Segment Information

3 Months Ended

Mar. 31, 2013

Segment Information [Abstract]

SEGMENT INFORMATION

9. 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 Executive Officer 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.

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, BP America Production Company, ExxonMobil Production Co., and ConocoPhillips Company, with whom we have worked for 30 or more years, and ENI Petroleum, with whom we have worked for more than 15 years. We currently operate 166 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 any reimbursement of a portion of these costs above a contracted per-gallon amount is included in revenue. Our Oil and Gas operations generated approximately 63% and 67% of our total operating revenue for the quarters ended March 31, 2013 and 2012, 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 currently operate approximately 89 aircraft domestically, providing air medical transportation services for hospitals and emergency service agencies in 18 states at 69 separate locations. We also provide air medical transportation services for a customer in the Middle East. For this project, we intend to deploy eight aircraft at six locations once all aircraft are operational. 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 March 31, 2013 and 2012, approximately 35% and 31% 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 Insurance, Medicare, Medicaid, and Self-Pay. Estimates regarding the 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 fully closed, 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 $57.5 million and $42.5 million as of March 31, 2013 and March 31, 2012, respectively. The allowance for uncompensated care was $49.3 million and $42.0 million as of March 31, 2013 and March 31, 20112, 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
	March 31,
	2013			2012
Provision for contractual discounts		59	%		57	%
Provision for uncompensated care		10	%		10	%

These percentages are affected by rate increases and changes in the number of transports by payor mix.

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
	March 31,
	2013			2012
Insurance		72	%		63	%
Medicare		20	%		24	%
Medicaid		7	%		12	%
Self-Pay		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 39% and 21% of the segment’s revenues for the quarters ended March 31, 2013 and 2012, respectively. The increase is primarily due to a new contract in the Middle East, which is also structured as a hospital contract, but had minimal revenue in the first quarter 2012.

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.

Approximately 2% of our total operating revenues for the quarters ended March 31, 2013 and March 31, 2012 were generated by our Technical Services operations.

Summarized financial information concerning our reportable operating segments for the quarters ended March 31, 2013 and 2012 is as follows:

	Quarter Ended March 31,
	2013			2012
	(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	112,831		$	92,952
Air Medical		63,387			42,154
Technical Services		2,750			2,945
Total operating revenues		178,968			138,051
Segment direct expenses (1)
Oil and Gas (2)		92,873			80,014
Air Medical		53,996			37,156
Technical Services		1,821			1,528
Total direct expenses		148,690			118,698
Segment selling, general and administrative expenses
Oil and Gas		913			897
Air Medical		1,840			1,655
Technical Services		—			5
Total selling, general and administrative expenses		2,753			2,557
Total direct and selling, general and administrative expenses		151,443			121,255
Net segment profit
Oil and Gas		19,045			12,041
Air Medical		7,551			3,343
Technical Services		929			1,412
Total net segment profit		27,525			16,796
Other, net ( 3 )		127			317
Unallocated selling, general and administrative costs (1)		(5,513	)		(6,283	)
Interest expense		(7,409	)		(7,200	)
Earnings before income taxes	$	14,730		$	3,630

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

	Quarter Ended March 31,
	2013		2012
Oil and Gas	$	6,489	$	5,790
Air Medical		2,666		2,311
Technical Services		19		23
Total	$	9,175	$	8,124
Unallocated SG&A	$	756	$	279

(2) Includes Equity in loss of unconsolidated affiliate.

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