Segment Information

6 Months Ended

Jun. 30, 2011

Segment Information [Abstract]

Segment Information

2. Segment Information

PHI is primarily a provider of helicopter services, including helicopter maintenance and repair services. We use a combination of factors to identify reportable segments as required by Accounting Standards Codification 280, “Segment Reporting.” The overriding determination of our segments is based on how the chief operating decision maker of our Company evaluates our results of operations. The underlying factors include customer bases, types of service, operational management, physical locations, and underlying economic characteristics of the types of work we perform.

A segment’s operating profit is its operating revenues less its direct expenses and selling, general and administrative expenses. Each segment has a portion of selling, general and administrative expenses that are charged directly to the segment and a portion that is allocated. Direct charges represent the vast majority of the segment’s selling, general and administrative expenses. Allocated selling, general and administrative expenses are based primarily on total segment direct expenses as a percentage of total direct expenses. Unallocated overhead consists primarily of corporate selling, general, and administrative expenses that we do not allocate to the reportable segments.

Effective June 30, 2011, the Company made changes to the presentation of reportable segments to reflect changes in the way its chief operating decision maker evaluates the performance of its operations, develops strategy and allocates capital resources. These changes resulted from how our chief operating decision maker views the roles of certain corporate departments whose duties had previously been considered company-wide but now are considered to focus solely on our Oil & Gas segment’s operations. The change resulted in the reclassification of certain selling, general and administrative expenses from within the Company’s unallocated selling, general and administrative expenses to the Oil & Gas segment’s selling, general, and administrative expenses. The total amount of the reclassification was $2.2 million for the six months ended June 30, 2010, and $1.4 million for the three months ended June 30, 2010. The Company’s historical segment disclosures have been recast to be consistent with the current presentation.

Oil and Gas Segment. Our Oil and Gas segment, headquartered in Lafayette, Louisiana, provides helicopter services primarily for the major integrated and independent oil and gas production companies transporting personnel and/or equipment to offshore platforms in the Gulf of Mexico. Our customers include Shell Oil Company (“Shell”), BP America Production Company and ConocoPhillips Company, with whom we have worked for 30 or more years, and ExxonMobil Production Co. and ENI Petroleum, with whom we have worked for more than 15 years. We currently operate 164 aircraft in this segment.

Operating revenue from the Oil and Gas segment is derived mainly from contracts that include a fixed monthly rate for a particular model of aircraft, plus a variable rate for flight time. Operating costs for the Oil and Gas operations are primarily aircraft operations costs, including costs for pilots and maintenance personnel. Total fuel cost is included in direct expense and reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. Our Oil and Gas operations generated approximately 66% and 68% of our total operating revenue for the quarters ended June 30, 2011 and 2010, respectively, and approximately 66% and 69% of our total operating revenue for the six months ended June 30, 2011 and 2010, respectively.

Air Medical Segment. Air Medical operations are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and administrative staff dedicated to this segment. Those costs are charged directly to the Air Medical segment.

We provide air medical transportation services for hospitals and emergency service agencies in 19 states using approximately 88 aircraft at 65 separate locations. Our Air Medical segment operates primarily under the independent provider model and, to a lesser extent, under the hospital-based model. Under the independent provider model, we have no contracts and no fixed revenue stream, and compete for transport referrals on a daily basis with other independent operators in the area. Under the hospital-based model, we contract directly with the hospital to provide their transportation services, with the contracts typically awarded on a competitive bid basis. For the quarters ended June 30, 2011 and 2010, approximately 33% and 31% of our total operating revenues were generated by our Air Medical operations, respectively. For the six months ended June 30, 2011 and 2010, approximately 32% and 29% of our total operating revenues were generated by our Air Medical operations, respectively.

As an independent provider, we bill for our services on the basis of a flat rate plus a variable charge per loaded mile, regardless of aircraft model. Revenues are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when the services are provided. Contractual allowances and uncompensated care are estimated based on historical collection experience by payor category. The main payor categories are Medicaid, Medicare, Insurance, and Self-Pay. Payor mix and changes in reimbursement rates are the factors most subject to sensitivity and variability in calculating our allowances. We compute a historical payment analysis of accounts paid in full, by category. The allowance percentages calculated are applied to the payor categories, and the necessary adjustments are made to the revenue allowance. The allowance for contractual discounts was $40.0 million and $40.1 million as of June 30, 2011 and June 30, 2010, respectively. The allowance for uncompensated care was $34.4 million and $29.9 million as of June 30, 2011 and June 30, 2010, respectively.

Provisions for contractual discounts and estimated uncompensated care for Air Medical operations as a percentage of gross billings are as follows:

	Revenue
	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Gross billings		100	%		100	%		100	%		100	%
Provision for contractual discounts		55	%		53	%		55	%		54	%
Provision for uncompensated care		9	%		10	%		9	%		9	%

Net reimbursement per transport from commercial payors generally increases when a rate increase is implemented. Net reimbursement from certain commercial payors, as well as Medicare and Medicaid, does not increase proportionately with rate increases.

Net revenue attributable to Medicaid, Medicare, Insurance, and Self-Pay as a percentage of net Air Medical revenues are as follows:

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Medicaid		16	%		15	%		15	%		16	%
Medicare		22	%		21	%		24	%		21	%
Insurance		61	%		63	%		60	%		62	%
Self-Pay		1	%		1	%		1	%		1	%

We also have a limited number of contracts with hospitals under which we receive a fixed monthly rate for aircraft availability and an hourly rate for flight time. Those contracts generated approximately 19% and 16% of the segment’s revenues for the quarters ended June 30, 2011 and 2010, respectively, and approximately 20% and 17% of the segment’s revenues for the six months ended June 30, 2011 and 2010, respectively

Technical Services Segment. The Technical Services segment provides helicopter repair and overhaul services for customer owned aircraft. Costs associated with these services are primarily labor, and customers are generally billed at a percentage above cost. We currently operate five aircraft for the National Science Foundation in Antarctica under this segment.

Approximately 1% of our total operating revenues for the quarter ended June 30, 2011 and approximately 2% for the six months ended June 30, 2011 were generated by our Technical Services operations. Approximately 1% and 2% of our total operating revenues for the quarter ended June, 30, 2010 and six months ended June 30, 2010 were generated by our Technical Services operations.

Summarized financial information concerning our reportable operating segments for the quarters and six months ended June 30, 2011 and 2010 is as follows:

Certain reclassifications have been made to prior fiscal year amounts to conform with the current fiscal year presentation, as discussed above. These changes had no impact on consolidated net sales or operating income.

	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	90,200		$	94,734		$	167,681		$	179,674
Air Medical		44,214			43,101			82,596			76,670
Technical Services		1,562			1,762			5,340			4,862
Total operating revenues		135,976			139,597			255,616			261,206
Segment direct expenses (1)
Oil and Gas		79,779			75,845			149,377			146,098
Air Medical		38,793			38,385			75,420			70,011
Technical Services		1,871			1,871			3,852			4,199
Total direct expenses		120,443			116,101			228,649			220,308
Segment selling, general and administrative expenses
Oil and Gas		883			1,577			1,764			2,595
Air Medical		856			1,004			1,788			2,299
Technical Services		6			7			19			14
Total selling, general and administrative expenses		1,745			2,588			3,571			4,908
Total direct and selling, general and administrative expenses		122,188			118,689			232,221			225,216
Net segment profit
Oil and Gas		9,538			17,312			16,539			30,981
Air Medical		4,565			3,712			5,388			4,360
Technical Services		(315	)		(116	)		1,469			649
Total		13,788			20,908			23,396			35,990
Other, net (2)		170			122			859			159
Unallocated selling, general and administrative costs (1)		(5,991	)		(5,090	)		(13,708	)		(9,495	)
Interest expense		(6,761	)		(4,183	)		(13,793	)		(8,179	)
Earnings before income taxes	$	1,206		$	11,757		$	(3,246	)	$	18,475

(1) Included in direct expenses and unallocated selling, general, and administrative costs are the depreciation expense amounts below:

	Quarter Ended					Six Months Ended
	June 30,					June 30,
	2011			2010		2011		2010
Oil and Gas	$	5,385		$	4,467	$	10,325	$	8,725
Air Medical		2,132			1,962		4,259		3,951
Technical Services		(1	)		18		96		145
Total	$	7,516		$	6,447	$	14,680	$	12,821
Unallocated SG&A	$	303		$	306	$	636	$	621

(2) Consists of gains on disposition of property and equipment, and other income.