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. A portion of our total selling, general and administrative expenses is charged directly to each segment, and a small portion is allocated to that segment. 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.

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. Our customers include Shell Oil Company, BP America Production Company, ExxonMobil Production Company, 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, 2017, we had available for use 128 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 payments based on the amount of flight time. Operating costs for the Oil and Gas segment are primarily aircraft operation costs, including costs for pilots and maintenance personnel. We typically operate under fixed-term contracts with our customers, a substantial portion of which are competitively bid.

Our fixed-term contracts have terms of one to seven years (subject to provisions permitting early termination by the customers), with payment in U.S. dollars. For the quarters ended June 30, 2017 and 2016, respectively, approximately 51% and 52% of our total operating revenues were generated by our Oil and Gas segment, with approximately 88% and 92% of these revenues from fixed-term customer contracts. For the six months ended June 30, 2017 and 2016, respectively, approximately 52% of our total operating revenues were generated by our Oil and Gas segment, with approximately 88% and 92% of these revenues from fixed-term customer contracts. The remaining 12% and 8% 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, 2017, our Air Medical segment operated approximately 104 aircraft in 18 states at 72 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 quarter ended June 30, 2017 and 2016, approximately 46% and 45% of our total operating revenues were generated by our Air Medical segment, respectively. For the six months ended June 30, 2017 and 2016, approximately 44% of our total operating revenues were generated by our Air Medical segment.

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 private insurance, Medicaid or Medicare, or directly by transported patients who self-pay. As further described in Note 3, 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 insurance, Medicaid, Medicare, 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.

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



	Quarter Ended June 30,				Quarter Ended June 30,
	2017		2016		2017		2016
Provision for contractual discounts	63	%	65	%	66	%	69	%
Provision for uncompensated care	10	%	7	%	7	%	4	%

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:



	Quarter Ended June 30,				Quarter Ended June 30,
	2017		2016		2017		2016
Insurance	72	%	69	%	71	%	70	%
Medicare	18	%	18	%	18	%	18	%
Medicaid	8	%	9	%	9	%	10	%
Self-Pay	2	%	4	%	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 18% and 29% of the segment’s revenues for the quarters ended June 30, 2017 and 2016, respectively. For the six months ended June 30, 2017 and 2016, these contracts generated approximately 30% of the segment's revenues.

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 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 is our proprietary Helipass operations, which provides software as a service to certain of our Oil and Gas customers for the purpose of passenger check-in and compliance verification.

For the quarters ended June 30, 2017 and 2016, approximately 3% and 5%, respectively, of our total operating revenues were generated by our Technical Services segment. For the six month period ended June 30, 2017 and 2016, approximately 4%, respectively, 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, 2017 and 2016 is as follows:



	Quarter Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Thousands of dollars)
Segment operating revenues
Oil and Gas	$	74,668		$	83,185		$	146,399		$	171,622
Air Medical	67,222			75,547			122,559			145,607
Technical Services	4,534			8,404			12,084			13,923
Total operating revenues, net	146,424			167,136			281,042			331,152
Segment direct expenses ⁽¹⁾
Oil and Gas ⁽²⁾	73,681			87,400			155,410			179,316
Air Medical	50,402			58,997			101,243			116,041
Technical Services	3,858			6,096			8,804			9,690
Total segment direct expenses	127,941			152,493			265,457			305,047
Segment selling, general and administrative expenses
Oil and Gas	1,635			1,605			3,354			3,132
Air Medical	3,263			2,642			6,144			5,237
Technical Services	356			273			694			497
Total segment selling, general and administrative expenses	5,254			4,520			10,192			8,866
Total segment expenses	133,195			157,013			275,649			313,913
Net segment (loss) profit
Oil and Gas	(648		)	(5,820		)	(12,365		)	(10,826		)
Air Medical	13,557			13,908			15,172			24,329
Technical Services	320			2,035			2,586			3,736
Total net segment profit	13,229			10,123			5,393			17,239

Other, net ⁽³⁾	697			4,792			1,761			5,048
Unallocated selling, general and administrative costs ⁽¹⁾	(8,993		)	(7,258		)	(17,099		)	(14,585		)
Interest expense	(8,083		)	(7,540		)	(16,278		)	(15,073		)
(Loss) earnings before income taxes	$	(3,150	)	$	117		$	(26,223	)	$	(7,371	)


(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,
	2017		2016		2017		2016
	(Thousands of dollars)
Segment Direct Expense:
Oil and Gas	$	9,824	$	10,024	$	19,686	$	19,942
Air Medical	5,219		5,132		10,696		9,387
Technical Services	148		157		294		285
Total	$	15,191	$	15,313	$	30,676	$	29,614
Unallocated SG&A	$	622	$	2,476	$	3,335	$	5,147


(2)	Includes Equity in loss of unconsolidated affiliates, net.


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