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TMCNet:  EXAMWORKS GROUP, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

[March 09, 2014]

EXAMWORKS GROUP, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read together with "Selected Consolidated Financial Data," and our consolidated financial statements and the related notes and the other financial information appearing elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under "Risk Factors" and "Forward-Looking Statements." All forward-looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward-looking statements.


Our Business We are a leading provider of IMEs, peer and bill reviews, Medicare compliance, and other related services, which include legal support services, administrative support services and medical record retrieval services. We were incorporated as a Delaware corporation on April 27, 2007. From July 14, 2008 through the date of this filing, we have acquired 46 IME services businesses, including a leading provider of software solutions to the IME industry. We currently operate out of 62 service centers servicing all 50 U.S. states, Canada, the United Kingdom and Australia. We conduct our business through four geographic segments: the United States, Canada, the United Kingdom and Australia.

We provide our services to property and casualty insurance carriers, law firms, third-party claim administrators, government agencies, and state funds that use independent services to confirm the veracity of claims by sick or injured individuals for workers' compensation, automotive, personal injury liability and disability insurance coverage. We help our clients manage costs and enhance their risk management processes by verifying the validity, nature, cause and extent of claims, identifying fraud and providing fast, efficient and quality IME services.

We provide our clients with the local presence, expertise and broad geographic coverage they increasingly require. Our size and geographic reach give our clients access to our medical panel of credentialed physicians and other medical providers and our proprietary information technology infrastructure that has been specifically designed to streamline the complex process of coordinating referrals, scheduling appointments, complying with regulations and client reporting. Our primary service is to provide IMEs that give our clients authoritative and accurate answers to questions regarding the nature and permanency of medical conditions or personal injury, their cause and appropriate treatment. Additionally, we provide peer and bill reviews, which consist of medical opinions by members of our medical panel without conducting physical exams, and the review of physician and hospital bills to examine medical care rendered and its conformity to accepted standards of care. Prior to the MES acquisition in February 2011, we marketed our services primarily under the ExamWorks brand. Initially with the MES acquisition and subsequently with the Premex and MedHealth acquisitions, we began to market our services under several brands, including but not limited to, ExamWorks, MES, Premex and MedHealth.

We operate in a highly fragmented industry and have completed numerous acquisitions. A key component of our business strategy is growth through acquisitions that expand our geographic coverage, provide new or complementary lines of business, expand our portfolio of services, and increase our market share. For example, our acquisition of MedHealth in August 2012 enabled us to enter the Australian market and, expand our range of clients and services, and increase our international market presence. Another central feature of our business strategy is to grow our business organically by selling additional services to existing clients, cross-selling into additional insurance lines of business and expanding our geographic footprint with existing clients. For example, our acquisition of Gould & Lamb in February 2014 enabled us to expand our presence in the Medicare compliance market, and expand our range of services to new and existing clients. To date, we have completed the following 46 acquisitions: 35-------------------------------------------------------------------------------- Acquisition Date Name February 14, 2014 ? Assess Medical February 3, 2014 ? Gould & Lamb January 16, 2014 ? Newton Medical Group January 13, 2014 ? Cheselden December 20, 2013 ? Evaluation Resource Group December 10, 2013 ? AGS Risk Limited December 19, 2012 ? PMG August 31, 2012 ? MedHealth July 12, 2012 ? Makos October 27, 2011 ? Bronshvag October 24, 2011 ? Matrix Health Management October 3, 2011 ? Capital Vocational Specialists ? North York Rehabilitation Centre September 28, 2011 ? MLS Group of Companies ? Medicolegal Services May 10, 2011 ? Premex Group February 28, 2011 ? MES Group February 18, 2011 ? National IME Centres December 20, 2010 ? Royal Medical Consultants October 1, 2010 ? BMEGateway September 7, 2010 ? UK Independent Medical Services September 1, 2010 ? Health Cost Management August 6, 2010 ? Verity Medical ? Exigere June 30, 2010 ? SOMA Medical Assessments ? Direct IME ? Network Medical Review ? Independent Medical Services ? 401 Diagnostics March 26, 2010 ? Metro Medical Services March 15, 2010 ? American Medical Bill Review ? Medical EvaluationsDecember 31, 2009 ? Abeton ? Medical Assurance Group ? MedNet I.M.S.

? Qualmed ? IME Operations of Physicians' Practice August 14, 2009 ? The Evaluation Group August 4, 2009 ? Benchmark Medical Consultants July 7, 2009 ? IME Software Solutions May 21, 2009 ? Florida Medical Specialists ? Marquis Medical Administrators April 17, 2009 ? Ricwel July 14, 2008 ? CFO Medical Services ? Crossland Medical Review Services ? Southwest Medical Sources of Revenues and Expenses Revenues We derive revenue primarily from fees charged for independent medical examinations, peer and bill reviews, Medicare compliance and other related services, which include litigation support services, administrative support services and medical record retrieval services. Revenues are recognized at the time services have been performed and, if applicable, at the time the report is shipped to the end user. We expect revenue to continue to increase through acquisition and organic growth. Our revenue is derived from services performed in different geographic areas.

Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim. We have deemed these provisions to preclude revenue recognition at the time of performance, as collectability is not reasonably assured and the cash payments are contingent, and are deferring these revenues, net of estimated costs, until the case has been settled and the contingency has been resolved and the cash has been collected.

36-------------------------------------------------------------------------------- Costs of revenues Costs of revenues are comprised of fees paid to members of our medical panel; other direct costs including transcription, film and medical record obtainment and transportation; and other indirect costs including labor and overhead related to the generation of revenue. We expect these operationally driven costs to increase to support future revenue growth and as we continue to grow through acquisitions.

Selling, general and administrative expenses Selling, general and administrative ("SGA") expenses consist primarily of expenses for administrative, human resource related, corporate information technology support, legal (primarily from transaction costs related to acquisitions), finance and accounting personnel, professional fees (primarily from transaction costs related to acquisitions), insurance and other corporate expenses. We expect that SGA expenses will increase as we continue to add personnel to support the growth of our business and pursue acquisition growth.

In addition, we may incur additional personnel expenses, professional service fees, including audit and legal, investor relations, costs of compliance with securities laws and regulations, and higher director and officer insurance costs related to operating as a public company. As a result, we expect that our SGA expenses will continue to increase in the future but decrease as a percentage of revenue over time as our revenue increases.

Depreciation and amortization Depreciation and amortization ("D&A") expense consists primarily of amortization of our finite lived intangible assets obtained through acquisitions completed to date and, to a lesser extent, depreciation of equipment and leasehold improvements. We expect that depreciation and amortization expense will decrease as a percentage of revenues as our finite lived intangible assets become fully amortized.

Results of Operations The following table sets forth our consolidated statements of operations data for each of the periods indicated (in thousands except share and per share data): For the years ended December 31, 2011 2012 2013 Revenues $ 397,860 $ 521,237 $ 616,016 Costs and expenses: Costs of revenues 262,242 344,051 405,329 Selling, general and administrative expenses 84,133 113,510 133,870 Depreciation and amortization 47,439 58,551 62,748 Total costs and expenses 393,814 516,112 601,947 Income from operations 4,046 5,125 14,069 Interest and other expenses, net 16,461 28,051 29,641 Loss before income taxes (12,415 ) (22,926 ) (15,572 ) Benefit for income taxes (4,082 ) (7,987 ) (5,356 ) Net loss $ (8,333 ) $ (14,939 ) $ (10,216 ) Per share data Net loss per share - basic and diluted $ (0.25 ) $ (0.44 ) $ (0.29 ) Weighted average number of common shares outstanding - basic and diluted 33,975,658 34,141,098 35,315,185 Other Financial Data: Adjusted EBITDA(1) $ 63,304 $ 79,789 $ 97,461 (1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net loss in the next section and is not a substitute for the GAAP equivalent.

37-------------------------------------------------------------------------------- Adjusted EBITDA In connection with the ongoing operation of our business, our management regularly reviews Adjusted EBITDA, a non-GAAP financial measure, to assess our performance. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition-related transaction costs, share-based compensation expenses, and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition related costs, income tax status, and other items of a non-operational nature that affect comparability.

We believe that various forms of the Adjusted EBITDA metric are often used by analysts, investors and other interested parties to evaluate companies such as ours for the reasons discussed above. Additionally, Adjusted EBITDA is used to measure certain financial covenants in our credit facility. Adjusted EBITDA is also used for planning purposes and in presentations to our Board of Directors as well as in our incentive compensation programs for our employees.

Non-GAAP information should not be construed as an alternative to GAAP information, as the items excluded from the non-GAAP measures often have a material impact on our financial results. Management uses, and investors should use, non-GAAP measures in conjunction with our GAAP results.

The following table presents a reconciliation to Adjusted EBITDA from net loss, the most comparable GAAP measure, for each of the periods indicated (in thousands): For the years ended December 31, 2011 2012 2013 Reconciliation to Adjusted EBITDA: Net loss $ (8,333 ) $ (14,939 ) $ (10,216 ) Share-based compensation expense (i) 7,834 13,756 17,157 Depreciation and amortization 47,439 58,551 62,748 Acquisition-related transaction costs 3,107 1,655 2,134 Other expenses (ii) 878 702 1,353 Interest and other expenses, net 16,461 28,051 29,641 Benefit for income taxes (4,082 ) (7,987 ) (5,356 ) Adjusted EBITDA $ 63,304 $ 79,789 $ 97,461 (i) Share-based compensation expense of $2.9 million, $3.0 million and $2.0 million is included in costs of revenues for the year ended December 31, 2013, 2012 and 2011, respectively, and the remainder is included in SGA expenses.

(ii) Other expenses consist principally of integration related expenses, such as facility termination, severance and relocation costs, associated with our acquisition strategy.

Comparison of the Years Ended December 31, 2013 and 2012 Revenues. Revenues were $616.0 million for the year ended December 31, 2013 compared to $521.2 million for the year ended December 31, 2012, an increase of $94.8 million, or 18%. Of the increase in revenues compared to 2012, $57.0 million, or 11%, was attributable to acquisitions completed in 2012 and 2013 and $37.8 million, or 7%, was due to growth in our existing businesses.

? U.S. segment revenues were $374.8 million for the year ended December 31, 2013 compared to $340.2 million for the year ended December 31, 2012, an increase of $34.6 million, or 10%. Of the increase in U.S. revenues compared to 2012, $11.5 million, or 3%, was attributable to acquisitions completed in 2012 and 2013 and $23.1 million, or 7%, was due to growth in our existing businesses primarily due to a favorable change in sales mix and, to a lesser extent, increased IME services volumes.

? Canada segment revenues were $31.1 million for the year ended December 31, 2013 compared to $27.6 million for the year ended December 31, 2012, an increase of $3.5 million, or 13%. Of the increase in Canada revenues compared to 2012, $615,000, or 2%, was attributable to acquisitions completed in 2012 and $2.9 million, or 11%, was due to growth in our existing business due to a favorable change in sales mix.

? U.K. segment revenues were $143.4 million for the year ended December 31, 2013 compared to $131.3 million for the year ended December 31, 2012, an increase of $12.1 million, or 9%. Of the increase in U.K. revenues compared to 2012, $300,000, was attributable to acquisitions completed in 2013 and $11.8 million, or 9%, was due to growth in our existing businesses due to a favorable change in sales mix.

38-------------------------------------------------------------------------------- ? Australia segment revenues were $66.7 million for the year ended December 31, 2013 compared to $22.2 million for the year ended December 31, 2012, an increase of $44.5 million, or 200%. The increase in Australia revenues compared to 2012 is due to the acquisition of MedHealth in August 2012.

Costs of revenues. Costs of revenues were $405.3 million for the year ended December 31, 2013 compared to $344.1 million for the year ended December 31, 2012, an increase of $61.2 million, or 18%. Of the increase in costs of revenues compared to 2012, $36.8 million, or 11%, was attributable to acquisitions completed in 2012 and 2013 and $24.4 million, or 7%, was related to our existing businesses primarily attributable to increased fees paid to members of our medical panel and, to a lesser extent, an increase in other direct costs. Costs of revenues as a percentage of revenues was 65.8% for the year ended December 31, 2013, a 0.2% improvement over the 66.0% for the year ended December 31, 2012.

Selling, general and administrative. SGA expenses were $133.9 million for the year ended December 31, 2013 compared to $113.5 million for the year ended December 31, 2012, an increase of $20.4 million, or 18%. Of the increase in SGA expenses compared to 2012, $8.2 million, or 7%, was attributable to acquisitions completed in 2012 and 2013 and $12.2 million, or 11%, was related to our existing businesses primarily attributable to $10.1 million in increased personnel expenses, including share-based compensation, and the remainder resulting primarily from increases in computer related expenses and rent.

Depreciation and amortization. D&A expenses were $62.7 million for the year ended December 31, 2013 compared to $58.6 million for the year ended December 31, 2012, an increase of $4.1 million, or 7%. Of the increase in D&A expenses compared to 2012, $9.4 million, or 16%, was attributable to acquisitions completed in 2012 and 2013 offset by a reduction of $5.3 million, or 9%, attributable to our existing businesses as historic finite-lived intangible and tangible assets became fully amortized.

Interest and other expenses, net. Interest and other expenses, net were $29.6 million for the year ended December 31, 2013 compared to $28.1 million for the year ended December 31, 2012, an increase of $1.5 million, or 5%. Interest and other expenses, net, increased primarily due to increased interest expenses related to additional borrowings on our Senior Secured Revolving Credit Facility to fund acquisitions offset by a realized foreign currency loss of $534,000 in the prior year.

Income tax benefit. Income tax benefit was $5.4 million for the year ended December 31, 2013 compared with $8.0 million for the year ended December 31, 2012, a decreased benefit of $2.6 million or 33%. Our effective income tax rate was 34.4% and 34.8% for the years ended December 31, 2013 and 2012, respectively. The tax rates in the 2013 and 2012 periods were impacted primarily by foreign tax rate differentials and non-deductible items.

Net loss. For the foregoing reasons, net loss was $10.2 million for the year ended December 31, 2013 compared to $14.9 million for the year ended December 31, 2012.

Comparison of the Years Ended December 31, 2012 and 2011 Revenues. Revenues were $521.2 million for the year ended December 31, 2012 compared to $397.9 million for the year ended December 31, 2011, an increase of $123.3 million, or 31%. Of the increase in revenues compared to 2011, $109.9 million, or 28%, was attributable to acquisitions completed in 2011 and 2012 and $13.4 million, or 3%, was due to growth in our existing businesses.

? U.S. segment revenues were $340.2 million for the year ended December 31, 2012 compared to $298.1 million for the year ended December 31, 2011, an increase of $42.1 million, or 14%. Of the increase in U.S. revenues compared to 2011, $37.8 million, or 13%, was attributable to acquisitions completed in 2011 and 2012, and $4.3 million, or 1%, was due to growth in our existing businesses.

? Canada segment revenues were $27.6 million for the year ended December 31, 2012 compared to $21.3 million for the year ended December 31, 2011, an increase of $6.3 million, or 30%, which was attributable to acquisitions completed in 2011 and 2012.

39-------------------------------------------------------------------------------- ? U.K. segment revenues were $131.3 million for the year ended December 31, 2012 compared to $78.5 million for the year ended December 31, 2011, an increase of $52.8 million, or 67%. Of the increase in U.K. revenues compared to 2011, $38.3 million, or 49%, was attributable to acquisitions completed in 2011 and $14.5 million, or 18%, was due to growth in our existing businesses due primarily to increased IME service volumes and, to a lesser extent, a favorable change in sales mix.

? Australia segment revenues were $22.2 million for the year ended December 31, 2012. There were no revenues associated with Australia for the year ended December 31, 2011 as the MedHealth acquisition was completed in August 2012, and thus all revenue growth is acquisition related.

Costs of revenues. Costs of revenues were $344.1 million for the year ended December 31, 2012 compared to $262.2 million for the year ended December 31, 2011, an increase of $81.9 million, or 31%. Of the increase in costs of revenues compared to 2011, $67.9 million, or 26%, was attributable to acquisitions completed in 2011 and 2012 and $14.0 million, or 5%, was related to our existing businesses primarily attributable to increased fees paid to members of our medical panel and, to a lesser extent, an increase in other direct costs. Costs of revenues as a percentage of revenues remained consistent at 66.0% for the years ended December 31, 2012 and 2011.

Selling, general and administrative. SGA expenses were $113.5 million for the year ended December 31, 2012 compared to $84.1 million for the year ended December 31, 2011, an increase of $29.4 million, or 35%. Of the increase in SGA expenses compared to 2011, $21.1 million, or 25%, was attributable to acquisitions completed in 2011 and 2012 and $8.5 million, or 10%, was related to our existing businesses primarily attributable to $5.8 in increased personnel expenses, including share-based compensation, and the remainder resulting primarily from increases in referral commissions, rent, sales and marketing expenses, phone, insurance, travel, and other professional expenses, offset by a decrease in acquisition related transaction costs.

Depreciation and amortization. D&A expenses were $58.6 million for the year ended December 31, 2012 compared to $47.4 million for the year ended December 31, 2011, an increase of $11.2 million, or 23%. Of the increase in D&A expenses compared to 2011, $14.0 million, or 29%, was attributable to acquisitions completed in 2011 and 2012 offset by a reduction of $2.8 million, or 6%, attributable to our existing businesses as historic finite-lived intangible and tangible assets became fully amortized.

Interest and other expenses, net. Interest and other expenses, net were $28.1 million for the year ended December 31, 2012 compared to $16.5 million for the year ended December 31, 2011, an increase of $11.6 million, or 70%. Interest and other expenses, net, increased primarily due to a full year of interest expense related to the Senior Unsecured notes in 2012 as compared to a partial year in 2011 and increased interest expenses related to additional borrowings on our Senior Secured Revolving Credit Facility to fund acquisitions, deferred loan cost amortization and a realized loss on foreign currency, offset by adjustments to an interest rate swap.

Income tax benefit. Income tax benefit was $8.0 million for the year ended December 31, 2012 compared with $4.1 million for the year ended December 31, 2011, an increased benefit of $3.9 million or 96%. Our effective income tax rate was 34.8% and 32.9% for the years ended December 31, 2012 and 2011, respectively. The tax rates in the 2012 period were impacted primarily by foreign tax rate differentials and non-deductible items and the tax rates in the 2011 period were impacted by non-deductible items.

Net loss. For the foregoing reasons, net loss was $14.9 million for the year ended December 31, 2012 compared to $8.3 million for the year ended December 31, 2011.

40--------------------------------------------------------------------------------Selected Quarterly Financial Data (Unaudited) March June September December 2013 - Quarter Ended 31 30 30 31 (In thousands, except share and per share data) Revenues $ 148,703 $ 156,148 $ 152,354 $ 158,811 Costs and expenses: Costs of revenues 97,384 102,118 100,831 104,996 Selling, general and administrative expenses 33,257 34,076 31,620 34,917 Depreciation and amortization 16,326 15,822 15,910 14,690 Total costs and expenses 146,967 152,016 148,361 154,603 Income from operations 1,736 4,132 3,993 4,208 Interest and other expenses, net 7,530 7,700 7,316 7,095 Loss before income taxes (5,794 ) (3,568 ) (3,323 ) (2,887 ) Benefit for income taxes (2,202 ) (785 ) (1,072 ) (1,297 ) Net loss $ (3,592 ) $ (2,783 ) $ (2,251 ) $ (1,590 ) Per share data Net loss per share - basic and diluted $ (0.10 ) $ (0.08 ) $ (0.06 ) $ (0.04 ) Weighted average number of common shares outstanding - basic and diluted 34,464,664 34,910,937 35,560,227 36,319,032 Other Financial Data: Adjusted EBITDA(1) $ 23,005 $ 25,006 $ 23,885 $ 25,565 March June September December 2012 - Quarter Ended 31 30 30 31 (In thousands, except share and per share data) Revenues $ 123,738 $ 127,777 $ 130,085 $ 139,637 Costs and expenses: Costs of revenues 81,173 84,223 86,080 92,575 Selling, general and administrative expenses 28,632 27,729 28,281 28,868 Depreciation and amortization 14,025 13,762 14,458 16,306 Total costs and expenses 123,830 125,714 128,819 137,749 Income (loss) from operations (92 ) 2,063 1,266 1,888 Interest and other expenses, net 6,573 6,174 7,546 7,758 Loss before income taxes (6,665 ) (4,111 ) (6,280 ) (5,870 ) Benefit for income taxes (2,342 ) (804 ) (1,654 ) (3,187 ) Net loss $ (4,323 ) $ (3,307 ) $ (4,626 ) $ (2,683 ) Per share data Net loss per share - basic and diluted $ (0.13 ) $ (0.10 ) $ (0.14 ) $ (0.08 ) Weighted average number of common shares outstanding - basic and diluted 34,085,761 34,074,137 34,116,062 34,287,093 Other Financial Data: Adjusted EBITDA(1) $ 18,829 $ 20,446 $ 20,182 $ 20,332 (1) Adjusted EBITDA is a non-GAAP measure that is described and reconciled to net income (loss) below and is not a substitute for the GAAP equivalent. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, acquisition-related transaction costs, share-based compensation expenses and other expenses. We believe that Adjusted EBITDA is an important measure of our operating performance because it allows management, lenders, investors and analysts to evaluate and assess our core operating results from period to period after removing the impact of changes to our capitalization structure, acquisition-related costs, income tax status, and other items of a non-operational nature that affect our comparability. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP measure, for each of the periods indicated. See also "Results of Operations - Adjusted EBITDA." 41-------------------------------------------------------------------------------- March June September December 2013 - Quarter Ended 31 30 30 31 (In thousands) Net loss $ (3,592 ) $ (2,783 ) $ (2,251 ) $ (1,590 ) Share-based compensation expense (i) 4,131 4,283 3,820 4,923 Depreciation and amortization expense 16,326 15,822 15,910 14,690 Acquisition-related transaction costs 449 458 186 1,041 Other expenses(ii) 363 311 (24 ) 703 Interest and other expenses, net 7,530 7,700 7,316 7,095 Benefit for income taxes (2,202 ) (785 ) (1,072 ) (1,297 ) Adjusted EBITDA: $ 23,005 $ 25,006 $ 23,885 $ 25,565 March June September December 2012 - Quarter Ended 31 30 30 31 (In thousands) Net loss $ (4,323 ) $ (3,307 ) $ (4,626 ) $ (2,683 ) Share-based compensation expense (i) 4,696 4,849 3,018 1,194 Depreciation and amortization expense 14,025 13,762 14,458 16,306 Acquisition-related transaction costs 145 (254 ) 1,378 385 Other expenses (ii) 55 26 62 559 Interest and other expenses, net 6,573 6,174 7,546 7,758 Benefit for income taxes (2,342 ) (804 ) (1,654 ) (3,187 ) Adjusted EBITDA: $ 18,829 $ 20,446 $ 20,182 $ 20,332 (i) For the quarters ended March 31, June 30, September 30, and December 31, 2013, share-based compensation expense of approximately $728,000, $719,000, 748,000 and $692,000, respectively is included in costs of revenues, and the remainder is included in SGA expenses. Share-based compensation expense of approximately $750,000 is included in costs of revenues for all quarters of 2012 and the remainder is included in SGA expenses.

(ii) Other expenses consist principally of integration related expenses, such as facility termination, severance and relocation costs, associated with our acquisition strategy.

Liquidity and Capital Resources Our principal capital requirements are to fund operations and acquisitions. Since our initial public offering ("IPO") in November 2010, we have funded our capital needs from cash flow generated from operations, borrowings under the Senior Secured Revolving Credit Facility and working capital facilities and the private offering of the Senior Unsecured Notes, as defined below. We have also funded our acquisition program with equity issuances to sellers. We expect that cash and cash equivalents, availability under our existing credit and working capital facilities and cash flow from operations will be sufficient to support our operations, planned capital expenditures and acquisitions for at least the next 12 months.

Although we believe that our current cash and cash equivalents and funds available under our Senior Secured Revolving Credit Facility and working capital facilities will be sufficient to meet our working capital and acquisition plans for at least the next 12 months, we may need to raise additional funds through the issuance of equity or convertible debt securities or increase borrowings to fund acquisitions. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced and these securities might have rights, preferences and privileges senior to those of our current stockholders. Additional financing may not be available or, if available, such financing may not be obtained on terms favorable to our stockholders and us.

42 -------------------------------------------------------------------------------- Initial Public Offering On November 2, 2010, we completed an IPO of common stock. The total offering size was 11,845,000 shares (after exercise by the underwriters of their over-allotment option), consisting of 9,290,114 shares issued by us and 2,554,886 shares sold by existing stockholders of the Company. Net proceeds to the Company were approximately $133.7 million, of which $102.4 million was used to repay the amounts outstanding under a previous credit facility.

Share Repurchase Program In August 2011, we announced that the Board of Directors authorized the implementation of a share repurchase program to repurchase up to $20.0 million of outstanding shares of our common stock. The program calls for the repurchases to be made at management's discretion in the open market or privately negotiated transactions, subject to cash requirements for other purposes, and other relevant factors, such as trading price, trading volume, general market and business conditions, and our compliance with certain covenants under our contractual obligations. There is no guarantee as to the exact number of shares, if any, that we may repurchase, and the Board of Directors may suspend or discontinue the repurchase program at any time. For the year ended December 31, 2011, we repurchased approximately 1,009,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $9.34 per share for a total cost of $9.4 million. For the year ended December 31, 2012, we repurchased approximately 39,000 shares of common stock under the share repurchase program. These shares were repurchased at an average cost of $9.91 per share for a total cost of $387,000. For the years ended December 31, 2011 and 2012, we reissued approximately 203,000 and 6,000 shares from treasury, respectively to fund acquisitions completed in each of those years. There were no share repurchases or re-issuances for the year ended December 31, 2013.

Credit Facilities Credit Facility In November 2010, in conjunction with the IPO, we repaid $102.4 million of outstanding debt and terminated a credit facility. This facility was replaced with a new senior secured revolving credit facility with Bank of America, N.A., as administrative agent and the other lenders party thereto (the "Senior Secured Revolving Credit Facility"), which following the exercises of the accordion feature in February 2011 and, subsequently in May 2011, and as amended, provides for borrowings of up to $262.5 million. Up to $15.0 million of the Senior Secured Revolving Credit Facility may be in the form of letters of credit, and up to $15.0 million may be in the form of swingline loans. Loans under the Senior Secured Revolving Credit Facility, which terminates in July 2016, were used to fund our acquisition program (plans) and for general corporate purposes, including permitted acquisitions.

43 -------------------------------------------------------------------------------- On May 6, 2011, we increased and fully exercised the accordion features of the Senior Secured Revolving Credit Facility. The increase and exercise of the accordion feature increased the committed capacity of the credit facility by $55.0 million, from a total of $245.0 million to a total of $300.0 million. Concurrently with the foregoing, we amended the Senior Secured Revolving Credit Facility to, among other things, (i) permit its maximum senior leverage ratio to temporarily increase from 3.0 to 1 to 3.50 to 1 for the quarters ending June 30 and September 30, 2011 and 3.25 to 1 for the quarter ending December 31, 2011 and 3.0 to 1 thereafter; and (ii) permit the netting of unrestricted domestic cash in excess of $2.5 million but not exceeding $12.5 million against funded indebtedness for purposes of calculating leverage ratios.

On July 7, 2011, we entered into a second amendment to our Senior Secured Revolving Credit Facility (the "Second Amendment"), which became effective simultaneously with the consummation of our private offering of $250.0 million aggregate principal senior notes. The Second Amendment amended the Senior Secured Revolving Credit Facility to, among other things, (i) extend the maturity date of the Senior Secured Revolving Credit Facility from November 2013 to July 2016; (ii) permit the issuance and sale of the Senior Unsecured Notes; (iii) replace the consolidated senior leverage ratio with a consolidated senior secured leverage ratio while permitting the maximum consolidated senior secured leverage ratio to be 3.00 to 1; (iv) permit our maximum consolidated leverage ratio to increase from 3.5 to 1 to 4.75 to 1; (v) reduce the borrowing cost; and (vi) allow us to complete acquisitions with a purchase price of up to $75.0 million (previously $50.0 million) without prior lender consent. The Second Amendment also reduced the aggregate revolving commitments under the Senior Secured Revolving Credit Facility by $37.5 million for a maximum commitment of $262.5 million, subject to our right to increase the aggregate revolving commitments by $37.5 million for a maximum commitment of $300.0 million, so long as we are not in default and we satisfy certain other customary conditions.

On February 27, 2012, we entered into a third amendment to our Senior Secured Revolving Credit Facility (the "Third Amendment"). The Third Amendment amended the Senior Secured Revolving Credit Facility as to the definitions of consolidated fixed charges and consolidated fixed charge coverage ratio and does not permit the consolidated fixed charge coverage ratio as of the end of any fiscal quarter to be less than (i) for an fiscal quarter ending during the period from December 31, 2011 to and including September 30, 2012, 1.75 to 1.00 and (ii) for an fiscal quarter ending thereafter, 2.00 to 1.00.

On August 27, 2012, we entered into a fourth amendment to our Senior Secured Revolving Credit Facility (the "Fourth Amendment"). The Fourth Amendment amended the Senior Secured Revolving Credit Facility to add the Australian dollar as an alternative currency and increased the alternative currency sublimit from USD $60.0 million to USD $100.0 million.

On June 27, 2013, we entered into a fifth amendment to our Senior Secured Revolving Credit Facility (the "Fifth Amendment"). Among other changes, the Fifth Amendment modifies the Credit Agreement to permit an implementation of an auto-borrow agreement between the swing line lender and us to facilitate cash management, incorporates new provisions related to swap regulations and updates various provisions related to the LIBOR rate, Foreign Account Tax Compliance Act and the International Financial Reporting Standards.

On February 3, 2014, we entered into a sixth amendment to our Senior Secured Revolving Credit Facility (the "Sixth Amendment"). The Sixth Amendment (i) allowed us to consummate the acquisition of Gould & Lamb, and (ii) allows us to acquire a target (a) with negative trailing twelve month adjusted EBITDA (as defined in the Senior Secured Revolving Credit Facility) if the purchase price of such acquisition is less than $5.0 million, (b) with trailing twelve month adjusted EBITDA (as defined in the Senior Secured Revolving Credit Facility) of less than or equal to $3,000,000 without delivering to the lenders a quality of earnings report regarding such target and (c) without delivering pro forma projections to our lenders if the purchase price of such acquisition is less than $75.0 million, in each case, without prior lender consent. We financed the $75.0 million purchase price for the Gould & Lamb acquisition in February 2014 with proceeds from the Senior Secured Revolving Credit Facility.

Our obligations under the Senior Secured Revolving Credit Facility are guaranteed by each of our existing and future direct and indirect domestic subsidiaries, and such obligations are secured by substantially all of the assets of us and our domestic subsidiaries; however, in the case of our foreign subsidiaries, no more than 65% of the capital stock of first-tier subsidiaries shall be pledged, and no assets will be encumbered by liens in favor of our lenders.

44-------------------------------------------------------------------------------- Borrowings under the Senior Secured Revolving Credit Facility, as amended, bear interest, at either (i) LIBOR plus the applicable margin or (ii) a base rate (equal to the highest of (a) the federal funds rate plus 0.5%, (b) the Bank of America prime rate and (c) LIBOR (using a one-month period) plus 1.0%), plus the applicable margin, as we elect. The applicable margin means a percentage per annum determined in accordance with the following table: Commitment Pricing Fee/Unused Letter of Eurocurrency Base Rate Tier Consolidated Senior Secured Leverage Ratio Line Fee Credit Fee Rate Loans Loans 1 ? 2.50 to 1.0 0.50% 3.75% 3.75% 2.75% 2 ? 2.00 to 1.0 but < 2.50 to 1.0 0.45% 3.50% 3.50% 2.50% 3 ? 1.50 to 1.0 but < 2.00 to 1.0 0.40% 3.25% 3.25% 2.25% 4 ? 1.00 to 1.0 but < 1.50 to 1.0 0.35% 3.00% 3.00% 2.00% 5 < 1.00 to 1.0 0.30% 2.75% 2.75% 1.75% In the event of default, the outstanding indebtedness under the Senior Secured Revolving Credit Facility will bear interest at an additional 2%.

The Senior Secured Revolving Credit Facility contains restrictive covenants, including among other things financial covenants requiring us to not exceed a maximum consolidated senior secured leverage coverage ratio, a maximum total consolidated leverage ratio and to maintain a minimum consolidated fixed charge coverage ratio. The Senior Secured Revolving Credit Facility also restricts our ability (subject to certain exceptions) to incur indebtedness, prepay or amend other indebtedness, create liens, make certain fundamental changes including mergers or dissolutions, pay dividends and make other payments in respect of capital stock, make certain investments, sell assets, change our lines of business, enter into transactions with affiliates and other corporate actions. As of December 31, 2013, the Company was in compliance with the financial covenants in the Senior Secured Revolving Credit Facility.

The Senior Secured Revolving Credit Facility also includes events of default typical of these types of credit facilities and transactions, including, but not limited to, the nonpayment of principal, interest, fees or other amounts owing under the new Senior Secured Revolving Credit Facility, the violation of covenants, the inaccuracy of representations and warranties, cross defaults, insolvency, certain ERISA events, material judgments and change of control. The occurrence of an event of default could result in the lenders not being required to lend any additional amounts and the acceleration of obligations under the new senior secured revolving credit facility, causing such obligations to be due and payable immediately, which could materially and adversely affect us.

As of December 31, 2013, we had $45.0 million outstanding under the Senior Secured Revolving Credit Facility, bearing interest at a rate of LIBOR plus 3.00%, resulting in $217.5 million of undrawn commitments.

Working Capital Facilities On September 29, 2010, our indirect 100% owned subsidiary UKIM entered into a Sales Finance Agreement (the "UKIM SFA") with Barclays Bank PLC ("Barclays"), pursuant to which Barclays provides UKIM a working capital facility of up to £5,000,000, subject to the terms and conditions of the UKIM SFA. The working capital facility bore a discount margin of 2.5% over Base Rate and served to finance UKIM's unpaid account receivables. The working capital facility had a minimum term of 36 months.

On June 28, 2013, UKIM entered into an amendment to extend the term of the existing UKIM SFA by 24 months from June 28, 2013, to amend the discount margin to 2.4% over Base Rate (0.5% rate on December 31, 2013) and to provide that payments by UKIM for certain non-working capital purposes are permitted under the UKIM SFA. The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Senior Secured Revolving Credit Facility. As of December 31, 2013, UKIM had $7.8 million outstanding under the working capital facility, resulting in approximately $377,000 in availability.

On May 12, 2011, our indirect 100% owned subsidiary Premex entered into a Sales Finance Agreement (the "Premex SFA") with Barclays, pursuant to which Barclays provides Premex a working capital facility of up to £26,500,000, subject to the terms and conditions of the Premex SFA. The working capital facility bears a discount margin of 2.4% over Base Rate (0.5% rate on December 31, 2013) and serves to finance Premex's unpaid account receivables. The working capital facility had a minimum term of 36 months.

On June 28, 2013, Premex entered into an amendment to extend the term of the existing Premex SFA by 24 months from June 28, 2013, and to provide that payments by Premex for certain non-working capital purposes are permitted under the Premex SFA. The working capital facility operates on a co-terminus and cross-default basis with other facilities provided by Barclays and with the Senior Secured Revolving Credit Facility. As of December 31, 2013, Premex had $30.1 million outstanding under the working capital facility, resulting in approximately $13.6 million in availability.

45 -------------------------------------------------------------------------------- Senior Unsecured Notes On July 19, 2011, we closed a private offering of $250.0 million in aggregate principal amount of 9.0% senior notes due 2019 (the "Initial Notes"). The Initial Notes were issued at a price of 100% of their principal amount. A portion of the gross proceeds of $250.0 million were used to repay borrowings outstanding under our Senior Secured Revolving Credit Facility and pay related fees and expenses, and the remainder was used for general corporate purposes, including acquisitions. In June 2012, in accordance with the registration rights granted to the original purchasers of the Initial Notes, we completed an exchange offer of the privately placed Initial Notes for new 9.0% Senior Notes due 2019 (the "Exchange Notes," and together with the Initial Notes, the "Senior Unsecured Notes") registered with the SEC with substantially identical terms to the Initial Notes. The Senior Unsecured Notes are senior obligations of ExamWorks and are guaranteed by ExamWorks' existing and future U.S. subsidiaries (the "Guarantors").

The Senior Unsecured Notes were issued under an Indenture, dated as of July 19, 2011 (the "Indenture"), among the Company, the Guarantors and U.S. Bank, National Association, as trustee (the "Trustee"). The Senior Unsecured Notes are our general senior unsecured obligations, and rank equally with our existing and future senior unsecured obligations and senior to all of our further subordinated indebtedness. The Senior Unsecured Notes accrue interest at a rate of 9.0% per year, payable semi-annually in cash in arrears on January 15 and July 15 of each year, commencing January 15, 2012.

At any time on or after July 15, 2015, we may redeem some or all of the Senior Unsecured Notes at the redemption prices stated in the Indenture, plus accrued and unpaid interest to the date of redemption. Prior to July 15, 2014, we may redeem up to 35% of the aggregate principal amount of the Senior Unsecured Notes with net cash proceeds from certain equity offerings at a redemption price equal to 109% of the aggregate principal amount of the Senior Unsecured Notes, plus accrued and unpaid interest, if any, provided that at least 65% of the original aggregate principal amount of the Senior Unsecured Notes remains outstanding after redemption. Further, we may redeem some or all of the of the Senior Unsecured Notes at any time prior to July 15, 2015 at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes plus a make whole premium described in the Indenture, plus accrued and unpaid interest.

The Indenture includes covenants which, subject to certain exceptions, limit the ability of the Company and its restricted subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness, make certain types of restricted payments, incur liens on assets of the Company or the restricted subsidiaries, engage in asset sales and enter into transactions with affiliates. Upon a change of control (as defined in the Indenture), we may be required to make an offer to repurchase the Senior Unsecured Notes at 101% of their principal amount, plus accrued and unpaid interest. The Indenture also contains customary events of default.

Cash Flow Summary Cash and cash equivalents were $12.8 million at December 31, 2013 as compared with $8.6 million at December 31, 2012 and $8.4 million at December 31, 2011.

Our cash flows from operating, investing and financing activities, as reported in our Consolidated Financial Statements included elsewhere in this report, are summarized as follows (in thousands): For the years ended December 31, 2011 2012 2013 Net cash provided by operating activities $ 39,543 $ 24,777 $ 36,355 Net cash used in investing activities (335,814 ) (114,384 ) (10,154 ) Net cash provided by (used in) financing activities 270,885 89,724 (21,072 ) Exchange rate impact on cash and cash equivalents 178 94 (927 ) Net increase (decrease) in cash and cash equivalents $ (25,208 ) $ 211 $ 4,202 46-------------------------------------------------------------------------------- Operating Activities. Net cash provided by operating activities was $36.4 million for the year ended December 31, 2013 as compared with net cash provided by operating activities of $24.8 million for the year ended December 31, 2012. Net cash provided by operating activities for 2013 consisted of our net loss of $10.2 million and a net increase in working capital of approximately $15.2 million in 2013, which was offset by net non-cash charges of $61.8 million (principally including $62.7 million in depreciation and amortization and $17.2 million in share-based compensation, offset by a net decrease in deferred income taxes of $18.0 million). The increase in working capital primarily consisted of increases in accounts receivable offset by increased accounts payable and accrued expenses and deferred revenues and customer deposits.

Net cash provided by operating activities was $24.8 million for the year ended December 31, 2012 as compared with net cash provided by operating activities of $39.5 million for the year ended December 31, 2011. Net cash provided by operating activities for 2012 consisted of our net loss of $14.9 million and a net increase in working capital of approximately $13.2 million in 2012, which was offset by net non-cash charges of $53.0 million (principally including $58.6 million in depreciation and amortization and $13.8 million in share-based compensation, offset by a net decrease in deferred income taxes of $21.2 million). The increase in working capital primarily consisted of increases in accounts receivable offset by increased accounts payable and accrued expenses and deferred revenues and customer deposits.

Net cash provided by operating activities was $39.5 million for the year ended December 31, 2011. Net cash provided by operating activities for 2011 consisted of our net loss of $8.3 million and a net increase in working capital of approximately $5.1 million in 2011, which was offset by net non-cash charges of $53.0 million (principally including $47.4 million in depreciation and amortization and $7.8 million in share-based compensation, offset by a net decrease in deferred income taxes of $6.4 million). The increase in working capital primarily consisted of increases in accounts receivable, prepaid expenses and other current assets and decreases in accounts payable and accrued expenses, offset by increased accrued interest expense associated with the Senior Unsecured Notes.

Investing Activities. Net cash used in investing activities was $10.2 million for the year ended December 31, 2013 as compared to net cash used in operating activities of $114.4 million for the year ended December 31, 2012. The decrease was due primarily to reduced acquisition activity in 2013 and, to a lesser extent, proceeds from our foreign currency net investment hedges, offset by a slight increase in capital expenditures.

Net cash used in investing activities was $114.4 million for the year ended December 31, 2012 as compared to net cash used in operating activities of $335.8 million for the year ended December 31, 2011. The decrease was due primarily to reduced acquisition activity in 2012 and, to a lesser extent, reduced capital expenditures.

Net cash used in investing activities was $335.8 million for the year ended December 31, 2011. This use was directly attributable to increased cash paid for acquisition activity, capital asset purchases and acquisition settlement related activities during 2011 of approximately $322.2 million, $6.9 million and $6.7 million, respectively.

Financing Activities. Net cash used in financing activities was $21.1 million for the year ended December 31, 2013 as compared to net cash provided by financing activities of $89.7 million for the year ended December 31, 2012. This 2013 cash used was primarily attributable to borrowings under our Senior Secured Revolving Credit Facility of $142.5 million, proceeds from the exercise of options and warrants of $24.3 million, the excess tax benefit related to share-based compensation of $6.6 million and net borrowings under our working capital facilities of $2.3 million, offset by repayments under our Senior Secured Revolving Credit Facility of $196.7.

Net cash provided by financing activities was $89.7 million for the year ended December 31, 2012 as compared to net cash provided by financing activities of $270.9 million for the year ended December 31, 2011. The 2012 provision of cash was primarily attributable to borrowings under our Senior Secured Revolving Credit Facility of $170.6 million and the excess tax benefit related to share-based compensation of $2.9 million, offset by repayments under our Senior Secured Revolving Credit Facility of $76.0 million and net repayments under our working capital facilities of $6.3 million.

Net cash provided by financing activities was $270.9 million for the year ended December 31, 2011. The 2011 provision of cash was primarily attributable to $250.0 million in proceeds from our private offering of the Senior Unsecured Notes in July 2011, net borrowings under our working capital facilities of $35.6 million, and borrowings under our Senior Secured Revolving Credit Facility of $278.0 million, offset by repayments under our credit facilities of $273.0 million, payments of deferred financing costs of $9.7 million, and purchases of stock for treasury of $9.4 million.

47 -------------------------------------------------------------------------------- Contingencies We record contingent liabilities resulting from asserted and unasserted claims against us when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. We currently are not involved in any material legal proceedings. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to any future proceedings. Contingent liabilities are described in Note 9 to the consolidated financial statements included elsewhere in this report.

Contractual Obligations and Commitments Our contractual cash payment obligations as of December 31, 2013 are set forth below: Payments due by year ending December 31, Total 2014 2015 2016 2017 2018 Thereafter (In thousands) Amounts outstanding under senior unsecured notes payable $ 250,000 $ - $ - $ - $ - $ - $ 250,000 Amounts outstanding under senior secured revolving credit facility 45,027 - - 45,027 - - - Operating leases 42,245 11,482 9,630 6,933 5,733 4,331 4,136 Amounts outstanding under working capital facilities 37,943 - 37,943 - - - - Subordinated unsecured notes payable 318 318 - - - - - Total: $ 375,533 $ 11,800 $ 47,573 $ 51,960 $ 5,733 $ 4,331 $ 254,136 As of December 31, 2013, we leased our office spaces for our corporate locations in Atlanta, Georgia and New York, New York and also for our 62 service centers in various cities under non-cancelable lease agreements. We own an office facility in Warren, Michigan.

We have certain contractual obligations including various debt agreements with requirements to make interest payments. Amounts outstanding under the Senior Unsecured Notes are subject to a fixed interest rate of 9.0% and interest is expected to be $22.5 million annually with semi-annual payments that began in January 2012 and end in July 2019. Additionally, certain amounts are subject to the level of borrowings in future periods and the interest rate for the applicable periods, and therefore the amounts of these payments are not determinable. Based upon amounts outstanding at December 31, 2013 and applicable interest rates currently ranging between 0.0% and 5.25%, interest amounts are expected to be approximately $2.7 million for the year ended December 31, 2014, approximately $2.2 million for the year ended December 31, 2015 and approximately $823,000 for the year ended December 31, 2016.

Off-Balance Sheet Arrangements We engage in no activities, obligations or exposures associated with off-balance sheet arrangements.

48 --------------------------------------------------------------------------------Critical Accounting Policies and Estimates Overview and Definitions We have identified the policies below as critical to our business operations and understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this management's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results. Our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to accounts receivable reserves, goodwill and other intangible assets, share-based compensation other equity instruments, income and other taxes, derivative instruments and contingent obligations. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates, and the impact of changes in key assumptions may not be linear. Our management has reviewed the application of these policies with the audit committee of our Board of Directors. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this report. We believe that our most critical accounting policies and estimates relate to the following: Revenue Recognition Revenue related to IMEs, peer reviews, bill reviews and administrative support services is recognized at the time services have been performed and the report is shipped to the end user. We believe that recognizing revenue at the time the report is shipped is appropriate because we meet the following four criteria in accordance with ASC 605-10-S25, Revenue Recognition: Overall , (i) persuasive evidence that arrangement exists, (ii) shipment has occurred, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured. We report revenues net of any sales, use and value added taxes.

Revenue related to other IME services, including litigation support services and medical record retrieval services, where no report is generated, is recognized at the time the service is performed. We believe that recognizing revenue at the time the service is performed is appropriate because we meet the following four criteria in accordance with ASC 605-10-S25, (i) persuasive evidence that arrangement exists, (ii) services have been rendered, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured.

Certain agreements with customers in the U.K. include provisions whereby collection of the amounts billed are contingent on the favorable outcome of the claim. We have deemed these provisions to preclude revenue recognition at the time of performance, as collectability is not reasonably assured and the cash payments are contingent, and are deferring these revenues, net of estimated costs, until the case has been settled the cash has been collected and the contingency has been resolved. For the year ended December 31, 2011, we had deferred $2.6 million in contingent revenues and $1.6 million in costs associated with the contingent revenues. For the year ended December 31, 2012, we deferred an additional $10.0 million in contingent revenues and $7.5 million in costs associated with the contingent revenues. For the year ended December 31, 2013, we deferred an additional $7.0 million in contingent revenues and $5.3 million in costs associated with the contingent revenues.

Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Trade Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable balances consist of amounts owed to us for services provided in the normal course of business and are reported net of an allowance for doubtful accounts. Generally, no collateral is received from clients and the collectability of trade receivable balances is regularly evaluated based on a combination of factors such as client credit-worthiness, past transaction history with the customer, current economic industry trends and changes in customer payment patterns and additions to the allowance are made based on these trends. Accounts are reviewed regularly for collectability and those deemed uncollectible are written off.

49 -------------------------------------------------------------------------------- We assume, that on average, all accounts receivable will be collected within one year and thus classify these as current assets; however, there are certain receivables, principally in the U.K., that have aged longer than one year as of December 31, 2012 and 2013, and we have recorded an estimate for those receivables that will not be collected within one year as long-term in the Consolidated Balance Sheets.

Goodwill and Other Intangible Assets Goodwill is an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Based on the provisions of ASC 350, Intangibles-Goodwill and Other ("ASC 350"), goodwill and indefinite lived intangible assets are tested for impairment annually or more frequently if impairment indicators arise. We evaluate the carrying value of goodwill during the fourth quarter of each fiscal year and between annual valuations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting units below their carrying amount. Such circumstances include: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, we compare the fair value of the reporting units to which the goodwill is assigned to the reporting units' carrying amount, including goodwill. The fair value of the reporting units is estimated using primarily the income, or discounted cash flows, approach. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit's goodwill to its carrying amount. In calculating the implied fair value of the reporting unit's goodwill, the fair value of the reporting unit is allocated in a hypothetical analysis to all of the other assets and liabilities, including any unrecognized intangible assets, of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value.

Intangible assets, including client relationships, trade names, covenants not to compete and technology that have finite lives are amortized over their useful lives.

We performed our annual impairment review of goodwill in October 2013 and reviewed subsequent events through December 31, 2013 and determined that the fair value of our reporting units substantially exceed their carrying value, and goodwill was not impaired as of year end. Further, we believe that there have been no facts or circumstances through the date of this filing that indicate an impairment of goodwill exists.

Deferred Income Taxes We provide for deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. Our deferred and other tax balances are based on management's interpretation of the tax regulations and rulings in numerous taxing jurisdictions. Income tax expense and liabilities recognized by us also reflect our best estimates and assumptions regarding, among other things, the level of future taxable income, the effect of our various tax planning strategies and uncertain tax positions. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances recorded by us. We follow the provisions under FASB ASC Subtopic 740-10, Income Taxes - Overall ("ASC 740") that provides a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date.

We are no longer subject to U.S. federal income or state tax return examinations by tax authorities before 2009 and 2008, respectively. We operate in multiple taxing jurisdictions and face audits from various tax authorities. We remain subject to examination until the statute of limitations expires for the respective tax jurisdiction. We do not anticipate that the amount of the unrecognized benefit will significantly increase or decrease within the next twelve months. We record interest and penalties related to unrecognized tax benefits in income tax expense.

Undistributed earnings of our foreign subsidiaries are considered indefinitely reinvested and, accordingly, no provision for U.S. federal income taxes has been recorded. Deferred taxes are provided for earnings outside the United States when those earnings are not considered indefinitely reinvested.

50 --------------------------------------------------------------------------------Share-Based Compensation and Other Equity Instruments Our stock incentive plan provides for the granting of stock options and other share-based awards including warrants, restricted stock units ("RSUs") and shares of restricted stock, in accordance with ASC Topic 718, Compensation-Stock Compensation ("ASC 718"). ASC 718 requires measurement of compensation cost for all share-based awards at fair value on the grant date (or measurement date, if different) and recognition of compensation expense, net of forfeitures, over the requisite service period for awards expected to vest. We use the straight-line amortization method for recognizing share-based compensation expense.

The fair value of stock option grants is determined using the Black-Scholes valuation model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics not present in these employee stock options. Additionally, option valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price.

Because our employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimates, in our opinion, the existing models may not provide a reliable single measure of the fair value of its share-based awards.

Our expected volatility assumptions are based upon our peer group median implied volatility for 2011 and 2012 stock option grants, and are based upon the weighted average of our peer group median implied volatility, our mean reversion volatility and the median of our peer group's most recent historical volatilities for 2013 stock option grants. Expected life assumptions are based upon the "simplified" method for those options issued in 2011, 2012 and 2013 which were determined to be issued approximately at-the-money. The risk-free interest rate was selected based upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued.

51 -------------------------------------------------------------------------------- The following table summarizes the number of stock options granted and outstanding as of December 31, 2013 for the quarterly periods from January 1, 2011 through December 31, 2013, the per share exercise price of the stock options and estimated per share weighted average fair value of stock options: Weighted Number of shares average per subject to options Weighted average share fair granted and per share exercise value of Quarter ending outstanding price of options options (1) March 31, 2011 849,505 $ 22.50 $ 8.78 June 30, 2011 655,309 $ 24.18 $ 9.28 September 30, 2011 191,784 $ 13.62 $ 5.41 December 31, 2011 261,808 $ 7.80 $ 3.39 March 31, 2012 1,862,957 $ 9.51 $ 4.23 June 30, 2012 125,026 $ 12.13 $ 5.47 September 30, 2012 50,597 $ 12.59 $ 5.77 December 31, 2012 139,063 $ 14.13 $ 6.54 March 31, 2013 283,300 $ 14.24 $ 6.63 June 30, 2013 55,800 $ 18.00 $ 8.39 September 30, 2013 80,100 $ 24.28 $ 11.52 December 31, 2013 89,700 $ 26.23 $ 12.61 (1) As described above, the per share estimated fair value of stock options was estimated for the date of grant using the Black-Scholes option-pricing model. This model estimates the fair value by applying a series of factors including the exercise price of the stock option, the fair market value of our common stock, a risk free interest rate, the expected term of the stock option, expected share price volatility of the underlying common stock and expected dividends on the underlying common stock.

The fair value of shares of restricted stock and RSUs is determined based upon the market price of the underlying common stock as of the date of grant.

Additional information regarding our valuation of common stock and equity awards is set forth in Note 2 to our consolidated financial statements included elsewhere in this report.

Accounting for Acquisitions Accounting for acquisitions requires us to recognize and measure identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquired entity. Our accounting for acquisitions involves significant judgments and estimates, including the fair value of certain forms of consideration such as our common stock, the fair value of acquired intangible assets, which involve projections of future revenues, cash flows and terminal value, which are then discounted at an estimated discount rate, the fair value of other acquired assets and assumed liabilities, including potential contingencies, and the useful lives of the assets. The projections are developed using internal forecasts, available industry and market data and estimates of long-term rates of growth for our business. The impact of prior or future acquisitions on our financial position or results of operations may be materially impacted by the change in or initial selection of assumptions and estimates.

Financial Instruments In September 2006, the Financial Accounting Standards Board ("FASB") issued authoritative guidance codified as ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value in U.S generally accepted accounting principles and expands disclosure about fair value measurements.

52 -------------------------------------------------------------------------------- ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels: In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterpart credit risk in the assessment of fair value.

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 - Unobservable inputs based on the company's own assumptions.

Our financial liabilities, which are measured at fair value on a recurring basis, are categorized using the fair value hierarchy as of December 31, 2012 and 2013 were as follows (in thousands): Level 1 Level 2 Level 3 Total As of December 31, 2012 Financial instruments: Interest rate swap $ - $ (101 ) $ - $ (101 ) Contingent consideration - - (846 ) (846 ) As of December 31, 2013 Financial instruments: Contingent consideration $ - $ - $ (4,834 ) $ (4,834 ) Foreign currency derivative asset - 61 - 61 Foreign currency derivative liability - (683 ) - (683 ) The fair value of the interest rate swap is determined using observable market inputs, such as current interest rates, and considers our nonperformance risk and that of our counterparties. The interest rate swap matured in July of 2013 and we have no further obligation associated with this agreement.

The contingent consideration relates to earnout provisions recorded in conjunction with certain acquisitions completed in 2009, 2010 and 2013 (see Note 3). Of the total increase in fair value of the contingent consideration of $4.0 million in 2013, $4.4 million was added as the result of a 2013 acquisition, and $35,000 was recorded in interest and other expenses, net in the Consolidated Statements of Comprehensive Loss due to changes in the fair value of the contingent consideration. These increases were offset by $343,000 settled as cash consideration to satisfy installments related to 2009 and 2010 acquisitions and, approximately $110,000 of the change in value relates to the release of a restriction associated with shares previously issued related to a 2009 acquisition.

The fair value of the foreign currency derivative was determined using observable market inputs such as foreign currency exchange rates and considers nonperformance risk of the Company and that of its counterparties.

Recent Accounting Pronouncements In addition to the recently adopted accounting pronouncements discussed above in conjunction with our critical accounting policies, we believe the following recently adopted accounting pronouncements are important to an understanding of our financial statements.

53-------------------------------------------------------------------------------- Recently Adopted Accounting Pronouncements In February 2013 the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This update amends Accounting Standards Codification (ASC) Topic 220, "Comprehensive Income," to require reporting entities to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, reporting entities will be required to present, either on the face of the statement of operations or in the footnotes to the financial statements, significant amounts reclassified from accumulated other comprehensive income by statement of operations line item. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012.

We adopted these provisions effective January 1, 2013 and the adoption of these provisions did not have a material impact on our financial position, results of operations and cash flows.

Accounting Pronouncements Not Yet Adopted In July 2013, the FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11") which amends accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or tax credit carryforward exists. This new guidance requires entities, if certain criteria are met, to present an unrecognized tax benefit, or portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward when such items exist in the same taxing jurisdiction. The provisions of ASU 2013-11 are effective for fiscal years and interim periods beginning after December 15, 2013 and are to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. We intend to adopt the provisions of this ASU in the first quarter of 2014 and are currently evaluating the potential impact on our financial position, results of operations and cash flows.

There were various other accounting standards and interpretations issued during 2012 and 2013 that we have not yet been required to adopt, none of which are expected to have a material impact on our financial position, results of operations or cash flows.

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