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 September 30, 2018, we had available for use 126 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 September 30, 2018 and 2017, respectively, approximately 55% and 50% of our total operating revenues were generated by our Oil and Gas segment, with approximately 85% and 89% of these revenues from fixed-term customer contracts. For the nine months ended September 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 90% of these revenues from fixed-term customer contracts. The remaining 13% and 10% 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 September 30, 2018, our Air Medical segment operated approximately 108 aircraft in 18 states at 80 separate locations.

For the quarters ended September 30, 2018 and 2017, approximately 42% and 47% of our total operating revenues were generated by our Air Medical segment, respectively. For the nine months ended September 30, 2018 and 2017, approximately 39% and 45% 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Provision for contractual discounts	65	%	65	%	66	%	66	%
Provision for uncompensated care	10	%	6	%	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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Insurance	70	%	73	%	71	%	72	%
Medicare	20	%	17	%	20	%	18	%
Medicaid	9	%	9	%	8	%	9	%
Self-Pay	1	%	1	%	1	%	1	%

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 17% and 15% of the segment’s revenues for the quarters ended September 30, 2018 and 2017, respectively. For the nine months ended September 30, 2018 and 2017, these contracts generated approximately 17% 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 September 30, 2018 and 2017, approximately 3% of our total operating revenues were generated by our Technical Services segment. For each of the nine month periods ended September 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 nine months ended September 30, 2018 and 2017 is as follows:



	Quarter Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands of dollars)						(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	93,338		$	75,700		$	286,046		$	222,098
Air Medical	70,192			70,280			194,331			192,840
Technical Services	5,257			4,187			18,023			16,271
Total operating revenues, net	168,787			150,167			498,400			431,209
Segment direct expenses ^{(1) (2)}
Oil and Gas ⁽¹⁾	94,832			81,467			285,818			236,878
Air Medical	60,358			51,120			170,966			152,363
Technical Services	4,892			3,761			14,563			12,565
Total direct expenses	160,082			136,348			471,347			401,806
Segment selling, general and administrative expenses
Oil and Gas	4,321			1,148			13,642			4,501
Air Medical	3,666			3,136			10,087			9,280
Technical Services	356			338			1,066			1,032
Total segment selling, general and administrative expenses	8,343			4,622			24,795			14,813
Total segment direct and selling, general and administrative expenses	168,425			140,970			496,142			416,619
Net segment (loss) profit
Oil and Gas	(5,815		)	(6,915		)	(13,414		)	(19,281		)
Air Medical	6,168			16,024			13,278			31,197
Technical Services	9			88			2,394			2,674
Total net segment profit	362			9,197			2,258			14,590

Other, net ⁽³⁾	1,845			710			(272		)	2,471
Unallocated selling, general and administrative costs ^{(1) (4)}	(7,912		)	(6,779		)	(21,404		)	(23,878		)
Interest expense	(8,357		)	(8,027		)	(24,894		)	(24,305		)
(Loss) earnings before income taxes	$	(14,062	)	$	(4,899	)	$	(44,312	)	$	(31,122	)


(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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	13,175	$	9,615	$	36,444	$	29,301
Air Medical	5,274		4,885		16,989		15,581
Technical Services	128		146		415		440
Total	$	18,577	$	14,646	$	53,848	$	45,322
Unallocated SG&A	$	2,366	$	1,936	$	5,693	$	5,271


(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.