SEGMENT INFORMATION

PHI is primarily a provider of helicopter transport services, including helicopter maintenance and repair services. We report our financial results through the three reportable segments further described below.

A segment’s operating profit or loss 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 is charged directly to the segment, and a small portion that is allocated. Direct charges represent the vast majority of segment selling, general and administrative expenses. Allocated selling, general and administrative expenses are based primarily on total segment costs as a percentage of total operating costs. A significant portion of our selling, general and administrative expenses are neither charged nor allocated to our 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 or equipment to offshore platforms in the Gulf of Mexico and a number of foreign countries. Our customers include Shell Oil Company, BP America Production Company, ExxonMobil Production Company, and ConocoPhillips Company, with whom we have worked for 35 or more years, and ENI Petroleum, with whom we have worked for more than 20 years. At March 31, 2019, we had available for use 122 aircraft in this segment.

Our fixed-term contracts typically have original terms of one year to seven years (subject to provisions permitting early termination upon relatively short notice by the customers), with payment in U.S. dollars. For the quarters ended March 31, 2019 and 2018, respectively, approximately 56% and 59% of our total operating revenues were generated by our Oil and Gas segment, with approximately 86% and 88% of these revenues from fixed-term customer contracts. The remaining 14% and 12% of these revenues were attributable to work in the spot market and ad hoc flights for contracted customers.

Air Medical Segment - The operations of our Air Medical segment are headquartered in Phoenix, Arizona, where we maintain significant separate facilities and administrative staff dedicated to this segment.

We provide Air Medical transportation services for hospitals and emergency service agencies throughout the U.S. As of March 31, 2019, our Air Medical segment operated approximately 110 aircraft in 18 states at 80 separate locations.

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 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 or renewed through competitive bidding. For the quarters ended March 31, 2019 and 2018, approximately 37% and 36% of our total operating revenues were generated by our Air Medical segment.

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.

Provisions for contractual discounts and estimated uncompensated care for our Air Medical segment (expressed as a percentage of gross segment billings) were as follows for the periods listed below:



	Quarter Ended March 31,
	2019		2018
Provision for contractual discounts	67	%	69	%
Provision for uncompensated care	11	%	6	%

These percentages are affected by various factors, including 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, generally does not increase proportionately with rate increases.

Net revenue attributable to Insurance, Medicare, Medicaid, and Self-Pay (expressed as a percentage of net Air Medical revenues) were as follows for the periods listed below:



	Quarter Ended March 31,
	2019		2018
Insurance	68	%	71	%
Medicare	23	%	20	%
Medicaid	7	%	9	%
Self-Pay	2	%	—	%

We also have a limited number of contracts with hospitals under which we receive a fixed fee component for aircraft availability and a variable fee component for flight time. Most of our contracts with hospitals contain provisions permitting early termination by the hospital, typically with 180 days’ notice for any reason and generally with penalty. Those contracts generated approximately 18% and 18% of the segment’s revenues for the quarters ended March 31, 2019 and 2018, respectively.

We also derive a small portion of the segment’s revenues from providing services under our patient navigation business.

Technical Services Segment - Our Technical Services segment provides helicopter flight services and helicopter repair and overhaul services for existing flight operations customers that own their aircraft. Costs associated with these services are primarily labor, and customers are generally billed at a percentage above our service costs. In the past, we also have periodically provided flight services to governmental customers under this segment, including operating six aircraft for the National Science Foundation in Antarctica, under a contract that lapsed on April 30, 2019. Also included in this segment are our proprietary Helipass operations, which provide software as a service to certain of our Oil and Gas customers for the purpose of passenger check-in and compliance verification.

For each of the quarters ended March 31, 2019 and 2018, approximately 7% of our total operating revenues were generated by our Technical Services segment.

Summarized financial information concerning our reportable operating segments for the quarters ended March 31, 2019 and 2018 is as follows:



	Quarter Ended March 31,
	2019			2018
	(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	84,946		$	95,640
Air Medical	56,646			56,988
Technical Services	10,298			7,742
Total operating revenues, net	151,890			160,370
Segment direct expenses ^{(1) (2)}
Oil and Gas ⁽¹⁾	89,968			96,507
Air Medical	57,081			53,832
Technical Services	8,464			5,887
Total direct expenses	155,513			156,226
Segment selling, general and administrative expenses
Oil and Gas	4,761			4,921
Air Medical	3,292			3,167
Technical Services	148			370
Total segment selling, general and administrative expenses	8,201			8,458
Total segment direct and selling, general and administrative expenses	163,714			164,684
Net segment (loss) profit
Oil and Gas	(9,783		)	(5,788		)
Air Medical	(3,727		)	(11		)
Technical Services	1,686			1,485
Total net segment profit	(11,824		)	(4,314		)

Other, net ⁽³⁾	(91		)	(1,961		)
Unallocated selling, general and administrative costs ^{(1) (4)}	(18,268		)	(7,001		)
Interest expense	(8,166		)	(8,197		)
(Loss) earnings before income taxes	$	(38,349	)	$	(21,473	)

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



	Depreciation and Amortization Expense
	Quarter Ended March 31,
	2019		2018
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	11,278	$	11,783
Air Medical	5,286		5,624
Technical Services	71		145
Total	$	16,635	$	17,552
Unallocated SG&A	$	1,809	$	1,915


(2)	Includes equity in (earnings) of unconsolidated affiliates, net.


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


(4)	Represents corporate overhead expenses not allocable to segments.