UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
September 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 x 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 x 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 x |
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 x
The number of shares of Common Stock, par
value $.06, outstanding as of October 30, 2015, was 39,302,674.
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)
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Assets | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 14,963 | | |
| 13,165 | |
Receivables: | |
| | | |
| | |
Trade, net (note 4) | |
| 359,768 | | |
| 293,985 | |
Refundable income taxes | |
| -- | | |
| 8,865 | |
Other | |
| 3,481 | | |
| 4,802 | |
Total receivables | |
| 363,249 | | |
| 307,652 | |
| |
| | | |
| | |
Inventories | |
| 47,752 | | |
| 46,095 | |
Work-in-process on medical interiors and products contracts | |
| 3,750 | | |
| 4,610 | |
Assets held for sale | |
| 16,690 | | |
| 8,608 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 2,752 | | |
| 564 | |
Refundable deposits | |
| 10,003 | | |
| 8,381 | |
Prepaid expenses and other (note 6) | |
| 8,134 | | |
| 10,766 | |
| |
| | | |
| | |
Total current assets | |
| 467,293 | | |
| 399,841 | |
| |
| | | |
| | |
Property and equipment: | |
| | | |
| | |
Land | |
| 251 | | |
| 251 | |
Flight and ground support equipment | |
| 790,447 | | |
| 697,444 | |
Aircraft under capital leases | |
| 180,949 | | |
| 196,302 | |
Aircraft rotable spare parts | |
| 36,668 | | |
| 38,050 | |
Buildings and office equipment | |
| 61,983 | | |
| 57,983 | |
| |
| 1,070,298 | | |
| 990,030 | |
Less accumulated depreciation and amortization | |
| (301,700 | ) | |
| (268,049 | ) |
| |
| | | |
| | |
Net property and equipment | |
| 768,598 | | |
| 721,981 | |
| |
| | | |
| | |
Goodwill (note 2) | |
| 127,269 | | |
| 127,269 | |
Intangible assets, net of accumulated amortization of $25,221 and $19,282 at September 30, 2015 and December 31, 2014, respectively | |
| 112,591 | | |
| 83,654 | |
Other assets | |
| 33,919 | | |
| 28,560 | |
| |
| | | |
| | |
Total assets | |
$ | 1,509,670 | | |
| 1,361,305 | |
(Continued)
Air Methods Corporation and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS,
Continued
(Amounts in thousands, except share and
per share amounts)
(unaudited)
| |
September 30, | | |
December 31, | |
| |
2015 | | |
2014 | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Notes payable | |
$ | 11,112 | | |
| 11,442 | |
Current installments of long-term debt | |
| 50,268 | | |
| 45,827 | |
Current installments of obligations under capital leases | |
| 22,165 | | |
| 23,954 | |
Accounts payable | |
| 19,674 | | |
| 17,393 | |
Deferred revenue | |
| 3,740 | | |
| 4,409 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 1,804 | | |
| 1,313 | |
Accrued wages and compensated absences | |
| 23,814 | | |
| 31,539 | |
Due to third party payers | |
| 11,164 | | |
| 7,426 | |
Deferred income taxes | |
| 16,267 | | |
| 21,427 | |
Other accrued liabilities | |
| 35,281 | | |
| 15,537 | |
| |
| | | |
| | |
Total current liabilities | |
| 195,289 | | |
| 180,267 | |
| |
| | | |
| | |
Long-term debt, less current installments | |
| 522,672 | | |
| 466,839 | |
Obligations under capital leases, less current installments | |
| 74,577 | | |
| 96,534 | |
Deferred income taxes | |
| 134,046 | | |
| 122,715 | |
Other liabilities | |
| 11,874 | | |
| 16,060 | |
| |
| | | |
| | |
Total liabilities | |
| 938,458 | | |
| 882,415 | |
| |
| | | |
| | |
Redeemable non-controlling interests | |
| 8,585 | | |
| 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 39,503,344 and 39,452,753 shares at September 30, 2015 and December 31, 2014, respectively; outstanding 39,302,674 and 39,228,948 shares at September 30, 2015 and December 31, 2014, respectively | |
| 2,352 | | |
| 2,349 | |
Additional paid-in capital | |
| 126,714 | | |
| 120,391 | |
Retained earnings | |
| 434,997 | | |
| 349,805 | |
Accumulated other comprehensive loss | |
| (1,436 | ) | |
| (636 | ) |
| |
| | | |
| | |
Total stockholders' equity | |
| 562,627 | | |
| 471,909 | |
| |
| | | |
| | |
Total liabilities and stockholders’ equity | |
$ | 1,509,670 | | |
| 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 September 30, | | |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Revenue: | |
| | | |
| | | |
| | | |
| | |
Patient transport revenue, net of provision for contractual discounts (note 4) | |
$ | 403,122 | | |
| 314,525 | | |
| 1,049,765 | | |
| 860,266 | |
Provision for uncompensated care (note 4) | |
| (180,280 | ) | |
| (125,056 | ) | |
| (482,847 | ) | |
| (358,396 | ) |
Patient transport revenue, net | |
| 222,842 | | |
| 189,469 | | |
| 566,918 | | |
| 501,870 | |
Air medical services contract revenue | |
| 40,329 | | |
| 44,278 | | |
| 119,743 | | |
| 134,829 | |
Tourism and charter revenue | |
| 36,212 | | |
| 33,941 | | |
| 98,877 | | |
| 89,709 | |
Medical interiors and products revenue | |
| 8,379 | | |
| 6,237 | | |
| 16,966 | | |
| 21,461 | |
Dispatch and billing service revenue | |
| 3,580 | | |
| 2,992 | | |
| 10,739 | | |
| 7,754 | |
| |
| 311,342 | | |
| 276,917 | | |
| 813,243 | | |
| 755,623 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Flight centers | |
| 100,649 | | |
| 93,970 | | |
| 293,060 | | |
| 267,986 | |
Air medical aircraft operations | |
| 32,876 | | |
| 34,897 | | |
| 101,445 | | |
| 98,143 | |
Tourism operating expenses | |
| 22,519 | | |
| 22,989 | | |
| 65,462 | | |
| 58,465 | |
Cost of medical interiors and products sold | |
| 6,712 | | |
| 5,960 | | |
| 13,442 | | |
| 19,177 | |
Cost of dispatch and billing services | |
| 3,467 | | |
| 2,430 | | |
| 9,378 | | |
| 7,354 | |
Depreciation and amortization | |
| 20,884 | | |
| 19,972 | | |
| 62,082 | | |
| 60,467 | |
Loss (gain) on disposition of assets, net | |
| 2,607 | | |
| (185 | ) | |
| 2,876 | | |
| 1,028 | |
General and administrative | |
| 39,351 | | |
| 35,602 | | |
| 108,698 | | |
| 102,734 | |
| |
| 229,065 | | |
| 215,635 | | |
| 656,443 | | |
| 615,354 | |
| |
| | | |
| | | |
| | | |
| | |
Operating income | |
| 82,277 | | |
| 61,282 | | |
| 156,800 | | |
| 140,269 | |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (4,893 | ) | |
| (5,342 | ) | |
| (15,041 | ) | |
| (16,439 | ) |
Other, net | |
| (266 | ) | |
| 322 | | |
| 1,270 | | |
| 588 | |
| |
| | | |
| | | |
| | | |
| | |
Income from continuing operations before income taxes | |
| 77,118 | | |
| 56,262 | | |
| 143,029 | | |
| 124,418 | |
Income tax expense | |
| (30,235 | ) | |
| (21,891 | ) | |
| (55,864 | ) | |
| (48,668 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income from continuing operations | |
| 46,883 | | |
| 34,371 | | |
| 87,165 | | |
| 75,750 | |
Loss on discontinued operations, net of income taxes (note 2) | |
| (29 | ) | |
| (531 | ) | |
| (378 | ) | |
| (1,934 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net income | |
| 46,854 | | |
| 33,840 | | |
| 86,787 | | |
| 73,816 | |
Less net income attributable to redeemable non-controlling interests | |
| 202 | | |
| 123 | | |
| 684 | | |
| 420 | |
| |
| | | |
| | | |
| | | |
| | |
Net income attributable to Air Methods Corporation and subsidiaries | |
$ | 46,652 | | |
| 33,717 | | |
| 86,103 | | |
| 73,396 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss), net of income taxes: | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustments | |
| (340 | ) | |
| (251 | ) | |
| (800 | ) | |
| (205 | ) |
Comprehensive income | |
$ | 46,312 | | |
| 33,466 | | |
| 85,303 | | |
| 73,191 | |
(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 September 30, | | |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Income (loss) per common share (note 5): | |
| | | |
| | | |
| | | |
| | |
Basic: | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | 1.17 | | |
| .92 | | |
| 2.18 | | |
| 1.97 | |
Discontinued operations | |
| -- | | |
| (.01 | ) | |
| (.01 | ) | |
| (.05 | ) |
Net income | |
$ | 1.17 | | |
| .91 | | |
| 2.17 | | |
| 1.92 | |
| |
| | | |
| | | |
| | | |
| | |
Diluted: | |
| | | |
| | | |
| | | |
| | |
Continuing operations | |
$ | 1.16 | | |
| .91 | | |
| 2.17 | | |
| 1.96 | |
Discontinued operations | |
| -- | | |
| (.01 | ) | |
| (.01 | ) | |
| (.05 | ) |
Net income | |
$ | 1.16 | | |
| .90 | | |
| 2.16 | | |
| 1.91 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding – basic | |
| 39,293,453 | | |
| 39,168,873 | | |
| 39,276,062 | | |
| 39,146,609 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding – diluted | |
| 39,420,354 | | |
| 39,343,405 | | |
| 39,408,239 | | |
| 39,329,121 | |
See accompanying notes to unaudited condensed consolidated financial
statements.
Air Methods
Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Amounts in thousands)
(unaudited)
| |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 86,787 | | |
| 73,816 | |
Loss from discontinued operations, net of income taxes | |
| 378 | | |
| 1,934 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization expense | |
| 62,082 | | |
| 60,467 | |
Deferred income tax expense | |
| 6,397 | | |
| 17,998 | |
Stock-based compensation | |
| 5,733 | | |
| 2,866 | |
Tax benefit from exercise of stock options | |
| (184 | ) | |
| (1,779 | ) |
Loss on disposition of assets, net | |
| 2,876 | | |
| 1,028 | |
Unrealized loss on derivative instrument | |
| 369 | | |
| 70 | |
Loss from equity method investee | |
| 1,193 | | |
| 738 | |
Changes in assets and liabilities, net of effects of acquisitions: | |
| | | |
| | |
Decrease (increase) in prepaid expenses and other current assets | |
| 641 | | |
| (551 | ) |
Increase in receivables | |
| (56,549 | ) | |
| (48,366 | ) |
Decrease (increase) in inventories | |
| (797 | ) | |
| 3,369 | |
Decrease (increase) in costs in excess of billings | |
| (2,188 | ) | |
| 1,379 | |
Increase in accounts payable, other accrued liabilities, and other liabilities | |
| 18,770 | | |
| 6,860 | |
Decrease in deferred revenue and billings in excess of costs | |
| (178 | ) | |
| (1,453 | ) |
| |
| | | |
| | |
Net cash provided by continuing operating activities | |
| 125,330 | | |
| 118,376 | |
Net cash used by discontinued operating activities | |
| (100 | ) | |
| (1,843 | ) |
Net cash provided by operating activities | |
| 125,230 | | |
| 116,533 | |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Acquisition of subsidiaries | |
| -- | | |
| (3,182 | ) |
Acquisition of property and equipment | |
| (95,494 | ) | |
| (87,803 | ) |
Acquisition of hospital program | |
| (43,481 | ) | |
| -- | |
Buy-out of previously leased aircraft | |
| (9,519 | ) | |
| (17,296 | ) |
Proceeds from disposition and sale of equipment and assets held for sale | |
| 3,642 | | |
| 12,378 | |
Increase in other assets | |
| (10,900 | ) | |
| (660 | ) |
| |
| | | |
| | |
Net cash used by continuing investing activities | |
| (155,752 | ) | |
| (96,563 | ) |
Net cash provided by discontinued investing activities | |
| 25 | | |
| 97 | |
Net cash used in investing activities | |
| (155,727 | ) | |
| (96,466 | ) |
(Continued)
Air Methods Corporation and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS, Continued
(Amounts in thousands)
(unaudited)
| |
Nine Months Ended September 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from issuance of common stock | |
$ | 409 | | |
$ | 1,190 | |
Tax benefit from exercise of stock options | |
| 184 | | |
| 1,779 | |
Borrowings under line of credit | |
| 50,000 | | |
| 30,000 | |
Payments under line of credit | |
| (50,000 | ) | |
| (42,000 | ) |
Payments for financing costs | |
| (4,472 | ) | |
| (81 | ) |
Proceeds from long-term debt | |
| 105,525 | | |
| 54,503 | |
Payments of long-term debt | |
| (45,251 | ) | |
| (30,603 | ) |
Payments of capital lease obligations | |
| (24,100 | ) | |
| (27,983 | ) |
Proceeds from non-controlling interests | |
| -- | | |
| 98 | |
| |
| | | |
| | |
Net cash provided (used) by continuing financing activities | |
| 32,295 | | |
| (13,097 | ) |
Net cash provided (used) by discontinued financing activities | |
| -- | | |
| -- | |
Net cash provided (used) by financing activities | |
| 32,295 | | |
| (13,097 | ) |
| |
| | | |
| | |
Increase in cash and cash equivalents | |
| 1,798 | | |
| 6,970 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 13,165 | | |
| 9,862 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 14,963 | | |
$ | 16,832 | |
| |
| | | |
| | |
Interest paid in cash during the period | |
$ | 14,366 | | |
$ | 15,862 | |
| |
| | | |
| | |
Income taxes paid in cash during the period | |
$ | 27,950 | | |
$ | 12,244 | |
Non-cash investing and financing activities:
In the nine months ended September 30,
2015, the Company entered into non-interest-bearing notes payable of $11,112 to finance the purchase of aircraft which were held
in property and equipment pending permanent financing as of September 30, 2015, and into capital leases of $354 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 nine months ended September 30,
2014, the Company entered into non-interest-bearing notes payable of $2,729 to finance the purchase of aircraft which were held
in property and equipment pending permanent financing as of September 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)
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 September 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 were 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 condensed consolidated financial statements represent the results of continuing operations. The results of discontinued
operations included in the condensed consolidated statements of comprehensive income were as follows (amounts in thousands):
| |
For quarters ended September 30, | | |
For nine months ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Patient transport revenue, net | |
$ | -- | | |
| 901 | | |
| -- | | |
| 3,802 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Depreciation and amortization | |
| -- | | |
| 149 | | |
| -- | | |
| 443 | |
Loss on disposition of assets | |
| -- | | |
| 262 | | |
| 546 | | |
| 262 | |
Other operating expenses | |
| 36 | | |
| 1,360 | | |
| 71 | | |
| 6,266 | |
Loss from discontinued operations before income taxes | |
| (36 | ) | |
| (870 | ) | |
| (617 | ) | |
| (3,169 | ) |
Income tax benefit | |
| 7 | | |
| 339 | | |
| 239 | | |
| 1,235 | |
Loss from discontinued operations | |
$ | (29 | ) | |
| (531 | ) | |
| (378 | ) | |
| (1,934 | ) |
Air Methods Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements,
continued
(unaudited)
Changes in stockholders’
equity for the nine months ended September 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 | | |
| 409 | |
Stock-based compensation | |
| 39,886 | | |
| 5,733 | |
Tax benefit from exercise of stock options | |
| -- | | |
| 184 | |
Forfeiture of unvested restricted shares and related dividends | |
| -- | | |
| 7 | |
Adjustments to redeemable non-controlling interests | |
| -- | | |
| (918 | ) |
Other comprehensive loss | |
| -- | | |
| (800 | ) |
Net income attributable to Air Methods Corporation and subsidiaries | |
| -- | | |
| 86,103 | |
| |
| | | |
| | |
Balances at September 30, 2015 | |
| 39,302,674 | | |
$ | 562,627 | |
| (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 47.3% of receivables from all payers, excluding Medicare and Medicaid, as of
September 30, 2015, compared to 38.8% at December 31, 2014, and 39.7% at September 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 September 30, | | |
For nine months ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Third-party payers | |
$ | 322,636 | | |
| 242,088 | | |
| 833,525 | | |
| 651,906 | |
Self-pay | |
| 80,486 | | |
| 72,437 | | |
| 216,240 | | |
| 208,360 | |
Total | |
$ | 403,122 | | |
| 314,525 | | |
| 1,049,765 | | |
| 860,266 | |
Air Methods Corporation and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements,
continued
(unaudited)
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 $800,000 and $918,000 for the quarter and nine months ended September 30, 2015, respectively, and increased by $1,871,000 and
$1,883,000 for the quarter and nine months ended September 30, 2014, 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 September 30: | |
| | | |
| | |
Weighted average number of common shares outstanding – basic | |
| 39,293,453 | | |
| 39,168,873 | |
Dilutive effect of: | |
| | | |
| | |
Common stock options | |
| 27,886 | | |
| 83,064 | |
Unvested restricted stock | |
| 92,449 | | |
| 83,520 | |
Unvested performance share units | |
| 6,566 | | |
| 7,948 | |
Weighted average number of common shares outstanding – diluted | |
| 39,420,354 | | |
| 39,343,405 | |
| |
| | | |
| | |
For nine months ended September 30: | |
| | | |
| | |
Weighted average number of common shares outstanding – basic | |
| 39,276,062 | | |
| 39,146,609 | |
Dilutive effect of: | |
| | | |
| | |
Common stock options | |
| 35,752 | | |
| 108,952 | |
Unvested restricted stock | |
| 95,489 | | |
| 73,560 | |
Unvested performance share units | |
| 936 | | |
| -- | |
Weighted average number of common shares outstanding – diluted | |
| 39,408,239 | | |
| 39,329,121 | |
Common stock options totaling
573,732 and 566,752 were not included in the diluted shares outstanding for the three and nine months ended September 30, 2015,
respectively, and performance share units totaling 68,340 were not included in the diluted shares outstanding for the three and
nine months ended September 30, 2015, because their effect would have been anti-dilutive. Common stock options totaling 47,500
and performance share units totaling 105,512 were not included in the diluted shares outstanding for the nine months ended September
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 $0 at September 30, 2015, and 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 air medical aircraft operations and
tourism operating expenses in the Company’s statements of comprehensive income. Operating expenses included non-cash mark
to market derivative losses of $112,000 and $369,000 for the quarter and nine months ended September 30, 2015, respectively, compared
to $6,000 and $70,000 for the quarter and nine months ended September 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 September 30, 2015, is estimated to be $575,212,000, compared to a carrying value of $572,940,000. 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 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 September 30: | |
AMS | | |
Tourism | | |
UR | | |
Corporate Activities | | |
Intersegment Eliminations | | |
Consolidated | |
2015 | |
| | |
| | |
| | |
| | |
| | |
| |
External revenue | |
$ | 266,751 | | |
| 36,212 | | |
| 8,379 | | |
| -- | | |
| -- | | |
| 311,342 | |
Intersegment revenue | |
| -- | | |
| -- | | |
| 4,803 | | |
| -- | | |
| (4,803 | ) | |
| -- | |
Total revenue | |
| 266,751 | | |
| 36,212 | | |
| 13,182 | | |
| -- | | |
| (4,803 | ) | |
| 311,342 | |
Operating expenses, excluding depreciation & amortization | |
| (160,200 | ) | |
| (28,303 | ) | |
| (11,127 | ) | |
| (12,757 | ) | |
| 4,206 | | |
| (208,181 | ) |
Depreciation & amortization | |
| (17,412 | ) | |
| (2,002 | ) | |
| (873 | ) | |
| (597 | ) | |
| -- | | |
| (20,884 | ) |
Interest expense | |
| (3,747 | ) | |
| (783 | ) | |
| -- | | |
| (366 | ) | |
| 3 | | |
| (4,893 | ) |
Other income (expense), net | |
| 524 | | |
| -- | | |
| -- | | |
| (787 | ) | |
| (3 | ) | |
| (266 | ) |
Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (30,235 | ) | |
| -- | | |
| (30,235 | ) |
Income (loss) from continuing operations | |
| 85,916 | | |
| 5,124 | | |
| 1,182 | | |
| (44,742 | ) | |
| (597 | ) | |
| 46,883 | |
Loss on discontinued operations,
net of tax | |
| (29 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (29 | ) |
Segment net income (loss) | |
| 85,887 | | |
| 5,124 | | |
| 1,182 | | |
| (44,742 | ) | |
| (597 | ) | |
| 46,854 | |
Less net income (loss) attributable
to non-controlling interests | |
| (22 | ) | |
| 224 | | |
| -- | | |
| -- | | |
| -- | | |
| 202 | |
Net income (loss) attributable
to Air Methods Corporation and subsidiaries | |
$ | 85,909 | | |
| 4,900 | | |
| 1,182 | | |
| (44,742 | ) | |
| (597 | ) | |
| 46,652 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
External revenue | |
$ | 236,739 | | |
| 33,941 | | |
| 6,151 | | |
| 86 | | |
| -- | | |
| 276,917 | |
Intersegment revenue | |
| -- | | |
| -- | | |
| 2,305 | | |
| -- | | |
| (2,305 | ) | |
| -- | |
Total revenue | |
| 236,739 | | |
| 33,941 | | |
| 8,456 | | |
| 86 | | |
| (2,305 | ) | |
| 276,917 | |
Operating expenses, excluding depreciation & amortization | |
| (151,792 | ) | |
| (27,963 | ) | |
| (8,193 | ) | |
| (9,672 | ) | |
| 1,957 | | |
| (195,663 | ) |
Depreciation & amortization | |
| (17,108 | ) | |
| (1,746 | ) | |
| (598 | ) | |
| (520 | ) | |
| -- | | |
| (19,972 | ) |
Interest expense | |
| (3,965 | ) | |
| (742 | ) | |
| -- | | |
| (635 | ) | |
| -- | | |
| (5,342 | ) |
Other income (expense), net | |
| 435 | | |
| 1 | | |
| -- | | |
| (114 | ) | |
| -- | | |
| 322 | |
Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (21,891 | ) | |
| -- | | |
| (21,891 | ) |
Income (loss) from continuing operations | |
| 64,309 | | |
| 3,491 | | |
| (335 | ) | |
| (32,746 | ) | |
| (348 | ) | |
| 34,371 | |
Loss on discontinued operations,
net of tax | |
| (531 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (531 | ) |
Segment net income (loss) | |
| 63,778 | | |
| 3,491 | | |
| (335 | ) | |
| (32,746 | ) | |
| (348 | ) | |
| 33,840 | |
Less net income (loss) attributable
to non-controlling interests | |
| (44 | ) | |
| 167 | | |
| -- | | |
| -- | | |
| -- | | |
| 123 | |
Net income (loss) attributable
to Air Methods Corporation and subsidiaries | |
$ | 63,822 | | |
| 3,324 | | |
| (335 | ) | |
| (32,746 | ) | |
| (348 | ) | |
| 33,717 | |
Air Methods Corporation and Subsidiaries
Notes to Condensed Consolidated Financial
Statements, continued
(unaudited)
| (7) | Business
Segment Information, continued |
For nine months ended September 30: | |
AMS | | |
Tourism | | |
UR | | |
Corporate Activities | | |
Intersegment Eliminations | | |
Consolidated | |
2015 | |
| | |
| | |
| | |
| | |
| | |
| |
External revenue | |
$ | 697,400 | | |
| 98,877 | | |
| 16,962 | | |
| 4 | | |
| -- | | |
| 813,243 | |
Intersegment revenue | |
| -- | | |
| -- | | |
| 17,923 | | |
| -- | | |
| (17,923 | ) | |
| -- | |
Total revenue | |
| 697,400 | | |
| 98,877 | | |
| 34,885 | | |
| 4 | | |
| (17,923 | ) | |
| 813,243 | |
Operating expenses, excluding depreciation & amortization | |
| (466,493 | ) | |
| (80,239 | ) | |
| (30,261 | ) | |
| (33,748 | ) | |
| 16,380 | | |
| (594,361 | ) |
Depreciation & amortization | |
| (52,026 | ) | |
| (5,791 | ) | |
| (2,529 | ) | |
| (1,736 | ) | |
| -- | | |
| (62,082 | ) |
Interest expense | |
| (11,169 | ) | |
| (2,439 | ) | |
| -- | | |
| (1,440 | ) | |
| 7 | | |
| (15,041 | ) |
Other income (expense), net | |
| 2,339 | | |
| 3 | | |
| -- | | |
| (1,065 | ) | |
| (7 | ) | |
| 1,270 | |
Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (55,864 | ) | |
| -- | | |
| (55,864 | ) |
Income (loss) from continuing operations | |
| 170,051 | | |
| 10,411 | | |
| 2,095 | | |
| (93,849 | ) | |
| (1,543 | ) | |
| 87,165 | |
Loss on discontinued operations,
net of tax | |
| (378 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (378 | ) |
Segment net income (loss) | |
| 169,673 | | |
| 10,411 | | |
| 2,095 | | |
| (93,849 | ) | |
| (1,543 | ) | |
| 86,787 | |
Less net income (loss) attributable
to non-controlling interests | |
| (82 | ) | |
| 766 | | |
| -- | | |
| -- | | |
| -- | | |
| 684 | |
Net income (loss) attributable
to Air Methods Corporation and subsidiaries | |
$ | 169,755 | | |
| 9,645 | | |
| 2,095 | | |
| (93,849 | ) | |
| (1,543 | ) | |
| 86,103 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
2014 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
External revenue | |
$ | 644,427 | | |
| 89,709 | | |
| 21,401 | | |
| 86 | | |
| -- | | |
| 755,623 | |
Intersegment revenue | |
| -- | | |
| -- | | |
| 9,363 | | |
| -- | | |
| (9,363 | ) | |
| -- | |
Total revenue | |
| 644,427 | | |
| 89,709 | | |
| 30,764 | | |
| 86 | | |
| (9,363 | ) | |
| 755,623 | |
Operating expenses, excluding depreciation & amortization | |
| (433,550 | ) | |
| (72,158 | ) | |
| (28,160 | ) | |
| (29,178 | ) | |
| 8,159 | | |
| (554,887 | ) |
Depreciation & amortization | |
| (52,228 | ) | |
| (4,966 | ) | |
| (1,733 | ) | |
| (1,540 | ) | |
| -- | | |
| (60,467 | ) |
Interest expense | |
| (12,221 | ) | |
| (2,095 | ) | |
| -- | | |
| (2,123 | ) | |
| -- | | |
| (16,439 | ) |
Other income (expense), net | |
| 1,248 | | |
| 4 | | |
| -- | | |
| (664 | ) | |
| -- | | |
| 588 | |
Income tax expense | |
| -- | | |
| -- | | |
| -- | | |
| (48,668 | ) | |
| -- | | |
| (48,668 | ) |
Income (loss) from continuing operations | |
| 147,676 | | |
| 10,494 | | |
| 871 | | |
| (82,087 | ) | |
| (1,204 | ) | |
| 75,750 | |
Loss on discontinued operations,
net of tax | |
| (1,934 | ) | |
| -- | | |
| -- | | |
| -- | | |
| -- | | |
| (1,934 | ) |
Segment net income (loss) | |
| 145,742 | | |
| 10,494 | | |
| 871 | | |
| (82,087 | ) | |
| (1,204 | ) | |
| 73,816 | |
Less net income (loss) attributable
to non-controlling interests | |
| (130 | ) | |
| 550 | | |
| -- | | |
| -- | | |
| -- | | |
| 420 | |
Net income (loss) attributable
to Air Methods Corporation and subsidiaries | |
$ | 145,872 | | |
| 9,944 | | |
| 871 | | |
| (82,087 | ) | |
| (1,204 | ) | |
| 73,396 | |
| (8) | New Accounting Pronouncements |
In September 2015, the FASB
issued ASU No. 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments, which requires
that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting
period in which the adjustments are identified. An acquirer is also required to record the income effect of such adjustments in
the same period, calculated as if the adjustment had been made at the acquisition date. The ASU also stipulates disclosure requirements
for such adjustments. The ASU is effective for periods beginning after December 15, 2015, and is to be applied prospectively to
adjustments occurring after the effective date. The Company does not expect the implementation to have a material effect on its
financial position or results of operations.
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 related debt liability, consistent with debt discounts
or premiums. Recognition and measurement guidance for debt issuance costs is not affected by this ASU. In August 2015, the FASB
issued ASU No. 2015-15 to clarify the presentation of debt issuance costs for lines of credit. Both ASU’s are 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.
Air Methods Corporation and Subsidiaries
Notes to Condensed Consolidated Financial
Statements, continued
(unaudited)
| (8) | New Accounting Pronouncements, continued |
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. In August 2015, the FASB issued ASU No. 2015-14 to defer
the effective date of ASU 2014-09 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.
In November 2015, the Company
entered into a definitive purchase agreement to acquire 100% of the membership interest of Tri-State Care Flight, LLC, an Arizona
limited liability company, and subsidiary (collectively TSCF), for $222.5 million, subject to final determination of certain working
capital adjustments as defined in the agreement. The acquisition is subject to regulatory approval and customary closing conditions
and is expected to close during or prior to the first quarter of 2016. The Company expects to finance the acquisition through
an additional term loan under its senior credit facility. TSCF provides air medical transportation services in the southwestern
United States.
| 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 nine
months ended September 30, 2015, the AMS Division generated 86% of our total revenue,
compared to 85% in 2014. |
| · | Tourism
Division – provides helicopter tours and charter flights, primarily focusing on
Grand Canyon and Hawaiian Island tours. In the nine months ended September 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 nine months ended
September 30, 2015, compared to 3% in 2014. |
See Note 7 to the 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 nine months ended September 30, 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, high heat, 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 17,330 and 47,287 for the quarter and nine months
ended September 30, 2015, respectively, compared to 15,796 and 43,731 for the quarter
and nine months ended September 30, 2014, respectively. Patient transports for community-based
locations open longer than one year (Same-Base Transports) were 15,829 and 42,852 in
the quarter and nine months ended September 30, 2015, respectively, compared to 15,462
and 42,866 in the quarter and nine months ended September 30, 2014, respectively. Cancellations
due to unfavorable weather conditions for community-based locations open longer than
one year were 53 and 2,308 higher in the quarter and nine months ended September 30,
2015, respectively, compared to 2014. Requests for community-based services increased
by 3.6% and 4.8% for the quarter and nine months ended September 30, 2015, respectively,
for bases open longer 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
increased 7.2% and 4.5% in the quarter and nine months ended September 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 80.9% and 81.4% for the quarter and nine months ended September 30, 2014, to 75.7% and 77.2% for the quarter and
nine months ended September 30, 2015. Payer mix, based on number of transports, was as follows:
| |
For quarters ended September 30, | | |
For nine months ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Private insurance carriers | |
| 27.8 | % | |
| 29.1 | % | |
| 27.0 | % | |
| 27.7 | % |
Government-sponsored insurance plans | |
| 3.6 | % | |
| 3.5 | % | |
| 3.8 | % | |
| 3.8 | % |
Medicare | |
| 33.9 | % | |
| 32.4 | % | |
| 34.8 | % | |
| 33.6 | % |
Medicaid | |
| 24.6 | % | |
| 23.6 | % | |
| 24.4 | % | |
| 22.9 | % |
Self-pay patients | |
| 10.1 | % | |
| 11.4 | % | |
| 10.0 | % | |
| 12.0 | % |
Provisions for contractual
discounts and estimated uncompensated care related to patient transport revenue are as follows:
| |
For quarters ended September 30, | | |
For nine months ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Gross billings | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
| 100 | % |
Provision for contractual discounts | |
| 50 | % | |
| 51 | % | |
| 52 | % | |
| 51 | % |
Provision for uncompensated care | |
| 22 | % | |
| 20 | % | |
| 22 | % | |
| 20 | % |
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 74%
of tourism operating costs incurred during the nine months ended September 30, 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 134,157 and 361,306 in the quarter and nine months ended September
30, 2015, respectively, from 125,515 and 326,148 in the quarter and nine months ended
September 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 aircraft model, representing 8% of our 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 38 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 23 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 0.2% and 14.0% for the quarter and nine months ended September 30,
2015, respectively, compared to 2014. Total flight volume for all AMS operations increased
5.7% and 1.9% for the quarter and nine months ended September 30, 2015, respectively,
compared to 2014. Aircraft maintenance expense for the Tourism division decreased 8.3%
and increased 20.2% in the quarter and nine months ended September 30, 2015, respectively,
compared to 2014, corresponding to increases of 3.9% and 6.3% in total flight hours for
the quarter and nine months ended September 30, 2015, respectively. The changes in maintenance
expense reflect normal fluctuations in the timing of overhaul and replacement cycles
for aircraft parts. During the nine months ended September 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
higher 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 $46,652,000
and $86,103,000 for the quarter and nine months ended September 30, 2015, respectively, compared to $33,717,000 and $73,396,000
for the quarter and nine months ended September 30, 2014, respectively. Same-Base Transports were 2.4% higher in the quarter ended
September 30, 2015, and unchanged for the nine months ended September 30, 2015, compared to 2014, while net reimbursement per
patient transport increased 7.2% and 4.5% in the quarter and nine months ended September 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 $33,373,000, or 17.6%, and $65,048,000, or 13.0%,
for the quarter and nine months ended September 30, 2015, respectively, compared to 2014, for the following reasons:
| · | Increases
of 7.2% and 4.5% in net reimbursement per transport for the quarter and nine months ended
September 30, 2015, respectively, compared to 2014, due to the benefit of recent price
increases net of the deterioration in payer mix and collection rate described above. |
| · | Increase
of 367, or 2.4%, and decrease of 14 in Same-Base Transports for the quarter and nine
months ended September 30, 2015, respectively, compared to 2014. Cancellations due to
unfavorable weather conditions for locations open longer than one year were 53 and 2,308
higher in the quarter and nine months ended September 30, 2015, respectively, compared
to 2014. Requests for community-based services increased 3.6% and 4.8% for the quarter
and nine months ended September 30, 2015, respectively, for bases open longer than one
year. |
| · | Incremental
net revenue of $19,987,000 and $55,035,000 for the quarter and nine months ended September
30, 2015, respectively, generated from the addition of 32 new bases, including fourteen
bases resulting from the conversion of AMS contract customers to community-based operations,
during either 2015 or 2014. |
| · | Closure
of eleven bases during either 2015 or 2014, resulting in decreases in net revenue of
approximately $1,993,000 and $4,647,000 during the quarter and nine months ended September
30, 2015, respectively. |
Air medical services contract revenue
decreased $3,949,000, or 8.9%, and $15,086,000, or 11.2%, for the quarter and nine months ended September 30, 2015, for the
following reasons:
| · | Cessation
of service under five contracts and the conversion of six contracts to community-based
operations, during either 2015 or 2014, resulting in decreases in revenue of approximately
$6,114,000 and $18,855,000 for the quarter and nine months ended September 30, 2015,
respectively. |
| · | Incremental
net revenue of $711,000 and $2,013,000 for the quarter and nine months ended September
30, 2015, generated from the addition of one new AMS contract and expansion under three
other contracts to additional bases of operation during either 2015 or 2014. |
| · | Increase
of 1.2% and decrease of 0.4% in flight volume for the quarter and nine months ended September
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 $6,679,000, or 7.1%, and $25,074,000, or 9.4%,
for the quarter and nine months ended September 30, 2015, respectively, compared to 2014, for the following reasons:
| · | Increases
of approximately $8,306,000 and $25,314,000 for the quarter and nine months ended September
30, 2015, respectively, for the addition of personnel to staff new base locations described
above. |
| · | Decreases
of approximately $4,084,000 and $12,388,000 for the quarter and nine months ended September
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. |
Air medical aircraft operating expenses
decreased $2,021,000, or 5.8%, and increased $3,302,000, or 3.4%, for the quarter and nine months ended September 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
of $47,000, or 0.2%, to $24,714,000 and $9,682,000, or 14.0%, to $78,907,000 in AMS aircraft
maintenance expense for the quarter and nine months ended September 30, 2015, respectively,
compared to 2014. Total flight volume for AMS operations increased 5.7% and 1.9% for
the quarter and nine months ended September 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 nine months ended September
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 22.3% and 26.9% in the cost of aircraft fuel per hour flown for AMS for the quarter
and nine months ended September 30, 2015, respectively. Total AMS fuel costs decreased
$944,000, or 13.9%, to $5,844,000 and $3,989,000, or 20.7%, to $15,299,000 for the quarter
and nine months ended September 30, 2015, respectively, compared to 2014. |
| · | Decreases
in hull insurance rates effective July 2015 and 2014. |
Tourism
Tourism and charter revenue increased
$2,271,000, or 6.7%, and $9,168,000, or 10.2%, for the quarter and nine months ended September 30, 2015, respectively, compared
to 2014. During the quarter and nine months ended September 30, 2015, respectively, we transported 134,157 and 361,306 passengers
on tourism flights, compared to 125,515 and 326,148 in the quarter and nine months ended September 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 decreased
$470,000, or 2.0%, and increased $6,997,000, or 12.0%, for the quarter and nine months ended September 30, 2015, respectively,
in part due to the increase in the number of passengers, offset during the quarter by decreases in the cost of maintenance and
fuel. Cost of tour amenities for our Grand Canyon operations increased $723,000, or 22.0%, and $2,013,000, or 26.2%, for the quarter
and nine months ended September 30, 2015, respectively, primarily due to higher access fees charged by the Hualapai Tribe for
certain attractions at the Grand Canyon effective May 2014 and to higher passenger volume. Tourism aircraft maintenance expense
decreased $627,000, or 8.3%, to $6,961,000 and increased $3,736,000, or 20.2%, to $22,232,000 for the quarter and nine months
ended September 30, 2015, respectively, reflecting increases of 3.9% and 6.3% in total flight hours for the quarter and nine months
ended September 30, 2015, respectively, as well as normal fluctuations in the timing of overhaul and replacement cycles for aircraft
parts. The cost of aircraft fuel per hour flown decreased 37.8% and 28.5% for the quarter and nine months ended September 30,
2015 and 2014, respectively.
United Rotorcraft Division
Medical interiors and products revenue
increased $2,142,000, or 34.3%, and decreased $4,495,000, or 20.9%, for the quarter and nine months ended September 30, 2015,
respectively, compared to 2014. Significant projects during 2015 included the completion of eighteen multi-mission interiors for
the U.S. Army’s HH-60M helicopter and 26 interiors for an older generation of the U.S. Army’s Black Hawk helicopter,
as well as work on six aircraft interiors for commercial customers. Revenue by product line for the quarter and nine months ended
September 30, 2015, was as follows:
| · | $5,677,000
and $11,287,000 – governmental entities |
| · | $2,702,000
and $5,679,000 – 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 fifteen aircraft interiors for commercial customers. Revenue by product line
for the quarter and nine months ended September 30, 2014, was as follows:
| · | $3,982,000
and $13,891,000 – governmental entities |
| · | $2,255,000
and $7,570,000 – commercial customers |
Cost of medical interiors and products
increased $752,000, or 12.6%, and decreased $5,735,000, or 29.9%, for the quarter and nine months ended September 30, 2015,
respectively, as compared to the prior year, due primarily to the change in sales volume. 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 increased $3,749,000, or 10.5%, and $5,964,000, or 5.8%, for the quarter and nine months ended September 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. Equity and incentive compensation accruals related to our financial performance also increased $2,006,000 and $1,607,000
during the quarter and nine months ended September 30, 2015, respectively, compared to 2014.
Income
tax expense was $30,235,000 and $55,864,000, at effective tax rates of 39.2%, and 39.1%, for the quarter and nine months ended
September 30, 2015, respectively, compared to $21,891,000 and $48,668,000, at effective tax rates of 38.9%, and 39.1%, for the
quarter and nine months ended September 30, 2014, respectively. 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 September
30, 2015, was $272,004,000, compared to $219,574,000 at December 31, 2014. Cash generated by continuing operations was $125,330,000
in 2015, compared to $118,376,000 in 2014, reflecting the results of operations described above. Receivables increased by $56.5
million during 2015, compared to $48.4 million during 2014, partly because of the new bases and AMS contract conversions discussed
above. 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 133 at September 30, 2015,
compared to 131 at June 30, 2015, and 116 at September 30, 2014. The increase in DSO’s is attributed in part 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.
Cash used by continuing investing activities
totaled $155,752,000 in 2015 compared to $96,563,000 in 2014. Equipment acquisitions in 2015 included the purchase of 23 aircraft
for approximately $86.1 million and the buy-out of eight previously leased aircraft for $9.5 million. During 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. We sold seven aircraft for $3.5 million. Equipment acquisitions in
2014 included the buy-out of thirteen previously leased aircraft for approximately $17.3 million, the purchase of twenty aircraft
for approximately $65.1 million, and $7.5 million for aircraft interiors. We also sold nineteen aircraft for $12.3 million.
Continuing financing activities generated
$32,295,000 in 2015 compared to using $13,097,000 in 2014. The primary uses of cash in both 2015 and 2014 were regularly scheduled
payments of long-term debt and capital lease obligations and capital lease buy-outs. During 2015 and 2014 we originated 28 and
17 notes, respectively, primarily to finance the acquisition of aircraft and capital lease buy-outs.
In August 2015 we amended our senior credit
facility to provide for a $125 million revolving line of credit and term loans up to an aggregate of $650 million. The maturity
date was extended to August 2020. At the time of the amendment, we also prepaid $12 million against our existing term loan under
the credit facility.
We currently intend to exercise early
lease buy-out options on up to seven aircraft totaling approximately $13.1 million during the fourth quarter 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 unaudited condensed 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 recognized upon completion of the
services and 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 nine months ended September 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 $21,932,000 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. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of
ASU 2014-09 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 September 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 September
30, 2015, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded
that, as of September 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
Not Applicable
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
10.1 |
Third Amended and Restated
Revolving Credit, Term Loan, and Security Agreement, dated August 21, 20151 |
|
|
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 |
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32 |
Certification adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
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101.INS |
XBRL Instance Document |
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101.SCH |
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
XBRL Taxonomy Extension Calculation
Linkbase Document |
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|
101.LAB |
XBRL Taxonomy Extension Label Linkbase
Document |
|
|
101.PRE |
XBRL Taxonomy Extension Presentation
Linkbase Document |
| 1 | Filed as an exhibit to the Company’s Current Report on Form
8-K dated August 21, 2015, and incorporated herein by reference. |
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.
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AIR METHODS CORPORATION |
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Date: November 6, 2015 |
By |
/s/ Aaron D. Todd |
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Aaron D. Todd |
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Chief Executive Officer |
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Date: November 6, 2015 |
By |
/s/ Trent J. Carman |
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Trent J. Carman |
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Chief Financial Officer |
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Date: November 6, 2015 |
By |
/s/ Sharon J. Keck |
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Sharon J. Keck |
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Chief Accounting Officer |
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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: November 6, 2015
/s/ Aaron D. Todd |
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Aaron D. Todd |
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Chief Executive Officer |
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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: November 6, 2015
/s/ Trent J. Carman |
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Trent J. Carman |
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Chief Financial Officer |
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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 September 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 |
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Aaron D. Todd |
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Chief Executive Officer |
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November 6, 2015 |
|
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/s/ Trent J. Carman |
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Trent J. Carman |
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Chief Financial Officer |
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November 6, 2015 |
|
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