UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


___________________





FORM
10-Q








(Mark
One)


T
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  SECURITIES


EXCHANGE
      ACT OF 1934








For
      the quarterly period ended
                March 31,
2009




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 T     No  £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes  £     No  £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer,” “large accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
      accelerated Filer  £
              Accelerated
      Filer  TNon-accelerated
      Filer  £  (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  £     No  T





The
number of shares of Common Stock, par value $.06 per share, outstanding as of
April 20, 2009, was 12,175,529.










TABLE OF CONTENTS





Form
10-Q











PART
      I.
                                                                                                                                              FINANCIAL
      INFORMATIONItem
      1.
                                                                                                                                              Consolidated Financial StatementsConsolidated Balance Sheets - March 31, 2009 and December 31,
      2008
                                                                                                                                              1Consolidated Statements of Income for the three months ended
      March 31, 2009 and 2008
                                                                                                                                              3Consolidated Statements of Cash Flows for the three months ended
      March
      31, 2009 and 2008
                                                                                                                                              4Notes to Consolidated Financial Statements
                                                                                                                                              6Item
      2.
                                                                                                                                              Management's Discussion and Analysis of Financial Condition
      and
      Results of Operations
                                                                                                                                              9Item
      3.
                                                                                                                                              Quantitative and Qualitative Disclosures about Market
      Risk
                                                                                                                                              17Item
      4.
                                                                                                                                              Controls and Procedures
                                                                                                                                              17PART
      II.
                                                                                                                                              OTHER
      INFORMATIONItem
      1.
                                                                                                                                              Legal Proceedings
                                                                                                                                              18Item
      1A.
                                                                                                                                              Risk Factors
                                                                                                                                              18Item
      2.
                                                                                                                                              Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                                                                                                              18Item
      3.
                                                                                                                                              Defaults upon Senior Securities
                                                                                                                                              18Item
      4.
                                                                                                                                              Submission of Matters to a Vote of Security
      Holders
                                                                                                                                              18Item
      5.
                                                                                                                                              Other Information
                                                                                                                                              18Item
      6.
                                                                                                                                              Exhibits
                                                                                                                                              18SIGNATURES
                                                                                                                                              19




Table of Contents


PART
I: FINANCIAL INFORMATION





Item 1. Consolidated Financial Statements





Air
Methods Corporation and Subsidiaries


CONSOLIDATED
BALANCE SHEETS


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


(unaudited)





March
      31,
                                                            
                                                            
                                                            December
      31,2009
                                                            
                                                            
                                                            2008AssetsCurrent
      assets:Cash
      and cash equivalents
                                                            
                                                            $
                                                            9,053
                                                            
                                                            
                                                            
                                                            13,147Current
      installments of notes receivable
                                                            
                                                            
                                                            508
                                                            
                                                            
                                                            
                                                            753Receivables:Trade
                                                            
                                                            
                                                            129,643
                                                            
                                                            
                                                            
                                                            133,467Refundable
      income taxes
                                                            
                                                            
                                                            --
                                                            
                                                            
                                                            
                                                            2,239Other
                                                            
                                                            
                                                            2,687
                                                            
                                                            
                                                            
                                                            2,487132,330
                                                            
                                                            
                                                            
                                                            138,193Inventories
                                                            
                                                            
                                                            20,083
                                                            
                                                            
                                                            
                                                            20,283Work-in-process
      on medical interiors and products contracts
                                                            
                                                            
                                                            4,671
                                                            
                                                            
                                                            
                                                            4,561Assets
      held for sale
                                                            
                                                            
                                                            19,711
                                                            
                                                            
                                                            
                                                            20,712Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
                                                            
                                                            
                                                            9,442
                                                            
                                                            
                                                            
                                                            5,840Prepaid
      expenses and other
                                                            
                                                            
                                                            5,495
                                                            
                                                            
                                                            
                                                            4,259Total
      current assets
                                                            
                                                            
                                                            201,293
                                                            
                                                            
                                                            
                                                            207,748Property
      and equipment:Land
                                                            
                                                            
                                                            251
                                                            
                                                            
                                                            
                                                            251Flight
      and ground support equipment
                                                            
                                                            
                                                            216,372
                                                            
                                                            
                                                            
                                                            206,189Buildings
      and other equipment
                                                            
                                                            
                                                            27,795
                                                            
                                                            
                                                            
                                                            27,196244,418
                                                            
                                                            
                                                            
                                                            233,636Less
      accumulated depreciation and amortization
                                                            
                                                            
                                                            (88,060
                                                            )
                                                            
                                                            
                                                            (87,469
                                                            )Net
      property and equipment
                                                            
                                                            
                                                            156,358
                                                            
                                                            
                                                            
                                                            146,167Goodwill
                                                            
                                                            
                                                            20,291
                                                            
                                                            
                                                            
                                                            20,291Notes
      and other receivables, less current installments
                                                            
                                                            
                                                            140
                                                            
                                                            
                                                            
                                                            660Other
      assets, net of accumulated amortization of $2,284 and $2,411 at March 31,
      2009 and December 31, 2008, respectively
                                                            
                                                            
                                                            19,320
                                                            
                                                            
                                                            
                                                            20,058Total
      assets
                                                            
                                                            $
                                                            397,402
                                                            
                                                            
                                                            
                                                            394,924
  (Continued)


1
 Table of Contents


Air
Methods Corporation and Subsidiaries


CONSOLIDATED
BALANCE SHEETS, Continued


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


(unaudited)








March
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Liabilities and Stockholders'
      EquityCurrent
      liabilities:Notes
      payable
                    
                    $
                    19,525
                    
                    
                    
                    19,520Current
      installments of long-term debt
                    
                    
                    13,876
                    
                    
                    
                    14,156Current
      installments of obligations under capital leases
                    
                    
                    1,240
                    
                    
                    
                    1,482Accounts
      payable
                    
                    
                    13,716
                    
                    
                    
                    13,892Deferred
      revenue
                    
                    
                    7,791
                    
                    
                    
                    6,710Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
                    
                    
                    729
                    
                    
                    
                    990Accrued
      wages and compensated absences
                    
                    
                    15,800
                    
                    
                    
                    10,422Due
      to third party payers
                    
                    
                    4,202
                    
                    
                    
                    3,559Deferred
      income taxes
                    
                    
                    8,464
                    
                    
                    
                    9,340Other
      accrued liabilities
                    
                    
                    12,217
                    
                    
                    
                    11,715Total
      current liabilities
                    
                    
                    97,560
                    
                    
                    
                    91,786Long-term
      debt, less current installments
                    
                    
                    76,087
                    
                    
                    
                    83,784Obligations
      under capital leases, less current installments
                    
                    
                    1,897
                    
                    
                    
                    2,074Deferred
      income taxes
                    
                    
                    29,213
                    
                    
                    
                    29,158Other
      liabilities
                    
                    
                    25,781
                    
                    
                    
                    27,658Total
      liabilities
                    
                    
                    230,538
                    
                    
                    
                    234,460Stockholders'
      equity (notes 2 and 3):Preferred
      stock, $1 par value.  Authorized 5,000,000 shares, none
      issued
                    
                    
                    --
                    
                    
                    
                    --Common
      stock, $.06 par value. Authorized 16,000,000 shares; issued 12,384,379 and
      12,284,679 shares at March 31, 2009 and December 31, 2008,
      respectively
                    
                    
                    743
                    
                    
                    
                    737Additional
      paid-in capital
                    
                    
                    82,123
                    
                    
                    
                    80,717Treasury
      stock at cost, 227,917 shares at March 31, 2009 and December 31,
      2008
                    
                    
                    (4,853
                    )
                    
                    
                    (4,853
                    )Retained
      earnings
                    
                    
                    88,851
                    
                    
                    
                    83,863Total
      stockholders' equity
                    
                    
                    166,864
                    
                    
                    
                    160,464Total
      liabilities and stockholders’ equity
                    
                    $
                    397,402
                    
                    
                    
                    394,924





See
accompanying notes to consolidated financial statements.


2
 Table of Contents


Air
Methods Corporation and Subsidiaries


CONSOLIDATED STATEMENTS OF INCOME


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


(unaudited)





Three
      Months Ended March 31,2009
                                    
                                    
                                    2008Revenue:Flight
      revenue, net
                                    
                                    $
                                    117,014
                                    
                                    
                                    
                                    114,473Sales
      of medical interiors and products
                                    
                                    
                                    7,649
                                    
                                    
                                    
                                    3,626124,663
                                    
                                    
                                    
                                    118,099Operating
      expenses:Flight
      centers
                                    
                                    
                                    52,239
                                    
                                    
                                    
                                    52,140Aircraft
      operations
                                    
                                    
                                    23,585
                                    
                                    
                                    
                                    27,066Aircraft
      rental
                                    
                                    
                                    12,227
                                    
                                    
                                    
                                    11,079Cost
      of medical interiors and products sold
                                    
                                    
                                    6,156
                                    
                                    
                                    
                                    3,002Depreciation
      and amortization
                                    
                                    
                                    4,589
                                    
                                    
                                    
                                    4,098Loss
      (gain) on disposition of assets, net
                                    
                                    
                                    71
                                    
                                    
                                    
                                    (1,308
                                    )General
      and administrative
                                    
                                    
                                    17,243
                                    
                                    
                                    
                                    17,146116,110
                                    
                                    
                                    
                                    113,223Operating
      income
                                    
                                    
                                    8,553
                                    
                                    
                                    
                                    4,876Other
      income (expense):Interest
      expense
                                    
                                    
                                    (1,235
                                    )
                                    
                                    
                                    (1,567
                                    )Other,
      net
                                    
                                    
                                    822
                                    
                                    
                                    
                                    643Income
      before income taxes
                                    
                                    
                                    8,140
                                    
                                    
                                    
                                    3,952Income
      tax expense
                                    
                                    
                                    (3,152
                                    )
                                    
                                    
                                    (1,622
                                    )Net
      income
                                    
                                    $
                                    4,988
                                    
                                    
                                    
                                    2,330Basic
      income per common share (note 3)
                                    
                                    $
                                    .41
                                    
                                    
                                    
                                    .19Diluted
      income per common share (note 3)
                                    
                                    $
                                    .41
                                    
                                    
                                    
                                    .18Weighted
      average number of common shares outstanding – basic
                                    
                                    
                                    12,088,306
                                    
                                    
                                    
                                    12,151,342Weighted
      average number of common shares outstanding – diluted
                                    
                                    
                                    12,274,671
                                    
                                    
                                    
                                    12,623,358





See
accompanying notes to consolidated financial statements.


3
 Table of Contents





Air
Methods Corporation and Subsidiaries


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


(unaudited)





Three
      Months Ended March 31,2009
                              
                              
                              2008Cash
      flows from operating activities:Net
      income
                              
                              $
                              4,988
                              
                              
                              
                              2,330Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization expense
                              
                              
                              4,589
                              
                              
                              
                              4,098Deferred
      income tax expense (benefit)
                              
                              
                              (821
                              )
                              
                              
                              1,622Stock-based
      compensation
                              
                              
                              348
                              
                              
                              
                              508Tax
      benefit from exercise of stock options
                              
                              
                              (168
                              )
                              
                              
                              --Loss
      (gain) on disposition of assets, net
                              
                              
                              71
                              
                              
                              
                              (1,308
                              )Unrealized
      loss on derivative instrument
                              
                              
                              153
                              
                              
                              
                              --Changes
      in assets and liabilities:Increase
      in prepaid expenses and other current assets
                              
                              
                              (1,287
                              )
                              
                              
                              (667
                              )Decrease
      in receivables
                              
                              
                              5,863
                              
                              
                              
                              5,388Decrease
      (increase) in inventories
                              
                              
                              200
                              
                              
                              
                              (184
                              )Increase
      in work-in-process on medical interiors and costs in excess of
      billings
                              
                              
                              (3,712
                              )
                              
                              
                              (3,525
                              )Increase
      in accounts payable, other accrued liabilities, and other
      liabilities
                              
                              
                              4,638
                              
                              
                              
                              1,484Increase
      (decrease) in deferred revenue and billings in excess of
    costs
                              
                              
                              820
                              
                              
                              
                              (37
                              )Net
      cash provided by operating activities
                              
                              
                              15,682
                              
                              
                              
                              9,709Cash
      flows from investing activities:Acquisition
      of equipment and leasehold improvements
                              
                              
                              (10,308
                              )
                              
                              
                              (4,194
                              )Proceeds
      from disposition and sale of equipment and assets held for
      sale
                              
                              
                              1,417
                              
                              
                              
                              4,383Decrease
      (increase) in notes receivable and other assets, net
                              
                              
                              1,014
                              
                              
                              
                              (1,365
                              )Net
      cash used by investing activities
                              
                              
                              (7,877
                              )
                              
                              
                              (1,176
                              )





(Continued)


4
 Table of Contents





Air
Methods Corporation and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS, continued


(Amounts
in thousands)


(unaudited)





Three
      Months Ended March 31,2009
                        
                        
                        2008Cash
      flows from financing activities:Net
      borrowings (payments) under line of credit
                        
                        $
                        (5,455
                        )
                        
                        
                        1,406Payments
      for debt and lease origination costs
                        
                        
                        (127
                        )
                        
                        
                        (46
                        )Payments
      of long-term debt and notes payable
                        
                        
                        (6,962
                        )
                        
                        
                        (2,798
                        )Payments
      of capital lease obligations
                        
                        
                        (419
                        )
                        
                        
                        (268
                        )Tax
      benefit from exercise of stock options
                        
                        
                        168
                        
                        
                        
                        --Proceeds
      from issuance of common stock, net
                        
                        
                        896
                        
                        
                        
                        549Net
      cash used by financing activities
                        
                        
                        (11,899
                        )
                        
                        
                        (1,157
                        )Increase
      (decrease) in cash and cash equivalents
                        
                        
                        (4,094
                        )
                        
                        
                        7,376Cash
      and cash equivalents at beginning of period
                        
                        
                        13,147
                        
                        
                        
                        5,134Cash
      and cash equivalents at end of period
                        
                        $
                        9,053
                        
                        
                        
                        12,510Interest
      paid in cash during the period
                        
                        $
                        1,172
                        
                        
                        
                        1,165Income
      taxes paid in cash during the period
                        
                        $
                        2,141
                        
                        
                        
                        205





Non-cash
investing and financing activities:





In the
quarter ended March 31, 2009, the Company entered into notes payable of $3,893
to finance the purchase of aircraft which are held for sale as of March 31,
2009, and into a note payable of $552 to finance insurance
policies.





In the
quarter ended March 31, 2008, the Company settled notes payable of $22,611 in
exchange for the aircraft securing the debt. The Company also entered into notes
payable of $10,957 to finance the purchase of aircraft which were held for sale
as of March 31, 2008.





In the
quarter ended March 31, 2008, the Company made adjustments to the preliminary
purchase price allocation related to the acquisition of FSS Airholdings, Inc.,
which increased goodwill by $1,459.





See
accompanying notes to consolidated financial statements.


5
 Table of Contents


Air
Methods Corporation and Subsidiaries


Notes to Consolidated Financial Statements


(unaudited)








(1)
            Basis of
      Presentation





The
accompanying unaudited 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 consolidated financial statements contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the consolidated financial statements for the respective periods. Interim
results are not necessarily indicative of results for a full year. The
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, 2008.





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)
            Stockholders’
      Equity





Changes
in stockholders’ equity for the three months ended March 31, 2009, consisted of
the following (amounts in thousands except share amounts):





Shares
      Outstanding
                                
                                
                                AmountBalances
      at January 1, 2009
                                
                                
                                12,040,462
                                
                                
                                $
                                160,464Issuance
      of common shares for options exercised
                                
                                
                                99,700
                                
                                
                                
                                896Stock-based
      compensation
                                
                                
                                2,967
                                
                                
                                
                                348Tax
      benefit from exercise of stock options
                                
                                
                                --
                                
                                
                                
                                168Net
      income
                                
                                
                                --
                                
                                
                                
                                4,988Balances
      at March 31, 2009
                                
                                
                                12,143,129
                                
                                
                                $
                                166,864


6
 Table of Contents


Air
Methods Corporation and Subsidiaries


Notes
to Consolidated Financial Statements, continued


(unaudited)








(3)
            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.





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





2009
                            
                            
                            2008Weighted
      average number of common shares outstanding – basic
                            
                            
                            12,088,306
                            
                            
                            
                            12,151,342Dilutive
      effect of:Common
      stock options
                            
                            
                            183,841
                            
                            
                            
                            470,569Unvested
      restricted stock
                            
                            
                            2,524
                            
                            
                            
                            1,447Weighted
      average number of common shares outstanding – diluted
                            
                            
                            12,274,671
                            
                            
                            
                            12,623,358





Common
stock options totaling 267,234 were not included in the diluted shares
outstanding for the quarter ended March 31, 2009, because their effect would
have been anti-dilutive.





(4)
            New Accounting
      Pronouncements





On April
1, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies(FAS 141R-1), which amends the provisions in Statement 141R for the
initial recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations. FAS 141R-1 is effective for contingent assets or contingent
liabilities acquired in business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The implementation of FAS 141R-1 did not have an impact
on the Company’s financial position or results of operation because no
acquisitions were closed during the first quarter of 2009.





On April
9, 2009, the FASB issued FASB Staff Position No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly(FAS 157-4).
FAS 157-4 applies to all assets and liabilities within the scope of accounting
pronouncements that require or permit fair value measurements, except as
discussed in paragraphs 2 and 3 of Statement 157, and provides additional
guidance for estimating fair value when the volume and level of activity for the
asset or liability have significantly decreased. FAS 157-4 also includes
guidance on identifying circumstances that indicate a transaction is not
orderly. The statement is effective for interim reporting periods ending after
June 15, 2009. The Company does not expect the implementation of FAS 157-4 to
have a material effect on its financial position or results of
operation.





On April
9, 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments(FAS 107-1). FAS 107-1 amends FASB Statement No.
107, Disclosures about Fair
Value of Financial Instruments, to require disclosures about fair value
of financial instruments for interim reporting periods, as well as in annual
financial statements, in either the body or the accompanying notes of summarized
financial information. FAS 107-1 is effective for interim reporting periods
ending after June 15, 2009. The statement provides only for additional interim
disclosures. Therefore, the Company does not expect the implementation of FAS
107-1 to have a material effect on its financial position or results of
operation.


7
 Table of Contents


Air
Methods Corporation and Subsidiaries


Notes
to Consolidated Financial Statements, continued


(unaudited)





(5)
            Business Segment
      Information





Summarized
financial information for the Company’s operating segments is shown in the
following table (amounts in thousands). Amounts in the “Corporate Activities”
column represent corporate headquarters expenses, corporate income tax expense,
and results of insignificant operations. The Company does not allocate assets
between operating segments for internal reporting and performance evaluation
purposes. Operating segments and their principal products or services are as
follows:





·
            Community-Based
      Services (CBS) - provides air medical transportation services to the
      general population as an independent service in 20 states. Services
      include aircraft operation and maintenance, medical care, dispatch and
      communications, and medical billing and
  collection.


·
            Hospital-Based
      Services (HBS) - provides air medical transportation services to hospitals
      in 33 states under exclusive operating agreements. Services include
      aircraft operation and maintenance.


·
            Products
      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:
                  
                  CBS
                  
                  
                  HBS
                  
                  
                  Products
                    Division
                  
                  
                  Corporate
                    Activities
                  
                  
                  Intersegment
                    Eliminations
                  
                  
                  Consolidated2009External
      revenue
                  
                  $
                  68,382
                  
                  
                  
                  48,642
                  
                  
                  
                  7,639
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  124,663Intersegment
      revenue
                  
                  
                  54
                  
                  
                  
                  --
                  
                  
                  
                  7,736
                  
                  
                  
                  --
                  
                  
                  
                  (7,790
                  )
                  
                  
                  --Total
      revenue
                  
                  
                  68,436
                  
                  
                  
                  48,642
                  
                  
                  
                  15,375
                  
                  
                  
                  --
                  
                  
                  
                  (7,790
                  )
                  
                  
                  124,663Operating
      expenses
                  
                  
                  (58,352
                  )
                  
                  
                  (42,135
                  )
                  
                  
                  (12,916
                  )
                  
                  
                  (4,782
                  )
                  
                  
                  6,664
                  
                  
                  
                  (111,521
                  )Depreciation
      & amortization
                  
                  
                  (2,486
                  )
                  
                  
                  (1,707
                  )
                  
                  
                  (151
                  )
                  
                  
                  (245
                  )
                  
                  
                  --
                  
                  
                  
                  (4,589
                  )Interest
      expense
                  
                  
                  (428
                  )
                  
                  
                  (651
                  )
                  
                  
                  --
                  
                  
                  
                  (156
                  )
                  
                  
                  --
                  
                  
                  
                  (1,235
                  )Other
      income, net
                  
                  
                  740
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  82
                  
                  
                  
                  --
                  
                  
                  
                  822Income
      tax expense
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (3,152
                  )
                  
                  
                  --
                  
                  
                  
                  (3,152
                  )Segment
      net income (loss)
                  
                  $
                  7,910
                  
                  
                  
                  4,149
                  
                  
                  
                  2,308
                  
                  
                  
                  (8,253
                  )
                  
                  
                  (1,126
                  )
                  
                  
                  4,9882008External
      revenue
                  
                  $
                  69,317
                  
                  
                  
                  45,251
                  
                  
                  
                  3,531
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  118,099Intersegment
      revenue
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  3,966
                  
                  
                  
                  --
                  
                  
                  
                  (3,966
                  )
                  
                  
                  --Total
      revenue
                  
                  
                  69,317
                  
                  
                  
                  45,251
                  
                  
                  
                  7,497
                  
                  
                  
                  --
                  
                  
                  
                  (3,966
                  )
                  
                  
                  118,099Operating
      expenses
                  
                  
                  (61,212
                  )
                  
                  
                  (41,012
                  )
                  
                  
                  (6,042
                  )
                  
                  
                  (3,770
                  )
                  
                  
                  2,911
                  
                  
                  
                  (109,125
                  )Depreciation
      & amortization
                  
                  
                  (2,131
                  )
                  
                  
                  (1,672
                  )
                  
                  
                  (145
                  )
                  
                  
                  (150
                  )
                  
                  
                  --
                  
                  
                  
                  (4,098
                  )Interest
      expense
                  
                  
                  (746
                  )
                  
                  
                  (738
                  )
                  
                  
                  --
                  
                  
                  
                  (83
                  )
                  
                  
                  --
                  
                  
                  
                  (1,567
                  )Other
      income, net
                  
                  
                  587
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  56
                  
                  
                  
                  --
                  
                  
                  
                  643Income
      tax expense
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (1,622
                  )
                  
                  
                  --
                  
                  
                  
                  (1,622
                  )Segment
      net income (loss)
                  
                  $
                  5,815
                  
                  
                  
                  1,829
                  
                  
                  
                  1,310
                  
                  
                  
                  (5,569
                  )
                  
                  
                  (1,055
                  )
                  
                  
                  2,330


8
 Table of Contents


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 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 and collection rates for CBS operations; size, structure and growth of
our air medical services and products markets; continuation and/or renewal of
HBS contracts; acquisition of new and profitable Products Division contracts;
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. Our divisions, or business
segments, are organized according to the type of service or product provided and
consist of the following:


·
            Community-Based
      Services (CBS) - provides air medical transportation services to the
      general population as an independent service. 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.In the first quarter
      of 2009 the CBS Division generated 55% of our total revenue, decreasing
      from 59% in the first quarter of
2008.


·
            Hospital-Based
      Services (HBS) - provides air medical transportation services to hospitals
      throughout the U.S. under exclusive operating agreements. Revenue consists
      of fixed monthly fees (approximately 73% of total contract revenue) and
      hourly flight fees (approximately 27% of total contract revenue) billed to
      hospital customers. In the first quarter of 2009 the HBS Division
      generated 39% of our total revenue, increasing from 38% in
      2008.


·
            Products
      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 2009 the Products
      Division generated 6% of our total revenue, compared to 3% in
      2008.





See Note
5 to the consolidated financial statements included in Item 1 of this report for
operating results by segment.





We
believe that the following factors have the greatest impact on our results of
operations and financial condition:





·
            Flight volume.
      Fluctuations in flight volume have a greater impact on CBS operations than
      HBS operations because almost all of CBS revenue is derived from flight
      fees, as compared to approximately 27% of HBS revenue. By contrast, 78% of
      our costs primarily associated with flight operations (including salaries,
      aircraft ownership costs, hull insurance, and general and administrative
      expenses) incurred during the quarter ended March 31, 2009, are 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 flight volume. Total patient
      transports for CBS operations were approximately 9,400 for the first
      quarter of 2009 compared to approximately 10,600 for the first quarter of
      2008. Patient transports for CBS bases open longer than one year
      (Same-Base Transports) were approximately 9,000 in the first quarter of
      2009, compared to 9,400 in the first quarter of 2008. Cancellations due to
      unfavorable weather conditions for CBS bases open longer than one year
      were 758 lower in the first quarter of 2009, compared to the first quarter
      of 2008. We believe that Same-Base Transports in 2009 were negatively
      affectedby
      the overall weaker economic conditions in the United
      States.


9
 Table of Contents


·
            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 on services provided to insured and uninsured patients.
      Medicare and Medicaid also receive contractual discounts from our standard
      charges for flight services. Flight 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 transport for CBS operations 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. In addition, the
      collection rate is impacted by changes in the cost of healthcare and
      health insurance; as the cost of healthcare increases, health insurance
      coverage provided by employers may be reduced or eliminated entirely,
      resulting in an increase in the uninsured population. The average gross
      charge per transport increased 16.8% in the quarter ended March 31, 2009,
      compared to 2008, contributing to an increase of 10.3% in net
      reimbursement per transport in the quarter ended March 31, 2009, compared
      to 2008. Provisions for contractual discounts and estimated uncompensated
      care for CBS operations were as
follows:





For
      quarters ended March 31,2009
                      
                      
                      2008Gross
      billings
                      
                      
                      100
                      %
                      
                      
                      100
                      %Provision
      for contractual discounts
                      
                      
                      37
                      %
                      
                      
                      36
                      %Provision
      for uncompensated care
                      
                      
                      20
                      %
                      
                      
                      19
                      %





The
increase in the total percentage of uncollectible accounts for the first quarter
of 2009 is primarily attributable to price increases. Although price increases
generally increase the net reimbursement per transport from insurance payers,
the amount per transport collectible from private patient payers and 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 we have not yet
experienced significant increased limitations in the amount reimbursed by
insurance companies, continued price increases may cause insurance companies to
limit coverage for air medical transport to amounts less than our standard
rates.





·
              Aircraft maintenance.
      Both CBS and HBS 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. Four models of aircraft within our fleet, representing 27% 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, 2008, we have taken delivery of 33
      new aircraft and expect to take delivery of four additional aircraft
      through the end of 2009. 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 maintenance expense for CBS and HBS operations
      decreased 13.5% from the first quarter of 2008 to the first quarter of
      2009, while total flight volume for CBS and HBS operations decreased 7.0%
      over the same period. Maintenance cost per hour on newer aircraft has
      remained relatively constant on an annual basis. Maintenance cost per hour
      on older models of aircraft, however, may vary more widely on a quarterly
      basis depending on component overhaul and replacement and aircraft
      refurbishment cycles.


10
 Table of Contents


·
            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. In September 2003, our pilots voted to be represented
      by a collective bargaining unit, and we signed a collective bargaining
      agreement on March 31, 2006. The agreement is effective January 1, 2006,
      through April 30, 2009. Negotiations on a new CBA commenced in the fourth
      quarter of 2008 and were referred for mediation during the second quarter
      of 2009. Under the Railway Labor Act, mediation decisions are non-binding
      on either party, and the duration of the process may vary depending upon
      the mediator assigned and the complexity of the issues negotiated. Other
      employee groups may also elect to be represented by unions in the
      future.





Results
of Operations





We
reported net income of $4,988,000 for the three months ended March 31, 2009,
compared to $2,330,000 for the three months ended March 31, 2008. Net
reimbursement per transport for CBS operations increased 10.3% in the first
quarter of 2009 compared to the first quarter of 2008, while Same-Base
Transports for CBS operations were 4.4% lower over the same period. Aircraft
operating expenses decreased 12.9%, reflecting lower maintenance and fuel
costs.





Flight
Operations – Community-based Services and Hospital-based Services





Net flight revenue increased
$2,541,000, or 2.2%, from $114,473,000 to $117,014,000 for the three months
ended March 31, 2009, compared to 2008. Flight revenue is generated by both CBS
and HBS operations and is recorded net of provisions for contractual discounts
and uncompensated care.





·
            CBS
      – Net flight revenue decreased $849,000, or 1.2%, to $68,376,000 in the
      three months ended March 31, 2009, compared to 2008, for the following
      reasons:


·
            Increase
      of 16.8% in average gross charge per transport for the first quarter of
      2009, compared to 2008. Net reimbursement per transport increased
      approximately 10.3% over the same
period.


·
            Incremental
      net revenue of $3,088,000 generated from the addition of seven new CBS
      bases either during or subsequent to the first quarter of 2008, and new
      service agreements with another air medical service provider in the
      Atlanta area.


·
            Closure
      of fifteen bases either during or subsequent to the first quarter of 2008
      resulting in a decrease in net revenue of approximately
      $4,997,000.


·
            Decrease
      in Same-Base Transports of 4.4% in the first quarter of 2009 compared to
      2008. Cancellations due to unfavorable weather conditions for CBS bases
      open longer than one year were 758 lower in the first quarter of 2009,
      compared to the first quarter of 2008. The decline in Same-Base Transports
      is believed to be primarily attributable to overall economic
      conditions in the United
States.





·
            HBS
      – Net flight revenue increased $3,390,000, or 7.5%, to $48,638,000 for the
      quarter ended March 31, 2009, for the following
  reasons:


·
            Incremental
      net revenue of $2,908,000 generated from the addition of one new contract
      and the expansion of eight contracts during or subsequent to the first
      quarter of 2008.


·
            Cessation of service
      under six contracts during or subsequent to the first quarter of
      2008, resulting in a decrease in net revenue of approximately
      $2,834,000.


·
            Annual
      price increases in the majority of contracts based on changes in the
      Consumer Price Index or spare parts prices from aircraft manufacturers and
      the renewal of contracts at higher
rates.


·
            Decrease
      of 12.5% in flight volume for all contracts excluding new contracts,
      contract expansions, and closed contracts discussed
  above.


11
 Table of Contents


Flight center costs
(consisting primarily of pilot, mechanic, and medical staff salaries and
benefits) increased $99,000, or 0.2%, to $52,239,000 for the quarter ended March
31, 2009, compared to 2008. Changes by business segment are as
follows:





·
            CBS
      – Flight center costs decreased $789,000, or 2.4%, to $31,509,000 for the
      following reasons:


·
            Increase
      of approximately $1,440,000 for the addition of personnel to staff new
      base locations described above.


·
            Decrease
      of $3,058,000 due to the closure of base locations described
      above.


·
            Increases
      in salaries for merit pay raises and in the cost of our medical insurance
      premiums.





·
            HBS
      - Flight center costs increased $888,000, or 4.5%, to $20,730,000
      primarily due to the following:


·
            Increase
      of approximately $950,000 for the addition of personnel to staff new base
      locations described above.


·
            Decrease
      of $1,376,000 due to the closure of base locations described
      above.


·
            Increases
      in salaries for merit pay raises and in the cost of our medical insurance
      premiums.





Aircraft operating expenses
decreased $3,481,000, or 12.9%, for the quarter ended March 31, 2009, in
comparison to the quarter ended March 31, 2008. Aircraft operating expenses
consist primarily of fuel, insurance, and maintenance costs and generally are a
function of the size of the fleet, type of aircraft flown, and number of hours
flown. The decrease in costs is due to the following:


·
            Decrease
      of $2,777,000, or 13.5%, in the cost of aircraft maintenance, primarily
      attributable to our fleet rejuvenation efforts and to our increasing use
      of single-engine, rather than twin-engine, aircraft. Since the first
      quarter of 2008, we have placed 36 new helicopters into service
      (consisting of 21 single-engine aircraft and 15 twins) and eliminated 28
      aircraft which were older models (consisting of 6 single-engine aircraft,
      19 twins, and 3 fixed wing aircraft). Maintenance cost per hour on newer
      aircraft has remained relatively constant on an annual basis. Maintenance
      cost per hour on older models of aircraft, however, may vary more widely
      on a quarterly basis depending on component overhaul and replacement and
      aircraft refurbishment cycles.


·
            Decrease
      of approximately 35.4% in the cost of aircraft fuel per hour
      flown.


·
            Decreases
      in flight volume for bases open longer than one year for both CBS and HBS
      as described above.


·
            Increase
      in hull insurance rates effective July
2008.





Aircraft rental expense
increased $1,148,000, or 10.4%, for the first quarter of 2009 compared to the
first quarter of 2008. Incremental rental expense incurred in 2009 for 31 leased
aircraft added to our fleet during either 2008 or 2009 totaled $2,422,000. The
increase for new aircraft was offset in part by selling or refinancing seventeen
aircraft at lower lease rates or through debt financing.





Medical
Interiors and Products





Sales of medical interiors and
products increased $4,023,000, or 110.9%, from $3,626,000 for the first
quarter of 2008 to $7,649,000 for the first quarter of 2009. Significant
projects in process during the first quarter of 2009 included 48 multi-mission
interiors for the U.S. Army’s HH-60L helicopter, 81 litter systems for the U.S.
Army’s Medical Evacuation Vehicle (MEV), and four modular medical interior kits
for commercial customers. A contract for sixty MEV units was also completed
during the first quarter. Revenue by product line was as follows:


·
            $2,686,000
      - multi-mission interiors


·
            $1,317,000
      - modular medical interiors


·
            $3,646,000
      - other aerospace and medical transport
products


12
 Table of Contents


Significant
projects in the first quarter of 2008 included four modular medical interior
kits for commercial customers, three of which were still in process as of March
31, 2008. Also in process as of March 31, 2008, were two design contracts for
the U.S. Army, ten HH-60L units, and fifty MEV units. Revenue by product line
was as follows:


·
            $818,000
      - multi-mission interiors


·
            $1,755,000
      - modular medical interiors


·
            $1,053,000
      - other aerospace and medical transport
products





Cost of medical interiors and
products increased $3,154,000, or 105.1%, for the three months ended
March 31, 2009, as compared to the previous year, due primarily to the change in
sales volume. The average net margin earned on projects during 2009 was 16.0%
compared to 11.8% in 2008. Margins earned on multi-mission interiors and other
governmental contracts are generally higher than margins earned on medical
interiors for commercial customers.





General
Expenses





Depreciation and amortization
expense increased $491,000, or 12.0% for the three months ended March 31,
2009, compared to 2008. The increase is primarily related to the purchase of our
corporate headquarters building in October 2008 for $7.4 million and the
purchase of fourteen aircraft for approximately $15.6 million subsequent to
March 31, 2008.





General and administrative (G&A)
expenses increased $97,000, or 0.6%, for the quarter ended March 31,
2009, compared to the quarter ended March 31, 2008. G&A expenses include
executive management, accounting and finance, billing and collections,
information services, human resources, aviation management, pilot training,
dispatch and communications, and CBS program administration. G&A expenses
were 13.8% of revenue in 2009, compared to 14.5% in 2008.G&A expenses in 2008
included approximately $690,000 related to the consolidation of the Part 135 Air
Carrier Certificate for CJ Systems Aviation Group, Inc., (CJ) into the Air
Methods certificate; the consolidation was completed in the summer of
2008.





Interest expense decreased
$332,000, or 21.2%, in the first quarter of 2009, compared to the first quarter
of 2008, primarily because of a lower long-term debt balance and a decrease of
over 300 basis points in the weighted average interest rate paid on variable
rate debt in the first quarter of 2009 compared to the first quarter of
2008.





Income tax expense was
$3,152,000 in the first quarter of 2009, compared to $1,622,000 in the first
quarter of 2008, at effective tax rates of approximately 39% and 41%,
respectively. The decrease in the effective tax rate was primarily attributed to
a decrease in certain permanent book-tax differences. In addition, the rate used
to determine current state income taxes decreased primarily due to a change in
Colorado statute defining the apportionment calculation effective January 1,
2009.





Liquidity
and Capital Resources





Our
working capital position as of March 31, 2009, was $103,733,000, compared to
$115,962,000 at December 31, 2008. We had cash and cash equivalents of
$9,053,000 at March 31, 2009, compared to $13,147,000 at December 31, 2008. Cash
generated by operations was $15,682,000 in the first quarter of 2009, compared
to $9,709,000 in the first quarter of 2008, reflecting the change in operating
results described above.





Cash used
by investing activities totaled $7,877,000 in 2009 compared to $1,176,000 in
2008. Significant equipment acquisitions in the first quarter of 2009 included
the purchase of two aircraft for approximately $4.7 million. During the quarter,
we sold two aircraft for total proceeds of $1.2 million. Equipment acquisitions
in the first quarter of 2008 included the buyout of two CJ leased aircraft which
were subsequently sold during the quarter for net proceeds of approximately $2.8
million. Both aircraft had been identified for disposition upon acquisition of
CJ in October 2007. We also sold two other aircraft during the quarter for total
proceeds of $1.5 million.


13
 Table of Contents


Financing
activities used $11,899,000 in 2009 compared $1,157,000 in 2008. The primary use
of cash in both 2009 and 2008 was regularly scheduled payments of long-term debt
and capital lease obligations. In 2008 these payments were partially offset by
draws against our line of credit. In 2009 we paid off a $3.9 million short-term
note payable to an aircraft manufacturer for the delivery of an EC135
helicopter. We are exploring long-term refinancing options for this balance in
the second quarter of 2009.





Outlook
for 2009





The
statements contained in this Outlook are based on current expectations. These
statements are forward-looking, and actual results may differ materially. We
undertake no obligation to update any forward-looking statements.





Community-Based
Services




Effective
January 1, 2009, we increased prices for our CBS operations an average of
approximately 5%. In
the first quarter of 2009, we opened threenew
basesand closed four due to
insufficient flight volume.We also entered into service agreements in
Georgia with another air medical service provider, allowing for base
consolidations in the service area. During the second quarter of 2009, we expect
to complete the conversion of an HBS customer to CBS operations, resulting in
two additional CBS bases.





Hospital-Based
Services




In the
first quarter of 2009, we began operations under a new three-year contract,
representing two aircraft, with a customer in Alaska. Contracts with eighteen
hospital customers are due for renewal in 2009, two of which have been renewed
for terms ranging from one to three years.





Products
Division





As of
March 31, 2009, we had 48 HH60L units, 81 MEV units, four commercial medical
interiors, and one design contract with the U.S. Army in process. During the
second quarter of 2009, we received notice of the customer’s intent to reduce
the number of MEV units to be delivered under the current contract from 306
units to 81 units, plus a number of spares. Although the impact of the reduction
is not yet measurable, under government contract law, we believe we will be
entitled to the recovery of costs incurred related to this contract. Deliveries
under all contracts in process are expected to be completed early in 2010, and
remaining revenue, taking into consideration the reduction in MEV production, is
estimated at $12.4 million.





The U.S.
Army Multi-Year VII production contract plans for 76 HH-60M Multi-Mission
Medevac units plus options for 23 additional units to be delivered by 2012,
including the 48 units which we currently have under contract. The units planned
under this contract are in addition to the 39 units we have already completed.
There is no assurance that orders for additional units will be received in
future periods.





All
Segments





There can
be no assurance that we will continue to maintain flight volume or current
levels of collections on receivables for CBS operations, successfully complete
planned expansions of CBS and HBS operations, renew operating agreements for our
HBS operations, or generate new profitable contracts for the Products Division.
Based on the anticipated levels of HBS and CBS flight activity and the projects
in process for the Products Division, we expect to generate sufficient cash flow
to meet our operational needs throughout the remainder of 2009. Effective March
31, 2009, we amended one of the covenants under our senior credit facility such
that the calculation of Total Adjusted Debt (as defined in the senior credit
facility) is equal to EBITDAR (Earnings Before Interest, Taxes, Debt,
Amortization, and Recurring Rents). Such amendment will provide us with more
borrowing capacity as it relates to leased aircraft that have been purchased.
There were no other amendments to the senior credit facility other than as
described above. At March 31, 2009, we have approximately $32 million of
borrowing capacity available under the senior credit facility.


14
 Table of Contents


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





Fixed
flight fee revenue under our operating agreements with hospitals is recognized
monthly over the terms of the agreements. Flight revenue relating to patient
transports is recognized upon completion of the services and is recorded net of
provisions for contractual discounts and estimated uncompensated care.Both provisions are
estimated during the period 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. 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 the 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 flight revenue for the
quarter ended March 31, 2009, a change of 100 basis points in the percentage of
estimated contractual discounts and uncompensated care would have resulted in a
change of approximately $1,592,000 in flight 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.





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 and record a valuation allowance for
those amounts we believe are not likely to be realized. Establishing or
increasing a valuation allowance in a period increases income tax expense. 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. 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.


15
 Table of Contents


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





The
Company’s goodwill relates to four acquisitions and has been allocated to our
community-based and hospital-based services segments. Annually, at December 31,
the Company evaluates goodwill for potential impairment using a two-step test at
the reporting unit level. The first step of the goodwill impairment test
compares the book value of a reporting unit, including goodwill, with its fair
value. If the book value of a reporting unit exceeds its fair value, we perform
the second step of the impairment test to determine the amount of goodwill
impairment loss to be recorded. In the second step, the implied fair value of
the reporting unit’s goodwill is compared to the book value of the goodwill. The
amount of impairment loss is equal to the excess of the book value of the
goodwill over the implied fair value of that goodwill.




We
determine the fair value of each reporting unit based upon the reporting unit’s
historical operating profit and the Company’s current public trading value.
Estimated future operating profit for each reporting unit is also taken into
consideration when determining the reporting unit’s fair value. Considerable
management judgment is necessary to evaluate the impact of economic changes and
to estimate future operating profit for the reporting units. Assumptions used in
our impairment evaluations, such as forecasted growth rates and patient
receivable collection rates, are based on the best available market information
and are consistent with our internal forecasts. Changes in these estimates or a
continued 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.




The
estimated fair values of the reporting units have historically exceeded the
carrying values of the reporting units. We performed a sensitivity analysis on
the Company’s public trading value and on each reporting unit’s historical and
estimated future operating profits. Based on the amounts used in the evaluation
of goodwill at December 31, 2008, either the Company’s current public trading
value or the reporting unit’s operating profit would have to decrease by more
than 20% before the carrying value of the reporting unit exceeded its fair
value.


16
 Table of Contents


Item
      3.
            Quantitative and Qualitative Disclosures about Market
      Risk





Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as foreign currency exchange and interest rates. All of our product
sales and related receivables are payable in U.S. dollars. We are subject to
interest rate risk on our debt obligations and notes receivable, some of which
have fixed interest rates, except $13,803,000 outstanding against the line of
credit and $42,860,000 in notes payable. Based on the amounts outstanding at
March 31, 2009, the annual impact of a change of 100 basis points in interest
rates would be approximately $567,000. Interest rates on these instruments
approximate current market rates as of March 31, 2009.





Our cost
of operations is also affected by changes in the price and availability of
aircraft fuel. Generally, our HBS customers pay for all fuel consumed in medical
flights. Based on actual CBS fuel usage for the quarter ended March 31, 2009,
the impact on operating costs of an increase of 10% in the cost of aircraft fuel
per hour flown would be approximately $238,000 for the quarter. Flight volume
for CBS operations can vary due to weather conditions and other factors.
Therefore, the impact of a change in fuel cost based first quarter 2009 volume
is not necessarily indicative of the impact on subsequent quarters or years. In
the fourth quarter of 2008, we entered into a fuel derivative agreement for the
majority of our projected fuel consumption for the year ending December 31,
2009, to protect us against increases in the cost of Gulf Coast jet fuel above
$2.35 per gallon for wholesale purchases.








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, 2009, pursuant to Rule 13a-15(b) under the Exchange Act. Based on
that evaluation, the Certifying Officers have concluded that, as of March 31,
2009, 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.


17
 Table of Contents


PART
II: OTHER INFORMATION






Item
      1.
            Legal Proceedings





Not
Applicable.






Item
      1A.
            Risk Factors





There
have been no material changes in our risk factors from those disclosed in our
annual report on Form 10-K for the year ended December 31, 2008.






Item
      2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds





The
following table presents our purchases of our common stock during the quarter
ended March 31, 2009:





Period
                        Total
      Number
                          of
      Shares
                          Purchased
                        Average
      Price
                          Paid
      per Share
                        Total
      Number of Shares
                          Purchased
      as Part of
                          Publicly
      Announced Plans
                          or
      Programs
                        Maximum
      Number of
                          Shares
      that May Yet Be
                          Purchased
      Under the Plan
                          or
      ProgramMarch
      31, 2009
                        417  (1)
                        $
      16.91
                        --
                        --





(1)
Consists of restricted shares delivered back to us by an employee to satisfy tax
withholding obligations that arise upon the vesting of restricted stock.
Pursuant to our 2006 Equity Compensation Plan, employees are required to tender
back to the Company the number of shares from the award sufficient to satisfy
the person’s minimum tax withholding obligations that arise upon the vesting of
the restricted stock. We then satisfy the tax withholding obligation on behalf
of the employee. The taxes for the transaction set forth above were remitted in
April 2009 in accordance with our regular payroll tax filing
schedule.






Item
      3.
            Defaults Upon Senior
Securities





Not
Applicable.






Item
      4.
            Submission of Matters to a Vote of Security
    Holders





Not
Applicable.






Item
      5.
            Other Information





Not
Applicable.





Item
      6.
            Exhibits





10.1
            Amendment
      No. 3 to Revolving Credit, Term Loan and Security Agreement dated as of
      March 31, 2009, among Air Methods Corporation, Rocky Mountain Holdings,
      L.L.C.,  Mercy Air Service, Inc., LifeNet, Inc., FSS Airholdings,
      Inc., and CJ Systems Aviation Group, Inc., as Borrowers, KeyBank National
      Association, as a Lender, lead arranger, sole book runner and
      administrative agent, LaSalle Bank National Association, as a Lender
      and syndication agent, National City Bank, as a Lender and documentation
      agent, and the other Lenders identified
therein





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


18
 Table of Contents


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 CORPORATIONDate:  May
      8, 2009
                By
                \s\ Aaron D. ToddAaron
      D. ToddChief
      Executive Officer(Principal
      Executive Officer)Date:  May
      8, 2009
                By
                \s\ Trent J. CarmanTrent
      J. CarmanChief
      Financial Officer(Principal
      Financial Officer)Date:  May
      8, 2009
                By
                \s\ Sharon J. KeckSharon
      J. KeckChief
      Accounting Officer(Principal
      Accounting Officer)