AIR METHODS CORP - FORM 8-K/A - EX-99.3 - EXHIBIT 99.3

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8-K/A - AIR METHODS CORPORATION 8-K/A 8-1-2011 - AIR METHODS CORP	form8ka.htm
EX-23.1 - EXHIBIT 23.1 - AIR METHODS CORP	ex23_1.htm
EX-99.4 - EXHIBIT 99.4 - AIR METHODS CORP	ex99_4.htm

Exhibit 99.3

Air Methods Corporation and Subsidiaries

Pro Forma Financial Information

(unaudited)

On August 1, 2011, Air Methods Corporation (the Company) acquired 100% of the outstanding common stock of OF Air Holdings Corporation and its subsidiaries, including Omniflight Helicopters, Inc. (together, Omniflight), for a cash purchase price of $200 million, subject to final determination of working capital, as defined in the merger agreement, as of the closing date. The accompanying unaudited pro forma combined balance sheet presents the historical financial information of the Company as of June 30, 2011, as adjusted for the acquisition of Omniflight, as if the acquisition had occurred on June 30, 2011.

The accompanying unaudited pro forma combined statements of income for the six months ended June 30, 2011, and the year ended December 31, 2010, combine the historical operations of the Company with the historical operations of Omniflight as if the transaction had occurred on January 1, 2010. Because Omniflight’s fiscal year-end was previously March 31, Omniflight’s historical statement of income for the year ended March 31, 2011, was combined with the Company’s statement of income for the year ended December 31, 2010, for purposes of the pro forma presentation for the year ended December 31, 2010. The accompanying unaudited pro forma combined statement of income for the six months ended June 30, 2011, combine the historical operations of the Company for the six months ended June 30, 2011 with the six months for Omniflight, including the three months ended March 31, 2011. These same three months are also included in the pro forma statement of income for the year ended December 31, 2010.

The acquisition was accounted for under the acquisition method of accounting whereby the total estimated purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values as of the effective date of the acquisition. The unaudited pro forma combined financial statements have been prepared by the Company’s management based upon the historical financial statements of the Company and Omniflight and preliminary estimates of fair values, which are subject to change pending a final analysis of the fair values and useful lives, as applicable. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma financial statements and notes thereto should be read in conjunction with the historical financial statements included in the Company’s previous filings with the Securities and Exchange Commission.

Air Methods Corporation and Subsidiaries
Pro Forma Combined Balance Sheet
As of June 30, 2011
(Amounts in thousands)
(unaudited)


	Historical
	Air Methods Corporation			OF Air Holdings Corporation			Pro forma adjustments			Pro forma combined
	(Restated)
ASSETS

Current Assets:
Cash and cash equivalents	$	43,197			15,715			-			58,912
Current installments of notes receivable		4			-			-			4
Receivables:
Trade		142,011			24,891			(1,000	)(g)		165,902
Other		2,399			360			-			2,759
		144,410			25,251			(1,000	)		168,661

Inventories, including work-in-process on medical interiors and products contracts		30,612			2,454			1,940	(c)		35,006
Costs in excess of billings		719			-			-			719
Assets held for sale		1,551			43			-			1,594
Deferred income taxes		-			602			(602	)(l)		-
Prepaid and other current assets		15,716			3,124			(1,307	)(a)		17,533
Total current assets		236,209			47,189			(969	)		282,429

Property and equipment:
Land		251			-			-			251
Flight and ground support equipment		285,941			81,403			(43,411	)(c)		322,795
								(1,138	)(i)
Buildings and other equipment		38,923			9,575			(6,553	)(c)		41,945
Capital lease assets		374,902			59,847			(31,588	)(c)		403,086
								(75	)(i)
		700,017			150,825			(82,765	)		768,077
Less accumulated depreciation and amortization		(253,326	)		(66,883	)		66,883	(c)		(253,326	)
Net property and equipment		446,691			83,942			(15,882	)		514,751

Notes and other receivables, less current installments		119			-						119
Goodwill (net)		25,506			46,597			(46,597	)(d)		95,696
								70,190	(e)
Other intangible assets		-			31,202			(31,202	)(d)		72,900
								72,900	(e)
Other assets		15,575			8,192			1,705	(b)		25,472

Total assets	$	724,100			217,122			50,145			991,367

										(Continued)

Air Methods Corporation and Subsidiaries
Pro Forma Combined Balance Sheet
As of June 30, 2011
(Amounts in thousands)
(unaudited)


	Historical
	Air Methods Corporation		OF Air Holdings Corporation			Pro forma adjustments			Pro forma combined
	(Restated)
LIABILITIES, PREFERRED STOCK, AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Notes payable	$	11,837		-			-			11,837
Current installments of long-term debt		33,590		189,494			(189,494	)(a)		43,590
							10,000	(b)
Current installments of obligations under capital leases		42,946		35,406			(1,125	)(i)		52,433
							(24,794	)(k)
Accounts payable		15,901		1,503			-			17,404
Other accrued liabilities		11,789		17,017			(2,325	)(a)		24,548
							(104	)(g)
							671	(h)
							(2,500	)(i)
Due to third-party payors		4,339		-			-			4,339
Accrued wages and compensated absences		12,208		6,623			-			18,831
Deferred income taxes		7,767		-			-			7,767
Billings in excess of costs		1,248		-			-			1,248
Deferred revenue		4,124		1,064			(896	)(g)		4,292
Total current liabilities		145,749		251,107			(210,567	)		186,289

Long-term debt, less current installments		52,537		-			190,000	(b)		242,537
Obligations under capital leases less current installments		210,885		-			31,944	(k)		242,829
Deferred income taxes		34,851		11,506			(6,118	)(l)		40,239
Other liabilities		26,960		6,835			(102	)(a)		27,026
							(6,667	)(j)
Total liabilities		470,982		269,448			(1,510	)		738,920

Preferred stock				187,937			(187,937	)(f)		-

Total stockholders' equity (deficit)		253,118		(240,263	)		240,263	(f)		252,447
							(671	)(h)

Total liabilities, preferred stock, and stockholders' equity (deficit)	$	724,100		217,122			50,145			991,367


See accompanying notes to unaudited pro forma combined financial statements.

Air Methods Corporation and Subsidiaries
Pro Forma Combined Statement of Income
For the Six Months Ended June 30, 2011
(Amounts in thousands, except share and per share amounts)
(unaudited)


	Historical
	Air Methods Corporation			OF Air Holdings Corporation			Pro forma adjustments			Pro forma combined
	(Restated)
Revenue:
Flight revenue, net	$	265,413			91,572			(2,197	)(g)		354,788
Medical interiors and products revenue		13,342			-			-			13,342
Other		3,312			320			-			3,632
		282,067			91,892			(2,197	)		371,762

Operating expenses:
Flight centers		111,977			34,826			(2,197	)(g)		144,606
Aircraft operations		58,021			19,896			(41	)(i)		77,876
Aircraft rental		-			2,672			(11	)(i)		2,661
Cost of medical interiors and products sold		9,394			-			-			9,394
Depreciation and amortization		33,187			8,589			(2,276	)(c)		41,245
								(936	)(d)
								2,804	(e)
								(123	)(i)
Loss (gain) on disposition of assets, net		(26	)		153			-			127
General and administrative		37,007			16,261			(625	)(j)		52,643
		249,560			82,396			(3,405	)		328,551

Operating income		32,507			9,496			1,208			43,211

Other income (expense):
Interest expense		(8,821	)		(14,566	)		13,113	(a)		(12,582	)
								(2,436	)(b)
								56	(i)
								72	(k)
Other, net		2,113			69			-			2,182

Income (loss) before income taxes		25,799			(5,001	)		12,013			32,811

Income tax expense		(10,167	)		(3,752	)		1,163	(l)		(12,756	)

Net income (loss)	$	15,632			(8,753	)		13,176			20,055

Basic income per common share	$	1.24									1.59
Diluted income per common share	$	1.22									1.57


Weighted average number of common shares outstanding:
Basic		12,633,222									12,633,222
Diluted		12,788,094									12,788,094

See accompanying notes to unaudited pro forma combined financial statements.

Air Methods Corporation and Subsidiaries
Pro Forma Combined Statement of Income
For the Year Ended December 31, 2010
(Amounts in thousands, except share and per share amounts)
(unaudited)

	Historical
	Air Methods Corporation For the year ended December 31, 2010			OF Air Holdings Corporation For the year ended March 31, 2011			Pro forma adjustments			Pro forma combined
	(Restated)
Revenue:
Flight revenue, net	$	533,852			171,346			(4,397	) (g)		700,801
Medical interiors and products revenue		22,447			-			-			22,447
Other		5,703			517			-			6,220
		562,002			171,863			(4,397	)		729,468

Operating expenses:
Flight centers		216,092			68,036			(4,397	) (g)		279,731
Aircraft operations		114,109			35,475			(350	) (i)		149,234
Aircraft rental		-			5,135			(21	) (i)		5,114
Cost of medical interiors and products sold		15,776			-			-			15,776
Depreciation and amortization		63,636			17,993			(4,095	) (c)		80,082
								(2,814	) (d)
								5,608	(e)
								(246	) (i)
Loss (gain) on disposition of assets, net		(35	)		(146	)		-			(181	)
General and administrative		69,226			29,418			(1,250	) (j)		97,394
		478,804			155,911			(7,565	)		627,150

Operating income		83,198			15,952			3,168			102,318

Other income (expense):
Interest expense		(19,176	)		(28,774	)		25,613	(a)		(27,022	)
								(5,051	) (b)
								126	(i)
								240	(k)
Other, net		3,934			(19	)		-			3,915

Income (loss) before income taxes		67,956			(12,841	)		24,096			79,211

Income tax benefit (expense)		(25,199	)		110			(5,708	) (l)		(30,797	)

Net income (loss)	$	42,757			(12,731	)		18,388			48,414

Basic income per common share	$	3.42									3.87
Diluted income per common share	$	3.39									3.84


Weighted average number of common shares outstanding:
Basic		12,496,513									12,496,513
Diluted		12,596,414									12,596,414

See accompanying notes to unaudited pro forma combined financial statements.

Air Methods Corporation and Subsidiaries

Notes to Pro Forma Combined Financial Statements

(unaudited)

(1)	Basis of Presentation

The accompanying unaudited pro forma combined financial statements are presented to reflect the acquisition of Omniflight by the Company using the acquisition method of accounting whereby the total estimated purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values as of the effective date of the acquisition.

The accompanying unaudited pro forma combined balance sheet presents the historical financial information of the Company, as of June 30, 2011, as adjusted for the acquisition of Omniflight, as if the transaction had occurred on June 30, 2011. The accompanying unaudited pro forma combined statements of income for the six months ended June 30, 2011, and the year ended December 31, 2010, combine the historical operations of the Company with the historical operations of Omniflight as if the transaction had occurred on January 1, 2010. Certain reclassifications have been made to the historical Omniflight financial statement presentation to conform to the Company’s basis of presentation.

These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The Company recorded approximately $250,000 in transaction costs related to the acquisition of Omniflight in its historical statement of income for the six months ended June 30, 2011, included in this pro forma presentation. In the year ending December 31, 2011, the Company expects to incur the following nonrecurring expenses relating to the acquisition and integration of Omniflight into the Company’s operations: approximately $1.1 million in additional transaction costs, $1.4 million in stay bonuses and severance for Omniflight employees, and $2.8 million related to the consolidation of Omniflight’s Part 135 Air Carrier Certificate into the Company’s certificate. These nonrecurring charges are not included in pro forma income statements included in this document.

(2)	Restatement – Accounting for Leases

The Company has restated most of its operating leases related to aircraft in its fleet that should have been classified as capital leases based upon certain provisions included in the aircraft lease agreements. Specifically, the leases have certain default clauses, including material adverse change, cross-default provisions and other provisions which are not objectively determinable or do not represent pre-defined criteria at the inception of the lease. As a result, the maximum consideration the Company could be required to pay the lessor in the event of a default is included in the lease payments for lease classification purposes at the inception of the lease. For these leases, the maximum consideration usually approximates or exceeds the cost of the aircraft at the inception of the lease and, when included in minimum lease payments for purposes of applying ASC 840-10-25-1(d) (i.e., the 90% test), results in capital lease classification, in accordance with the guidance for default covenants related to non-performance as discussed in ASC 840-10-25-14. The Company has made an accounting policy election to exclude the maximum consideration it could be required to pay the lessor in the event of default from the calculation of the present value of the minimum lease payments in measuring the capital lease asset and related obligation, since there is no likely scenario whereby an aircraft lessor would require the Company to pay the full stipulated loss value in the event of a non-performance-related default, and, therefore, this maximum consideration has a remote probability of payment.

Air Methods Corporation and Subsidiaries

Notes to Pro Forma Combined Financial Statements, continued

(unaudited)

(2)	Restatement – Accounting for Leases, continued

As a result of the restatement, the Company has recorded additional capital lease assets and related capital lease obligations on the consolidated balance sheets. The impact of deferred rent and unfavorable lease liability related to the acquisition of CJ System Aviation Group, Inc., (CJ) in 2007 was also reversed from other assets, other accrued liabilities, and other liabilities. Goodwill associated with the acquisition of CJ was revised to reflect capital lease classification and appropriate fair value measurement of CJ leases as of the acquisition date. The Company also adjusted its deferred income tax liability to take into account the temporary differences created to reflect the capital lease obligations and assets for financial reporting purposes. Lease payments related to these aircraft are now recognized as principal reductions in the capital lease obligations and interest expense, rather than as aircraft rental expense. The consolidated statements of income also include depreciation on the capital lease assets over the terms of the respective leases. Rental expense related to the few remaining aircraft operating leases has now been combined into aircraft operations in the consolidated statements of income, due to immateriality.

(3)	Fiscal Periods Presented

Prior to the acquisition, Omniflight’s fiscal year-end was March 31. In the accompanying unaudited pro forma combined statement of income for the year ended December 31, 2010, Omniflight’s historical statement of income for the year ended March 31, 2011, was combined with the Company’s statement of income for the year ended December 31, 2010. The unaudited pro forma combined statement of income for the six months ended June 30, 2011, includes the three months ended March 31, 2011, for Omniflight. These same three months are also included in the pro forma statement of income for the year ended December 31, 2010. Summarized operating information about the duplicated quarter is as follows:

Revenue	$	44,539
Expenses		51,107
Net loss		(6,568	)

(3)	Pro Forma Adjustments

The unaudited pro forma combined financial statements reflect the following adjustments:

(a)

Record the retirement or settlement of Omniflight’s outstanding debt and related accrued interest and debt origination costs at the date of the acquisition. Eliminate related interest expense.

(b)

Record the issuance of $200 million term loan under the Company’s Amended and Restated Revolving Credit, Term Loan and Security Agreement to finance the acquisition. Record related loan origination fees and interest expense. The Amended Credit Facility is secured by substantially all of the Company’s accounts receivable, inventory, equipment and general intangibles and bears interest at a variable interest rate, estimated to be 2.4% for all periods presented.

Air Methods Corporation and Subsidiaries

Notes to Pro Forma Combined Financial Statements, continued

(unaudited)

(3)	Pro Forma Adjustments, continued

(c)

Reduce Omniflight's net property and equipment balance by $12.8 million to conform Omniflight's method of accounting for airframe and engine overhauls to the Company's. Omniflight had previously capitalized such expenditures, while the Company expenses amounts as incurred. The Company plans to part out certain acquired aircraft, and the net asset balance for aircraft has been adjusted by $1.9 million for differences in the resulting asset values. Fixed assets and spare parts inventory have been recorded at fair value based on aircraft bluebook values and current vendor price lists; the valuation is considered preliminary pending final inventory counts and review of airworthiness documentation. The Company also eliminated Omniflight's historical accumulated depreciation balance of $66.9 million. Related depreciation expense was adjusted based on estimated fair value and average remaining useful life of 6.5 years for owned aircraft.

(d)

Eliminate Omniflight goodwill and other intangible asset balances as of June 30, 2011, and related historical amortization expense.

(e)

Record estimated goodwill and other intangible assets and related amortization expense. Fair value and estimated useful life of other intangible assets are based on preliminary estimates and are subject to review and finalization by the Company’s management. Other intangible assets are amortized on a straight-line basis over a thirteen-year life.

(f)

Eliminate Omniflight’s preferred stock and equity balances as of June 30, 2011.

(g)

Eliminate the impact of certain transactions which occurred between the Company and Omniflight prior to acquisition, including intercompany receivable and payable balances.

(h)

Record transaction costs, net of tax effect, incurred by the Company in relation to the acquisition of Omniflight.

(i)

Eliminate certain assets and liabilities retained by the sellers of Omniflight and not included in the acquisition in accordance with the merger agreement.

(j)

Eliminate management fees due to the sellers accrued by Omniflight prior to the acquisition.

(k)

Adjust capital lease obligations to fair value based on estimated current market interest rates. Omniflight classified all capital lease obligations as short-term as of June 30, 2011, because of certain default provisions contained in other debt agreements which did not allow for capital leases. Because all of these debt agreements were paid or settled at the acquisition date, the capital lease obligations are classified as short-term and long-term in accordance with scheduled payment terms in the accompanying pro forma presentation.

(l)

Record estimated income tax provision using a 39% effective corporate tax rate. Since the acquisition was accounted for as a stock acquisition, deferred tax assets and liabilities were adjusted to reflect the pro forma changes in net book value. The valuation allowance previously recorded by Omniflight was also reversed since the Company expects to benefit from the use of all deferred tax assets.

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