Air Methods (AIRM) 10-Q 2015 Q1 Quarterly report

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 March 31, 2015

OR

o 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 o

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 o

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 o
Non-accelerated Filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes o No x

The number of shares of Common Stock, par value $.06 per share, outstanding as of May 1, 2015, was 39,266,618.

TABLE OF CONTENTS

Form 10-Q

PART I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets - March 31, 2015 and December 31, 2014	1
		Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014	3
		Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014	5
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
	Item 4.	Controls and Procedures	21
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	22
	Item 1A.	Risk Factors	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
	Item 3.	Defaults upon Senior Securities	22
	Item 4.	Reserved	22
	Item 5.	Other Information	22
	Item 6.	Exhibits	22
	SIGNATURES		23

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)

	March 31,			December 31,
	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	24,779			13,165
Receivables:
Trade, net (note 4)		297,958			293,985
Refundable income taxes		7,121			8,865
Other		2,950			4,802
		308,029			307,652
Inventories		45,687			46,095
Work-in-process on medical interiors and products contracts		2,925			4,610
Assets held for sale		7,033			8,608
Costs and estimated earnings in excess of billings on uncompleted contracts		397			564
Refundable deposits		11,281			8,381
Prepaid expenses and other (note 6)		11,764			10,766
Total current assets		411,895			399,841
Property and equipment:
Land		251			251
Flight and ground support equipment		713,195			697,444
Aircraft under capital leases		193,969			196,302
Aircraft rotable spare parts		39,159			38,050
Buildings and other equipment		59,851			57,983
		1,006,425			990,030
Less accumulated depreciation and amortization		(285,522	)		(268,049	)
Net property and equipment		720,903			721,981
Goodwill		127,269			127,269
Intangible assets, net of accumulated amortization of $21,078 and $19,282at March 31, 2015 and December 31, 2014, respectively		86,796			83,654
Other assets		27,602			28,560
Total assets	$	1,374,465			1,361,305

 (Continued)

1

Air Methods Corporation and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS, Continued

(Amounts in thousands, except share and per share amounts)

(unaudited)

	March 31,				December 31,
	2015				2014
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable	$	5,710				11,442
Current installments of long-term debt		46,098				45,827
Current installments of obligations under capital leases		23,887				23,954
Accounts payable		18,688				17,393
Deferred revenue		5,920				4,409
Billings in excess of costs and estimated earnings on uncompleted contracts		632				1,313
Accrued wages and compensated absences		21,940				31,539
Due to third party payers		8,592		��		7,426
Deferred income taxes		23,118				21,427
Other accrued liabilities		18,643				15,537
Total current liabilities		173,228				180,267
Long-term debt, less current installments		475,627				466,839
Obligations under capital leases, less current installments		90,871				96,534
Deferred income taxes		127,065				122,715
Other liabilities		14,225				16,060
Total liabilities		881,016				882,415
Redeemable non-controlling interests		7,287				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 39,490,312 and 39,452,753 shares at March 31, 2015 and December 31, 2014, respectively; outstanding 39,263,952 and 39,228,948 shares at March 31, 2015 and December 31, 2014, respectively		2,351				2,349
Additional paid-in capital		122,456				120,391
Retained earnings		362,366				349,805
Accumulated other comprehensive loss		(1,011	)			(636	)
Total stockholders’ equity		486,162				471,909
Total liabilities and stockholders’ equity	$	1,374,465				1,361,305

See accompanying notes to condensed consolidated financial statements.

2

Air Methods Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended March 31,
	2015			2014
Revenue:
Patient transport revenue, net of provision for contractual discounts (note 4)	$	291,036			248,529
Provision for uncompensated care (note 4)		(129,220	)		(106,667	)
Patient transport revenue, net		161,816			141,862
Air medical services contract revenue		40,639			44,761
Tourism and charter revenue		28,221			24,338
Medical interiors and products revenue		4,137			7,820
Dispatch and billing service revenue		3,486			2,288
		238,299			221,069
Operating expenses:
Flight centers		93,792			87,455
Aircraft operations (note 6)		37,340			31,526
Tourism operating expenses		19,851			16,000
Cost of medical interiors and products sold		3,201			6,679
Cost of dispatch and billing services		2,821			2,529
Depreciation and amortization		20,044			20,372
Loss (gain) on disposition of assets, net		(262	)		407
General and administrative		35,725			31,325
		212,512			196,293
Operating income		25,787			24,776
Other income (expense):
Interest expense		(4,985	)		(5,528	)
Other, net		364			(26	)
Income from continuing operations before income taxes		21,166			19,222
Income tax expense		(8,290	)		(7,645	)
Income from continuing operations		12,876			11,577
Loss on discontinued operations, net of income taxes (note 2)		(9	)		(525	)
Net income		12,867			11,052
Less net income attributable to redeemable non-controlling interests		239			163
Net income attributable to Air Methods Corporation and subsidiaries	$	12,628			10,889
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments		(375	)		(65	)
Comprehensive income	$	12,253			10,824

(Continued)

3

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 March 31,
	2015		2014
Income per common share (note 5):
Basic:
Continuing operations	$	.32		.29
Discontinued operations		--		(.01	)
Net income	$	.32		.28
Diluted:
Continuing operations	$	.32		.29
Discontinued operations		--		(.01	)
Net income	$	.32		.28
Weighted average number of common shares outstanding – basic		39,262,063		39,119,397
Weighted average number of common shares outstanding – diluted		39,390,415		39,318,180

See accompanying notes to condensed consolidated financial statements.

4

Air Methods Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2015			2014
Cash flows from operating activities:
Net income	$	12,867			11,052
Loss from discontinued operations, net of income taxes		9			525
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		20,044			20,372
Deferred income tax expense		6,039			5,971
Stock-based compensation		1,848			774
Tax benefit from exercise of stock options		(12	)		(975	)
Loss (gain) on disposition of assets, net		(262	)		407
Loss on derivative instrument		149			53
Loss from equity method investee		224			441
Changes in assets and liabilities, net of effects of acquisitions:
Increase in prepaid expenses and other current assets		(4,047	)		(374	)
Increase in receivables		(475	)		(19,397	)
Decrease (increase) in inventories		2,093			(49	)
Decrease in costs in excess of billings		167			242
Decrease in accounts payable, other accrued liabilities, and other liabilities		(4,982	)		(4,107	)
Increase in deferred revenue and billings in excess of costs		830			1,003
Net cash provided by continuing operating activities		34,492			15,938
Net cash used by discontinued operating activities		(96	)		(841	)
Net cash provided by operating activities		34,396			15,097
Cash flows from investing activities:
Acquisition of equipment and leasehold improvements		(23,493	)		(35,388	)
Buy-out of previously leased aircraft		--			(5,554	)
Proceeds from disposition and sale of equipment and assets held for sale		1,997			5,567
Decrease (increase) in other assets, net		(4,577	)		535
Net cash used by continuing investing activities		(26,073	)		(34,840	)
Net cash provided (used) by discontinued investing activities		25			(48	)
Net cash used by investing activities		(26,048	)		(34,888	)

 (Continued)

5

Air Methods Corporation and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(Amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2015			2014
Cash flows from financing activities:
Proceeds from issuance of common stock, net	$	207			479
Borrowings under line of credit		--			15,000
Payments under line of credit		--			(2,000	)
Payments for financing costs		(4	)		(69	)
Proceeds from long-term debt		21,137			19,965
Payments of long-term debt and notes payable		(12,078	)		(7,755	)
Payments of capital lease obligations		(6,008	)		(8,661	)
Tax benefit from exercise of stock options		12			975
Proceeds from non-controlling interests		--			98
Net cash provided by continuing financing activities		3,266			18,032
Net cash provided (used) by discontinued financing activities		--			--
Net cash provided by financing activities		3,266			18,032
Increase (decrease) in cash and cash equivalents		11,614			(1,759	)
Cash and cash equivalents at beginning of period		13,165			9,862
Cash and cash equivalents at end of period	$	24,779			8,103
Interest paid in cash during the period	$	4,832			5,355
Income taxes paid in cash during the period	$	488			51

Non-cash investing and financing activities:

In the quarter ended March 31, 2015, the Company entered into non-interest-bearing notes payable of $5,710 to finance the purchase of aircraft which were held in property and equipment pending permanent financing as of March 31, 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 quarter ended March 31, 2014, the Company entered into non-interest-bearing notes payable of $5,696 to finance the purchase of aircraft which were held in property and equipment pending permanent financing as of March 31, 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 condensed consolidated financial statements.

6

Air Methods Corporation and Subsidiaries

Notes to 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 the 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 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 $1.8 million used in AJI’s operations are included in assets held for sale in the consolidated balance sheet as of March 31, 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 March 31,
	2015			2014
Patient transport revenue, net	$	--			2,067
Operating expenses:
Depreciation and amortization		--			144
Gain on disposition of assets		(15	)		--
Other operating expenses		29			2,783
Loss from discontinued operations before income taxes		(14	)		(860	)
Income tax benefit		5			335
Loss from discontinued operations	$	(9	)		(525	)

7

Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(3)           Stockholders’ Equity

Changes in stockholders’ equity for the three months ended March 31, 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		22,500		207
Stock-based compensation		12,504		1,848
Tax benefit from exercise of stock options		--		12
Adjustments to redeemable non-controlling interests		--		(67	)
Other comprehensive loss		--		(375	)
Net income		--		12,628
Balances at March 31, 2015		39,263,952	$	486,162

(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 discount 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 38.5% of receivables from all payers, excluding Medicare and Medicaid, as of March 31, 2015, compared to 38.9% at December 31, 2014, and 37.7% at March 31, 2014.

8

Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(4)           Patient Transport Revenue Recognition, continued

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 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 for the quarters ended March 31 (amounts in thousands):

	2015		2014
Third-party payers	$	223,546		176,866
Self-pay		67,490		71,663
Total	$	291,036		248,529

(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 outstanding and dilutive potential common shares during the period.

In accordance with FASB ASC 480-10-S99, Distinguishing Liabilities from Equity, and solely for the purpose of calculating earnings per share, net income for the quarters ended March 31, 2015 and 2014, was decreased by $67,000 and increased by $50,000, respectively, for adjustments to the value of redeemable non-controlling interests.

The reconciliation of basic to diluted weighted average common shares outstanding is as follows for the quarters ended March 31:

	2015		2014
Weighted average number of common shares outstanding – basic		39,262,063		39,119,397
Dilutive effect of:
Common stock options		40,760		125,950
Unvested restricted stock		87,592		72,833
Weighted average number of common shares outstanding – diluted		39,390,415		39,318,180

Common stock options totaling 577,532 and 47,500 were not included in the diluted shares outstanding for the quarters ended March 31, 2015 and 2014, respectively, because their effect would have been anti-dilutive.

9

Air Methods Corporation and Subsidiaries

Notes to 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 $146,000 at March 31, 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 statement of income. Aircraft operations expense included non-cash mark to market derivative losses of $149,000 and $53,000 for the first quarters of 2015 and 2014, respectively. There were no cash settlements under the terms of the agreements in the first quarter of 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 March 31, 2015, is estimated to be $522,035,000, compared to carrying value of $521,725,000. 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.

10

Air Methods Corporation and Subsidiaries

Notes to 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 March 31:	AMS			Tourism			UR			Corporate Activities			Intersegment Eliminations			Consolidated
2015
External revenue	$	205,941			28,221			4,134			3			--			238,299
Intersegment revenue		--			--			8,367			--			(8,367	)		--
Total revenue		205,941			28,221			12,501			3			(8,367	)		238,299
Operating expenses, excluding depreciation & amortization		(154,024	)		(24,515	)		(10,716	)		(10,814	)		7,601			(192,468	)
Depreciation & amortization		(16,932	)		(1,827	)		(749	)		(536	)		--			(20,044	)
Interest expense		(3,672	)		(782	)		--			(533	)		2			(4,985	)
Other income, net		561			1			--			(196	)		(2	)		364
Income tax expense		--			--			--			(8,290	)		--			(8,290	)
Income (loss) from continuing operations		31,874			1,098			1,036			(20,366	)		(766	)		12,876
Loss on discontinued operations, net of tax		(9	)		--			--			--			--			(9	)
Segment net income (loss)		31,865			1,098			1,036			(20,366	)		(766	)		12,867
Less net income (loss) attributable to non-controlling interests		(38	)		277			--			--			--			239
Net income (loss) attributable to Air Methods Corporation and subsidiaries	$	31,903			821			1,036			(20,366	)		(766	)		12,628

11

Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(7) Business Segment Information, continued

For quarter ended March 31:	AMS			Tourism			UR			Corporate Activities			Intersegment Eliminations			Consolidated
2014
External revenue	$	188,911			24,338			7,820			--			--			221,069
Intersegment revenue		--			--			3,067			--			(3,067	)		--
Total revenue		188,911			24,338			10,887			--			(3,067	)		221,069
Operating expenses, excluding depreciation & amortization		(139,465	)		(20,011	)		(9,510	)		(9,511	)		2,576			(175,921	)
Depreciation & amortization		(17,768	)		(1,564	)		(538	)		(502	)		--			(20,372	)
Interest expense		(4,195	)		(622	)		--			(711	)		--			(5,528	)
Other income, net		387			--			--			(413	)		--			(26	)
Income tax expense		--			--			--			(7,645	)		--			(7,645	)
Income (loss) from continuing operations		27,870			2,141			839			(18,782	)		(491	)		11,577
Loss on discontinued operations, net of tax		(525	)		--			--			--			--			(525	)
Segment net income (loss)		27,345			2,141			839			(18,782	)		(491	)		11,052
Less net income (loss) attributable to non-controlling interests		(48	)		211			--			--			--			163
Net income (loss) attributable to Air Methods Corporation and subsidiaries	$	27,393			1,930			839			(18,782	)		(491	)		10,889

(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. The ASU is effective for the Company for periods beginning after December 15, 2016, and early adoption is not permitted. On April 1, 2015, the FASB voted to propose to defer the effective date for public entities to annual periods beginning after December, 15, 2017. 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.

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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; 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 quarters of 2015 and 2014, the AMS Division generated 86% of our total revenue.

● Tourism Division – provides helicopter tours and charter flights, primarily focusing on Grand Canyon and Hawaiian Island tours. In the first quarter of 2015, the Tourism Division generated 12% of our total revenue, compared to 11% in the first quarter of 2014.

● United Rotorcraft (UR) Division - designs, manufactures, and installs aircraft medical interiors and other aerospace and medical transport products for domestic and international customers. In the first quarter of 2015, the UR Division generated 2% of our total revenue, compared to 3% in the first quarter of 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:

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● Patient transport volume. Almost all of patient transport revenue is derived from flight fees, as compared to approximately 20% of AMS contract revenue. By contrast, 83% of AMS operating costs incurred during the quarter ended March 31, 2015, was 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 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 patient transport volume. Total patient transports for community-based locations were 13,852 for the first quarter of 2015 compared to 12,941 for the first quarter of 2014. Patient transports for community-based locations open longer than one year (Same-Base Transports) were 12,643 in the first quarter of 2015, compared to 12,706 in the first quarter of 2014. Cancellations due to unfavorable weather conditions for community-based locations open longer than one year were 1,005 higher in the first quarter of 2015, compared to the first quarter of 2014. Requests for community-based services increased 6.8% 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 increased 6.6% in the quarter ended March 31, 2015, compared to 2014, attributed to recent price increases net of a deterioration in payer mix, based on number of transports, as shown below:

	2015			2014
Private insurance carriers		27.0	%		27.7	%
Government-sponsored insurance plans		3.6	%		4.4	%
Medicare		34.8	%		33.7	%
Medicaid		23.9	%		20.1	%
Self-pay patients		10.7	%		14.2	%

Provisions for contractual discounts and estimated uncompensated care related to patient transport revenue were as follows:

	For quarters ended March 31,
	2015			2014
Gross billings		100	%		100	%
Provision for contractual discounts		55	%		52	%
Provision for uncompensated care		20	%		21	%

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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. Although certain insurance companies have not increased their reimbursement rates proportionately with recent price increases to the same extent they did with previous price increases, we have not yet experienced significant increased limitations in the amount reimbursed by private insurers taken as a whole. 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 first quarter 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 100,196 in the first quarter of 2015 from 87,266 in the first quarter of 2014.

● 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. Two models of aircraft within our fleet, representing 9% of the rotor wing fleet, are no longer in production and are, 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 22 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 45 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 33.9% from the first quarter of 2014 to the first quarter of 2015, while total flight hours for AMS operations increased 0.9% over the same period. Aircraft maintenance expense for the Tourism division increased 23.3% in the first quarter of 2015 compared to the first quarter of 2014, corresponding to a 10.8% increase in total flight hours. The change in maintenance expense reflects 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 three quarters of 2015 compared to the first quarter. During the first quarter of 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. 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.

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Results of Operations

We reported net income of $12,628,000 for the quarter ended March 31, 2015, compared to $10,889,000 for the quarter ended March 31, 2014. Same-Base Transports were 0.5% lower in the first quarter of 2015 compared to the first quarter of 2014, while net reimbursement per patient transport increased 6.6%, primarily as a result of recent price increases net of a deterioration in payer mix.

Air Medical Services

Patient transport revenue is recorded net of provisions for contractual discounts and uncompensated care and increased $19,954,000, or 14.1%, for the quarter ended March 31, 2015, compared to 2014, for the following reasons:

● Increase of 6.6% in net reimbursement per transport for the first quarter of 2015, compared to 2014, due primarily to recent price increases.

● Decrease in Same-Base Transports of 63, or 0.5%, in the first quarter of 2015 compared to 2014. Cancellations due to unfavorable weather conditions for bases open longer than one year were 1,005 higher in the first quarter of 2015, compared to the first quarter of 2014. Requests for community-based services increased by 6.8% for bases open greater than one year.

● Incremental net revenue of $16,486,000 generated from the addition of nineteen new bases, including nine bases resulting from the conversion of hospital contracts, during or subsequent to the first quarter of 2014.

● Closure of nine bases due to insufficient flight volume during or subsequent to the first quarter of 2014, resulting in a decrease in net revenue of approximately $1,516,000.

Air medical services contract revenue decreased $4,122,000, or 9.2%, for the quarter ended March 31, 2015, compared to 2014, for the following reasons:

● Cessation of service under four contracts and the conversion of five contracts to community-based operations during or subsequent to the first quarter of 2014, resulting in a decrease in revenue of approximately $5,315,000.

● Incremental revenue of $776,000 generated from the addition of one new air medical services contract in the second quarter of 2014 and the expansion of one contract to an additional base of operation during the first quarter of 2014.

● Decrease of 1.3% in flight volume for all contracts, excluding the new contract, contract expansion, 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 $6,337,000, or 7.2%, for the quarter ended March 31, 2015, compared to 2014, for the following reasons:

● Increase of approximately $7,720,000 for the addition of personnel to staff new base locations described above.

● Decrease of $4,360,000 due to the closure of base locations described above.

● Increases in salaries for merit pay raises.

Aircraft operating expenses increased $5,814,000, or 18.4%, for the quarter ended March 31, 2015, in comparison to the quarter ended March 31, 2014. Aircraft operating expenses consist primarily of fuel, insurance, and maintenance costs for AMS operations and generally are a function of the size of the fleet, type of aircraft flown, and number of hours flown. The increase in costs is due to the following:

● Increase of $7,508,000, or 33.9%, in AMS aircraft maintenance expense to $29,625,000. Total flight volume for AMS operations increased 0.9% for the first quarter of 2015 compared to 2014. The change in maintenance expense reflects normal fluctuations in the timing of overhaul and replacement cycles for aircraft parts. During the first quarter of 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.

● Decrease of approximately 26.4% in the cost of aircraft fuel per hour flown for AMS operations. Total fuel cost decreased by $1,189,000 to a total expense of $4,652,000 for 2015.

● Decrease in hull insurance rates effective July 2014.

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Tourism

Tourism and charter revenue increased $3,883,000, or 16.0%, for the first quarter of 2015 compared to the first quarter of 2014, reflecting an increase in tourism passengers from 87,266 to 100,196.

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 $3,851,000, or 24.1%, in the first quarter of 2015 compared to the first quarter of 2014, in part due to the increase in the number of passengers. Cost of tour amenities for our Grand Canyon operations increased $1,271,000, or 89.3%, 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 $1,112,000, or 23.3%, to $5,881,000 in the first quarter of 2015 compared to 2014, reflecting an increase of 10.8% in total flight hours and an expansion of the fleet from 58 helicopters at March 31, 2014, to 62 helicopters at March 31, 2015, as well as normal fluctuations in the timing of overhaul and replacement cycles for aircraft parts.

Medical Interiors and Products

Medical interiors and products revenue decreased $3,683,000, or 47.1%, for the first quarter of 2015 compared to the first quarter of 2014. Significant projects during the first quarter of 2015 included the completion of six multi-mission interiors for the U.S. Army’s HH-60M helicopter and work on two aircraft interiors for commercial customers. Revenue by product line was as follows:

● $3,157,000 – governmental entities

● $980,000 – commercial customers

Significant projects in process during the first quarter of 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 seven aircraft interiors for commercial customers. Revenue by product line was as follows:

● $5,236,000 – governmental entities

● $2,584,000 – commercial customers

Cost of medical interiors and products decreased $3,478,000, or 52.1%, for the first quarter of 2015, as compared to the previous 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

General and administrative (G&A) expenses increased $4,400,000, or 14.0%, for the first quarter of 2015, compared to the first quarter of 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 five AMS contracts to community-based operations, resulting in nine additional bases and contributing to an increase in billing and collections, dispatch, and AMS program administration requirements.In addition, equity compensation and incentive compensation accruals related to our financial performance increased $2,083,000 in the first quarter of 2015 compared to 2014.

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Interest expense decreased $543,000, or 9.8%, for the first quarter of 2015, compared to the first quarter of 2014, due to decreased borrowings against our line of credit, retirement of $12.6 million in capital lease obligations with a weighted average effective interest rate of 5.3% since March 31, 2014, and regularly scheduled payments of long-term debt and capital lease obligations. The resulting decrease in interest expense was offset in part by new term loans totaling $91.1 million with a weighted average interest rate of 3.9% originated subsequent to March 31, 2014, to fund the retirement of capital leases and the purchase of aircraft.

Income tax expense was $8,290,000 in the first quarter of 2015, compared to $7,645,000 in the first quarter of 2014, at effective tax rates of approximately 39.2% and 39.8%, respectively. The effective rate for 2015 decreased primarily because of a decrease in certain permanent book-tax differences. Changes in our effective tax rate areaffected by the apportionment of revenue and income before taxesfor 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 March 31, 2015, was $238,667,000, compared to $219,574,000 at December 31, 2014. Cash generated by continuing operations was $34,492,000 in the first quarter of 2015, compared to $15,938,000 in the first quarter of 2014, reflecting the results of operations described above. Receivables increased by $475,000 during the first quarter of 2015, compared to $19.4 million during the first quarter of 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 129 at March 31, 2015, compared to 116 at March 31, 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. To date, the increase in processing times for private insurers has not significantly negatively impacted the overall collection rate for privately insured accounts. 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 receivables for AMS and UR contracts, consistent with decreases in related revenue.

Cash used by continuing investing activities totaled $26,073,000 in 2015 compared to $34,840,000 in 2014. Equipment acquisitions in the first quarter of 2015 included the purchase of six aircraft for approximately $19.1 million. Equipment acquisitions in the first quarter of 2014 included the buy-out of four previously leased aircraft for approximately $5.6 million and the purchase of nine aircraft for approximately $26.0 million. In the first quarter of 2014, we also sold seven aircraft for $5.4 million.

Continuing financing activities provided $3,266,000 in 2015 compared to $18,032,000 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 first quarters of both 2015 and 2014, we originated seven notes primarily to finance the acquisition of aircraft.

We currently intend to exercise early lease buy-out options on up to fourteen aircraft totaling approximately $23.2 million prior to the end 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.

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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 quarter ended March 31, 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 $6,441,000 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. The ASU is effective for us for periods beginning after December 15, 2016, and early adoption is not permitted. On April 1, 2015, the FASB voted to propose to defer the effective date for public entities to annual periods beginning after December, 15, 2017. 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.

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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 March 31, 2015, from that reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

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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 under the Securities Exchange Act of 1934, as amended, 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 March 31, 2015, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of March 31, 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.

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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.     Reserved

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AIR METHODS CORPORATION
Date:  May 8, 2015	By	/s/ Aaron D. Todd
		Aaron D. Todd
		Chief Executive Officer
		(Principal Executive Officer)

Date:  May 8, 2015	By	/s/ Trent J. Carman
		Trent J. Carman
		Chief Financial Officer
		(Principal Financial Officer)

Date:  May 8, 2015	By	/s/ Sharon J. Keck
		Sharon J. Keck
		Chief Accounting Officer
		(Principal Accounting Officer)

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