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 June 30, 2018, we had available for use 125 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 short notice by the customers), with payment in U.S. dollars. For the quarters ended June 30, 2018 and 2017, respectively, approximately 57% and 51% of our total operating revenues were generated by our Oil and Gas segment, with approximately 87% and 88% of these revenues from fixed-term customer contracts. For the six months ended June 30, 2018 and 2017, respectively, approximately 58% and 52% of our total operating revenues were generated by our Oil and Gas segment, with approximately 87% and 88% of these revenues from fixed-term customer contracts. The remaining 13% 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 June 30, 2018, our Air Medical segment operated approximately 109 aircraft in 18 states at 74 separate locations.

For the quarters ended June 30, 2018 and 2017, approximately 40% and 46% of our total operating revenues were generated by our Air Medical segment, respectively. For the six months ended June 30, 2018 and 2017, approximately 38% and 44% 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 June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Provision for contractual discounts	67	%	63	%	66	%	66	%
Provision for uncompensated care	7	%	10	%	8	%	7	%

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 June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Insurance	72	%	72	%	72	%	71	%
Medicare	19	%	18	%	20	%	18	%
Medicaid	8	%	8	%	8	%	9	%
Self-Pay	1	%	2	%	—	%	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 16% and 18% of the segment’s revenues for the quarters ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, these contracts generated approximately 18% of the segment's revenues.

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 repair and overhaul services for 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. We also periodically provide flight services to governmental customers under this segment, including our current agreement to operate six aircraft for the National Science Foundation in Antarctica, typically in the first and fourth quarters each year. 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 June 30, 2018 and 2017, approximately 3% of our total operating revenues were generated by our Technical Services segment. For each of the six month periods ended June 30, 2018 and 2017, approximately 4% of our total operating revenues were generated by our Technical Services segment.

Summarized financial information concerning our reportable operating segments for the quarters and six months ended June 30, 2018 and 2017 is as follows:



	Quarter Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	97,068		$	74,668		$	192,702		$	146,399
Air Medical	67,151			67,222			124,139			122,559
Technical Services	5,024			4,534			12,766			12,084
Total operating revenues, net	169,243			146,424			329,607			281,042
Segment direct expenses
Oil and Gas ⁽¹⁾	94,442			73,681			190,985			155,410
Air Medical	56,776			50,402			110,608			101,243
Technical Services	3,784			3,858			9,671			8,804
Total direct expenses	155,002			127,941			311,264			265,457
Segment selling, general and administrative expenses
Oil and Gas	4,400			1,635			9,321			3,354
Air Medical	3,254			3,263			6,421			6,144
Technical Services	340			356			710			694
Total selling, general and administrative expenses	7,994			5,254			16,452			10,192
Total segment direct and selling, general and administrative expenses	162,996			133,195			327,716			275,649
Net segment (loss) profit
Oil and Gas	(1,774		)	(648		)	(7,604		)	(12,365		)
Air Medical	7,121			13,557			7,110			15,172
Technical Services	900			320			2,385			2,586
Total net segment profit	6,247			13,229			1,891			5,393

Other, net ⁽³⁾	(193		)	697			(2,112		)	1,761
Unallocated selling, general and administrative costs ^{(1) (4)}	(6,491		)	(8,993		)	(13,492		)	(17,099		)
Interest expense	(8,340		)	(8,083		)	(16,537		)	(16,278		)
(Loss) earnings before income taxes	$	(8,777	)	$	(3,150	)	$	(30,250	)	$	(26,223	)


(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 June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	11,486	$	9,824	$	23,269	$	19,686
Air Medical	6,091		5,219		11,715		10,696
Technical Services	142		148		287		294
Total	$	17,719	$	15,191	$	35,271	$	30,676
Unallocated SG&A	$	1,412	$	622	$	3,327	$	3,335


(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.