SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16079
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AIR METHODS CORPORATION
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(Exact name of Registrant as Specified in Its Charter)
Delaware 84-0915893
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7301 South Peoria, Englewood, Colorado 80112
- ------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (303) 792-7400
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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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
The number of shares of Common Stock, par value $.06, outstanding as of May 2,
2003, was 9,562,399.
TABLE OF CONTENTS
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2003 and
December 31, 2002 1
Consolidated Statements of Operations for the
three months ended March 31, 2003 and 2002 3
Consolidated Statements of Cash Flows for the
three months ended March 31, 2003 and 2002 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
AIR METHODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(unaudited)
MARCH 31, DECEMBER 31,
2003 2002
--------------------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 3,221 1,410
Current installments of notes receivable 16 45
Receivables:
Trade 57,592 54,814
Less allowance for doubtful accounts (17,745) (16,996)
--------------------------
39,847 37,818
Insurance proceeds 674 256
Other 3,985 4,243
--------------------------
44,506 42,317
--------------------------
Inventories 12,292 12,003
Work-in-process on medical interiors and products contracts 306 203
Assets held for sale 2,125 3,242
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,160 703
Deferred tax asset 1,369 1,684
Prepaid expenses and other 617 1,921
--------------------------
Total current assets 65,612 63,528
--------------------------
Property and equipment:
Land 190 190
Flight and ground support equipment 146,526 145,715
Buildings and office equipment 9,100 8,951
--------------------------
155,816 154,856
Less accumulated depreciation and amortization (39,156) (36,551)
--------------------------
Net property and equipment 116,660 118,305
--------------------------
Goodwill 4,303 4,291
Notes receivable, less current installments 26 124
Other assets, net of accumulated amortization of $863 and $720
at March 31, 2003 and December 31, 2002, respectively 9,803 10,148
--------------------------
Total assets $ 196,404 196,396
==========================
(Continued)
1
AIR METHODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
(Amounts in thousands, except share and per share amounts)
(unaudited)
MARCH 31, DECEMBER 31,
2003 2002
--------------------------
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable $ 1,483 2,604
Current installments of long-term debt 5,620 5,604
Current installments of obligations under capital leases 750 737
Accounts payable 4,876 4,846
Accrued overhaul and parts replacement costs 8,549 8,657
Deferred revenue 1,472 1,258
Billings in excess of costs and estimated earnings on
uncompleted contracts 484 530
Accrued wages and compensated absences 4,085 5,417
Other accrued liabilities 4,731 5,300
--------------------------
Total current liabilities 32,050 34,953
Long-term debt, less current installments 79,993 77,247
Obligations under capital leases, less current installments 2,961 3,150
Accrued overhaul and parts replacement costs 27,103 25,871
Deferred income taxes 2,805 3,450
Other liabilities 5,473 5,507
--------------------------
Total liabilities 150,385 150,178
--------------------------
Stockholders' equity (note 3):
Preferred stock, $1 par value. Authorized 5,000,000
shares, none issued -- --
Common stock, $.06 par value. Authorized 16,000,000
shares; issued 9,572,402 and 9,488,679 shares at
March 31, 2003 and December 31, 2002,
respectively 574 569
Additional paid-in capital 55,439 55,127
Accumulated deficit (9,993) (9,477)
Treasury stock at par, 18,337 and 15,700 common shares
at March 31, 2003 and December 31, 2002,
respectively (1) (1)
--------------------------
Total stockholders' equity 46,019 46,218
--------------------------
Total liabilities and stockholders' equity $ 196,404 196,396
==========================
See accompanying notes to consolidated financial statements.
2
AIR METHODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
(unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2003 2002
-----------------------
Revenue:
Flight revenue $ 52,376 24,524
Sales of medical interiors and products 1,335 1,462
Parts and maintenance sales and services 243 343
Gain on disposition of assets, net -- 14
-----------------------
53,954 26,343
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Operating expenses:
Flight centers 20,311 7,860
Aircraft operations 13,184 5,461
Aircraft rental 2,801 1,135
Cost of medical interiors and products sold 1,124 938
Cost of parts and maintenance sales and services 241 322
Depreciation and amortization 2,748 1,371
Bad debt expense 7,986 3,484
Loss on disposition of assets, net 13 --
General and administrative 4,704 2,587
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53,112 23,158
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Operating income 842 3,185
Other income (expense):
Interest expense (2,006) (445)
Interest and dividend income 3 6
Other, net 315 45
-----------------------
Income (loss) before income taxes (846) 2,791
Income tax benefit (expense) 330 (1,088)
-----------------------
Net income (loss) $ (516) 1,703
=======================
Basic and diluted income (loss) per common share (note 2) $ (.05) .19
=======================
Weighted average number of common shares outstanding - basic 9,521,884 8,808,228
=======================
Weighted average number of common shares outstanding - diluted 9,864,211 9,137,307
=======================
See accompanying notes to consolidated financial statements.
3
AIR METHODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
THREE MONTHS
ENDED MARCH 31,
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2003 2002
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Cash flows from operating activities:
Net income (loss) $ (516) 1,703
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization expense 2,748 1,371
Bad debt expense 7,986 3,484
Deferred income tax expense (benefit) (330) 1,088
Loss (gain) on retirement and sale of equipment, net 13 (14)
Common stock options and warrants issued for services 75 15
Changes in assets and liabilities:
Decrease (increase) in prepaid and other current assets 1,300 (121)
Increase in receivables (10,175) (7,019)
Increase in inventories (289) (182)
Decrease (increase) in work-in-process on medical interiors and costs in
excess of billings (560) 319
Decrease in accounts payable and other accrued liabilities (1,871) (1,573)
Increase in deferred revenue, billings in excess of costs, and other
liabilities 134 347
Increase in accrued overhaul and parts replacement costs 1,124 715
------------------
Net cash provided (used) by operating activities (361) 133
------------------
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements (988) (1,215)
Proceeds from disposition and sale of equipment 10 764
Decrease (increase) in notes receivable and other assets, net 322 (56)
------------------
Net cash used by investing activities (656) (507)
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(Continued)
4
AIR METHODS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Amounts in thousands)
(unaudited)
THREE MONTHS
ENDED MARCH 31,
-----------------
2003 2002
-----------------
Cash flows from financing activities:
Net borrowings under line of credit 2,040 --
Proceeds from long-term debt 2,490 --
Payments of long-term debt (1,768) (1,440)
Payments of capital lease obligations (176) (60)
Payments for purchases of common stock (32) (678)
Proceeds from issuance of common stock, net 274 1,270
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Net cash provided (used) by financing activities 2,828 (908)
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Increase (decrease) in cash and cash equivalents 1,811 (1,282)
Cash and cash equivalents at beginning of period 1,410 2,838
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Cash and cash equivalents at end of period $ 3,221 1,556
=================
Non-cash investing and financing activities:
In the quarter ended March 31, 2003, the Company settled a note payable totaling
$1,121 in exchange for the aircraft securing the debt.
See accompanying notes to consolidated financial statements.
5
AIR METHODS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10Q and
Regulation S-X. Accordingly, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the consolidated financial
statements for the respective periods. Interim results are not necessarily
indicative of results for a full year. The consolidated financial
statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2002.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. The Company
considers its critical accounting policies involving more significant
judgments and estimates to be those related to revenue recognition,
uncollectible receivables, deferred income taxes, and aircraft overhaul
costs. Actual results could differ from those estimates.
(2) INCOME (LOSS) PER SHARE
-----------------------
Basic earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net income by all
outstanding and dilutive potential common shares during the period.
The reconciliation of basic to diluted weighted average common shares
outstanding is as follows for the quarters ended March 31:
2003 2002
--------- ---------
Weighted average number of common shares outstanding - basic 9,521,884 8,808,228
Dilutive effect of:
Common stock options 69,457 315,473
Common stock warrants 272,870 13,606
--------------------
Weighted average number of common shares outstanding - diluted 9,864,211 9,137,307
====================
Common stock options totaling 265,000 and common stock warrants totaling
25,000 were not included in the diluted shares outstanding for the quarter
ended March 31, 2003, and common stock options totaling 50,000 were not
included in the diluted income per share calculation for the quarter ended
March 31, 2002, because their effect would have been anti-dilutive.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) STOCKHOLDERS' EQUITY
--------------------
Changes in stockholders' equity for the three months ended March 31, 2003,
consisted of the following (amounts in thousands except share amounts):
Shares
Outstanding Amount
----------------------
Balances at January 1, 2003 9,472,979 $46,218
Issuance of common shares for options exercised 83,723 274
Purchase of treasury shares (2,637) (32)
Options and warrants issued for services -- 75
Net loss -- (516)
----------------------
Balances at March 31, 2003 9,554,065 $46,019
======================
(4) 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 (APB Opinion 25). Because the Company grants its
options at or above market value, no compensation cost has been recognized
relating to the plans. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the provisions of
Statement 123, the Company's net income and income per share would have
been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share amounts):
2003 2002
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Net income (loss):
As reported $(516) $1,703
Pro forma (564) 1,658
Basic income (loss) per share:
As reported $(.05) $ .19
Pro forma (.05) .17
Diluted income (loss) per share:
As reported $(.05) $ .19
Pro forma (.05) .16
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 2002: dividend yield of 0%; expected
volatility of 57%; risk-free interest rates of 1.8%; and expected life of 3
years. The weighted average fair value of options granted during the
quarter ended March 31, 2002, was $2.47. No options were granted during the
first quarter of 2003.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) BUSINESS SEGMENT INFORMATION
----------------------------
Summarized financial information for the Company's operating segments is
shown in the following table (amounts in thousands). Amounts in the
"Corporate Activities" column represent corporate headquarters expenses,
corporate income tax expense, and results of insignificant operations. The
Company does not allocate assets between HBM, Products, and Corporate
Activities for internal reporting and performance evaluation purposes.
Operating segments and their principal products or services are as follows:
- Community-Based Model (CBM) - provides air medical transportation
services to the general population as an independent service in
fourteen states. Services include aircraft operation and maintenance,
medical care, dispatch and communications, and medical billing and
collection.
- Hospital-Based Model (HBM) - provides air medical transportation
services to hospitals throughout the U.S. under exclusive operating
agreements. Services include aircraft operation and maintenance.
- Products Division - designs, manufactures, and installs aircraft
medical interiors and other aerospace and medical transport products
for domestic and international customers.
Products Corporate Intersegment
FOR QUARTER ENDED MARCH 31: CBM HBM Division Activities Eliminations Consolidated
---------------------------------------------------------------------------------------------------------------
2003
External revenue $ 31,370 21,035 1,335 214 -- 53,954
Intersegment revenue -- -- 1,117 -- (1,117) --
-------------------------------------------------------------------------------
Total revenue 31,370 21,035 2,452 214 (1,117) 53,954
-------------------------------------------------------------------------------
Operating expenses 20,756 18,032 2,080 2,177 (982) 42,063
Depreciation & amortization 1,115 1,155 45 433 -- 2,748
Bad debt expense 7,986 -- -- -- -- 7,986
Interest expense 991 911 -- 104 -- 2,006
Interest income (1) (2) -- -- -- (3)
Income tax benefit -- -- -- (330) -- (330)
-------------------------------------------------------------------------------
Segment net income (loss) $ 523 939 327 (2,170) (135) (516)
===============================================================================
Total assets $ 62,214 N/A N/A 136,354 (2,164) 196,404
===============================================================================
2002
External revenue $ 14,788 10,093 1,462 -- -- 26,343
Intersegment revenue -- -- 189 -- (189) --
-------------------------------------------------------------------------------
Total revenue 14,788 10,093 1,651 -- (189) 26,343
-------------------------------------------------------------------------------
Operating expenses 8,285 7,987 1,234 930 (178) 18,258
Depreciation & amortization 584 701 40 46 -- 1,371
Bad debt expense 3,484 -- -- -- -- 3,484
Interest expense 253 192 -- -- -- 445
Interest income (1) (1) -- (4) -- (6)
Income tax expense -- -- -- 1,088 -- 1,088
-------------------------------------------------------------------------------
Segment net income (loss) $ 2,183 1,214 377 (2,060) (11) 1,703
===============================================================================
Total assets $ 37,722 N/A N/A 51,381 (2,164) 86,939
===============================================================================
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial condition
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in Item 1 of this report. This report
contains forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. The use of any of the words "believe," "expect,"
"anticipate," "plan," "estimate," and similar expressions are intended to
identify such statements. Forward-looking statements include statements
concerning possible or assumed future results of the Company; size, structure
and growth of the Company's air medical services and products markets;
continuation and/or renewal of HBM contracts; acquisition of new and profitable
Products Division contracts; flight volume of CBM operations; successful
integration of Rocky Mountain Holdings, LLC (RMH); and other matters. The actual
results that the Company achieves may differ materially from those discussed in
such forward-looking statements due to the risks and uncertainties described in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and in other sections of this report, as well as in the Company's
annual report on Form 10-K. The Company undertakes no obligation to update any
forward-looking statements.
RESULTS OF OPERATIONS
The Company reported a net loss of $516,000 for the three months ended March 31,
2003, compared to net income of $1,703,000 for the quarter ended March 31, 2002.
Operations were adversely impacted by lower flight volumes due to adverse
weather conditions, as discussed more fully below. The first quarter of 2003
includes the operations of RMH, which was acquired by the Company on October 16,
2002.
Flight revenue increased $27,852,000, or 113.6%, from $24,524,000 to $52,376,000
for the three months ended March 31, 2003, compared to 2002. Flight revenue is
generated by both CBM and HBM operations and is recorded net of contractual
allowances under agreements with third-party payers and Medicare/Medicaid
discounts.
- - CBM - Flight revenue increased $16,889,000, or 116.8%, to $31,354,000 in
the three months ended March 31, 2003, compared to 2002, for the following
reasons:
- Acquisition of RMH in October 2002. Flight revenue for RMH's CBM
operations totaled $17,917,000 for the first quarter of 2003.
- Revenue of $1,038,000 from the addition of three new CBM bases since
March 31, 2003.
- Average price increase of approximately 10% for all CBM operations
effective November 1, 2003.
- Decrease in flight volume for bases open longer than one year.
Excluding the impact of the RMH acquisition and the addition of the
new bases discussed above, total flight volume for all CBM operations
decreased 16.5% in the first quarter of 2003 compared to the prior
year. The decrease in flight volume is primarily attributed to adverse
weather conditions which prevented operation of the aircraft.
Approximately 1,200 flights were canceled in the first quarter due to
weather.
- - HBM - Flight revenue increased $10,963,000, or 109.0%, for the quarter
ended March 31, 2003, for the following reasons:
- Acquisition of RMH in October 2002. Flight revenue for RMH's HBM
operations totaled $10,439,000 during the first quarter of 2003.
- Revenue of approximately $665,000 generated by the addition of two new
contracts since the first quarter of 2002.
- Annual price increases in the majority of contracts based on changes
in hull insurance rates and in the Consumer Price Index.
- Decrease of 8.3% in flight volume for all contracts excluding RMH
contracts and the new contracts discussed above.
9
Sales of medical interiors and products decreased $127,000, or 8.7%, from
$1,462,000 for the three months ended March 31, 2002, to $1,335,000 for the
first quarter of 2003. Significant projects in the first quarter of 2003
included manufacture of modular medical interiors for three commercial
customers. Revenue by product line was as follows:
- - $1,172,000 - manufacture and installation of modular, medical interiors
- - $163,000 - design and manufacture of other aerospace and medical transport
products
Significant projects in the first quarter of 2002 included manufacture of five
HH-60L Multi-Mission Medevac Systems for the U.S. Army and manufacture of
medical interiors or multi-functional interior components for four commercial
customers. Revenue by product line was as follows:
- - $481,000 - manufacture and installation of modular, medical interiors
- - $768,000 - manufacture of multi-mission interiors
- - $213,000 - design and manufacture of other aerospace and medical transport
products
Cost of medical interiors and products increased by 19.8% for the three months
ended March 31, 2003, as compared to the previous year. The average net margin
earned on projects during the first quarter of 2003 was 22% compared to 44% in
2002, primarily due to the change in product mix. The margin earned on
multi-mission interiors is typically higher than the margins earned on modular
medical interiors for commercial customers. In addition, cost of medical
interiors and products includes certain fixed costs, such as administrative
salaries and facilities rent, which do not vary with volume of sales.
Flight center costs (consisting primarily of pilot, mechanic, and medical staff
salaries and benefits) increased 158.4% to $20,311,000 for the quarter ended
March 31, 2003, compared to 2002. Changes by business segment are as follows:
- - CBM - Flight center costs increased 196.6% to $11,996,000 for the following
reasons:
- Acquisition of RMH in October 2002. Flight center costs related to
RMH's CBM operations totaled approximately $6,840,000 for the first
quarter of 2003.
- Approximately $480,000 for the addition of personnel to staff new base
locations described above.
- Increases in salaries for merit pay raises.
- - HBM - Flight center costs increased 117.9% to $8,315,000 primarily due to
the following:
- Acquisition of RMH in October 2002. Flight center costs related to
RMH's HBM operations totaled approximately $3,980,000 for the first
quarter of 2003.
- Approximately $269,000 for the addition of personnel to staff new base
locations described above.
- Increases in salaries for merit pay raises.
Aircraft operating expenses increased 141.4% for the quarter ended March 31,
2003, in comparison to the quarter ended March 31, 2002. Aircraft operating
expenses consist primarily of fuel, insurance, and maintenance costs and
generally are a function of the size of the fleet, type of aircraft flown, and
number of hours flown. The increase in costs is due to the following:
- - Acquisition of RMH in October 2002. Expenses for the RMH fleet totaled
$6,070,000 during the first quarter of 2003.
- - Addition of three helicopters for CBM operations and one fixed wing
aircraft for HBM operations since March 31, 2002, resulting in an increase
of approximately $463,000 in aircraft operating expenses.
- - Addition of personnel in aircraft overhaul, avionics repair, and records
departments to support the increase in the size of the fleet resulting from
the RMH acquisition.
- - Hull and liability insurance rate increases of approximately 20% effective
July 2002, due to overall insurance market conditions.
Aircraft rental expense increased 146.8% for the first quarter of 2003 compared
to the first quarter of 2002. Expense for 37 RMH aircraft under operating leases
totaled $1,535,000 during the first quarter of 2003. Rental expense related to
three other leased aircraft added to the Company's fleet since March 31, 2002,
totaled $170,000 in the three months ended March 31, 2003.
Depreciation and amortization expense increased 100.4% for the three months
ended March 31, 2003, compared to 2002. Depreciation related to assets added as
part of the RMH acquisition totaled $1,261,000 during the first quarter of 2003.
10
Bad debt expense is estimated during the period the related services are
performed based on historical experience for CBM operations. The provision is
adjusted as required based on actual collections in subsequent periods. The
Company responds to calls for air medical transports without pre-screening the
credit worthiness of the patient. Bad debt expense increased 129.2% for the
quarter ended March 31, 2003, compared to 2002, due primarily to the acquisition
of RMH. Bad debt as a percentage of related net flight revenue increased
slightly from 24.1% in 2002 to 25.5% in 2003 and is consistent with historical
collection trends for CBM operations. Bad debt expense related to HBM operations
and Products Division was not significant in either 2003 or 2002.
General and administrative expenses increased 81.8% for the quarter ended March
31, 2003, compared to the quarter ended March 31, 2002 reflecting the impact of
the RMH transaction. General and administrative expenses include accounting and
finance, human resources, aviation management, and pilot training. The number of
personnel in each area increased by approximately 50% to manage the expanded
operations with the acquisition of RMH and the growth outlined above in the
discussion of flight revenue.
Interest expense increased 350.8% in the first quarter of 2003, compared to the
first quarter of 2002, primarily as a result of the RMH acquisition. Interest
expense related to debt assumed or incurred in conjunction with the RMH
acquisition totaled $1,589,000 for the three months ended March 31, 2003.
The Company recorded a deferred income tax benefit of $330,000 in the first
quarter of 2003 and deferred income tax expense of $1,088,000 in the first
quarter of 2002, both at an effective rate of 39%.
FINANCIAL CONDITION
Net working capital increased from $28,575,000 at December 31, 2002, to
$33,562,000 at March 31, 2003, primarily due to an increase in receivables
consistent with increased revenue for CBM and HBM operations and to a decrease
in accrued wages and compensated absences. Because of timing of the last payroll
date prior to the end of the quarter, approximately one week of wages was
accrued as of March 31, 2003, compared with two and a half weeks as of December
31, 2002. Cash and cash equivalents increased $1,811,000 from $1,410,000 to
$3,221,000 over the same period, for the reasons discussed below.
Cash used by operations in the first quarter of 2003 totaled $361,000 compared
to $133,000 generated in 2002. Significant uses of cash in 2003 included the
increase in receivables, net of bad debt expense, offset by the decrease in
accrued wages and compensated absences discussed above. The balance of accrued
overhaul and parts replacement costs also grew during the three months ended
March 31, 2003. The accrual increases with each hour flown by the fleet and is
offset when life-limited aircraft components are actually replaced or
overhauled. Prepaid and other current assets also decreased during the first
quarter of 2003 as a result of the amortization of insurance policies covering
the twelve months ending June 30, 2003.
Cash used by investing activities totaled $656,000 in 2003 compared to $507,000
in 2002. Equipment acquisitions in the first quarters of 2003 and 2002 consisted
primarily of medical interior and avionics installations or upgrades for
existing equipment. In the first quarter of 2003, the Company received $116,000
in full payment of a note receivable. During the first quarter of 2002, the
Company received proceeds from a sale-leaseback transaction for a BK117
helicopter.
Financing activities generated $2,828,000 in 2003 compared with using $908,000
in 2002. The primary use of cash in both 2003 and 2002 was regularly scheduled
payments of long-term debt and capital lease obligations. These payments were
offset in 2003 by draws against the Company's line of credit, proceeds from the
new debt agreements described below, and issuance of common stock for options
exercised during the quarter. Payments for long-term debt and purchases of
common stock were offset in part in 2002 by proceeds from the issuance of common
stock for options exercised.
11
In February 2003 the Company originated notes payable totaling $2,490,000 with
interest at LIBOR plus 2.50% to refinance mortgages on buildings in St. Louis,
Missouri, and Provo, Utah. The notes are payable through February 2008.
OUTLOOK 2003
The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The Company undertakes no obligation to update any forward-looking statements.
Community-Based Model
The Company opened CBM operations at new locations in Alabama and Illinois
during the first quarter of 2003 and expects to begin operations at a new
location in Georgia during the second quarter of 2003. Also in the second
quarter of 2003, the Company acquired certain business assets from another air
medical service provider with operations in southeastern Arizona, and, as a
result, increased the number of operating bases in the region from three to
four. The Company expects an increase in annual flight volume for the three
previously existing bases as a result of the acquisition, as well as an increase
in flight volume for the addition of the fourth base.
CBM flight volume at all other locations is expected to be consistent with
historical levels attained by the Company and RMH, subject to seasonal,
weather-related fluctuations, during the remainder of 2003. The Company
continues to evaluate opportunities to expand the CBM model in other
communities.
Hospital-Based Model
Four hospital contracts are due for renewal in 2003. One contract was renewed
during the second quarter of 2003 for a five-year term; renewals on the other
three contacts are still pending. The Company expects 2003 flight activity for
current hospital contracts to remain consistent with historical levels attained
by the Company and RMH, subject to seasonal, weather-related fluctuations.
Products Division
As of March 31, 2003, the Company was completing the production of four modular
medical interiors for three commercial customers and had received contracts for
the completion of two additional modular medical interiors. Remaining revenue
for these contracts is estimated at $1,365,000 and is expected to be recognized
during the remainder of 2003.
The Company expects to be awarded a contract for 11 HH-60L Multi-Mission Medevac
Systems during 2003, with delivery to be completed in 2004. The current U.S.
Army Aviation Modernization Plan defines a requirement for 357 units in total
over 20 years beginning in 1996. The Company also expects to receive a contract
for 15 additional MEV litter systems in 2003, with delivery to be completed in
2004. The U.S. Army has defined a requirement for a total of 121 units over 4
years, beginning with the units produced in 2002. There is no assurance that the
current contract option for either program will be exercised or orders for
additional units will be received in 2003 or in future periods.
All Segments
There can be no assurance that the Company will successfully integrate RMH
operations into its three divisions or continue to renew operating agreements
for its HBM operations, generate new profitable contracts for the Products
Division, or maintain flight volume for CBM operations. Based on the anticipated
level of HBM and CBM flight activity and the projects in process for the
Products Division, the Company expects to generate sufficient cash flow to meet
its operational needs throughout the remainder of 2003. The Company also had
approximately $16,392,000 in borrowing capacity available under the revolving
credit facility as of March 31, 2003.
12
RISK FACTORS
Actual results achieved by the Company may differ materially from those
described in forward-looking statements as a result of various factors,
including but not limited to, those discussed above in "Outlook for 2003" and
those described below.
- - RMH integration - On October 16, 2002, the Company acquired RMH, one of its
competitors, effectively doubling the size of its operations. While RMH is
engaged in the same lines of business as Air Methods, it has operated in
different geographic areas and under different procedures and protocols.
Although most of RMH's employees will continue as employees of the Company,
few of its management level employees have remained with the Company. As
with any large acquisition, a significant effort is required to assimilate
the operations, financial and accounting practices, and MIS systems, and to
integrate key personnel from the acquired business. This acquisition may
cause disruptions in Company operations and divert management's attention
from day-to-day operations. The Company may not realize the anticipated
benefits of this acquisition, profitability may suffer due to
acquisition-related costs or unanticipated liabilities, and the Company's
stock price may decrease if the financial markets consider the acquisition
to be inappropriately priced.
- - Highly leveraged balance sheet - The Company is obligated under debt
facilities providing for up to approximately $111 million of indebtedness,
of which approximately $90.8 million was outstanding at March 31, 2003. If
the Company fails to meet its payment obligations or otherwise defaults
under the agreements governing indebtedness, the lenders under those
agreements will have the right to accelerate the indebtedness and exercise
other rights and remedies against the Company. These rights and remedies
include the rights to repossess and foreclose upon the assets that serve as
collateral, initiate judicial foreclosure against the Company, petition a
court to appoint a receiver for the Company, and initiate involuntary
bankruptcy proceedings against the Company. If lenders exercise their
rights and remedies, the Company's assets may not be sufficient to repay
outstanding indebtedness, and there may be no assets remaining after
payment of indebtedness to provide a return on common stock.
- - Restrictive debt covenants - The subordinated notes and senior credit
facility, into which the Company entered to finance the acquisition of RMH,
both contain restrictive financial and operating covenants, including
restrictions on the Company's ability to incur additional indebtedness, to
exceed certain annual capital expenditure limits, and to engage in various
corporate transactions such as mergers, acquisitions, asset sales and the
payment of cash dividends. These restrictions will restrict future growth
through the limitation on capital expenditures and acquisitions, and may
adversely impact the Company's ability to implement its business plan.
Failure to comply with the covenants defined in the agreements or to
maintain the required financial ratios could result in an event of default
and accelerate payment of the principal balances due under the subordinated
notes and the senior credit facility.
- - Flight volume - All CBM revenue and approximately 35% of HBM revenue is
dependent upon flight volume. Approximately 20% of the Company's operating
expenses also vary with number of hours flown. Poor visibility, high winds,
and heavy precipitation can affect the safe operation of aircraft and
therefore result in a reduced number of flight hours due to the inability
to fly during these conditions. Prolonged periods of adverse weather
conditions could have an adverse impact on the Company's operating results.
Typically, the months from November through February tend to have lower
flight volume due to weather conditions and other factors, resulting in
lower CBM operating revenue during these months. Flight volume for CBM
operations can also be affected by the distribution of calls among
competitors by local government agencies and the entrance of new
competitors into a market.
- - Collection rates - The Company responds to calls for air medical transport
without pre-screening the creditworthiness of the patient. The CBM division
invoices patients and their insurers directly for services rendered and
recognizes revenue net of estimated contractual allowances. The level of
bad debt expense is driven by collection rates on these accounts.
Collectibility is affected by the number of uninsured or indigent patients
transported and is, therefore, primarily dependent upon the health of the
U.S. economy. Changes in estimated contractual allowances and bad debts are
recognized based on actual collections in subsequent
13
periods. A significant or sustained downturn in the U.S. economy could have
an adverse impact on the Company's bad debt expense.
- - Dependence on third party suppliers - The Company currently obtains a
substantial portion of its helicopter spare parts and components from Bell
Helicopter, Inc. (Bell) and American Eurocopter Corporation (AEC), because
its fleet is composed primarily of Bell and Eurocopter aircraft, and
maintains supply arrangements with other parties for its engine and related
dynamic components. Based upon the manufacturing capabilities and industry
contacts of Bell, AEC, and other suppliers, the Company believes it will
not be subject to material interruptions or delays in obtaining aircraft
parts and components but does not have an alternative source of supply for
Bell, AEC, and certain other aircraft parts. Failure or significant delay
by these vendors in providing necessary parts could, in the absence of
alternative sources of supply, have a material adverse effect on the
Company. Because of its dependence upon Bell and AEC for helicopter parts,
the Company may also be subject to adverse impacts from unusually high
price increases which are greater than overall inflationary trends.
Increases in the Company's flight fees billed to its customers are
generally limited to changes in the consumer price index.
- - Aviation industry hazards and insurance limitations - Hazards are inherent
in the aviation industry and may result in loss of life and property,
thereby exposing the Company to potentially substantial liability claims
arising out of the operation of aircraft. The Company may also be sued in
connection with medical malpractice claims arising from events occurring
during a medical flight. Under HBM operating agreements, hospitals
customers have agreed to indemnify the Company against liability arising
out of medical malpractice claims and to maintain insurance covering such
liability, but there can be no assurance that a hospital will not challenge
the indemnification rights or will have sufficient assets or insurance
coverage for full indemnity. In CBM operations, Company personnel perform
medical procedures on transported patients, which may expose the Company to
significant direct legal exposure to medical malpractice claims. The
Company maintains general liability aviation insurance, aviation product
liability coverage, and medical malpractice insurance, and believes that
the level of coverage is customary in the industry and adequate to protect
against claims. However, there can be no assurance that it will be
sufficient to cover potential claims or that present levels of coverage
will be available in the future at reasonable cost. A limited number of
hull and liability insurance underwriters provide coverage for air medical
operators. A significant downturn in insurance market conditions could have
a material adverse effect on the Company's cost of operations.
Approximately 40% of any increases in hull and liability insurance may be
passed through to the Company's customers according to contract terms. In
addition, the loss of any aircraft as a result of accidents could cause
both significant adverse publicity and interruption of air medical services
to client hospitals, which could adversely affect the Company's
relationship with such hospitals and operating results.
- - Governmental regulation - The air medical transportation services and
products industry is subject to extensive regulation by governmental
agencies, including the Federal Aviation Administration, which impose
significant compliance costs on the Company. In addition, reimbursement
rates for air ambulance services established by governmental programs such
as Medicare directly affect CBM revenue and indirectly affect HBM revenue
from hospital customers. Changes in laws or regulations or reimbursement
rates could have a material adverse impact on the Company's cost of
operations or revenue from flight operations.
- - Foreign ownership - Federal law requires that United States air carriers be
citizens of the United States. For a corporation to qualify as a United
States citizen, the president and at least two-thirds of the directors and
other managing officers of the corporation must be United States citizens
and at least 75% of the voting interest of the corporation must be owned or
controlled by United States citizens. If the Company is unable to satisfy
these requirements, operating authority from the Department of
Transportation may be revoked. Furthermore, under certain loan agreements,
an event of default occurs if less than 80% of the voting interest is owned
or controlled by United States citizens. As of March 31, 2003, the Company
was aware of one foreign person who holds approximately 9.5% of outstanding
Common Stock. Because the Company is unable to control the transfer of its
stock, it is unable to assure that it can remain in compliance with these
requirements in the future.
14
- - Competition - HBM operations face significant competition from several
national and regional air medical transportation providers for contracts
with hospitals and other healthcare institutions. CBM operations also face
competition from smaller regional carriers and alternative air ambulance
providers such as sheriff departments. Operators generally compete on the
basis of price, safety record, accident prevention and training, and
medical capability of the aircraft offered. The Company's competition in
the aircraft interior design and manufacturing industry comes primarily
from two companies based in the United States and one in Europe.
Competition is based mainly on product features, performance, price, and
weight. There can be no assurance that the Company will be able to continue
to compete successfully for new or renewing contracts in the future.
- - Department of Defense funding - Several of the projects which have
historically been significant sources of revenue for the Products Division,
including HH-60L and MEV systems, are dependent upon Department of Defense
funding. Failure of the U.S. Congress to approve funding for the production
of additional HH-60L or MEV units could have a material adverse impact on
Products Division revenue.
- - Shareholder dilution - As of March 31, 2003, there were outstanding stock
options to purchase approximately 560,618 shares of common stock and
outstanding warrants to purchase 593,224 shares of common stock. To the
extent that the outstanding stock options or warrants are exercised,
dilution to the interest of common stockholders will occur. Moreover, the
terms upon which the Company will be able to obtain additional equity
capital may be adversely affected since the holders of the outstanding
options can be expected to exercise them at a time when any needed capital
may be able to be obtained on terms more favorable than those provided in
the outstanding options.
- - Employee recruitment and retention - An important aspect of the Company's
operations is the ability to hire and retain employees who have advanced
aviation, nursing, and other technical skills. In addition, hospital
contracts typically contain minimum certification requirements for pilots
and mechanics. Employees who meet these standards are in great demand and
are likely to remain a limited resource in the foreseeable future. If the
Company is unable to recruit and retain a sufficient number of these
employees, the ability to maintain and grow the business could be
negatively impacted.
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, uncollectible receivables,
deferred income taxes, and aircraft overhaul costs. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition
Fixed flight fee revenue under the Company's operating agreements with hospitals
is recognized monthly over the terms of the agreements. Flight revenue relating
to patient transports is recognized upon completion of the services. Revenue and
accounts receivable are recorded net of estimated contractual allowances under
agreements with third-party payers. Estimates of contractual allowances are
initially determined based on historical discount percentages for Medicare and
Medicaid patients and adjusted periodically based on actual discounts. If actual
discounts realized are more or less than those projected by management,
adjustments to contractual allowances may be required.
15
Revenue related to fixed fee medical interior and products contracts is recorded
as costs are incurred using the percentage of completion method of accounting.
The Company estimates the percentage of completion based on costs incurred to
date as a percentage of an estimate of the total costs to complete the project.
Certain products contracts provide for reimbursement of all costs plus an
incremental amount. Revenue on these contracts is also recorded as costs are
incurred. Losses on contracts in process are recognized when determined. If
total costs to complete a project are greater or less than estimated, the gross
margin on the project may be greater or less than originally recorded under the
percentage of completion method.
Uncollectible Receivables
The Company responds to calls for air medical transports without pre-screening
the credit worthiness of the patient. Uncollectible trade receivables are
charged to operations using the allowance method. Estimates of uncollectible
receivables are determined monthly based on historical collection rates and
adjusted monthly thereafter based on actual collections. If actual future
collections are more or less than those projected by management, adjustments to
allowances for uncollectible accounts may be required. While bad debt expenses
have historically been within expectations and the allowances established, there
can be no guarantee that the Company will continue to experience the same
collection rates that it has in the past.
Deferred Income Taxes
In preparation of the consolidated financial statements, the Company is required
to estimate income taxes in each of the jurisdictions in which it operates. This
process involves estimating actual current tax exposure together with assessing
temporary differences resulting from differing treatment of items, such as
depreciable assets and maintenance reserves, for tax and accounting purposes.
These differences result in deferred tax assets and liabilities, which are
included in the consolidated balance sheets. The Company then assesses the
likelihood that deferred tax assets will be recoverable from future taxable
income and records a valuation allowance for those amounts it believes are not
likely to be realized. Establishing or increasing a valuation allowance in a
period results in income tax expense in the statement of operations. The Company
considers estimated future taxable income, tax planning strategies, and the
expected timing of reversals of existing temporary differences in assessing the
need for a valuation allowance against deferred tax assets. In the event the
Company were to determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to the valuation
allowance would be charged to income in the period such determination was made.
Likewise, should the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the valuation allowance would increase income in the period such
determination was made.
Aircraft Overhaul Costs
The Company uses the accrual method of accounting for major engine and airframe
component overhauls and replacements. The cost of overhaul or replacement is
estimated using published manufacturers' price lists, when available, or
historical experience. This cost is accrued based on usage of the aircraft
component over the period between overhauls or replacements as mandated by the
parts manufacturer. If the cost of overhaul or replacement is greater or less
than estimated by management, more or less aircraft operating costs may be
recorded in the period in which the price increase becomes effective or in which
the aircraft component is overhauled.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as foreign currency exchange and interest rates. All of the
Company's product sales and related receivables are payable in U.S. dollars. The
Company is subject to interest rate risk on its debt obligations and notes
receivable, most of which have fixed interest rates, except $14,594,000
outstanding against the senior revolving credit facility and $2.6 million in
notes payable. Based on the amounts outstanding at March 31, 2003, the annual
impact of a 1% change in interest rates would be approximately $171,000.
Interest rates on these instruments approximate current market rates as of March
31, 2003. Periodically the Company enters into interest rate risk hedges to
minimize exposure to the effect of an increase in interest rates.
16
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation of the Company's internal controls, disclosure
controls and procedures within 90 days of the filing date of this report, the
Chief Executive Officer and the Chief Financial Officer have concluded that the
effectiveness of such controls and procedures is satisfactory. Further, there
were not any significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated January 1, 2003, between the
Company and Aaron D. Todd
10.2 Employment Agreement dated January 1, 2003, between the
Company and George W. Belsey
99.1 Certification adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AIR METHODS CORPORATION
Date: May 15, 2003 By /s/ George W. Belsey
------------------------------------------
George W. Belsey
Chief Executive Officer and Chairman of the
Board (Principal Executive Officer)
Date: May 15, 2003 By /s/ Aaron D. Todd
------------------------------------------
Aaron D. Todd
On behalf of the Company, and as Principal
Financial Officer
Date: May 15, 2003 By /s/ Sharon J. Keck
------------------------------------------
Sharon J. Keck
Principal Accounting Officer
18
SECTION 302 CHIEF EXECUTIVE OFFICER CERTIFICATION
I, George W. Belsey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Air Methods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ George W. Belsey
- ------------------------
George W. Belsey
Chief Executive Officer
SECTION 302 CHIEF FINANCIAL OFFICER CERTIFICATION
I, Aaron D. Todd, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Air Methods
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Aaron D. Todd
- ----------------------
Aaron D. Todd
Chief Financial Officer