SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

SEGMENT INFORMATION

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 our Chief Executive Officer 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 168 aircraft in this segment.

Operating revenue from our 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 our Oil and Gas segment 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 March 31, 2014 and 2013, approximately 64% and 63%, respectively, of our total operating revenues were generated by our Oil and Gas segment.

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 our Air Medical segment.

As of March 31, 2014, 101 aircraft were assigned to our Air Medical segment. We currently operate approximately 92 aircraft domestically, providing air medical transportation services for hospitals and emergency service agencies in 18 states at 72 separate locations. We also provide air medical transportation services for a customer in the Middle East. For this program, we have deployed nine aircraft at six locations, with seven aircraft under contract as of March 31, 2014. Our Air Medical segment operates primarily under the independent provider model and, to a lesser extent, under the traditional provider 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 traditional provider model, we contract directly with the hospital to provide their transportation services, with the contracts typically awarded through competitive bidding. For the quarters ended March 31, 2014 and 2013, approximately 34% and 35% of our total operating revenues were generated by our Air Medical segment, respectively.

As an independent provider, we bill for our services on the basis of a flat rate plus a variable charge per patient-loaded mile, regardless of aircraft model, and are typically compensated by Medicaid, Medicare or private insurance or directly by the transported patient. Revenues are recorded net of contractual allowances under agreements with third party payors and estimated uncompensated care at the time the services are provided. Contractual allowances and uncompensated care are estimated based on historical collection experience by payor category (consisting mainly of Medicaid, Medicare, insurance 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 $76.0 million and $57.5 million as of March 31, 2014 and March 31, 2013, respectively. The allowance for uncompensated care was $43.9 million and $49.3 million as of March 31, 2014 and March 31, 2013, 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,
	2014			2013
Gross Air Medical segment billings		100	%		100	%
Provision for contractual discounts		69	%		59	%
Provision for uncompensated care		3	%		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 Insurance, Medicare, Medicaid, and Self-Pay as a percentage of net Air Medical revenues are as follows:

	Quarter Ended
	March 31,
	2014			2013
Insurance		70	%		72	%
Medicare		20	%		20	%
Medicaid		8	%		7	%
Self-Pay		2	%		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 42% and 39% of the segment’s revenues for the quarters ended March 31, 2014 and 2013, respectively.

Technical Services Segment. Our Technical Services segment provides helicopter repair and overhaul services for our customers that own their own 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, 2014 and March 31, 2013 were generated by our Technical Services segment.

Summarized financial information concerning our reportable operating segments for the quarters ended March 31, 2014 and 2013 is as follows:

	Quarter Ended
	March 31,
	2014			2013
	(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	125,975		$	112,831
Air Medical		67,952			63,387
Technical Services		3,144			2,750
Total operating revenues		197,071			178,968
Segment direct expenses (1)
Oil and Gas (2)		97,374			92,873
Air Medical		59,379			53,996
Technical Services		1,941			1,821
Total segment direct expenses		158,694			148,690
Segment selling, general and administrative expenses
Oil and Gas		1,034			913
Air Medical		2,153			1,840
Technical Services		2			—
Total selling, general and administrative expenses		3,189			2,753
Total direct and selling, general and administrative expenses		161,883			151,443
Net segment profit
Oil and Gas		27,567			19,045
Air Medical		6,420			7,551
Technical Services		1,201			929
Total net segment profit		35,188			27,525
Other, net (3)		(982)			127
Unallocated selling, general and administrative costs (1)		(6,139	)		(5,513	)
Interest expense		(7,364	)		(7,409	)
Loss on debt extinguishment		(29,216	)		—
(Loss) earnings before income taxes	$	(8,513	)	$	14,730

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

	Quarter Ended
	March 31,
	2014		2013
Oil and Gas	$	6,853	$	6,489
Air Medical		3,076		2,666
Technical Services		87		19
Total	$	10,016	$	9,175
Unallocated SG&A	$	1,347	$	756

(2) Includes Equity in loss of unconsolidated affiliate.

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