3. REVENUE RECOGNITION AND VALUATION ACCOUNTS

We have established an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, current market conditions, and other information. The allowance for doubtful accounts was approximately $0.1 million at June 30, 2013 and December 31, 2012.

Revenues related to emergency flights generated by the Company’s Air Medical segment are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care when the services are provided. The allowance for contractual discounts was $66.7 million and $54.6 million as of June 30, 2013 and December 31, 2012, respectively. The allowance for uncompensated care was $45.3 million and $48.0 million as of June 30, 2013 and December 31, 2012, respectively.

Included in the allowance for uncompensated care listed above is the value of services to patients who are unable to pay when it is determined that they qualify as for charity care. The value of these services was $2.6 million and $1.5 million for the quarters ended June 30, 2013 and 2012, respectively. The estimated cost of providing charity services was $1.0 million and $0.5 million for the quarters ended June 30, 2013 and 2012, respectively. The value of these services was $4.4 million and $2.2 million for the six months ended June 30, 2013 and 2012, respectively. The estimated cost of providing charity services was $1.7 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively. The estimated costs of providing charity services are based on a calculation that applies a ratio of costs to the charges for uncompensated charity care. The ratio of costs to charges is based on the Air Medical segment’s total expenses divided by gross patient service revenue.

The allowance for contractual discounts and estimated uncompensated care as a percentage of gross accounts receivable are as follows:


	June 30,			December 31,
	2013			2012
Allowance for Contractual Discounts		42	%		38	%
Allowance for Uncompensated Care		29	%		33	%

Our contract in the Middle East requires us to provide multiple services, including helicopter leasing, flight services for helicopter emergency medical service operations, aircraft maintenance, provision of spare parts, insurance coverage for the customer-owned aircraft, training services, and base construction. All services are delivered and earned monthly over a three-year contractual period which began on September 29, 2012. The customer may terminate the contract prior to the end of the contract term by giving ninety days advance notice and paying an early termination fee of $13.5 million. Each of the major services mentioned above qualify as separate units of accounting under the accounting guidance for such arrangements. The selling price for each deliverable was determined based upon third-party evidence and estimates.

We have also established valuation reserves related to obsolete and slow-moving spare parts inventory. The inventory valuation reserves were $12.2 million and $12.4 million at June 30, 2013 and December 31, 2012, respectively.