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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
- ----------------------------------------- -------------------
(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
- -----------------------------------------------------------------
(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 voting stock held by
non-affiliates of the Registrant as of March 10, 1997 was
approximately $14,696,000./1/ The number of outstanding shares of
Common Stock as of March 10, 1997, was 8,115,730.
DOCUMENTS INCORPORATED BY REFERENCE:
The Company's proxy statement for its Annual Meeting of
Stockholders to be held June 12, 1997, is hereby incorporated by
reference into Part III of this Report.
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/1/ Excludes 1,397,593 shares of Common Stock held by directors,
officers, and shareholders whose ownership exceeds five percent
of the shares outstanding at March 10, 1997. 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 .......................................... 2
Marketing Strategy ................................... 2
Backlog .............................................. 3
Employees ............................................ 3
Government Regulation ................................ 3
ITEM 2. PROPERTIES ........................................... 3
Facilities ........................................... 3
Equipment and Parts .................................. 3
ITEM 3. LEGAL PROCEEDINGS .................................... 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .. 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .................................. 6
ITEM 6. SELECTED FINANCIAL DATA .............................. 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................. 8
Results of Operations ................................ 8
Liquidity and Capital Resources ...................... 11
Outlook for 1997 ..................................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......... 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE .................. 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ... 14
ITEM 11. EXECUTIVE COMPENSATION ............................... 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ........................................... 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ....... 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS
ON FORM 8-K .......................................... IV-1
SIGNATURES ..................................................... IV-4
i
PART I
ITEM 1. BUSINESS
GENERAL
Air Methods Corporation, a Delaware corporation ("Air Methods" or "the
Company"), was established in Colorado in 1982 and now serves as one
of the largest providers of aeromedical emergency transport services
and systems throughout North America. As of December 31, 1996, the
Company provided aeromedical transportation services to hospitals
located in 14 states under 19 operating agreements with terms ranging
from one to eight years and had transported over 115,000 patients. In
addition the Company's Products Division designs, manufactures, and
installs medical aircraft interiors and other aerospace products.
The Company's Flight Services Division provides its hospital clients
with dedicated 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. In general, the Company's
hospital customers qualify as regional care centers because of
location and scope of service. The Company conducts its operations
using exclusively Instrument Flight Rules ("IFR")-certified aircraft
and IFR-rated pilots, permitting a high degree of operational
flexibility, flight safety, and navigational accuracy. Maintenance
and operation of the aircraft in accordance with Federal Aviation
Regulations (FAR) Part 135 standards is the Company's responsibility.
The hospital clients are responsible for providing the medical
personnel and all medical care. Operating agreements with the
hospitals typically provide that the Company receives 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. The fees are generally subject to annual
increases based on changes in the consumer price index and in the
Company's hull and liability insurance premiums. Because the majority
of the Company's flight revenue is generated from fixed monthly fees,
seasonal fluctuations in flight hours do not significantly impact the
Company's monthly revenue in total.
Although the loss of any one of the Company's 19 customers would have
an adverse impact on gross revenue, the net impact on the Company's
profitability would be less significant because the related flight
center, aircraft operating, and aircraft ownership costs would also be
eliminated.
Internationally, the Company relies on developing business
relationships with strategic players in the medical industry within
other countries to expand its aeromedical transportation business.
The Company's first international franchise was established in 1995 in
Brazil with Unimed Air de Sao Paulo ("Unimed Air"), a member of
Brazil's largest healthcare cooperative, and commenced air medical
operations in January 1996. The Company has assisted the franchise
with aircraft selection and acquisition, medical interior and avionics
installations, communications center consultation, and pilot and
medical personnel training. The franchise agreement currently in
effect provides for an initial acquisition price payable over 10 years
plus annual royalties based upon a percentage of the venture's gross
annual revenues. Revenue for the franchise is based on the number of
subscribers to the service rather than on the volume of medical
missions flown by the cooperative. Agreements to provide other
services such as the manufacture and installation of medical interiors
or the procurement of aircraft on behalf of the franchise are each
negotiated and priced independently of the franchise agreement.
Subscriber membership in the air medical transportation system has
grown rapidly in 1996 as the cooperative has expanded the air
transportation coverage throughout Brazil.
The Company performs non-destructive dynamic component testing, engine
repair, and component overhaul at its headquarters in the Denver
metropolitan area. The Company is designated a Service Center for
Bell Helicopter, Inc. 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 its domestic contracts as well as its
international franchise under the service mark AIR LIFE(R) and has
successfully defended the service mark against infringement actions in
Colorado and California. The service mark is identified in the
aeromedical transportation industry with the Company's exclusive use
of IFR-equipment and pilots and the high quality of its customer
support.
1
The Company's Product Division has recently developed three main
product lines: modular, multi-functional interiors primarily for
commercial customers; multi-mission interiors primarily for
governmental customers; and medical suites for fixed wing aircraft.
The key features of the multi-functional and multi-mission interiors
are the flexibility of the configuration which can be easily converted
for other transport needs and the 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
Company to perform systems integration for other aerospace products,
such as aircraft navigation systems, environmental control systems,
and structural and electrical systems. Manufacturing capabilities
include equipment fabrication, composites, machine and welding shops,
upholstery, and avionics engineering licensed and approved by the FAA.
To optimize the efficiency of the design phase, the engineering
department uses computer-aided design work stations and finite element
analysis software. The Company also offers quality assurance and
certification services pursuant to Parts Manufacturer Approvals
("PMA's").
The Products Division markets its services and products both
domestically and internationally to customers in the emergency medical
transport, search and rescue, and law enforcement fields through an
extensive network of marketing representatives. Historically, each
interior or other project has been custom designed in accordance with
specific customer contract requirements; however, with the development
of the modular, multi-functional interior, components can now be
marketed individually for a variety of airframes. The Company
maintains patents covering certain products and has patents pending
for the multi-functional floor, the articulating patient loading
system, and the aft equipment frame, all of which were developed as
part of the modular interior. The raw materials used in the
manufacture of the interiors and other products are generally widely
available from several different vendors.
Air Methods Corporation is located at 7301 South Peoria, Englewood,
Colorado 80112; the telephone number is (303) 792-7400.
COMPETITION
The Company believes that its competition in the aeromedical
transportation industry comes primarily from four national operators:
Corporate Jets, Inc.; OmniFlight, Inc.; Petroleum Helicopters, Inc.;
and Rocky Mountain Helicopters, Inc. The industry also includes
numerous smaller regional carriers. Operators generally compete on
the basis of price, safety record, accident prevention and training,
and the medical capability of the aircraft offered. Price is becoming
a more significant element of competition as many healthcare
organizations move toward consolidation with other entities and toward
strict cost containment, reflecting the uncertainty concerning the
future structure of healthcare providers.
The Company's competition in the medical 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 and performance, price, and weight of the product.
The Company believes that the Products Division competes favorably
with other companies within this industry.
MARKETING STRATEGY
The Company believes that demand for comprehensive medical
transportation will continue to increase with the closing and
consolidation of rural hospitals. Growth in the Company's traditional
business as an aeromedical transportation operator will be pursued
through responses to selected Requests for Proposal (RFP's) received
from healthcare centers; through business combinations such as joint
ventures, mergers and acquisitions; and through the development of
additional international programs. RFP's will be evaluated based upon
the program's expected contribution to the Company's profitability
objectives as well as on the potential increase in market share. The
Company believes that consolidation within the aeromedical
transportation industry is necessary to realize economies of scale and
to spread the costs and risks of operation over a larger customer
base. Cost pressures and other changes within the healthcare industry
recently have led to the development of additional innovative
approaches to aeromedical transportation, including the turn key or
independent provider (IP) model. Under the IP model, the operator
provides the medical care, communications center, and medical billing
resources as well as the flight and maintenance capabilities. Over
time, the Company expects to offer IP services to its customers and
the healthcare community.
The Company also intends to aggressively market its three aircraft
interior product lines through its domestic and foreign marketing
representatives to original equipment manufacturers as well as to
aeromedical operators. In 1996 the Company was awarded a contract to
provide medical interior systems for two U.S. Army UH-60Q medical
evacuation helicopters. Because the agreement also includes an option
exercisable by the U.S. Army
2
for 89 other interiors over six years, the Company intends to actively
pursue the award of additional units in 1997. The government
aeromedical industry continues to be a market of primary importance,
both domestically and internationally. The Company believes that
demand for medical aircraft interiors will focus on products which are
easy to install, maintain, and operate and which can be rapidly
converted to other uses.
BACKLOG
As of December 31, 1996, the Company was completing the production of
two UH-60Q units for the U.S. Army and the installation of a
helicopter interior for Unimed Air. These projects are scheduled for
delivery in the first quarter of 1997, and remaining revenue is
estimated at $570,000. In the first quarter of 1997 the Company also
received the authorization to produce an additional two UH-60Q units
in 1997. As of December 31, 1995, the Company's backlog for medical
interiors and other products was $1.3 million.
EMPLOYEES
As of December 31, 1996, the Company retained 244 full time and 15
part time employees, comprised of 109 pilots; 112 aviation machinists,
A&P engineers and other manufacturing/maintenance positions; and 38
business and administrative personnel. All of the Company's pilots
are IFR-rated and 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 operating aircraft
mechanics must possess FAA airframe and powerplant licenses.
The Company's employees are not covered by any collective bargaining
agreements and management believes that its relations with employees
are satisfactory. The Company believes that the compensation
arrangements offered to its employees are competitive with those of
other providers of aviation services based on the individual
qualifications of employees and are sufficient to attract and keep
qualified personnel.
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; in addition, the medical interiors and
other aerospace products developed by the Company are subject to FAA
certification. The Company holds a Part 135 Air Carrier Certificate
and Part 145 Repair Station (Maintenance and Avionics) Certificates
from the FAA.
The Company cannot predict the impact of new or changed laws or
regulations on the demand for aeromedical services in the future or
the costs of complying with such laws and regulations.
ITEM 2. PROPERTIES
FACILITIES
The Company leases its headquarters, consisting of approximately
60,000 square feet of office and hangar space in metropolitan Denver,
Colorado at the Centennial Airport. The Company's lease for the
hangar space expires in December 1997 and in February 1998 for the
office space. The approximate annual rent is $373,000. The Company
has an option to extend these leases for an additional ten years upon
six months' advance written notice and believes that these facilities
are in good condition and suitable for the Company's present
requirements.
EQUIPMENT AND PARTS
As of December 31, 1996, the Company managed a fleet of 32 aircraft,
consisting of 29 helicopters and 3 airplanes. Of these aircraft, the
Company owns 21 helicopters and 1 airplane and leases 4 helicopters.
The Company operates 4 helicopters and 2 airplanes owned by client
hospitals and other third parties in connection with existing
aeromedical contracts. Three helicopters owned by the Company have
not yet been placed in service pending completion of the medical
interior and avionics installations. The composition of the Company's
helicopter and airplane fleets as of December 31, 1996, is as follows:
3
COMPANY OWNED AIRCRAFT
(Dollar amounts in thousands)
-----------------------------
Net Book
Type Number Cost Value
---- ------ ---- --------
Helicopters:
Bell 206 L-1 1 $ 663 $ 480
Bell 206 L-3 5 4,347 3,364
Bell 222A 1 1,883 1,318
Bell 222UT 9 14,931 12,630
Bell 407 2 3,076 3,076
Bell 412 2 5,209 3,709
BK 117 1 5,882 4,723
-- ------ ------
21 35,991 29,300
Airplanes:
Cessna 421B 1 251 145
-- ------ ------
TOTALS: 22 $ 36,242 $ 29,445
== ====== ======
COMPANY LEASED AIRCRAFT
(Dollar amounts in thousands)
-----------------------------
Remaining Total Rents Remaining
Type Number Term in YearsOver Lease Life Payments
-------- ------ ----------------------------------------
Helicopters:
Bell 206 L-3 1 1 $ 1,611 $ 52
Bell 412 2 5 9,759 5,112
Sikorsky S-76 1 2 2,100 350
-- ------ -----
TOTALS 4 $ 13,470 $ 5,514
== ====== =====
- ---------------------
Includes aircraft acquired under capital leases.
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 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 Helicopter Textron, Inc.
("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.
4
ITEM 3. LEGAL PROCEEDINGS
In November 1992, a former employee brought a lawsuit against the
Company in the United States District Court for the District of
Minnesota alleging that the Company had wrongfully discharged him. The
District Court issued a directed verdict in favor of the Company in
September 1995. The Eighth Circuit of the U.S. Court of Appeals in
July 1996 upheld the lower court's ruling. The time for the plaintiff
to further appeal the case has expired.
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, 1996.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ Stock Market 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, 1996
----------------------------
Common Stock High Low
------------------------------------------------------------
First Quarter ................ $ 4 1/16 $ 3
Second Quarter ............... 4 5/8 3
Third Quarter ................ 4 3/4 2 7/8
Fourth Quarter ............... 3 1/4 1 15/16
YEAR ENDED DECEMBER 31, 1995
----------------------------
Common Stock High Low
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First Quarter ................ $ 4 1/8 $ 1 1/2
Second Quarter ............... 3 1/4 2 1/4
Third Quarter ................ 5 3/4 2 5/16
Fourth Quarter ............... 5 3/8 2 7/8
As of March 10, 1997 there were approximately 468 holders of record of
the Company's 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. Neither the
declaration nor the payment of future cash dividends is restricted by
the Company's credit or financing arrangements.
6
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected financial information of the
Company and subsidiary which has been derived from the Company's
audited consolidated financial statements. This selected financial
data should be read in conjunction with the financial statements of
the Company and notes thereto appearing in Item 8 of this report.
SELECTED FINANCIAL DATA OF THE COMPANY
(Amounts in thousands except share and per share amounts)
Six Months
Year Ended December 31,Ended Year Ended June 30,
-----------------------December 31,-------------------
1996 1995 1994 1994 1993 1992
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Revenue $ 30,257 30,122 13,871 27,898 25,340 12,747
Operating expenses:
Operating 25,052 24,248 12,678 25,314 20,319 12,066
General and administrative 3,845 3,873 2,176 5,761 4,479 3,984
Restructuring and other
non-recurring -- -- -- 3,010 -- --
Other income (expense), net (1,052) (1,042) (872) (888) (976) 704
Extraordinary gain (loss) -- -- -- (182) 173 --
--------------------------------------------------------------------------------
Net income (loss) $ 308 959 (1,855) (7,257) (261) (2,599)
================================================================================
Income (loss) per common share $ .04 .12 (.23) (1.03) (.08) (1.42)
================================================================================
Weighted average number of shares
of Common Stock outstanding 8,100,545 8,071,010 8,023,225 7,056,445 3,453,111 1,829,456
================================================================================
As of December 31, As of June 30,
----------------- --------------
1996 1995 1994 1994 1993
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BALANCE SHEET DATA:
Total assets $ 45,389 42,586 48,134 51,900 43,312
Long-term liabilities 19,354 16,329 18,375 18,688 23,279
Stockholders' equity 19,428 19,062 18,031 19,818 14,181
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Includes results of the aeromedical operations for only the eight-month period from the completion of the
acquisition of Air Methods Corporation, a Colorado corporation, by the Company on November 1, 1991, through
June 30, 1992.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year ended December 31, 1996 compared to 1995
The Company reported net income of $308,000 for the year ended
December 31, 1996, compared to $959,000 for the year ended December
31, 1995. The decrease in net income is primarily attributable to the
Company's investment in the development of a new modular medical
interior and in the design and qualification of a medical interior
system for the UH-60Q helicopter for the U.S. Army.
Flight revenue increased $296,000 or 1.1% from $26,221,000 for the
year ended December 31, 1995, to $26,517,000 for the year ended
December 31, 1996. Flight revenue in 1995 included $654,000 from the
lease of two helicopters, both of which were purchased by the lessees
in the second quarter of 1995. Revenue from continuing contracts
increased $951,000 primarily because of annual price increases for the
majority of the Company's contracts based on changes in the Consumer
Price Index. Flight hours remained relatively constant at 12,600 and
12,800 for the years ended December 31, 1996 and 1995, respectively.
Sales of medical interiors and products decreased by $323,000 or 8.5%
from $3,801,000 for the year ended December 31, 1995, to $3,478,000
for the year ended December 31, 1996. In 1996 the Company recognized
revenue of $1,036,000 from the design of a medical interior for a
Lockheed L-1011 aircraft, $812,000 from the sale of a Bell 412 medical
interior, and $721,000 from the design of medical interior systems for
the U.S. Army UH-60Q helicopter. Other projects in 1996 included the
design and installation of modular, multi-functional interiors in two
MD-900 Explorer helicopters and the manufacture of a Bell 206 interior
for Unimed Air. In 1995 the Company recognized revenue of $1,469,000
from the design of the Lockheed L-1011 medical interior and $723,000
from the sale of passenger oxygen systems. The Company also earned
revenue from the sales of a Bell 206 and a Bell 412 medical interior.
The cost of medical interiors increased by 29.9% for the year ended
December 31, 1996, as compared to the previous year, reflecting the
Company's investment of $1.2 million in the development of the
modular, multi-functional medical interior and in the design of
medical interior systems for the UH-60Q helicopter. The cost of this
investment is expected to be recovered against future units of
production. Without the effect of these two investments, the cost of
medical interiors would have decreased 9.1% from 1995 to 1996,
reflecting the decrease in sales of medical interiors.
The Company recognized revenue of $262,000 from its Brazilian
franchise during 1996, compared to $100,000 in 1995. Under the
exclusive franchise agreement, the Brazilian company purchased the
right to use the trademarks and expertise of the Company in providing
air medical services in Brazil, in exchange for an acquisition price
of $2,250,000 payable over 10 years plus annual royalties based on
gross revenues. The franchise commenced air operations in January
1996 and generated $112,000 in royalties from operations in addition
to the second installment of the initial acquisition price.
Flight center costs, consisting primarily of pilot and mechanics
salaries and fringe benefits, decreased 1.7% in 1996 compared to 1995.
Health insurance and workers compensation insurance premiums decreased
$299,000 due to changes enacted in 1996 encouraging the use of other
health plans and higher deductibles and to lower workers compensation
claims. This decrease was offset by increases in pilot and mechanic
salaries for merit pay raises. Flight center costs generally vary
with the number of operating agreements served by the Company; the
Company did not add any new bases in 1996.
Aircraft operating expenses also remained basically unchanged for the
year ended December 31, 1996, in comparison to the same period in
1995. The addition of one Bell 222 helicopter to the Company's fleet
in late 1996 was offset by a reduction in hull and liability insurance
premiums effective July 1, 1996. Aircraft operating expenses consist
of fuel, insurance, and maintenance costs and generally are a function
of the size of the fleet, the type of aircraft flown, and the number
of hours flown.
Aircraft rental expense decreased by 11.9% for the year ended December
31, 1996, as compared to 1995, primarily because of the sale of a
previously leased aircraft to one of the Company's hospital customers.
Lease expense recorded in 1995 for this helicopter totaled $122,000.
Depreciation and amortization expense increased by 15.1% for the year
ended December 31, 1996. The increase is due to the addition of one
Bell 222 helicopter and two new medical interiors to the fleet in 1996
and to revisions in the amortization periods for certain aircraft
under capital lease. The helicopter was placed in service to upgrade
a hospital client to a larger aircraft, while the two medical
interiors replaced fully depreciated interiors on existing aircraft.
8
Interest expense decreased 7.1% in 1996 compared to 1995. In 1995
interest expense included $92,000 on a note which was retired when the
helicopter underlying the debt was sold in March 1995.
Other expenses for the year ended December 31, 1996, included an
unrealized loss of $115,000 on the Company's investment in the stock
of a privately held corporation based on the stock's valuation in
recent transactions. The corporation holds a licensing agreement to
develop a biologic response modifier introduced by the Company when
doing business as a biotechnology research and development company.
The remaining balance of the Company's investment in this stock is
$50,000.
Year ended December 31, 1995 compared to 1994
In March 1995, the Company announced a change in its fiscal year end
from June 30 to December 31. The following table presents operating
results for the twelve months ended December 31, 1994 to facilitate
Management's Discussion and Analysis. All references to the year
ended December 31, 1994, in this section of Management's Discussion
and Analysis are to the balances shown in this schedule.
(Amounts in thousands)
Revenue:
Flight revenue ................................ $ 26,107
Sales of medical interiors and products ....... 1,264
International franchise revenue ............... 0
Operating expenses:
Flight centers ................................ 9,003
Aircraft operations ........................... 8,608
Aircraft rental ............................... 2,536
Cost of medical interiors and products sold ... 2,356
Depreciation and amortization ................. 2,486
General and administrative .................... 5,091
Loss on disposition of assets ................. 1,949
Restructuring and other nonrecurring charges .. 3,010
Other income (expense):
Interest expense .............................. (1,355)
Interest income ............................... 305
Other, net .................................... (312)
Net loss (9,030)
The Company reported net income of $959,000 for the year ended
December 31, 1995, compared to a net loss of $9,030,000 for the year
ended December 31, 1994. The year ended December 31, 1994 included
restructuring charges of $3,010,000 and net losses on the disposition
of assets and other non-recurring charges of $2,602,000, as well as
merger termination costs of $305,000. Without the restructuring
charges and other non-recurring items, the loss for the period would
have been $3,113,000. The improvement in operating results is
primarily the result of higher profits recognized in the Company's
Products Division and reductions in aircraft rental costs and general
and administrative expenses.
Flight revenue increased $114,000 or 0.4% from $26,107,000 for the
year ended December 31, 1994, to $26,221,000 for the year ended
December 31, 1995. The increase was primarily attributable to
$460,000 earned from the short-term lease of one of the Company's
aircraft; in addition, one contract added in May 1994 contributed
$340,000 more in revenue in 1995 than in 1994. These increases were
partially offset by the discontinuation of the Company's air charter
operations and three fixed wing contracts during the year ended
December 31, 1994; revenue for these activities totaled $1,149,000 in
1994. The remainder of the increase in revenue is due to annual
increases for the majority of the Company's contracts based on changes
in the Consumer Price Index (CPI). Flight hours were 12,800 and
13,500 for the years ended December 31, 1995 and 1994, respectively;
the decrease is due mainly to the discontinuation of the contracts as
noted above. The elimination of the fixed wing contracts and charter
operations also contributed to the 8.6% decrease in flight center
costs for the year ended December 31, 1995.
Sales of medical interiors increased by $2,537,000 or 200.7% from
$1,264,000 for the year ended December 31, 1994, to $3,801,000 for the
year ended December 31, 1995. In 1995 the Company recognized revenue
of $1,469,000 from the design of a medical interior for a Lockheed
L-1011 aircraft and $723,000 from the sale of passenger oxygen
systems. The Company also earned revenue from the sale of a medical
interior for a Bell 206 helicopter to a Brazilian customer, the sale
of a medical interior for a Bell 412 helicopter, the installation of
an advanced navigational and weather detection system, and the
refurbishment of an interior for a hospital customer. In the previous
year the Company recognized revenue of $234,000 from the manufacture
of a medical interior for
9
a South American customer and $450,000 from the sale of a medical
interior to one of the Company's client hospitals. In addition, the
year ended December 31, 1994, included revenue from the manufacture
and installation of five medical interiors for Bell Helicopter, Inc.
The cost of medical interiors also increased by 32.1% for the year
ended December 31, 1995 as compared to the previous year, reflecting
the increase in the number of interiors and other products sold. The
increase in the cost of sales is less than the increase in sales
primarily because of higher margins earned on the work performed in
1995 compared to 1994. Cost of sales also includes Products Division
overhead costs, including facilities rent and management salaries,
which do not vary with the volume of products completed. In addition,
the cost of medical interiors for the year ended December 31, 1994,
included $653,000 of payments for work on a medical interior that the
Company had subcontracted to an outside vendor. The work done by the
subcontractor was subsequently determined to be unsatisfactory and was
reperformed by the Company.
The Company recognized $100,000 of international franchise revenue
during 1995 which represented the first installment of a ten-year
franchise agreement signed in February 1995 with a Brazilian company.
Aircraft operating expenses remained basically unchanged for the year
ended December 31, 1995, in comparison to the same period in 1994.
The effect of a 17% increase in hull and liability insurance rates and
the addition of 3 aircraft to the Company's fleet in May and June of
1994 was offset by the elimination of operating expenses for 4
airplanes which were removed from the Company's fleet when the
associated contracts were discontinued.
Aircraft rental expense decreased by 34.4% for the year ended December
31, 1995, as compared to 1994. The Company has eliminated seven
leased aircraft from its fleet which had been in operation during all
or part of the year ended December 31, 1994. An eighth previously
leased aircraft was purchased by one of the Company's hospital
customers during 1995, and is still operated by the Company. Lease
expense recognized on these aircraft in the year ended December 31,
1994, totaled $1,137,000. This decrease was offset in part by
$217,000 incurred to rent a backup helicopter during the refurbishment
of one of the Company's aircraft.
Depreciation and amortization expense increased by 6.8% for the year
ended December 31, 1995. The Company has increased its depreciable
asset base by $1.3 million, or 3.7%, since December 31, 1994, as a
result of the acquisition of rotable and other shop equipment. These
types of equipment are generally depreciated over a five- to
seven-year estimated useful life.
The 23.9% decrease in general and administrative expenses for the year
ended December 31, 1995, reflects the effects of the Company's
restructuring plan which was implemented in the quarters ended
March 31 and June 30, 1994. The restructuring plan included a
reduction in the administrative work force and a decreased reliance on
outside professional services, resulting in a decline in
administrative expense of approximately $482,000 and $97,000,
respectively, in the year ended December 31, 1995. The Company's
Board of Directors has met quarterly in the current year as compared
to monthly during the restructuring, causing a decrease of $160,000 in
costs for the year ended December 31, 1995. In addition, in the year
ended December 31, 1994, the Company incurred expenses of almost
$296,000 associated with the development of a proposed joint venture
to provide air medical services in Mexico and the pursuit of other
manufacturing and service contracts. Costs for similar activities in
1995 totaled $60,000.
Operating expenses for the year ended December 31, 1994, included
$1,949,000 of valuation allowances and losses on the disposition of
aircraft and $3,010,000 of restructuring expenses. The Company did
not incur any similar costs in the year ended December 31, 1995.
The increase of 3.0% in interest expense for the year ended December
31, 1995 is due to interest incurred on a note to finance the
acquisition of an aircraft which was placed into service late in May
1994. This increase was almost entirely offset by the elimination of
interest on notes which were retired when the two airplanes which were
financed under these notes were sold in September and December 1994.
Other expenses for the year ended December 31, 1994, included $305,000
for merger termination expenses. These expenses represent primarily
legal and professional fees incurred in the due diligence process
conducted to determine the feasibility of a business combination
between the Company and Rocky Mountain Helicopters, Inc. (RMHI). The
Company ultimately declined to submit a final bid for the assets of
RMHI.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,058,000 and working
capital of $502,000 as of December 31, 1996, as compared to cash and
cash equivalents of $2,699,000 and a working capital deficit of
$638,000 at December 31, 1995. The decrease in cash and cash
equivalents is due in part to a 25% increase in inventories and an
increase in costs and estimated earnings in excess of billings on
uncompleted contracts, both related almost entirely to the UH-60Q
project. The decrease in cash and cash equivalents also reflects the
Company's investment of $5.4 million in capital equipment, most of
which was funded by new debt financing. The change from billings in
excess of costs in 1995 to costs in excess of billings on uncompleted
contracts in 1996 contributed to the improvement in the working
capital position. For the projects in process at the end of 1995 the
Company had received funding advances; for the projects in process at
December 31, 1996, including the UH-60Q project, the Company issued
progress billings. The Company expects to collect the balance of
costs and estimated earnings in excess of billings during 1997. In
the years ended December 31, 1996 and 1995, operations generated
positive cash flows of $1,464,000 and $4,626,000, respectively. The
decrease in cash generated from operations results partly from the
Company's investment in the development of the multi-functional
interior and in the design of the medical interior system for the
UH-60Q helicopter, as well as from the costs incurred in excess of
billings on projects in process at year end and from the increases in
inventories.
In October 1996 the Company entered into an agreement with a financial
institution establishing a $2 million line of credit with a two-year
term and an interest rate of prime plus .25% to supplement cash flow
from operations if necessary. The agreement requires the Company to
maintain a zero balance on the line for 30 days during each year and
to pay an annual commitment fee. The line has various covenants which
limit the Company's ability to dispose of assets, merge with another
entity, and pledge trade receivables and inventories as collateral.
The Company is also required to maintain certain financial ratios as
defined in the agreement; as of December 31, 1996, the Company was in
compliance with all covenants and had drawn $300,000 against the line.
In January 1997 the draw against the line was paid in full.
In December 1996 the Company refinanced $3.8 million in debt with one
lender to reduce the interest rate by approximately 80 basis points
and to release one aircraft from the lien. The transaction provided
an additional $937,000 in working capital.
As of December 31, 1996, the Company holds unencumbered notes
receivable of $966,000 and aircraft with a net book value of $1.6
million 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.
Repayment of debt and capital lease obligations as well as operating
lease agreements constitute the Company's long-term commitments to use
cash. A balloon payment of $1.8 million on long-term debt is due in
2001.
OUTLOOK FOR 1997
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual
results may differ materially.
Operating agreements with four hospital clients are due for renewal in
1997. The Company has historically negotiated renewals with its
existing customers under favorable terms. One agreement renewed in
the first quarter of 1997 provided for an upgrade in the type of
aircraft servicing the contract; however, there can be no assurance
that the Company will renew the remaining contracts. The Company
expects 1997 flight activity at current hospital customers to remain
consistent with 1996 levels. In addition, the Company intends to
actively pursue appropriate strategic merger or acquisition
opportunities within the air medical transportation industry.
As of December 31, 1996, the Company was completing the production of
two UH-60Q units for the U.S. Army and the installation of a
helicopter interior for Unimed Air. In the first quarter of 1997 the
Company also received the authorization to produce an additional two
UH-60Q units and was selected by McDonnell Douglas Helicopter Systems
("MDHS") in a competitive bid process to design and manufacture a
demonstration interior for the new MD902 helicopter for use by MDHS in
its international marketing effort. Revenue from all of these
projects is expected to total approximately $1.8 million in 1997. No
further developmental costs are expected to be incurred on the two
additional UH-60Q units approved for production in 1997 or on any
subsequent units. The 1997 Department of Defense budget includes $6.8
million directed funding for four additional UH-60Q helicopter
upgrades; the Company expects authorization to produce and deliver
these four units in the second half of 1997. Final orders for these
units have not yet been received, however, and there is no assurance
that the work will be performed or units delivered in 1997 or in
future periods. During 1997 the Products Division also expects to
complete modular medical interiors for three Bell 407 helicopters for
use by two of the Flight Services Division's
11
current hospital customers. The Products Division will also continue
to pursue an aggressive marketing strategy both domestically and
internationally for its three main product lines.
The Company expects continued growth in Unimed Air, its Brazilian
franchisee, over its current base of more than 1,300,000 members and
corresponding growth in operating royalties generated by the franchise
in 1997.
There can be no assurance that the Company will successfully renew the
operating agreements expiring in 1997 or will generate new profitable
contracts for the Products Division. However, based on the
anticipated level of flight activity for its hospital customers, the
backlog of projects for the Products Division, and the expected growth
in the Brazilian franchise, the Company expects to continue profitable
operations in 1997.
12
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.
13
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, 1997, for the Annual Meeting of Stockholders to be held
June 12, 1997.
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, 1997, for the Annual Meeting of Stockholders to be held
June 12, 1997.
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, 1997, for the Annual Meeting of Stockholders to be held
June 12, 1997.
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, 1997, for the Annual Meeting of Stockholders to be held
June 12, 1997.
14
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, 1996 and
1995.
Consolidated Statements of Operations for the years
ended December 31, 1996 and 1995, the six months ended
December 31, 1994 and year ended June 30, 1994.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996 and 1995, the six months
ended December 31, 1994 and year ended June 30, 1994.
Consolidated Statements of Cash Flows for the years
ended December 31, 1996 and 1995, the six months ended
December 31, 1994 and year ended June 30, 1994.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules included in Item 8 of
this report:
All 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
------- -----------------------
3.1 Certificate of Incorporation/1/
3.2 Amendments to Certificate of Incorporation/2/
3.3 By-Laws as Amended/8/
4.1 Specimen Stock Certificate/2/
4.2 Warrant Agreement, and First and Second Amendment
to Warrant Agreement, and form of Warrant
Certificate/3/
4.3 Third Amendment to Warrant Agreement/6/
4.4 Warrant Agreement, dated February 2, 1993, between
the Company and Sands Brothers & Co., Ltd. ("Sands
Brothers") covering Warrants issued to Sands
Brothers/3/
4.5 Form of Sands Brothers Warrant/3/
4.6 Warrant Agreement, dated April 6, 1993, between
the Company and C.C.R.I. Corporation/6/
4.7 Warrant Agreement dated February 14, 1994, between
the Company and CCRI Corporation/7/
4.8 Form of Reissued Warrant Agreement, dated May 3,
1995 between the Company and Americas Partners,
concerning warrants originally issued December 28,
1993/9/
4.9 Form of Reissued Warrant Agreement, dated May 3,
1995 between the Company and Americas Partners,
concerning warrants originally issued February 21,
1994/9/
10.1 1995 Air Methods Corporation Employee Stock Option
Plan
10.2 Nonemployee Director Stock Option Plan, as
amended/6/
IV-1
10.3 Restricted Stock Bonus Plan, as amended/6/
10.4 Equity Compensation Plan for Nonemployee
Directors, adopted March 12, 1993/4/
10.5 Form of Option Agreement between the Company and
Alfred Bjorseth/6/
10.6 Form of Option Agreement between the Company and
Marlis E. Smith/6/
10.7 Warrant Agreements, dated April 29, 1993, between
the Company and Bart Gutekunst/6/
10.8 Warrant Agreement, dated April 28, 1993, between
the Company and Gerald Grayson/6/
10.9 Form of Consulting Agreement, dated November 30,
1994, between the Company and Roy L. Morgan/9/
10.10 Employment Agreement, dated November 12, 1991,
between the Company and Maurice L. Martin, Jr./2/
10.11 Employment Agreement, dated June 1, 1994, between
the Company and George Belsey/8/
10.12 Employment Agreement, dated November 30, 1993,
between the Company and Michael Prieto/8/
10.13 Research, Clinical Development and Option
Agreement, dated February 12, 1992, between the
Company and Oncotech, Inc./2/
10.14 Research and Licensing Agreement, dated December
6, 1993, between the Company and Phylomed/8/
10.15 Equipment Leases, and Warrant Agreements, dated
July 25, 1992, between the Company and Ventana
Leasing, Inc. or Praktikerfinans AB/2/
10.16 Employment Agreement dated July 10, 1995 between
the Company and Aaron D. Todd/10/
23 Consent of KPMG Peat Marwick, LLP
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1996.
- --------------------
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-3 (Registration No. 33-59690), as declared effective on
April 23, 1993, and incorporated herein by reference.
4 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.
5 Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-27883), as declared effective on
June 13, 1989, 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, 1993, and incorporated herein
by reference.
IV-2
7 Filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-75744) filed with the Commission on
February 25, 1994 and incorporated herein by reference.
8 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.
9 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.
10 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.
IV-3
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 19, 1997 By: 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.
George W. Belsey Chairman of the Board March 19, 1997
- ----------------------- Chief Executive Officer
George W. Belsey
Joseph E. Bernstein Director March 19, 1997
- -----------------------
Joseph E. Bernstein
Ralph J. Bernstein Director March 19, 1997
- -----------------------
Ralph J. Bernstein
Liam F. Dalton Director March 19, 1997
- -----------------------
Liam F. Dalton
Samuel H. Gray Director March 19, 1997
- -----------------------
Samuel H. Gray
Carl H. McNair, Jr. Director March 19, 1997
- -----------------------
Carl H. McNair, Jr.
Lowell D. Miller, Ph.D. Director March 19, 1997
- -----------------------
Lowell D. Miller, Ph.D.
Roy L. Morgan Director March 19, 1997
- -----------------------
Roy L. Morgan
Donald R. Segner Vice-Chairman of the Board March 19, 1997
- -----------------------
Donald R. Segner
Morad Tahbaz Director March 19, 1997
- -----------------------
Morad Tahbaz
IV-4
AIR METHODS CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
- ----------------------------------------------------------------------
Independent Auditors' Report ................................... F-1
Consolidated Financial Statements
- ---------------------------------
CONSOLIDATED BALANCE SHEETS,
December 31, 1996 and 1995 ................................ F-2
CONSOLIDATED STATEMENTS OF OPERATIONS,
Years Ended December 31, 1996 and 1995, Six Months Ended
December 31, 1994 and Year Ended June 30, 1994 ....... F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY,
Years Ended December 31, 1996 and 1995, Six Months Ended
December 31, 1994 and Year Ended June 30, 1994 ....... F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS,
Years Ended December 31, 1996 and 1995, Six Months Ended
December 31, 1994 and Year Ended June 30, 1994 ....... F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
December 31, 1996 and 1995 ................................ F-8
All supporting schedules are omitted because they are inapplicable,
not required, or the information is presented in the consolidated
financial statements or notes thereto.
IV-5
Independent Auditors' Report
----------------------------
BOARD OF DIRECTORS AND STOCKHOLDERS
AIR METHODS CORPORATION
We have audited the accompanying consolidated financial statements of
Air Methods Corporation and subsidiary as listed in the accompanying
table of contents. 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 generally accepted auditing
standards. 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 subsidiary as of December 31, 1996 and
1995, and the results of their operations and their cash flows for the
years ended December 31, 1996 and 1995, the six months ended December
31, 1994 and the year ended June 30, 1994, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
February 7, 1997
F-1
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
1996 1995
---- ----
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,058 2,699
Current installments of notes receivable 392 356
Receivables, net:
Trade (note 5) 1,165 881
Insurance proceeds 270 249
Other 213 367
------ ------
1,648 1,497
Inventories (note 5) 1,583 1,263
Work-in-process on medical interior and products contracts192131
Costs and estimated earnings in excess of billings
on uncompleted contracts (note 4) 682 --
Prepaid insurance 228 236
Other prepaid expenses 326 375
------ ------
Total current assets 7,109 6,557
------ ------
Equipment and leasehold improvements (notes 5 and 6):
Flight and ground support equipment 42,448 37,228
Furniture and office equipment 1,494 1,326
------ ------
43,942 38,554
------ ------
Less accumulated depreciation and amortization(10,013) (7,138)
------ ------
Net equipment and leasehold improvements 33,929 31,416
------ ------
Excess of cost over the fair value of net assets acquired, net of accumulated
amortization of $502 and $405 at December 31, 1996 and 1995,
respectively 1,925 2,022
Notes receivable, less current installments (note 5)1,454 1,843
Patent application costs and other assets, net of accumulated amortization
of $588 and $510 at December 31, 1996 and 1995, respectively972748
------ ------
Total assets $45,389 42,586
====== ======
(Continued)
F-2
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable (note 5) $ 352 693
Current installments of long-term debt (note 5)1,780 1,435
Current installments of obligations under capital leases (note 6)819751
Accounts payable 614 974
Accrued overhaul and parts replacement costs 1,582 1,407
Deferred revenue 629 724
Billings in excess of costs and estimated earnings on uncompleted contracts
(note 4) -- 328
Other accrued liabilities 831 883
------ ------
Total current liabilities 6,607 7,195
Long-term debt, less current installments (note 5)10,642 6,671
Obligations under capital leases, less current installments (note 6)3,7324,552
Accrued overhaul and parts replacement costs 4,157 4,329
Other liabilities 823 777
------ ------
Total liabilities 25,961 23,524
------ ------
Stockholders' equity (notes 2 and 7):
Preferred stock, $1 par value. Authorized 5,000,000 shares,
none issued -- --
Common stock, $.06 par value. Authorized 16,000,000 shares; issued
8,135,836 and 8,103,502 shares at December 31, 1996 and 1995,
respectively 488 486
Additional paid-in capital 49,696 49,640
Accumulated deficit (30,755) (31,063)
Treasury stock, 25,606 shares (1) (1)
------ ------
Total stockholders' equity 19,428 19,062
------ ------
Commitments and contingencies (note 6)
Total liabilities and stockholders' equity$45,389 42,586
====== ======
See accompanying notes to consolidated financial statements.
F-3
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
Six Months Year
Ended Ended
Year Ended December 31, December 31, June 30,
1996 1995 1994 1994
---- ---- ---- ----
Revenue:
Flight revenue (note 8) $ 26,517 26,221 13,081 25,346
Sales of medical interiors and products 3,478 3,801 790 2,552
International franchise revenue 262 100 -- --
--------- --------- --------- ---------
30,257 30,122 13,871 27,898
--------- --------- --------- ---------
Operating expenses:
Flight centers 8,086 8,227 4,427 8,626
Aircraft operations 8,383 8,503 4,445 8,188
Aircraft rental (note 6) 1,465 1,663 994 2,915
Cost of medical interiors and products sold 4,045 3,113 1,303 2,599
Depreciation and amortization 3,056 2,656 1,272 2,196
General and administrative 3,845 3,873 2,176 5,761
Loss on disposition of assets (notes 2 and 3) 17 86 237 790
Restructuring and other non-recurring expenses
(note 3) -- -- -- 3,010
--------- --------- --------- ---------
28,897 28,121 14,854 34,085
--------- --------- --------- ---------
Operating income (loss) 1,360 2,001 (983) (6,187)
Other income (expense):
Interest expense (1,297) (1,396) (717) (1,246)
Interest and dividend income 357 289 163 188
Merger termination expense (note 11) -- -- (305) --
Other, net (112) 65 (13) 170
--------- --------- --------- ---------
Income (loss) before extraordinary item 308 959 (1,855) (7,075)
Extraordinary item-loss on early extinguishment of
debt (note 6) -- -- -- (182)
--------- --------- --------- ---------
Net income (loss) $ 308 959 (1,855) (7,257)
========= ========= ========= =========
Income (loss) per common share before
extraordinary item $ .04 .12 (.23) (1.00)
Loss on early extinguishment of debt per common
share -- -- -- (.03)
--------- --------- --------- ---------
Income (loss) per common share $ .04 .12 (.23) (1.03)
========= ========= ========= =========
Weighted average number of common shares
outstanding 8,100,545 8,071,010 8,023,225 7,056,445
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995, SIX MONTHS ENDED DECEMBER 31,
1994 AND YEAR ENDED JUNE 30, 1994
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ----------------------------------------------------------------------
Common Stock Treasury Stock Additional Total Stock-
------------ -------------- Paid-in Accumulated holders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ------- -----
BALANCES AT JULY 1, 1993 5,262,130 $ 316 93,843 $ (6) 36,781 (22,910) 14,181
Issuance of common shares for options
exercised and services rendered 533,798 18 -- -- 1,306 -- 1,324
Issuance of common shares for warrants
exercised, net of solicitation costs of
$429 (note 7) 1,272,626 90 -- -- 5,411 -- 5,501
Issuance of common shares in private
offering (note 7) 1,011,190 61 -- -- 5,669 -- 5,730
Issuance of common shares in
acquisition (note 2) 55,617 3 -- -- 437 -- 440
Amortization of deferred compensation
expense (note 7) -- -- -- -- 218 -- 218
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 7) -- -- -- -- (8) -- (8)
In-kind tax withholding elected by
employees under the Restricted Stock
Plan (note 7) -- -- 25,606 (1) (310) -- (311)
Cancellation of treasury shares (93,843) (6) (93,843) 6 -- -- --
Net loss -- -- -- -- -- (7,257) (7,257)
----------------------------------------------------------------------------
BALANCES AT JUNE 30, 1994 8,041,518 482 25,606 (1) 49,504 (30,167) 19,818
Issuance of common shares for options
exercised and services rendered 10,247 -- -- -- 60 -- 60
Amortization of deferred compensation
expense (note 7) -- -- -- -- 10 -- 10
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 7) -- -- -- -- (2) -- (2)
Net loss -- -- -- -- -- (1,855) (1,855)
----------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1994 8,051,765 482 25,606 (1) 49,572 (32,022) 18,031
Issuance of common shares for options
exercised and services rendered 51,737 4 -- -- 72 -- 76
Amortization of deferred compensation
expense (note 7) -- -- -- -- 6 -- 6
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 7) -- -- -- -- (10) -- (10)
Net income -- -- -- -- -- 959 959
----------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 8,103,502 486 25,606 (1) 49,640 (31,063) 19,062
Issuance of common shares for options
exercised and services rendered 37,834 2 -- -- 69 -- 71
Retirement of common shares (note 7) (5,500) -- -- -- (13) -- (13)
Net income -- -- -- -- -- 308 308
----------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 8,135,836 $ 488 25,606 $ (1) 49,696 (30,755) 19,428
=============================================================================
See accompanying notes to consolidated financial statements.
F-5
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------------
Six Months Year
Ended Ended
Year Ended December 31, December 31, December 31,
1996 1995 1994 1994
-------- -------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 308 959 (1,855) (7,257)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Provision for restructuring and other non-recurring expenses -- -- -- 2,218
Depreciation and amortization expense 3,056 2,656 1,272 2,196
Common stock and options issued for services and in connection with
employee stock compensation agreements, net of forfeitures 26 72 69 (94)
Loss on disposition of assets 17 86 237 790
Loss on early extinguishment of debt -- -- -- 182
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in receivables (151) (438) 36 2,043
Decrease (increase) in inventories (320) 260 (193) (53)
Decrease (increase) in prepaid expenses and other current assets 57 900 844 (180)
Decrease (increase) in work-in-process on medical interior and
products contracts and costs in excess of billings (743) 71 274 (153)
Decrease in accounts payable and other accrued liabilities (412) (1,187) (716) (189)
Increase in accrued overhaul and parts replacement costs 3 373 404 860
Increase (decrease) in deferred revenue, billings in excess of
costs, and other liabilities (377) 874 (1,001) 676
-------- -------- -------- --------
Net cash provided (used) by operating activities 1,464 4,626 (629) 1,039
-------- -------- -------- --------
Cash flows from investing activities:
Net cash used in acquisition of Golden Eagle Aviation, Inc. -- -- -- (451)
Acquisition of equipment and leasehold improvements (5,414) (1,169) (981) (16,101)
Proceeds from retirement and sale of equipment and assets held
for sale 3 4,430 790 618
Decrease (increase) in notes receivable, patent application
costs, and other assets 51 755 425 (307)
Proceeds from sale or maturity of short-term investments -- -- 21 504
-------- -------- -------- --------
Net cash provided (used) by investing activities (5,360) 4,016 255 (15,737)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 45 -- -- 12,898
Payments for retirement of common stock (13) -- -- --
Payments for syndication and solicitation costs -- -- -- (1,252)
Net repayments under short-term notes payable (341) (1,585) (856) (117)
Proceeds from long-term debt 9,746 582 -- 7,851
Payments of long-term debt (5,430) (4,915) (1,141) (4,007)
Payments of capital lease obligations (752) (721) (354) (1,882)
-------- -------- -------- --------
Net cash provided (used) by financing activities 3,255 (6,639) (2,351) 13,491
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (641) 2,003 (2,725) (1,207)
Cash and cash equivalents at beginning of period 2,699 696 3,421 4,628
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 2,058 2,699 696 3,421
======== ======== ======== ========
Interest paid in cash during the period $ 1,322 1,395 718 1,243
======== ======== ======== ========
(Continued)
F-6
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
- ----------------------------------------------------------------------
Noncash investing and financing transactions:
Capital lease obligations of $19,000 were assumed to acquire equipment
during the year ended June 30, 1994.
Notes receivable of $2,790,000 were received as partial consideration
for the sale of two aircraft during the year ended June 30, 1994.
Notes payable of $2,347,000 were issued to finance the Company's
annual hull and liability, workers' compensation, and directors' and
officers' insurance policies during the six months ended December 31,
1994.
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 ("Air Methods" or
"the Company") serves as one of the largest providers of
aeromedical emergency transport services and systems throughout
North and South America. The Company also designs, manufactures,
and installs medical aircraft interiors and other aerospace
products for domestic and international customers. As discussed
more fully in note 3, in September 1994 the Company sold all of
the outstanding shares of common stock of Golden Eagle Charters,
Inc. ("Golden Eagle"), formerly a wholly owned subsidiary of the
Company. All significant intercompany balances and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues 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 $1,724,000 and $2,062,000 at December 31, 1996 and
1995, 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 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.
If the total cost to complete a medical interior cannot be
reasonably estimated, revenue relating to fixed fee contracts is
recognized using the completed contract method of accounting. A
contract is considered complete when all costs except
insignificant items have been incurred and the installation is
operating according to specification.
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 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. Depreciation
is computed using the straight-line method over the useful lives
of the equipment or the lease term, as follows:
Description Lives Residual value
----------- ----- --------------
Hangar 40 years 10%
Helicopters, including medical equipment8 - 25 years10 - 25%
Airplanes, including medical equipment8 - 20 years0 - 10%
Ground support equipment and rotables5 - 10 years0 - 10%
Furniture and office equipment3 - 10 years --
Leasehold improvements to hangar and office space are amortized
using the straight-line method over the terms of the leases.
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 will be amortized over the
estimated useful economic life of the patents. Costs relating to
unsuccessful patent applications are charged to operations.
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. For the year ended
December 31, 1996, the Company capitalized $213,000 in STC costs
related to a new modular, multi-functional medical interior
system.
F-9
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Engine and Airframe Overhaul Costs
The Company uses the accrual method of accounting for major
engine and airframe overhauls whereby the cost of the next
overhaul is estimated and accrued based on usage of the aircraft
over the period between overhauls.
Long-lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangible assets to
be held, including goodwill, 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. The Company adopted SFAS 121 in
1996 and the adoption did not have an effect on the Company's
consolidated financial statements.
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. International franchise revenue is
recognized as royalties and fees are generated by the
franchisee's operations.
Uncollectible trade receivables are charged to operations using
the allowance method. The allowance for uncollectible
receivables was not significant at December 31, 1996 and 1995.
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 earnings per share required by Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-based Compensation ("SFAS No. 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 of Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes (Statement 109). Deferred
tax assets and liabilities are recognized for the 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 (Loss) Per Share
Income (loss) per common share is calculated using the weighted
average number of common shares outstanding for each period.
Outstanding common stock options and common stock purchase
warrants have not been included in the calculations since the
effect would be antidilutive.
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, and accounts payable:
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 reflect current market
rates.
(2) ACQUISITION AND SALE OF SUBSIDIARY
On September 10, 1993, the Company entered into an Exchange
Agreement (the "Agreement") with Golden Eagle and Golden Eagle's
shareholders (the "Shareholders") whereby the Company issued an
aggregate of 25,908 shares of its common stock valued at
approximately $188,000 to the Shareholders in exchange for all of
the issued and outstanding shares of Golden Eagle. On the same
date, in a related transaction contemplated by the Agreement, the
Company issued an aggregate of 29,709 shares of its restricted
common stock, valued at approximately $252,000 to the
Shareholders and related parties of Golden Eagle, in exchange for
the transfer to the Company of an interest in a jet airplane. In
connection with the Agreement, the Company assumed approximately
$2,781,000 in debt and other liabilities of Golden Eagle and the
Shareholders for an aggregate consideration of $3,221,000.
F-11
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(2) ACQUISITION AND SALE OF SUBSIDIARY, CONTINUED
As discussed more fully in note 3, in the third quarter of fiscal
1994, the Company discontinued substantially all of the
unprofitable airplane charter operations of Golden Eagle and
wrote off the balance of goodwill related to the purchase of
Golden Eagle as part of the restructuring. Losses from Golden
Eagle's charter operations from the date of acquisition through
June 30, 1994 totaled $677,000. On September 21, 1994, the
Company sold all of the outstanding shares of common stock of
Golden Eagle to a company in exchange for $10,000 and the
assumption of certain liabilities of Golden Eagle. The Company
recorded a gain of $126,000 on the sale.
(3) BUSINESS RESTRUCTURING
During fiscal 1994, the Company implemented a restructuring plan
for the Company's continuing air medical flight and manufacturing
operations designed to reduce costs and improve operating
efficiencies. The restructuring plan included the
discontinuation of substantially all of the airplane charter
operations of Golden Eagle, a reduction in the Company's work
force, and the disposal of selected assets. Also included in the
restructuring was the cancellation of a proposed debt refinancing
and public preferred stock offering in the third quarter of 1994.
With the exception of severance pay related to the reduction in
the work force and certain placement fees for the proposed
preferred stock offering, the restructuring expenses consisted of
non-cash charges including the write-off of previously recorded
assets. Valuation allowances established for assets designated
for disposal are included in loss on the disposition of assets in
the accompanying financial statements.
The restructuring and other non-recurring charges for the year
ended June 30, 1994, consist of the following (amounts in
thousands):
Write-off of costs associated with proposed debt refinancing$ 335
Write-off of costs associated with proposed public
preferred stock offering 571
Write-off of goodwill related to the acquisition of Golden Eagle1,459
Severance pay 614
Other 31
-----
$3,010
=====
F-12
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(4) COSTS IN EXCESS OF BILLINGS AND BILLINGS IN EXCESS OF COSTS
As of December 31, 1996, the estimated period to complete
contracts in process ranges from one to three months, and the
Company expects to collect all related accounts receivable and
costs and estimated earnings in excess of billings on uncompleted
contracts within one year. The following summarizes contracts in
process at December 31 (amounts in thousands):
1996 1995
---- ----
Costs incurred on uncompleted contracts$ 933 620
Estimated earnings 15 912
-------- --------
948 1,532
Less billings to date (266) (1,860)
-------- --------
Costs in excess of billings (billings in excess of
costs) $ 682 (328)
======== ========
(5) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following at December 31, 1996 and
1995 (amounts in thousands):
1996 1995
---- ----
Borrowings under a $2 million line of credit with interest
at prime plus .25% (8.5% at December 31, 1996),
collateralized by flight equipment $ 300 --
Borrowings under a $2 million line of credit with
interest at prime rate. Paid in full in 1996.--500
Borrowings under an unsecured note with a company
with interest at 6.58%. Paid in full in 1996.--104
Other 52 89
---- ----
$ 352 693
==== ====
The Company's line of credit agreement expires in October 1998
and requires the Company to maintain a zero balance on the line
for 30 days during each year. The line has various covenants
which limit the Company's ability to dispose of assets, merge
with another entity, and pledge trade receivables and inventories
as collateral. The Company is also required to maintain certain
financial ratios as defined in the agreement.
F-13
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, 1996 and
1995 (amounts in thousands):
1996 1995
---- ----
Notes payable to one lender with interest at 9.12%, due in
monthly installments of principal and interest through
November 2001 with all remaining principal due in
December 2001, collateralized by flight equipment$ 4,832--
Notes payable to one lender with interest at 9.94%. Paid in full
in 1996. -- 4,348
Notes payable to one lender with interest at 8.5%, due in
monthly payments of principal and interest through
September 2000, collateralized by flight equipment1,7402,139
Note payable to a company with interest at 9.25%, due in
monthly payments of principal and interest through
December 2001, collateralized by a hangar 198 227
Notes payable to a lender with interest at 8.47%, due in monthly
installments of principal and interest through March 2002,
collateralized by flight equipment 2,252 --
Note payable to a lender with interest payable monthly at 9.84%
through August 1997. Principal and interest due monthly
beginning September 1997 through August 2006,
collateralized by flight equipment 1,040 --
Notes payable to a lender with interest payable monthly at
9.02% through December 1997. Principal and interest due
monthly beginning January 1998 through December 2006,
collateralized by flight equipment 1,374 --
Note payable to a company with interest at 11%, due in monthly
payments of principal and interest through February 2002,
collateralized by equipment 472 536
Note payable to a company with interest at 10%, due in monthly
payments of principal and interest through May 2000,
collateralized by flight equipment 231 285
Note payable to a company with interest at 6.25%, due in
monthly payments of principal and interest through October
1997, collateralized by a note receivable (net of discount of
$14,000 based on imputed interest rate of 9.5%)255 537
Other 28 34
-------- --------
12,422 8,106
Less current installments (1,780) (1,435)
-------- --------
$ 10,642 6,671
======== ========
F-14
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(5) NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED
Aggregate maturities of long-term debt are as follows (amounts in
thousands):
Year ending December 31:
1997 $ 1,780
1998 1,791
1999 1,959
2000 1,843
2001 3,369
Thereafter 1,680
-------
$ 12,422
=======
(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,
1996, future minimum lease payments under capital and operating
leases are as follows (amounts in thousands):
Capital Operating
leases leases
------- ---------
Year ending December 31:
1997 $ 1,139 1,812
1998 1,139 1,330
1999 735 1,073
2000 553 1,037
2001 553 590
Thereafter 1,622 376
----- -----
Total minimum lease payments 5,741 $ 6,218
=======
Less amounts representing interest (1,190)
-----
Present value of minimum capital lease payments4,551
Less current installments (819)
-----
$ 3,732
======
Rent expense relating to operating leases totaled $1,888,000,
$2,061,000, $1,234,000 and $3,434,000 for the years ended
December 31, 1996 and 1995, the six months ended December 31,
1994, and the year ended June 30, 1994.
F-15
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(6) LEASES, CONTINUED
On July 25, 1992, the Company entered into two equipment leases
with Ventana Leasing, Inc. ("Ventana") for the lease of two
helicopters. A former director of the Company is a 50% owner of
Ventana. In December 1993 the Company retired one of the Ventana
capital lease obligations for a total of $1,167,000 and recorded
a loss of $182,000 on the early extinguishment of this
obligation.
The remaining capital lease with Ventana is for a term of seven
years at an annual cost to the Company of approximately $301,000.
The lease provides that the Company will pay Ventana $337,500
upon termination of the lease to purchase the aircraft.
At December 31, 1996 and 1995, leased property held under capital
leases included in equipment, net of accumulated depreciation,
totaled $8,596,000 and $9,509,000, respectively.
(7) STOCKHOLDERS' EQUITY
(a) WARRANTS
In connection with various offerings of common stock and
other transactions by the Company, the following warrants to
purchase the Company's common stock were issued at or above
market value and are outstanding as of December 31, 1996:
Number of warrants Exercise price per share Expiration date
------------------ ------------------------ ---------------
67,938 $ 5.10 Various, 1997
4,000 3.00 February 2, 1998
126,592 4.00 February 2, 1998
20,000 4.13 March 12, 1998
75,000 4.50 April 6, 1998
50,000 3.00 December 29, 1998
150,000 6.88 February 14, 1999
150,000 3.00 February 21, 1999
-------
643,530
=======
F-16
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
(b) STOCK OPTION PLANS
At December 31, 1996, the Company had two stock-based
compensation plans which are described below. 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 FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro
forma amounts indicated below (amounts in thousands, except
per share amounts):
1996 1995
---- ----
Net income:
As reported $ 308 959
Pro forma (8) 921
Earnings per share:
As reported $ .04 .12
Pro forma -- .11
Pro forma net income reflects only options granted in 1996
and 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is
not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the
options' vesting period of 5 years and compensation cost for
options granted prior to January 1, 1995, is not considered.
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 1996 and 1995, respectively: dividend yield of 0% for
both years; expected volatility of 64% for both years;
risk-free interest rates of 7.3% and 5.5%; and expected
lives of 3 years and 4 years. The weighted average fair
value of options granted during the years ended December 31,
1996 and 1995, was $1.73 and $1.78, respectively.
The Company has a Stock Option Plan and a predecessor plan
(together "the Plan") which provides for the granting of
incentive stock options (ISOs) and nonqualified stock
options (non-ISOs), stock appreciation rights, and
supplemental stock bonuses. Under the Plan, 2,500,000
shares of common stock are reserved for options. The
Company also grants non-ISOs 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, become exercisable in three equal installments
beginning one year from the date of grant, and expire five
years from the date of grant.
F-17
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
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.
At December 31, 1996, options issued to a consulting group
to purchase 6,667 shares of common stock at an exercise
price of $6.25 per share were outstanding. A director of
the Company is the chief executive officer and a 50% owner
of the consulting group.
The following is a summary of option activity, including
options granted and outstanding outside of the Plan, during
the years ended December 31, 1996 and 1995, the six months
ended December 31, 1994, and the year ended June 30, 1994:
Shares
------
Outstanding at July 1, 1993 934,043
Granted 942,015
Canceled (517,560)
Exercised (64,363)
---------
Outstanding at June 30, 1994 1,294,135
Granted 408,630
Canceled (515,691)
Exercised (4,389)
---------
Outstanding at December 31, 1994 1,182,685
Granted 574,729
Canceled (52,727)
Exercised (2,560)
---------
Outstanding at December 31, 1995 1,702,127
Granted 516,675
Canceled (467,408)
Exercised (25,410)
---------
Outstanding at December 31, 1996 1,725,984
=========
As of December 31, 1996 and 1995, exercisable options
totaled 1,104,876 and 739,538, respectively. Exercise
prices of all options granted in the periods above range
from $1.75 to $13.13. The weighted average exercise price
of options outstanding at December 31, 1996 was $3.92.
F-18
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, 1996:
Weighted-
Weighted-Average Weighted- Average
Range of Number Remaining Average Number Exercise
Exercise Price Outstanding Life (Years) Exercise Price Exercisable Price
-------------- ----------- ------------ -------------- ----------- -----
$ 1.75 to 3.00 590,924 2.8 $ 2.56 435,002 $ 2.60
3.13 to 5.88 1,033,968 3.0 4.13 569,278 4.64
6.13 to 13.13 101,092 1.5 9.17 100,596 9.18
---------- ----------
1,725,984 1,104,876
========== ==========
(c) RESTRICTED STOCK PLAN
Effective December 3, 1992, the Company established a
restricted stock plan authorizing the issuance of up to
300,000 shares of common stock to employees. Under this
plan, participating employees elected to reduce their
compensation by 2% to 20% for the period from January 9,
1993 to January 8, 1994. For each $3 by which employees
reduced their compensation, the Company issued one share of
stock and one option to purchase one share of stock for $3.
The Company issued 101,137 shares under this plan to
employees and recorded deferred compensation for the value
of the options issued and for the excess of the market value
of the shares issued on the effective date over the face
value of $3 per share. The shares issued under the plan
vested over one year; the associated options vested over
three years. The Company recorded $6,500, $10,000 and
$218,000 of compensation expense under the plan for the year
ended December 31, 1995, the six months ended December 31,
1994 and the year ended June 30, 1994, respectively.
In January 1994 employees who received shares under this
compensation plan were allowed to elect to have the Company
retain sufficient shares to provide for the payment of their
withholding taxes. The Company withheld a number of shares
equivalent in value to the taxes owed from the shares issued
to employees and placed these shares in treasury stock.
(d) 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,
1996, the Company had issued 49,320 shares under this plan.
F-19
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY, CONTINUED
(e) PRIVATE PLACEMENT
In the year ended June 30, 1994, 1,176,086 of the warrants
issued in tandem with shares of common stock in a private
offering were exercised to purchase 1,272,626 shares of
common stock.
In February 1994, the Company completed a private placement
of 1,011,190 shares of common stock at $5.66 per share with
institutions outside of the United States.
(f) 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, 1996, 5,500 shares had been
repurchased and retired under this plan.
(g) PROFIT SHARING PLAN
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 year ended
December 31, 1996, totaled $31,000. The continuation of the
profit sharing plan is at the discretion of the Board of
Directors.
(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 8 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, 1996 (amounts in thousands):
Year ending December 31:
1997 $ 17,793
1998 13,565
1999 12,295
2000 10,416
2001 6,209
Thereafter 13,490
-------
$ 73,768
=======
F-20
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, 1996 of approximately $33,520,000
which will expire in varying amounts through the year 2011.
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 a portion of the
aforementioned net operating loss carryforwards will be limited
annually 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 tax effects of temporary differences
that give rise to significant portions of the deferred tax assets
and deferred tax liabilities at December 31, 1996 and 1995 are as
follows (amounts in thousands):
1996 1995
---- ----
Deferred tax assets:
Overhaul and parts replacement cost,
principally due to the accrual method $ 2,009 2,007
Accrued restructuring expenses and
valuation allowances 36 49
Net operating loss carryforwards 11,732 12,111
Other 199 175
------- ------
Total gross deferred tax assets 13,976 14,342
Less valuation allowance (8,685) (9,292)
------- ------
Net deferred tax assets 5,291 5,050
------- ------
Deferred tax liabilities:
Equipment and leasehold improvements,
principally due to differences in
bases and depreciation methods (5,195) (4,966)
Other (96) (84)
------- ------
Total deferred tax liabilities (5,291) (5,050)
------- ------
Net deferred tax liability $ -- --
======= ======
Income tax expense calculated at the federal statutory tax rate
was offset entirely in the years ended December 31, 1996 and
1995, by the decrease in the valuation allowance for deferred tax
assets. No tax benefit was recorded for the six months ended
December 31, 1994, or the year ended June 30, 1994, due to the
uncertainty of realizing the deferred tax asset relating to the
Company's net operating loss carryforwards.
F-21
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(10) RETIREMENT PLAN
The Company has a defined contribution retirement plan whereby
employees who have completed one year of employment may
contribute up to 12% of their annual salaries. The Company
contributes an amount equal to 1% of the employees' annual salary
and will match 20% of the employees' contributions up to 6% of
their annual salaries. Company contributions totaled
approximately $154,000, $150,000, $70,000 and $156,000 for the
years ended December 31, 1996 and 1995, the six months ended
December 31, 1994, and the year ended June 30, 1994,
respectively.
(11) PROPOSED BUSINESS COMBINATION
During the six months ended December 31, 1994, the Company
discussed the feasibility of a business combination of the
emergency air medical transport business of the Company with
Rocky Mountain Helicopters, Inc. ("RMHI"). In November 1994, the
cash portion of the Company's bid for the aeromedical assets of
RMHI was exceeded in a bid placed by another party and the
Company declined to submit a final bid. The expenses incurred as
part of the due diligence process consisted primarily of legal
and professional fees and comprise the balance of the $305,000
merger termination expense recognized in the six months ended
December 31, 1994.
(12) RELATED PARTY TRANSACTIONS
During the year ended June 30, 1994, the Company issued five-year
warrants to purchase 50,000 shares of common stock to Americas
Partners in connection with the guarantee of a $2,500,000 note.
The general partners of Americas Partners are directors of the
Company. The note was paid in full in the third quarter of 1994.
In February 1994 warrants to purchase an additional 150,000
shares were issued to Americas Partners in connection with a
commitment from Americas Partners to fund start-up costs for a
joint venture in Mexico. The commitment was paid to the Company
in full subsequent to June 30, 1994. The exercise price of all
of the Americas Partners warrants is $3 per share.
F-22