10. SEGMENT INFORMATION

PHI is primarily a provider of helicopter transport 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 our total 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. At June 30, 2014, we operated 170 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. A small portion of our Oil and Gas segment revenue is derived from providing services on an “ad hoc” basis. 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 June 30, 2014 and 2013, approximately 60% and 62% of our total operating revenues were generated by our Oil and Gas operations. Our Oil and Gas operations generated approximately 62% of our total operating revenue for the six months ended June 30, 2014 and 2013.

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 June 30, 2014, 99 aircraft were assigned to our Air Medical segment. At such date, we operated approximately 91 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 overseas. For this program, we have deployed nine aircraft at five locations, with seven aircraft generating revenues as of June 30, 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 customer to provide their transportation services, with the contracts typically awarded through competitive bidding. For the quarters ended June 30, 2014 and 2013, approximately 37% of our total operating revenues were generated by our Air Medical operations. For the six months ended June 30, 2014 and 2013, approximately 36% of our total operating revenues were generated by our Air Medical operations.

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 $97.6 million and $66.7 million as of June 30, 2014 and June 30, 2013, respectively. The allowance for uncompensated care was $38.8 million and $45.3 million as of June 30, 2014 and June 30, 2013, respectively.

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


	Revenue
	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Provision for contractual discounts		70	%		60	%		69	%		60	%
Provision for uncompensated care		4	%		9	%		4	%		9	%

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						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013

Insurance		74	%		73	%		73	%		72	%
Medicare		18	%		18	%		19	%		19	%
Medicaid		7	%		8	%		7	%		8	%
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 39% and 38% of the segment’s revenues for the quarters ended June 30, 2014 and 2013, respectively. For the six months ended June 30, 2014 and 2013, these contracts generated approximately 40% and 39% of the segment’s revenues.

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.

For both the three and the six-month periods ended June 30, 2014 and 2013, approximately 2% and 1%, 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, 2014 and 2013 is as follows:


	Quarter Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	128,044		$	120,970		$	254,019		$	233,801
Air Medical		79,427			72,859			147,379			136,246
Technical Services		4,674			1,714			7,818			4,464

Total operating revenues, net		212,145			195,543			409,216			374,511


Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾		103,450			97,824			200,824			190,697
Air Medical		62,726			60,376			122,105			114,372
Technical Services		4,246			1,890			6,187			3,711

Total direct expenses		170,422			160,090			329,116			308,780


Segment selling, general and administrative expenses
Oil and Gas		1,489			1,027			2,523			1,940
Air Medical		2,936			1,909			5,089			3,749
Technical Services		1			—			3			—

Total segment selling, general and administrative expenses		4,426			2,936			7,615			5,689

Total segment expenses		174,848			163,026			336,731			314,469


Net segment profit (loss)
Oil and Gas		23,105			22,119			50,672			41,164
Air Medical		13,765			10,574			20,185			18,125
Technical Services		427			(176	)		1,628			753

Total		37,297			32,517			72,485			60,042


Other, net ⁽³⁾		(73	)		14,353			(1,055	)		14,480
Unallocated selling, general and administrative costs ⁽¹⁾		(7,234	)		(7,088	)		(13,373	)		(12,601	)
Interest expense		(7,673	)		(7,257	)		(15,037	)		(14,666	)
Loss on debt extinguishment		(617	)		—			(29,833	)		—

Earnings before income taxes	$	21,700		$	32,525		$	13,187		$	47,255

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


	Quarter Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013

Oil and Gas	$	7,384	$	6,814	$	14,237	$	13,303
Air Medical		3,232		2,837		6,308		5,503
Technical Services		88		12		175		31

Total	$	10,704	$	9,663	$	20,720	$	18,837



Unallocated SG&A	$	1,752	$	963	$	3,099	$	2,026

(2)	Includes Equity in loss of unconsolidated affiliate.

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