UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2014

OR

For the transition period from            to            

Commission FileNumber001-34221

The Providence Service Corporation

(Exact name of registrant as specified in its charter)

(520) 747-6600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

          Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒  Yes   ☐   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

As of May 6,August 5, 2014, there were outstanding 13,961,93214,829,890 shares (excluding treasury shares of 973,564)1,013,519) of the registrant’s Common Stock, $0.001 par value per share.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

The Providence Service Corporation

Condensed Consolidated Balance Sheets

(in thousands except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Income

(in thousands except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

See accompanying notes to unaudited condensed consolidated financial statements

The Providence Service Corporation

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

See accompanying notes to unaudited condensed consolidated financial statements

The Providence Service Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

March 31,June 30, 2014

(in thousands except share and per share data)

1. Basis of Presentation, and Description of Business, Significant Accounting Policies and Pending Accounting Pronouncements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements (the “consolidated financial statements”) include the accounts of The Providence Service Corporation (“the Company,” “our,” “we” and “us”) and its wholly-owned subsidiaries.subsidiaries, including Ingeus Limited and its wholly-owned subsidiaries (collectively, “Ingeus”) which were acquired on May 30, 2014.

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) considered necessary for fair presentation have been included. In order to conform to the current year presentation, prior year amounts have been reclassified to show human services revenues as one line item, and interest expense and interest income as interest expense, net. Additionally, prior year management fee receivables have been included in other receivables for comparable presentation purposes.

The Company has made a number of estimates relating to the reporting of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Operating results for the three and six months ended March 31,June 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014. Management has evaluated events and transactions that occurred after the balance sheet date and through the date these consolidated financial statements were issued, and considered the effect of such events in the preparation of these consolidated financial statements.

The consolidated balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements contained herein should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Description of Business

The Company provides and manages primarily government sponsored human services and non-emergency transportation, human and workforce development services. TheAs a result of the Ingeus acquisition, the Company operates in twothree segments, Human Services and Non-Emergency Transportation Services (“NET Services”). In our, Human Services segment, our counselors, social workers and behavioral health professionals work with clients who are eligible for government assistance due to income level, emotional/educational disabilities or court order. We provide human services primarily in the client’s home or community.Workforce Development Services (“WD Services”). The NET Services segment manages transportation networks and arranges for client transportation to health care related facilities and services for state or regional Medicaid agencies, managed care organizations (“MCOs”) and commercial insurers. In our Human Services segment, our counselors, social workers and behavioral health professionals work with clients, primarily in the client’s home or community, who are eligible for government assistance due to income level, emotional/educational disabilities or court order. The WD Services segment provides outsourced employability programs. As of March 31,ofJune30, 2014, the Company operated in 4441 states and the District of Columbia in the United States, and in three provinces11 other countries.

Significant Accounting Policies

Foreign currency translation

Local currencies generally are considered the functional currencies outside the United States. Assets and liabilities for operations in Canada.local-currency environments are translated at month-end exchange rates ofthe period reported. Income and expense items are translated at the average exchange rate for each applicable month. Cumulative translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

Pending Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers: Topic 606 (“ASU 2014-09”). This ASU will supersede the revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

For a publicly held entity, this ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.The Company is currently evaluating the impact ASU 2014-09 will have on its consolidated financial statements.

2. Concentration of Credit Risk

Contracts with governmental agencies, and other entities that contract with governmental agencies, accounted for approximately 78.5%79.0% and 81.0%80.3% of the Company’s revenue for the threesix months ended March 31,June 30, 2014 and 2013, respectively. The contracts are subject to possible statutory and regulatory changes, rate adjustments, administrative rulings, rate freezes and funding reductions.

3. Restricted Cash

The Company had $20,267 and $15,729 of restricted cash at June 30, 2014 and December 31, 2013, respectively, as follows (in thousands):

Of the restricted cash amount at June 30, 2014 and December 31, 2013:

4.Prepaid Expenses and Other

Prepaid expenses and other were comprised of the following:

5.    Property and Equipment

Property and equipment consisted of the following:

Depreciation expense was $4,908 and $3,873 for the six months ended June 30, 2014 and 2013, respectively.

6.Goodwill and Intangibles

Goodwill

Changes in goodwill were as follows:

During the quarter ended June 30, 2013, the not-for-profit entities managed by Rio Grande Management Company, L.L.C. (“Rio”), a wholly-owned subsidiary of the Company, were notified of the termination of funding for certain of their services. Management expected that due to this change in funding, the not-for-profit entities would not be able to maintain their historical level of business, which was expected to result in the decrease, or elimination of, services provided by Rio to these entities. The Company determined that these factors were indicators that an interim goodwill impairment test was required under ASC 350. As a result, the Company estimated the fair value of the goodwill it acquired in connection with the Rio acquisition to be zero at June 30, 2013, and at that time, the Company recorded a non-cash charge of $492 in its Human Services operating segment to eliminate the carrying value of goodwill acquired in connection with its acquisition of Rio. This charge is included in “Asset impairment charge” in the condensed consolidated statements of income for the three and six months ended June 30, 2013.

The total amount of goodwill that was deductible for income tax purposes for acquisitions as of June 30, 2014 and December 31, 2013 was $38,117 and $36,870, respectively.

Intangible Assets

Intangible assets are comprised of acquired customer relationships, trademarks and trade names, developed technology, management contracts and restrictive covenants. The Company valued customer relationships and the management contracts acquired based upon expected future cash flows resulting from the underlying contracts with state and local agencies to provide human services in the case of customer relationships, and management and administrative services provided to the managed entity with respect to acquired management contracts.

Intangible assets consisted of the following:

 ________________

* Weighted-average amortization period at June 30, 2014.

No significant residual value is estimated for these intangible assets. Amortization expense for the six months ended June 30, 2014 and 2013 was $3,963 and $3,591, respectively. The total amortization expense is estimated to be as follows, based on completed acquisitions as of June 30, 2014:

7.    Accrued Expenses

Accrued expenses consisted of the following:

4.8. Fair Value Measurements

The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Below are the three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company may be required to pay additional consideration in relation to certain acquisitions based on the achievement of certain earnings targets. Acquisition-related contingent consideration is initially measured and recorded at fair value as an element of consideration paid in connection with an acquisition with subsequent adjustments recognized in other operating expenses in the condensed consolidated statements of income. The Company determines the fair value of acquisition-related contingent consideration, and any subsequent changes in fair value using a discounted probability-weighted approach. This approach takes into consideration Level 3 unobservable inputs including probability assessments of expected future cash flows over the period in which the obligation is expected to be settled and applies a discount factor that captures the uncertainties associated with the obligation. Changes in these unobservable inputs could significantly impact the fair value of the obligation recorded in the accompanying condensed consolidated balance sheets and operating expenses in the condensed consolidated statements of income. The fair value of the Company’s contingent consideration was $47,755 at June 30, 2014, and is included in other long-term liabilities in the condensed consolidated balance sheets. There has been no change in the fair value of the contingent consideration from amounts originally estimated.

9.Long-Term Obligations

           The Company’s long-term obligations consisted of the following:

          The carrying amount of the long-term obligations approximated their fair value at June 30, 2014 and December 31, 2013. The fair value of the Company’s long-term obligations was estimated based on interest rates for the same or similar debt offered to the Company having same or similar remaining maturities and collateral requirements.

On May 28, 2014, the Company entered into the first amendment (the “First Amendment”) to its Amended and Restated Credit and Guaranty Agreement, dated August 2, 2013 (the “Credit Facility”) with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, SunTrust Bank, as syndication agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SunTrust Robinson Humphrey, Inc., as joint lead arrangers and joint book managers and other lenders party thereto. The First Amendment provides for, among other things, an increase in the aggregate amount of the revolving credit facility from $165,000 to $240,000 and other modifications in connection with the consummation of the acquisition of Ingeus.

10. Stock-Based Compensation Arrangements

           The Company issues both option awards and restricted stock to employees and non-employee directors. Option awards and restricted stock generally vest in three equal installments on the first, second and third anniversaries of the date of grant. The fair value expense of option awards was estimated on the date of grant using the Black-Scholes option pricing formula and amortized over the option’s vesting periods, and the fair value of unvested restricted stock grants was determined based on the closing market price of the Company’s common stock on the date of grant. The following table summarizes the stock option activity:

The following table summarizes the activity of the shares and weighted-average grant date fair value of the Company’s unvested restricted common stock:

5.11. Stockholders’ Equity

The following table reflects changes in common stock, additional paid-in capital, treasury stock, and accumulated other comprehensive lossincome (loss) and non-controlling interest for the threesix months ended March 31,June 30, 2014:

On March 27,Non-Controlling Interest

During the second quarter of 2014, the Company entered into an Amendment and Termination of Rights Agreement (“Amendment”) with Computershare Trust Company, N.A. (“Rights Agent”), which amended the Amended and Restated Rights Agreement (“Rights Agreement”), dated as of December 9, 2011, by and between the Company and the Rights Agent. Thesellers of WCG International Ltd. (“WCG”), a wholly-owned Canadian subsidiary, entered into Amendment acceleratedNo. 1 to a Settlement and Indemnification Agreement which authorized WCG to enter into an agreement with the expiration dateprovince of British Columbia, Canada to settle an ongoing dispute for approximately $1,500 CAD ($1,406). Additionally, the sellers of WCG agreed to reimburse WCG certain legal expenses up to a maximum of approximately $120 CAD ($112) upon settlement with British Columbia.

On June 6, 2014, British Columbia agreed to the settlement of the Rights Agreement from December 9, 2014dispute for approximately $1,500 CAD ($1,406), which was paid by WCG. Subsequently, the sellers of WCG surrendered 39,162 exchangeable shares of PSC of Canada Exchange Corp. (“PSC”) to March 27, 2014, such that, asfulfill their obligation to the Company for the settlement of March 27, 2014, the preferred share purchase rights, each representingdispute with British Colombia and the rightreimbursement of certain legal fees. These shares were converted to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stockshares of the Company expired and transferred to treasury. Additionally, the remaining 222,532 exchangeable shares of PSC were no longer outstanding, and the Rights Agreement was terminated. Following the terminationexchanged into shares of common stock of the Rights Agreement,Company and distributed to the Company filed a Certificatesellers of Elimination with the Secretary of State of the State of DelawareWCG, thus eliminating the Preferred Shares.related non-controlling interest balance at June 30, 2014.

6.12. Earnings Per Share

           The following table details the computation of basic and diluted earnings per share:

The effect of issuing 1,139,145 shares of common stock on an assumed conversion basis related to the convertible senior subordinated notes (“Senior Notes”) was includedexcluded in the computation of diluted earnings per share for the three months ended March 31, 2014 andJune 30, 2013 as it would have been antidilutive, however, they were included in the computation of diluted earnings per share for the six months ended June 30, 2013 as they havehad a dilutive effect. The convertible senior subordinated notes were fully repaid on May 15, 2014. For the three and six months ended March 31, 2014 andJune 30, 2013, employee stock options to purchase 198,261474,167 and 880,0101,575,597 shares of common stock, respectively, were not included in the computation of diluted earnings per share as the exercise price of these options was greater than the average fair value of the common stock for the period and, therefore, the effect of these options would have been antidilutive.

7.13. Income Taxes

           The Company’s effective tax rate from continuing operations for the three and six months ended March 31,June 30, 2014 was 45.3% and 42.9%, respectively. The Company’s effective tax rate for the three and six months ended June 30, 2013 was 40.1%39.8% and 41.2%40.6%, respectively. For both periods, the Company’s effective tax rate was higher than the United States federal statutory rate of 35.0%, due primarily to state income taxes as well as non-deductible stock option expense. In addition, a significant amount of the expenses incurred in connection with the Ingeus acquisition in the second quarter of 2014 were not deductible for tax purposes, which resulted in an increase in the effective tax rates for both periods in 2014. 

8.14. Commitments and Contingencies

The Company is involved in various claims and legal actions arising in the ordinary course of business, many of which are covered in whole or in part by insurance. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.

The Company has two deferred compensation plans for management and highly compensated employees. These deferred compensation plans are unfunded; therefore, benefits are paid from the general assets of the Company. The total of participant deferrals, which is reflected in “Other long-term liabilities” in the accompanying condensed consolidated balance sheets, was approximately $1,426$1,367 and $1,485 at March 31,June 30, 2014 and December 31, 2013, respectively.

9.15. Transactions with Related Parties

The Company operates a call center in Phoenix, Arizona. The building in which the call center is located is currently leased by the Company from VWP McDowell, LLC (“McDowell”) under a fiveten year lease that expires in June 2014. A new lease has been executed with McDowell with a commencement date of July 1, 2014 and termination date of June 30, 2024. Certain immediate family members of Herman M. Schwarz (the chief executive officer of the Company’s non-emergency transportation services and an executive officer of the Company) have partial ownership interest in McDowell. In the aggregate, these immediate family members have an ownership interest of approximately 13% in McDowell directly and indirectly through a trust. For the threesix months ended March 31,June 30, 2014 and 2013, the Company expensed approximately $105$207 and $102,$209, respectively, in lease payments to McDowell. Future minimum lease payments due under the current and new lease agreements totaled approximately $4,886$4,563 at March 31,June 30, 2014.

10.16. Acquisitions

On May 30, 2014, the Company acquired all of the outstanding equity of Ingeus. The purchase price was comprised of (i) a GBP £35,000, plus customary adjustments, cash payment on May 30, 2014 ($92,279, after increase for customary adjustments), (ii) contingent consideration of up to GBP £75,000 ($125,978), payable over a five year period, based on the achievement of certain Ingeus milestones including the achievement of certain levels of Ingeus’ earnings before interest, taxes, depreciation and amortization and other defined criteria and (iii) contingent consideration of £5,000 ($8,399) upon successful award of a specified customer contract. In addition, on May 30, 2014, the Company issued restricted shares of the Company’s common stock and payment of cash to the former shareholders of Ingeus with a combined value of GBP £14,346 ($24,097), subject to a vesting schedule of 25% per year over a four year period which is accounted for as a compensatory arrangement. The foreign currency translations above were based on the conversion rate on May 30, 2014.

Ingeus has operations in 10 countries and four continents. It is a distributed workforce development company and market leader in outsourced employability programs, operating in the social improvement, employment and welfare services markets. The acquisition expands the Company’s presence into new, international markets, diversifies its customer base, and enhances its workforce development expertise globally.

The Company incurred acquisition and related costs for this acquisition of $1,808 in the first quarter of 2014 and $2,457 in the second quarter of 2014, which are included in general and administrative expenses.

The amounts of Ingeus’ unaudited revenue and net income included in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2014, and the unaudited proforma revenue and net income of the combined entity had the acquisition date been January 1, 2013, are:

The pro forma information above for the three and six months ended June 30, 2014 includes the elimination of acquisition related costs. Adjustments for all periods include compensation and stock-based compensation expense related to employment agreements effective with the acquisition, additional interest expense on the debt issued to finance the purchase, amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and property and equipment and related tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transaction been affected on January 1, 2013.

The following represents the preliminary allocation of the purchase price:

 ⁽¹⁾ The goodwill was allocated to the Company's WD Services segment. The goodwill is notexpected to be deductible for tax purposes. Goodwill includes

          the value of the purchasedassembled workforce.

The above purchase price allocation represents the preliminary purchase price allocation as the valuation of intangible assets has not been finalized.

The fair value of intangible assets is as follows:

Additionally, during the second quarter of 2014, the Company acquired a human services business through an asset purchase agreement. The Company has not disclosed purchase information or the pro-forma impact of this acquistion as it was immaterial to the Company's financial position and operations.

17. Business Segments

The Company’s operations are organized and reviewed by management along its services lines. TheHistorically, the Company operateshas operated in two segments, Human Services and NET Services. With the acquisition of Ingeus in the second quarter of 2014, the Company has identified a third segment, WD Services. Human Services includes government sponsored human services consisting of home and community based counseling, foster care and not-for-profit management services. NET Services includes managing the delivery of non-emergency transportation services. WD Services includes distributed workforce development and outsourced employability programs. All corporate costs have been allocated to the Human Services and NET Servicesthree operating segments.

The following table sets forth certain financial information attributable to the Company’s business segments for the three and six months ended March 31,June 30, 2014 and 2013.

(a) Excludes intersegment revenue of $76 for the three and six months ended June 30, 2014, and$102 for the three and six months ended June 30, 2013.

Total assets at June 30, 2014 and December 31, 2013 by segment were as follows:

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes for the three and six months ended March 31,June 30, 2014 and 2013, as well as our consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2013. For purposes of “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to Q1Q2 2014 and Q1Q2 2013 mean the three months ended March 31,June 30, 2014 and the three months ended March 31,June 30, 2013, respectively. In addition, references to YTD 2014 and YTD 2013 mean the six months ended June 30, 2014 and the six months ended June 30, 2013, respectively.

Overview of our business

We provide government sponsoreddomestic and international human services, and we arrange for and manage non-emergency transportation services and provide workforce development services. As a result of, and in response to, the large and growing population of eligible beneficiaries of government sponsored services, increasing pressure on governments to control costs and increasing acceptance of privatized human services and managed care solutions, we have grown both organically and by making strategic acquisitions.acquisitions, including the acquisition of Ingeus Ltd. (“Ingeus”) during the second quarter of 2014.

Ingeus provides workforce development services that include resume and job interview skills, networking and job placement services, and technical job training through internally staffed or outsourced resources. Its client base is broad, and includes long-term unemployed, disabled, and unskilled individuals, as well as individuals that cope with medical illnesses, are newly graduated from educational institutions, and those that have been released from incarceration for an extended length of time. Ingeus contracts primarily with government entities that seek to reduce the unemployment rate generally, or for specific targeted cohorts.

We continue to focus on improving operating efficiencies, organic and acquisitive growth, and developing performance management systems designed to enhance and leverage our core competencies. Our core competencies include our enduring customer relationships, geographic reach, breadth of services and experience, management of the health and work employment related needs of defined covered lives populations, management of provider networks, large-scale government contract bidding infrastructure, managed care contracting experience and technology platform development. By enhancing and leveraging these core competencies and expanding both domestically and internationally, we believe we can benefit from emerging trends in healthcare and other human services, such as U.S. healthcare market reform and integrated healthcare, which includes providinghuman services to individuals who are eligible for both Medicaidgovernment outsourcing trends globally, and Medicare benefits.the related regulatory environments. Further, by managing morelarger populations of clients eligible to receive our services, and outsourcing transportation management, we believe we can reduce the cost of care.care and services and achieve improvement in measureable outcomes.

While we believe we are well positioned to benefit from legislated and market-driven healthcare reform, legislationtrends in government outsourcing of certain human services globally, and to offer our services to a growing population of individuals eligible to receive our services, there can be no assurances that programs under which we provide our services will receive continued or increased funding. Additionally, it is not clear when the healthcare reform legislation will be fully implemented or when, and if, we will see any positive impact.

We also believe we are positioned to potentially benefit from recent trends that favor our in-home and community-based provision of human services; however, budgetary pressures still exist that could reduce funding for the services we provide. Medicaid budgets are fluid and dramatic changes in the financing or structure of Medicaid could have a negative impact on our business. We believe our business model allows us to make adjustments to help mitigate state budget pressures that are impacted by federal spending.

As of March 31,June 30, 2014, we were providing human services directly to approximately 57,400 unique59,900 clients under our Human Services segment and 250,500 clients under our Workforce Development (“WD”) Services segment. Additionally, we had approximately 17.619.5 million individuals eligible to receive services under our non-emergency transportation services contracts. We provided services to these clients from approximately 385our Human Services segment from 360 locations in 4424 states, the District of Columbia, and 3 provinces in Canada as of March 31,June 30, 2014. Services from our Non-emergency Transportation (“NET”) Services segment were provided from approximately 37 locations in 39 states and the District of Columbia as of June 30, 2014. As of June 30, 2014, our WD Services segment provided services from over 160 locations in Australia, France, Germany, Poland, Saudi Arabia, South Korea, Spain, Sweden, Switzerland and the United Kingdom.

Recent Developments

On March 31, 2014, the Companywe entered into a Share Sale Agreement (the “Sale Agreement”) to purchase all of the outstanding equity of Ingeus Limited (“Ingeus”), and an Australian Share Sale Agreement Side Deed (the “Side Deed”) pursuant to which, effective as of the closing, the Company will guaranteewe guaranteed the obligations of Ingeus Europe Limited, a subsidiary of Ingeus, in its purchase of the share capital of Ingeus UK Limited from Deloitte LLP. Effective May 30, 2014, the acquisition was completed. Ingeus, based in Australia, is a distributed work force development company and market leader in outsourced employability programs, operating in the social improvement, employment and welfare services markets.

Pursuant to the Sale Agreement and the Side Deed, the Company will paywe paid a purchase price comprised of (i) a cash payment of GBP £35.0 million, at closing,plus customary adjustments, cash payment on May 30, 2014 ($92.3 million, after increase for customary adjustments), (ii) the issuance at closing of restricted shares of Company common stock and payment of cash with a combined value of GBP £14.3 million , subject to a vesting schedule of 25% per year over a four year period and (iii) contingent consideration of up to GBP £75£75.0 million ($126.0 million), payable over a five year period, based on the achievement of certain Ingeus milestones including the achievement of certain levels of Ingeus’ earnings before interest, taxes, depreciation and amortization and other defined criteria.

The Sale Agreement contains customary representationscriteria and warranties(iii) contingent consideration of £5.0 million ($8.4 million) upon successful award of a specified customer contract. In addition, on May 30, 2014, the Company issued restricted shares of the partiesCompany’s common stock and customary covenants regarding the conductpayment of business by Ingeus priorcash to the closing and other typical matters. Following the closing, the Company will have certain rights to indemnification for breachesformer shareholders of representations and warranties and other matters,Ingeus with a combined value of GBP £14.3 million ($24.1 million), subject to defined caps and time and other limitations.a vesting schedule of 25% per year over a four year period which is accounted for as a compensatory arrangement. The acquisition is expected to close inforeign currency translations above were based on the second quarter of 2014, subject to customary regulatory approvals and closing conditions, including the performance by the parties of their obligations under the Sale Agreement and the material accuracy of each party’s representations.conversion rate on May 30, 2014.

Critical accounting estimatesand policies

As of March 31,June 30, 2014, there has been no change in our accounting policies or the underlying assumptions or methodologies used to fairly present our financial position, results of operations and cash flows for the periods covered by this report.

For further discussion of our critical accounting policies see management’s discussion and analysis of financial condition and results of operations contained in our Form 10-K for the year ended December 31, 2013.

Results of operations

Segment reporting.Our financial operating results are organized by reportable segment and reviewed by our chief operating decision maker asmaker. Historically, we had two reportable segments, Human Services and Non-emergency Transportation (“NET”)NET Services. However, with the acquisition of Ingeus in the second quarter of 2014, we created a third reportable segment, WD Services. We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the services they offer as more fully described in our Form 10-K for the year ended December 31, 2013.offer.

Consolidated Results.Results. The following table sets forth the percentage of consolidated total revenues represented by items in our unaudited condensed consolidated statements of income for the periods presented: