UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark One)
| ☒ | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | June
30, 2015 |
OR
| ☐ | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For
the transition period from | |
to |
|
Commission
file number 0-16079
| |
AIR
METHODS CORPORATION |
|
| (Exact
name of Registrant as Specified in Its Charter) |
| |
Delaware |
|
|
|
84-0915893 |
|
| (State
or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer 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
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 ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “accelerated filer,” “large accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated Filer ☒ |
Accelerated Filer ☐ |
| Non-accelerated Filer ☐ (Do not check if a smaller reporting company) |
Smaller reporting company ☐ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes ☐ No ☒
The number of shares of Common Stock outstanding as
of July 31, 2015, was 39,293,457.
TABLE OF CONTENTS
PART
I: FINANCIAL INFORMATION
Item
1. Condensed Consolidated Financial Statements
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Amounts
in thousands, except share and per share amounts)
(unaudited)
| |
|
June
30, |
|
|
December
31, |
|
| |
|
2015 |
|
|
2014 |
|
| Assets |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
| Cash
and cash equivalents |
|
$ |
28,861 |
|
|
|
13,165 |
|
| Receivables: |
|
|
|
|
|
|
|
|
| Trade,
net (note 4) |
|
|
306,114 |
|
|
|
293,985 |
|
| Refundable
income taxes |
|
|
-- |
|
|
|
8,865 |
|
| Other |
|
|
2,976 |
|
|
|
4,802 |
|
| Total
receivables |
|
|
309,090 |
|
|
|
307,652 |
|
| |
|
|
|
|
|
|
|
|
| Inventories |
|
|
46,186 |
|
|
|
46,095 |
|
| Work-in-process
on medical interiors and products contracts |
|
|
3,327 |
|
|
|
4,610 |
|
| Assets
held for sale |
|
|
11,265 |
|
|
|
8,608 |
|
| Costs
and estimated earnings in excess of billings on uncompleted contracts |
|
|
1,510 |
|
|
|
564 |
|
| Refundable
deposits |
|
|
10,016 |
|
|
|
8,381 |
|
| Prepaid
expenses and other (note 6) |
|
|
8,373 |
|
|
|
10,766 |
|
| |
|
|
|
|
|
|
|
|
| Total
current assets |
|
|
418,628 |
|
|
|
399,841 |
|
| |
|
|
|
|
|
|
|
|
| Property and equipment: |
|
|
|
|
|
|
|
|
| Land |
|
|
251 |
|
|
|
251 |
|
| Flight
and ground support equipment |
|
|
757,270 |
|
|
|
697,444 |
|
| Aircraft
under capital leases |
|
|
182,188 |
|
|
|
196,302 |
|
| Aircraft
rotable spare parts |
|
|
36,796 |
|
|
|
38,050 |
|
| Buildings
and office equipment |
|
|
61,565 |
|
|
|
57,983 |
|
| |
|
|
1,038,070 |
|
|
|
990,030 |
|
| Less
accumulated depreciation and amortization |
|
|
(286,536 |
) |
|
|
(268,049 |
) |
| |
|
|
|
|
|
|
|
|
| Net
property and equipment |
|
|
751,534 |
|
|
|
721,981 |
|
| |
|
|
|
|
|
|
|
|
| Goodwill
(note 2) |
|
|
127,269 |
|
|
|
127,269 |
|
| Intangible
assets, net of accumulated amortization of $21,811 and $19,282 at June 30, 2015 and December 31, 2014, respectively |
|
|
114,639 |
|
|
|
83,654 |
|
| Other
assets |
|
|
31,640 |
|
|
|
28,560 |
|
| |
|
|
|
|
|
|
|
|
| Total
assets |
|
$ |
1,443,710 |
|
|
|
1,361,305 |
|
(Continued)
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED BALANCE SHEETS, Continued
(Amounts
in thousands, except share and per share amounts)
(unaudited)
| |
|
June
30, |
|
|
December
31, |
|
| |
|
2015 |
|
|
2014 |
|
| Liabilities
and Stockholders’ Equity |
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
| Notes payable |
|
$ |
16,314 |
|
|
|
11,442 |
|
| Current installments
of long-term debt |
|
|
47,526 |
|
|
|
45,827 |
|
| Current installments
of obligations under capital leases |
|
|
22,365 |
|
|
|
23,954 |
|
| Accounts payable |
|
|
21,985 |
|
|
|
17,393 |
|
| Deferred revenue |
|
|
4,710 |
|
|
|
4,409 |
|
| Billings in excess of
costs and estimated earnings on uncompleted contracts |
|
|
2,310 |
|
|
|
1,313 |
|
| Accrued wages and compensated
absences |
|
|
27,270 |
|
|
|
31,539 |
|
| Due to third party payers |
|
|
9,699 |
|
|
|
7,426 |
|
| Deferred income taxes |
|
|
16,536 |
|
|
|
21,427 |
|
| Other
accrued liabilities |
|
|
33,041 |
|
|
|
15,537 |
|
| |
|
|
|
|
|
|
|
|
| Total
current liabilities |
|
|
201,756 |
|
|
|
180,267 |
|
| |
|
|
|
|
|
|
|
|
| Long-term debt, less
current installments |
|
|
496,440 |
|
|
|
466,839 |
|
| Obligations under capital
leases, less current installments |
|
|
81,561 |
|
|
|
96,534 |
|
| Deferred income taxes |
|
|
129,889 |
|
|
|
122,715 |
|
| Other
liabilities |
|
|
11,521 |
|
|
|
16,060 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities |
|
|
921,167 |
|
|
|
882,415 |
|
| |
|
|
|
|
|
|
|
|
| Redeemable non-controlling
interests |
|
|
7,582 |
|
|
|
6,981 |
|
| |
|
|
|
|
|
|
|
|
| Stockholders’ equity
(note 3): |
|
|
|
|
|
|
|
|
| Preferred stock, $1
par value. Authorized 15,000,000 shares, none issued |
|
|
-- |
|
|
|
-- |
|
| Common stock, $.06
par value. Authorized 70,500,000 shares; issued 39,500,652 and 39,452,753 shares at June 30, 2015 and December 31, 2014, respectively;
outstanding 39,278,291 and 39,228,948 shares at June 30, 2015 and December 31, 2014, respectively |
|
|
2,352 |
|
|
|
2,349 |
|
| Additional paid-in capital |
|
|
124,560 |
|
|
|
120,391 |
|
| Retained earnings |
|
|
389,145 |
|
|
|
349,805 |
|
| Accumulated other comprehensive
loss |
|
|
(1,096 |
) |
|
|
(636 |
) |
| |
|
|
|
|
|
|
|
|
| Total
stockholders’ equity |
|
|
514,961 |
|
|
|
471,909 |
|
| |
|
|
|
|
|
|
|
|
| Total
liabilities and stockholders’ equity |
|
$ |
1,443,710 |
|
|
|
1,361,305 |
|
See
accompanying notes to unaudited condensed consolidated financial statements.
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts
in thousands, except share and per share amounts)
(unaudited)
| |
|
Three
Months Ended
June
30, |
|
|
Six
Months Ended
June
30, |
|
| |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
| Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
| Patient
transport revenue, net of provision for contractual discounts (note 4) |
|
$ |
355,607 |
|
|
$ |
297,212 |
|
|
|
646,643 |
|
|
|
545,741 |
|
| Provision
for uncompensated care (note 4) |
|
|
(173,347 |
) |
|
|
(126,673 |
) |
|
|
(302,567 |
) |
|
|
(233,340 |
) |
| Patient transport
revenue, net |
|
|
182,260 |
|
|
|
170,539 |
|
|
|
344,076 |
|
|
|
312,401 |
|
| Air medical services
contract revenue |
|
|
38,775 |
|
|
|
45,790 |
|
|
|
79,414 |
|
|
|
90,551 |
|
| Tourism and charter
revenue |
|
|
34,444 |
|
|
|
31,430 |
|
|
|
62,665 |
|
|
|
55,768 |
|
| Medical interiors
and products revenue |
|
|
4,450 |
|
|
|
7,404 |
|
|
|
8,587 |
|
|
|
15,224 |
|
| Dispatch
and billing service revenue |
|
|
3,673 |
|
|
|
2,474 |
|
|
|
7,159 |
|
|
|
4,762 |
|
| |
|
|
263,602 |
|
|
|
257,637 |
|
|
|
501,901 |
|
|
|
478,706 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Flight
centers |
|
|
98,619 |
|
|
|
86,561 |
|
|
|
192,411 |
|
|
|
174,016 |
|
| Aircraft
operations (note 6) |
|
|
31,229 |
|
|
|
31,720 |
|
|
|
68,569 |
|
|
|
63,246 |
|
| Tourism
operating expenses |
|
|
23,092 |
|
|
|
19,476 |
|
|
|
42,943 |
|
|
|
35,476 |
|
| Cost
of medical interiors and products sold |
|
|
3,529 |
|
|
|
6,538 |
|
|
|
6,730 |
|
|
|
13,217 |
|
| Cost
of dispatch and billing services |
|
|
3,090 |
|
|
|
2,395 |
|
|
|
5,911 |
|
|
|
4,924 |
|
| Depreciation
and amortization |
|
|
21,154 |
|
|
|
20,123 |
|
|
|
41,198 |
|
|
|
40,495 |
|
| Loss
on disposition of assets, net |
|
|
531 |
|
|
|
806 |
|
|
|
269 |
|
|
|
1,213 |
|
| General
and administrative |
|
|
33,622 |
|
|
|
35,807 |
|
|
|
69,347 |
|
|
|
67,132 |
|
| |
|
|
214,866 |
|
|
|
203,426 |
|
|
|
427,378 |
|
|
|
399,719 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating
income |
|
|
48,736 |
|
|
|
54,211 |
|
|
|
74,523 |
|
|
|
78,987 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(5,163 |
) |
|
|
(5,569 |
) |
|
|
(10,148 |
) |
|
|
(11,097 |
) |
| Other,
net |
|
|
1,172 |
|
|
|
292 |
|
|
|
1,536 |
|
|
|
266 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income
from continuing operations before income taxes |
|
|
44,745 |
|
|
|
48,934 |
|
|
|
65,911 |
|
|
|
68,156 |
|
| Income
tax expense |
|
|
(17,339 |
) |
|
|
(19,132 |
) |
|
|
(25,629 |
) |
|
|
(26,777 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income from continuing
operations |
|
|
27,406 |
|
|
|
29,802 |
|
|
|
40,282 |
|
|
|
41,379 |
|
| Loss
on discontinued operations, net of income taxes (note 2) |
|
|
(340 |
) |
|
|
(878 |
) |
|
|
(349 |
) |
|
|
(1,403 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
27,066 |
|
|
|
28,924 |
|
|
|
39,933 |
|
|
|
39,976 |
|
| Less
net income attributable to redeemable non-controlling interests |
|
|
243 |
|
|
|
134 |
|
|
|
482 |
|
|
|
297 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income attributable to Air Methods Corporation and subsidiaries |
|
$ |
26,823 |
|
|
$ |
28,790 |
|
|
|
39,451 |
|
|
|
39,679 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other
comprehensive income (loss), net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign
currency translation adjustments |
|
|
(85 |
) |
|
|
111 |
|
|
|
(460 |
) |
|
|
46 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
26,738 |
|
|
$ |
28,901 |
|
|
|
38,991 |
|
|
|
39,725 |
|
(Continued)
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME, continued
(Amounts
in thousands, except share and per share amounts)
(unaudited)
| |
|
Three
Months Ended
June 30, |
|
|
Six
Months Ended
June 30, |
|
| |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Income per common
share (note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
| Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
| Continuing
operations |
|
$ |
.69 |
|
|
|
.75 |
|
|
|
1.01 |
|
|
|
1.05 |
|
| Discontinued
operations |
|
|
(.01 |
) |
|
|
(.02 |
) |
|
|
(.01 |
) |
|
|
(.04 |
) |
| Net
income |
|
$ |
.68 |
|
|
|
.73 |
|
|
|
1.00 |
|
|
|
1.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Continuing
operations |
|
$ |
.69 |
|
|
|
.75 |
|
|
|
1.01 |
|
|
|
1.05 |
|
| Discontinued
operations |
|
|
(.01 |
) |
|
|
(.02 |
) |
|
|
(.01 |
) |
|
|
(.04 |
) |
| Net
income |
|
$ |
.68 |
|
|
|
.73 |
|
|
|
1.00 |
|
|
|
1.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted
average number of common shares outstanding – basic |
|
|
39,272,325 |
|
|
|
39,151,012 |
|
|
|
39,267,222 |
|
|
|
39,135,292 |
|
| Weighted
average number of common shares outstanding – diluted |
|
|
39,405,889 |
|
|
|
39,318,480 |
|
|
|
39,400,193 |
|
|
|
39,314,872 |
|
See
accompanying notes to unaudited condensed consolidated financial statements.
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
(unaudited)
| |
|
Six
Months Ended June 30, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| Cash
flows from operating activities: |
|
|
|
|
|
|
| Net
income |
|
$ |
39,933 |
|
|
$ |
39,976 |
|
| Loss
from discontinued operations, net of income taxes |
|
|
349 |
|
|
|
1,403 |
|
| Adjustments
to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| Depreciation
and amortization expense |
|
|
41,198 |
|
|
|
40,495 |
|
| Deferred
income tax expense |
|
|
2,491 |
|
|
|
9,207 |
|
| Stock-based
compensation |
|
|
3,604 |
|
|
|
1,513 |
|
| Tax
benefit from exercise of stock options |
|
|
(160 |
) |
|
|
(1,010 |
) |
| Loss
on disposition of assets, net |
|
|
269 |
|
|
|
1,213 |
|
| Unrealized
loss on derivative instrument |
|
|
256 |
|
|
|
64 |
|
| Loss
from equity method investee |
|
|
353 |
|
|
|
603 |
|
| Changes
in assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
| Decrease
(increase) in prepaid expenses and other current assets |
|
|
502 |
|
|
|
(399 |
) |
| Increase
in receivables |
|
|
(1,605 |
) |
|
|
(32,492 |
) |
| Decrease
in inventories |
|
|
1,192 |
|
|
|
2,162 |
|
| Decrease
(increase) in costs in excess of billings |
|
|
(946 |
) |
|
|
1,375 |
|
| Increase
in accounts payable, other accrued liabilities, and other liabilities |
|
|
19,492 |
|
|
|
11,881 |
|
| Increase
(decrease) in deferred revenue and billings in excess of costs |
|
|
1,298 |
|
|
|
(1,398 |
) |
| |
|
|
|
|
|
|
|
|
| Net
cash provided by continuing operating activities |
|
|
108,226 |
|
|
|
74,593 |
|
| Net
cash used by discontinued operating activities |
|
|
(47 |
) |
|
|
(1,198 |
) |
| Net
cash provided by operating activities |
|
|
108,179 |
|
|
|
73,395 |
|
| |
|
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
| Acquisition
of subsidiaries |
|
|
-- |
|
|
|
(3,182 |
) |
| Acquisition
of property and equipment |
|
|
(48,355 |
) |
|
|
(65,752 |
) |
| Acquisition
of hospital program |
|
|
(43,481 |
) |
|
|
-- |
|
| Buy-out
of previously leased aircraft |
|
|
(7,569 |
) |
|
|
(17,296 |
) |
| Proceeds
from disposition and sale of equipment and assets held for sale |
|
|
2,664 |
|
|
|
9,156 |
|
| Decrease
(increase) in other assets |
|
|
(10,741 |
) |
|
|
447 |
|
| Net
cash used by continuing investing activities |
|
|
(107,482 |
) |
|
|
(76,627 |
) |
| Net
cash provided (used) by discontinued investing activities |
|
|
25 |
|
|
|
(157 |
) |
| Net
cash used in investing activities |
|
|
(107,457 |
) |
|
|
(76,784 |
) |
(Continued)
Air
Methods Corporation and Subsidiaries
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(Amounts
in thousands)
(unaudited)
| |
|
Six
Months Ended June 30, |
|
| |
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
| Proceeds
from issuance of common stock, net |
|
$ |
408 |
|
|
|
479 |
|
| Tax
benefit from exercise of stock options |
|
|
160 |
|
|
|
1,010 |
|
| Borrowings
under line of credit |
|
|
35,000 |
|
|
|
23,000 |
|
| Payments
under line of credit |
|
|
(35,000 |
) |
|
|
(22,000 |
) |
| Payments
for financing costs |
|
|
(54 |
) |
|
|
(75 |
) |
| Proceeds
from long-term debt |
|
|
55,321 |
|
|
|
34,429 |
|
| Payments
of long-term debt |
|
|
(24,021 |
) |
|
|
(18,803 |
) |
| Payments
of capital lease obligations |
|
|
(16,840 |
) |
|
|
(21,694 |
) |
| Proceeds
from non-controlling interests |
|
|
-- |
|
|
|
98 |
|
| |
|
|
|
|
|
|
|
|
| Net
cash provided (used) by continuing financing activities |
|
|
14,974 |
|
|
|
(3,556 |
) |
| Net
cash provided (used) by discontinued financing activities |
|
|
-- |
|
|
|
-- |
|
| Net
cash provided (used) by financing activities |
|
|
14,974 |
|
|
|
(3,556 |
) |
| |
|
|
|
|
|
|
|
|
| Increase
(decrease) in cash and cash equivalents |
|
|
15,696 |
|
|
|
(6,945 |
) |
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents at beginning of period |
|
|
13,165 |
|
|
|
9,862 |
|
| |
|
|
|
|
|
|
|
|
| Cash
and cash equivalents at end of period |
|
$ |
28,861 |
|
|
|
2,917 |
|
| |
|
|
|
|
|
|
|
|
| Interest
paid in cash during the period |
|
$ |
9,799 |
|
|
|
10,695 |
|
| |
|
|
|
|
|
|
|
|
| Income
taxes paid in cash during the period |
|
$ |
3,129 |
|
|
|
268 |
|
Non-cash
investing and financing activities:
In
the six months ended June 30, 2015, the Company entered into non-interest-bearing notes payable of $16,314 to finance the purchase
of aircraft which were held in property and equipment pending permanent financing as of June 30, 2015, and into capital leases
of $278 to finance the purchase of equipment. The Company also settled non-interest-bearing notes payable of $11,442 in exchange
for the aircraft securing the debt.
In
the six months ended June 30, 2014, the Company entered into non-interest-bearing notes payable of $5,738 to finance the purchase
of aircraft which were held in property and equipment pending permanent lease financing as of June 30, 2014, and into capital
leases of $548 to finance the purchase of equipment. The Company also settled non-interest-bearing notes payable of $2,616 in
exchange for the aircraft securing the debt.
See
accompanying notes to unaudited condensed consolidated financial statements.
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(unaudited)
| (1) |
Basis of Presentation |
| |
|
| |
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
for interim financial information and instructions to Form 10-Q and Regulation S-X. Accordingly, the accompanying unaudited
condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the condensed consolidated financial statements for the respective periods. Interim results are not necessarily
indicative of results for a full year. The condensed consolidated financial statements should be read in conjunction with
the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2014. |
| |
|
| |
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America (GAAP) 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, deferred income taxes, valuation of long-lived assets, and fair values of assets acquired
and liabilities assumed in business combinations. Actual results could differ from those estimates. |
| |
|
| (2) |
Discontinued Operations |
| |
|
| |
In July 2013, the Company acquired
all of the outstanding common stock of American Jets, Inc., and all of the assets of an affiliated entity (collectively, AJI)
for a purchase price of approximately $1.7 million. AJI provided long-range fixed wing medical transportation services based
out of Florida. Because of operating losses generated in both 2014 and 2013, the Company made the decision during the fourth
quarter of 2014 to discontinue all operations conducted by AJI, and all operations ceased in December 2014. Aircraft totaling
$1.3 million used in AJI’s operations are included in assets held for sale in the consolidated balance sheet as of June
30, 2015. Goodwill of $1.5 million associated with AJI was written off during the fourth quarter of 2014. All other assets
and liabilities associated with AJI are immaterial and will be retained by the Company. |
| |
|
| |
Results of operations for all periods
have been reclassified to reflect discontinued operations presentation. Except where otherwise noted, all disclosures in footnotes
to the consolidated financial statements represent the results of continuing operations. The results of discontinued operations
included in the consolidated statements of comprehensive income were as follows (amounts in thousands): |
| |
| |
For
quarters ended June 30, | |
For
six months ended June 30, |
|
| |
| |
2015 |
| |
2014 |
| |
2015 |
| |
|
2014 |
|
| |
Patient transport revenue,
net | |
$ | -- | | |
| 834 | | |
| -- | | |
| 2,901 | |
| |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
| |
Depreciation and amortization | |
| -- | | |
| 150 | | |
| -- | | |
| 294 | |
| |
Loss on disposition
of assets | |
| 561 | | |
| -- | | |
| 546 | | |
| -- | |
| |
Other
operating expenses | |
| 6 | | |
| 2,123 | | |
| 35 | | |
| 4,906 | |
| |
Loss
from discontinued operations before income taxes | |
| (567 | ) | |
| (1,439 | ) | |
| (581 | ) | |
| (2,299 | ) |
| |
Income tax benefit | |
| 227 | | |
| 561 | | |
| 232 | | |
| 896 | |
| |
Loss from discontinued
operations | |
$ | (340 | ) | |
$ | (878 | ) | |
$ | (349 | ) | |
| (1,403 | ) |
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements, continued
(unaudited)
| (3) |
Stockholders’ Equity |
| |
|
| |
Changes in stockholders’ equity for the six months ended
June 30, 2015, consisted of the following (amounts in thousands except share amounts): |
| | |
Shares | |
|
| | |
Outstanding | |
|
Amount |
|
| | |
| | | |
| | |
| Balances
at January 1, 2015 | |
| 39,228,948 | | |
$ | 471,909 | |
| | |
| | | |
| | |
| Issuance of common
shares for options exercised | |
| 33,840 | | |
| 408 | |
| Stock-based compensation | |
| 15,503 | | |
| 3,604 | |
| Tax benefit from
exercise of stock options | |
| -- | | |
| 160 | |
| Forfeiture of unvested
restricted shares and related dividends | |
| -- | | |
| 7 | |
| Adjustments to
redeemable non-controlling interests | |
| -- | | |
| (118 | ) |
| Other comprehensive
loss | |
| -- | | |
| (460 | ) |
| Net
income | |
| -- | | |
| 39,451 | |
| | |
| | | |
| | |
| Balances
at June 30, 2015 | |
| 39,278,291 | | |
$ | 514,961 | |
| (4) |
Patient Transport Revenue Recognition |
| |
|
| |
Trade receivables are presented net
of allowances for contractual discounts and uncompensated care. The Company determines its allowances for contractual discounts
and uncompensated care based on estimated payer mix, payer reimbursement schedules, and historical collection experience.
The allowances are reviewed monthly and adjusted periodically based on actual collections. Billings are charged off against
the uncompensated care allowance when it is probable that the receivable will not be recovered. The allowance for contractual
discounts is related primarily to Medicare and Medicaid patients. The allowance for uncompensated care is related primarily
to receivables recorded for self-pay patients. |
| |
|
| |
The Company has not changed its charitable
care policies related to self-pay patients or deductible and copayment balances for insured patients during either 2015 or
2014. The allowance for uncompensated care was 45.4% of receivables from all payers, excluding Medicare and Medicaid, as of
June 30, 2015, compared to 38.8% at December 31, 2014, and 39.5% at June 30, 2014. The increase in the allowance reflects
a decrease in collections as a percentage of gross charges from third-party payers in 2015 compared to 2014. |
| |
|
| |
The Company recognizes patient transport
revenue at its standard rates for services provided, regardless of expected payer. In the period that services are provided
and based upon historical experience, the Company records a significant provision for uncompensated care related to uninsured
patients who will be unable or unwilling to pay for the services provided and a provision for contractual discounts related
to Medicare and Medicaid transports. Patient transport revenue, net of provision for contractual discounts but before provision
for uncompensated care, by major payer class, was as follows (amounts in thousands): |
| |
|
|
For
quarter ended June 30, |
|
For
six months ended June 30, |
|
| |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third-party payers |
|
$ |
287,343 |
|
|
232,953 |
|
|
510,889 |
|
|
409,819 |
|
| Self-pay |
|
|
68,264 |
|
|
64,259 |
|
|
135,754 |
|
|
135,922 |
|
| Total |
|
$ |
355,607 |
|
|
297,212 |
|
|
646,643 |
|
|
545,741 |
|
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements, continued
(unaudited)
| (5) |
Income per Share |
| |
|
| |
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing
net income by all common shares outstanding during the period and dilutive potential common shares. |
| |
|
| |
In accordance with FASB ASC 480-10-S99, Distinguishing
Liabilities from Equity, and solely for the purpose of calculating earnings per share, net income was decreased by $51,000
and $118,000 for the quarter and six months ended June 30, 2015, respectively, for an adjustment to the value of redeemable
non-controlling interests. In the quarter and six months ended June 30, 2014, net income was decreased by $38,000 and increased
by $12,000, respectively, for an adjustment to the value of redeemable non-controlling interests. |
| |
|
| |
The reconciliation of basic to diluted weighted average common
shares outstanding is as follows: |
| | |
2015 | |
|
2014 |
|
| For quarter ended
June 30: | |
| | | |
| | |
| Weighted
average number of common shares outstanding – basic | |
| 39,272,325 | | |
| 39,151,012 | |
| Dilutive
effect of: | |
| | | |
| | |
| Common
stock options | |
| 35,491 | | |
| 100,970 | |
| Unvested
restricted stock | |
| 98,073 | | |
| 66,498 | |
| Weighted
average number of common shares outstanding – diluted | |
| 39,405,889 | | |
| 39,318,480 | |
| | |
| | | |
| | |
| For six months
ended June 30: | |
| | | |
| | |
| Weighted
average number of common shares outstanding – basic | |
| 39,267,222 | | |
| 39,135,292 | |
| Dilutive
effect of: | |
| | | |
| | |
| Common
stock options | |
| 39,226 | | |
| 113,711 | |
| Unvested
restricted stock | |
| 93,745 | | |
| 65,869 | |
| Weighted
average number of common shares outstanding – diluted | |
| 39,400,193 | | |
| 39,314,872 | |
| |
Common stock options totaling 584,832 and 574,832
were not included in the diluted shares outstanding for the quarter and six months ended June 30, 2015, respectively, because
their effect would have been anti-dilutive. Common stock options totaling 47,500 were not included in the diluted shares outstanding
for the quarter and six months ended June 30, 2014, because their effect would have been anti-dilutive. |
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements, continued
(unaudited)
| |
|
|
| (6) |
Fair Value of Financial Instruments |
| |
|
| |
ASC
Topic 820, “Fair Value Measurements and Disclosures,” requires disclosures about how fair value is
determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be grouped
based on the type of inputs used in measuring fair value as follows:
|
| |
|
| |
Level 1: |
quoted prices in active markets for identical assets or liabilities; |
| |
Level 2: |
quoted prices in active markets for similar assets and liabilities
and inputs that are observable for the asset or liability; or |
| |
Level 3: |
unobservable inputs, such as discounted cash flow models or
valuations. |
| |
|
| |
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 receivable, notes payable, accounts payable, and accrued liabilities: |
| |
|
| |
The carrying amounts
approximate fair value because of the short maturity of these instruments. |
| |
|
| |
Derivative
instruments: |
| |
|
| |
The
Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through the
use of short-term purchased call options. Financial derivative instruments covering fuel purchases are included in prepaid
expenses and other current assets at fair value. Fair value is determined based on quoted prices in active markets for similar
instruments and is classified as Level 2 in the fair value hierarchy. The fair value of all fuel derivative instruments included
in prepaid expenses and other current assets was $112,000 at June 30, 2015 and $0 at December 31, 2014. The Company’s
financial derivatives do not qualify for hedge accounting, and, therefore, realized and non-cash mark to market adjustments
are included in aircraft operations expense in the Company’s statements of comprehensive income. Aircraft operations
expense included non-cash mark to market derivative losses of $108,000 and $256,000 for the quarter and six months ended June
30, 2015, respectively, compared to non-cash mark to market losses of $11,000 and $64,000 for the quarter and six months ended
June 30, 2014, respectively. There were no cash settlements under the terms of the agreements in 2015 or 2014. |
| |
|
| |
Long-term
debt: |
| |
|
| |
The
fair value of long-term debt is classified as Level 3 in the fair value hierarchy because it is determined based on the present
value of future contractual cash flows discounted at an interest rate that reflects the risks inherent in those cash flows.
Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities and on
recent transactions, the fair value of long-term debt as of June 30, 2015, is estimated to be $539,539,000, compared to carrying
value of $543,966,000. The fair value of long-term debt as of December 31, 2014, was estimated to be $510,353,000, compared
to a carrying value of $512,666,000. |
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements, continued
(unaudited)
|
|
| |
|
|
|
| (7) |
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 all operating segments for internal reporting and performance evaluation
purposes. Operating segments and their principal products or services are as follows: |
| |
|
|
| |
· |
Air Medical Services (AMS) - provides
air medical transportation services to the general population as an independent service and to hospitals or other institutions
under exclusive operating agreements. Services include aircraft operation and maintenance, medical care, dispatch and communications,
and medical billing and collection. |
| |
· |
Tourism – provides helicopter
tours and charter flights, primarily focusing on Grand Canyon and Hawaiian Island tours. |
| |
· |
United Rotorcraft (UR) Division - designs, manufactures, and installs
aircraft medical interiors and other aerospace and medical transport products for domestic and international customers. |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| For
quarter ended June 30: | |
AMS | | |
Tourism | | |
UR | | |
Corporate
Activities | | |
Intersegment
Eliminations | | |
Consolidated | |
| 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| External
revenue | |
$ | 224,708 | | |
| 34,444 | | |
| 4,449 | | |
| 1 | | |
| -- | | |
| 263,602 | |
| Intersegment
revenue | |
| -- | | |
| -- | | |
| 4,753 | | |
| -- | | |
| (4,753 | ) | |
| -- | |
| Total
revenue | |
| 224,708 | | |
| 34,444 | | |
| 9,202 | | |
| 1 | | |
| (4,753 | ) | |
| 263,602 | |
| Operating
expenses, excluding depreciation & amortization | |
| (152,269 | ) | |
| (27,421 | ) | |
| (8,418 | ) | |
| (10,177 | ) | |
| 4,573 | | |
| (193,712 | ) |
| Depreciation &
amortization | |
| (17,682 | ) | |
| (1,962 | ) | |
| (907 | ) | |
| (603 | ) | |
| -- | | |
| (21,154 | ) |
| Interest expense | |
| (3,750 | ) | |
| (874 | ) | |
| -- | | |
| (541 | ) | |
| 2 | | |
| (5,163 | ) |
| Other income, net | |
| 1,254 | | |
| 2 | | |
| -- | | |
| (82 | ) | |
| (2 | ) | |
| 1,172 | |
| Income
tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (17,339 | ) | |
| -- | | |
| (17,339 | ) |
| Income
(loss) from continuing operations | |
| 52,261 | | |
| 4,189 | | |
| (123 | ) | |
| (28,741 | ) | |
| (180 | ) | |
| 27,406 | |
| Loss
on discontinued operations, net of tax | |
| (340 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (340 | ) |
| Segment
net income (loss) | |
| 51,921 | | |
| 4,189 | | |
| (123 | ) | |
| (28,741 | ) | |
| (180 | ) | |
| 27,066 | |
| Less
net income (loss) attributable to non-controlling interests | |
| (22 | ) | |
| 265 | | |
| -- | | |
| -- | | |
| -- | | |
| 243 | |
| Net
income (loss) attributable to Air Methods Corporation and subsidiaries | |
$ | 51,943 | | |
| 3,924 | | |
| (123 | ) | |
| (28,741 | ) | |
| (180 | ) | |
| 26,823 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| External revenue | |
$ | 218,777 | | |
| 31,430 | | |
| 7,430 | | |
| -- | | |
| -- | | |
| 257,637 | |
| Intersegment
revenue | |
| -- | | |
| -- | | |
| 3,991 | | |
| -- | | |
| (3,991 | ) | |
| -- | |
| Total
revenue | |
| 218,777 | | |
| 31,430 | | |
| 11,421 | | |
| -- | | |
| (3,991 | ) | |
| 257,637 | |
| Operating
expenses, excluding depreciation & amortization | |
| (142,293 | ) | |
| (24,184 | ) | |
| (10,457 | ) | |
| (9,995 | ) | |
| 3,626 | | |
| (183,303 | ) |
| Depreciation &
amortization | |
| (17,352 | ) | |
| (1,656 | ) | |
| (597 | ) | |
| (518 | ) | |
| -- | | |
| (20,123 | ) |
| Interest expense | |
| (4,061 | ) | |
| (731 | ) | |
| -- | | |
| (777 | ) | |
| -- | | |
| (5,569 | ) |
| Other income, net | |
| 426 | | |
| 3 | | |
| -- | | |
| (137 | ) | |
| -- | | |
| 292 | |
| Income
tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (19,132 | ) | |
| -- | | |
| (19,132 | ) |
| Income
(loss) from continuing operations | |
| 55,497 | | |
| 4,862 | | |
| 367 | | |
| (30,559 | ) | |
| (365 | ) | |
| 29,802 | |
| Loss
on discontinued operations, net of tax | |
| (878 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (878 | ) |
| Segment
net income (loss) | |
| 54,619 | | |
| 4,862 | | |
| 367 | | |
| (30,559 | ) | |
| (365 | ) | |
| 28,924 | |
| Less
net income (loss) attributable to non-controlling interests | |
| (38 | ) | |
| 172 | | |
| -- | | |
| -- | | |
| -- | | |
| 134 | |
| Net
income (loss) attributable to Air Methods Corporation and subsidiaries | |
$ | 54,657 | | |
| 4,690 | | |
| 367 | | |
| (30,559 | ) | |
| (365 | ) | |
| 28,790 | |
Air
Methods Corporation and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements, continued
(unaudited)
| (7) |
Business Segment Information, continued |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| For
six months ended June 30: | |
AMS | | |
Tourism | | |
UR | | |
Corporate
Activities | | |
Intersegment
Eliminations | | |
Consolidated | |
| 2015 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| External revenue | |
$ | 430,649 | | |
| 62,665 | | |
| 8,583 | | |
| 4 | | |
| -- | | |
| 501,901 | |
| Intersegment revenue | |
| -- | | |
| -- | | |
| 13,120 | | |
| -- | | |
| (13,120 | ) | |
| -- | |
| Total revenue | |
| 430,649 | | |
| 62,665 | | |
| 21,703 | | |
| 4 | | |
| (13,120 | ) | |
| 501,901 | |
| Operating
expenses, excluding depreciation & amortization | |
| (306,293 | ) | |
| (51,936 | ) | |
| (19,134 | ) | |
| (20,991 | ) | |
| 12,174 | | |
| (386,180 | ) |
| Depreciation & amortization | |
| (34,614 | ) | |
| (3,789 | ) | |
| (1,656 | ) | |
| (1,139 | ) | |
| -- | | |
| (41,198 | ) |
| Interest expense | |
| (7,422 | ) | |
| (1,656 | ) | |
| -- | | |
| (1,074 | ) | |
| 4 | | |
| (10,148 | ) |
| Other income, net | |
| 1,815 | | |
| 3 | | |
| -- | | |
| (278 | ) | |
| (4 | ) | |
| 1,536 | |
| Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (25,629 | ) | |
| -- | | |
| (25,629 | ) |
| Income (loss) from continuing
operations | |
| 84,135 | | |
| 5,287 | | |
| 913 | | |
| (49,107 | ) | |
| (946 | ) | |
| 40,282 | |
| Loss
on discontinued operations, net of tax | |
| (349 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (349 | ) |
| Segment net income (loss) | |
| 83,786 | | |
| 5,287 | | |
| 913 | | |
| (49,107 | ) | |
| (946 | ) | |
| 39,933 | |
| Less
net income (loss) attributable to non-controlling interests | |
| (60 | ) | |
| 542 | | |
| -- | | |
| -- | | |
| -- | | |
| 482 | |
| Net
income (loss) attributable to Air Methods Corporation and subsidiaries | |
$ | 83,846 | | |
| 4,745 | | |
| 913 | | |
| (49,107 | ) | |
| (946 | ) | |
| 39,451 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| 2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| External revenue | |
$ | 407,688 | | |
| 55,768 | | |
| 15,250 | | |
| -- | | |
| -- | | |
| 478,706 | |
| Intersegment revenue | |
| -- | | |
| -- | | |
| 7,058 | | |
| -- | | |
| (7,058 | ) | |
| -- | |
| Total revenue | |
| 407,688 | | |
| 55,768 | | |
| 22,308 | | |
| -- | | |
| (7,058 | ) | |
| 478,706 | |
| Operating expenses,
excluding depreciation & amortization | |
| (281,758 | ) | |
| (44,195 | ) | |
| (19,967 | ) | |
| (19,506 | ) | |
| 6,202 | | |
| (359,224 | ) |
| Depreciation & amortization | |
| (35,120 | ) | |
| (3,220 | ) | |
| (1,135 | ) | |
| (1,020 | ) | |
| -- | | |
| (40,495 | ) |
| Interest expense | |
| (8,256 | ) | |
| (1,353 | ) | |
| -- | | |
| (1,488 | ) | |
| -- | | |
| (11,097 | ) |
| Other income, net | |
| 813 | | |
| 3 | | |
| -- | | |
| (550 | ) | |
| -- | | |
| 266 | |
| Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (26,777 | ) | |
| -- | | |
| (26,777 | ) |
| Income (loss) from continuing
operations | |
| 83,367 | | |
| 7,003 | | |
| 1,206 | | |
| (49,341 | ) | |
| (856 | ) | |
| 41,379 | |
| Loss
on discontinued operations, net of tax | |
| (1,403 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (1,403 | ) |
| Segment net income (loss) | |
| 81,964 | | |
| 7,003 | | |
| 1,206 | | |
| (49,341 | ) | |
| (856 | ) | |
| 39,976 | |
| Less
net income (loss) attributable to non-controlling interests | |
| (86 | ) | |
| 383 | | |
| -- | | |
| -- | | |
| -- | | |
| 297 | |
| Net
income (loss) attributable to Air Methods Corporation and subsidiaries | |
$ | 82,050 | | |
| 6,620 | | |
| 1,206 | | |
| (49,341 | ) | |
| (856 | ) | |
| 39,679 | |
| (8) |
New Accounting Pronouncements |
| |
|
| |
In April 2015, the FASB issued ASU
No. 2015-03, Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs, which requires that debt
issuance costs be presented as a deduction from the carrying amount of the debt liability, consistent with debt discounts
or premiums. Recognition and measurement guidance for debt issuance costs is not affected by this ASU. The ASU is effective
for periods beginning after December 15, 2015, and the Company does not expect the implementation to have a material effect
on its financial position or results of operations. |
| |
|
| |
In May 2014, the FASB issued ASU No.
2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing
revenue recognition guidance in U.S. GAAP when it becomes effective. On July 9, 2015, the FASB agreed to defer the effective
date for public entities to annual periods beginning after December 15, 2017, although early adoption will be permitted as
of the original effective date (i.e., for periods beginning after December 15, 2016). The ASU permits the use of either the
retrospective or cumulative effect transition method. The Company has not yet selected a transition method and is currently
evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. |
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 our condensed consolidated financial
statements and notes thereto included in Item 1 of this report. This report, including the information incorporated by reference,
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
our possible or assumed future results; flight volume, collection rates and days’ sales outstanding for patient transports;
future maintenance costs; size, structure and growth of our air medical services, aerial tourism, and products markets; continuation
and/or renewal of hospital contracts; acquisition of new and profitable UR Division contracts; statements concerning our intent
to exercise early lease buy-out options on certain aircraft and the means of financing such buy-outs; impact of the Patient
Protection and Affordable Care Act (PPACA) and other changes in laws and regulations; and other matters. The actual results
that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties
described in the Risk Factors section of this report, in Management’s Discussion and Analysis of Financial Condition
and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake
no obligation to update any forward-looking statements. |
| |
|
|
| Overview |
| |
|
|
| We provide air medical
transportation services throughout the United States and design, manufacture, and install medical aircraft interiors and other
aerospace products for domestic and international customers. We also provide tourism operations in and around the Grand Canyon
and Hawaiian Islands. Our divisions, or business segments, are organized according to the type of service or product provided
and consist of the following: |
| · |
Air Medical Services (AMS) - provides air medical transportation
services to the general population as an independent service (also called community-based services) and to hospitals or other
institutions under exclusive operating agreements (also called hospital-based services). Patient transport revenue consists
of flight fees billed directly to patients, their insurers, or governmental agencies, and cash flow is dependent upon collection
from these individuals or entities. Air medical services contract revenue consists of fixed monthly fees (approximately 80%
of total contract revenue) and hourly flight fees (approximately 20% of total contract revenue) billed to hospitals or other
institutions. In the first six months of 2015, the AMS Division generated 86% of our total revenue, compared to 85% in the
first six months of 2014. |
| · |
Tourism Division – provides helicopter tours and charter
flights, primarily focusing on Grand Canyon and Hawaiian Island tours. In the six months ended June 30, 2015 and 2014, the
Tourism Division generated 12% of our total revenue. |
| · |
United Rotorcraft (UR) Division - designs, manufactures, and installs
aircraft medical interiors and other aerospace and medical transport products for domestic and international customers. The
UR Division generated 2% of our total revenue in the six months ended June 30, 2015, compared to 3% in 2014. |
See
Note 7 to the condensed consolidated financial statements included in Item 1 of this
report for operating results by segment.
We
believe that the following factors have the greatest impact on our results of operations and financial condition:
| · |
Patient transport volume.
Almost all patient transport revenue and approximately 20% of AMS contract revenue are derived from flight fees. By contrast,
84% of AMS operating costs incurred during the first six months of 2015 is mainly fixed in nature. While flight volume is
affected by many factors, including competition and the effectiveness of marketing and business development initiatives, the
greatest single variable in quarterly comparatives has historically been weather conditions. Adverse weather conditions—such
as fog, high winds, or heavy precipitation—hamper our ability to operate our aircraft safely and, therefore, result
in reduced flight volume. Total patient transports for community-based locations were 16,105
and 29,957 for the quarter and six months ended June 30, 2015, respectively, compared to 14,994 and 27,935 for the quarter
and six months ended June 30, 2014, respectively. Patient transports for community-based locations open longer than
one year (Same-Base Transports) were 14,380 and 27,023 in the quarter and six months
ended June 30, 2015, respectively, compared to 14,698 and 27,404 in the quarter and six months ended June 30, 2014, respectively.
Cancellations due to unfavorable weather conditions for community-based locations open longer than one year
were 1,250 and 2,255 higher in the quarter and six months ended June 30, 2015, respectively, compared to 2014. Requests
for community-based services increased by 4.3% and 5.5% for the quarter and six months ended June 30, 2015, for bases open
greater than one year. |
| · |
Reimbursement per transport.
We respond to calls for air medical transports without pre-screening the creditworthiness of the patient and are subject
to collection risk for services provided to insured and uninsured patients. Medicare and Medicaid also receive contractual
discounts from our standard charges for flight services. Patient transport revenue is recorded net of provisions for contractual
discounts and estimated uncompensated care. Both provisions are estimated during the period the related services are performed
based on historical collection experience and any known trends or changes in reimbursement rate schedules and payer mix. The
provisions are adjusted as required based on actual collections in subsequent periods. Net reimbursement per patient transport
is primarily a function of price, payer mix, and timely and effective collection efforts. Both the pace of collections and
the ultimate collection rate are affected by the overall health of the U.S. economy, which impacts the number of indigent
patients and funding for state-run programs, such as Medicaid. Medicaid reimbursement rates in many jurisdictions have remained
well below the cost of providing air medical transportation. The pace of collections is also impacted by additional time taken
by private insurers to review claims and related documentation, including proof of medical necessity, prior to processing.
One of the primary goals of PPACA is to decrease the number of uninsured Americans. We believe that the movement from self-pay
patients to Medicaid in our payer mix shown below is attributable to the expansion of Medicaid eligibility under PPACA. To
date, PPACA has not resulted in an increase in the percentage of transports covered by private insurance. |
| |
|
| |
Net reimbursement per transport decreased
0.5% and increased 2.7% in the quarter and six months ended June 30, 2015, compared to 2014, attributed to recent price increases
net of deteriorations in payer mix and collection rate. Collections as a percentage of gross charges from private insurers
decreased from 81.7% and 81.6% for the quarter and six months ended June 30, 2014, to 77.5% and 77.9% for the quarter and
six months ended June 30, 2015, primarily as a result of the cessation of a national contract with one payer. Payer mix, based
on number of transports, was as follows: |
| | |
For quarters ended
June 30, | |
For six months ended
June 30, |
| | |
2015 | |
2014 | |
2015 | |
|
2014 |
|
| Private insurance carriers | |
| 26.1 | % | |
| 26.9 | % | |
| 26.6 | % | |
| 27.2 | % |
| Government-sponsored insurance
plans | |
| 4.1 | % | |
| 3.6 | % | |
| 3.9 | % | |
| 4.0 | % |
| Medicare | |
| 35.9 | % | |
| 34.5 | % | |
| 35.4 | % | |
| 34.1 | % |
| Medicaid | |
| 24.7 | % | |
| 24.1 | % | |
| 24.5 | % | |
| 22.3 | % |
| Self-pay patients | |
| 9.2 | % | |
| 10.9 | % | |
| 9.6 | % | |
| 12.4 | % |
| |
Provisions for contractual discounts and estimated
uncompensated care related to patient transport revenue are as follows: |
| | |
For quarters ended
June
30, | |
For six months ended
June 30, |
| | |
2015 | |
2014 | |
2015 | |
|
2014 |
|
| Gross billings | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
| 100 | % |
| Provision for contractual discounts | |
| 52 | % | |
| 51 | % | |
| 53 | % | |
| 51 | % |
| Provision for uncompensated care | |
| 23 | % | |
| 21 | % | |
| 22 | % | |
| 21 | % |
| |
Although price increases
generally increase the net reimbursement per transport from insurance payers, the amount per transport collectible from private
patient payers, Medicare, and Medicaid does not increase proportionately with price increases. Therefore, depending upon overall
payer mix, price increases will usually result in an increase in the percentage of uncollectible accounts. Certain insurance
companies have also not increased their reimbursement rates proportionately with recent price increases to the same extent
they did with previous price increases. Continued price increases may cause insurance companies to limit coverage for air
medical transport to amounts less than our historical collection rates. |
| |
|
| · |
Tourism passenger count. Tourism
revenue is entirely derived from passenger fees, but 72% of tourism operating costs incurred during the first six months of
2015 was mainly fixed in nature. Passenger count is impacted by many variables, including weather, competition, and tour prices.
Because international travelers account for a significant number of tourism customers, flight volume may also be impacted
by worldwide economic conditions and international currency exchange rates. Total tourism passenger count increased to 126,953
and 227,149 in the quarter and six months ended June 30, 2015, respectively, from 113,367 and 200,633 in the quarter and six
months ended June 30, 2014, respectively. |
| · |
Aircraft
maintenance. AMS and Tourism operations are directly affected by fluctuations in aircraft maintenance costs. Proper operation
of the aircraft by flight crews and standardized maintenance practices can help to contain maintenance costs. Increases in
spare parts prices from original equipment manufacturers tend to be higher for aircraft which are no longer in production.
One model of aircraft within our fleet, representing 8% of the rotor wing fleet, is no longer in production and is, therefore,
susceptible to price increases which outpace general inflationary trends. In addition, on-condition components are more likely
to require replacement with age. Since January 1, 2014, we have taken delivery of 28 new aircraft. During the first quarter
of 2015, we entered into an agreement to take delivery of 200 Bell 407GXP helicopters beginning in 2016 over a ten-year term,
subject to an early termination right exercisable by us. We also have commitments to take delivery of forty other aircraft
through the end of 2017. We have replaced discontinued models and other older aircraft with the new aircraft, as well as provided
capacity for base expansion. Replacement models of aircraft typically have higher ownership costs than the models targeted
for replacement but lower maintenance costs. Total AMS aircraft maintenance expense increased 9.5% and 21.6% for the quarter
and six months ended June 30, 2015, respectively, compared to 2014. Total flight hours for AMS operations decreased 1.1% and
0.2% for the quarter and six months ended June 30, 2015, respectively, compared to 2014. Aircraft maintenance expense for
the Tourism division increased 49.8% and 36.2% in the quarter and six months ended June 30, 2015, respectively, compared to
the first quarter of 2014, corresponding to increases of 5.3% and 7.8% in total flight hours for the quarter and six months
ended June 30, 2015, respectively. The changes in maintenance expense reflect normal fluctuations in the timing of overhaul
and replacement cycles for aircraft parts. Based on flight hour projections, we expect overhaul and replacement events to
decrease in the final two quarters of 2015 compared to the first quarter. During the six months ended June 30, 2015, we also
incurred $2.6 million to remediate certification documentation issues related to Night Vision Imaging Systems (NVIS) installations
in certain of our aircraft. We do not expect further costs related to this remediation effort. |
| |
|
| · |
Competitive
pressures from low-cost providers. We are recognized within the industry for our standard of service and our use of cabin-class
aircraft. Many of our competitors utilize aircraft with lower ownership and operating costs and do not require a similar level
of experience for aviation and medical personnel. Reimbursement rates established by Medicare, Medicaid, and most insurance
providers are not contingent upon the type of aircraft used or the experience of personnel. However, we believe that higher
quality standards help to differentiate our service from competitors and, therefore, lead to higher utilization. |
| |
|
| · |
Employee
recruitment and relations. The ability to deliver quality services is partially dependent upon our 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. Our AMS pilots are represented by a collective bargaining
unit and are covered under a collective bargaining agreement which is effective through December 31, 2016. Other employee
groups may also elect to be represented by unions in the future. |
Results
of Operations
We
reported net income of $26,823,000 and $39,451,000 for the quarter and six months ended June 30, 2015, respectively, compared
to $28,790,000 and $39,679,000 for the quarter and six months ended June 30, 2014, respectively. Same-Base
Transports were 2.2% and 1.4% lower in the quarter and six months ended June 30, 2015, respectively,
compared to 2014, while net reimbursement per patient transport decreased 0.5% and increased
2.7% in the quarter and six months ended June 30, 2015, respectively, compared to 2014, primarily as a result of recent price
increases net of deteriorations in payer mix and collection rate.
Air
Medical Services
Patient
transport revenue is recorded net of provisions for contractual discounts and uncompensated care and increased $11,721,000,
or 6.9%, and $31,675,000, or 10.1%, for the quarter and six months ended June 30, 2015, compared to 2014, for the following reasons.
| · |
Decrease
of 0.5% and increase of 2.7% in net reimbursement per transport for
the quarter and six months ended June 30, 2015, respectively, compared to 2014, due primarily to recent price increases net
of deteriorations in payer mix and collection rate. Collections as a percentage
of gross charges from private insurers decreased from 81.7% and 81.6% for the quarter and six months ended June 30, 2014,
to 77.5% and 77.9% for the quarter and six months ended June 30, 2015, primarily as a result of the cessation of a national
contract with one payer. |
| · |
Decreases of 318, or 2.2%, and 381,
or 1.4%, in Same-Base Transports for the quarter and six months ended June 30, 2015, respectively, compared to 2014. Cancellations
due to unfavorable weather conditions for bases open longer than one year were 1,250 and 2,255 higher in the quarter and six
months ended June 30, 2015, respectively, compared to 2014. Requests for community-based services increased by 4.3% and 5.5%
for the quarter and six months ended June 30, 2015, respectively, for bases open greater than one year. |
| · |
Incremental net revenue of $18,859,000
and $35,048,000 for the quarter and six months ended June 30, 2015, respectively, generated from the addition of 28 new bases,
including fourteen bases resulting from the conversion of AMS contract customers to community-based operations, during or
subsequent to the first six months of 2014. |
| · |
Closure of eleven bases during or subsequent
to the first six months of 2014, due to insufficient flight volume, resulting in decreases in net revenue of approximately
$1,435,000 and $2,654,000 during the quarter and six months ended June 30, 2015, respectively. |
Air
medical services contract revenue decreased $7,015,000, or 15.3%, and $11,137,000,
or 12.3%, for the quarter and six months ended June 30, 2015, compared to 2014, for the following reasons:
| · |
Cessation of service under
five contracts and the conversion of six contracts to community-based operations during or subsequent to the first six months
of 2014, resulting in decreases in net revenue of approximately $7,426,000 and $12,741,000 for the quarter and six months
ended June 30, 2015, respectively. |
| · |
Incremental net revenue of $526,000
and $1,302,000 for the quarter and six months ended June 30, 2015, generated from the addition of one new air medical services
contract in the second quarter of 2014 and the expansion of three contracts to additional bases of operation during or subsequent
to the first quarter of 2014. |
| · |
Decreases of 1.2% and 1.3% in flight
volume for the quarter and six months ended June 30, 2015, respectively, for all contracts excluding new contracts, contract
expansions, and closed contracts described above. |
| · |
Annual price
increases in the majority of contracts based on stipulated contractual increases or changes in the Consumer Price Index or
spare parts prices from aircraft manufacturers. |
Flight
center costs (consisting primarily of pilot, mechanic, and medical
staff salaries and benefits) increased $12,058,000, or 13.9%, and $18,395,000, or 10.6%,
for the quarter and six months ended June 30, 2015, respectively, compared to 2014, for the following reasons:
| · |
Increases
of approximately $9,406,000 and $17,008,000 for the quarter and six months ended June 30, 2015, respectively, for the addition
of personnel to staff new base locations described above. |
| · |
Decreases of
approximately $4,062,000 and $8,304,000 for the quarter and six months ended June 30, 2015, respectively, due to the closure
of base locations described above. |
| · |
Increases in
salaries for merit pay raises and in the cost of employee medical benefits. |
Aircraft
operating expenses decreased $491,000, or 1.5%, and increased $5,323,000, or 8.4%, for the quarter and six months ended June
30, 2015, respectively, compared to 2014. 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. The change in costs is due
to the following:
| · |
Increases in AMS aircraft
maintenance expense of $2,126,000, or 9.5%, to $24,568,000 for the second quarter of 2015 and $9,635,000, or 21.6%, to $54,193,000
for the six months ended June 30, 2015, compared to the prior year. Total AMS flight volume decreased 1.1% and 0.2% for the
quarter and six months ended June 30, 2015, respectively, compared to prior year. The change in maintenance expense reflects
normal fluctuations in the timing of overhaul and replacement cycles for aircraft parts. During the six months ended June
30, 2015, we also incurred $2,635,000 to remediate certification documentation issues related to NVIS installations in certain
of our aircraft. We do not expect further costs related to this remediation effort. |
| · |
Decreases of approximately 32.1% and
29.4% in the cost of aircraft fuel per hour flown for AMS operations for the quarter and six months ended June 30, 2015, respectively.
Total AMS fuel costs decreased $1,856,000 to $4,802,000 and $3,045,000 to $9,455,000 for the quarter and six months ended
June 30, 2015, respectively, compared to 2014. |
| · |
Decrease in hull insurance rates effective
July 2014. |
Tourism
Tourism
and charter revenue increased $3,014,000, or 9.6%, and $6,897,000, or 12.4%, for the quarter and six months ended June 30,
2015, respectively, compared to 2014. During the quarter and six months ended June 30, 2015, respectively, we transported 126,953
and 227,149 passengers on tourism flights, compared to 113,367 and 200,633 in the quarter and six months ended June 30, 2014,
respectively.
Tourism
operating expenses consist primarily of pilot and mechanic salaries and benefits; aircraft maintenance, fuel, and insurance;
landing fees; commissions; and cost of tour amenities and typically vary with passenger count, flight volume, and number and type
of aircraft. Expenses increased $3,616,000, or 18.6%, and $7,467,000, or 21.0%, for the quarter and six months ended June 30,
2015, respectively, compared to 2014, in part due to the increase in the number of passengers. Cost of tour amenities for our
Grand Canyon operations increased $19,000, or 0.6%, and $1,290,000, or 29.3%, for the quarter and six months ended June 30, 2015,
respectively, primarily due to higher access fees charged by the Hualapai Tribe for certain attractions at the Grand Canyon effective
May 2014. In addition, tourism aircraft maintenance expense increased $2,254,000, or 49.8%, to $6,776,000 and $3,366,000, or 36.2%,
to $12,657,000 for the quarter and six months ended June 30, 2015, respectively, reflecting increases of 5.3% and 7.8% in total
flight hours for the quarter and six months ended June 30, 2015, respectively, as well as normal fluctuations in the timing of
overhaul and replacement cycles for aircraft parts. In addition, we expanded the tourism fleet from 52 helicopters at June 30,
2014, to 58 helicopters at June 30, 2015. These increases were offset in part by decreases of 21.4% and 22.9% in the cost of aircraft
fuel per hour flown for the quarter and six months ended June 30, 2015 and 2014, respectively.
Medical
Interiors and Products
Medical
interiors and products revenue decreased $2,954,000, or 39.9%, and $6,637,000, or 43.6%, for the quarter and six months ended
June 30, 2015, respectively, compared to 2014. Significant projects during 2015 included the completion of nine multi-mission
interiors for the U.S. Army’s HH-60M helicopter and work on three aircraft interiors for commercial customers. Revenue by
product line for the quarter and six months ended June 30, 2015, was as follows:
| · |
$2,454,000 and $5,611,000 – governmental
entities |
| · |
$1,996,000 and $2,976,000 – commercial
customers |
Significant
projects in process during 2014 included work on 24 multi-mission interiors for the U.S. Army’s HH-60M helicopter, 35 interiors
for an older generation of the U.S. Army’s Black Hawk helicopter, and twelve aircraft interiors for commercial customers.
Revenue by product line for the quarter and six months ended June 30, 2014, was as follows:
| · |
$4,674,000 and $9,910,000
– governmental entities |
| · |
$2,730,000
and $5,314,000 – commercial customers |
|
|
Cost
of medical interiors and products decreased $3,009,000, or 46.0%, and $6,487,000, or 49.1%, for the quarter and six months
ended June 30, 2015, respectively, as compared to the prior year, due primarily to the decrease in related revenue. Cost of medical
interiors and products also includes certain fixed costs, such as administrative salaries and facilities rent, which do not vary
with volume of sales and which are absorbed by both projects for external customers and interdivisional projects.
General
Expenses
General
and administrative (G&A) expenses decreased $2,185,000, or 6.1%, and increased $2,215,000, or 3.3%, for the quarter and
six months ended June 30, 2015, respectively, compared to 2014. G&A
expenses include executive management, legal, accounting and finance, billing and collections, information services, human resources,
aviation management, pilot training, dispatch and communications, AMS program administration, and Tourism customer service and
reservations. Since March 31, 2014, we have converted six AMS contracts to community-based operations, resulting in fourteen additional
bases and contributing to an increase in billing and collections, dispatch, and AMS program administration requirements. Partially
offsetting these increases, equity and incentive compensation accruals related to our financial performance decreased $2,658,000
and $427,000 during the quarter and six months ended June 30, 2015, respectively, compared to 2014.
Income
tax expense was $17,339,000 and $25,629,000 in the quarter and six months ended June 30, 2015, respectively, compared to $19,132,000
and $26,777,000 in the quarter and six months ended June 30, 2014, respectively. The effective tax rate was approximately 38.8%
and 38.9% for the quarter and six months ended June 30, 2015, respectively, compared to 39.1% and 39.3% for the quarter and six
months ended June 30, 2014. Changes in our effective tax rate are affected by the apportionment of revenue and income before taxes
for the various jurisdictions in which we operate and by changing tax laws and regulations in those jurisdictions.
Liquidity
and Capital Resources
Our
working capital position as of June 30, 2015, was $216,872,000, compared to $219,574,000 at December 31, 2014. Cash generated
by continuing operations was $108,226,000 in 2015, compared to $74,593,000 in 2014, reflecting the results of operations described
above. Receivables increased by $1.6 million during 2015, compared to $32.5 million during 2014. Days’ sales outstanding
(DSO’s) related to patient transports, measured by comparing net patient transport revenue for the annualized previous six-month
period to outstanding open net accounts receivable, were 131 at June 30, 2015, compared to 123 at June 30, 2014. The increase
in DSO’s is primarily attributed to additional time taken by private insurers to review claims and related documentation,
including proof of medical necessity, prior to processing. We do not expect the claims processing times for private insurers to
improve in the near-term. The increase in patient transport receivables caused by increasing DSO’s was offset in part by
decreases in other receivables.
Cash
used by continuing investing activities totaled $107,482,000 in 2015 compared to $76,627,000 in 2014. Equipment acquisitions in
the six months ended June 30, 2015, included the purchase of ten aircraft for approximately $34.5 million and the buy-out of seven
previously leased aircraft for $7.6 million. During the six months ended June 30, 2015, we also acquired three aircraft, medical
equipment, and certain other intangible assets totaling $43.5 million from a hospital customer in connection with converting the
program to community-based operations. Equipment acquisitions in the six months ended June 30, 2014, included the buy-out of thirteen
previously leased aircraft for approximately $17.3 million and the purchase of fifteen aircraft for approximately $44.6 million.
We also sold twelve aircraft for $9.1 million.
Continuing
financing activities provided $14,974,000 in 2015 compared to using $3,556,000 in 2014. The primary uses of cash in both 2015
and 2014 were regularly scheduled payments of long-term debt and capital lease obligations. During the six months ended June 30,
2015 and 2014, we originated seventeen and eleven notes, respectively, primarily to finance the acquisition of aircraft.
We
currently intend to exercise early lease buy-out options on up to eight aircraft totaling approximately $14.8 million during the
last two quarters of 2015. We expect to finance the buy-outs under long-term notes and with internally generated cash flow or
availability under the line of credit.
In
the first quarter of 2015, we entered into an agreement to purchase 200 Bell 407GXP helicopters totaling $882.6 million over a
ten-year term beginning in 2016. In the event we exercise our right to termination for convenience or are prevented from taking
or decline to take delivery of the aircraft for any other reason, we may forfeit nonrefundable deposits up to $6.3 million. We
intend to use the new aircraft for base expansion opportunities as well as to replace older models of aircraft in the fleet. We
plan to either sell the aircraft which are replaced, use them for spare parts, or redeploy them into the backup fleet.
Critical
Accounting Policies
Our
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 our estimates and judgments, including those related to revenue recognition, deferred
income taxes, and valuation of long-lived assets and goodwill. 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 our consolidated financial
statements.
Revenue
Recognition
Revenue
relating to tourism and charter flights is recognized upon completion of the services. Fixed contract revenue under our operating
agreements with hospitals is recognized monthly over the terms of the agreements. Revenue relating to patient transports is recorded
net of provisions for contractual discounts and estimated uncompensated care. Both provisions are estimated during the period
related services are performed based on historical collection experience and any known trends or changes in reimbursement rate
schedules and payer mix. The provisions are adjusted as required based on actual collections in subsequent periods. We have from
time to time experienced delays in reimbursement from third-party payers. In addition, third-party payers may disallow, in whole
or in part, claims for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, determinations
of medical necessity, or the need for additional information. Laws and regulations governing Medicare and Medicaid programs are
very complex and subject to interpretation. We also provide services to patients who have no insurance or other third-party payer
coverage. There can be no guarantee that we will continue to experience the same collection rates that we have in the past. If
actual future collections are more or less than those projected by management, adjustments to allowances for contractual discounts
and uncompensated care may be required. Based on related patient transport revenue for the six months ended June 30, 2015, a change
of 100 basis points in the percentage of estimated contractual discounts and uncompensated care would have resulted in a change
of approximately $13,885,000 in patient transport revenue.
Revenue
related to fixed fee medical interior and products contracts is recorded as costs are incurred using the percentage of completion
method of accounting. We estimate the percentage of completion based on costs incurred to date as a percentage of an estimate
of the total costs to complete the project. 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.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize
the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU
will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. On July 9, 2015, the FASB agreed
to defer the effective date for public entities to annual periods beginning after December 15, 2017, although early adoption will
be permitted as of the original effective date (i.e., for periods beginning after December 15, 2016). The ASU permits the use
of either the retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently
evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures.
Deferred
Income Taxes
In
preparation of the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in
which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting
from differing treatment of items, such as depreciable assets, for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included in the consolidated balance sheets. We then assess the likelihood that deferred
tax assets will be recoverable from future taxable income in the respective federal or state jurisdiction as appropriate and record
a valuation allowance for those amounts we believe are not likely to be realized. We consider 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. Establishing or increasing a valuation allowance in a period increases income tax expense.
In the event we were to determine that we would not be able to realize all or part of our 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
we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment
to the valuation allowance would increase income in the period such determination was made. The effect on deferred income tax
assets and liabilities of a change in statutory tax rates applicable to the Company is also recognized in income in the period
of the change. We evaluate the recognition and measurement of uncertain tax positions based on the facts and circumstances surrounding
the tax position and applicable tax law and other tax pronouncements. Changes in our estimates of uncertain tax positions would
be recognized as an adjustment to income tax expense in the period of the change.
Long-lived
Assets Valuation
In
accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values and the potential
for impairment. Estimates of useful lives and residual values of aircraft are based upon actual industry experience with the same
or similar aircraft types and anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government
regulations and changes in our maintenance program or operations could result in changes to these estimates. Long-lived assets
are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. Our cash flow estimates are based on historical results adjusted for estimated
current industry trends, the economy, and operating conditions.
Goodwill
Valuation
We
evaluate goodwill annually in accordance with ASU No. 2011-08, Testing for Goodwill Impairment, which allows an entity
to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment
test. Factors considered include overall economic conditions within our markets, access to capital, changes in the cost of operations,
the financial performance of the Company, and change in our stock price during the year. Based upon our qualitative assessment
of factors impacting the value of goodwill as of December 31, 2014, we determined that it was not likely that the fair value of
any reporting unit was less than its carrying amount and that a quantitative assessment of goodwill was not necessary. Changes
in these factors or a sustained decline in general economic conditions could change our conclusion regarding an impairment of
goodwill and potentially result in a non-cash impairment loss in a future period. In the fourth quarter of 2014, we wrote off
$1.5 million in goodwill related to discontinued operations of American Jets, Inc., as discussed more fully in Note 2 to the consolidated
financial statements included in Item 1 of this report.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
There
have been no material changes in market risk at June 30, 2015, from that reported in our Annual Report on Form 10-K for
the year ended December 31, 2014.
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports
filed or submitted to the Securities and Exchange Commission (the Commission) under the Securities Exchange Act of 1934, as amended
(the Exchange Act), is recorded, processed, summarized and reported within the time periods specified by the Commission’s
rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial
officers (referred to in this report as the Certifying Officers), as appropriate to allow timely decisions regarding required
disclosure. Management, under the supervision and with the participation of the Certifying Officers, evaluated the effectiveness
of disclosure controls and procedures as of June 30, 2015, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation,
the Certifying Officers have concluded that, as of June 30, 2015, our disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There
were no significant changes in our internal control over financial reporting that occurred during the most recently completed
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART
II: OTHER INFORMATION
Item
1. Legal Proceedings
There
have been no material changes in legal proceedings from those disclosed in our annual report on Form 10-K for the year ended December
31, 2014.
Item
1A. Risk Factors
There
have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December
31, 2014.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
Not
Applicable
Item
3. Defaults upon Senior Securities
Not
Applicable
Item
4. Mine Safety Disclosures
Not
Applicable
Item
5. Other Information
Not
Applicable
Item
6. Exhibits
| 31.1 |
Chief Executive Officer
Certification adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
| 31.2 |
Chief Financial Officer Certification
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
| 32 |
Certification adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS |
XBRL Instance Document |
| |
|
| 101.SCH |
XBRL Taxonomy Extension Schema Document |
| |
|
| 101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
| |
|
| 101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
| |
|
| 101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
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.
| |
|
|
|
| |
|
|
|
| Date: August 7, 2015 |
By |
/s/ Aaron D. Todd |
|
| |
|
Aaron D. Todd |
|
| |
|
Chief Executive Officer |
|
| |
|
|
|
| Date: August 7, 2015 |
By |
/s/ Trent J. Carman |
|
| |
|
Trent J. Carman |
|
| |
|
Chief Financial Officer |
|
| |
|
|
|
| Date: August 7, 2015 |
By |
/s/ Sharon J. Keck |
|
| |
|
Sharon J. Keck |
|
| |
|
Chief Accounting Officer |
|
EXHIBIT
31.1
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 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
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 report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 7, 2015
Aaron
D. Todd
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Trent J. Carman, certify
that:
1.
I have reviewed this quarterly report on Form 10-Q of Air Methods Corporation;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
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 report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: August 7, 2015
Trent J. Carman
Chief Financial Officer
EXHIBIT
32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Air Methods Corporation (the “Company”) on Form 10-Q for the period ended
June 30, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
| /s/ Aaron D. Todd |
|
| Aaron D. Todd |
| Chief Executive Officer |
| August 7, 2015 |
| |
|
| /s/ Trent J. Carman |
|
| Trent J. Carman |
| Chief Financial Officer |
| August 7, 2015 |
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