
Deferred revenue 1,442 575 2,017
Accrued overhaul and parts replacement 3,963 -- 3,942 (l) 7,905
Other accrued liabilities 2,929 6,383 3,600 (k) 14,032
820 (o)
300 (p)
------------------------------------------------------------
Total current liabilities 15,287 18,323 8,377 41,987
Long-term debt, less current installments 15,893 30,726 15,858 (c) 80,985
23,000 (d)
(2,197)(e)
(2,295)(i)
Obligations under capital leases 2,646 470 3,116
Accrued overhaul and parts replacement 13,010 -- 13,198 (l) 26,208
Deferred income taxes 6,631 -- 6,631
Other liabilities 1,917 504 2,600 (f) 5,021
------------------------------------------------------------
Total liabilities 55,384 50,023 58,541 163,948
Total stockholders' equity 42,606 31,069 (31,069)(b) 44,803
2,197 (e)
------------------------------------------------------------
Total liabilities and stockholders' equity $ 97,990 81,092 29,669 208,751
============================================================
<FN>
See accompanying notes to pro forma combined financial statements.
AIR METHODS CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
HISTORICAL
------------------------------
AIR METHODS ROCKY MOUNTAIN PRO FORMA PRO FORMA
CORPORATION HOLDINGS, L.L.C. ADJUSTMENTS COMBINED
-------------------------------------------------------------
Revenue:
Flight revenue $ 76,892 87,270 164,162
Sales of medical interiors and aircraft parts 6,095 3,686 (191)(r) 9,590
-------------------------------------------------------------
Total revenue 82,987 90,956 (191) 173,752
-------------------------------------------------------------
Operating expenses:
Flight centers 25,586 33,586 59,172
Bad debt expense 10,588 13,914 24,502
Aircraft operations 18,931 20,946 39,877
Cost of medical interiors and parts sales 4,449 3,058 (178)(r) 7,329
Aircraft rental 3,652 4,849 8,501
Depreciation and amortization 4,221 3,036 1,026 (q) 8,283
Loss on disposition of assets, net 51 68 119
General and administrative 7,685 4,836 (207)(j) 10,670
(1,644)(m)
-------------------------------------------------------------
Total operating expenses 75,163 84,293 (1,003) 158,453
-------------------------------------------------------------
Operating income 7,824 6,663 812 15,299
Other income (expense):
Interest expense (1,287) (2,185) (565)(c) (6,675)
(2,070)(d)
(245)(e)
110 (i)
(433)(s)
Interest income 26 28 54
Other, net 89 -- 89
-------------------------------------------------------------
Income before income taxes 6,652 4,506 (2,391) 8,767
Income tax expense 2,593 -- 825 (h) 3,418
-------------------------------------------------------------
Net income $ 4,059 4,506 (3,216) 5,349
=============================================================
Basic income per common share $ 0.45 0.59
=============================================================
Diluted income per common share $ 0.44 0.55
=============================================================
Weighted average number of common
shares outstanding:
Basic 9,090,782 9,090,782
=============================================================
Diluted 9,250,558 443,224 9,693,782
=============================================================
<FN>
See accompanying notes to pro forma combined financial statements.
AIR METHODS CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
HISTORICAL
-------------------------------
AIR METHODS ROCKY MOUNTAIN PRO FORMA PRO FORMA
CORPORATION HOLDINGS, L.L.C. ADJUSTMENTS COMBINED
-------------------------------------------------------------
Revenue:
Flight revenue $ 82,288 94,502 176,790
Sales of medical interiors and aircraft parts 9,808 5,700 (662)(r) 14,846
Gain on disposition of assets, net 172 172
-------------------------------------------------------------
Total revenue 92,096 100,374 (662) 191,808
-------------------------------------------------------------
Operating expenses:
Flight centers 28,288 39,780 68,068
Bad debt expense 9,714 12,322 22,036
Aircraft operations 20,222 23,345 43,567
Cost of medical interiors and parts sales 7,362 3,433 (534)(r) 10,261
Aircraft rental 3,772 6,754 10,526
Depreciation and amortization 5,239 4,055 (46)(n) 10,612
1,364 (q)
General and administrative 9,781 4,688 (357)(j) 14,112
-------------------------------------------------------------
Total operating expenses 84,378 94,377 427 179,182
-------------------------------------------------------------
Operating income 7,718 5,997 (1,089) 12,626
Other income (expense):
Interest expense (1,945) (3,468) (753)(c) (9,662)
(2,760)(d)
(327)(e)
169 (i)
(578)(s)
Interest income 100 62 162
Other, net 75 58 133
-------------------------------------------------------------
Income before income taxes 5,948 2,649 (5,338) 3,259
Income tax expense (benefit) (615) -- (1,049)(h) (1,664)
Net income $ 6,563 2,649 (4,289) 4,923
=============================================================
Basic income per common share $ 0.78 0.58
=============================================================
Diluted income per common share $ 0.76 0.54
=============================================================
Weighted average number of common
shares outstanding:
Basic 8,421,671 8,421,671
=============================================================
Diluted 8,659,302 443,224 9,102,526
=============================================================
<FN>
See accompanying notes to pro forma combined financial statements.
AIR METHODS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
-----------------------
The accompanying unaudited pro forma combined financial statements are
presented to reflect the acquisition of RMH by the Company using the
purchase method of accounting whereby the acquisition cost will be
allocated to the acquired assets and assumed liabilities based on their
fair values.
The accompanying unaudited pro forma combined balance sheet presents the
historical financial information of the Company, as of September 30, 2002,
as adjusted for the acquisition of RMH, as if the transaction had occurred
on September 30, 2002. The accompanying unaudited pro forma combined
statements of operations for the nine months ended September 30, 2002, and
the year ended December 31, 2001, combine the historical operations of the
Company with the historical operations of RMH as if the transaction had
occurred on January 1, 2001. Certain reclassifications have been made to
the historical RMH financial statement presentation to conform to the
Company's basis of presentation. Bad debt expense is shown as a component
of operating expenses in the Company's statements of operations, rather
than as a reduction to revenue, as presented in the RMH historical
financial statements.
These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the
dates indicated or which may be obtained in the future. The Company has
commenced workforce reductions subsequent to the acquisition and expects
general and administrative expenses to decrease in excess of $2,500,000
annually as a result.
(2) PRO FORMA ADJUSTMENTS
-----------------------
The purchase price of RMH totaled $36,200,000, including contingent
consideration, and was allocated to the RMH aircraft based on preliminary
estimates of fair value which are subject to change based on a final
analysis of fair values. The unaudited pro forma combined financial
statements reflect the following adjustments:
(a) Eliminate RMH goodwill balance as of September 30, 2002.
(b) Eliminate RMH equity balances as of September 30, 2002.
(c) Record revolving credit facility draw downs used to finance the
acquisition and the related interest expense at 4.75%. A change of
1/8% in the interest rate would result in a $15,000 change in interest
expense for the nine months ended September 30, 2002, and $20,000
change for the year ended December 31, 2001. The revolving credit
facility provides for draw downs, up to a maximum of $35,000,000,
which bear interest, at the Company's option, at either the Federal
Funds rate plus 0.5% or a rate based upon the LIBOR rate plus an
applicable margin, which may range from 1.75% to 3.0%.
(d) Record the issuance of $23,000,000 of subordinated notes to finance
the acquisition and the related interest expense. The notes are
unsecured and bear interest at an annual rate of 12%.
(e) Record the issuance of stock purchase warrants to acquire 443,224
shares of the Company's common stock for nominal consideration and the
related amortization as additional interest expense. The warrants were
granted in connection with the issuance of the $23,000,000
subordinated notes and were recorded as a discount to the notes.
(f) Record the amount of additional consideration that the Company
believes is probable to be paid to the sellers dependent upon certain
RMH future cash receipts.
(g) Eliminate accumulated depreciation and adjust RMH fixed assets to
estimated fair market value based on the acquisition.
AIR METHODS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(h) Record estimated income tax provision using a 39% effective corporate
tax rate. Prior to the acquisition, RMH was a limited liability
corporation, and net income was taxable directly to its shareholders.
Because the acquisition was accounted for as an asset purchase for
income tax purposes, no deferred tax asset or liability was recorded
on the balance sheet related to the transaction.
(i) Record the payoff of certain debt of RMH and the Company at the date
of the acquisition. Eliminate related interest expense.
(j) Eliminate certain management fees paid by RMH to the sellers prior to
the acquisition.
(k) Record estimated costs incurred in connection with the acquisition
consisting of $2,600,000 of debt origination costs and $1,000,000 of
transaction closing costs.
(l) Record beginning accrued overhaul and parts replacement reserve for
RMH aircraft fleet to conform to accrual method of accounting used by
the Company.
(m) Eliminate expenses incurred by RMH during the nine months ended
September 30, 2002, in connection with the acquisition, including
equity appreciation rights expenses resulting from acquisition.
(n) Eliminate amortization of RMH goodwill for the year ended December 31,
2001.
(o) Record estimated severance payments to RMH employees terminated after
the acquisition.
(p) Record estimated future repair costs on aircraft or aircraft parts
being repaired or overhauled at the date of acquisition.
(q) Adjust depreciation to reflect the change in the acquired aircraft
basis and an average estimated remaining life of 15 years.
(r) Eliminate sales of medical interiors from the Company to RMH.
(s) Record amortization of debt origination costs over the terms of the
debt agreements.
(3) INCOME PER SHARE
------------------
Pro forma basic earnings per share is computed by dividing pro forma net
income by the weighted average number of common shares outstanding during
the period. Pro forma diluted earnings per share is computed by dividing
pro forma net income by all common shares and dilutive potential common
shares outstanding during the period, including the effect of the warrants
issued in connection with the acquisition.