AIR METHODS CORP - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - AIR METHODS CORP	Financial_Report.xls
EX-32 - EXHIBIT 32 - AIR METHODS CORP	ex32.htm
EX-31.2 - EXHIBIT 31.2 - AIR METHODS CORP	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - AIR METHODS CORP	ex31_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission file number 0-16079

AIR METHODS CORPORATION

(Exact name of Registrant as Specified in Its Charter)

Delaware		84-0915893
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

7301 South Peoria, Englewood, Colorado		80112
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code (303) 792-7400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Large accelerated Filer x	Accelerated Filer ¨
Non-accelerated Filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

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

Yes ¨ No x

The number of shares of Common Stock, par value $.06, outstanding as of July 27, 2012, was 12,884,824.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

	Item 1.	Consolidated Financial Statements (unaudited)

		Consolidated Balance Sheets – June 30, 2012 and December 31, 2011	1

		Consolidated Statements of Income for the three and six months ended June 30, 2012 and 2011	3

		Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	4

		Notes to Unaudited Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20

	Item 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	21

	Item 1A.	Risk Factors	21

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

	Item 3.	Defaults upon Senior Securities	21

	Item 4.	Mine Safety Disclosures	21

	Item 5.	Other Information	21

	Item 6.	Exhibits	21

SIGNATURES			22

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)

	June 30,			December 31,
	2012			2011
Assets

Current assets:
Cash and cash equivalents	$	27,720			3,562
Current installments of notes receivable		1,553			687
Receivables:
Trade, net (note 4)		224,684			187,056
Refundable income taxes		--			1,808
Other		3,659			1,924
Total receivables		228,343			190,788

Inventories		35,627			33,089
Work-in-process on medical interiors and products contracts		1,943			1,369
Assets held for sale		2,526			2,807
Costs and estimated earnings in excess of billings on uncompleted contracts		1,115			1,854
Refundable deposits		4,785			14,146
Prepaid expenses and other (note 6)		7,672			7,417

Total current assets		311,284			255,719

Property and equipment:
Land		251			251
Flight and ground support equipment		347,861			343,069
Aircraft under capital leases		396,411			408,985
Aircraft rotable spare parts		47,611			44,020
Furniture and office equipment		42,581			41,824
		834,715			838,149
Less accumulated depreciation and amortization		(278,904	)		(268,571	)

Net property and equipment		555,811			569,578

Goodwill (note 2)		114,825			115,117
Notes and other receivables, less current installments		115			117
Intangible assets, net of accumulated amortization of $5,523 and $4,374 at June 30, 2012 and December 31, 2011, respectively		63,395			64,752
Other assets		20,937			23,188

Total assets	$	1,066,367			1,028,471

(Continued)

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Air Methods Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS, Continued

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

(unaudited)

	June 30,		December 31,
	2012		2011
Liabilities and Stockholders' Equity

Current liabilities:
Notes payable	$	3,022		27,940
Current installments of long-term debt		18,962		18,889
Current installments of obligations under capital leases		46,572		49,100
Accounts payable		17,958		15,890
Deferred revenue		3,703		4,493
Billings in excess of costs and estimated earnings on uncompleted contracts		1,670		2,726
Accrued wages and compensated absences		18,961		20,267
Current income taxes payable		16,766		--
Due to third party payers		6,044		5,604
Deferred income taxes		9,910		7,654
Other accrued liabilities		16,027		18,145

Total current liabilities		159,595		170,708

Long-term debt, less current installments		253,978		243,678
Obligations under capital leases, less current installments		230,501		240,208
Deferred income taxes		52,398		49,966
Other liabilities		31,569		36,009

Total liabilities		728,041		740,569

Stockholders' equity (note 3):
Preferred stock, $1 par value. Authorized 5,000,000 shares, none issued		--		--
Common stock, $.06 par value. Authorized 23,500,000 shares; issued 12,928,953 and 12,799,560 shares at June 30, 2012 and December 31, 2011, respectively; outstanding 12,884,824 and 12,739,560 shares at June 30, 2012 and December 31, 2011, respectively		771		764
Additional paid-in capital		102,490		95,960
Retained earnings		235,065		191,178

Total stockholders' equity		338,326		287,902

Total liabilities and stockholders’ equity	$	1,066,367		1,028,471

See accompanying notes to unaudited consolidated financial statements.

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 June 30,						Six Months Ended June 30,
	2012			2011			2012			2011

Revenue:
Flight revenue, net of provision for contractual discounts (note 4)	$	307,403			189,084			558,419			345,544
Provision for uncompensated care (note 4)		(93,937	)		(48,192	)		(162,809	)		(80,131	)
Flight revenue, net		213,466			140,892			395,610			265,413
Sales of medical interiors and products		7,516			7,541			14,748			13,342
Other		1,498			1,729			2,936			3,312
		222,480			150,162			413,294			282,067
Operating expenses:
Flight centers		78,553			56,323			157,535			111,977
Aircraft operations		36,223			32,908			73,107			58,021
Cost of medical interiors and products sold		5,918			5,416			10,315			9,394
Depreciation and amortization		20,943			16,695			41,822			33,187
Loss (gain) on disposition of assets, net		30			335			(211	)		(26	)
General and administrative		25,549			18,700			50,424			37,007
		167,216			130,377			332,992			249,560

Operating income		55,264			19,785			80,302			32,507

Other income (expense):
Interest expense		(5,272	)		(4,311	)		(10,865	)		(8,821	)
Other, net		998			896			1,928			2,113

Income before income taxes		50,990			16,370			71,365			25,799

Income tax expense		(19,577	)		(6,450	)		(27,478	)		(10,167	)

Net income	$	31,413			9,920			43,887			15,632

Basic income per common share (note 5)	$	2.44			.78			3.42			1.24

Diluted income per common share (note 5)	$	2.43			.77			3.39			1.22

Weighted average number of common shares outstanding – basic		12,859,285			12,658,641			12,826,463			12,633,222

Weighted average number of common shares outstanding – diluted		12,952,525			12,812,765			12,939,211			12,788,094

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Air Methods Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2012			2011

Cash flows from operating activities:
Net income	$	43,887			15,632
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		41,822			33,187
Deferred income tax expense		4,462			4,066
Stock-based compensation		1,039			1,340
Excess tax benefit from exercise of stock options		(1,626	)		(597	)
Gain on disposition of assets, net		(211	)		(26	)
Unrealized loss (gain) on derivative instrument		242			(223	)
Changes in assets and liabilities, net of effects of acquisitions:
Decrease (increase) in prepaid expenses and other current assets		8,864			(7,248	)
Increase in receivables		(37,555	)		(5,169	)
Increase in inventories		(3,112	)		(3,347	)
Decrease (increase) in costs in excess of billings		739			(559	)
Increase (decrease) in accounts payable, other accrued liabilities, and other liabilities		16,770			(2,817	)
Decrease in deferred revenue and billings in excess of costs		(1,846	)		(1,497	)
Net cash provided by operating activities		73,475			32,742

Cash flows from investing activities:
Acquisition of OF Air Holdings Corporation (note 2)		(3,176	)		--
Acquisition of membership interest of United Rotorcraft Solutions, LLC		--			(1,554	)
Acquisition of property and equipment		(39,259	)		(16,751	)
Proceeds from disposition and sale of equipment and assets held for sale		27,901			2,832
Decrease in notes receivable and other assets		187			519
Net cash used in investing activities		(14,347	)		(14,954	)

(Continued)

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Air Methods Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued

(Amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2012			2011

Cash flows from financing activities:
Proceeds from issuance of common stock, net	$	3,872			2,120
Excess tax benefit from exercise of stock options		1,626			597
Borrowings under line of credit		58,738			--
Payments under line of credit		(40,008	)		--
Payments for financing costs		(62	)		(64	)
Payments of long-term debt and notes payable		(8,357	)		(9,580	)
Payments of capital lease obligations		(50,779	)		(28,374	)
Net cash used in financing activities		(34,970	)		(35,301	)

Increase (decrease) in cash and cash equivalents		24,158			(17,513	)

Cash and cash equivalents at beginning of period		3,562			60,710

Cash and cash equivalents at end of period	$	27,720			43,197

Interest paid in cash during the period	$	10,603			8,669

Income taxes paid in cash during the period	$	2,960			2,622

Non-cash investing and financing activities:

In the six months ended June 30, 2012, the Company entered into notes payable of $3,022 to finance the purchase of aircraft which were held in property and equipment pending permanent lease financing as of June 30, 2012, and into capital leases of $38,544 to finance the purchase of aircraft. The Company also settled notes payable of $27,940 in exchange for the aircraft securing the debt.

In the six months ended June 30, 2011, the Company entered into notes payable of $11,837 to finance the purchase of aircraft which were held in property and equipment pending permanent lease financing as of June 30, 2011, and entered into capital leases of $7,414 to finance the purchase of aircraft and other equipment.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

Air Methods Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(unaudited)

(1)	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and instructions to Form 10-Q and Regulation S-X. Accordingly, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the condensed consolidated financial statements for the respective periods. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2011.

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)	Acquisition of OF Airholdings Corporation

On August 1, 2011, the Company acquired 100% of the outstanding common stock of OF Air Holdings Corporation and its subsidiaries, including Omniflight Helicopters, Inc. (together, Omniflight), for a cash purchase price of $201.9 million, subject to final determination of working capital, as defined in the merger agreement, as of the closing date. As of December 31, 2011, the Company had recorded a liability of $3,119,000 for the estimated increase to the purchase price for the change in working capital. Based upon final agreed upon adjustments to the working capital measurement, the Company paid the sellers $3,176,000 during the first quarter of 2012, and no further amounts are due the sellers. The purchase price was financed primarily through a term loan under the Company’s Amended and Restated Revolving Credit, Term Loan and Security Agreement.

Table of Contents

Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(2)	Acquisition of OF Airholdings Corporation, continued

The allocation of the purchase price was as follows (amounts in thousands):

	Allocation at December 31, 2011			Adjustments			Revised Allocation
Assets purchased:
Receivables	$	28,622			--			28,622
Aircraft		33,500			--			33,500
Goodwill		89,116			(292	)		88,824
Amortizable intangible assets		63,100			--			63,100
Aircraft under capital leases		29,405			--			29,405
Equipment and other property		5,986			--			5,986
Spare parts inventories		4,525			--			4,525
Other		14,521			(10	)		14,511
Total assets		268,775			(302	)		268,473

Capital lease obligations assumed		(38,034	)		--			(38,034	)
Net deferred tax liabilities		(5,961	)		(225	)		(6,186	)
Other liabilities assumed		(19,765	)		584			(19,181	)
Total liabilities assumed		(63,760	)		359			(63,401	)
Purchase price	$	205,015			57			205,072

Adjustments to the purchase price allocation during 2012 included the working capital adjustment to the purchase price, as described above, and revised estimates of liabilities related to aircraft repair costs based upon verification of open repair orders with aircraft parts vendors. The Company is still in the process of reviewing airworthiness documentation related to Omniflight’s aircraft spare parts inventory. Therefore, the allocation of the purchase price is still subject to refinement.

(3)	Stockholders’ Equity

Changes in stockholders’ equity for the six months ended June 30, 2012, consisted of the following (amounts in thousands except share amounts):

	Shares
	Outstanding		Amount

Balances at January 1, 2012		12,739,560	$	287,902

Issuance of common shares for options exercised		117,591		3,872
Stock-based compensation		27,673		1,039
Tax benefit from exercise of stock options		--		1,626
Net income		--		43,887

Balances at June 30, 2012		12,884,824	$	338,326

Table of Contents

Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(4)	Revenue Recognition

In the first quarter of 2012, the Company adopted ASU No. 2011-07, Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities. Trade receivables are presented net of allowances for contractual discounts and uncompensated care. The Company determines its allowances for contractual discounts and uncompensated care based on estimated payer mix, payer reimbursement schedules, and historical collection experience. The allowances are reviewed monthly and adjusted periodically based on actual collections. Billings are charged off against the uncompensated care allowance when it is probable that the receivable will not be recovered. The allowance for contractual discounts is related primarily to Medicare and Medicaid patients. The allowance for uncompensated care is related primarily to receivables recorded for self-pay patients.

The Company has not changed its discount policies related to self-pay patients or deductible and copayment balances for insured patients during either 2012 or 2011. The allowance for uncompensated care was 39.3% of receivables from non-governmental payers as of June 30, 2012, compared to 38.8% at December 31, 2011, and 35.6% at June 30, 2011. The increase at June 30, 2012, compared to December 31 and June 30, 2011, is due primarily to the impact of the acquisition of Omniflight in August 2011 and to regularly scheduled price increases. Omniflight had a higher gross charge structure and, therefore, a higher percentage of uncollectible accounts, than the Company’s historical operations prior to the acquisition.

The Company recognizes flight revenue at its standard rates for services provided, regardless of expected payer. In the period that services are provided and based upon historical experience, the Company records a significant provision for uncompensated care related to uninsured patients who will be unable or unwilling to pay for the services provided. Hospital-based services revenue consists of monthly fees and hourly flight fees billed to hospitals under exclusive operating agreements. These fees are earned regardless of when, or if, the hospital is reimbursed for these services by its patients, their insurers, or the federal government. As a result, the Company does not maintain an allowance or provision for uncompensated care for receivables from Hospital-Based Services payers. Flight revenue, net of provision for contractual discounts but before provision for uncompensated care, by major payer class, was as follows (amounts in thousands):

	For quarter ended June 30,				For six months ended June 30,
	2012		2011		2012		2011

Hospital-Based Services payers	$	53,041		48,626		104,678		94,773
Third-party payers		214,176		108,028		364,931		196,714
Self-pay		40,186		32,430		88,810		54,057
Total	$	307,403		189,084		558,419		345,544

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Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(5)	Income per Share

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by all common shares outstanding during the period and dilutive potential common shares.

The reconciliation of basic to diluted weighted average common shares outstanding is as follows:

	2012		2011
For quarter ended June 30:
Weighted average number of common shares outstanding – basic		12,859,285		12,658,641
Dilutive effect of:
Common stock options		86,613		146,127
Unvested restricted stock		6,627		7,997
Weighted average number of common shares outstanding – diluted		12,952,525		12,812,765

For six months ended June 30:
Weighted average number of common shares outstanding – basic		12,826,463		12,633,222
Dilutive effect of:
Common stock options		106,804		151,725
Unvested restricted stock		5,944		3,147
Weighted average number of common shares outstanding – diluted		12,939,211		12,788,094

Common stock options totaling 600 were not included in the diluted shares outstanding for the quarter and six months ended June 30, 2012, because their effect would have been anti-dilutive.

(6)	Fair Value of Financial Instruments

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosures about how fair value is determined for assets and liabilities and establishes a hierarchy by which these assets and liabilities must be grouped based on the type of inputs used in measuring fair value as follows:

Level 1:

quoted prices in active markets for identical assets or liabilities;

Level 2:

quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

Level 3:

unobservable inputs, such as discounted cash flow models or valuations.

In the first quarter of 2012, the Company adopted Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, accounts receivable, notes receivable, notes payable, accounts payable, and accrued liabilities:

The carrying amounts approximate fair value because of the short maturity of these instruments.

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Air Methods Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements, continued

(unaudited)

(6)	Fair Value of Financial Instruments, continued

Derivative instruments:

The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through the use of short-term purchased call options. Financial derivative instruments covering fuel purchases are included in prepaid expenses and other current assets at fair value. Fair value is determined based on quoted prices in active markets for similar instruments and is classified as Level 2 in the fair value hierarchy. The fair value of all fuel derivative instruments included in prepaid expenses and other current assets was $15,000 at June 30, 2012 and $256,000 at December 31, 2011. The Company’s financial derivatives do not qualify for hedge accounting, and, therefore, realized and non-cash mark to market adjustments are included in aircraft operations expense in the Company’s statement of income. Aircraft operations expense included non-cash mark to market derivative losses of $269,000 and $242,000 for the quarter and six months ended June 30, 2012, respectively, compared to a non-cash mark to market loss of $820,000 for the second quarter of 2011 and a gain of $223,000 for the six months ended June 30, 2011. There were no cash settlements under the terms of the agreements in the quarter and six months ended June 30, 2012, compared to $398,000 and $577,000 in the quarter and six months ended June 30, 2011, respectively.

Long-term debt:

The fair value of long-term debt is classified as Level 3 in the fair value hierarchy because it is determined based on the present value of future contractual cash flows discounted at an interest rate that reflects the risks inherent in those cash flows. Based on the borrowing rates currently available to the Company for loans with similar terms and average maturities and on recent transactions, the fair value of long-term debt as of June 30, 2012, is estimated to be $276,735,000, compared to carrying value of $272,940,000. The fair value of long-term debt as of December 31, 2011, was estimated to be $266,213,000, compared to a carrying value of $262,567,000.

(7)	Business Segment Information

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

Community-Based Services (CBS) - provides air medical transportation services to the general population as an independent service. 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 under exclusive operating agreements. Services include aircraft operation and maintenance.

United Rotorcraft (UR) Division - designs, manufactures, and installs aircraft medical interiors and other aerospace and medical transport products for domestic and international customers.

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Air Methods Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements, continued

(unaudited)

(7)	Business Segment Information, continued

For quarter ended June 30:	CBS			HBS			UR			Corporate Activities			Intersegment Eliminations			Consolidated
2012
External revenue	$	161,943			53,041			7,450			46			--			222,480
Intersegment revenue		--			--			3,779			--			(3,779	)		--
Total revenue		161,943			53,041			11,229			46			(3,779	)		222,480

Operating expenses, excluding depreciation & amortization		(92,073	)		(39,347	)		(9,517	)		(8,825	)		3,489			(146,273	)
Depreciation & amortization		(12,818	)		(7,431	)		(358	)		(336	)		--			(20,943	)
Interest expense		(3,071	)		(2,079	)		--			(122	)		--			(5,272	)
Other income, net		563			405			--			30			--			998
Income tax expense		--			--			--			(19,577	)		--			(19,577	)
Segment net income (loss)	$	54,544			4,589			1,354			(28,784	)		(290	)		31,413

2011
External revenue	$	94,008			48,626			7,508			20			--			150,162
Intersegment revenue		58			--			3,856			--			(3,914	)		--
Total revenue		94,066			48,626			11,364			20			(3,914	)		150,162

Operating expenses, excluding depreciation & amortization		(64,454	)		(37,435	)		(9,014	)		(5,982	)		3,203			(113,682	)
Depreciation & amortization		(8,376	)		(7,696	)		(355	)		(268	)		--			(16,695	)
Interest expense		(2,043	)		(2,088	)		(4	)		(176	)		--			(4,311	)
Other income, net		437			394			--			65			--			896
Income tax expense		--			--			--			(6,450	)		--			(6,450	)
Segment net income (loss)	$	19,630			1,801			1,991			(12,791	)		(711	)		9,920

For six months ended June 30:
2012
External revenue	$	293,899		104,678		14,671		46		--		413,294
Intersegment revenue		--		--		13,545		--		(13,545	)	--
Total revenue		293,899		104,678		28,216		46		(13,545	)	413,294

Operating expenses, excluding depreciation & amortization		(183,881	)	(80,296	)	(21,059	)	(16,513	)	10,579		(291,170	)
Depreciation & amortization		(25,286	)	(15,216	)	(667	)	(653	)	--		(41,822	)
Interest expense		(6,003	)	(4,547	)	(1	)	(314	)	--		(10,865	)
Other income, net		1,070		788		--		70		--		1,928
Income tax expense		--		--		--		(27,478	)	--		(27,478	)
Segment net income (loss)	$	79,799		5,407		6,489		(44,842	)	(2,966	)	43,887

2011
External revenue	$	173,976		94,772		13,299		20		--		282,067
Intersegment revenue		115		--		9,524		--		(9,639	)	--
Total revenue		174,091		94,772		22,823		20		(9,639	)	282,067

Operating expenses, excluding depreciation & amortization		(124,276	)	(70,327	)	(17,293	)	(11,829	)	7,352		(216,373	)
Depreciation & amortization		(16,668	)	(15,400	)	(578	)	(541	)	--		(33,187	)
Interest expense		(4,186	)	(4,316	)	(9	)	(310	)	--		(8,821	)
Other income, net		993		891		--		229		--		2,113
Income tax expense		--		--		--		(10,167	)	--		(10,167	)
Segment net income (loss)	$	29,954		5,620		4,943		(22,598	)	(2,287	)	15,632

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ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the results of operations and financial condition should be read in conjunction with our 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 the integration of Omniflight; 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 United Rotorcraft Division contracts; impact of the Patient Protection and Affordable Care Act and other changes in laws and regulations; and other matters. The actual results that we achieve may differ materially from those discussed in such forward-looking statements due to the risks and uncertainties described in the Risk Factors section of this report, in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in other sections of this report, as well as in our annual report on Form 10-K. We undertake no obligation to update any forward-looking statements.

Overview

We provide air medical transportation services throughout the United States and design, manufacture, and install medical aircraft interiors and other aerospace products for domestic and international customers. 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 six months of 2012, the CBS Division generated 71% of our total revenue, compared to 62% in the first six months of 2011.

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 80% of total contract revenue) and hourly flight fees (approximately 20% of total contract revenue) billed to hospital customers. In the six months ended June 30, 2012, the HBS Division generated 25% of our total revenue, compared to 33% in the six months ended June 30, 2011.

United Rotorcraft (UR) Division - designs, manufactures, and installs aircraft medical interiors and other aerospace and medical transport products for domestic and international customers. The UR Division generated 4% of our total revenue in the six months ended June 30, 2012, compared to 5% in 2011.

See Note 7 to the consolidated financial statements included in Item 1 of this report for operating results by segment.

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

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 20% of HBS revenue. By contrast, 80% of our costs primarily associated with flight operations (including salaries, aircraft ownership costs, hull insurance, and general and administrative expenses) incurred during the first six months of 2012 were mainly fixed in nature. While flight volume is affected by many factors, including competition and the effectiveness of marketing and business development initiatives, the greatest single variable in quarterly comparatives has historically been weather conditions. Adverse weather conditions—such as fog, high winds, 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 15,100 and 27,800 for the quarter and six months ended June 30, 2012, respectively, compared to approximately 10,300 and 19,200 for the quarter and six months ended June 30, 2011, respectively. Patient transports for CBS bases open longer than one year (Same-Base Transports) were approximately 10,400 and 18,900 in the quarter and six months ended June 30, 2012, respectively, compared to approximately 10,100 and 18,900 in the quarter and six months ended June 30, 2011, respectively. Cancellations due to unfavorable weather conditions for CBS bases open longer than one year were 1,070 and 2,005 lower in the quarter and six months ended June 30, 2012, compared to 2011. Requests for community-based services decreased by 3.2% and 5.2% for the quarter and six months ended June 30, 2012, respectively, for bases open greater than one year.

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Reimbursement per transport. We respond to calls for air medical transports without pre-screening the creditworthiness of the patient and are subject to collection risk for services provided to insured and uninsured patients. Medicare and Medicaid also receive contractual discounts from our standard charges for flight services. 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. Most of the significant provisions of the Patient Protection and Affordable Care Act are not scheduled to take effect until 2014, and the impact on our reimbursement rates is, therefore, unknown. Net reimbursement per transport increased 17.3% in the six months ended June 30, 2012, compared to 2011, attributed to recent price increases. Provisions for contractual discounts and estimated uncompensated care for CBS operations are as follows:

	For quarters ended June 30,						For six months ended June 30,
	2012			2011			2012			2011
Gross billings		100	%		100	%		100	%		100	%
Provision for contractual discounts		43	%		41	%		44	%		42	%
Provision for uncompensated care		21	%		20	%		20	%		18	%

Although price increases generally increase the net reimbursement per transport from insurance payers, the amount per transport collectible from private patient payers, Medicare, and Medicaid does not increase proportionately with price increases. Therefore, depending upon overall payer mix, price increases will usually result in an increase in the percentage of uncollectible accounts. In addition, the number of transports covered by insurance decreased from 34.6% of total transports for the quarter ended June 30, 2011, to 34.0% of total transports for the quarter ended June 30, 2012, with most of the decrease moving to uninsured, primarily as a result of the Omniflight acquisition. The percentage of transports covered by insurance for Omniflight’s CBS operations has historically been lower than the percentage of insured transports for the Company’s CBS operations prior to the Omniflight acquisition. 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. Two models of aircraft within our fleet, representing 17% 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, 2011, we have taken delivery of 34 new aircraft and expect to take delivery of three additional aircraft during 2012. 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 1.3% from the quarter ended June 30, 2011, to the quarter ended June 30, 2012, and increased 16.3% from the six months ended June 30, 2011, to the six months ended June 30, 2012. Total flight volume for CBS and HBS operations increased 33.7% and 31.9% for the quarter and six months ended June 30, 2012, respectively, compared to 2011. The change in maintenance expense reflects normal fluctuations in the timing of overhaul and replacement cycles for aircraft parts.

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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. Employees who meet these standards are in great demand and are likely to remain a limited resource in the foreseeable future. Our pilots are represented by a collective bargaining unit and are covered under a collective bargaining agreement (CBA) which is effective through December 31, 2013. Other employee groups may also elect to be represented by unions in the future.

Results of Operations

We reported net income of $31,413,000 and $43,887,000 for the quarter and six months ended June 30, 2012, respectively, compared to $9,920,000 and $15,632,000 for the quarter and six months ended June 30, 2011, respectively. The results for 2012 include the impact of the Omniflight acquisition which closed in August 2011. Net reimbursement per transport for CBS operations increased 17.8% and 17.3% in the quarter and six months ended June 30, 2012, compared to 2011, while Same-Base Transports for CBS operations were 2.9% and 0.2% higher over the same periods, respectively.

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

Net flight revenue increased $72,574,000, or 51.5%, and $130,197,000, or 49.1%, for the quarter and six months ended June 30, 2012, respectively, compared to 2011. 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 increased $68,159,000, or 73.9%, to $160,425,000 for the second quarter of 2012 and $120,291,000, or 70.5%, to $290,932,000 for the six months ended June 30, 2012, for the following reasons:

Net revenue of $35,148,000 and $66,457,000 from Omniflight’s CBS operations for the quarter and six months ended June 30, 2012.

Increases of 17.8% and 17.3% in net reimbursement per transport for the quarter and six months ended June 30, 2012, respectively, compared to 2011, due to the benefit of recent price increases net of the deterioration in payer mix described above.

Increases of 296, or 2.9%, and 38, or 0.2%, in Same-Base Transports for the quarter and six months ended June 30, 2012, respectively, compared to 2011. Cancellations due to unfavorable weather conditions for CBS bases open longer than one year were 1,070 and 2,005 lower in the quarter and six months ended June 30, 2012, respectively, compared to 2011. Requests for community-based services decreased by 3.2% and 5.2% for the quarter and six months ended June 30, 2012, respectively, for bases open greater than one year.

Incremental net revenue of $9,145,000 and $16,954,000 for the quarter and six months ended June 30, 2012, respectively, generated from the addition of eleven new CBS bases, including six bases resulting from the conversion of HBS contracts, either during or subsequent to the first six months of 2011.

Closure of two bases subsequent to June 30, 2011, due to insufficient flight volume, resulting in decreases in net revenue of approximately $1,360,000 and $2,396,000 during the quarter and six months ended June 30, 2012, respectively.

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·	HBS – Net flight revenue increased $4,415,000, or 9.1%, to $53,041,000 for the second quarter of 2012 and $9,906,000, or 10.5%, to $104,678,000 for the six months ended June 30, 2012, for the following reasons:

Net revenue of $4,729,000 and $9,566,000 from Omniflight’s HBS operations for the quarter and six months ended June 30, 2012.

Cessation of service under two contracts and the conversion of two contracts to CBS operations, as well as the closure of certain satellite locations at the option of two current customers, during or subsequent to the first six months of 2011, resulting in decreases in net revenue of approximately $5,143,000 and $9,797,000 for the quarter and six months ended June 30, 2012, respectively.

Incremental net revenue of $3,908,000 and $6,285,000 for the quarter and six months ended June 30, 2012, generated from the addition of one new hospital contract, the expansion of seven contracts to additional bases of operation, and the conversion of one CBS base back to HBS operations during or subsequent to the first six months of 2011.

Increases of 4.6% and 3.1% in flight volume for the quarter and six months ended June 30, 2012, respectively, for all contracts excluding new contracts, contract expansions, closed contracts, and Omniflight operations.

Annual price increases in the majority of contracts based on stipulated contractual increases or changes in the Consumer Price Index or spare parts prices from aircraft manufacturers.

Flight center costs (consisting primarily of pilot, mechanic, and medical staff salaries and benefits) increased $22,230,000, or 39.5%, and $45,558,000, or 40.7%, for the quarter and six months ended June 30, 2012, respectively, compared to 2011. Changes by business segment are as follows:

·	CBS – Flight center costs increased $19,647,000, or 52.9%, to $56,797,000 for the second quarter of 2012 and $39,562,000, or 53.5%, to $113,479,000 for the six months ended June 30, 2012, for the following reasons:

Flight center costs of approximately $15,733,000 and $31,277,000 related to Omniflight’s CBS operations during the quarter and six months ended June 30, 2012.

Increases of approximately $3,703,000 and $7,345,000 for the quarter and six months ended June 30, 2012, respectively, for the addition of personnel to staff new base locations described above.

Decreases of approximately $560,000 and $1,077,000 for the quarter and six months ended June 30, 2012, respectively, due to the closure of base locations described above.

Increases in salaries for merit pay raises.

·	HBS - Flight center costs increased $2,583,000, or 13.5%, to $21,756,000 for the second quarter of 2012 and $5,996,000, or 15.8%, to $44,056,000 for the six months ended June 30, 2012, primarily due to the following:

Flight center costs of approximately $2,091,000 and $4,340,000 related to Omniflight’s HBS operations during the quarter and six months ended June 30, 2012.

Decreases of approximately $1,707,000 and $3,273,000 for the quarter and six months ended June 30, 2012, respectively, due to the closure of base locations described above.

Increases of approximately $1,038,000 and $1,844,000 for the quarter and six months ended June 30, 2012, respectively, for the addition of personnel to staff new base locations described above.

Increases in salaries for merit pay raises.

Aircraft operating expenses increased $3,315,000, or 10.1%, and $15,086,000, or 26.0%, for the quarter and six months ended June 30, 2012, respectively, compared to 2011. Aircraft operating expenses consist of fuel, insurance, and maintenance costs and generally are a function of the size of the fleet, the type of aircraft flown, and the number of hours flown. The change in costs is due to the following:

Decrease in aircraft maintenance expense of $308,000, or 1.3%, to $23,697,000 for the second quarter of 2012 and increase of $7,014,000, or 16.3%, to $50,023,000 for the six months ended June 30, 2012, compared to the prior year. Total flight volume for CBS and HBS operations increased 33.7% and 31.9% for the quarter and six months ended June 30, 2012, respectively, compared to prior year. The change in maintenance expense reflects normal fluctuations in the timing of overhaul and replacement cycles for aircraft parts.

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Decrease of approximately 4.3% in the cost of aircraft fuel per hour flown for the second quarter of 2012 and increase of 12.4% for the six months ended June 30, 2012. Total fuel costs increased $2,030,000 to $7,191,000 and $5,000,000 to $12,686,000 for the quarter and six months ended June 30, 2012, respectively, compared to 2011. During both 2012 and 2011 we had commodity call options to protect against aircraft fuel price increases greater than 20%, covering essentially all of our fuel consumption for both years. Fuel expense included a non-cash mark to market derivative loss of $269,000 for the second quarter of 2012, compared to a loss of $820,000 for the second quarter of 2011, and a non-cash mark to market derivative loss of $242,000 for the six months ended June 30, 2012, compared to a gain of $223,000 for the six months ended June 30, 2011. Cash settlements under the terms of the agreement totaled $398,000 and $577,000 in the quarter and six months ended June 30, 2011, respectively. We received no cash settlements under the agreement in the quarter and six months ended June 30, 2012. Excluding the impact of the fuel derivative agreements, the cost of aircraft fuel per hour flown was unchanged in 2012 compared to 2011.

·	Decrease in hull insurance rates effective July 2011.

·	Total aircraft operating expenses related to the Omniflight fleet were approximately $8,699,000 and $16,562,000 for the quarter and six months ended June 30, 2012.

Medical Interiors and Products

Medical interiors and products revenue decreased $25,000, or 0.3%, and increased $1,406,000, or 10.5%, for the quarter and six months ended June 30, 2012, respectively, compared to 2011. Significant projects in process during 2012 included fifty multi-mission interiors for the U.S. Army’s HH-60M helicopter and eight aircraft interior kits for commercial customers. Revenue by product line for the quarter and six months ended June 30, 2012, was as follows:

·	$3,199,000 and $6,232,000 – governmental entities

·	$4,317,000 and $8,516,000 – commercial customers

Significant projects in process during 2011 included work under two contracts to produce a total of fifty multi-mission interiors for the U.S. Army’s HH-60M helicopter, 77 interiors for an older generation of the U.S. Army’s Blackhawk helicopter, approximately 187 litter systems for the U.S. Army’s Medical Evacuation Vehicle (MEV), and six aircraft interior kits for commercial customers. Revenue by product line for the quarter and six months ended June 30, 2011, was as follows:

·	$4,985,000 and $9,788,000 – governmental entities

·	$2,556,000 and $3,554,000 – commercial customers

Cost of medical interiors and products increased $502,000, or 9.3%, and $921,000, or 9.8%, for the quarter and six months ended June 30, 2012, respectively, as compared to the prior year, due in part to changes in sales volume and product mix. Costs in 2012 also included development and design work on aircraft interior configurations for commercial customers, leading to higher engineering and certification costs and to lower profit margins.

General Expenses

Depreciation and amortization expense increased $4,248,000, or 25.4%, and $8,635,000, or 26.0%, for the quarter and six months ended June 30, 2012, compared to 2011. Depreciation related to Omniflight’s fixed assets, including aircraft under capital leases, was approximately $2,259,000 and $4,807,000 and amortization of Omniflight’s intangible assets was $986,000 and $1,972,000 for the quarter and six months ended June 30, 2012, respectively. In addition, during the fourth quarter of 2011 through the second quarter of 2012, we added 28 aircraft subject to capital leases, totaling approximately $52.1 million, to our depreciable assets.

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General and administrative (G&A) expenses increased $6,849,000, or 36.6%, and $13,417,000, or 36.3%, for the quarter and six months ended June 30, 2012, respectively, compared to 2011, reflecting additional headcount required to manage increased operations as a result of the Omniflight acquisition. 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 and HBS program administration. G&A expenses were 11.5% and 12.2% of revenue for the quarter and six months ended June 30, 2012, compared to 12.5% and 13.1% of revenue for the quarter and six months ended June 30, 2011. During the first quarter of 2012, we completed the consolidation of the Part 135 Air Carrier Certificate for Omniflight into the Air Methods certificate and completed the process of integrating other Omniflight overhead functions into existing departments. G&A expenses for the quarter and six months ended June 30, 2012, also included $4,065,000 and $5,208,000, respectively, for severance related to the elimination of the chief operating officer position and incentive compensation accruals related to our financial performance. Expense related to incentive compensation totaled approximately $507,000 and $1,547,000 in the quarter and six months ended June 30, 2011, respectively.

Interest expense increased $961,000, or 22.3%, and $2,044,000, or 23.2%, for the quarter and six months ended June 30, 2012, compared to the first quarter of 2011, primarily due to interest recorded on capital lease obligations, totaling approximately $27.3 million as of June 30, 2012, assumed in the Omniflight acquisition and to interest incurred on the $200 million term loan originated to fund the acquisition of Omniflight. The term loan bears interest at a variable rate which averaged 2.4% for the six months ended June 30, 2012. In addition, we carried average balances of $24.7 million and $22.1 million against our line of credit during the quarter and six months ended June 30, 2012, respectively, compared to no borrowings against our line in the six months ended June 30, 2011. These increases were partially offset by the effect of the reduction in principal balances for long-term debt and capital lease obligations as a result of regularly scheduled payments and lease buyouts and the payoff of our previous $50 million term loan in July 2011.

Income tax expense was $19,577,000 and $27,478,000 in the quarter and six months ended June 30, 2012, respectively, compared to $6,450,000 and $10,167,000 in the quarter and six months ended June 30, 2011, respectively. The effective tax rate for 2012 was approximately 38.5%, compared to 39.4% in 2011. The effective rate for 2012 decreased primarily because of a decrease in certain permanent book-tax differences. Changes in our effective tax rate are affected by the apportionment of revenue and income before taxes for the various jurisdictions in which we operate and by changing tax laws and regulations in those jurisdictions.

Liquidity and Capital Resources

Our working capital position as of June 30, 2012, was $151,689,000, compared to $85,011,000 at December 31, 2011. Cash generated by operations was $73,475,000 in 2012, compared to $32,742,000 in 2011, reflecting the improvement in operations described above. In 2012, we were refunded approximately $9.1 million of aircraft deposits upon taking delivery of the aircraft and arranging permanent financing for the purchase. In the second quarter of 2012, we increased our accrual for current income taxes payable approximately $16.8 million based on estimated 2012 taxable income. Days’ sales outstanding for CBS operations, measured by comparing net revenue for the annualized previous 3-month period to outstanding open net accounts receivable, increased from 93 days at December 31, 2011, to 98 days at June 30, 2012. Days’ sales outstanding as of June 30, 2011, were also 98 days.

Cash used by investing activities totaled $14,347,000 in 2012 compared to $14,954,000 in 2011. In addition to the working capital adjustment of $3.2 million to the purchase price for Omniflight, equipment acquisitions in 2012 included the buy-out of 20 previously leased aircraft for approximately $36.7 million. Five of these aircraft were subsequently sold for approximately $21.1 million and leased back under capital leases. Equipment acquisitions in 2011 included the buy-out of ten previously leased aircraft for approximately $9.5 million. We sold two aircraft for $2.4 million during 2011.

Financing activities used $34,970,000 in 2012 compared to $35,301,000 in 2011. The primary uses of cash in both 2012 and 2011 were regularly scheduled payments of long-term debt and capital lease obligations and capital lease buyouts. Lease buyouts in 2012 were funded primarily through borrowings under our line of credit and cash from current operations.

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Critical Accounting Policies

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an on-going basis, management evaluates our estimates and judgments, including those related to revenue recognition, deferred income taxes, and valuation of long-lived assets and goodwill. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

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 related services are performed based on historical collection experience and any known trends or changes in reimbursement rate schedules and payer mix. The provisions are adjusted as required based on actual collections in subsequent periods. We have from time to time experienced delays in reimbursement from third-party payers. In addition, third-party payers may disallow, in whole or in part, claims for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, determinations of medical necessity, or the need for additional information. Laws and regulations governing Medicare and Medicaid programs are very complex and subject to interpretation. We also provide services to patients who have no insurance or other third-party payer coverage. There can be no guarantee that we will continue to experience the same collection rates that we have in the past. If actual future collections are more or less than those projected by management, adjustments to allowances for contractual discounts and uncompensated care may be required. Based on related flight revenue for the six months ended June 30, 2012, a change of 100 basis points in the percentage of estimated contractual discounts and uncompensated care would have resulted in a change of approximately $8,044,000 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.

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Deferred Income Taxes

In preparation of the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciable assets, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheets. We then assess the likelihood that deferred tax assets will be recoverable from future taxable income and record a valuation allowance for those amounts we believe are not likely to be realized. We consider estimated future taxable income, tax planning strategies, and the expected timing of reversals of existing temporary differences in assessing the need for a valuation allowance against deferred tax assets. Establishing or increasing a valuation allowance in a period increases income tax expense. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to income in the period such determination was made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. The effect on deferred income tax assets and liabilities of a change in statutory tax rates applicable to the Company is also recognized in income in the period of the change. We evaluate the recognition and measurement of uncertain tax positions based on the facts and circumstances surrounding the tax position and applicable tax law and other tax pronouncements. Changes in our estimates of uncertain tax positions would be recognized as an adjustment to income tax expense in the period of the change.

Long-lived Assets Valuation

In accounting for long-lived assets, we make estimates about the expected useful lives, projected residual values and the potential for impairment. Estimates of useful lives and residual values of aircraft are based upon actual industry experience with the same or similar aircraft types and anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations and changes in our maintenance program or operations could result in changes to these estimates. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. Our cash flow estimates are based on historical results adjusted for estimated current industry trends, the economy, and operating conditions.

Goodwill Valuation

The Company’s goodwill relates to six acquisitions and has been allocated to our operating segments. During the first quarter of 2012, we adopted ASU No. 2011-08, Testing for Goodwill Impairment, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this ASU, when we perform our annual goodwill assessment at December 31, we will not be required to calculate the fair value of a reporting unit unless we determine, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

Because ASU No. 2011-08 had not been adopted as of December 31, 2011, we evaluated goodwill for potential impairment using the 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.

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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, 2011, either the Company’s current public trading value or any reporting unit’s operating profit would have to decrease by more than 61% before the carrying value of the reporting unit exceeded its fair value.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in market risk at June 30, 2012, from that reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted to the Securities and Exchange Commission (the Commission) under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officers (referred to in this report as the Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Management, under the supervision and with the participation of the Certifying Officers, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2012, pursuant to Rule 13a-15(b) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of June 30, 2012, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no significant changes in our internal control over financial reporting that occurred during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1.

Legal Proceedings

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, 2011, except as follows:

Healthcare reform – In June 2012, the United States Supreme Court upheld the constitutionality of most of the provisions of the Patient Protection and Affordable Care Act (PPACA). Most of the provisions designed to increase access to health benefits for the uninsured or underinsured populations are not scheduled to take effect until 2014. A high degree of uncertainty exists regarding the impact of the PPACA on our collection rates. To the extent uninsured patients obtain any type of insurance coverage, our collection rates may increase. To the extent patients currently covered by private insurance move to government-run programs or to proposed public insurance exchanges, collection rates may decrease. Government-run programs, such as Medicare and Medicaid, may also impose additional discounts in determining their reimbursement rates to offset the cost of expanding coverage to a greater number of participants. In addition, states are allowed to opt out of the Medicaid expansion, which may limit the number of uninsured patients which receive coverage.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3.

Defaults upon Senior Securities

Not Applicable

Item 4.

Mine Safety Disclosures

Not Applicable

Item 5.

Other Information

Not Applicable

Item 6.

Exhibits

31.1	Chief Executive Officer Certification adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Chief Financial Officer Certification adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32	Certification adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Definition Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

	AIR METHODS CORPORATION

Date: August 3, 2012	By	/s/ Aaron D. Todd
		Aaron D. Todd
		Chief Executive Officer

Date: August 3, 2012	By	/s/ Trent J. Carman
		Trent J. Carman
		Chief Financial Officer

Date: August 3, 2012	By	/s/ Sharon J. Keck
		Sharon J. Keck
		Chief Accounting Officer

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