10. 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 167 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. For the quarters ended June 30, 2013 and 2012, approximately 62% and 65% of our total operating revenues were generated by our Oil and Gas operations. Our Oil and Gas operations generated approximately 62% and 66% of our total operating revenue for the six months ended June 30, 2013 and 2012, respectively.

Air Medical Segment. Our 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.

As of June 30, 2013, 100 aircraft were assigned to our Air Medical operations. We currently operate approximately 91 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 program, we currently intend, based on present conditions, to deploy eight aircraft at six locations once all aircraft are operational, which we expect to occur in the third quarter of 2013. 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, 2013 and 2012, approximately 37% and 34% of our total operating revenues were generated by our Air Medical operations, respectively. For the six months ended June 30, 2013 and 2012, approximately 37% and 32% 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 $66.7 million and $61.6 million as of June 30, 2013 and June 30, 2012, respectively. The allowance for uncompensated care was $45.3 million and $35.3 million as of June 30, 2013 and June 30, 2012, 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 June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Provision for contractual discounts		60	%		60	%		60	%		59	%
Provision for uncompensated care		9	%		5	%		9	%		7	%

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


	Quarter Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Insurance		73	%		61	%		72	%		60	%
Medicare		18	%		22	%		19	%		24	%
Medicaid		8	%		16	%		8	%		15	%
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 38% and 18% of the segment’s revenues for the quarters ended June 30, 2013 and 2012, respectively. For the six months ended June 30, 2013 and 2012, these contracts generated approximately 39% and 19% of the segment’s revenues. 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 1% of our total operating revenues for the quarters ended June 30, 2013 and June 30, 2012 were generated by our Technical Services operations. For the six months ended June 30, 2013 and 2012, approximately 1% and 2%, respectively, of our total operating revenues were generated by our Technical Services operations.

Summarized financial information concerning our reportable operating segments for the quarters and six months ended June 30, 2013 and 2012 is as follows:


	Quarter Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	120,970		$	104,421		$	233,801		$	197,373
Air Medical		72,859			54,399			136,246			96,553
Technical Services		1,714			1,734			4,464			4,679

Total operating revenues, net		195,543			160,554			374,511			298,605

Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾		97,824			89,252			190,697			169,266
Air Medical		60,376			42,847			114,372			80,003
Technical Services		1,890			1,989			3,711			3,521

Total direct expenses		160,090			134,088			308,780			252,790

Segment selling, general and administrative expenses
Oil and Gas		1,027			911			1,940			1,808
Air Medical		1,909			1,720			3,749			3,375
Technical Services		—			—			—			1

Total selling, general and administrative expenses		2,936			2,631			5,689			5,184

Total direct and selling, general and administrative expenses		163,026			136,719			314,469			257,974

Net segment profit (loss)
Oil and Gas		22,119			14,258			41,164			26,299
Air Medical		10,574			9,832			18,125			13,175
Technical Services		(176	)		(255	)		753			1,157

Total		32,517			23,835			60,042			40,631

Other, net ⁽³⁾		14,353			736			14,480			1,053
Unallocated selling, general and administrative costs ⁽¹⁾		(7,088	)		(7,041	)		(12,601	)		(13,324	)
Interest expense		(7,257	)		(7,440	)		(14,666	)		(14,640	)

Earnings before income taxes	$	32,525		$	10,090		$	47,255		$	13,720

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


	Quarter Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Oil and Gas	$	6,814	$	5,738	$	13,303	$	11,528
Air Medical		2,837		2,354		5,503		4,665
Technical Services		12		22		31		45

Total	$	9,663	$	8,114	$	18,837	$	16,238



Unallocated SG&A	$	963	$	266	$	2,026	$	545

(2)	Includes Equity in loss of unconsolidated affiliate.

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