Thanks for the link but what I was hoping for was
a search string that I could use within the
document. But at any rate I found what I needed and you are
correct. Looks like the bad debt expense is just a part of
the way Mercy does business. Just seems odd that a
company would write off 21% of their revenues each year,
but if they aren't going to collect them it's better
to write 'em off rather than carry the
uncollectibles on the books like the bad loans the Japanese
The section that explains the bad
debt was in the 10-k and it is just what ecl61 has
been saying. "Bad debt expense is estimated during the
period the related services are performed based on
historical experience for Mercy's operations. The
is adjusted as required based on actual collections
in subsequent periods. Bad debt expense increased in
1997 compared to an immaterial amount in 1996 because
Mercy bills patients and their insurers directly for
services rendered rather than billing hospital
The 6 cent estimate still looks like an accurate
estimate although I could see it come in as high as 8
Go to this link to read the
Somewhere in there it explains about the way Mercy records
revenue and the corresponding bad debt expense.
look at the proforma near the end. It shows that Mercy
had $1.5M bad debt expense in the first 6 months of
1997. That would be about $750,000 per quarter - so
last quarter was a GOOD quarter with less than
$500,000 bad debt expense.Let's hope that's a trend.
I couldn't find what you referred to about the
bad debt expense. If you could provide a search
string I'd appreciate it. It appears to me that the
money to be paid to the sellers of Mercy will be
reduced by the amount of the receivables that AIRM cannot
collect. That seems logical to me, if Mercy has $3 million
in Accounts Receivable but $2 million of it is
uncollectible then they shouldn't be paid for it. I was
assuming that this is why these numbers are showing up as
a non-operating expense and I also assumed that
these numbers would shrink to close to zero as the
company wrote off all the uncollectibles, and that's why
I was adjusting the figures to find the actual EPS.
But, I could be wrong about this and if I am then it
will be even harder for AIRM to post decent numbers
because I was sending that half million straight to the
bottom line. Damn, I really like this company. I guess
we'll just have to wait for the numbers to come out.
Earnings estimates for small companies like this are
really tricky. A little bit more Revenue here and a bit
more control over expenses there could throw off the
EPS by 25% or more.
The bad debt allowance for Mercy has little to do
with the earnings projections. Air Methods earned .21
last year. The earnings were AFTER the allowance and
there was not a one time credit. Mercy bills directly
so what they put on the books is more than they
actually collect, hence the allowance. As the collections
come in, the allowance is decreased, but as more
billings are added, the allowance grows. So after a time
the allowance becomes a stable number.
only lists the Brous predictions for Air Methods and
they are out of date. The numbers Air Methods releases
are very conservative as has been discussed
previously on this board. The company depreciates their
flying stock, which generates value in excess of that
carried on the books.
Last January, they
recaptured the depreciation on the helicopter that was
unfortunately lost, generating a credit which appears on their
Last year without Mercy, the company posted earnings
of 5 cents. Mercy continues to be a profitable
operation. So I think that 6 cents is probably
The Red Chip analyst is new to the company. She may
not be used to the low-key responses from this
management. I know they are disappointed at not having the
contracts for the first 7 Sikorsky helicopter interiors in
hand. But they will get them some time soon and
manufacturing will eventually add significant growth to the
bottom line. In the Red Chip revision the analyst refers
to that possibility as a wild card. Well, that card
will fall; the question is exactly when.
the stock back to near $4, we are back in the
excellent value range, irrespective of the earnings in the
I know some people who are
delighted to see the current weakness. They are picking up
the stock dumped by the paniced traders.
Follow your investment plan and don't do something
emotional and stupid.
Actually, if you go back to the 8K filing
concerning the merger you will find that the bad debt
expense is not a one-time write-off but an ongoing
expense related to the way Mercy is paid. I think this is
why they did not adjust earnings for this item. This
means that they are forecasting a .21 for 1998 vs. the
same amount for 1997. Don't get me wrong - I like
AIRM, but until they can prove that they can increase
earnings above this level it will be slow going.
It has been interesting watching the stock
movement of AIRM the last day or two. Just yesterday I
read an article regarding stock price volatility and
the role of the Market Makers on the NASDAQ exchange
and the difference between NASDAQ, where we have
middle men and the NYSE which is a true Auction,
matching buyers and sellers. I found this article posted
on the CLST board and really appreciated the
information they had passed on, so I wanted to make you aware
of the info as well. I think if you trade stocks on
the NASDAQ, you will find this to be of great
Now the bid is down at a pathetic 3 7/8.
doesn't seem hard for me to understand. After 7 cents in
the 3rd quarter last year and 8 cents in the 4th
quarter, then coming in at 6 cents in the 2nd quarter
which is normally seasonally stronger than the 4th
quarter is disappointing.
It doesn't matter that it's
up one cent from 2nd quarter last year.
would be quite disappointing.
Hopefully ecl61 is
correct and Red Chip is way off base.
I just read it wrong. Just
a little nervous as there seems to be a lot of
weakness in the stock. Bid is at 4 1/8 and we haven't been
down in this range for along time. No reason it should
be doing this....