October 31, 2006
Mr. David R. Humphrey
Accounting Branch Chief
Securities and Exchange Commission
100 F Street N.E.
Mail Stop 3561
Washington D.C. 20549
Re: Air Methods Corporation
Form 10-K for the Year Ended December 31, 2005
Commission File Number: 000-16079
Dear Mr. Humphrey,
We ("Air Methods" or the "Company") are in receipt of your comment letter dated
October 25, 2006, and have responded to your comment below.
Item 8 - Financial Statements
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Financial statements for the year ended December 31, 2005
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Note (1) Summary of significant accounting policies
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Revenue recognition and uncollectible receivables, page F-13
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We note your response to our previous comment number two, which stated that
you have relied on the AICPA's Audit and Accounting Guide, Health Care
Organizations for determining your revenue recognition policy. However,
such Guide applies to organizations whose principal operations consist of
providing or agreeing to provide health care services and that derive all
or almost all of their revenues from the sale of related goods or services.
In this regard, the information provided in note 11 (page F-28) indicates
that your Hospital-Based Model (HBM) segment accounted for 30% of total
revenue and 71% of your net income in 2005. Further, this segment provides
aircraft operation and maintenance services. In addition your primary
business of providing air medical transportation services appears to be
comprised of both health care services and transportation services, with a
significant portion being attributable to the transportation element of
that business. As a result, it seems likely that a substantial portion of
your revenues are derived from transportation services. Therefore, we
believe that all or almost all of your revenues are not generated from
health care services, thus placing you outside the scope of the Guide for
Health Care
Organizations. Please revise your financial statements to bring them into
conformity with the guidance on revenue recognition as set forth in SAB 101
and SAB 104.
RESPONSE:
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By way of clarification, we have three segments in our business, as
indicated by our segment disclosures in Note 11 (page F-28). The Products
division, at approximately 2% of our 2005 revenues, primarily installs
aircraft medical interiors and recognizes revenues using the percentage of
completion method. The Hospital-Based Model segment, which is approximately
30% of our 2005 revenues, includes flight services provided to hospitals
under contracts, and revenue is recognized over the life of each respective
contract. These two segments have little or no exposure to collection risk
on revenues billed, as evidenced by the disclosures in note 11, and follow
the guidance of SAB 101 and SAB 104. We also note that your calculation of
the Hospital segment's contribution of 71% of net income does not consider
an allocation of corporate activities or intersegment eliminations. Using
this methodology, the Community-Based Model segment's contribution to net
income would be 195%.
Our Community-Based Model segment provides emergency air ambulatory medical
care to critically injured and/or ill patients. We respond to calls
initiated through the 911 emergency system and to transfer requests
initiated by emergency room sending and receiving physicians. All of the
aircraft within our Community-Based operations are staffed with our highly
skilled trauma nurses and paramedics. These personnel are responsible for
providing care to the patient while they are onboard our aircraft.
For our services, we bill Medicare, Medicaid, private insurance companies
and our patients. Each of our bills includes a specific code established by
the Federal Government known as the Healthcare Procedure Coding System. Our
Community-Based Model segment generates approximately 68% of our revenue
and the majority of our net income.
While not all of the Company's revenues are generated by our
Community-Based operations, we believe that the accounting guidance
prescribed by the Audit and Accounting Guide, Health Care Organizations
(the "Guide") is appropriate to this segment for a number of reasons.
First, the 'Applicability' section of the Guide defines the type of
organizations to which it applies as follow, in part:
'Clinics, medical group practices, individual practice associations,
individual practitioners, emergency care facilities, laboratories, surgery
centers, and other ambulatory care organizations.'
Our Community-Based segment provides many of the same services provided by
these organizations. Our aircraft and our staff provide an advanced life
support environment and by virtue of trained, critical staff and onboard
medical equipment, functions as a special care/emergency care facility.
Second, our trauma nurses and paramedics have similar training and provide
the same services as any emergency room personnel in any hospital and are
providing such medical care to the patients
while they are onboard our aircraft. Third, we bill the same organizations
that hospitals, physicians, and the above organizations bill for their
services. Our services are the same, our patients/customers are the same,
and the third party payors are the same. All of our accounting and audit
issues in this segment are the same issues being dealt with by the above
referenced organizations, such as revenue sources and collectibility,
third-party payors, Medicare/Medicaid, health insurers, etc. and therefore,
have the same issues as they do regarding collectibility. Essentially all
of our collectibility issues relate to the revenues in this segment, again
as indicated in the information disclosed in Note 11.
The Guide states, as you have also pointed out, that it:
'...applies to organizations whose principal operations consist of
providing or agreeing to provide health care services and that derive all
or almost all of their revenues from the sale of goods or services.'
Our Community-Based Model segment meets this standard. All of our revenue
in this segment comes from providing medical health care services at the
scene of an accident and during transport to the medical destination. We
continue to believe that it is appropriate for us to follow the Guide for
this segment of our business, until such time as revisions to the Guide are
finalized and effective.
In future filings with the Commission, we will modify our footnote
disclosures to include additional information on the nature of business
conducted within our Community Based Model segment.
* * * * * * * * * * * * * * * * * * * * * *
As part of this response, Air Methods acknowledges that it is responsible for
the adequacy and accuracy of the disclosure in the filings, that the staff
comments or changes to disclosure in response to staff comments in the filings
reviewed by the staff do not foreclose the Commission from taking any action
with respect to the filings, and Air Methods may not assert staff comments as a
defense in any proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please contact me at 303-792-7400 if you should have any further questions or
comments.
Sincerely,
Trent J. Carman
Chief Financial Officer
Air Methods Corporation